- December 4, 2020 INNOVATION
China Inc. Raises Eyebrows but Japan Inc. Is Much More Influential
Much talk has centered on China’s influence in the West. But one important area where China barely registers influence is on Western industry’s practices and management thinking. In fact, when compared to Japan, China’s influence is notably weak in the corporate realm.
The rise of “Japan Inc.” (~1950-1980) was accompanied by one of the most influential management concepts of the post-World War II era: the Toyota Production System, or commonly referred to as lean production. It wasn’t simply an idea, but an organizing principle with concrete practices that led to a transformation of the prevailing mass production model in the Western auto industry.
In contrast, the rise of “China Inc.” (~1990-2020) has seen no equivalent management philosophy or practice that has come anywhere close to the influence that Japan’s lean production has exerted.
This is important because companies, and their relative success, are both an extension and crucial indicator of a country’s influence. This isn’t merely a derivative of the vague and broad “soft power.” McDonald’s golden arches may symbolize Americana around the world, but it’s the company’s trailblazing standardization and franchising model that make the Big Mac taste the same from Beijing to Berlin, reshaping the food industry in the process.
That is the kind of definitive and extensive influence Japan’s lean production generated. It has been universally taught in business schools across America and implemented by executives across various industries, extending far beyond autos. Associated concepts like kaizen (continuous improvement or 改善 in Chinese) and just-in-time have become near-gospel in terms of factory organization and inventory management. A cottage industry of US management books has spread these ideas, and there’s even a Kaizen Institute that advises multinationals from Shell to Siemens.
What was pioneered in Nagoya, Japan has been woven into the fabric of American corporate thinking and canonized in classics like The Machine That Changed the World, the case study on Toyota that still remains popular today.
After a 30-year run, China today is also recognized as an industrial powerhouse, the quality of its products has risen significantly, and its tech companies may even out-innovate its Western peers. There are clearly successful Chinese companies, even if not fully globalized, yet there is no equivalent book “The App That Changed the World” associated with China.
So what accounts for this notable and peculiar lacuna in China’s influence? The answer isn’t entirely clear so far.
It could be the fact that Toyota is a successful global company, thereby validating its system’s superior outcomes and making it easier to adopt elsewhere. But lean production’s genesis occurred much earlier than the globalization of Toyota, and it took the company decades to implement it well.
Perhaps it’s because Toyota was more “Western” and therefore the system it developed was more copacetic with the corporate culture that existed in America and Europe. But in its early days Toyota was considered “the most Japanese of the Japanese auto companies, being located in insular Nagoya…” and it operated much like a Chinese state-owned danwei with “…guarantee of lifetime employment and access to Toyota facilities (housing, recreation, and so forth).”
Finally, one may contend that China’s state capitalism is a competitive threat and Western companies therefore should protect, rather than internalize lessons, from Chinese companies. But Japanese companies, too, were viewed in the same way: “…Western companies didn’t seem to be able to learn from their Japanese competitors. Instead, they were focusing their energies on erecting trade barriers and other competitive impediments…”
That sounds familiar. Yet despite of it all, Japan managed to develop a system and production model that even its erstwhile competitors eventually adopted.
None of this means that Chinese companies have nothing to offer or are bereft of novel management practices. A study of several dozen private Chinese companies concludes that speed, scale, and flexibility are their main advantages, because their operating assumption is to maximize growth rapidly in order to fend off what will inevitably be 20 market entrants within months.
But these strengths are essentially necessary survival tactics in an environment where the default setting is a scarcity of opportunities matched to an over-supply of entrepreneurs who chase after the same opportunities. For many private companies, there appears to be very little thinking on developing systematic models aimed at transforming industries. Even Pony Ma, the founder of Tencent, has quipped that “Ideas are not important in China–execution is.”
To perfect a system requires patience, and Toyota could afford that patience. That’s because the Japanese government protected the auto industry from foreign competition and the automaker didn’t have to face 50 domestic competitors. The very concept of kaizen requires diligent patience to improve the system, day by day. But if “continuous improvement” defines Japanese corporate culture, then “continuous change”—and the constant adaptations in response—may be an apt principle that applies to Chinese companies’ modus operandi.
Still, it is puzzling why China punches so much below its weight in influencing organizational practices and management concepts. It is a question that merits more consideration as China Inc. becomes more global.
Damien Ma is the director of MacroPolo. You can find his work on energy, politics, and other topics here.
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