Japan experienced great economic growth after World War II, becoming the second-largest capitalist economy after the United States in the late 1960s. During the postwar period of economic growth, managerial systems such as lifetime employment, seniority-based wages, cross-shareholdings, and keiretsu, the “Japanese management system,” attracted much attention. One of the important points regarding the management system is that Japanese firms adopted organization-based transactions within a business group, which allowed the firms to formulate strategies with a long-term perspective, in contrast to market-oriented transactions in the United States.
However, Japanese firms have struggled in the long-term recession. The “Japanese management system” lost its advantages, and Japanese firms need to radically change their strategy. One possibility is a shift to the stockholder-oriented management that is characteristic of U.S. firms. Critics debate this possible shift, as well as the role of employees in corporate governance. Should Japanese firms maintain employee-centered corporate governance, or should they move toward a more market-oriented governance that would give priority to the interests of shareholders?
Ulrike Schaede's Choose and Focus: Japanese Business Strategies for the 21st Century sees contextually how Japanese firms moved from administrative hierarchy-based transactions to market-oriented ones. The author shows how Japanese firms radically changed their strategy after the late 1990s. The book indicates that Japanese firms ceased to diversify; instead, they began to follow the “Choose and Focus” strategy after late 1998. The book clearly indicates that the strategic inflection point was 1998–2006, when Japan's political economy underwent a dramatic change.
This book covers quite extensively how postwar Japanese firms gained competitive advantages, how the “Japanese management system” became dysfunctional, and how Japanese firms changed their managerial systems and business strategies. It offers very good perspectives on postwar Japan's business and makes the reader rethink the essence of Japan's business strategy in its historical context.
The book consists of four parts. The first part, “Toward Choose and Focus,” prepares readers for the core argument, which discusses a big inflection point in Japanese firms' strategy in 1998–2006. The author maintains that Japanese firms radically shifted to a “Choose and Focus” strategy in this period.
The next part, “The Old Japan,” consists of two chapters. The first chapter discusses the postwar corporate strategy of Japanese firms within the framework of Michael Porter's Five Forces. The author indicates that diversification was a rational and dominant strategy of Japanese firms to encourage growth under the incentives and constraints of Japan's postwar political economy. For example, access to industrial policy allocations based on industry rankings channeled firms into the pursuit of sales growth. Main banks were supportive of “buying growth,” which also made lifetime employment possible. The next chapter discusses how the postwar diversification strategy reached its peak in the 1980s and began to lose its economic rationality after the bubble economy burst.
The third part, “Japan's Changing Industrial Architecture,” consists of five chapters. These chapters examine how Japanese firms transformed their “industrial architecture” in the process of strategic change to “Choose and Focus.” It explores the changes, for example, in corporate governance, supplier–assembler relations, and human resource management. These systems, such as the main bank system, cross-shareholdings, long-term subcontracting, and lifetime employment, long considered a competitive advantage for postwar Japanese firms, became market oriented in 1998–2006.
The last section, “New Markets and New Entry,” describes the role played by venture capitals and new entrants. While this section does not necessarily discuss how Japanese firms transformed their managerial systems and competitive strategies, it does show how venture capital played an active role and how new entrants emerged as a result of the transformation.
Schaede's Choose and Focus gives us very good insight into Japanese business strategy by exploring the strategic changes of postwar Japanese firms. The qualitative investigation of the transformation is very clear. One lingering problem, however, is the fact that Japanese firms are still in the middle of transformation. Two points should be clearly distinguished. The first point concerns the extent to which Japanese firms transformed their business strategies and adopted the “Choose and Focus” strategy. The second is to what extent the “Choose and Focus” strategy brought competitive advantages. The author shows how Japanese firms became market oriented in 1998–2006, which is clearly the main theme of the book. On the second point, the author mentions that “it was too early to evaluate the performance effects of ‘choose and focus’ for Japan, although anecdotal evidence from the most aggressive refocusing firms-in the electronics, steel, pharmaceuticals, and chemical industries all point to strong positive effects on profits, return on equity, and stock prices” (p. 84). As the author shows, some Japanese firms attained high profitability in 2006. However, Japanese firms struggled in the long-term recession sparked by the subprime lending crisis. Their recovery in 2009 was much slower than that of their international competitors. This casts doubt on the advantages of the “Choose and Focus” strategy. It is too early to evaluate the effect of this transformation because it takes considerable time for firms to deliver the transformation, integrate subsystems, and change organizational routines, which is regarded as one of the important sources of competitive advantages. If the transformations are hugely important shifts, it makes even more sense to take time to evaluate the effects.
