Tuesday, 30 April 2013

Quality vs. Cost vs. Japan


Quality AND Quantity

And only about £5 per set!


“Have you been to that Taiwanese restaurant out on Route 6? You have to go – it’s so cheap!”


I was pretty skeptical – in my native UK there are many things you might say to recommend a restaurant but “cheapness” isn’t generally one of them. In the end, I was persuaded to check it out: the food was indeed very cheap, but also very tasty and it came in huge portions too (see above!).

“Cheapness Culture” is widespread in Japan. People with good incomes and very comfortable lifestyles happily discuss which “Dollar Store” or “Pound Shop” equivalent is better. Customers travel for miles and miles to go to a popular Korean-style BBQ restaurant famed for the incredible quality and freshness of its beef, only to discover its prices are the same as any other grill shop you might stumble across.

Time and again in Japan the Quality-Or-Cost Paradigm, a fundamental rule of “basic common sense” strategy, is turned on its head as “differentiated quality competitors” beat their competition on price, and “cost competitors” manage to sell low quality products at high prices.

What exactly is going on here?


Consumers Across Cultures

Let’s take a step back and establish some of my own cultural biases. In the UK, I think it is fair to say, people shop differently and in different places depending both on their income and where they see themselves in society.

Some families would be ashamed to be seen in a high-end supermarket for fear of being labelled “uppity” or “posh”, while other parts of society wouldn't feel comfortable if their friends and colleagues knew they shopped at a pound shop. I don’t want to dwell too long on UK class culture, but even in relatively classless Western countries the same behaviours can be observed – as people move up the pay scales, their consumer habits tend to change.

For me, and many other Westerners, when someone says something is “cheap” what we hear is that the product is “low quality”, and would tend to be put off buying it. There is also the social pressure of being seen as someone who is “cheap”, ie. miserly. In the UK, pound shops are often shame-filled places where people go out of necessity, not choice.

Not so in Japan.


Price Sensitivity

Let’s consider a short case study.

In Hitachi Naka, half way between Katsuta and Sawa train stations is a small ramen shop. It makes the best noodle soup in the city, and yet it doesn’t charge a premium for it – the price of a bowl of soup is pretty much the same as at any other noodle shop. Cheaper than some, in fact.

Why aren’t they charging a premium? If the soup is really as well known and well liked as I know it to be, then surely customers would be willing to pay a little more?

Apparently the answer to this question is a resounding “No, they are not.”.

Largely due to the prevalence of cooking-from-scratch at home (or, as it used to be known, "cooking") and home economics classes in schools, Japanese consumers are very sensitive to price variation in restaurants - they know a rip-off when they see one. 

No matter how high the quality, an incredible bowl of soup is still just a bowl of soup – and people here just won’t pay more than a certain amount for it. So, ultimately, any cost or quality strategy in terms of staff, ingredients or production/process is restricted by highly price sensitive conditions present in each market.


Value Creation vs. Value Capture

In Western economies, when customer spending habits limit prices, companies will often compete with each other to reduce costs, so they are able to “capture” as much “value” back from each sale. This increases profits and so the company is able to continue to produce and employ and make further profits for its owners. This is a "Cost Strategy", and such strategies lead to consumers getting lower and lower quality goods, and is the start of the dangerous path to under-cutting and price wars.

In Japan on the other hand, although businesses may choose to compete on cost, they frequently choose to pursue a "Quality Strategy". The reasons for this are highly cultural, linked to a deeply ingrained artisan-ethic of "doing one's best" (がんばります - gambarimasu). Unlike Western concepts of quality which are often linked to premiumisation and scarcity, many Japanese SMEs capture value in a completely different manner: by using quality to drive up frequency of sale, loyalty and reputation growth.

This may seem counter-intuitive to those who are profit-orientated, but a more able business mind knows that cash flow is the life-blood of business, not profit. The margins will almost certainly be lower because the costs of creating quality are higher, and the price is relatively fixed, but what is the result? Large numbers of reliable, loyal customers, market share dominance, and reduced marketing costs as your customers do this on your behalf through word of mouth (the "Holy Grail" of marketing). 

Now we are starting to see why in Japan, and indeed much of East Asia, there is no connection in the public’s mind between “cheapness” and low quality – “It’s so cheap!” is in fact exaltation to value – “Look what a good deal I found!”, "Look how hard they must have worked!", or "This must be really popular!".

In Japan we see that “quality” and “volume” are quite natural partners while “cost” competitors, with their larger margins, are able to survive with lower sales volumes (which are also inevitable as customer realise they are paying unnecessarily high prices). The psychic connection between Quality and Price is broken: that which is common and that which is good are one and the same.


Conclusion - Business Wins AND Society Wins

There is often a lot of noise made about "alignment" of strategies across different business functions, and this can make a lot of intuitive sense. However, we need to think very carefully about the connection between the value capture side of our ventures (sales) and the value creation side (everything else).

Quality/Cost alignment tends to be most useful when applied to value creation, but the assumptions of "cost therefore low price/high volume" and "quality therefore high price/low volume" are cultural not scientific.

Western companies often shy away from the pursuit of quality (despite invariably paying it lip service) because they assume that quality strategy means high price, niche markets, rare materials and products and low sales volumes. They fear rejection by increasingly price sensitive customers who are trying to make their pennies go further in this tough economic climate.

Japan is a real living example of how the pursuit of quality in value creation is totally workable with a high sales volume and low prices What's more, lower, sustainable profit margins mean that businesses employ more people and that it is in the business's interest to invest in their staff - providing real training and developing real skills.

Pursuing a quality strategy is a win for business AND a win for society.

Thursday, 14 March 2013

Does "Management" Exist Outside of Japan?


EXECUTIVE SUMMARY

Anglosphere Management
  • Empty vessels make the most noise - lots of research, little application.
  • Has become vague and bloated.
  • Taken on board too many "social missions".
  • Management is a construct enforced onto individuals.
  • Managers expend resources creating artificial "surplus of labour" instead of performance.
  • Employees expend resources creating artificial "deficit of labour" instead of performance.


Japanese Management
  • Management remains practical and focused on organisational outcomes.
  • Managers focus on culture and alignment.
  • Management is a natural part of social structure generated by the group.
  • Japanese companies ARE their employees, and so energy is focused on performance.

Top Tip
  • Manage in the Wrong Place = Compete in the Wrong Place


No People: No "Management"

 Discussion

“Why was ‘Sunday Trading’ banned in England but never in Scotland?”

I remember being completely stumped when the head of the MBA/MSc Programme at Queen Margaret University, Richard Bent, asked our class this question. The history of religion in Scotland and England is a rather specialist topic, but it is fairly well known that the Scots have tended to take religion a lot more seriously than the English. England had long relegated religious life to the private sphere, not the public one. So, how could it be that England banned trade on a Sunday yet Scotland never did?

Well, it turns out that Scotland was so religious that no-one really thought to work on a Sunday, God’s Day. So there was no need to ban an activity that did not exist.

The tale may be apocryphal, but Richard makes an important point – lack of activity in the intellectual sphere (be it legislative, academic or otherwise) is often mistaken for lack activity in reality.

When we look at the huge amount of research time and discussion time that goes into “Management” in the English speaking world and compare it to Japan, we can be forgiven for thinking that Japan has really fallen behind the “Anglosphere” in terms of developing its management culture. This criticism can cause quite a reaction in Japan because it implies an uncharacteristic lack of genuine reflection and modification.

In reality, the huge amount of work going into the development of management concepts in “The West” (in the loosest sense of the term) is actually a sign of a culture that lacks real management – it is this lack of substance, this void that our concept of management is try to fill – trying and failing.

The Expansion and Devaluation of “Management”

“Management” started out as a system of control for businesses, especially manufacturers – a way of getting things done in an increasing complex and industrializing world. From these origins it has been subject to extreme levels of mission creep - now management has grown out of control. I don't put much stock in arguing over definitions, but "management" as it currently stands would probably be best described as the creation, control and operation of any system/structure where individuals, organizations and information pool their capabilities and resources to try to create any outcome. Doesn't exactly roll off the tongue.

We have a management research industry highly focused on “defining Management into existence” whilst being increasingly ignored by industry practitioners, a management consulting industry centred on efficiency improvement through the technological replacement of staff, the MBA school system which is attracting more and more candidates who have ability but no experience or organizational support (hence the increased focus on entrepreneurship and leadership), and an increasingly complex international financial and legal environment making genuine corporate decision-making ever more constrained by and at the mercy of “non-Management” professionals like lawyers and accountants.

Even the English-speaking world’s *go-to-guide* on "Management", the Harvard Business Review, includes a section entitled “Managing Yourself” with no apparent sense of irony: “Management” seemingly no longer needs to include either organizations or complex activities.

“Management” as Societal Panacea

The 19th, 20th and 21st Centuries have seen numerous attempts to “improve” society through both political and military means. Western Business Management, as a system of command and control, has certainly learned a lot from military and political systems, gaining most notably the disciplines of “strategic planning” and “PR” amongst others. Simultaneously, however, values and goals from these other areas of societal life bled over into “Management”.

Suddenly, political and factional agendas started appearing in "Management". “Human Resource Management” started to gain social missions, community goals and a diversity agenda. "Management" in its original sense was lost and had to be re-discovered in various forms as “Performance Management”, “Efficiency Management”, “Quality Management”, “Project Management”, etc. The growth of political and social missions in HRM started even to interfere with true HRM functions like staff-task matching, recruitment and career planning, so more recently one of the newest forms of so-called “Management” has started to rear its head: “Corporate Social Responsibility”.

Societal factions, having failed through military, political and legal means to enforce their ideals on the world have finally taken the control structures of employment and commerce and turned them to their task. “Management” if it is about any one thing at all is about getting things done in the real world. Social Mission HRM and CSR are not “Management” – they are the antithesis of the pragmatic – they are pure Utopianism.

“Management”: A Natural Attribute of Japanese Culture?

Where does "Management" actually take place? This may seem like a glib question, but most people seem to have forgotten the answer – "Management" takes place inside organizations. Most people, except the Japanese that is. Given the important implications good and bad management have for organizational performance, and the fact that organizations compete and cooperate in a market, it is quite natural for each organization to protect their command, control and implementational systems as trade secrets. These are fairly simple facts of organizational life, yet in “The West”, we often look at Japan with curiosity and wonder why MBA programmes are so unsuccessful as a route into senior management, why companies reward employees for loyalty and experience, why teamwork is prioritized over individual creativity and initiative.

Organisations are People

It took “Western Management” until the late 20th Century to develop a theory of organizations that described and explained these fairly obvious realities: the “Learning Organization”. The main thrust of this “ground breaking” concept is that people in organizations are not merely units of work, but are also units of organizational information – i.e. they are units of organizational culture. It can be hard for someone outside the management world to imagine how this can possibly be a “revelation”: that the functional knowledge in organizations exists in the people who work there and not in the company manuals in which they happen to be written down seems absurdly obvious. Only recently, however, has “Western HRM" been waking up to the fact that you can’t control the trade secrets and personal business relationships that people carry about as part of themselves, and that staff turnover does not simply mean a loss of talent, but also a loss of organizational identity, purpose and most importantly effectiveness. With this in mind, typically Japanese management concepts like “life time employment” start making an awful lot of sense; in fact it is hard to see how it could be otherwise.

Twin Forces of a Dysfunctional System

Due to this deep-seated, non-Japanese cultural misunderstanding of the value of individuals within the group, "Western so-called-Management" has developed a number of counter-productive anti-performance features. These are driven by two extremely powerful and opposing distorting forcing – standardization and role protectionism.

Largely due to poor individual loyalty to organizations, and poor organizational loyalty of organizations to workers (chicken and egg, this one), higher levels of staff turnover are a common feature outside of Japan. In order to protect organizations from this high turnover, supposedly competing companies band together to create pan-industry bodies which ensure that standardized certification and training is required for similar jobs in different companies – to ensure that the disloyal workers are entirely replaceable. This approach, of course, forgets that people are not in fact replaceable - they take their experience and relationships with them when they leave.

Organisations are trying to create an artificial abundance of talent and wasting valuable time and resources on the task instead of improving organizational performance. 

The organizational drive towards standardization is a symptom of a lack of real management, and only reinforces the dysfunction between organizations and individuals. In Japan, much of managerial work is that of reinforcing loyalties and relationships in the organization in order to build stronger cultures, and so improved performance. Only in the last decade have Western theorists and practitioners started to cotton on to this: against “telecommuting”, praising “culture over strategy” and “treating staff like people”.

In opposition to this "Western" drive for replaceable workers is the force of role protectionism. Here we see employees thinking of themselves as, for example, “marketers” or “supply chain analysts” first and “members of the company” second. This gives rise to unionism, guilds, the development of separate business disciplines within organizations, etc. all the things that define non-Japanese working life. Employees are attempting to create an artificial scarcity of talent.

These twin forces are the root causes of the break up of most businesses into separate functional, non-interchangeable departments. Each department has to have its own associated body of academic theory and jargon whose job it is to justify both the standardization of hiring requirements between companies while simultaneously preventing coworkers in the same company from being able to take over their function – so much for working towards the shared goal of organizational performance!

Manage in the Wrong Place = Compete in the Wrong Place

When management is focused in the wrong places, competition exists where it should not. The company is the unit of competition, and yet the marketing department and the supply chain department vie for dominance internally, both generating masses of data for management consultants and researchers who compete with each other to justify whether marketing based strategies or supply chain capability strategies are best. Finance battles HR for control of staffing levels, IT contends with Sales, each department is pitted against the other.

The extent of jargon-isolated business functions inside organizations with non-internally-transferable employees is far less advanced in Japan, though it would be hard to argue it does not exist at all. But this relative lack of out-organization loyalty is caused by and maintained by management activity inside organizations. It also reinforces the alignment of organizational culture and strategy. Thus it can be seen that in a healthy, well-managed organization there are much fewer pressures that support industry standardization and role protectionism.

Just like the “Scottish Sunday Trading” anecdote, the Japanese don’t need an intellectual investigation of “Management” because they are actually busy doing "Management".

Conclusion

Ultimately, the Western, factional organizational style cannot be fairly called “Management” - it generates a lot of jargon, a lot of conflict, a lot of work, a lot of heat, but not much in terms of real organizational results. On the other hand "Management" in Japan is about cutting down on needless internal conflict to maximize organizational performance – if this is not the heart of actual “Management”, what is?

In short – Drucker had it the wrong way round: in the West, “What gets managed, gets measured.”.



Monday, 4 March 2013

Does "Management" Exist in Japan?

EXECUTIVE SUMMARY


  • In Japan, managers get all the responsibility, but none of the authority.
  • 管理 (kan.ri) -  Actually means "administration" rather than "management".
  • 経営 (kei.ei) - Closest to English term, includes budgetary responsibility.
  • 運営 (un'.ei) - "Operations management".
  • Japanese managers frequently have a purely "implementational" role.
  • Focus of managerial function is on efficiency not effectiveness.
  • Hierarchies are designed for information to flow from top to bottom.
  • Madoguchi - Bridging the gap between Decision & Implementation.
  • Omoiyari - Anticipating needs.
  • Benefits of the Japanese Way: Efficiency and Harmony.
  • Truly uniquely Japanese traits? Or common in all ossified management cultures?


Implementing.

The Language of Management


What's the Japanese word for "Project Management"?

Well, if you say the English words with a Japanese accent, you are probably pretty close. Like so many technical words of foreign origin, the Japanese simply render an approximation of the term with their "loan word" writing system, katakana. So, "Project Management" is rendered thus: "プロジェクトマネジメント" (pu-ro-je-ku-to ma-ne-ji-me-n-to).

To the lay English speaker "project management" can seem like quite a generic term, but in reality it describes a technical function with standardised industry competencies, specialist software and so on. So, in Japan, just like the rest of the world, a project manager's job is fairly well defined, like that of an accountant, or a doctor. However, when we get down to straight-up "management" we start to run into a lot more difficulty.

If you ask a standard "Western" or English-speaking MBA class to define "management" you will get as many different answers as people in the room. Add to that both the language and cultural barriers that exist between Japan and the rest of the world, and things really start getting complicated.

There are three common words used as translations of "management", but none of them exactly fit the wide range of functions and behaviours the word conveys in English.

管理 (kan.ri) - Perhaps the most common translation of "management", this word is far closer to "administration" in meaning - this type of position is usually purely implementational. All about efficiency, with no thought towards effectiveness.


経営 (kei.ei) - Another very common translation of "management", this one being the closest to the English term, as it also includes budgetary aspects of management. Those engaged in this kind of work will still mostly be implentational staff, but will generally have open communication channels with senior management levels if they do wish to discuss potential decisions and new ideas. Mostly efficiency focused, but have some input into decisions depending on their relationship with those to whom they report.

運営 (un'.ei) - The closest translation of this form of "management" is probably "operations management" - ie, process and efficiency-centred, and highly implementational. Again, lots of leeway to improve efficiency down the hierarchy, but little expectation of influence upward towards decision makers.


Managing Reality in Japan

One of the biggest difficulties, and it is not one uncommon in other cultures, is with our expectations of those named "Manager". It can certainly be argued that there has been a certain devaluation of the title "manager" across the globe, but no matter where you go, a manager tends to be someone in an organisation who has some level of 1) decision-making authority and 2) budgetary and staff responsibility - someone who is trusted to act in favour of organisational goals.

In Japan however, it must be noted that organisations have long horded decision making power at the "head office", leaving nothing but a blind implementational role for even the most senior "managers" within both domestic and foreign branches and subsidiaries. In Japan, managers get all the responsibility, but none of the authority.

This tendency towards large hierarchies of administrators-as-managers  (管理 - kan.ri) can explain why so many of Japan's top companies' innovative and energetic days are over - they tend to recruit from within, so the top echelons, those who would be decision makers, are now sourced almost exclusively from life-long implementers.

It is quite common for a branch or regional manager to respond to anything outside the expected norms by putting in a call to "Head Office" to gain the appropriate permissions. In more autonomy and independence based cultures, it is times like these when a manager would try to show their initiative. In Japan, however, it is often wiser to demonstrate caution and use the situation to strengthen the informational and personal bond with your direct superior by bringing it to their attention and discussing whether to a) pass it further up the chain for a decision, or b) default to implementing pre-assigned tasks and not acting on the new situation.

An unfortunate outcome of this organisational power structure is that if a more junior employee creates the new "walkman" or spots a new way to help the company's customers get more out their products, things just aren't set up for information to travel up the hierarchy, only down: too many people in between have to be convinced it is worth their while risking their in-group "face" to help get their idea/project noticed at the top.
So while good ideas can be rapidly implemented, it is rare that ideas generated outwith the HQ will be heard by those with the power to do anything about it!


Bridging the Gap between Decision & Implementation

When the majority of "managers" in Japan have no decision making power and fulfill a solely implementational role, how are decisions made? How do companies interact with each other and with their customers?

Prolific intercultural guru, Rochelle Kopp, discusses one structural solution to Japan's division of those with authority to decide from those who are responsible for carrying out those decisions. These are the "Madoguchi". In brief, even when interfacing with other companies within or outwith Japan, a "madoguchi" exists to facilitate the relationship -  they collate all information from decision-makers and implementers within their company and act as the sole point of contact with the external party, ensuring uniformity of information.

Another solution is that of "omoiyari", as UK-based Japanese-UK business facilitator, Pernille Rudlin, writes in her book. This involves the near requirement of trying to preempt the needs of your partner, be they a client, a boss, or an allied corporation.


Benefits of the Decision-Implementation Gap

The near-absence of anything a Westerner might call "Management" has a number of significant advantages, however.
  • EFFICIENCY - Once a decision has been made at the top, comparatively little effort is required to enable company wide roll-out of the new plan.
  • HARMONY - There is little-to-no tension between businesses and unions, as there is little-to-no difference between the role of management and other staff - they all implement goals received from the top.
  • EFFICIENCY - The lack of ability to communicate up to head office, although limiting feedback, also concentrates the efforts of staff as they know there is little that can be done to change their instructions. In other words, lower effectiveness, but incredible levels of efficiency.
  • HARMONY - Strong and good relations can grow between staff and their manager as the manager is not enacting their personal methods and projects through staff, and the staff know the manager can do nothing about it either.

Final Thoughts

A final thought when considering the different roles, behaviours and even the different purpose of "Management" we see in Japan's businesses: it is important to consider how much of this is really uniquely Japanese. Many similar traits can be seen time and again in public sector organisations the world over, and of course administration focused businesses like banks, etc.

Perhaps the tendency towards hierarchy is more related to the longevity of Japan's organisations, and a more "free-wheeling approach", often seen as "Western" approach, is simply a function of the relatively short life-cycle of so many Western companies.

What's your experience of Japan's organisations? Please leave a comment below!

Wednesday, 13 February 2013

Toyota-style Supply Chain Relationships & the UK Meat Industry

A lot of what I have been discussing on this blog is related to the oft-overlooked advantages of a more cooperative approach to international business relationships.

The following article draws really interesting lessons from the Toyota Group's world leading approach to buyer-supplier interactivity and applies them to the meat industry scandal that is currently rocking the UK.

Horse Meat Scandal: the Lesson from a Japanese Car Manufacturer

Wednesday, 6 February 2013

Networking for Leaders


Networking for Leaders


EXECUTIVE SUMMARY

  • Networking is a key competency for any modern leader.
  • Achieve your goals, but don’t sacrifice your social environment.
  • Personal networks are best used to get professional introductions.
  • Always be growing: new contacts see who you are now.
  • Trust is great, but it is meaningless without practical value and utility.
  • Support grows from trust, but only if you make it.
  • Periodically review which relationships and techniques work, and modify accordingly.


Top Tip

Personal networks are often best used to gain professional introductions.


Discussion

Networking

Implicit in any leadership role is the development and maintenance of excellence in inter-personal relationships. The ability to lead a team or project successfully is highly dependent on the abilities and commitment of all stakeholders: subordinates, colleagues, friends, contacts, out-group influencers, etc. Even those leaders whose project or task is more focused on managing a process or developing an operational outcome (rather than being a “team” leader) will find that having a larger and more flexible network will only improve their performance.


Beware Networking Traps (Don’t be too goal focused)

It is essential to network according to an “emergent” paradigm. Networking, like many inter-personal behaviours, is not easily soluble with detailed advanced planning. It is advised that leaders do not adopt a goal-based networking strategy, and instead focus on developing relationships for their own sake. (Dale Carnegie's advice to "be genuinely interested in other people" really rings true.)

How many times have we been so concerned with meeting today’s goals that we don’t develop the better relationships with those around us? Managers who overly narrow their focus at work, believing in only a handful of favoured metrics, or adhering to only a certain business guru’s method, inevitably fail to develop better relationships with both those they are responsible for and those to whom they are responsible. Targets must be met, and goals achieved, but there is no point in achieving perfection today if it means sacrificing the future trust and motivation of your team.


Networking and Organisational Trust

An extremely important kind of relationship or network is between the leader and their stakeholder organisations: networking is not just about individuals. Consider the following example: you have decided to undertake an entrepreneurial project that relies heavily on your networks from your previous place of work. You have both good personal and good professional relationships with your former colleagues. However, does this extensive personal network really translate into tangible support from the company? This example highlights how important it is to understand the limitations of pre-existing relationships: those people see you in a certain way, and this may not translate into organisational support for your entrepreneurial ideas.

Developing new contacts is important not simply to grow your network but because you have control over the way you are perceived: as an entrepreneur, an intrapreneur, a manager and a leader in your own right.

It is recommended that readers use their current networks to arrange “introductions” to new contacts, and then during these interviews seek to develop trust at an organisational level, not simply inter-personal level. Doing so  by the demonstration of key organisational benefits of supporting their endeavours.


Establishing Reliable Organisational Support

The goal of a true networker is the establishment of both individual and organisational relationships with a high degree of practical value and utility. Identifying those organisations and individuals who “talk a good game” but who are not actually really committed to helping you is of utmost importance. Doing so will save lots of time in the long run and clarify the real deficiencies and problem areas you must actively manage. (For further reading on this applying the Pareto Principle to your business and working life please check out: Timothy Ferriss and Lifehacker )

The amount of support an organisation is willing to lend a project grows slowly in line with trust, but this is no natural process: once an organisational relationship has been established, trust can grow and grow, without ever converting into real support in terms of manpower, finance, legal/insurance or the use of facilities and equipment.


Distilling Support from Trust

Among the many methods for securing support, here are a few easy, practical and reliable techniques:

·       Ask for modest but tangible evidence of support from the organisation, such as an official email or printed and signed letter pledging “conceptual support” for a project, or “informal approval” of an enterprise.

·         Offer to carry out small tasks and responsibilities, and then to perform them well. (This should not be attempted unless confidence in extremely high quality outcomes is high.)

Demonstrate your commitment to the organisation by arranging top-level introductions to high quality or unique 3rd parties such as potential customers or future clients.

These relationships must be constantly evaluated so that strategic decisions can be made as to which organisational relationships are worth maintaining and which are not. Fewer relationships with true organisational support are much more useful and valuable than innumerable instances of “trust without support”.


Is your Networking Working?

It can be useful to take a note of which relationships are proving most powerful. It is important to carry out a frank assessment of how much time and energy networking tools like social media, or monthly networking dinners are actually taking up. If you seem to be collecting ever more trust and goodwill, but none of this is translating into real support, then it is time to identify the relationships you feel have the most potential and relevance, and work hard to grow them into fully functioning relationships full of practical value and utility.


Top Tip

Remember: personal networks are often best used to gain professional introductions.

Thursday, 24 January 2013

Case Study - Renault Nissan Alliance


EXECUTIVE SUMMARY

  • International cooperation with a competitor can work.
  • Logistics, design and marketing can synergise even if products remain in direct competition.
  • Three reasons to go global: markets, resources, efficiencies.
  • Renault and Nissan cooperate in resources and efficiencies.
  • Renault and Nissan share market data and cut harmful rivalries.
  • The new Alliance became the then 4th largest car manufacturer in the world.
  • Now it has grown to be the world's 3rd largest car manufacturer.

Case Study International Cooperation: Renault Nissan Alliance
There are many difficulties facing organisations that wish to improve their reach from regional to global and in order to make the jump easier, many companies choose to work with other international actors, for example, the Renault-Nissan Alliance.

Lateral not Vertical
This is not simply up or downstream integration, but rather two car manufacturers which have decided that in order to survive and compete globally they must develop such close international, intercultural and inter-organisational ties that they describe their alliance as a ‘marriage’ (Morosini 2005). One of the most interesting aspects of this strategic international relationship is that it seems so counter-intuitive – both companies make and sell cars so seeing them work as partners rather than competitors does initially seem quite strange.
Renault Nissan Alliance: Ownership Structure

Finding Complimentary Skills
However, the Nissan and Renault teams realised that although sometimes their products might have been in direct competition, their key organisational skills and global capabilities were actually quite compatible, with the Japanese Nissan being known for its engineering prowess, and the French Renault for its marketing and design aesthetics. In terms of global presence, Renault’s and Nissan’s strengths complimented each other, the former performing best in European and Latin American markets, and the latter excelling in Japan, North America and the rest of Asia. The key to understanding this and other international relationships is that they exist to improve a company’s global capabilities.

More Than Just Market-Seeking

The main kinds of international business relationships used to facilitate development of global capabilities are as follows: exporting, piggybacking,licensing, franchising, joint ventures (including alliances and consortia),host-country manufacturing, and counter-trade (Ghauri and Cateora 2010). These relationships tend to be market-seeking focused, but there are also other key international relationships, specific to the supply network, which can serve as a method of globalising capabilities, these include 3rd and 4th party logistics (3PL and 4PL) as well as the use of in-country export/import consultancies (Branch 2009).


New Markets, New Resources, Better Efficiencies
It is important to note that the best method of cooperation depends both on an organisation’s motivations and their goals as regards their global and international development. Again, the Renault Nissan Alliance is a clear example of success in international cooperation – this lateral relationship involves two former competitors sharing logistical, design, operational and marketing expertise to improve two of the three general internationalisation motivators – efficiency and resources, while at the same time allowing both firms to cut down on harmful rivalries in shared markets, thus protecting their own sales (Pooley 2005).

Renault Nissan Alliance: Control & Communication Structure

You Have to Survive to Compete
In the specific example of the Renault-Nissan Alliance, one of the key drivers for this marriage of companies was that Nissan recognised the risks of not doing so – in 1999 it was near bankruptcy and had already been in  strategic talks with then DaimlerChrysler (now Daimler, which has since allied with Renault-Nissan!) because it recognised that in order to remain competitive it would have to consolidate with another firm so that it had the sheer mass of assets required to remain a viable international actor (Morosini 2005). Renault, although not experiencing the same financial difficulties as Nissan, was definitely one of the smaller car manufacturing firms, and if it could form a cooperative unit with Nissan would have combined sales at similar levels to Toyota, making it the world’s 4th largest car manufacturer with 9% market share (Renault-Nissan Consulting 2012). By 2009, this had risen to 9.8% of global market share, and the alliance now produces 5 different brands. In 2011, it became the 3rd largest car manufacturer in the world (Renault Nissan Alliance 2013).

Sharing, Growing, Improving
Much of this has been driven by the development of shared globalised logistics systems, shared global sourcing, shared research and development, and a policy of developing commonised platforms and parts, all innovations driven by the Alliance’s CEO Carlos Ghosn. What can be seen clearly here are some of the significant efficiency and resource cost reductions and value additions that can develop from lateral international cooperative relationships which allow firms to become truly global in reach and in stature, especially as it well known that “trading overseas raises standards at all levels within the company” (pp.8 Branch 2009). 

Report Ends


References available on request.

Thursday, 17 January 2013

PEST Analysis for Alcoholic Beverages


EXECUTIVE SUMMARY

Japan & Alcohol

Political: internally stable, minor regional security issues.

Economic: recent loosening of informal barriers for importers, but strong relationship with Korean products.

Societal: 99 million alcohol consumers due to non-gendered drinking habits and 20 y.o. age of majority.

Technological: unique supply chain flexibility requirements, social media marketing capability limited.


Can you spot the odd one out?

PEST Analysis for Alcoholic Beverages

Political Factors
Japan is a politically stable, multi-party democratic constitutional monarchy with a bi-cameral legislative system (CIA 2012). It is the world’s only country with a pacifist constitution, although it does currently have the 4th highest military expenditure (GFP 2011).This is mostly driven by security issues due to territorial disputes with neighbouring People’s Republic of China (China), Republic of China (Taiwan), Republic of Korea (South Korea) and the Russian Federation, as well as the threat of conflict with the Democratic People’s Republic of Korea (North Korea).

Economic Factors
With a population of roughly 126 million, of which its labour force is 62.64 million strong (MoIA 2011) and only 2.88 million unemployed, Japan is a market with huge sales volume potential. It is the 16th largest beer consumer in the world (GMID 2002). Despite the bursting of the ‘Japanese bubble’ in the 1990s, Japan remains a strong exporter and in fact, due to the on-going recession (which to the Japanese has seemed to have generated a ‘lost generation’) Japan has become a much more economically friendly environment for foreign firms (Melville 1999). Melville (1999, foreword) argues that this is due in large part to Japan “starting to deconstruct some of its fortress of regulations”. Traditionally strong and deliberately byzantine import regulations have weakened over the last decade, although imported goods do tend to be sourced from within East and South-East Asia, and in particular it must be noted that trade and cultural relations with neighbouring Republic of Korea have rarely been stronger. These bilateral economic ties have accelerated over the past few years and can be seen to explain the huge upswing in importing of many low to medium end food and drink products. The following graph’s indication of increased sales volume but reduced sales value is demonstrative of how the import market is being flooded with cheap South Korean goods and is an interesting indicator of the current economic situation in Japan.

Korean Influence in Alcohol Imports GRAPH: See F. 7-11 (page 15) and F. 7-3 (page 16).

Societal/Cultural Factors
Japan is an East Asian country with a unique culture based on powerful native belief systems of Shintoism and Bushido influenced by India (Buddhism), China (Confucianism), and the West* (nationalism, imperialism, democracy) (Nitobe 1900). This diverse and mixed heritage has led to Japan being described by many as a ‘country of contrasts’. From a market entry viewpoint for an alcohol beverage product, however, the most pertinent societal and cultural factors are the following:

  • the legal drinking age is 20, the traditional ‘age of majority’;
  • alcohol is an essential social tool with important community functions similar (though not identical) to the role of coffee in Arab countries, or tea in the United Kingdom;
  • beer drinking is a non-gendered activity (doubling the potential market for such drinks);
  • fruit-based alcoholic drinks are also non-gendered (doubling the potential market for such drinks);
  • long working hours, and lifestyles built around them, mean that many Japanese drink alcohol every night of the week;
  • drinking alcohol on public transport and in public places is socially acceptable (one of the main root causes for the rampant success of ‘Ready-To-Drink (RTD) products in Japan);
  • as a country without a Christian heritage, there are no Sunday trading laws and alcohol is available from ‘konbini’ (convenience stores) 24 hours a day, 7 days a week;
  • there is little-to-no class division within Japanese society (Nakane 1985) and as such, what can be marketed to one family or citizen can be marketed to all;
  • dietary customs prioritising freshness, quality and seasonality of food and drink have multiple effects from the prevalence of independent local supermarkets, to the demand for extremely high variation of goods with a constant flow of new flavours and styles; and
  • the near requirement of adults of working age to engage in effectively compulsory alcohol drinking sessions known colloquially as ‘nomunication’ (Melville 1999), a portmanteau of the Japanese verb to drink ‘nomimasu’ and the English noun, ‘communication’.


An important demographic feature of the Japanese population is that they have one of the oldest populations of any country with over 35 million people over 55 years old, this longevity often being attributed to a Japanese lifestyle and diet (Bennett and Blythe 2002). While the top heavy population may be cause for concern for the Japanese themselves, particularly those who must work harder and longer to support an ever growing population of elderly dependents, from an alcohol marketing perspective there are many positives: Japanese citizens have some of the highest life expectancies in the world, remain relatively healthy and active into their later years and have generally built up reasonable saving to support their lifestyles (of which, as discussed early, alcohol is an essential part) and once a customer is won over to a product, it is often for a lifetime. The key population demographic is that of their roughly 126 million population, around 99 million people are of a legal alcohol consuming age (CIA 2011).
*When discussing the countries of East Asia, developed or developing, the term ‘The West’ usually refers to developed nations with a European heritage. As such this report will use the term as not including Japan, although from a global perspective, Japan is often included in this ill-defined ambiguous culture-economic term.

How can you help satisfy Japan's 99 million alcohol consumers?

Technological Factors
Despite Japan being known for its high technology exports, the use of technology within the country can seem to lag behind many foreign visitors’ expectations (Kerr 2002). The only relevant technological issues for marketing an alcohol product in Japan, however relate to data storage practices, distribution of goods and the role of the internet in marketing/sales. Despite being well known for its computers, many Japanese organisations from banks and the post office, to schools and private firms tend to use computers as a back up and paperwork still very much means work with paper (Morris 2002). This is commonly ascribed to a combination of labour laws that make it very hard for firms to fire employees, and the English-language centric nature of a lot of the software available to those organisations. True or not, the Japanese prefer a human touch to their administration, and this could lead to some interesting issues regarding the sharing of marketing and logistical data with any potential Japanese partner organisation. Distribution networks are very good in Japan, although high customer demand for constant variation in food products does mean that batch deliveries tend to be more frequent and of a smaller size than in many Western countries (Branch 2009), which certainly has implications for long global supply chains. The final technological point is that the internet, and its use in a sales and marketing role is extremely underdeveloped compared to other advanced economies. Various authors assert a number of technological, social and demographic reasons for this, but ultimately the result is that many recent developments in social media based marketing are not yet fully suitable to the Japanese internal environment.

REPORT ENDS

NOTE: A full list of references is available on request, but for deeper reading the following resources are particularly useful: