Implications of the Japan model for corporate governance and management for China and other emerging economies in Asia
| Date | 20 July 2012 |
| Pages | 122-142 |
| DOI | https://doi.org/10.1108/15587891211254362 |
| Published date | 20 July 2012 |
| Author | Masao Nakamura,W. Mark Fruin |
| Subject Matter | Strategy |
Implications of the Japan model for
corporate governance and management
for China and other emerging economies
in Asia
Masao Nakamura and W. Mark Fruin
Abstract
Purpose – The Chinese economy, among other developing economies in Asia, has experienced
extraordinary growth in the last decade. Yet,for China and other newly emerging economies in Asia to
grow in a sustainable manner, good corporate governance and management mechanisms must be in
place. The authors aim to explore this issue in this paper. The authorsalso aim to particularly point out
that Japan’s experience both before after the Second WorldWar will be relevant as a model for China’s
public and business development policy decision-making.
Design/methodology/approach – The authors apply well-established theo ries of economic
development and organizational structures of business organizations to Japan’s experience before
and after the Second World War and then to contemporary China’sexperience. The analysis of Japan
uses the substantial research findings on the development of that country available in the business
history literature.
Findings – The paper’s analysis shows multiple ways in which China and other emerging East Asian
economies can take advantage of Japan’s experience (which is called the Japan model here) for their
own development policies and achieve sustainable growth in the long run. For example, it is expected
that Japan’s experiences may be relevant in areas such as: firm formation and the utility of business
groups of various types; development of industrial relations and employment practices; interactions
between business and government in the promotion of economic development; and how these factors
relate to technology advances on a worldwide basis.
Originality/value – The findings reported in this paper also contribute marginally to the literature by
considering the recent experience of Chinese private and state-owned corporations, including
international joint ventures, in the context of Japan’s experience in its economic and business
development history.
Keywords China, India, Japan model, Asian emerging economies, Economic development,
Developing countries
Paper type Research paper
1. Introduction
For Asia’s newly emerging economies to grow in a sustainable manner, good corporate
governance and management mechanisms must be in place, as firms and industries are
critical to economic growth[1]. To achieve this, China has been adopting new laws,
institutions and practices in corporate governance from the US, Germany, Japan and other
western countries[2]. At the same time, China and other Asian countries will adapt foreign
inspired corporate governance and management systems to suit their own needs.
Despite significant differences in history, institutions and economic circumstances, China
shares some common characteristics in its corporate governance and business practices
with historical (pre-second world war) and contemporary (post-second world war) Japan.
Some of these are listed below:
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VOL. 6 NO. 2 2012, pp. 122-142, QEmerald Group Publishing Limited, ISSN 1558-7894 DOI 10.1108/15587891211254362
Masao Nakamura is
Professor at the Sauder
School of Business,
University of British
Columbia, Vancouver,
Canada.
W. Mark Fruin is Professor
at the College of Business,
San Jose
´State University,
San Jose
´, California, USA.
BA strong government role in planning corporate technology development, including
policies about the transfer (importation) of foreign technologies.
BA heavy reliance on business groups and other forms of inter-firm organization, as we
explain in detail in this and later sections.
BConcentrated patterns of ownership.
BImportant roles for firm stakeholders in corporate governance practices.
As an example of (1) the Japanese Ministry of Industry and International Trade (MITI)
carefully allocated Japan’sscarce foreign exchange among purchases of competing foreign
technologies based on its strategic plans in the post-second world war era, while the
Chinese government has been requiring that foreign firms transfer technology as a condition
of approval for western firms’ joint ventures with Chinese local partners.
As examples of (2) and (3) above, inter-industry and intra-industry business groups of
various types are an integral part of Japan’s industrial organization and structure.
Historically, pre-second world war zaibatsu were family owned and controlled (via holding
companies) inter-industry busine ss groupings. A variation, called sh inko zaibatsu,
appeared during the interwar years. These were heavy industry groups that sought to
create economies of scale and scope in the upstream and downstream activities of tightly
linked industries. Pre-second world war business groups should be distinguished from
postwar keiretsu groupings, such as suppliers that cluster around Toyota, Nissan and
Honda. Such groups were formed for the purposes of vertical integration but without
concentrated ownership. Finally, there are bank centered, loose coalitions of inter-industry
federations of firms (see below).
Kigyo shudan or kigyo gurupu (enterprise group) are often the restructured inter-industry
remnants of prewar zaibatsu groups but they are no longer family owned using holding
company control. Instead, one or several main banks are typically responsible for lending
within a group; high levels of inter-group shareholding by member firms are common; and,
some degree of group coordination is exercised by major firms. However, as these are
inter-industry groupings, within-group transactions and executive rotation practices are
correspondingly muted. In section 6 below we will further discuss these four types of
business groups in detail.
In China the development of business groups and concentrated ownership are still new.
Nevertheless they are already playing important roles in the design of modern Chinese
businesses, as discussed later[3]. We note here that most major Chinese firms started as
state-owned enterprises (SOEs). While many have been privatized in recent years, most
privatized firms, particularly the large ones, still have the state as a dominant shareholder. By
comparison, state ownership of enterprises is and has been extremely rare in Japan.
Instead, large firms are owned by other industrial firms, banks, financial and trading
institutions within the same group of firms. During the last 10-20 years, levels of within-group
share ownership has fallen to relatively low levels – on the order of 10 to 20 percent. Hence,
both countries share concentrated patterns of large firm ownership although forms of
ownership and control are different.
Point (4) above is well recognized for Chinese firms which pay particular attention to their
workers and creditors, a tradition they have carried forward from the days of SOEs. The
welfare of stakeholders is important for Japanese firms for different reasons. In sum,
stakeholders are an important part of the governance and management of firms in China and
Japan, at least in comparison with their US counterparts.
1.1 Organizational characteristics and business groups
Family owned and controlled business groups are sometimes called pyramidal business
groups (e.g. Almeida and Wolfenzon, 2006). In such groups, family-owned holding
companies control subsidiaries by owning majority shares (say 51 percent) in them; first-tier
subsidiaries control their own subsidiaries by owning majority shares (again 51 percent) in
them; second-tier subsidiaries control their own subsidiaries by owning majority shares
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