The Hybrid Factory in Europe: The Japanese Management and Production System Transferred

The Hybrid Factory in Europe The Japanese Management and Production System Transferred

Edited by Hiroshi Kumon and Tetsuo Abo

The Hybrid Factory in Europe

Also by Tetsuo Abo HYBRID FACTORY: The Japanese Production System in the United States

The Hybrid Factory in Europe The Japanese Management and Production System Transferred Edited by

Hiroshi Kumon and

Tetsuo Abo

© Selection and editorial matter © Hiroshi Kumon and Tetsuo Abo 2004 Individual chapters © contributors 2004 All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission. No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1T 4LP. Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages. The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988. First published 2004 by PALGRAVE MACMILLAN Houndmills, Basingstoke, Hampshire RG21 6XS and 175 Fifth Avenue, New York, N.Y. 10010 Companies and representatives throughout the world PALGRAVE MACMILLAN is the global academic imprint of the Palgrave Macmillan division of St. Martin’s Press, LLC and of Palgrave Macmillan Ltd. Macmillan® is a registered trademark in the United States, United Kingdom and other countries. Palgrave is a registered trademark in the European Union and other countries. ISBN 1– 4039–1721–3 This book is printed on paper suitable for recycling and made from fully managed and sustained forest sources. A catalogue record for this book is available from the British Library. Library of Congress Cataloging-in-Publication Data The hybrid factory in Europe : the Japanese management and production system transferred / edited by Hiroshi Kumon and Tetsuo Abo. p. cm. Includes bibliographical references and index. ISBN 1–4039–1721–3 (cloth) 1. Industrial management—Japan. 2. Corporations, Japanese—Europe. I. Kumon, Hiroshi, 1946– II. Abo, Tetsuo, 1937– HD70.J3H93 2004 338.8′895204—dc22 2003070727 10 13

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Contents Foreword

vii

Notes on the Contributors

ix

List of Abbreviations

x

1 Introduction: Analytical Perspectives on Japanese Factories in Europe

1

Hiroshi Kumon

Part I

Japanese FDI and Production in Europe

2 Movement of Japanese Companies into Europe

35

Nobuo Kawabe

3 Application and Adaptation of the Japanese Production System in Europe

52

Tetsuo Abo

4 United Kingdom: Electronics Assembly

75

Tetsuji Kawamura

5 United Kingdom: The Automotive Industry

100

Kunio Kamiyama

6 Germany

119

Tetsuo Abo

7 France and the Benelux Countries

135

Du-Sop Cho and Je-Wheon Oh

8 Italy, Spain and Portugal

158

Hiroshi Itagaki

9 Hungary

175

Kunio Kamiyama

10 Questionnaire Survey Analysis

184

Rolf D. Schlunze

Part II

Japanese Companies in Europe

11 Matsushita

197

Hiroshi Itagaki v

vi Contents

12 Sony

203

Nobuo Kawabe

13 Toshiba

210

Yanshu Hao and Tetsuo Abo

14 Sharp

217

Yanshu Hao

15 Canon

224

Wooseok Juhn

16 Toyota

231

Kunio Kamiyama

17 Nissan

240

Hiroshi Kumon

18 Honda

246

Nobuo Kawabe

19 Denso

250

Du-Sop Cho

20 NEC

257

Zhijia Yuan

Part III

Conclusion

21 Conclusion

265

Hiroshi Kumon Bibliography

273

Index

283

Foreword The present volume draws together the results and conclusions of research conducted in Europe by the Japanese Multinational Enterprises Study Group (JMNESG) on the transferability of the Japanese management and production system to the European management environment. The JMNESG had already carried out similar surveys in North America and Asia, and since Europe was one of the three major destinations for Japanese overseas investment it was decided to include this region in the survey of Japanese manufacturing plants located overseas. The survey targeted both Japanese and domestic plants in the European automotive and electronic assembly and parts industries. The survey was implemented via two separate but related research projects. The first of these was carried out in March and April 1997 under the auspices of the Japan Industrial Policy Research Institute (JIPRI). The topic was competition and cooperation between the Japanese and British models of management and production. While the researchers concentrated on Japanese companies that had invested in the U.K. they also visited British and US manufacturing plants in England, Scotland and Wales. The team was divided into several groups, which travelled separately to various locations. The second project was a survey of manufacturing plants in Continental Europe. This was supported by a Grant-in-Aid for Scientific Research from the Ministry of Education, Science, Sports and Culture. The research was conducted in August and September 1998 and focused on Japanese investment in Western and Southern Continental Europe, with an eye to regional integration and industrial revitalization. The team members were divided into three groups, the first of which visited Germany and Hungary, the second France and the Benelux countries, and the third Italy, Spain and Portugal. For the UK survey the project leaders were Hiroshi Kumon and Tetsuo Abo, and support was provided by the East Asian Research Centre at the University of Sheffield. The rest of the team consisted of eight researchers from Japan – Etsuo Abe, Hiroshi Itagaki, Tetsuji Kawamura, Kunio Kamiyama, Hirokuni Tabata, Yanshu Hao, Zhijia Yuan and Yanghee Kim – and four from the UK: Ian Gow, Harukiyo Hasegawa, Hyun Jae H. and Peter Matanle, all of whom were attached to the University of Sheffield. The survey of plants in Continental Europe was conducted by 12 researchers from Japan – Tetsuo Abo, Etsuo Abe, Hiroshi Itagaki, Kunio Kamiyama, Nobuo Kawabe, Tetsuji Kawamura, Hirokuni Tabata, Jaw-Yann Twu, Du-Sop Cho, Yanshu Hao and Yanghee Kim – and six from Europe: Sun-Jo Park, Arne Holzhausen, Ulrich Jürgens, Patric Fridenson, Franklin Pot and Conrrado Molteni. The research was also assisted by Je-Wheon Oh, Zhijia Yuan, Wooseok Juhn and Rolf D. Schlunze. vii

viii Foreword

We are grateful to many other individuals and institutions for their support and assistance. First and foremost we wish to express our appreciation to the companies whose plants we visited in the course of the surveys. The names of these companies’ are listed in the Introduction. Their head offices in Japan helped to arrange the visits, and members of staff at the plants gave generously of their valuable time for interviews and allowed us to observe their plants’ operations. We are also indebted to local universities and research institutes for helping to arrange visits to the plants of domestic companies. Etsuko Kameoka kindly shared her valuable knowledge of European taxation terminology. After the European survey our group had the opportunity to visit and observe Japanese and domestic manufacturing plants in North America (2000–1), South America (2001), China (2002) and Central Europe (2003). Those surveys were conducted in association with the Grant-in-Aid for Scientific Research and the Teikyo University System Laboratory (the Academic Frontiers Project, supported by the Ministry of Education, Culture, Sports, Science and Technology and Teikyo University). The results are currently being prepared for publication, and insights gained from them have aided our interpretation of the results of the European study. We also benefited from the research facilities provided by the Teikyo University System Laboratory (Academic Frontiers Project), both as a venue for conferences and for the access it gave us to valuable reference materials. The authors are also grateful for the translation assistance offered there. Finally, we are deeply indebted to our publishers – Minerva Shobo in Japan and Palgrave Macmillan in the UK – for their assistance and support. H IROSHI K UMON T ETSUO A BO

Notes on the Contributors Tetsuo Abo is a Professor at the Faculty of Economics, Teikyo University. Du-Sop Cho is a Professor at the Graduate School of International Development, Nagoya University. Yanshu Hao is a Professor at the School of Business Administration, Meiji University. Hiroshi Itagaki is a Professor at the Faculty of Economics, Musashi University. Wooseok Juhn is an Associate Professor at the Faculty of Business Management, Chukyo University. Kunio Kamiyama is a Professor at the Faculty of Economics, Josai University. Nobuo Kawabe is a Professor at the School of Commerce, Waseda University. Tetsuji Kawamura is a Professor at the Faculty of Economics, Musashi University. Hiroshi Kumon is a Professor at the Faculty of Social Sciences, Hosei University. Je-Wheon Oh is an Associate Professor of Manufacturing Management Research Center at the Faculty of Economics, University of Tokyo. Rolf D. Schlunze is an Associate Professor at the Faculty of Management, Otemon Gakuin University. Zhijia Yuan is a Professor at the Faculty of Economics, Rissho University.

ix

List of Abbreviations AEEU ASEAN EC EFTA EU FDI GERPISA IC IE ISO JC JETRO JIT JMNESG JR KD MNE OEM OJT QA QC R&D TPM TQC VAT VCR ZD

Amalgamated Engineering and Electrical Union Association of South-East Asian Nations European Community European Free Trade Association European Union Foreign direct investment Groupe d’Etude et de Recherche Permanent sur l’Industrie et les Salariés de l’Automobile Integrated circuit Industrial engineer International Standards Organization Job classifications Japan External Trade Organization Just in time Japanese Multinational Enterprise Study Group Job rotation Knocked down Multinational enterprise Original equipment manufacturer On-the-job training Quality assurance Quality control Research & development Total productive maintenance (or total preventive maintenance) Total quality control Value added tax Video cassette recorder Zero defect

x

1 Introduction: Analytical Perspectives on Japanese Factories in Europe Hiroshi Kumon

The present volume evaluates the international transfer of the Japanesemanagement and production system by analysing two surveys of plants owned by Japanese manufacturing companies with footholds in Europe.1 We shall also investigate ‘hybrid factories’, which combine elements of the Japanese system with elements of European systems, and look at the intriguing competitive – cooperative relationship between the Japanese and European management and production models. We shall observe that Japanese companies have often adopted a cautious strategy when extending their manufacturing operations into Europe. Finally, we shall discover elements of the European system that, while not identical to those found in Japan, are compatible with the Japanese system. In the 1980s Japanese manufacturers responded to trade friction and the appreciation of the yen by shifting from an export-led strategy to a strategy of internationalization based on production in Europe and North America. After investing in Asia, North America and Europe they began to enter other regions, including Central and South America, Oceania, Western Asia, the Middle East and Africa. Thus global expansion became a defining characteristic of Japanese multinational corporations. Since the latter part of the 1980s our research group, the Japanese Multinational Enterprise Study Group (JMNESG) conducted a large-scale, detailed study of Japanese factories in North America, East Asia and Europe. This volume is the result of our analysis of the findings of that study, with a focus on the electronic assembly and parts industries and the car assembly and automotive parts industries in Europe. This chapter begins by analysing Japanese foreign direct investment (FDI) by region and industry. Next it explains the relationship between the questions addressed and the methods employed in the study, and between that research and the research that preceded it. Finally, it lists the factories that took past our study and outlines the structure of this book. Appendix 1.1 lists the evaluation criteria for each of the 23 items included in our hybridization analysis. 1

2 Introduction

Japanese FDI in Europe An examination of trends in Japanese FDI over the past twenty years reveals two distinct waves of investment: one in the second half of the 1980s and the other in the latter part of the 1990s (Figure 1.1). In terms of manufacturing versus non-manufacturing industries, while investment by the manufacturing sector was relatively steady in the first half of the 1990s and reached a high in the latter part of that decade,2 the non-manufacturing sector lost its vigour. Overall, therefore, total FDI never reached the level it had achieved during the years of the bubble economy. As can be seen in Figure 1.2, between 1980 and the late 1990s the volume of Japanese investment in the EU generally lagged behind that in North America and Asia. Investment in North America spearheaded the surge of Japanese FDI in the economically advanced countries, growing rapidly between the mid 1980s, just after the Plaza Accord, and 1989. Another peak occurred in 1996, and an all-time high was reached in 1999. Investment in the EU did not begin in earnest until 1998, just prior to the integration of the European market. The proportion of total FDI by the Japanese manufacturing industry for the years 1951–2001 was 42.3 per cent in North America, 26.7 per cent in Asia and 19.4 per cent in Europe. With regard to the distribution of FDI by industry, in 1951–2001 the top three industries were electrical machinery (26.7 per cent of total FDI),

$M 80 000 70 000

Million dollars

60 000 50 000 40 000 30 000 20 000 10 000 0 1980

1982

Total

1984

1986

1988

Manufacturing

1990

1992

1994

1996

1998

2000

Non-manufacturing

Figure 1.1 Japanese foreign direct investment, manufacturing and non-manufacturing, 1980–2001 Source: Ministry of Finance, Ministry of Finance Statistics Monthly, nos 428, 500, 548, 596, 608.

Hiroshi Kumon 3

$M 25 000

Million dollars

20 000

15 000 N. America Asia Europe

10 000

5 000

0 1980

Figure 1.2

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

Japanese foreign direct investment, manufacturing, by region, 1980–2001

Source: As for Figure 1.1.

transportation equipment (15 per cent) and chemicals (13 per cent). In terms of the overseas production ratio by industry (sales by overseas subsidiaries divided by sales by domestic corporations, fiscal year 1998) the field was dominated by transportation equipment (30.8 per cent), electrical machinery (20.8 per cent) and general machinery (14.3 per cent).3 The electrical and car manufacturing industries, which are the principal subjects of the present volume, are therefore representative of Japanese overseas production industries in two respects, namely their overall shares of FDI and their overseas production ratios.

Research questions and the hybrid evaluation model This section examines our research questions and the methods we employed in the European study, based on the theoretical points developed from the earlier survey of Japanese manufacturing plants in North America and in East Asia (Abo, 1994; Itagaki, 1997).

Research questions The analytical framework that we developed to examine the transferability of the Japanese system – the ‘hybrid model of application and adaptation’ – hypothesizes the existence of a strain in the relationship between the local business environment and the process of internationalization at the Japanese firms concerned. Japanese enterprises seek to apply the Japanese system to their local European manufacturing operations in such a way as to exploit their competitive advantages. However as the local business environment differs from that in Japan, system modification, or adaptation, to suit local

4 Introduction

conditions is necessary. The questions that this raises for the present research include the following. Which elements of the Japanese system are applied, and in what manner? To which aspects of the local environment must the system adapt, and in what manner? What sort of application– adaptation pattern emerges as a consequence? What are the business results? In our research on Japanese plants in North America (Canada and the United States) and East Asia (Korea, Taiwan, Thailand, Malaysia, and Singapore) we found that the Japanese management and production system was transferable to a greater degree than we had expected, although various hybrid systems were evident. At this point it will be useful to examine the fundamental elements of the Japanese system. First, the Japanese system is characterized by a type of work organization that promotes a high level and range of skills among workers. Expanding the number and variety of tasks they are able to handle allows them to cope with a variety of production problems, including quality defects, equipment problems, production set-up or process design for the introduction of new products, and fluctuations in production volume. While on-the-job training inevitably takes time, the ultimate result is greater production efficiency and better product quality. The wage system encourages the development of skills as it is based not only on seniority and job qualifications but also on performance evaluation. First-line supervisors are another important element of the work organization. They are responsible for a variety of functions, including job supervision, production control, labour management, creating and revising job standards, preparing plans for skills training, supervising job rotation, conducting performance evaluations and executing kaizen (continuous improvement) activities. As a consequence line supervisors, who have worked their way up the ranks, have far broader experience and better problem-solving abilities than their counterparts in mass-production factories with rigid job demarcations (Shibata, 1999). As with skills development among workers, the result is greater production efficiency and better product quality (Koike, 1999; Nakamura, 1996). The second characteristic of the Japanese system is small-lot, mixed-model production and total quality control (TQC). Small-lot production is supported by the just-in-time (JIT) system, multi-process capabilities, one-touch die changes and andon lights (the board that displays line-stop). The purpose of this is to reduce unnecessary stocks of parts and finished products and to facilitate an uninterrupted product flow (Ohno, 1978; Shingo, 1989). Moreover small-lot production, unlike mass production, which operates on the basis of projected demand, enables a quick and accurate response to actual market demands. While this approach was developed to suit the Japanese demand for a wide range of products in small quantities, it can be adapted to produce a wide range of products in large quantities so it has universal value as a production system (Womack et al., 1996).

Hiroshi Kumon 5

Company-wide quality control means that everyone from top managers to shop-floor workers is actively involved in quality control. Shop-floor activities in this regard are not limited to the detection and repair of defects but also include, through kaizen activities, the correction of flaws that result from poor product or equipment design. The quality control department is responsible for supervising the overall system, as well as providing quality assurance to customers. This system results in a lower defect rate than when the quality control department alone is responsible for detecting defects during the final stage of production (Ishikawa, 1981; Udagawa et al., 1995). The third characteristic of the Japanese management and production system is inter company relationships, particularly ones related to the procurement of parts and materials. In Japan the procurement of parts and materials is based on long-term relationships with suppliers rather than transactions within a vertically integrated organization or purely marketoriented transactions. From product development until production is under way, all of the companies involved play a part. Examples include participation in product design by parts manufacturers, the joint development of new materials by assemblers and material suppliers, parts procurement under to the just-in-time system, and the sharing of rewards from cost reductions on parts as a result of process improvements (Asanuma, 1997; Fujimoto, 1999; Nishiguchi, 2000). Unlike the vertically integrated, traditional system of mass production combined with open market supplier transactions, these long-term relationships can result in the development of relationship-specific skills by both parties. The three characteristics described above are core structural elements of the Japanese system. They coexist in an interdependent relationship that holds the work organization together. The production of high-quality products requires a high degree of skill among production workers, including the ability to work accurately and solve problems. Long-term supplier relationships facilitate rational production management by guaranteeing adherence to the required cost, quality and delivery time. Of course parts and materials suppliers also depend on skilled production workers. How well the system ultimately functions depends on the degree to which the production plant utilizes these interdependent structural elements. While the Japanese system may be rational and capable of producing high levels of efficiency and quality in Japan, when it is transferred elsewhere it is subjected to a number of strains and encounters numerous obstacles. In this respect the interrelationship between the elements of the Japanese system and their local counter parts deserves attention. North America has its own production system and its constituents can be the exact opposite of those of in Japanese system. Therefore in order to transfer the Japanese system it is necessary to dismantle the existing one, and therein lie the difficulties. In Asia, on the other hand, there are few impediments in terms of local managerial

6 Introduction

systems or practices, and those which do exist (such as the wage systems in Korea and Taiwan) are highly compatible with the Japanese ones. Finally, Europe consists of industrially advanced countries, each with its own management and production system, and it would not be realistic to assume that Japanese companies would be able effortlessly to apply all the elements of their system. In overseas managerial environments Japanese companies have four organizational options. The first is formal adaptation to local practices, or the straightforward implementation of elements of the local system, such as the wage system implemented by Japanese local manufacturing plants in North America. The larger the number of local elements the company adopts, the more localized the production system becomes. The second option is to adapt at the formal level but to apply Japanese practices on the functional level by exploiting similarities between elements of the different systems and utilizing them in a functionally equivalent manner. The third option is to modify the formal aspect of a local element in order to bring it functionally into line with the Japanese one. An example here is the simplification of the North American job classification system by Japanese car assembly plants. The final option, which is illustrated by the management–labour consultation system in America, occurs when there is no adaptation to or revision of the local, established organizational form, and the Japanese management sets out to create a new organizational element on a functional and formal levels (Boyer et al., 1998; Westney, 1999). By considering application and adaptation in terms of their formal and functional aspects we can conceptualize four discrete categories in respect of the disposition of structural elements. Therefore the production systems that result when Japanese manufacturers set up operations overseas comprise a mixture of structural elements, each of which can be described in terms of one of four combinations of application and adaptation on the one hand, and functional or formal aspects on the other.4 An investigation into European work organization and labour relations reveals a number of strong regional characteristics. First, there are strict regulations on employment practices. In the United States individual companies have a great deal of freedom in terms of how they manage their human resources (Brewster, 1995), but in Europe there are national regulations that affect all companies equally. Dore (1973), based on his study of British and Japanese factories, has described the employment systems in the early industrialized countries as reflecting a ‘market-oriented form of work organization’, while the systems in countries that industrialized later, including Japan, are more ‘organization-oriented’ in form. For example Japanese companies train their employees in-house and the wage system is partly structured according to skills acquired on the job. In Europe, in contrast, industry-specific wage scales regulate the amounts paid at all companies in the industry and vocational qualifications obtained outside the company determine employees’ position on the wage scale. There are certain intercountry differences in the acquisition

Hiroshi Kumon 7

of nationally recognized vocational qualifications. For example in Germany they are acquired through a dual education system, in the UK via the apprenticeship system, which is related to the traditional craft union, and in France through a combination of vocational education at school and company training. Another characteristic is the power that trade unions have traditionally had over national employment practices and wages. However the works council has become a common feature at production plants in Continental Europe, and is now beginning to spread to the UK. Unlike unions, works councils are characterized more by cooperation than by confrontation. In light of the foregoing discussion, our research questions can be restated as follows. First, is it possible to transfer all the elements of the Japanese management and production system, with its emphasis on internal skill formation to Europe, a region with strong workplace regulations and traditions? We shall address this question by means of an application–adaptation hybridization analysis. Second, do regional differences among the managerial environments in Europe produce different hybridization patterns in the overseas plants of Japanese companies? Finally, what impact do factors such as industry type and managerial strategy have on the hybridization patterns of Japanese companies in Europe? For example in North America, Japanese companies in the car assembly and automotive parts industries lean towards application, while companies in the electronic assembly industry show an adaptation pattern. We must also address the question of whether our hybridization model is valid for the present research, particularly in light of the recession in Japan in the 1990s, and diminishing faith in the Japanese system since the collapse of Japan’s bubble economy? First, it should be remembered that the hybridization model is a tool for analyzing and evaluating the feasibility of the overseas transfer of the Japanese management and production system. Our research – not only the European survey reported in this book but also our survey of plants in North and South America in 2000–1, our survey of plants in China in 2002 and our fieldwork in Central Europe in 2003 – has confirmed that application of the Japanese system is indeed possible. Moreover we have observed more than a few cases of non-Japanese companies introducing the Japanese system. Therefore we feel confident that the validity of the model has remained unchanged.5 Second, the core elements of the Japanese production system – the promotion of a high level and range of skills among workers, rational production management and long-term relationships with suppliers – remain significant because they still form the basis of the international competitiveness of Japanese manufacturers. While some scholars have pointed out weaknesses in Japanese management and the managerial strategies of Japanese corporations, particularly in the face of globalization (financial and market), the strength of Japanese manufacturing plants has not deteriorated.

8 Introduction

The hybrid evaluation model The hybrid evaluation model provides a framework for analysing and evaluating the application or adaptation of elements of the Japanese management and production system in a foreign environment. When creating the model we presumed that the parent plants in Japan were using the prototypical Japanese management and production system. We then selected those elements of the system that we thought Japanese companies would require when establishing and operating manufacturing plants overseas. We eventually settled on 23 items to include in the survey, each of which would be evaluated on a scale of 1–5 in terms of the degree of application of the Japanese system or adaptation to the local environment. The scoring criteria would be as follows. If a particular item existed in the overseas factory exactly as it did in Japan, then it would receive 5 points, reflecting perfect application of that element. If it was the same as the local one then it would receive 1 point, reflecting complete adaptation. The three points in between would reflect varying combinations of application and adaptation. The criteria that govern each score are presented in Appendix 1.1. The utility of this model is apparent: it would enable researchers working in different countries to investigate the degree of application/adaptation of the Japanese system by means of unambiguous evaluation criteria that would facilitate a cross-comparison of the results. In this respect the model would be valuable for any cooperative research project that involved the examination and comparison of evaluations carried out by multiple researchers, and could be used to compare particular items, industries, corporations or regions. In fact the model may be one of the most important consequences of our research initiative. In order to analyse the result of our survey of Japanese plants in Europe, we partially revised the five-point evaluation criteria used for the North American survey and then devised a method for quantitatively evaluating the degree to which overseas plants had introduced the Japanese system. As the subject of our survey research is the international transfer and diffusion of the Japanese system, we can only create a standard for evaluating the system from the perspective of its application. That is, in evaluating the transfer conditions of the Japanese system to multiple regions it is, above all, necessary to conduct the evaluation from the perspective of its application. In shifting the focus of our research from North America to Europe, we had to conduct application and adaptation analyses in different local managerial environments. Consequently, evaluating adaptation that varies according to region necessitates describing the application of the Japanese system on a five-point scale and then adopting a method of analysis that can reveal, as far as possible, the degree of adaptation to the elements in the local system. A hybrid is therefore stipulated as a particular mixture of Japanese system elements

Hiroshi Kumon 9

‘J’ and local system elements ‘X’, whose quantification facilitates international comparisons in terms of hybrid patterns. Therefore, where European systems and customs clearly differ from those in the United States, it was necessary to revise and adjust several characteristic items in order to determine exactly what conditions constituted application of the Japanese model. Representative among these are ‘job classification’, ‘wage system’, ‘long-term employment’, and ‘labour relations’. Since a score of 1 point reflects local European conditions that differ from other regions, their evaluation criteria were slightly revised, as shall be explained below. However, there were absolutely no changes to the 23 survey items themselves and for this reason, valid comparisons of the degree of application for the 23 items can be made with the results obtained from other regions. During our analysis, each of the 23 items was analysed according to two different classification systems. The first system classified the items into six groups of related items (the six-group evaluation), and the second classified each item according to four perspectives of the transfer of technology and organization (the four-perspective evaluation). The six-group evaluation classifies the 23 items into the following groups: Work organization and administration, Production management, Procurement, Group consciousness, Labour relations and Parent–subsidiary relations. In the following section we shall look in turn at each group and its constituents.

Constituents of the six-group evaluation Group I: Work organization and administration This core group includes the training of production workers and other employment-related items. The first item, (1) Job classification, involves such matters as the number and complexity of job classifications and the number of wage classes. At the Japanese and foreign companies we surveyed in Europe there was nothing that resembled the finely subdivided job classification system found in the traditional factories of the big three carmakers in the United States. The dominant system consisted of broadly defined, industry-specific wage guidelines, to which companies had added particular job specifications. Evaluating the application score for this item involves counting the number of different wage classifications assigned to the workers at each factory. The specific evaluation criteria for this item have been slightly revised to take account of the different conditions in Europe. If wage grades limited flexible job organization methods such as job rotation, then the evaluation depended upon the number of wage grades. However, if wage grades did not disturb flexible skill formation, then the score is determined by the degree to which the skill formation has been implemented. For the second item, (2) Multifunctional skills, breadth of job

10 Introduction

experience and problem-solving skills are evaluated by considering the scope and frequency of job rotation and its relationship with quality control and maintenance. For item three, (3) Education and training, the conditions for skill formation in respect of routine tasks and problem-solving abilities are evaluated by considering on-the-job and other practical training, plus the frequency of training trips to Japan. Item four, (4) Wage system, looks at whether the remuneration system is suitable for encouraging the acquisition of multifunctional skills by considering the extent to which factors such as seniority, skill qualifications and performance assessments determine wages. The criteria for this item have been modified to take account of the strong social wage regulations in Europe. The fifth item, (5) Promotion examines the extent of internal promotion the factors that determine the promotion and promotion procedure. Finally, item six, (6) First-line supervisor, concerns the skills and roles that are expected of first-line supervisors and whether employees reach this position through internal promotion or are hired from outside.

Group II: Production management Production management is the other core constituent of the Japanese production system. The first item in this group, (7) Equipment, is to do with whether the factory has the same kind of equipment as the parent plant or is purchased locally. The second, (8) Maintenance, relates to the extent to which production workers participate in maintenance activities, the skills and job descriptions of maintenance workers, and whether maintenance workers are trained internally or are hired from outside as qualified personnel. The third item, (9) Quality control, evaluates the degree to which quality control is built into the production process by considering the division of labour between designated quality inspectors and production workers, as well as the production-line defect rate and the level of quality at the dispatch stage. Item four, (10) Process management, evaluates the conditions for small-lot production by looking at factors such as the frequency of equipment change, the degree of mixed production and the capacity for coping with fluctuations in production volume.

Group III: Procurement In Europe there are local content regulations so in our study we investigated the manner in which assemblers procured parts from local suppliers and the sorts of relationship they formed with those suppliers. The item, (11) Local content evaluates the local procurement ratio, where procurement from anywhere in Europe is classified as local. The second item, (12) Suppliers, examines the degree of dependence on parts procured from Japan, from Japanese subsidiaries in the local area, or from local companies. Finally, (13) Procurement method is concerned with long-term relationships with suppliers and the extent of just-in-time parts delivery.

Hiroshi Kumon 11

Group IV: Group consciousness One element of Japanese management that has long attracted the attention of Western observers is group consciousness. Communication within the organization and the cultivation of employees’ sense of participation in company management support the smooth functioning of the core constituents of the system. The first item in this group, (14) Small-group activities, looks at the extent to which such activities are used to nurture among employees. Item two, (15) Information sharing, evaluates the degree to which employees share information about their jobs or management, and the manner in which the company promotes communication to this end. The final item, (16) Sense of unity, considers company measures to create a sense of unity, such as cafeterias shared by employees at all levels of the company hierarchy, the provision of identical uniforms to all employees, open-plan offices and the holding of social gatherings.

Group V: Labour relations Many characteristics of Japanese labour relations, such as those related to dispute resolution, are misunderstood in the West. Workers and management strive for balanced, mutually satisfactory solutions to many matters, ranging from routine job procedures to safety concerns and job assignment. Production workers’ wage structure is the same as that for white-collar employees, and both groups belong to the same union. Naturally a union composed of such members will exercise a different sort of influence over management and in different ways than in the West. Labour and management conduct detailed negotiations and come to mutually satisfactory agreements through collective bargaining and a labour–management consultation system. For example there is an agreed set of rules, on adjusting employment levels to cope with the unavoidable fluctuations of supply and demand that exist in a market economy, and the union is vigilant in ensuring that such rules are maintained. In Europe, although the organizational elements differ from those in Japan, strict regulations on redundancy and the presence of works councils largely fulfil the functions that the principle of long-term employment and the labour– management consultation system do in Japan. Of course there are significant differences. For example, the works council is an employee representative system that holds consultations with management representatives. This differs from the labour-management consultation system between management and enterprise unions in Japan. However, some Japanese managers at local production factories in Europe believe that the works councils play the same role as the labour-management consultation system in Japan. Therefore, in consideration of the special circumstances in Europe concerning long-term employment and harmonious labour relations, so we have made a number of revisions to the evaluation criteria for the items in this group.

12 Introduction

Item one, (17) Hiring method, examines the thought given to factory location and hiring procedures. The second item, (18) Long-term employment, looks at the employee turnover rate and the measures adopted to promote employee retention, which are important in promoting skill development and a sense of unity among employees. Item three, (19) Harmonious labour relations, considers the types of issue negotiated during collecting bargaining or with the works council, plus any history of strikes at the factory. Finally, (20) Grievance procedure examines whether shop-floor grievances or demands are handled via the first-line supervisor, the union or another route.

Group VI: Parent–subsidiary relations This group evaluates the extent to which the Japanese parent company delegates authority to its overseas subsidiary. The first item, (21) Ratio of Japanese expatriates is the simple ratio of Japanese personnel to total personnel. Item two, (22) Delegation of authority, considers the degree of discretionary authority that managers have in areas such as product selection, capital investment and personnel. Finally, (23) Position of local managers looks at the extent to which local managers occupy positions of authority, such as president, vice-president or departmental manager.

The four-perspective evaluation The second tool for analysing the hybridization of overseas subsidiaries is our four-perspective evaluation. This classifies each of the 23 items in terms of the transfer of technology or managerial organization. The evaluation model is first divided into two categories: ‘Method’ and ‘Result’. These two groups are then subdivided into ‘Human’ and ‘Material’: that is, ‘Human Method’, ‘Human Result’, ‘Material Method’, and ‘Material Result.’ The ‘Human Method’ comprises all the items in groups I and IV, plus the items ‘Longterm employment’, ‘Grievance procedure’ and ‘Labour relations’. The ‘Human Result’ consists of the items ‘Ratio of Japanese expatriates’ and ‘Position of local managers’. ‘Material Method’ includes the items, ‘Maintenance’, ‘Quality control’, and ‘Procurement method’. Finally, ‘Material Result’ consists of ‘Equipment’, ‘Local content’, and ‘Suppliers’. Items that are related to the Japanese system and its implementation are grouped into ‘Method.’ ‘Result’ refers to directly bringing-in sets of production equipment, parts, and despatched managers from Japan. The ‘Result’ can be regarded as supplements to those areas where Japanese methods are difficult to apply, such as continuous improvement activities, accumulation of production know-how, and the creation of skilled human resources. For example, Japanese managers were expected to play various important roles in transferring the elements of the Japanese system. The greater this type of application of results, the more that local plants rely upon Japan. The significance of the four-perspective evaluation lies in distinguishing between whether a plant

Hiroshi Kumon 13

put priority on transplanting the elements of the Japanese system or whether the priority is on transferring the results of the system.

Related research In this section we shall review research on the international transfer of the Japanese system. Theoretical points to be covered include the system’s transferability, its universality or otherwise, the interdependence of its structural elements and their potential for disassociation, and hybridization theory. In the course of the discussion it will become clear that our hybridization approach is a pioneer in the field, as its standpoint is not whether it is possible to transfer the Japanese system but the degree to which overseas production plants have managed to apply or have found it necessary to adapt elements of the system.

Transferability As we shall see in this section, general research trends have had a strong influence on hybridization theory. We can identify three major periods of change in theoretical perspectives. The first period ended in the mid 1980s and was characterized by conflicting evaluations of the international transferability of the Japanese system. Some researchers supported the opinion that such a transfer would be difficult or that the system would require radical changes to succeed in a foreign environment (Yoshino, 1976; Tsurumi, 1976; Dohse et al., 1985), while others asserted that the opposite was true (Takamiya, 1981; Schonberger 1982; White and Trevor 1983; Kujawa 1986). Takamiya (1981), surveyed Japanese electronics plants in the U.K. and conducted surveys comparing Japanese factories in the U.K. and the U.S. He found that the Japanese factories performed well due to stringent process controls and flexible job practices. White and Trevor (1983) reached the same conclusion, based on their somewhat more extensive survey of Japanese factories in the UK. Their study revealed that British production workers had a high regard for the extensive technical knowledge and commitment of Japanese managers and engineers, and for their cooperative approach to solving problems on the shop floor. Schonberger (1982) studied Japanese motorcycle plants in the United States and concluded that the Japanese production system was indeed transferable. Finally, Kujawa (1986) expressed the belief that Japanese organizational methods could be transferred, based on his survey of Japanese factories in the United States. The second period lasted from the mid 1980s to the early 1990s, when most research tended to confirm the international transferability of the Japanese system. There were three distinct branches to that research. One of these evaluated the Japanese system as a model to replace mass production, and credited it with a certain global universality and generalizability (Womack etal.,

14 Introduction

1990; Kenney and Florida, 1993). The second focused on the Japanization of British industry (Oliver and Wilkinson, 1992), and the third, conducted by the Japanese Multinational Enterprise Study Group, studied the international transfer of the Japanese management and production systems through hybridization (Abo, 1994). On the other hand there were numerous surveys of Japanese overseas factories that were critical of the Japanese system (Parker and Slaughter, 1988; Fucini and Fucini, 1990; Garrahan and Stewart, 1992; Parker, 1993; Graham, 1995; Rinehart et al., 1997). These studies offer some useful insights on the features and problems of the Japanese system, but they have little to say on the issue of transferability. In this and the following period there were many studies that focused on the selective or partial introduction of the Japanese system (Milkman, 1991; Elger and Smith, 1994; Delbridge, 1998). The third period was the latter half of the 1990s, when research concentrated more on the transferability of the Japanese system through hybridization or transformation (Itagaki, 1997; Boyer et al., 1998; Liker et al., 1999), on the tendency for systems in other countries to converge towards the Japanese system, and on the variety of industry-specific application patterns (MacDuffie, 1996). In other words the passage of time and the accumulated results of many studies in the field gave rise to the view that although the Japanese system was able to function in differing managerial environments, its international transfer required certain modifications. In this respect it is our intention to shed light on points of controversy and the development of research related to hybridization.

Universality and societal influence Let us begin by considering two studies by two research teams, both of which concluded that the Japanese system had gained a certain international applicability or universality. They saw it as a case of Japanese organizational innovation that subsequently developed quite independently from the influence of Japanese society. The first of the research teams was the International Motor Vehicle Program at MIT, which developed the ‘lean production theory’ and cited Toyota’s production system in Japan as a prototypical example (Krafcik, 1988). The structural elements of this model were later separated from Japanese societal influences and organized into an independent, rational system with international applicability. The second research team investigated the personnel and organizational aspects of the Japanese system, and concluded that the system had diverged from Japanese norms and could be generalized to other environments (Kenney and Florida, 1993). They called it ‘innovation-mediated production’ and concluded that at the heart of the system was the exploitation of workers’ production skills and knowledge, on the basis of teamwork. They argued that this production model was not only capable of being transferred to

Hiroshi Kumon 15

other regions, but also that it would replace mass production, just as the latter had taken the place of craft production. They did not neglect the impact of social effects and pointed out obstacles to and problematic aspects of the system. The findings of both these research groups, which were published at approximately the same time as we published the results of our North American study, were very enlightening in that they clarified both the competitive superiority and the international transferability of the Japanese system. Methodologically, however, there were problems. When discussing the international transferability of the Japanese system it is expedient to consider it as a universal system that is independent of any particular society, rather than as a product of Japanese society, with all the regional restrictions that implies. However there are difficulties explaining the diversity that exists among the systems that are transferred. Societal effect theory (Maurice et al., 1980; Maurice et al., 1986) argues that transfering a system that has developed in one country to another country can be difficult or even impossible. Even if one rejects social determinism, attention has to be paid to the system’s adaptation to the society to which it is transferred (Sorge, 1996). Alternatively, as we shall discuss below, one could concentrate on the selective transfer of the system. We believe that the structural elements of the Japanese system do possess some universality or international validity, and we have demonstrated that the transfer of the Japanese system to North America and East Asia can be achieved through hybridization. That is, while the system can be described as having universality in the sense that it is not regionspecific, this does not mean that all its structural elements are equally capable of being transferred. Moreover transferability has only been demonstrated for two regions, namely North America and East Asia. For this reason we choose to refer to ‘limited universality’. We shall return to this topic in the conclusion to this volume when we discuss the implications of our research. For the moment it is sufficient to say that a theoretical approach biased towards either universality or societal dependence would be unsuitable for corroborative research on this topic.

Interdependence of the structural elements of the Japanese system Most researchers, including ourselves, assume that the structural elements of the Japanese system are mutually supportive and reliant. Oliver and Wilkinson (1992), who coined the expression ‘Japanization of British industry’, state that the Japanese production system is one of high dependence. To illustrate this they point to the dependence of managers on labourers and the dependence of assemblers on parts makers. Clearly, suppliers that have a multiskilled and flexible workforce and can be depended on to deliver high-quality parts on time are difficult to replace, and this leads to longterm employment and business relations. To manage this interdependence

16 Introduction

it is necessary for the organization to build social relationships into the production process, and for social, economic and political safety mechanisms to exist. Both these conditions exist in Japan, but in the UK they have to be created. In contrast Elger and Smith (1994) argue for the selective introduction of elements of the Japanese system, as determined by the interplay between the managerial policies of the Japanese enterprise, the business strategy of its parent company and, most particularly, the political and economic conditions in the most country. Hence they stress that it is necessary to break down the concept of Japanization into its various components and that researchers ought to consider special regional models of the system. According to Babson (1995) the lean production system consists of various combinations of structural features that are selected on a case-by-case basis, and indeed there are examples of selective application in Japanese subsidiaries and non-Japanese plants.6 In this case it is important to consider the differences between Japanese and non-Japanese managers’ understanding of the structural elements of the system they are trying to apply, as well as their ability to cope with obstacles. Our own research has shown that in the case of Japanese companies, the local managerial environment, the characteristics of the industry in question and corporate strategy largely govern the ultimate nature of the application pattern (Abo, 1994; Itagaki, 1997). The most decisive factor in the choice of whether or not to apply the Japanese system in its totality depends on the company’s investment strategy for establishing the local plant. In North America, Japanese Companies in the automotive industry have adopted a very application-oriented strategy, while those in the electronics assembly industry are generally much more adaptation-oriented. In Southeast Asia the exportoriented electronics factories have implemented an application strategy. We shall return to the topic of interdependence and the potential for disassociating the structural elements of the Japanese system when we discuss the implications of our research in the final chapter.

Hybridization Kochan et al., (1997) continued the research begun by the MIT group by studying the introduction of the lean production system in car assembly plants all over the world. MacDuffie and Pil (1997), who conducted most of the research, investigated what they refer to as high-involvement work practices, together with the international spread of the type of human resources management that supports and supplements these practices. They observed that, on the one hand, the globalization of the market and the influence of foreign investment had created a tendency for convergence among regions, but on the other hand, factors internal and external to individual companies had given rise to diversification. In other words they identified the existence of both convergence and diversification.

Hiroshi Kumon 17

After studying the factors that had led to diversity, MacDuffie (1996) concluded that corporate effects outweighed country effects. That is, while differences among systems at the country level still give rise to certain countryspecific differences in work organization, in light of the various pressures that derive from global competition, differences between companies outweigh those between countries. Although we agree with this point, we would put more weight than MacDuffie does on the effect that the local managerial environment has on corporate strategy. Liker et al., (1999) have gathered together articles by prominent researchers on the transfer of the Japanese system to the United States. A common theme in the articles is the transformation or hybridization of the Japanese system following its transfer overseas. While the authors do not apply uniform terminology, the various key words they employ can be interpreted the same way. They discuss the transformation that results from the interaction of the management system with environmental factors. The basis of the argument that transformation is what happens to the system after it is transferred overseas, is as follows. First the authors refer to production systems rather than a single system, and these systems are not limited to, say, the Toyota production system, but include analogous systems over a wide range of industries and enterprises. The systems exist on four levels: factory production, factory organization and administration, corporate structure and system, and the environment. Hence Japanese management systems are clearly placed within the environment in which they are created. The difficulty of transferring elements of the systems increases from the factory level upwards. The numerous factors that comprise transformation can be explained from several perspectives, such as the diffusion of innovation, structuralism, or an emergent process. There are three distinctive characteristics of Japanese management systems: their sharp contrast with US-style production administration, the mutual supportiveness of systems and subsystems, and the tacit knowledge of Japanese-style management. While these factors make it difficult, but not impossible, to transfer to America, as a rule, they result in the transformation of the system (Liker et al., 1999). Next we shall examine the hybridization theory proposed by Boyer et al (1998). As we have seen, the MIT group suggests that lean production is competitively superior to mass production and that it possesses a universality that transcends regional restrictions. In contrast Boyer et al.’s research on the automotive industry in France is based on an industrial model of international transfer that employs hybridization as its key concept. They criticize the MIT theory for stressing international convergence towards the lean production model and claim that an industrial model should instead allow for diversity stemming from regional and industrial differences.7 They suggest that three processes may account for international transfer of the system, namely imitation, the discovery of functional equivalent in

18 Introduction

the local environment, and innovation. Imitation occurs when the environment in the receiving country is the same as that in the country of origin. However, this is not often the case since socioeconomic environments are usually different. Hence Boyer proposes that when an enterprise wishes to implement organizational or operational practices in a country with a different environment it can either look for a functional equivalent or innovate. If the elements of the introduced model conflict with restrictions imposed by the most country or society it may not be possible to identify a functional equivalent, so if the enterprise is to survive it will be necessary to make innovations that depend neither on the original model nor on the repertoire of practices in the local society. While Boyer’s work provides a useful reference point, in our own research we differentiate between the system’s structural elements in terms of organizational form and function and analyse the transfer of the system to different managerial environments. However, without adequate analysis of the competitive superiority of the Japanese system we are wavy about placing too much emphasis on system changes stemming from environmental factors. It does seem safe to say that the various lines of research on the international transfer of the Japanese management and production system have now converged into hybridization theory. All researchers in this field, including ourselves, share the view that hybridization is the result of an interplay between the system that is being transferred and the managerial or socioeconomic environment in which it is applied. In this regard, all of the research on the subject can be considered as mutually supportive and complementary. Our own research is premised on recognition of the different nature of the North American mass production system and the Japanese system. By comparing and analyzing the elements of the Japanese system that have been transferred to Europe with those which have been transferred to North America and East Asia we have been able to gather evidence that throws additional light on hybridization theory. In the conclusion to this book we shall review the hybridization patterns that we observed at Japanese plants in Europe.

The surveyed factories Our European research began in the UK, where we surveyed 20 Japanese factories and one American one in February and March 1997. In September the following year we visited 40 Japanese factories and four domestic ones in Continental Europe (Germany, France, the Benelux countries, Italy, Spain, Portugal and Hungary). The research team consisted of several groups, each of which visited designated factories and spent half a day or more interviewing personnel and touring the factories. The interviews at Japanese factories tended to be with Japanese managers, although local managers were interviewed whenever possible. The following companies took part in our research:

Hiroshi Kumon 19

• Electronic assembly and component factories: Sanyo, Sharp (three factories), Sony (three factories), Matsushita Electrics, Matsushita Electronics, Mitsubishi Electrics (three factories), Toshiba (five factories), Brother, NEC, Canon (three factories), Hitachi (two factories), Fujitsu (two factories), Alps Electric (two factories), Minebea, TDK (two factories), Pioneer (two factories) and Olivetti. • Car assembly and automotive parts factories: Isuzu, Toyota (two factories and regional headquarters), Nissan (two factories and regional headquarters), Honda, Mitsubishi (two factories), Suzuki, Calsonick (two factories), Denso (four factories), NTN, Eagle, Takata, Clarion, Ikeda Bussan, Excedy, Kenwood, Ford, Opel, DaimlerChrysler and Peugeot. • Other factories: Komatsu, Mitsubishi Heavy Industries.

Structure of the book Chapter 2 analyses the expansion of Japanese operations in Europe, the history of and changing motives for Japanese investment, the overall market situation and the structure of Japanese regional management organization. Chapter 3 takes a preliminary look at the hybridization of factories in Europe and compares the characteristics of these factories with those of their counterparts in North America and East Asia. Chapters 4–9 provide detailed analyses of Japanese hybrid factories in various parts of Europe, based on the factory surveys, that is, the UK (Chapters 4 and 5), Germany (Chapter 6), France and the Benelux countries (Chapter 7), Italy, Spain and Portugal (Chapter 8) and Hungary (Chapter 9). Chapter 10 examines the management styles of Japanese companies in Europe and considers whether particular styles are specific to particular regions. Chapters 11–20 present case studies of 10 Japanese multinationals with production bases in Europe. Finally, Chapter 21 summarizes our conclusions on the transferability of the Japanese system to Europe.

Appendix 1.1 Criteria for the application scores in the hybridization evaluation I (1)

Work organization and administration Job classification

In Europe wages are governed by industry-specific wage grades determined by national wage agreements. Companies carry out job evaluations at their plants, and specify the wages for each job based on these grades. Some companies apply the grades as they are, and others subdivide them. Our evaluation scores for job classification are determined by the number of wage grades applied and the number of job classifications within each grade: 5 = one or two wage grades and job classifications, 4 =three to five, 3 = six to 10, 2 =11–50, 1 = 51 or more.

20 Introduction

If the wage grade/job classifications embrace an operational aspect of work organization, such as limited job rotation, then we count the number of job classifications. However when job description guidelines are relaxed as a result of Japanese practices, such as job-ability qualifications within the company, then the evaluation takes account of the extent to which this practice is implemented as well as the number of job classifications. In the UK it is usual for each company to determine its own wage grades and job classifications. Job classification evaluations are carried out in the case of production, quality control and maintenance personnel, but supervisory and clerical personnel are excluded.

(2)

Multifunctional skills

This concerns not only whether production workers are capable of carrying out their regular tasks but also their ability to cope with irregular tasks and change of tasks, as well as their problem-solving skills. Specifically the evaluation considers such matters as job scope, extent of job rotation, the degree to which workers participate in quality control and maintenance, and the strength of the distinction between skilled and unskilled jobs. The scoring criteria are as follows: 5 = job rotation is common within work teams and is also conducted outside the work teams to train workers in additional skills. Ordinary production workers keep score sheets and engage in quality control, preventive maintenance and problem solving. 4 = job rotation is common within work teams but limited beyond. Ordinary production workers participate in quality control and preventive maintenance, although to a limited extent. 3 = job rotation is almost exclusively kept within work teams. In theory there is a certain amount of participation by ordinary production workers in quality control and problem solving, but in practice this is rather limited. 2 = job rotation is not common, but job assignments may be switched or duties expanded in response to fluctuations in demand, model changes or extraordinary situations. In general ordinary production workers do not participate in activities such as quality control or preventive maintenance. 1 = there is no job rotation and job assignments are fixed. There is strict separation between jobs done by ordinary production workers and those which require specially trained workers, such as quality control and maintenance.

(3)

Education and training

The existence of on-the-job training for ordinary production workers, maintenance personnel and supervisory staff is the main evaluation criterion. The sending of personnel to Japan for training and the sending of Japanese

Hiroshi Kumon 21

instructors to overseas subsidiaries are also taken into account. The more a plant relies on outside bodies for training and education, the lower the score for this item, even if this produces high-quality workers. 5 = based on an ongoing, systematic education and training programme that includes on-the-job training and courses at an in-house training centre, the plant is actively engaged in skill formation at every level, from ordinary production workers to maintenance personnel, first-line supervisors, technicians and managers. Personnel are frequently sent to Japan for training, and instructors are often dispatched from Japan. Maintenance personnel and first-line supervisors are chiefly trained in-house. 4 = although its programme is less planned and systematic, the plant provides extensive in-house training, primarily on the job. Employees are sent to Japan for training, but this is generally restricted to core personnel such as maintenance workers and first-line supervisors. 3 = although it is not very systematic, on-the-job training is provided. Core personnel may be sent to Japan or trainers may be dispatched from Japan, and there may be some reliance on external sources for training and education. There may also be an apprenticeship system. 2 = on-the-job training is rare and employees are expected to pick up skills as they go. At best there may be some utilization of external bodies for training and some personnel may be sent to Japan. Many of the personnel requirements are met by hiring people from outside. 1 = there is no provision of in-house training and all skilled personnel are hired from outside.

(4)

Wage system

The two main characteristics of the European wage system are (1) that national wage agreements determine the industry-specific wage grade for each job, and (2) that, based on these grades, basic company wages may be supplemented by additions for qualifications, seniority and merit. The application scores for wage system are as follows: 5 = wages are fundamentally the same as in Japan. Basic wages are determined by age, seniority, job qualifications and merit. Bonuses are paid and there are periodic rises. There is little discrepancy between the wage system for and wages paid to blue-collar and white-collar personnel. 4 = the extent of supplementary wages is less broad but there is considerable scope for merit. Wages also reflect age and seniority. 3 = wages are basically determined by the national wage agreement but there is some supplementary pay, mainly based on merit. 2 = wages are determined by the national wage agreement and the company’s supplementary wages. Merit is not a determinant.

22 Introduction

1 = wages are determined by the national wage agreement, and in accordance with in-house job classifications and wage grades. There is no pay for merit.

(5)

Promotion

In this study ‘promotion’ is confined to production jobs. The scores are based on the extent to which overseas Japanese firms have moved the local promotion system towards the Japanese one. 5 = production workers, including technicians, may be promoted to the position of first-line supervisor and sometimes to middle management posts according to ability. Promotion is also partly determined by length of service, which means that long-term employees can rise to the upper ranks. However even skilled employees must remain at each rank for a specified number of years. Recommendation by a supervisor is a necessary precondition for promotion, based on a performance evaluation. 4 = the promotion system is almost the same as that described above, but production workers cannot be promoted any higher than the position of first-line supervisor. 3 = managerial positions, including that of first-line supervisor, are held by employees promoted internally and by people recruited from outside. Ordinary production workers and technicians can rise to higher wage grades based on length of service and performance evaluation. 2 = internal promotion is only partially implemented, and there is a distinction between the promotion system for shop-floor workers and that for managers, including first-line supervisors. Promotion is influenced by academic background and external qualifications. Where union regulations exist, seniority has priority over performance evaluation in determining production workers’ promotion to higher wage grades. 1 = there is a clear distinction between the promotion system for shop-floor workers and that for managers. Promotion to different jobs or to higher wage grades is determined by academic background and external qualifications. Where union regulations exist, promotion to higher wage grades is determined by seniority.

(6)

First-line supervisor

5 = first-line supervisors are internally promoted and participate not only in labour management (maintaining workplace discipline and carrying out performance evaluations) but also in the management of work teams (examining daily production plans, assigning jobs, analyzing operational situations, securing parts and materials, and overseeing education and training) and in the technical control of production processes (setting up

Hiroshi Kumon 23

work standards and overseeing equipment maintenance, quality control and kaizen activities). They also play an important part in coordinating the activities of different workplaces. Their management abilities are equivalent to those of their Japanese counterparts. 4 = The skills of first-line supervisors are slightly inferior to those of their Japanese counterparts. 3 = first-line supervisor jobs are held by internally promoted employees and by external recruits. They participate in the management of work teams and the technical control of production processes, but there are deficiencies in their management skills and they require technicians for support. 2 = first-line supervisors lack many of the skills needed to manage work teams and control production processes. 1 = first-line supervisors are only concerned with labour management. The plant does not adhere to internal promotion for the post of first-line supervisor.

II (7)

Production management Equipment

5 = all equipment is the same as in Japan. 4 = 75 per cent of the equipment is the same as in Japan, or 100 per cent it older, less automated machinery is utilized. 3 = 50 per cent of the equipment is the same as in Japan. 2 = 25 per cent of the equipment is the same as in Japan. 1 = the equipment is different from that used in Japan.

(8)

Maintenance

5 = shop-floor maintenance personnel are drawn from the ranks of production workers and trained internally, or inexperienced trainees are hired from outside. Ordinary production workers participate in preventive and other easy maintenance operations. The skills of qualified maintenance personnel are so advanced that the stoppage rate (the ratio of breakdown time to operating time), even in the case of new types of machine, is almost the same as in Japan. 4 = ordinary production workers participate in fewer maintenance activities, and the stoppage rate is slightly higher than for plants in the 5-point category. 3 = some maintenance personnel are trained internally and some have external experience. Ordinary production workers participate little in maintenance work. Maintenance personnel are not highly skilled and the support of Japanese employees is required.

24 Introduction

2 = experienced maintenance personnel are mainly recruited from outside. Ordinary workers do not do any maintenance work and maintenance jobs are overseen by engineers, including Japanese expatriates. 1 = all maintenance personnel are experienced workers recruited from outside. Maintenance is carried out under the leadership of engineers.

(9)

Quality control

5 = the plant conforms to the ideal of ‘building quality into the production process’. Production workers participate in quality control in various ways: (generally attending to quality, referring to standard work procedures that specify which items should be checked for quality, being vigilant for defective products and stopping production lines when necessary, as well as participating in quality improvement activities such as quality control circles. The in-process defect rate and quality level at the completion stage are almost equivalent to those at Japanese plants. 4 = the plant pays attention to building quality into the production process but there are fewer concrete measures. The in-process defect rate is slightly higher than in Japan. 3 = the plant tries to build quality into the production process but finds it difficult. Therefore it assigns more quality control personnel or inspectors or sets up more check points than in Japan to ensure product quality at the completion stage. 2 = ordinary production workers seldom participate in quality control, and quality control personnel or inspectors reject defective products after meticulous inspection at many stages in the production process. 1 = defective products are rejected during the final product inspection.

(10)

Process management

5 = small-lot production of a diverse range of product is carried out as smoothly as in Japan by means of quick die and jig changes, strict in-process inventory management, adherence to the standard times set in Japan, the coordination of lines by first-line supervisors, preventive maintenance, rapid response to problems through close interdivisional coordination, and kaizen activities. 4 = small-lot production is carried out, but to a lesser extent than above. 3 = ordinary operations go smoothly, but the support of Japanese employees is required in the event of problems and major operational changes such as the introduction of new models. A smaller number of models is produced. 2 = it is mainly engineers and Japanese employees who respond to problems and carry out operational changes. The number of models is not large. Kaizen activities on the shop floor are not expected. There are some problems with production efficiency.

Hiroshi Kumon 25

1 = process management is mainly carried out engineers, including Japanese expatriates, and not by shop-floor workers. The number of models produced is extremely small. There are major problems with production efficiency.

III (11)

Procurement Local content

5 = Less than 20 per cent. 4 = 20–39 per cent. 3 = 40–59 per cent. 2 = 60–79 per cent. 1 = 80–100 per cent.

(12)

Suppliers

5 = parts and materials are mainly procured from Japan, the remainder being procured from Japanese-affiliated local suppliers. 4 = key parts and materials are procured from Japan. A high proportion of the components procured in the host or third countries are from Japanese-affiliated suppliers, including sister plants. 3 = only some of the key parts and materials are procured from Japan. Of the parts procured in the host or third countries, half are from Japanese-affiliated suppliers and half from companies with no Japanese connections. 2 = parts and materials are mainly procured from non-Japanese suppliers in the host or third countries, the only exception being some of the key parts. 1 = almost all parts and materials, including key ones, are procured from non-Japanese suppliers in the host or third countries.

(13)

Procurement method

5 = just-in-time delivery, quality assurance by parts manufacturers and the provision of technological assistance to and cooperation with suppliers (sometimes involving joint product development) are achieved through long-term business relationships. 4 = the practices mentioned above only apply to some suppliers. 3 = it is impossible to organize just-in-time delivery and parts have to be inspected for quality at the time of procurement, but some attempts have been made to reduce parts inventories and facilitate smooth production operations. Technological assistance is given to local suppliers in order to improve quality, price and delivery time. 2 = local suppliers have to be relied upon to maintain quality standards and observe delivery times.

26 Introduction

1 = transactions with local suppliers are mainly characterized by spot trading. Parts inventories are quite high in order to cope with defective parts and delayed delivery.

IV (14)

Group consciousness Small-group activities

5 = most of the workers participate voluntarily in small-group activities, the nature of which they suggest themselves. Substantial progress is made with regard to quality, productivity and safety. 4 = more than 50 per cent of workers participate voluntarily in small-group activities, which serve to enhance workplace morale but otherwise have a limited impact. Alternatively, in some plants most workers participate in small-group activities, but only because participation is mandatory. 3 = between 20 per cent and 50 per cent of workers participate voluntarily, or most workers participate in plants where participation is mandatory. The activities are carried out with little enthusiasm. 2 = less than 20 per cent of workers participate, or small-group activities exist only in special model cases. These may be a suggestion system for improving the atmosphere in the workplace. 1 = neither small-group activities nor a suggestion system exists.

(15)

Information sharing

5 = the management tries to communicate its intentions to the employees, to obtain employees’ opinions and to facilitate communication within the company through meetings and gatherings at all levels, the disclosure of information and small-group activities. There are no significant linguistic differences. 4 = provisions for information sharing exist, but to a lesser degree than above. 3 = attempts are made at information sharing throughout the company. 2 = information is only shared at meetings before work begins. 1 = there are no special provisions for information sharing.

(16)

Sense of unity

5 = the following devices and practices are employed to encourage a sense of unity among employees: cafeterias are open to employees of all ranks, uniforms are worn by all employees, there are open-plan offices, companywide social events, morning ceremonies, uniform parking provision, company-owned recreational facilities, and so on.

Hiroshi Kumon 27

4 = many of the devices and practices listed above are employed, but to a lesser extent. 3 = only some of the above are practiced. 2 = only some social events are held. 1 = there are no special practices.

V

Labour relations

(17)

Hiring method

5 = all job applicants, including those for ordinary production jobs, are carefully selected through written examinations, interviews and multitier selection committees. The plant attracts many applicants. When a higher academic background is required, new graduates are preferred. The company has selected the site of the plant by taking labour factors into consideration. 4 = applicants are carefully selected but less stringently than above. 3 = applicants are screened but there are fewer restrictions as there are fewer applicants on high labour mobility. 2 = applicants are given only a very simple test because there are few applicants or because there is a high employee turnover. 1 = there are no special selection methods.

(18)

Long-term employment

5 = the plant is explicit about its intention to avoid redundancies as much as possible and may never have laid off employees. Special provisions are implemented and employees stay with the company for a long time. 4 = the situation is basically the same as above, but the avoidance of redundancies is less explicit and duration of employment is slightly less. 3 = the plant does not adhere firmly to a policy of avoiding redundancies (employees have been laid off in the past), although laying off workers is not seen as desirable. The plant hopes that key personnel will remain for a long time, but the only measure to secure this is the provision of slightly higher wages. Employee turnover is equal to the local average. 2 = managers think that redundancies are acceptable and lay-offs do take place. There are no special provisions for long-term employment. As employee turnover is high, the plant can adjust the number of employees without resorting to lay-offs. 1 = managers believe that it is natural to lay off employees when the situation demands. Employee turnover is very high, both as an absolute number and in comparison with the local average.

28 Introduction

(19)

Harmonious labour relations

5 = the management maintains harmonious relations with the trade union, the works council serves a similar function to the labour–management consultation system in Japan, and there is a determined effort to maintain good communications with employees. If there is no union the management builds friendly relations with employees via the works council and takes great care to treat employees well. 4 = there is a union and union–management relations are harmonious. Efforts to maintain a communicative relationship with employees are slightly less vigorous than they are at 5-point companies. 3 = there is a union, and while negotiations with the union have been arduous at times there have been no dispute actions. Because of the works council there have been no particular personnel-related problems. 2 = there is a union and confrontations over wages or working conditions have sometimes led to strike action. 1 = management–worker relations are adversarial and there are frequent strikes.

(20)

Grievance procedure

5 = the management attempts to satisfy employee’s demands for improved working conditions. Grievances are mainly resolved on the shop floor or through managerial channels. 4 = the management attempts to satisfy employees’ demands and the personnel department plays a part in grievance resolution (the open-door approach). 3 = the management pays some attention to employees’ demands. Grievances are resolved on the shop floor or officially through the union. 2 = the management puts little effort into responding to employees’ demands and complaints. Grievances tend to be resolved through the union. 1 = the management pays almost no attention to employees’ demands. There are many grievances and they are resolved only through the union or external arbitration.

VI (21)

Parent–subsidiary relations Ratio of Japanese expatriates

5 = 4 per cent or more. 4 = 3–4 per cent. 3 = 2–3 per cent. 2 = 1–2 per cent. 1 = less than 1 per cent.

Hiroshi Kumon 29

Note: for plants with fewer than 500 employees, one percentage point was added to each of the above ratios.

(22)

Delegation of authority

5 = the Japanese parent company makes nearly all decisions on products, investment, targeted market, local personnel, R&D and so on. 4 = the parent company makes most decisions but the subsidiary is encouraged to make suggestions. 3 = the subsidiary submits plans and the parent company evaluates them before giving or withholding approval. 2 = the subsidiary is responsible for most plans and decisions, in accordance with the intentions of the parent company. 1 = the subsidiary is responsible for all plans and decisions. Note: the share of equity held by the Japanese company in a joint venture, plus the characteristics of the local partner, are taken into consideration in the scoring.

(23)

Position of local managers

5 = all the top management positions are held by Japanese. 4 = the president is Japanese and the majority of important positions are held by Japanese. 3 = the important managerial positions are shared fairly equally between Japanese and local employees. 2 = the president is a local person and the majority of important positions are held by local people. 1 = all the top management positions are held by local people. Note: even if there are only a few Japanese in senior management positions, if their authority is strong the application score is higher. The working language used at meetings serves as a reference in this respect.

Notes 1. ‘The Japanese management and production system’ is the fundamental concept in this volume. We consider that the term ‘Japanese-style management’, which has come to represent the so-called ‘three sacred treasures of Japanese business’, is not suitable for describing the Japanese production system. ‘Management system’ includes organizational factors and the relationship between corporations and financial institutions; ‘production system’ does not generally embrace topics such as parent-subsidiary relations or labour relations. For these reasons neither ‘management system’ nor ‘production system’ adequately reflect the topic of our research. Hence we employ the term ‘the Japanese management and production system’, or simply ‘the Japanese system’.

30 Introduction 2. Ministry of Finance, Zaisei Kin’yuu Toukei Geppou (Ministry of Finance Statistics Monthly), vol. 356 (December 1981), vol. 476 (December 1991), vol. 584 (December 2000), vol. 608 (December 2002). 3. Ministry of International Trade and Industry, Dai 29 Kai 1999 nendo Kaigai Jigyou Katsudou Kihon Chousa Gaiyou (Summary of the Basic Survey on Overseas Business Activities for Fiscal Year 1999), vol. 29. (Tokyo: MITI, June 2000). 4. There have been conflicting opinions among the members of our research group about the use of ‘hybrid pattern’. The question is whether or not it is proper, in the case of survey analyses from Europe where managerial environment is different from the United States, to directly express the distribution of application values through the degree of application in the 23 items. In the United States there existed a well-established mass production system whose structural elements were completely opposite to those of the Japanese system. We assumed that adaptation stands at the opposite side to application of the Japanese system. Therefore, evaluated degree of application corresponds to its reciprocal degree of adaptation: application score of 5 expresses adaptation score of 1. Consequently, the distribution of the degree of application could be interpreted as a direct expression of the mixture of the Japanese- and American-style systems. In Europe, however, not all elements of the local system were opposite to those in Japan. And some elements also differed from those in the United States. When Japanese plants attempted to blend the local system with the Japanese system, formal adaptation to those elements (e.g. wage system, employment security, works council etc.) supported functional application of the Japanese system. It is in this sense that Japanese firms relied upon functional equivalent within the European system. Therefore, in the case of Europe, ‘degree of application’ sometimes indicated not only application, but also a certain adaptation in the organization form of the local element. In this volume, we use the term hybrid pattern as describing the degree of application of the 23 items that represent elements of the Japanese system. Even though, in the case of Europe, ‘rate of application’ sometimes indicates not only application in function of the Japanese system, but also adaptation in organizational form to the European system, it reveals application of the Japanese system. Even when those local elements are not polar opposite in nature to those of the Japanese system, this approach is applied to the analysis of systems that have a mixture of Japanese and local elements. This approach allowed us to solve the problems of how best to describe application when local managerial environments differ from region to region. As mentioned throughout this book, since the topic of our research is the international transfer and diffusion of the Japanese system, it was first of all necessary to adopt this approach. Our methodological approach was to evaluate application, or the degree to which the Japanese system is introduced, on a 5-point scale. This is shown in the distribution of the application scores. After that, we would describe the local system and adaptation towards its elements in as much detail as possible. 5. In Brazil there are a number of Japanese and Western plants with a lean production system. Most of the automotive plants are new and have the feel of a show room. In 2001 we had the opportunity to visit and conduct interviews at three of the most modern of these plants. They were true hybrids, with European-style modular production and supplier-park systems combined with elements of the lean production system in respect of work organization and production management. These

Hiroshi Kumon 31 plants are not the subject of the present volume, but they will be analysed on another occasion. 6. There is disagreement over whether Japanese work organization should be considered as a delegation of power or intensified exploitation (Babson, 1995). Adler (1993a) has conducted excellent research on Japanese work organization, which he refers to as ‘democratic Taylorism’.

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Part I Japanese FDI and Production in Europe

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2 Movement of Japanese Companies into Europe Nobuo Kawabe

Introduction In 1998 Europe became the world’s top recipient of Japanese FDI, outperforming North America for the first time since the 1970s. That Europe has remained at the top of the list since then can be seen as evidence that the importance of Europe for Japan has increased, and that Europe has strengthened its position in the world economy. The integration of the European market began in the 1950s and was completed in 1992. The single European currency, the euro, was introduced in 1999 and its actual distribution began in 2002. Hence the world witnessed the tangible results of the grand experiment of European integration towards the end of the twentieth century. In the face of trade conflicts and the appreciation of the yen in the mid 1980s, Japanese companies sharply increased their investment in Europe. This chapter reviews Japanese FDI in Europe, chiefly in manufacturing, since that time. It examines how investment patterns have changed, what lies behind the changes, and how companies’ strategies and organization have been adapted to cope with these changes.

Current status of Japanese investment in Europe In 1972, which is known as ‘year one of Japan’s aggressive FDI’, Japanese FDI in Europe began to rise. By volume, there was a gradual increase until 1985, except during 1973 and 1979 (the years of the first and the second oil crises), when the volume declined somewhat. In autumn 1985 the Plaza Accord triggered a dramatic appreciation of the yen as currency exchange rates were realigned, weakening the competitive strength of export-oriented companies. As a result Japanese FDI soared in 1986 and peaked in 1989 at $67.54 billion. Between 1989 and 1991 Japan remained the world’s leading investor in terms of flow. Japanese FDI declined between 1991 and 1993 35

36 Movement of Japanese Companies into Europe

due to the collapse of the bubble economy in Japan and the worldwide recession. However from 1994 it recovered and moved closer its peak level in value terms. Looking at investment by region, at the start of the 1970s Europe took the largest share, but from 1972 North America, and particularly the United States, took the lead. In the peak year of 1989, North America accounted for over 50 per cent of Japanese FDI. However in 1997 its share fell to below 40 per cent, and then to about 20 per cent in 1998. Since then North America has never outperformed Europe. In the late 1980s Japanese FDI in Europe increased sharply and Europe became the second largest recipient, outperforming Asia. At that time the ‘challenge of Japan’ led to mounting interest in Japanese investment and multinationals.1 In 1994–97, Asia regained its share, displacing Europe to become the second largest recipient, but in 1998 Europe’s share surged again, surpassing that of both North America and Asia. This high level was maintained until the first half of 2001 (Table 2.1). It should be noted that these figures include such investments as the purchase of RJ Reynolds Tobacco, a US company, by Japan Tobacco via its subsidiary in the Netherlands, plus the acquisition of an AT&T-affiliated business by NTT DoCoMo via its subsidiary in the United Kingdom.2 Table 2.2 summarizes Japanese FDI in European countries from 1989 to 2000. The cumulative investment figures between 1951, when Japan began to engage in FDI for the first time since World War II, and 2000 clearly show the pattern of Japanese investment. First, it is concentrated in certain countries. The United Kingdom and the Netherlands in particular have attracted large investments, accounting for 48.6 per cent and 22.3 per cent, respectively, of all Japanese investment in Europe. They are followed by France (6.7 per cent) and Germany (6.3 per cent). Thus the top four countries combined account for a huge 83.9 per cent share. The remaining countries include Luxembourg (3.7 per cent), Belgium (2.4 per cent), Spain (2.3 per cent), Switzerland (2.0 per cent) and Ireland (2.1 per cent). Investment in Eastern Europe began only recently and the volume is still small. With regard to the industrial pattern of Japanese FDI in Europe, investment in non-manufacturing sectors has been high, accounting for over 60 per cent in the 1970s and approximately 70 per cent in recent years. Roughly 40 per cent of this investment has been in finance and securities businesses. Just 20 per cent of total investment has been in manufacturing, primarily in the electrical, electronic, transportation equipment, petrochemical and chemical industries. The recipient industries can be classified as follows: industries in which Japanese companies enjoy a competitive advantage, for example the electronic and electrical industries; industries in which Japanese companies compete on equal terms with local companies, such as general machinery; and industries in which Japanese companies lack competitive advantage and can benefit

Table 2.1

Japanese foreign direct investment, by region, 1970–2001 ($1 million, percentage share in brackets)

North America 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993

192 230 406 913 550 905 749 735 1364 1438 1596 2522 2905 2701 3554 5495 10 441 15 357 22 328 33 902 27 192 18 823 14 572 15 287

(21.2) (26.8) (17.4) (26.1) (23.0) (27.6) (21.6) (26.2) (29.7) (28.8) (34.0) (28.2) (37.7) (33.2) (35.0) (45.0) (46.8) (46.0) (47.5) (50.2) (47.8) (45.3) (42.7) (42.4)

Latin America 46 140 282 822 699 372 420 456 616 1207 588 1181 1503 1878 2290 2616 4737 4816 6428 5238 3628 3337 2726 3370

(5.1) (16.3) (12.1) (23.5) (29.5) (11.3) (12.1) (16.3) (13.4) (24.2) (12.5) (13.2) (19.5) (23.1) (22.6) (21.4) (21.2) (14.4) (13.7) (7.8) (6.4) (8.0) (8.0) (9.4)

Asia 167 237 402 998 731 1100 1245 865 1340 976 1186 3339 1385 1847 1627 1435 2327 4868 5569 8238 7054 5936 6425 6637

(18.5) (27.6) (17.2) (28.6) (30.5) (33.5) (36.0) (30.8) (29.1) (19.5) (25.3) (37.4) (18.0) (22.7) (16.0) (11.7) (10.4) (14.6) (11.8) (12.2) (12.4) (14.3) (18.8) (18.4)

Middle & Near East 28 (3.1) 36 (4.2) 236 (10.1) 110 (3.1) 64 (2.7) 196 (6.0) 278 (8.0) 225 (8.0) 492 (10.7) 130 (2.6) 158 (3.4) 96 (1.1) 124 (1.6) 175 (2.1) 273 (2.7) 45 (0.4) 44 (0.2) 62 (0.2) 259 (0.6) 66 (0.1) 27 (0.0) 90 (0.2) 709 (2.1) 217 (0.6)

Europe 335 84 935 337 189 333 337 220 323 495 578 798 876 990 1937 1930 3469 6576 9116 14 808 14 294 9371 7061 7940

(37.1) (9.8) (40.0) (9.6) (7.9) (10.2) (9.7) (7.8) (7.0) (9.9) (12.3) (8.9) (11.4) (12.2) (19.1) (15.8) (15.5) (19.7) (19.4) (21.9) (25.1) (22.5) (20.7) (22.0)

Oceania 123 (13.6) 110 (12.8) 42 (1.8) 208 (6.0) 108 (4.5) 182 (5.5) 162 (4.7) 165 (5.9) 239 (5.2) 582 (11.7) 448 (9.5) 424 (4.7) 421 (5.5) 191 (2.3) 157 (1.5) 525 (4.3) 992 (4.4) 1413 (4.2) 2669 (5.7) 4618 (6.8) 4166 (7.3) 3278 (7.9) 2406 (7.0) 2035 (5.6)

Africa 14 21 34 106 55 192 272 140 225 168 139 573 489 364 326 172 309 272 653 671 551 748 238 539

(1.5) (2.4) (1.5) (3.0) (2.3) (5.9) (7.9) (5.0) (4.9) (3.4) (3.0) (6.4) (6.3) (4.5) (3.2) (1.4) (1.4) (0.8) (1.4) (1.0) (1.0) (1.8) (0.7) (1.5)

Total 904 858 2338 3494 2395 3280 3462 2806 4598 4995 4693 8932 7703 8145 10 155 12 217 22 320 33 364 47 022 67 540 56 911 41 584 34 138 36 025

37

38

Table 2.1

(Continued) North America

1994 1995 1996 1997 1998 1999 2000 2001*

17 823 22 761 23 021 21 389 10 943 24 770 12 271 3 223

(43.4) (44.9) (47.9) (39.6) (26.9) (37.1) (25.3) (23.5)

Latin America 5231 3877 4446 6336 6463 7437 5232 2245

(12.7) (7.6) (9.3) (11.7) (15.9) (11.2) (10.8) (16.4)

Asia 9699 12 264 11 614 12 181 6528 7162 5931 2762

(23.6) (24.2) (24.2) (22.6) (16.0) (10.7) (12.2) (20.2)

Middle & Near East 290 148 238 471 146 113 19 1

(0.7) (0.3) (0.5) (0.9) (0.4) (0.2) (0.0) (0.0)

* First half fiscal year. Source: JETRO, White Paper on Foreign Direct Investment (Tokyo: JETRO, 1970–2001).

Europe 6230 8470 7372 11 204 14 010 25 804 24 406 4 966

(15.2) (16.7) (15.4) (20.8) (34.4) (38.7) (50.2) (36.3)

Oceania 1432 2795 897 2058 2213 893 667 380

(3.5) (5.5) (1.9) (3.8) (5.4) (1.3) (1.4) (2.8)

Africa 346 379 431 332 444 515 53 123

(0.8) (0.7) (0.9) (0.6) (1.1) (0.8) (0.1) (0.9)

Total 41 50 48 53 40 66 48 13

051 694 019 972 747 694 580 699

Table 2.2

Japanese FDI in Europe, by Country, 1989–2000 ($1 million, percentage share in brackets) 1989

1990

UK 5239 (35.4) 6806 (47.6) Netherlands 4547 (30.7) 2744 (19.2) Germany 1083 (7.3) 1242 (8.7) France 1136 (7.7) 1257 (8.8) Ireland 133 (0.9) 49 (0.3) Belgium 326 (2.2) 367 (2.6) Spain 501 (3.4) 320 (2.2) Italy 314 (2.1) 217 (1.5) Australia 18 (0.1) 38 (0.3) Poland – – – – Luxembourg 654 (4.4) 224 (1.6) Hungary 0 (0.0) 29 (0.2) Czech Republic – – – – Russia/CIS 19 (0.1) 25 (0.2) Romania – – – – Switzerland 397 (2.7) 666 (4.7) Portugal 74 (0.5) 68 (0.5) Norway 280 (1.9) 138 (1.0) Turkey 40 (0.3) 58 (0.4) Finland – – – – Sweden – – – – Cyprus – – 4 (0.0) Other 47 (0.3) 43 (0.3) Total 14 808 (100.00) 14 295 (100.00)

1991

1992

3588 (38.3) 2948 (41.6) 2527 1960 (20.9) 1446 (20.4) 2175 1115 (11.9) 769 (10.9) 760 817 (8.7) 456 (6.4) 545 102 (1.1) 113 (1.6) 469 266 (2.8) 281 (4.0) 135 378 (4.0) 332 (4.7) 207 322 (3.4) 216 (3.0) 188 55 (0.6) 12 (0.2) 45 – – 1 (0.0) – 226 (2.4) 68 (1.0) 44 181 (1.9) 4 (0.1) 72 – – – – 7 51 (0.5) – – 22 – – – – – 62 (0.7) 144 (2.0) 426 10 (0.1) 12 (0.2) 57 169 (1.8) 86 (1.2) 87 30 (0.3) 53 (0.7) 133 – – – – 1 – – 21 (0.3) 16 1 (0.0) – – 4 43 (0.5) 121 (1.7) 184 9376 (100.00) 7083 (100.00) 8104

1993 (31.2) (26.8) (9.4) (6.7) (5.8) (1.7) (2.6) (2.3) (0.6) – (0.5) (0.9) (0.1) (0.3) – (5.3) (0.7) (1.1) (1.6) (0.0) (0.2) (0.0) (2.3) (100.00)

1994

1995

2169 (34.4) 1050 (16.7) 727 (11.5) 418 (6.6) 343 (5.4) 858 (13.6) 184 (2.9) 172 (2.7) 42 (0.7) 3 (0.0) 14 (0.2) 41 (0.7) – – 19 (0.3) – – 39 (0.6) 2 (0.0) 20 (0.3) 75 (1.2) – – 43 (0.7) 4 (0.1) 83 (1.3) 6306 (100.00)

3445 (40.7) 1509 (17.8) 547 (6.5) 1524 (18.0) 340 (4.0) 358 (4.2) 51 (0.6) 120 (1.4) – – 3 (0.0) – – 33 (0.4) 46 (0.5) 30 (0.4) 2 (0.0) 109 (1.3) 5 (0.1) – – 103 (1.2) – – 9 (0.1) 7 (0.1) 229 (2.7) 8470 (100.00)

39

40

Table 2.2

(Continued) 1996

UK Netherlands Germany France Ireland Belgium Spain Italy Australia Poland Luxembourg Hungary Czech Republic Russia/CIS Romania Switzerland Portugal Norway Turkey Finland Sweden Cyprus Other Total

3438 1099 571 503 397 89 318 109 – 10 – 13 2 18 5 58 5 – 106 – 10 4 618 7373

(46.6) (14.9) (7.7) (6.8) (5.4) (1.2) (4.3) (1.5) – (0.1) – (0.2) (0.0) (0.2) (0.1) (0.8) (0.1) – (1.4) – (0.1) (0.1) (8.4) (100.00)

1997 4118 3295 732 1736 566 88 232 139 – 67 3 83 24 9 5 20 8 – 17 – 6 – – 11 148

(36.9) (29.6) (6.6) (15.6) (5.1) (0.8) (2.1) (1.2) – (0.6) (0.0) (0.7) (0.2) (0.1) (0.0) (0.2) (0.1) – (0.2) – (0.1) – – (100.00)

1998 9780 2118 553 521 360 164 122 109 81 53 34 28 22 12 11 10 5 – 5 – – – 13 988

1999 (69.9) (15.1) (4.0) (3.7) (2.6) (1.2) (0.9) (0.8) (0.6) (0.4) (0.2) (0.2) (0.2) (0.1) (0.1) (0.1) (0.0) – (0.0) –

– – (100.00)

11 718 10 361 649 1127 460 126 518 47 36 94 38 63 2 6 8 210 48 – 12 – 3 – – 25 526

(45.9) (40.6) (2.5) (4.4) (1.8) (0.5) (2.0) (0.2) (0.1) (0.4) (0.1) (0.2) (0.0) (0.0) (0.0) (0.8) (0.2) – (0.0) – (0.0) – – (100.00)

2000 19 142 2757 320 325 49 249 33 58 – 26 142 234 52 2 – 37 – – 129 – 835 – – 24 390

(78.5) (11.3) (1.3) (1.3) (0.2) (1.0) (0.1) (0.2) – (0.1) (0.6) (1.0) (0.2) (0.0) – (0.2) – – (0.5) – (3.4) – – (100.00)

Note: Since the ‘Other’ category was removed in 1997 the classification after 1997 differs from that prior to 1996, and the share of small countries lacks continuity before and after 1997. Source: JETRO, White Paper on Foreign Direct Investment (Tokyo: JETRO, 1989–2000).

Nobuo Kawabe 41

from investing. Typical of the latter are chemical products, food products, clothing and textiles.3 Table 2.3 provides a breakdown of Japanese manufacturing companies in Europe by country and industry for the period 1989–2000. A total of 945 Japanese manufacturing companies are now operating in Europe, with 150 petrochemical and chemical manufacturers accounting for the largest share (15.8 per cent). This is followed by 121 (12.8 per cent) electrical and electronic parts manufacturers, and 111 (11.7 per cent) manufacturers of parts for transportation equipment. If electrical machinery and transportation equipment were added to the latter their share would be much higher. The fourth category is general machinery, with 106 companies (11.0 per cent). Hence chemical and petrochemical, electrical and electronic products and parts, transportation equipment and parts, and general machinery are the major target industries of Japanese investors in Europe. An analysis of investments by country shows that the UK is the top recipient. The majority of investment there is in finance and insurance businesses so the UK’s share of total Japanese FDI in manufacturing companies is less than 30 per cent. Nonetheless investments have been made in a broad range of frontier industries, ranging from transportation equipment and parts to semiconductors, computers, electronic and electrical products, chemical products and electronic parts. In addition many Japanese companies have located their European manufacturing bases and headquarters in the UK. The second group consists of the Netherlands, Belgium, Luxembourg and Switzerland, all of which play central roles in Europe in one way or another. In the Netherlands and Belgium, investments have been made in diverse manufacturing and retail businesses. They also accommodate call centres and European headquarters, and have received large investments in chemical and petrochemical firms. The Netherlands has also received fairly large investments in general machinery. Luxembourg is an investment and financial centre. Accordingly Japanese investments are mostly in finance, for example, life insurers have set up investment and loan companies. Similarly Switzerland, another financial centre, attracts investment in finance and securities businesses and marketing companies. The third group consists of Germany, France, Italy and Spain. Each of these countries has a large market of its own and investors generally target these markets. The range of targeted industries is broad and differs from country to country according to industrial structure. For example in Germany general machinery holds the top position, followed by chemical and petrochemical products, electronic and electrical products and parts, and transportation equipment and parts. It is interesting to note that there are no Japanese companies in the transportation equipment sector in Germany. In France the major areas of investment are retail, services and tourism.

42

It.

Fin.

Nor.

Swed.

Den.

Aust.

Port.

Switz.

Gr.

Pol.

Cz.

Slov.

Hun.

Rom.

Turk.

Total

–

–

–

–

–

1

–

–

–

–

1

–

2

41

–

1

3

–

–

–

–

–

2

–

–

–

1

–

–

–

–

13

– –

– –

1 –

4 –

– 3

– –

– 1

– –

– 1

– 1

– –

– –

– –

– –

– –

1 –

– –

– –

16 6

– – – 1

– – – 1 – – 3 16

– – – 11

– 2 – 2

– – – 1

– – – 2

– – – 1

– – – 2

– 1 – 4

– – – 1

– – – 2

– – – –

– – – 1

– – – –

– – – 3

– – – –

– 1 – 9 – 2 – 150

– – – – 1 –

5 – 1 – 1 2

1 1 1 1 – 1

2 – – – – –

– – – – – –

– – – – – –

– – – – – –

– – – – – 1

– 1 – – – 2

– – – – – –

– – – 1 – –

– 2 – – – –

– – 1 – – 1

– – – – – –

– – – – 1 –

– – – – – –

– 1 – – – –

19

3

4

1

–

–

3

2

1

–

–

–

8 –

2 –

– –

– –

– –

1 1 1 31

– – – 19

– – – 3 1 – – – 1 17 17 16

5 4 5 – 2 13

4 2 2 – 3 1

Ger.

8

Fr.

Lux.

–

Ire.

1

Belg.

1

Neth.

Food and agricultural/and fishery products Textiles (yarn and woven cloth) Apparel and textile products Timber and wood products Furniture and fixtures Pulp and paper Printing and publishing Chemicals and petroleum products Pharmaceuticals Rubber products Ceramics and cement Iron and steel Non-ferrous metals Metal products

Sp.

Number of Japanese manufacturers in Europe, end December 2000

UK

Table 2.3

4 1 1 1 1 1

1 2 – 1 – 1

5 1 4 1 – –

3 2 2 1 – 2

30 17 17 6 9 25

General machinery Electrical machinery Electrical and electronic components Transport machinery Transport machinery components Precision machinery and equipment Other Unknown Total

30 26 42

9 13 13

3 37

4 16

– 7

21

8

7

27 6 274

25 13 8 3 23 2

1 1 4

– – 1

3 2 8

5 6 4

10 6 4

– – –

– – –

5 1 2

– – –

2 3

– 5

– –

– 6 – 13

3 7

– 1

– –

1 5

3

1

–

2

–

–

–

7 5 4 3 9 1 1 – 133 109 58 44

– – 3

3 1 – 10 57 21

– – 1

–

2 6 – 4 29 74

1 1

– 1 1

2 – –

– – –

1 – 3

– 1 4

– 1 2

1 2 7

– 1 –

– 106 – 72 – 121

– –

– –

2 3

– –

– –

– 3

– 3

– 2

1 2

– 2

5 27 2 111

1

–

–

–

2

–

–

2

–

1

–

–

1 – 19

2 – 3

3 2 1 – 10 20

1 – 7

1 – 4

1 – 1 3 11 17

1 1 7

2 10 32

– – 3

48

2 74 – 47 12 948

Note: Production base only: R&D and design centres are not included. Source: JETRO, 17th Survey of Japanese Manufacturing Affiliates in Europe, the Middle East and Africa (Tokyo: JETRO, 2001), p. 3.

43

44 Movement of Japanese Companies into Europe

In the manufacturing sector, as in Germany, chemical and petrochemical products, electronic and electrical products predominate. Unique to France is heavy investment by food processors. A notable recent development was the construction of Toyota’s second European plant. In Italy investments have been made in chemical and general machinery production, and there have been moves into retail, textiles, clothing and fibre products. Spain is characterized by investments by companies that produce transportation parts and equipment and chemical products. The fourth group comprises Ireland, Austria, Portugal and Greece, all of which are trying to gain a comparative advantage in certain specialized areas. Ireland, with a view to becoming an EU electronic and financial centre, courts investment by manufacturers of electronic parts and equipment. It also receives considerable investment in the aircraft leasing sector. Austria, by virtue of its position on the border between Eastern and Western Europe, acts as a provider of information on East European countries. Greece, though geographically close to the Balkans and Eastern Europe, has attracted little investment from Japan. In Portugal investments have been made in the chemical, petrochemical and automotive industries. The fifth group is Scandinavia. Given their small domestic markets and high production costs the scandinavian countries, have attracted little investment. Most Japanese investments have been in local manufacturing companies. Other investments include a hotel business in Denmark, North Sea oil fields off Norway and transportation equipment in Sweden, plus some investment in timber and woodwork companies. The sixth group consists of the Central and East European countries, Russia and the Commonwealth of Independent States (CIS). Since the mid 1990s the three Central European countries – Hungary, Poland and the Czech Republic – have attracted investment in the automotive, electrical and electronic industries, and investment in services such as distribution and finance is on the increase. Russia receives investment in primary industries such as timber and fishing, chiefly in the far east, and since 1997 investment in the electrical and electronic sectors has become increasingly popular. No investments have been made in the CIS countries.

The timing of and motives for Japanese investment in Europe Japanese corporations’ motives for investing in Europe have clearly varied according to the timing of the investment. This section examines the historical trend.4 In 1951 Japanese overseas investment resumed after the hiatus of World War II, and in no time returned to the prewar pattern. Investment in the advanced industrial countries was largely made by trading companies and banks, primarily for the sake of trade. Manufacturers concentrated more on developing countries, particularly in Southeast Asia.

Nobuo Kawabe 45

In the 1960s trading companies began to engage in joint ventures with Japanese manufacturers to handle the sale of their products in Europe, although some manufacturers chose to set up their own marketing bases. Sony and Matsushita, both manufacturers of electrical appliances, were the pioneers in this. Japanese carmakers, including Toyota, Nissan and Honda, began to move into Europe in the 1960s, first setting up sales organizations and then assembly plants. From 1972 Japanese FDI soared. There were four principal reasons for this: (1) The labour shortage and high wages in the domestic market; (2) The liberalization of foreign investment due to Japan’s favourable balance of payments situation and the rapid growth of its foreign reserves; (3) The drop in foreign investment costs following the sharp appreciation of the yen after the multilateral currency realignment of late 1971 and the shift of major currencies to the floating rate system in March 1973; and (4) the fact that Japanese companies, having strengthened their corporate bases in terms of technology, capital and management control, had solidified their brand images, which enabled them to sell their products irrespective of the country of production.5 Over the next two decades numerous electrical and electronic companies and carmakers set up manufacturing or assembly operations in various places in Europe, including Matsushita, Hitachi, Victor, Mitsubishi Electric, NEC, Sanyo, Sharp, Sony, Toshiba, Toyota, Hino Motors, Honda, Isuzu Motors, Mitsubishi Motors, Nissan and Toyo Kogyo (now Mazda). The reason for setting up these plants was to capitalize on the low wages in the European Community. Manufacturers of other products also entered the European market during this period.6 Other factors in the surge of Japanese FDI were emerging protectionism in host countries, investment enticement programmes by the governments of European countries, and improved industrial cooperation as a result of the latter. In Europe and the United States some major industries failed to keep up with modernization and rationalization, which caused them to lose their competitiveness in the international arena. As a consequence they were forced to reduce production and cut jobs, whereupon the trade balances of these countries fell in to severe deficit, and the Japan–Europe and Japan–US trade conflicts intensified. Industrial cooperation was seen as a solution to this problem. It was expected that cooperation in the form of investment would help to create jobs and enable each side to benefit from the other’s technological expertise. It was also hoped that such investment would promote technological development, which would in turn reduce costs.7 Industrial cooperation continued into the 1980s. Japanese–European cooperation took place in the production of semiconductors, machine tools and textiles, and in various forms of direct investment, technological cooperation, licensing, sales cooperation, joint research and development, joint

46 Movement of Japanese Companies into Europe

ventures in third-country markets and so on. Governmental and industrial initiatives resulted in bilateral committees being established between Japan and the United Kingdom, France, Italy and Belgium to promote industrial cooperation, with meetings being held annually.8 In the Scandinavian countries, development areas were designated and many Japanese companies set up operations in these areas. Meanwhile a number of European countries, with a view to promoting regional development and job creation, actively engaged in attracting investment. This was also an important factor in the acceleration of Japanese investment.9 In response to the appreciation of the yen after the currency realignment agreed to by the G-5 in September 1985 and to the integration of the European market, Japanese companies made overseas investment a significant part of their global management strategy. Their aims were to (1) establish a presence in industries and regions with a high growth potential; (2) create international production bases and divisions of labour to achieve greater production efficiency; (3) avoid protectionism in developed industrial countries; and (4) distribute products internationally and create global market networks. They ventured into product areas in which Japan was particularly competitive, such as integrated circuits, video recorders, copying machines and other electronic and electrical products, as well as precision instruments and machine tools.10 As locally produced inputs were inadequate in terms of quality, price and delivery time, and import costs from Japan were high due to the strong yen, there were increasing calls for Japanese parts manufacturers to move to Europe.11 These calls were heeded and from 1985 Japanese parts manufacturers, primarily in the automotive, electronic and electrical industries, began to establish factories in Europe. In the late 1980s, seeing the forthcoming integration of the European market as a business opportunity, Japanese corporations increased their staffing levels, reviewed plant locations and established European headquarters and R&D centres. In addition firms had to consider how to develop their operations from a pan-European perspective that included the EFTA and East European countries. One solution was to engage in mergers and acquisitions, which accounted for approximately 15 per cent of investments during this period. In the meantime East European countries were making progress with their market reforms and European, US and Korean companies began to invest in the region. Japanese companies, however, were more cautious and it was not until 1996 that they began to invest in the East and Central European the automotive, electronic and electrical industries, and particularly in Poland, Hungary and the Czech Republic.12 The Central and East European countries had trade agreements with the EU and were able to trade freely with it. These countries not only enjoyed advantages in terms of low-cost labour and land for plant construction,

Nobuo Kawabe 47

but also provided investors with special incentives such as exemption from custom duties and VAT, and exemptions or rebates on corporate taxes. Consequently some Japanese companies reduced or ceased their production operations in the UK, which had lost its price competitiveness due to the strong pound, and moved them to Central and Eastern Europe. For example Matsushita and Sony moved their colour TV production to the Czech Republic and Slovakia and their video and audio equipment production to Hungary. Suzuki is expanding its production of small cars in Hungary, and Toyota has announced plans for a joint venture with Peugeot and Citroën in the Czech Republic. In response to these moves, Japanese manufacturers of electronic, electrical and automotive parts are also venturing into the region.13

The integration of the European market and the emergence of regional management organizations Having developed market networks in Europe, North America and Asia, in the late 1980s Japanese companies were confronted with the challenge of improving their production and distribution efficiency at the global level and building global networks. This involved looking a new at the functions carried out by their world headquarters, splitting authority between their world and regional headquarters and coordinating the regional headquarters whilst maintaining a unified corporate image, mission and culture. When full integration of the European market took place in 1992, Japanese companies were compelled to integrate their previously separate European operations, change their investment strategies and create organizational structures that were more suited to the new conditions. The conventional vertical management system of overseas divisions and merchandizing divisions, each controlling clearly divided territories, was no longer appropriate. Moreover there was a need to cut costs in preparation for the intensified price competition that was expected after the introduction of the euro.14 Finally, Japanese manufacturers had traditionally produced the same product in two or more countries. Now a new production system was needed, in which each production base would produce a particular product. In response to the consolidation of regional markets, Japanese corporations introduced a ‘divided headquarters system’, under which the world was divided into a few regions, each with its own headquarters. This allowed rapid and accurate assessment of local situations and quick action to be taken. European headquarters usually covered not only Europe but also the Middle East and Africa. Their authority was strengthened, with a mandate to develop pan-European strategies and control production and sales operations in all of the countries in their jurisdiction. For example in 1989 Toshiba established a control office in London. Under the direction of this company the number of Toshiba’s local companies was progressively reduced from

48 Movement of Japanese Companies into Europe

about 50 to 24, and the number of information equipment and electrical appliance divisions in Europe was reduced from 14 to four.15 As business activities became increasingly multipolar, globalization and regionalization proceeded concurrently in terms of the procurement and distribution of materials and parts. Hitachi began its international procurement of materials back in the early 1970s. It first established procurement bases in the United States and Hong Kong, and when imports expanded throughout the organization with the rise of the yen, in 1979 the company established a European procurement base in Germany.16 When the integrated European market began to be viewed as a target market, many Japanese companies set up or expanded their parts existing and/or call centres to satisfy the need for distribution routes for products and parts, as well as to improve the efficiency of distribution, make the cost cuts required by the completion of the single market and meet customers’ changing needs. The Netherlands and Belgium have become important centres of procurement and distribution. The Netherlands is reported to accommodate the distribution centres of just under 70 per cent of the Japanese companies that operate in Europe. Since the formation of the EU a trend towards value-added distribution has developed that combines distribution, processing, packing and services in order to increase the efficiency of European operations. Similar developments have been observed in Belgium. Japanese companies have gradually come to see Ireland as a significant supplier of electronic and electrical parts, and Central and Eastern European countries as suppliers of automotive, electronic and electrical parts and semifinished products. Accordingly Japanese automotive and trading companies are building pan-European distribution systems that also cover Central and Eastern Europe.17 Moreover from 1985 Japanese corporations increased their investment in R&D, and this accelerated after the integration of the European market in 1992 and the appreciation of the yen from late February 1993. Research bases were established in Japan, the United States and Europe, and a world wide system for sharing their results was developed.18 According to JETRO by the end of 1999, a total of 378 companies had established R&D and design centres in Western, Central and Eastern Europe and 86 companies had stand-alone R&D centres.19 By the end of 2000 there were 400 centres, some of which were attached to plants and 85 were standalone. The UK accommodated 128 (accounting for 32.0 per cent of the total), Germany 70 (17.5 per cent) and France (15.3 per cent). Stand-alone facilities accounted for 74.1 per cent of the total. Germany has since increased its share of stand-alone facilities. Spain is the next largest host country, with 30 centres (7.5 per cent). It is interesting to note that it attracts a higher share of investment in R&D than in manufacturing.20 The Netherlands, Belgium and Italy each accommodate over 20 centres (5–6 per cent).21

Nobuo Kawabe 49

The objectives of such centres are (1) to gather up-to-date technological information, (2) to develop new technologies and products, (3) to attract talented personnel and (4) to tailor products to local needs, thereby shortening lead times.22 Another reason for establishing research centres in the EU is to participate in the international technology standardization drive and in joint R&D projects financed by the EU. 23 Failure to do so would cause companies to fall behind in the development of new products. Many of the centres work jointly with universities and research institutes, and in the case of basic studies, research is conducted in a way that transcends regions.

Conclusion Direct investment in Europe by Japanese companies, mainly in the form of sales networks and production bases, was initially intended to reduce trade friction and thereby promote trade between Japan and Europe. In the late 1980s the strong yen encouraged Japanese companies to increase their investment and incorporate their European activities into their global strategy. The integration of the European market in 1992 and the introduction of the euro in 1999 accelerated Japanese investment in the region and Europe became the top recipient of Japanese FDI. As the volume of investment in the manufacturing sector grew, companies extended their operations to include procurement, distribution and R&D. Moreover regional headquarters were set up to coordinate these diverse activities. Although there is now a single European market, each EU country has maintained its own economic and social systems and the degree of economic development and industrial accumulation differs from country to country. This is reflected in the choices Japanese corporations have made in respect of the location of their various activities and European headquarters. As the importance of the European market increases in the world economy, Japanese corporations are having to address the question of how to develop their operations in Europe while paying due attention to their activities in North America and Asia. The way in which they coordinate this will determine the success or failure of their global strategy.

Notes 1. See for example Richard I. Kirkland Jr, ‘The Big Japanese Push into Europe’, Fortune, 2 July 1990. 2. ‘Bei Nabisco Kaigai Tabako Jigyo, JT, 78 oku Doru de Baishu – Nihon Kigyo de Kako Saidaigaku’ ( JT Buys US Nabisco Overseas Tobacco Business at 7.8 Billion Dollars – the Largest Ever Takeover by a Japanese Company), Nihon Keizai Shimbun, 10 March 1999; see also ‘AT&T ni DoCoMo Shusshi, Ei Vodaphone to Haken Arasou’ (DoCoMo Capitalizes AT&T, Competing against UK’s Vodaphone for Hegemony), Nihon Keizai Shimbun, 22 November 2000.

50 Movement of Japanese Companies into Europe 3. Harukiyo Hasegawa, ‘Japanese Global Strategies in Europe and the Formation of Regional Markets’, in Harukiyo Hasegawa and Glenn D. Hook (eds), Japanese Business Management: Restructuring for Low Growth and Globalization (London: Routledge, 1998), pp. 42, 44. 4. See also Mark Mason and Dennis Encarnation (eds), Does Ownership Matter? Japanese Multinationals in Europe (Oxford: Clarendon Press), pref. and pt I. 5. For the dramatic change in the image of Japanese products during this period see Nobuo Kawabe, ‘Made in Japan: Changing Image’ in James Soltow (ed.), Essays in Economic and Business History (East Lansing: Michigan State University Press, 1979). 6. Japan External Trade Organization ( JETRO), 1974 nenban Kaigai Shijo Hakusho (White Paper on Overseas Markets, 1974) (Tokyo: JETRO, 1974), vol. 2, p. 5; JETRO, 1977 nen Toshi Hakusho (White Paper on Investment, 1977) (Tokyo: JETRO, 1977), pp. 18–19, 21. 7. Japan External Trade Organization ( JETRO), 1974 nenban Kaigai Shijo Hakusho (White Paper on Overseas Markets, 1974) (Tokyo: JETRO, 1974) vol. 2, pp. 5–6; JETRO, 1981 nenban Kaigai Shijo Hakusho Toshihen (White Paper on Overseas Markets [Investment], 1981) (Tokyo: JETRO, 1981), pp. 27–9. 8. Japan External Trade Organization ( JETRO), 1984 nenban Kaigai Shijo Hakusho Toshihen (White Paper on Overseas Markets [Investment], 1984) (Tokyo: JETRO, 1984), pp. 26–7; JETRO, 1982 nenban Kaigai Shijo Hakusho Toshihen (White Paper on Overseas Markets [Investment], 1982) (Tokyo: JETRO, 1982), pp. 23–4, 31. 9. Japan External Trade Organization (JETRO) 1982 nenban Kaigai Shijo Hakusho Toshihen (White Paper on Overseas Markets [Investment], 1982) (Tokyo: JETRO, 1982), p. 39; JETRO, 1975 nenban Kaigai Shijo Hakusho Toshihen (White Paper on Overseas Markets [Investment] 1975) (Tokyo: JETRO, 1975), pp. 135–6. 10. Japan External Trade Organization ( JETRO), 1988 nen Kaigai Chokusetsu Toshi Hakusho (White Paper on Foreign Direct Investment, 1988) (Tokyo: JETRO, 1988), p. 3. 11. For Japanese investment in Europe in the 1980s see Yoshiharu Shimizu, ‘Saikin no Kaigai Chokusetsu Toshi no Seikaku to Nihon Kigyo no Tai EC Shinshutsu ni Tsuite – Saikin no Tai Ou Chokusetsu Toshi to Nihon Kigyo no Tai EC Shinshutsu ni Tsuite’ (Characteristics of Recent Foreign Direct Investment and Japanese Corporations’ Entry into the EC: Recent Direct Investment in Europe and Japanese Corporations’ Entry into the EC), Shokei Ronso (Bulletin of Economics and Commerce), vol. 26, nos 3–4, (1991). 12. ‘Polando, Telebi Seisan, Nen 20 Mandai wo Mezasu’ (Poland Aspires to Produce 200 Thousand TV Sets Annually), Nihon Keizai Shimbun, 31 August 1995; ‘AV Kakusha no Oshu Senryaku, Toatsu Seitei ni, Kojo Shifuto no Ugoki – Too, Seicho Shijo e no Kitai’ (AV Makers’ European Strategy Leans toward East: Plants Move to Eastern Europe, Expectations High for Emerging Growth Market), Nihon Keizai Shimbun, 23 April 1996; ‘Sony, Matsushita nado Too Kojo Aitsugi Kado, Kaden nado Juyo Kakudai – Seio muke Kyoten nimo’ (Sony and Matsushita Begin Plant Operations in Eastern Europe: Demand Expanding for Home Appliances. May Supply Products to Western Europe as Well), Nihon Keizai Shimbun, 12 January 1997; ‘Nihon Meka, Roshia Shijo e Kuikomu – Jidosha ya Kaden, Hanbaijinin Zokyo’ (Japanese Car and Electrical Manufacturers Breaking into Russian Market: Reinforcing Sales Staff for Cars and Home Appliances), Nihon Keizai Shimbun, 15 August 1997. 13. ‘Zeiyugu, Rodoryoku, Chinori, Too Bijinesu Miryoku – Infuramen nado Kadai mo’ (With Favorable Tax Treatment, Labour Force and Geographical Advantages, Eastern Europe is Attracting Japanese Business: Infrastructure is Yet to Be Improved), Nikkei Sangyo Shimbun (Nikkei Industrial Daily), 19 October 2000. See also Yasushi

Nobuo Kawabe 51

14.

15.

16.

17.

18.

19.

20. 21.

22.

23.

Iguchi, ‘Chu Too Shokoku ni okeru Kigyo Senryaku, Gijutsu Iten Nizu no Henka to Jinzai Ido, Nikkei Kigyo no Genchi Chosa ni Motozuku Bunseki’ (Corporate Strategy in Central and Eastern Europe: Changing Needs of Technology Transfers and Shift of Human Resources – Analysis Based on a Field Survey of Japanese Companies), Keizaigaku Ronkyu (Collected Works on Economics, Economics Study Association of Kansei Gakuin University), vol. 54, no. 1 (2000). Japan External Trade Organization (JETRO), 1989 nen Kaigai Chokusetsu Toshi Hakusho (White Paper on Foreign Direct Investment, 1989) (Tokyo: JETRO, 1989), pp. 39–40; JETRO, 1992 nen Kaigai Chokusetsu Toshi Hakusho (White Paper on Foreign Direct Investment, 1992) (Tokyo: JETRO, 1992), p. 70. Masayuki Iori (President of Toshiba Europe), ‘Nikkei Seizo Kigyo no Han Oshu Senryaku’ (Pan-European Strategy of Japanese Manufacturers), speech at a symposium to commemorate the tenth anniversary of Waseda University’s European Centre, Bonn University Club, 22 March 2002. Japan External Trade Organization (JETRO), 1994 nen Kaigai Chokusetsu Toshi Hakusho (White Paper on Foreign Direct Investment, 1994) (Tokyo: JETRO, 1994), pp. 59–60. On the strengthened functions of European headquarters, the diversification of sales activities and Japanese companies’ distribution systems see Nobuo Kawabe, ‘Yuro Jidai ni Okeru Nikkei Kigyo no Tai Oshu Senryaku – Genjo to Tenbo’ (Japanese Corporations’ Strategy in Europe in the Age of the Euro: Current Situation and Future Perspectives), Waseda Shogaku (Waseda Journal of Commerce), vol. 394 (2002). See Hiroo Takahashi, ‘Yoroppa ni Okeru Nihon Kigyo no Kenkyu Kaihatsu – Igirisu de no Kenkyu Kaihatsu’ (R&D in Europe by Japanese Corporations: R&D in the UK), Hakuo Business Review, vol. 9, no. 1 (2000). Japan External Trade Organization (JETRO), Dai Jurokkai Oshu Nikkei Kigyo no Jittai Chosa (The 16th Survey of Japanese Manufacturing Affiliates in Europe/Turkey) (Tokyo: JETRO, 2000). ‘Sharp, Supein ni Telebi Kaihatsu Kyoten’ (Sharp Corporation Sets Up TV Development Centre in Spain), Nihon Keizai Shimbun, 12 January 1990. Japan External Trade Organization ( JETRO), Shinshutsu Kigyo Jittai Chosa, Oshu Toruko hen – Nikkei Seizogyo no Katsudo Jokyo 2001 nenban (Survey of Japanese Companies Abroad – Europe and Turkey: Activities of Japanese Manufacturers, 2001) (Tokyo: JETRO, 2001), p. 6, table 4. Japan External Trade Organization ( JETRO), 1987 nenban Kaigai Chokusetsu Toshi Hakusho (White Paper on Foreign Direct Investment, 1987) (Tokyo: JETRO, 1987), p. 30; JETRO, 1992 nenban Kaigai Chokusetsu Toshi Hakusho (White Paper on Foreign Direct Investment, 1992) (Tokyo: JETRO, 1992), pp. 82–3. ‘Denki Tsushin, Oshu ni Kenkyu Kyoten, Nerai wa Gijutsu no Hyojunka – Nichio Rengo de Bei ni Taiko (Zumu In)’ (Electrical and IT Enterprises Set Up Research Centres in Europe: Target on Technological Standardization – Japan–Europe Aligned to Challenge the US), Nihon Keizai Shimbun, 22 June 1998.

3 Application and Adaptation of the Japanese Production System in Europe Tetsuo Abo

The task of Chapters 3–9 is to present a full description of the results of our investigations into and analytical assessments of business management at Japanese-affiliated hybrid factories in Europe, with a particular emphasis on the transfer and adaptation of management and production systems. This chapter provides an overall picture of hybrid factories in Europe and a comparison with those in Asia and the United States, while Chapters 4–9 focus on specific countries and/or regions.

The diffusion of Japanese hybrid factories in Europe Comparison with hybrid factories in North America and Asia Hereafter, we will use the phrase ‘European model’ as the average hybrid factory observed throughout Europe (the UK, Continental Europe and one Central European country). While the average values of the application ratios we obtained can be seen as important data, it is not easy to interpret that data. Because they include some significant differences between countries and regions, there is the problem of what importance we should attach to numeric values obtained by averaging the data. We shall return to this issue later in the chapter. As can be seen in Table 3.1, there are significant differences between the application ratios obtained for the UK and Continental Europe. In order to examine this, we tested the hypothesis that to disregard a difference in the application ratio between the UK and Continental Europe would be considerably inappropriate.1 We concluded that we should approach the issue in the following way: (1) despite the obvious differences between the UK and Continental Europe, when making comparisons between Europe and other parts of the world it would not be inappropriate to bundle the UK and Continental Europe together, but (2) we should carefully analyse the differences between the UK and Continental Europe when making regional comparisons within Europe. 52

53

Table 3.1

International comparison of the application scores for hybrid factories

UK I Work organization and administration (1) Job classification (2) Multifunctional skills (3) Education and training (4) Wage system (5) Promotion (6) First-line supervisor II Production management (7) Equipment (8) Maintenance (9) Quality control (10) Process management

Conti. Whole North Korea/ Southeast East Europe Europe America Taiwan Asia Asia

3.4

3.0

3.2

2.9

3.7

3.3

3.5

4.4 3.3 3.5

3.2 2.8 3.1

3.6 3.0 3.2

3.7 2.6 2.9

4.9 2.9 3.4

4.5 2.6 3.3

4.7 2.7 3.3

2.8 3.4 3.4

2.8 3.1 3.1

2.8 3.2 3.2

2.4 3.1 2.9

3.9 3.7 3.4

3.1 3.1 2.9

3.5 3.4 3.2

3.5

3.1

3.3

3.3

3.5

3.4

3.4

3.9 3.0 3.6 3.6

3.4 2.8 3.1 3.2

3.6 2.9 3.3 3.3

4.3 2.6 3.4 3.0

3.5 3.3 3.6 3.5

4.0 3.0 3.2 3.2

3.7 3.2 3.4 3.4

III Procurement of parts and components (11) Local content (12) Suppliers (13) Procurement method

2.5

2.8

2.7

3.0

3.2

3.2

3.2

1.9 2.7 2.9

2.8 2.9 2.8

2.4 2.8 2.8

2.7 3.9 2.5

2.9 3.5 3.2

3.1 3.8 2.8

3.0 3.7 3.0

IV Group consciousness (14) Small-group activities (15) Information sharing (16) Sense of unity

3.3 2.7 3.6 3.7

2.7 2.5 2.8 2.8

2.9 2.6 3.1 3.1

3.2 2.5 3.6 3.5

3.4 3.2 3.5 3.6

3.2 2.9 3.3 3.3

3.3 3.0 3.4 3.5

V Labour relations (17) Hiring policy (18) Long-term employment (19) Harmonious labour relations (20) Grievance procedure

3.5 3.3 3.4

3.2 3.1 3.2

3.3 3.2 3.3

3.6 3.4 3.4

3.4 3.0 3.3

3.1 3.1 3.0

3.2 3.0 3.2

4.2

3.5

3.8

4.4

4.0

3.3

3.6

3.0

3.1

3.0

3.3

3.2

3.1

3.1

VI Parent–subsidiary relations (21) Ratio of Japanese expatriates (22) Delegation of authority (23) Position of local managers

2.8

3.0

2.9

3.6

2.3

2.9

2.6

2.4

2.6

2.6

3.7

1.5

1.6

1.5

3.0

3.2

3.1

3.6

2.7

3.2

2.9

3.0

3.1

3.1

3.6

2.7

3.8

3.3

3.2

3.0

3.1

3.3

3.3

3.2

3.3

Overall average

54

Application and Adaptation of the Japanese System

Table 3.1 lists the application scores for the hybrid factories surveyed in Europe, North America and East Asia. It should be noted that the comparison could be affected by the time gaps between the European survey (1997–98), the North American survey (1989) and the East Asian survey (1992–93). However follow-up surveys were conducted in the second and third regions and while changes had occurred since the original surveys, the changes between then and the time of the European survey were not of a nature that would seriously hamper the comparison.2 The average application score for the whole of Europe is 3.1, meaning that the Japanese management and production systems have been introduced and transferred into Europe as a whole at a ratio just over half of the management and operation methods in Japanese factories. This, in turn, suggests that in addition to the Japanese elements, local ‘European elements’ were mixed in to make up the remaining close to half of management and operation methods used in those factories. The nature of these elements will be studied in the course of our examination. The average application score of a little over 3.0 is the score we obtained with no exception when we made the evaluation of all regions and at all times of the surveys conducted since the North American one in 1986. It is worth noting that the same result was obtained from a survey of the whole of Europe. While there had been significant changes between regions and time periods, these cancelled each other out and ultimately resulted in the application score of a little over half of the aggregate average. This result leads us to assume that a local factory may employ some Japanese management and production elements that are easy to transfer, others may be more difficult, and if these have to be brought in at considerable cost, corners may be cut on other elements.3 Thus the purpose of the following analysis is to shed light on the factors in the local management environment that result in the regional differences observed.

The six-group, 23-item hybrid evaluation As can be seen in Figure 3.1, when the scores presented in Table 3.1 for the six groups of elements are plotted graphically the resulting shapes for Europe and East Asia are quite similar to each other but differ from that for North America. In the case of group I (Work organization and administration), the application scores for Europe and East Asia are relatively high (3.2 and 3.5 respectively), while their score for group VI (Parent–subsidiary relations) is relatively low (2.9). The North American scores have the reverse high–low relation. The European score for group V (Labour relations), at 3.3, is almost the same as that for East Asia (3.2), but is much lower than the exceptionally high North American one. For group II (Production management) all three regions have similar scores, but Europe diverges from North America and East Asia in terms of its low scores for groups III (Procurement) and IV (Group consciousness).

Tetsuo Abo

55

I. Work organization and administration 5

4

VI. Parent–subsidiary relations

II. Production management

3

2

1

V. Labour relations

III. Procurement

IV. Group consciousness Whole of Europe Figure 3.1

North America

East Asia

Regional comparison of the application scores for the six groups

Looking at the above in more detail, Europe has a higher score for group I than North America because European factories are much closer to Japanese ones in two of the 23 items in this group, namely (2) Multifunctional skills and (3) Education and training (Table 3.1 and Figure 3.2), as well as in other areas where the fostering of workers’ skills facilitates the flexible management of production lines. The difference between Europe and East Asia,4 is due to the fact that the latter has a very high score for (1) Job classification (4.7) and a low one for (2) Multifunctional skills (2.7). Europe’s application score for group VI places it between North America, which has a remarkably high score for the first item in that group ((21) Ratio of Japanese expatriates), and East Asia, which has a low score for that item. Europe also has lower scores than North America for the other items in the group: (22) Delegation of authority and (23) Position of local managers. This means that in general the delegation of authority to local employees is much greater in Europe than in North America. Thus it can be argued that European hybrid factories, even with a lower level of commitment from Japanese parent companies, have achieved greater transfer in the core personnel portions of the Japanese production system than their counterparts

56

Application and Adaptation of the Japanese System (1) Job classification (23) Position of local managers (2) Multifunctional skills (22) Delegation of authority (3) Education and training (21) Ratio of Japanese (4) Wage system expatriates (20) Grievance procedure (5) Promotion (19) Harmonious labour relations

(6) First-line supervisor 1

(18) Long-term employment

2

(7) Equipment

3 4 5

(17) Hiring policy

(9) Quality control

(16) Sense of unity

(10) Process management

(15) Information sharing (14) Small-group activities (13) Procurement method Whole of Europe Figure 3.2

(8) Maintenance

(11) Local content (12) Suppliers

North America

East Asia

Regional comparison of application scores

in North America. This is true despite the gap of nearly ten years between the North American and European surveys. This is the most outstanding characteristic of the ‘East Asian Pattern’. (in the sense of the combination for the scores of higher group I and lower group VI.)5 The fact that we were able to clarify this point can be seen as one of the most significant results of the European survey. The results of preliminary interviews prior to the full survey suggested the existence of such a pattern in Europe.6 Nonetheless confirmation of this marks an important turning point, and calls for considerable modification of the widely accepted view that European corporate society is quite different from that in Japan because Europe consists of traditional class societies. Before continuing the analysis of the main elements of the management and production systems we shall take a closer look at work organization in European factories. In general the traditional European training system for occupational skills depends heavily on specialist organizations or extracompany bodies, as seen in the Meister system. Because the European system is basically oriented towards individuals and allows workers to take on a relatively broad range of tasks, it is easier there than in the United States for workers to acquire the capabilities needed to respond to changes and solve problems through OJT at the workplace or by sending them to Japan. The nationwide uniform job grade systems in Europe such as Tarif in Germany, are a unique institutional framework for skills training and job assignments. The European system is not necessarily compatible with the Japanese one,

Tetsuo Abo

57

which is principally based on in-house human resource development, but it offers greater flexibility than the fragmented and rigid system in the United States. The European system includes five to seven broad grades for blue-collar workers. These have been recent moves to ease the restrictions imposed by these grades, and the flexible treatment of jobs within grades is now being tolerated within certain bounds. Also, some allowances have been made for additions to the wage rates stipulated for each grade as this gives individual companies greater leeway in managing the job grade system. Another notable feature in Europe is the existence of deeply rooted practices and regulations that restrict the dismissal of employees. Returning to the main analysis, the similarily between the three regions’ application scores for group II, (Production management) reflects the fact that all companies pay considerable attention to the items in this group as they determine the efficiency of factory management and the level of product quality despite a host of difficult engineering problems. Difficulties stem from a delicate combination of material and human elements, such as the maintenance of production equipment and quality control. As explained in Chapter 1 and elsewhere, the characteristics of the Japanese production system are shown intensively in a method of education and training for knowledge and skills to deal with this delicate combination in an appropriate manner. In reality, however, the material portion of the combination – production equipment, parts and materials – can be brought into European factories in ‘ready-made’ forms as procured, produced or adjusted by parent companies in Japan. This makes it possible for local factories to substantially boost their operational efficiency and level of quality. The Material Result scores in our ‘four-perspective evaluations’ are meant to demonstrate this (see the discussion in the next subsection). If these levels can be raised, the performance of local factories can be improved as if through the so-called hothouse rearing method. However, it also implies that such an approach will not lead to technology transfers that will take firm root in host countries.7 The fact that the evaluation scores for production management do not differ greatly among the three regions is also largely due to these circumstances. All three regions have quite high scores for the first item in this group: brought-in (7) Equipment. The high North American score of 4.3 for this item compensates for its low score of 2.6 for (9) Quality control, which takes the ‘results-oriented’ approach (meaning a weak ‘processoriented’ approach). This point is clearly shown in Figure 3.3 (presented in the next subsection), where the Material Result score for North America is much higher than that for Europe. The score for East Asia is nearly as high as that for North America because some items in group III, such as (11) Local content and (12) Suppliers, have high scores (meaning that many parts and materials are procured from Japan or from Japanese-affiliated local suppliers – this will be discussed later). The relatively low score of 2.9 for (8) Maintenance in

58

Application and Adaptation of the Japanese System Human Method 5 4 3 2

Material Result

Human Result

1

Material Method Whole of Europe Figure 3.3

North America

East Asia

Four-perspective comparison, by region

European factories reflects the fact that skills training in this area typically takes place in outside organizations. Japanese companies have to take this factor into account when they consider introducing Japanese elements of production. Europe’s low score for group III (meaning a high ratio of locally procured parts and materials) is an inevitable consequence of the working of the European Union (EU). Components and parts are mainly procured from suppliers in EU member states, including Japanese-affiliated local suppliers, and parts produced in Hungary and other East European countries are treated as though they have been procured in the EU and bear official ‘Euro one’ labels.8 This situation is not simply the result of official or unofficial local content requirements – it also reflects Europe’s long history of industrialization. It is not as easy to explain why Europe’s score for group IV (Group consciousness) is lower than the other two regions’ scores. Its very low score (2.6) for (14) Small group activities is not very different from the North America’s score (2.5). Hence the overall difference reflects Europe’s lower score for the other two items: (15) Information sharing and (16) Sense of unity. It should be noted, however, that the whole of Europe’s scores for the latter items have been pulled down by Continental Europe’s very low scores: the UK’s scores are actually higher than those achieved by North America and East Asia. The following can be offered as reasons for Continental Europe’s low scores for these items. First, Japanese manufacturers moved first into the United States

Tetsuo Abo

59

and then into the UK, ‘reluctantly’ (Trevor, 1983), as full-fledged forays into industrialized economies that could not be allowed to fail. In contrast most of their direct investments in Continental Europe were aimed at securing a small production foothold in a market that was rapidly being ‘fortified’. In Continental Europe, therefore, Japanese manufacturers probably did not make an all-out effort to bring workers’ group consciousness into line with that required by the Japanese factory management system. Second, Japanese manufacturers may not have felt the same sense of social and cultural closeness towards Continental Europe that they felt towards the Anglo-Saxon countries. This too may have prevented them from trying to change workers’ group consciousness in Continental Europe. Group consciousness could be raised in Continental Europe if managers made a determined effort. While the participation rate in small-group activities is less than 20 per cent and report meetings are not held as frequently as they might, those who do participate become involved in a variety of improvement activities on their own volition. They are not seeking monetary compensation, but engage in these activities as if they were hobby groups. This is not entirely in line with the Japanese practice in that the Japanese system ostensibly involves ‘voluntary’ participation but in fact universal participation is expected. Nonetheless it is quite possible that the activities of motivated European workers will serve as a catalyst to build up a sense of group involvement that pervades the entire workplace.

The four-perspective evaluation We conclude this section by using our four-perspective evaluation method to summarize the analysis of Japanese hybrid factories in Europe. This method is appropriate for judging the degree to which various elements of the Japanese production system have taken root in subsidiary factories abroad. As shown in Figure 3.3, the four-perspective hybridization pattern for Europe is characterized by an omnidirectional balance, though the Method is a bit longer. North America scores highly for both types of Result and for East Asia Method. Europe is located mid way between these regions, except in the case of Material Result. The latter is a particular feature of Continental Europe, as will be explained later, and the UK is closer to the East Asian model in this respect. As noted earlier, given their somewhat unstrategic attitude towards Continental Europe, Japanese manufacturers seem to have been reluctant to place any particular emphasis on any aspect of hybrid factories in the region. Material Result is the only area in which Europe has a far lower score than North America and East Asia. It is only natural that the local procurement ratio is particularly high in European hybrid factories as they are operating in an area where regional integration is being pushed forcefully. However their local suppliers may well include a considerable number of Japanese-affiliated firms. The network of Japanese-affiliated suppliers is expanding in tandem

60

Application and Adaptation of the Japanese System

with the EU’s eastward expansion and growth in demand by assembly factories. In Europe, and particularly on the Continent, there is a prospect of Japanese companies gaining an increasing share of local markets for parts, industrial materials, machinery and equipment, in which Japan’s manufacturing industry has a comparative advantage. The performance of Japanese hybrid factories in Europe is discussed in the concluding section of this chapter. Here we shall confine ourselves to a few comments that are connected with the earlier analysis. The hybrid factories in this region do not have an immediate prospect of attaining high sales figures and profits as they face a number of constraints related to employment and social practices, the local procurement ratio, and the size and quality of the markets. However in a surprising number of aspects, European hybrid factories are similar to those in Japan and Asia. Thorough adaptation to the European environment and the introduction of appropriate Japanese practices should eventually lead to ‘stable’ business operations. More than anything else, Europe is characterized by its stability. For the time being, however, its stability lies in it being an enclosed market. The profitability of Japanese subsidiaries has been gradually rising since the mid 1990s, despite the difficulties associated with Europe’s segmented, diversified markets, and with the deepening of European integration and the spread of the euro, Japanese companies are set to reap the financial benefits to be had from the enlarged market. With the prospect of growing instability in the North American market there is no doubt that Europe will become increasingly important to Japanese companies.

Types of hybrid factory by region and industry Comparison of Continental Europe with the UK, and of Europe with North America and East Asia As noted earlier, there are considerable differences between hybrid factories in the UK and Continental Europe. Figure 3.4 plots the application ratios for the UK, Continental Europe, North America and East Asia, the latter being divided into South Korea/Taiwan and the ASEAN countries in Southeast Asia for the purpose of comparison. It is noteworthy that hybrid factories in the UK and Continental Europe have few conspicuous points in common, whereas factories in the UK have many similarities with those in South Korea/Taiwan. However a 23-item analysis produces a slightly different picture – this will be discussed below. The patterns produced by plotting the ratios obtained for the six systems show that hybrid factories in the UK are very similar to those in South Korea/Taiwan. They are closest in respect of group I (Work organization and administration), and match relatively well in the case of groups II (Production management), IV (Group consciousness) and V (Labour relations). However they differ markedly

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61

I. Work organization and administration 5 4 VI. Parent–subsidiary relations

II. Production management

3 2 1

III. Procurement

V. Labour relations

IV. Group consciousness UK

Conti. Europe Korea / Taiwan

Figure 3.4

North America S.E. Asia

Regional comparison of the application scores for the six groups

in respect of group III (Procurement), these being a high local content ratio in the UK and a very low one in Asia. They also differ in terms of group VI (Parent–subsidiary relations), which is one of the few areas in which the UK is relatively similar to Continental Europe. Europe as a whole is quite different from South Korea/Taiwan in terms of the roles of the Japanese head office and staff sent from Japan. The hexagon for Continental Europe (Figure 3.4) strikingly demonstrates the characteristics already noted for the whole of Europe, partly because of the impact of the weighted average (the UK accounts for one third of factories in the whole of Europe). The hexagon for Continental Europe is the smallest of the five and more regular in shape. It is the only region where most of the scores for the 23 items lie within the range of 0.3 above or below the average of 3.0 on the scale of 1 to 5 (Table 3.1). While all the other regions have scores of 3.2 or above for group IV (Group consciousness), Continental Europe has a score of just 2.7, for the reasons discussed earlier. The scores obtained for the 23 items are plotted in Figure 3.5. The UK differs markedly from the other regions in 2 respect of items (2) Multifunctional skills and (11) Local content because Japanese factories have successfully

62

Application and Adaptation of the Japanese System

(1) Job classification (2) Multifunctional skills (23) Position of local managers 5 (3) Education and training (22) Delegation of authority 4 (4) Wage system (21) Ratio of Japanese expatriates 3

(20) Grievance procedure (19) Harmonious labour relations

(17) Hiring policy

(7) Equipment (8) Maintenance (9) Quality control

(16) Sense of unity (15) Information sharing (14) Small-group activities (13) Procurement method Conti. Europe Korea/Taiwan

Figure 3.5

(6) First-line supervisor

1

(18) Long-term employment

UK

(5) Promotion

2

(10) Process management (11) Local content (12) Suppliers North America S.E. Asia

Regional comparison of application scores for the 23 items

introduced flexible working practices by relaxing the rigidity of traditional job classifications. This stands in stark contrast to factories in South Korea/ Taiwan and some other countries, which have found it hard to change static working practices despite the relatively low barriers between compartmentalized jobs. The UK’s low score for local content reflects the efforts of Japanese factories to meet the stringent local content standards in Continental Europe so as to increase their exports there. To this end, parts are procured not only in the UK but also from Continental Europe. The local content score for Continental Europe is close to those of the other regions partly because Japanese or Japanese-affiliated suppliers of parts to be sold to the UK import their constituent parts and materials from Japan or other Asian countries.

Regional comparisons within Europe The application scores for Europe are presented in Table 3.2 and plotted graphically in Figure 3.6. As can be seen in Figure 3.6, there is a considerable difference between the German pattern, which is the benchmark for Continental Europe, and the UK one, although these is no difference between their overall aggregate averages, (3.2 and 3.2 respectively), which are relatively high. Germany has extraordinary high scores for III Procurement and VI Parent–subsidiary relations, while the UK has very high scores for I Work organization, IV Group consciousness and Labour relations. Hence the hexagons for the two countries point in almost opposite directions. While the UK pattern is close to being the ‘ideal shape’, Germany’s is less so (see also Chapters 4–6).

Table 3.2

Application scores for hybrid factories in regions of Europe

Whole Europe (average)

Conti. Europe (average)

EA

EP

Average

AP

EA

EP

Average

CA

AP

EA

EP

Average

CA

AP

EA

Average

CA

AP

EP

III Procurement (11) Local content (12) Suppliers (13) Procurement method

Hungary

AP

II Production management (7) Equipment (8) Maintenance (9) Quality control (10) Process management

Italy/Spain/ Portugal

France/Benelux

CA

I Work organization and administration (1) Job classification (2) Multifunctional skills (3) Education and training (4) Wage system (5) Promotion (6) Firts-line supervisor

Germany

Average

UK

3.1

3.0

3.4

3.8

3.3

3.4

3.2

3.1

3.1

3.2

3.0

3.0

3.2

2.8

3.1

2.8

2.9

3.3

3.2

2.6

2.9

3.0

2.9

2.8

3.6 3.0

3.2 2.8

4.4 3.3

5.0 3.5

4.5 3.0

4.3 3.6

4.0 2.3

3.1 2.8

3.3 3.3

3.5 3.0

2.8 2.5

3.5 2.8

4.0 3.0

4.0 3.0

3.7 2.8

3.3 2.3

2.9 3.0

2.5 3.5

3.3 3.3

2.8 2.5

3.3 2.5

4.0 1.0

3.0 2.5

3.0 4.0

3.2

3.1

3.5

3.8

3.0

3.5

3.7

3.2

3.0

4.0

3.0

3.0

4.0

2.0

3.2

2.7

3.1

3.0

3.3

3.0

3.0

3.0

3.0

3.0

2.8 3.2 3.2

2.8 3.1 3.1

2.8 3.4 3.4

3.5 3.8 3.5

2.3 3.5 3.3

2.5 3.1 3.5

3.0 3.0 3.0

2.7 3.2 3.4

3.0 3.0 3.0

2.5 3.0 3.0

2.7 3.3 3.7

2.9 2.8 3.0

3.0 2.0 3.0

3.0 2.0 3.0

3.0 3.0 3.0

2.7 3.0 3.0

2.6 3.2 2.9

2.5 4.5 3.5

2.3 3.3 3.3

2.8 2.5 2.3

3.0 3.0 2.8

3.0 4.0 3.0

3.0 3.0 3.0

3.0 2.0 2.0

3.3

3.1

3.5

3.3

2.9

3.8

3.8

3.4

3.6

3.6

3.2

3.0

3.3

2.0

3.3

2.9

3.0

2.6

3.1

3.1

3.2

3.5

3.0

3.3

3.6 2.9 3.3 3.3

3.4 2.8 3.1 3.2

3.9 3.0 3.6 3.6

3.5 3.0 3.5 3.3

2.8 2.8 3.0 3.3

4.4 3.1 3.8 3.9

5.0 3.0 4.0 3.3

3.9 2.7 3.5 3.4

4.3 3.3 3.3 3.3

3.5 3.0 4.0 4.0

3.8 2.3 3.3 3.2

3.2 2.7 3.0 3.2

3.0 3.0 3.0 4.0

2.0 2.0 2.0 2.0

3.7 2.5 3.3 3.5

3.3 3.0 2.7 2.7

2.6 3.1 3.1 3.2

1.5 3.0 3.0 3.0

2.0 3.3 3.7 3.3

3.5 3.0 2.8 3.3

4.8 2.5 2.5 3.0

5.0 3.0 3.0 3.0

4.5 2.5 2.0 3.0

5.0 2.0 3.0 3.0

2.7 2.4 2.8 2.8

2.8 2.8 2.9 2.8

2.5 1.9 2.7 2.9

1.9 1.3 1.8 2.8

1.9 1.3 1.5 3.0

2.8 2.3 3.4 2.9

3.1 2.3 4.0 3.0

3.5 3.6 3.8 3.0

3.3 4.0 3.7 2.3

3.5 3.0 3.5 4.0

3.6 3.7 4.0 3.0

2.7 2.8 2.8 2.6

2.0 1.0 2.0 3.0

3.3 4.0 4.0 2.0

2.7 2.8 2.5 2.7

2.7 2.7 3.0 2.3

2.4 2.0 2.1 3.0

2.5 2.0 2.0 3.5

2.2 1.7 2.0 3.0

2.4 2.3 2.3 2.8

2.3 2.0 2.8 2.3

2.7 2.0 3.0 3.0

2.0 1.5 2.5 2.0

2.7 3.0 3.0 2.0

63

64

Table 3.2

(Continued) Italy/Spain/ Portugal

Whole Europe (average)

Conti. Europe (average)

EA

EP

Average

AP

EA

EP

Average

CA

AP

EA

EP

Average

CA

AP

EA

Average

CA

AP

EP

Hungary

AP

France/Benelux

CA

IV Group consciousness (14) Small-group activities (15) Information sharing (16) Sense of unity

Germany

Average

UK

2.9

2.7

3.3

3.3

3.3

3.3

3.3

2.8

2.7

3.7

2.6

2.9

2.7

2.0

3.2

2.8

2.5

2.2

2.9

2.4

2.3

3.0

1.8

2.3

2.6

2.5

2.7

2.3

3.0

2.8

2.3

2.6

2.7

4.0

2.2

2.7

3.0

2.0

2.7

3.0

2.3

3.0

2.3

2.0

2.0

2.0

1.5

3.0

3.1

2.8

3.6

3.8

3.3

3.6

3.7

2.8

2.7

3.5

2.7

3.2

2.0

2.0

3.7

3.0

2.7

2.0

3.0

2.8

2.3

3.0

2.0

2.0

3.1

2.8

3.7

3.8

3.5

3.6

4.0

3.0

2.7

3.5

3.0

2.8

3.0

2.0

3.3

2.3

2.6

1.5

3.3

2.5

2.5

4.0

2.0

2.0

V Labour relations (17) Hiring policy (18) Long-term employment (19) Harmonious labour relations (20) Grievance procedure

3.3 3.2 3.3

3.2 3.1 3.2

3.5 3.3 3.4

3.7 4.0 3.5

3.4 3.0 3.5

3.4 3.3 3.3

3.5 3.0 3.7

3.0 3.1 3.0

3.1 2.3 3.3

3.8 4.0 4.0

2.8 3.2 2.5

3.5 3.1 3.6

3.3 3.0 3.0

2.5 2.0 2.0

3.8 3.3 4.0

3.3 3.3 3.3

3.2 3.4 3.2

3.0 3.5 3.0

3.7 4.0 3.7

2.9 3.0 3.0

3.1 2.5 2.5

3.3 3.0 3.0

3.4 2.5 2.5

2.5 2.0 2.0

3.8

3.5

4.2

4.0

4.0

4.3

4.3

3.2

4.0

3.5

2.7

3.9

4.0

3.0

4.3

3.3

3.1

3.0

3.7

2.8

4.3

4.0

4.5

4.0

3.0

3.1

3.0

3.3

3.0

2.9

3.0

2.8

2.7

3.5

2.7

3.3

3.0

3.0

3.5

3.0

3.0

2.5

3.3

3.0

3.3

3.0

4.0

2.0

VI Parent–subsidiary relations (21) Ratio of Japanese expatriates (22) Delegation of authority (23) Position of local managers

2.9

3.0

2.8

2.6

2.5

2.8

3.8

3.4

2.9

3.0

3.8

2.8

1.7

3.0

2.8

3.0

2.6

3.3

2.6

2.3

3.3

3.3

3.2

3.3

2.6

2.6

2.4

2.5

2.5

1.9

3.7

3.0

3.0

2.5

3.2

2.6

1.0

3.0

2.5

3.0

2.4

3.0

2.7

2.0

2.3

2.0

3.0

1.0

3.1

3.2

3.0

2.5

2.3

3.4

3.7

3.6

2.7

3.5

4.2

2.9

2.0

3.0

3.0

3.0

2.7

3.5

2.3

2.5

4.0

4.0

4.0

4.0

3.1

3.1

3.0

2.8

2.8

3.0

4.0

3.5

3.0

3.0

4.0

2.9

2.0

3.0

3.0

3.0

2.8

3.5

2.7

2.5

3.5

4.0

2.5

5.0

3.1

3.0

3.2

3.2

2.9

3.3

3.4

3.2

3.1

3.4

3.1

3.0

2.8

2.6

3.2

2.9

2.8

2.9

3.0

2.7

2.9

3.1

2.8

2.8

Overall average

Notes: CA = car assembly; AP = automotive parts; EA = electronic assembly; EP = electronic parts.

Tetsuo Abo

65

I. Work organization and administration 5

4

IV. Parent–subsidiary relations

3

II. Production management

2

1

III. Procurement

V. Labour relations

VI. Group consciousness UK

Germany Italy/Spain/Portugal

Figure 3.6

France/Benelux Hungary

Comparison of the application scores for the six groups in Europe

In terms of the four-perspective evaluation in Figure 3.7, Germany’s pattern represents an extremely undesirable combination, i.e., very high scores for the Material Result and Human Result, which nearly match III Procurement and VI Parent–subsidiary relations, and low score for Human Method, which matchs I Work organization, III Group consciousness and V Labour relations. This means that hybrid factories in Germany are directly or indirectly bringing in completed parts and raw materials from Japan, as well as Japanese staff, but local people and institutions have little understanding or acceptance of the mechanisms and logic of the Japanese system. The situation in the UK is quite the opposite. British people and institutions have effectively absorbed the Japanese system and it has taken firm root. However the fact that Germany has the second highest application scores for I Work organization, II Production management and IV Group consciousness means that Japanese companies have succeeded by coming to terms with Germany’s rigid traditional system and pushing fairly hard for Results. This issue will be addressed in more detail in Chapter 6 in relation to the electrical, electronic and automotive industries.

66

Application and Adaptation of the Japanese System Human Method 5 4 3 2

Material Result

1

Human Result

Material Method UK

Germany Italy/Spain/Portugal

Figure 3.7

France/Benelux Hungary

Four-perspective comparison in Europe

The average application scores for the other regions and countries are lower than those for the UK and Germany. If we just looked at the patterns in Figures 3.6 and 3.7 we could argue that Southern Europe is similar to the UK but on a reduced scale, that Hungary is close to Germany on a reduced scale, and that France and Benelux stand in the middle on all scores. However we cannot do this definitively because our data lack consistency in terms of the number of samples and the status of industries. Southern Europe has the following characteristics. It has the lowest application scores for the key items that comprise Human Result and Material Result in the four-perspective evaluation, including VI Parent–subsidiary relations and III Procurement (particularly Production equipment). However it has relatively high scores for Human Method, (V Labour relations, I Work organization and administration) and Material Method, particularly in respect of (8) Maintenance, (9) Quality control and (13) Procurement method (Table 3.2). Taken together, these scores indicate a desirable form of hybrid factory. As will be discussed in Chapter 8, while Japanese factories in Southern Europe have retained the region’s traditional management and production systems, they have been able to blend Japanese elements into the actual operations of these systems. Moreover the region hosts very few large-scale Japanese factory operations, so it may be that the small scale of operations makes them easier to manage.

Tetsuo Abo

67

Hungary was the only Central European country covered by our survey and it was not evaluated fully because of the limited number of samples. Nevertheless it may be no more coincidence that in Figure 3.6 Hungary closely follows Germany in terms of groups I, II, IV and V, and takes a similar shape to Germany in Figure 3.7. It can be safely said that Hungary and Germany share common economic and social characteristics, given their historical and cultural linkages. The application ratios for III Procurement and IV Group consciousness are markedly low in Hungary, primarily because it is only recently that factories there have become subsidiaries in response to the ‘Euro one’ system, after having engaged in commissioned production via parent companies within Continental Europe. It may also be that Hungarians have yet to adopt a collaborative attitude, partly due to the legacy of socialist rule (See Chapter 9). It is interesting to note that France and the Benelux countries stand more or less in the middle of Figures 3.6 and 3.7. In Figure 3.6 they are quite close to the UK in respect of VI Parent–subsidiary relations, V Labour relations, IV Group consciousness and II Production management, and are similar to Southern Europe in all six groups. They seem to be very flexible, and it may be that they offer an accommodating environment for Japanese factories (see also Chapter 7).

Hybrid factories by industry, by region The purpose of this section is to determine whether the trends that were brought to light in the regional analyses are actually common to specific regions or have been strongly influenced by the presence of a particular industry.

International comparison Figures 3.8 and 3.9 compare the application scores of the six groups for the whole of Europe, North America and East Asia in respect of two major industries: car assembly and electrical and electronic assembly. The scores for the European car assembly industry are relatively low so the degree of application is moderate. In contrast the scores for the electrical and electronic industry are high, indicating fairly advanced application of aspects the Japanese production system. At the time of our survey the car assembly industry in Continental Europe was limited to small factories in the Netherlands, Spain and Portugal, hence the lower average for Continental Europe. However, the fact that Europe’s scores for I Work organization and II Production management are as high as those achieved by the other regions should be considered when larger car assembly plants are located in Continental Europe in the future.9

68 I. Work organization and administration 5 4 VI. Parent–subsidiary relations

II. Production management

3 2 1

III. Procurement

V. Labour relations

IV. Group consciousness

Whole of Europe

Figure 3.8

North America

East Asia

Regional comparison of the application scores for the six groups, car assembly

I. Work organization and administration 5

4

VI. Parent–subsidiary relations

II. Production management

3

2

1

V. Labour relations

III. Procurement

IV. Group consciousness Whole of Europe

North America

East Asia

Figure 3.9 Regional comparison of the application scores for the six groups, electrical and electronic assembly

Tetsuo Abo

69

In the case of the electrical and electronic assembly industry, the hybridization patterns for Europe and East Asia are almost identical, but differ markedly from that for North America. In this industry the difference between the UK and Continental Europe is not very large. The fact that Europe and East Asia have higher scores than North America for I Work organization and lower scores for VI Parent–subsidiary relations, a crossing relationship we have been focusing on closely, indicates that the transfer of human-related factors can be done more easily in Europe and Asia, and with less involvement by Japanese staff, than in the United States. However it goes without saying that the choice of factory locations by Japanese companies has to take account of cost problems, particularly labour costs but also transportation costs and barriers to imports.

Hybrid patterns by Industry in Europe As can be seen in Figure 3.10, the car assembly, car parts and electronic/electrical assembly industries have very similar hybrid patterns throughout Europe. We shall therefore concentrate on the electrical and electronic parts industry.

I. Work organization and administration 5

4

VI. Parent–subsidiary relations

II. Production management

3

2

1

III. Procurement

V. Labour relations

IV. Group consciousness Car assembly

Car parts

Electronic/electrical parts

Electronic/electrical assembly Figure 3.10 Europe

Comparison of the application scores for the six groups by industry, in

70

Application and Adaptation of the Japanese System I. Work organization and administration 5

4

VI. Parent–subsidiary relations

II. Production management

3

2

1

V. Labour relations

III. Procurement

IV. Group consciousness UK

Germany

France/Benelux

Hungary

Figure 3.11 Comparison of the application scores for the six groups, electrical and electronic parts, in Europe

The hybridization pattern for the electrical and electronic parts industry in Europe as a whole (Figure 3.10) is similar to that for Germany (Figure 3.11), which has a relatively large share of Japanese factories in this field (six of the 13 factories). Like Germany, the UK has high application scores for VI Parent– subsidiary relations and III Procurement. This is due to the dependence of this industry on Japan and Asia. It should be noted that two of the three parts factories in the UK and three of the six in Germany are semiconductor factories, so the pattern for the industry as a whole is strongly influenced by that for semiconductor factories.10

Factory management performance Profitability Figure 3.12 shows the macro profit performance of Japanese manufacturing subsidiaries in Europe as a whole. The profitability of the subsidiaries in Europe is lower than those in Asia and North America (as well as domestic companies in Japan). However in 1997–98, when our European survey was conducted, there were few discernible differences between Europe and Asia because the latter was suffering from the financial crisis. It is worth noting

Tetsuo Abo

71

(%) 6.0 5.0 4.0

4.3 4.8

3.8 3.2

3.0 2.0

5.1

5.0 4.7

2.3 1.9

2.4 1.9

2.9 2.0 1.3

1.9

3.3 2.7 2.3

2.5 2.3 1.7 1.3

2.0

1.3

4.4 3.9 4.0 3.3 3.6 2.9 2.2

1.2

0.2

1.0

0.1

0.0

–2.0

3.4

2.6

1989

4.0

3.8

3.4

1.0

–1.0

4.1

4.1

90

91–0.6 92

–0.3

–0.9

93

94

95

96

97

98

99

2000

–1.0 –1.9 –2.5

–3.0 Fiscal Year North America

Asia

Europe

Domestic Corporation

Figure 3.12 Recurring Earning Ratios (Earnings/Sales) of Japanese Manufacturing Industry by Region Source: Ministry of Economy and Industry (Japan), Overseas Business Activities of Japanese Firms No. 31, 2003 (in Japanese: Keizai Sangyo-sho, Wagakuni Kigyo no Kaigai Jigyo Katsudo, No.31, Heisei 15 Nen 3 Gatsu).

that European subsidiaries have managed to secure a positive (though low) profit rate of at least 1 per cent over the past decade or so, except in 1991–93, when they suffered losses amid the economic slump in Europe. Table 3.3 summarizes the data obtained from the companies in our survey. Since the data was collected during interviews with individuals we were seldom able to obtain specific figures on profits and profit rates, just information on whether they were in the black or the red in a given year (sometimes including cumulative losses). Moreover sometimes we were given no answers, or could not understand the replies. Therefore we have had to include data calculated from circumstantial evidence. Table 3.3 shows single-year profits, but by and large they add up to the macro (aggregative) figures in Figure 3.12. The survey years differ from region to region. In Europe, approximately 75 per cent of Japanese-affiliated factories from which we were able to obtain data were profitable in both Continental Europe (1998) and the UK (1997). About 70 per cent of the North American factories were making profits (1989), as were 90 per cent of the East Asian ones (1992–93). In Europe, according to the profit-to-sales ratio a large number of Japanese-affiliated companies were more or less managing to survive despite local operational difficulties. This was partly because the European

72

Application and Adaptation of the Japanese System

Table 3.3 Performances of the Japanese factories surveyed in Europe, North America and East Asia (number of factories) North America

Europe

Earnings1 Positive Negative Quality (defect ratio3 in process) Better than Japan Equal to Japan Worse than Japan

East Asia

Total

UK

Conti. Europe

USA and Canada

Total

Korea/ Taiwan

ASEAN

22 7

3 1

19 6

202 8

54 5

22 3

32 2

0 8 7

– – –

0 8 7

0 5 24

6 14 40

1 4 20

5 10 20

Notes: 1. Earnings are annual and do not take cumulative liabilities into account. 2. includes Estimate. 3. Defect ratios found in the process of production; these differ from those found during shipping quality inspections. (This table was completed thanks to Wooseok Juhn.)

survey was conducted at a time when the macro profit ratios in Europe were improving and were close to those in the other regions. In North America, on top of the difficulties inherent in transferring the Japanese production system to countries where the management system was completely different, at the time of our survey the US economy was experiencing a temporary slowdown and the number of new Japanese-affiliated automotive factories was rising, resulting in a higher ratio of factories that were not yet making profits. Conversely the survey in Asia was conducted in the early 1990s, when the region’s macroeconomic performance was at its peak. This, coupled with the compatibility of the management systems and the ready availability of high-quality labour, led to a very high ratio of factories with a strong earnings performance.

Product quality Here quality is evaluated by comparing the in-process defect ratios at the hybrid factories with those at the parent factories in Japan, although again some distortion is caused by the differing periods of the surveys. In Europe there were no factories whose quality average was better than that in Japan (Table 3.3). However there were more whose average was the same as that in Japan (53 per cent) than those whose average was worse than that in Japan (41 per cent). This compares favourably with North America and East Asia, where the proportion of factories with averages that were worse than in Japan were 80 per cent and 67 per cent respectively. There were no

Tetsuo Abo

73

factories in North America with better averages than Japan, and just a few in East Asia. The East Asian factories with a better average than Japan, particularly in the ASEAN countries, tended to be ones which had been purpose-built to produce components for export. The generally high quality level achieved by the factories in Europe, despite having to turn out a wide range of products in small quantities, principally reflects their efforts to meet the region’s tough market demands. Indeed the application scores discussed earlier confirm that their high averages are not due to the use of Japanese production and quality-control systems and work methods. It is possible that local quality-control methods have contributed to the high average in countries such as Germany, as indicated by the results of our region-by-region and country-by-country comparisons. It is of no small significance that a large number of Japanese-affiliated factories in Europe have managed to sustain profitable operations in a management climate that undoubtedly has clear disadvantages in comparison with those in North America and East Asia, mainly because of factors such as market segmentation and the basic incompatibility of the Japanese and European social and management systems. Their success bears testimony to Japanese companies’ long-term strategy of securing production bases in every corner of this traditional industrial region in expectation of full regional integration. Now that this is more or less complete and the single market is in place, Japanese companies are at last set to reap rewards from their massive investments.

Notes 1. Due to space limitations we cannot present the results of the t-test. This can be found in the Japanese version of this book. See H. Kumon and T. Abo, Nihongata Keiei-Seisan Shisutemu to EU (Minerva Shobo, 2004). 2. T. Abo, ‘Changes in Japanese automobile and electronic transplants in the USA, 1989–1993’, in H. Hasegawa and G.D. Hook (eds), Japanese Business Management: Restructuring for low growth and globalization (London and New York: Routledge, 1998a). The data from our 2000–1 survey of North America, which is still being analysed, indicates that the hybrid pattern of the East Asian model or the UK model exists to a great extent in the United States, though the original differences between the United States and other regions are still firmly seen. 3. See H. Itagaki (ed.), The Japanese Production System: Hybrid Factories in East Asia (London: Macmillan, 1997), ch. 2. 4. Ibid. See also T. Abo, ‘Hybridization of the Japanese Production System in North America, Newly Industrializing Economies, South-East Asia, and Europe: Contrasted Configurations’, in R. Boyer, E. Charron, U. Jürgens and S. Tolliday (eds), Between Imitation and Innovation: The Transfer and Hybridization of Productive Models in the International Automobile Industry (New York: Oxford University Press, 1998b). 5. See Abo, ‘Changes in Japanese automobile and electronic plants in the USA’, op. cit.; Abo, ‘Hybridization of the Japanese Production System’, op. cit.; T. Abo, ‘Spontaneous Integration in Japan and East Asia: Development, Crisis, and Beyond’, in G.L. Clark, M.P. Feldman and M.S. Gartler (eds), The Oxford Handbook of Economic Geography (New York: Oxford University Press, 2000).

74

Application and Adaptation of the Japanese System

6. See Abo, ‘Changes in Japanese automobile and electronic plants in the USA’, op. cit.; Abo, ‘Hybridization of the Japanese Production System’, op. cit.; H. Kumon, ‘Eikoku no Nikkei Jidosha Kojo’ ( Japanese Car Factories in the UK), Musashi Daigaku Ronshu (The Journal of Musashi University), vol. 42, nos 2, 3, 1994. 7. However, it may be possible that the Material Result first way would lead to technologies taking root. We have examined this in respect of Southeast Asia in T. Abo, ‘After “New Matsushita”: How can a Japanese transplant in Asia skip the important stages in the transfer of production process technology?’, paper presented at the International Conference on Industrial Logistics, 9–12 July 2001, Okinawa. 8. ‘Euro one’ is a system in which EU customs offices recognize EU member countries as the place of origin of specified goods. The system was applicable to Hungary, Poland and other East European countries prior to EU membership. Thus for non-EU companies it is an advantageous to establish factories in those countries. 9. Toyota opened an assembly plant in northern France in early 2001. When Abo visited the plant in March 2003 its overall application situation was almost the same as that in Toyota’s UK plant, showing surprising flexibility in the French environment. 10. Four of the five semiconductor factories were shut down after our survey. Their closure reflects the decline of Japan’s semiconductor business in recent years, and also suggests that Japanese companies were operating under fairly severe constraints in Europe.

4 United Kingdom: Electronics Assembly Tetsuji Kawamura

General business environment for Japanese factories in the UK This and the next chapter analyse the operations of Japanese-affiliated car and electronics assemblers in the UK in the late 1990s. Our research has shown that the UK offers better conditions for the local application of Japanese management and production systems than does Continental Europe. The most important reason for this is that British labour–management relations underwent a profound change under the Thatcher government from the late 1970s, when the weakening of the craft-based trade unions and to rigid labour practices including that had long characterized the industrial system in the UK eventually gave rise to a management environment that was suitable for the transfer of Japanese management and production systems. During the 18 years of Conservative rule, first under Prime Minister Margaret Thatcher and then under her successor, John Major, the government introduced radical labour market reforms, guided by market principles. In particular, this reform involved a major shift from the traditional ‘Social Europe’ policy, then common in Continental Europe as well. This policy used to have a strong tendency towards high wages, generous treatment to low-income and jobless people, with high levels of income support and unemployment benefits, and protection of workers through restrictions on dismissals and other measures. Traditionally, British governments had refrained from intervening in labour–management relations, leaving trade unions and employers to agree to employment conditions and wage rises through direct negotiations. The Conservative government departed from this policy by seeking to check excessive wage increases, lower the unemployment rate (by reducing benefit payments and imposing additional requirements on claimants), introduce more flexible in working hours and increase the number of part-time workers. It also revised or abolished a number of employment laws. In 1980 restrictions were placed on the conclusion of new closed-shop contracts and such contracts were outlawed in 1990. In 1982 the legal scope of industrial disputes 75

76 United Kingdom: Electronics Assembly

was narrowed, and in 1984 rules were established for prior procedures for industrial action, both of which measures were designed to undermine the strength of trade unions. In 1993 the minimum wage was abolished. These reforms led to a fall in the number of industrial disputes and the rate of unionization, made the wage-determination process more flexible and ultimately led to a restraint on wages. In Continental Europe there were similar moves to roll back so-called ‘Social Europe’ policies and introduce greater flexibility in labour–management relations (Kazama, 1997), but the UK was ahead of the others and this was a major factor in Japanese companies’ choice of the UK as a production and assembly base. Other factors included the Thatcher government’s encouragement of Japanese direct investment as part of its economic revitalization strategy, trade friction in the European markets and progress towards market integration in Europe. The Japanese companies covered in our survey are strategically positioned not only for the UK domestic markets but also for Continental Europe. On the whole, the transfer of the Japanese management and production systems has been smoother in the UK than in Continental Europe. Compared with Continental Europe, in general the UK has higher application scores. The aggregate average is 3.2 for the surveyed factories in the UK, 0.2 higher than the average for Continental Europe and same as that for Southeast Asia (note, however, that the surveys were conducted at different points in time). The average score for electronics assembly in North America is low at 2.7, but fairly high for the automotive industry. In the UK there are no marked differences between industries, the average score being 3.3 for electronics assembly, 3.4 for electrical parts and 3.2 for car assembly. The score for car parts is relatively low at 2.9, but this can be explained by the high proportion of locally procured parts and local managers (an item in the Parent–subsidiary relations group – Table 4.1). In terms of the transfer of Japanese methods (Human Method and Material Method in the fourperspective evaluation), the score for car parts is not very different from those for other industries or regions (Table 4.2). Continental Europe has the lowest application score for the ‘method’ aspects, even Spain, which is believed to have an advantage in terms of labour costs. This indicates that with regard to the transfer of elements of the Japanese production system, the UK has a relative edge over the rest of Europe. In the years after our survey the growing strength of the British pound against the euro seriously undermined the profitability of manufacturing exporters to Continental Europe. Although their difficulties eased somewhat when the euro strengthened, Japanese firms as well as other foreign companies, operating in the UK were forced to cut production or review the location of their production bases, while making a full review of their European strategies. Ford UK from the United States shut down a factory in the suburb of London (covered by our survey). Two Japanese companies also closed a factory

77 Table 4.1

Regional comparison of average application scores

UK

Continental Europe

US

S. Korea and Taiwan

Southeast Asia

3.4

3.0

2.9

3.7

3.3

I Work organization and administration (1) Job classification (2) Multifunctional skills (3) Education and training (4) Wage system (5) Promotion (6) First-line supervisor II Production management (7) Equipment (8) Maintenance (9) Quality control (10) Process management III Procurement of parts and components (11) Local content (12) Suppliers (13) Procurement method IV Group consciousness (14) Small-group activities (15) Information sharing (16) Sense of unity V Labour relations (17) Hiring policy (18) Long-term employment (19) Harmonious labour relations (20) Grievance procedure VI Parent–subsidiary relations (21) Ratio of Japanese expatriates (22) Delegation of authority (23) Position of local managers

4.4 3.3 3.5 2.8 3.4 3.4 3.5 3.9 3.0 3.6 3.6 2.5

3.2 2.8 3.1 2.8 3.1 3.1 3.1 3.4 2.8 3.1 3.2 2.8

3.7 2.6 2.9 2.4 3.1 2.9 3.3 4.3 2.6 3.4 3.0 3.0

4.9 2.9 3.4 3.9 3.7 3.4 3.5 3.5 3.3 3.6 3.5 3.2

4.5 2.6 3.3 3.1 3.1 2.9 3.4 4.0 3.0 3.2 3.2 3.2

1.9 2.7 2.9 3.3 2.7 3.6 3.7 3.5 3.3 3.4 4.2 3.0 2.8 2.4 3.0 3.0

2.8 2.9 2.8 2.7 2.5 2.8 2.8 3.2 3.1 3.2 3.5 3.1 3.0 2.6 3.2 3.1

2.6 3.9 2.5 3.2 2.5 3.5 3.5 3.6 3.4 3.4 4.4 3.3 3.6 3.7 3.6 3.6

2.9 3.5 3.2 3.4 3.2 3.5 3.6 3.4 3.0 3.3 4.0 3.2 2.3 1.5 2.7 2.7

3.1 3.8 2.8 3.2 2.9 3.3 3.3 3.1 3.1 3.0 3.3 3.1 2.9 1.6 3.2 3.8

Overall average

3.2

3.0

3.3

3.3

3.2

Table 4.2

Regional comparison of the four-perspective evaluations

Human Method Material Method Human Result Material Result

UK

Continental Europe

US

S. Korea and Taiwan

Southeast Asia

3.4 3.2 2.7 2.8

2.9 2.9 2.9 3.0

3.1 2.8 3.7 3.6

3.5 3.4 2.1 3.3

3.2 3.0 2.7 3.6

78 United Kingdom: Electronics Assembly

(covered by the survey) in connection with a review of its production strategy for memory chips and other semiconductors. There have also been cases of production bases for the European market being shifted to Continental Europe, especially Central European areas, including auto output reductions in Britain by Honda and Nissan. Toyota set up production facilities in France and the Czech Republic, and Matsushita shifted their mid and low end TV production to the Czech Republic. Since the prospect of British participation in the euro has remained uncertain and the outlook for the euro is unclear, the pound – euro exchange rate is still a significant factor in the transfer of Japanese companies to Europe. Bearing in mind the above mentioned characteristics of the UK business environment, in the following sections we shall conduct a detailed analysis of the survey results, focusing on the transfer of the Japanese management and production systems. The survey covered ten Japanese-affiliated electronics assembly factories, one electronic components factory and two semiconductor factories (all of the factories have since been shut down in 1998 and 2002). We shall principally focus on nine of the electronic assembly factories, although for the purpose of comparison the two semiconductor factories will be discussed later in the chapter.

Overview of the surveyed factories and local production conditions Characteristics of the surveyed factories Five of the factories surveyed (owned by five separate companies and codenamed UCM, UCO, UCG2, UCQ2 and UCG1) manufacture television sets. In addition to TVs, UCM makes microwave ovens, UCO and UCG2 display monitors, UCQ2 video equipment and UCG1 cathode ray tubes. The sixth factory, UCF, makes video equipment, microwave ovens and typewriters, so these six companies can be technically classifed as TV and video equipment factories. The seventh factory, UCQ1, produces only air conditioners, and the eighth, UCL, makes typewriters and word processors; hence these two differ in nature from the others. The final factory, UDC, manufactures parts and components for TV sets and video equipment, including colour TV and video tuners, high-frequency units, radio frequency modulators for video recorders and remote control equipment (Table 4.3). Most of the factories are located on the periphery of mainland Britain: four in Wales (two in the south and two in the north), two in south-eastern England, one on the east coast and one in eastern Scotland. Only UDC is situated in central England, but its location is in the countryside. Most of the factories are in depressed areas where traditional industries have declined, making it easy for Japanese companies to secure high-quality workers.

Table 4.3

Electronics factories surveyed in the UK

Assembly: UCM Cardiff South Wales

UCO East Lothian Eastern Scotland

UCQ1 Plymouth South-west England

UCQ2 Plymouth South-west England

February 1985

August 1974

October 1979

November 1991

September 1981

Wholly owned

Wholly owned

Wholly owned

Wholly owned

Wholly owned

302 (3)

890 (8)

UCL UCG2 Pencoerd Wrexham North Wales South Wales

Plant location

UCE Lowestoft Eastern England

UCF Wrexham North Wales

UCG1 Bridgend South Wales

Start of operations

October 1982

February 1985

February June 1982 1992

Ownership

Wholly owned

Wholly owned

Wholly owned

1080 (16)

1675 (22) 2786 (39) 175 (3)

383 (8) Number of employees ( Japanese expatriates) Products

Colour TVs VCRs, Microwave ovens, Typewriters

0.65 m Annual production (0.5 m) volume (capacity)

VCRs: 0.7 m Microwave ovens: 0.8 m Typewriters: 0.2 m

Wholly owned

2424 (42) 545 (10) (TV division, 28)

Colour TVs, Typewriters, Colour ITCs, Microwave Dot Printers, TVs, CRTs, DYs, AG monitors Word processors ovens flames Colour TVs: 1.6 m Monitors: 1.0 m

Typewriters: 252 K Word processors: 22 k Printers: 6 k

Colour TVs: 1.16 m (1.4 m) Microwave ovens: 9.6 m (1.1 m)

0.32 m Colour TVs: 0.34 m (0.5 m) Monitors: 0.06 m (0.1 m)

Colour TVs: 5.8 m (0.7 m) VCRs: 0.31 m (0.4 m)

79

ITCs: 2m CRTs: 3.4 m DYs: 3.3 m AG flames: 1.8 m

Air Colour Colour conditioners TVs, VCRs TVs, Monitors

80

Table 4.3

(Continued)

Parts and components (including semiconductors): Plant

UDA

UDC

Location

Livingston, Eastern Scotland

Milton Keynes, Central England

UDK Newton Aycliffe, Northern England

Start of operations

1982

1985

1991

Ownership

Wholly owned(£2.80 m)

Wholly owned (£19 m)

Wholly owned (£1.75 m)

Number of employees

1440

530

608

Japanese expatriates (ratio)

34 (2.4%)

15 (2.8%)

29 (4.3%)

Products

4M·16 MDRAM,MPU, ASIC (defusion and assembly)

CTV · VCR tuners, RFC units, VCR modules, Remote controls

4M·16 MDRAM (defusion process)

Production volume or sales

20 k 8" wafers/month

£6.1 m

20 m (£130 m)

Tetsuji Kawamura 81

UCM and UCO began their operations in the 1970s. UCM, which was the first to set up a factory, celebrated its twentieth anniversary in the spring of 1996. Between 1976 and 1996, it produced seven million colour TV sets and five million microwave ovens. UCG2, UCQ1 and UDK began operations in the early 1990s (UCG2 was set up to expand TV production when UCG1 reached its capacity). The factories vary in size and some are very large. At the time of the survey UCG2 had the largest workforce with nearly 3000 workers, UCM was second with a about 2500, and UCG1 was third with approximately 1700. UCL had the least, with just over 170. In the other factories the number of workers ranged from about 400 to 900. In terms of output, UCG2 turns out 1.6 million colour TVs and display monitors a year, UCM produces nearly 1.2 million colour TVs and 1.0 million microwave ovens, and UCG1 produces 5.4 million cathode ray tubes (including ITC – Integrated Tube Components). All of the factories are strategically, positioned as production bases for the markets of Continental Europe as well as the UK. The establishment of factories in the UK was initially prompted by the appreciation of the yen and trade friction between Japan and Europe. However the long-term strategy was to capitalize on the eventual market integration of Europe. UCG2, whose parent company commands the second largest market share in its field in Europe after Philips and the largest share among Japanese producers, accounts for more than 50 per cent of the local output for the European market, with the rest coming from a factory in Barcelona. Nearly 90 per cent of its annual output of 1.6 million TVs is produced for the European market. About 50 per cent of the cathode ray tubes made by UCG1 are transported to UCG2, 40 per cent to the Barcelona factory and the remainder to Germany and Poland. Thus it functions as the manufacturing base for cathode ray tubes for local TV production in Europe. At the time of the survey it had begun to produce cathode ray tubes for computer monitors as well. UCM is the only European factory of the parent company at that time of our survey, which has the second largest share of Japanese manufacturers in the European TV market and is in hot pursuit of the leading company, UCG. The parent company began to sell its products in Europe in the 1960s. At that time all the products were made in Japan, but it soon realized there was a need for local production. It started TV production in North America in 1974 by purchasing Quasar, an American manufacturer, and then set up UCM to cater to the European market. As in the case of UCG2, nearly 90 per cent of its products are manufactured for the West European market, with most of the remainder being sold to Eastern Europe and the rest to Japan and Southeast Asia. The situation is by and large similar for the other factories and their products. The video equipment made by UCQ2, microwave ovens by UCM and UCF, typewriters and word processors by UCL and typewriters by UCF are mostly geared to the European market. However UCQ1’s air conditioners are mainly destined for the UK market.

82 United Kingdom: Electronics Assembly

Product diversity In Europe there are many languages, disparate government regulations and diverse needs. Hence it is necessary to produce limited lots of a large variety of products and models. A typical example is TV sets. Because of the numerous broadcast formats and languages, manufacturers have to produce a variety of sets, particularly in the case of those which include teletext. All products have to deal with electrical safety regulations and other issues that vary from country to country. Thus to varying degrees the surveyed factories, manufacture a large range of products in small lots, which requires efficient management of factory operations. There are three main approaches to this. First, measures can be taken at the level of product development and design. Second, various innovations can be made in operational and labour management to suit the small-lot production mode, including frequent model changes. At some of the surveyed factories, new production methods such as ‘cells’ and ‘islands’ were being tested. A third approach is to step up the use of the Japanese production system in general, which is well adapted to producing a broad range of products in small quantities. The localization of product design and development is a major characteristic of factory operations in the UK. The basic concept tends to come from Tokyo, but in most cases the circuit and product designs are done in the UK. The localization of design is also prompted by the necessity for a high local content to obtain certification of European origin, and by the need to reduce costs by making greater use of locally procured parts and components. In TV production, Japanese factories have made substantial progress in reducing the number of parts needed and using a common chassis for different models. At the time of the survey UCG1 was manufacturing 140 models based on just five types of chassis, making it possible to separate production lines according to screen inch, with regional specification differences etched into the IC chips (ROMs). UCG1 claimed that it had been able to cut the number of parts used by 10 per cent each year. Similarly UCM had managed to consolidate 13 production lines into six through design simplification, and to reduce the number of parts by 50 per cent in three years. UCM was aiming to achieve full product development by 1999. In the first seven to eight years after start-up the engineering division led the development of quality control and mass production, based on blueprints from Japan. In the ensuing seven to eight years the company introduced its own application designs, including for engineering and quality control. At the time of the survey it had entered the third stage of localizing design work, Development staff accounted for most of the back-office personnel (40 per cent in the design section). Of the 28 Japanese expatriates working at UCM, eight were in the design section.

Tetsuji Kawamura 83

Meanwhile UCF worked to localize the design of products other than TV sets in order to make them more ‘rooted in EU culture’. It designed new microwave ovens to suit local foods in the UK and Continental Europe and developed word processors with no input from Japan. At UCQ2, locally designed products accounted for over 60 per cent of total production. In the main, in the UK the ratio of Japanese expatriates to local employees is relatively low, particularly in electronics assembly, reflecting the long period of overseas factory operation experiences in the UK. The average score for this item is 1.9 (Tables 4.4 and 4.5). This figure compares unfavourably with 1.2 for South Korea/Taiwan (1992 survey) and 1.3 for Southeast Asia (1993 survey), but indicates a higher degree of localization than in Continental Europe, where the ratio is 2.3 (1998 survey) (Table 4.5). Most factories have Japanese presidents and factory managers, and these still is a strong Japanese presence in the top echelons of management, for example in the finance department. At the lower management level, however, in many factories the personnel and labour management departments are headed by local personnel. Japanese expatriates still take the lead in production technology and quality control, but they mostly focus on design and development. As for the delegation of authority, UK factories have a relatively high degree of independence, despite the existence of regional head offices and the maintainance of strong ties with their product divisions and parent factories in Japan in the area of manufacturing technology. The fact that Japanese still play important roles in design and development departments possibly reflects the weak foundation of electronics assembly in the UK.

‘Cell-type’ and other new production methods Another important development at Japanese companies and factories in the UK has been the adoption of new Japanese production methods. Job classifications have been simplified and emphasis has been placed on the development of multifunctional skills. Moreover speedier die changes have allowed frequent model switchovers. UCO reported that it had achieved very flexible production, switching models frequently, under the fixed number of [direct] workers. Particularly noteworthy are new production methods such as ‘cell-type production’, ‘island production’ and ‘U-shaped production lines’, which have become widespread in Japan and reflect remarkable advances in automation. These production methods require multiskilled workers as they lengthen tact time and substantially increase the number of jobs to be done per worker. At UCF new production methods were adopted on an experimental basis in part of the assembly process for video equipment and microwave ovens. Thanks to the beneficial impact on worker motivation, production efficiency improved by as much as 40 per cent for video equipment. UCQ2 experimentally introduced the ‘U-line’ method assembly in November 1996.

84

Table 4.4

Interindustry comparison of application scores, UK

I Work organization and administration (1) Job classification (2) Multifunctional skills (3) Education and training (4) Wage system (5) Promotion (6) First-line supervisor II Production management (7) Equipment (8) Maintenance (9) Quality control (10) Process management III Procurement of parts and components (11) Local content (12) Suppliers (13) Procurement method IV Group consciousness (14) Small-group activities (15) Information sharing (16) Sense of unity V Labour relations (17) Hiring policy (18) Long-term employment

UK average

Car assembly

Automotive parts

3.4 4.4 3.3 3.5 2.8 3.4 3.4 3.5 3.9 3.0 3.6 3.6 2.5 1.9 2.7 2.9 3.3 2.7 3.6 3.7 3.5 3.3 3.4

3.8 (0.4) 5.0 (0.6) 3.5 (0.3) 3.8 (0.3) 3.5 (0.8) 3.8 (0.4) 3.5 (0.2) 3.3 (0.2) 3.5 (0.4) 3.0 (0.0) 3.5 (0.1) 3.3 (0.3) 1.9 (0.6) 1.3 (0.6) 1.8 (1.0) 2.8 (0.1) 3.3 (0.1) 2.3 (0.5) 3.8 (0.2) 3.8 (0.0) 3.7 (0.2) 4.0 (0.7) 3.5 (0.2)

3.3 (0.2) 4.5 (0.1) 3.0 (0.3) 3.0 (0.5) 2.3 (0.5) 3.5 (0.2) 3.3 (0.1) 2.9 (0.6) 2.8 (1.1) 2.8 (0.3) 3.0 (0.6) 3.3 (0.3) 1.9 (0.6) 1.3 (0.6) 1.5 (1.2) 3.0 (0.2) 3.3 (0.1) 3.0 (0.3) 3.3 (0.4) 3.5 (0.2) 3.4 (0.1) 3.0 (0.3) 3.5 (0.2)

Electronics assembly

Electronics parts

Average in Continental Europe

3.4 (0.0) 4.3 (0.2) 3.6 (0.4) 3.5 (0.0) 2.5 (0.3) 3.1 (0.2) 3.5 (0.2) 3.8 (0.3) 4.4 (0.5) 3.1 (0.1) 3.8 (0.2) 3.9 (0.3) 2.8 (0.4) 2.3 (0.4) 3.4 (0.7) 2.9 (0.0) 3.3 (0.0) 2.8 (0.0) 3.6 (0.0) 3.6 (0.1) 3.4 (0.1) 3.3 (0.0) 3.3 (0.1)

3.2 (0.3) 4.0 (0.4) 2.3 (0.9) 3.7 (0.2) 3.0 (0.3) 3.0 (0.4) 3.0 (0.4) 3.8 (0.3) 5.0 (1.2) 3.0 (0.0) 4.0 (0.4) 3.3 (0.2) 3.1 (0.6) 2.3 (0.5) 4.0 (1.3) 3.0 (0.2) 3.3 (0.0) 2.3 (0.4) 3.7 (0.1) 4.0 (0.3) 3.5 (0.0) 3.0 (0.3) 3.7 (0.3)

3.0 3.2 2.8 3.1 2.8 3.1 3.1 3.1 3.4 2.8 3.1 3.2 2.8 2.8 2.9 2.8 2.7 2.5 2.8 2.8 3.2 3.1 3.2

(19) Harmonious labour relations (20) Grievance procedure VI Parent–subsidiary relations (21) Ratio of Japanese expatriates (22) Delegation of authority (23) Position of local managers

4.2 3.0 2.8 2.4 3.0 3.0

4.0 (0.2) 3.3 (0.3) 2.6 (0.2) 2.5 (0.1) 2.5 (0.5) 2.8 (0.3)

4.0 (0.2) 3.0 (0.0) 2.5 (0.3) 2.5 (0.1) 2.3 (0.7) 2.8 (0.3)

4.3 (0.1) 2.9 (0.1) 2.8 (0.0) 1.9 (0.5) 3.4 (0.4) 3.0 (0.0)

4.3 (0.2) 3.0 (0.0) 3.8 (1.0) 3.7 (1.3) 3.7 (0.7) 4.0 (1.0)

3.5 3.1 3.0 2.6 3.2 3.1

Overall average

3.2

3.2 (0.0)

2.9 (0.3)

3.3 (0.1)

3.4 (0.2)

3.0

85

86 United Kingdom: Electronics Assembly Table 4.5

Regional comparison of application scores, electronics assembly

UK I

Continental Europe

US

S. Korea and Taiwan

Southeast Asia

3.0

2.4

3.8

3.2

Work organization and 3.4 administration (1) Job classification 4.3 (2) Multifunctional skills 3.6 (3) Education and training 3.5 (4) Wage system 2.5 (5) Promotion 3.1 (6) First-line supervisor 3.5 II Production management 3.8 (7) Equipment 4.4 (8) Maintenance 3.1 (9) Quality control 3.8 (10) Process management 3.9 III Procurement of parts and 2.8 components (11) Local content 2.3 (12) Suppliers 3.4 (13) Procurement method 2.9 IV Group consciousness 3.3 (14) Small-group activities 2.8 (15) Information sharing 3.6 (16) Sense of unity 3.6 V Labour relations 3.4 (17) Hiring policy 3.3 (18) Long-term employment 3.3 (19) Harmonious labour relations 4.3 (20) Grievance procedure 2.9 VI Parent–subsidiary relations 2.8 (21) Ratio of Japanese expatriates 1.9 (22) Delegation of authority 3.4 (23) Position of local managers 3.0

3.3 2.8 3.3 2.8 2.8 2.8 3.3 3.6 2.8 3.3 3.5 2.7

2.8 2.1 2.2 2.0 2.7 2.6 3.1 4.0 2.1 3.0 3.3 2.6

4.8 2.5 3.3 4.0 4.3 3.8 3.7 3.2 3.8 4.0 3.7 3.1

4.2 2.5 3.1 2.8 3.4 2.9 3.4 3.8 3.2 3.4 3.2 3.2

2.7 2.6 2.9 3.0 2.7 3.3 3.1 3.5 3.3 3.7 3.7 3.3 2.7 2.3 2.9 2.8

2.0 3.6 2.1 2.3 2.2 2.4 2.1 2.7 2.4 2.2 3.4 2.8 3.0 2.6 3.2 3.2

2.7 3.2 3.5 3.4 2.8 3.7 3.8 3.8 3.5 3.7 4.5 3.5 2.1 1.2 2.8 2.3

2.7 3.8 3.1 3.3 3.0 3.5 3.5 3.1 3.2 3.0 3.0 3.1 3.0 1.6 3.2 4.1

Overall average

3.1

2.7

3.4

3.2

3.3

On such lines, teams of seven workers assemble 200 to 300 video decks per day. Human movements are slower with this method than with the conventional production line, but efficiency at UCQ2 improved by 30 per cent. UCQ1 also introduced this production method for air conditioner production, and was planning to try the cell method in the week after our survey. UCG1 was already using the cell method for decoder assembly. With the conventional method 1000 to 1500 decoders were assembled per day, with each worker inserting five to six parts. With cell-type production each worker was inserting 120 parts and making up to 250 units per day.

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The company said that ordinary workers could handle this after two to three days’ training. The survey was conducted shortly after the introduction of the cell, island and other new production methods, which were already beginning to prove highly effective in improving work efficiency. However most factories reported that the new methods were most effective for the production of very small lots and were unsuitable for the mass production of products such as TVs. The introduction of such methods requires multiskilled workers as well as suitable labour and personnel management practices in respect of job classification and wages. These requirements seem to have been met to a considerable extent in UK electronics assembly operations. This can mainly be attributed to the introduction of Japanese-style work organization, labour management, employee performance appraisal and remuneration systems after the abandonment of traditional UK labour–management relations.

The change in labour relations and transfer of the Japanese system In general Japanese labour management and operational methods have been either introduced or experimented with at Japanese electronics assembly plants in the UK, as demonstrated by the high scores achieved in our application ratio evaluation. The main factor in this was the significant shift in traditional labour relations, which removed most of the obstacles to the introduction of Japanese methods at Japanese-affiliated factories. As discussed at the start of this chapter, to reduce unemployment and weaken rigid labour practices, from the early 1980s successive Conservative governments pushed for major labour market reforms. Their efforts resulted in the weakening of trade unions and the traditionally rigid labour relations, greater labour mobility, declining labour costs and restraints on wages. The surveyed companies cited the following reasons for favouring the UK as a manufacturing base for the European region. First, as a result of the changes since the 1980s, minimum wage regulations and social regulations had become less stringent in the UK than in Continental Europe. Second, the UK had a large supply of high-quality, cheap labour due to the decline of old industries. International comparisons of wages had shown that wage costs at UK factories were half those in the United States, lower than in France and Spain and even slightly lower than in South Korea. While the surveyed companies cited the use of English as an advantage, it was apparent that the labour situation was the main reason for choosing the UK as the prime location for manufacturing operations. The major changes in labour relations were exemplified by the presence of single trade unions representing multiple occupations. UCM had a single union with a membership rate of 98 per cent. UCG1 and UCG2 had concluded a single union agreement with the AEEU at the launch of their operations in 1974. By 1981 they had seven unions, but these were later amalgamated

88 United Kingdom: Electronics Assembly

into a single union under the AEEU. The membership rate was quite low at 30 per cent. UCF also had an AEEU-affiliated single union, with a membership rate of 60 per cent. UCL had only a handful of union members, and there was no trade union at UCO. The surveyed factories maintain workplace harmony, by means of labour– management councils, which address wages, working conditions and complaints. At UCM, the council meets every quarter to discuss corporate financial matters, markets and goals, and there are also 30-minute labour– management consultations every month at the sectional and subsectional levels. At UCG1 and UCG2, management holds consultations every three to four months with the shop steward committee on the state of business, and senior managers and shop stewards discuss health and safety matters every two to three weeks. At UCF, monthly labour–management consultations are held on everyday labour matters. There are also European labour–management councils covering all business bases across Europe, although pan-European councils are not mandatory in the UK. On the whole, harmony appears to reign at Japanese factories in the UK and there are few serious labour disputes. At UCG2, only three cases have gone to arbitration and the union lost all three. The survey revealed no craft restrictions by occupational unions on production workers at any company or factory. There are no union restrictions on maintenance workers and other skilled employees, though certain barriers remain between skilled and unskilled workers. Moreover there are few major obstacles to the adoption of Japanese management and production methods. Indeed the unions seem to have been eager to introduce them. One such practice is to adjust workers’ daily working hours in line with seasonal fluctuations in the demand for TVs and other products. Working hours are shortened during the period of low demand between Christmas and the summer holiday season, and lengthened during the busy period between early autumn and Christmas. Very few Japanese-affiliated companies lay off workers and they tend to place emphasis on job security, though such policies are not necessarily put in writing.

Characteristics of ‘material’ management: Japanese production methods based on equipment brought in from Japan Analysis of the application scores The average application score for electronic assembly factories in the UK is 3.3 (Table 4.4). This is much higher than the average for the United States (2.6) and almost the same as that for South Korea/Taiwan and Southeast Asia, (3.4) (Table 4.5). The aggregate average for Continental Europe is only slightly lower at 3.1, and when the average scores for the six main groups of managerial and production elements are plotted graphically the resulting

Tetsuji Kawamura 89

pattern for the UK is similar to that for Continental Europe. Both are quite different from that for the United States. UK electronics assembly factories have similar application scores to factories in the ASEAN countries (Thailand, Malaysia and Singapore) for all groups but group III (Procurement). The ASEAN region has a higher score than the UK for the latter. The United States has the same score as the ASEAN countries in group V (Parent–subsidiary relations), but lower ones for the other groups, and their distribution patterns differ considerably. South Korea’s pattern is also quite different from that for ASEAN. The differences between the UK and ASEAN are most marked in group III (Procurement), for which the UK has a much lower score, indicating a higher degree of local procurement. However in comparison with other industries in the UK (Table 4.4), electronics assembly factories have a higher score for Procurement, indicating a relatively low degree of localization. Conversely they have a significantly higher score for group II (Production management) than the car assembly and automotive parts industries. As can be seen in the ‘Material Result’ average for the electronics assembly industry is higher than that for the automotive parts and car assembly industries, ranking after electronics components and roughly matching the electronics assembly industry in the United States and ASEAN. This indicates that factories in the UK, like those in the United States and ASEAN, have a high dependence on both parts and production equipment brought in from Japan, but in the case of parts the ‘EU Origin’ content ratio is high and relatively few are procured from Japan. In terms of the local application of Japanese methods, UK electronics assembly factories have similar characteristics to other industries in respect of both human and material methods. The international comparison shows that the UK application score for the ‘Human Method’ is the next highest, following South Korea/Taiwan. The ‘Material Method’ score is higher than that for electronics assembly factories in the United States, and just next to that for ASEAN. On the other hand, the UK ‘Human Result’ score is substantially lower than that for the United States but higher than that for South Korea/Taiwan and ASEAN. This indicates that relatively important roles are played by Japanese expatriates in the areas of design and development, despite the emphasis on localization of these functions (Table 4.2). Together these application scores suggest that Japanese electronics assembly factories in the UK have adopted Japanese methods to a significant degree in the case of human and material management, and particularly in personnel management. They have done so based on production equipment brought in from Japan, and utilizing locally produced parts (within the EU) and local staff, with support from Japanese expatriates.

Procurement of production equipment and parts As discussed above, Japanese electronics assembly factories in the UK import much of their production equipment from Japan, but not to the extent seen

90 United Kingdom: Electronics Assembly

in the car assembly and automotive parts industries. While the transfer of equipment from Japan is common at Japanese-affiliated overseas factories, in the UK the practice reflects the weakness of the local electronics industry. In the case of semiconductor production, in which Europe as a whole is weak and Japan has a comparative advantage in manufacturing equipment, almost all the equipment in use at factories is made in Japan. For products such as TVs and video players, Japanese companies have been producing in the UK for many years and UCG1 is the only factory at which the equipment is almost identical to that used in factories in Japan. There seems to be a tendency among Japanese factories in the UK to use EU-made production equipment whenever possible, for reasons of maintenance and cost. The local content ratio is generally high due to pressure to increase the proportion of parts procured from the EU region though not as intense as that on automakers. In addition, as described earlier, Japanese factories in the UK use as many EU-produced parts as possible in order to cater to the diverse markets in Europe. As a consequence the ratio of parts procured from Japan or Southeast Asia, which has become the global production base for electronics parts and components, is very low. In the case of TV production, the intraregional procurement of cathode ray tubes and related parts significantly raises the local content. The intra-EU content ratio is 95 per cent at UCG1 and nearly 90 per cent at UCM. UCG1 purchases almost all its cathode ray tubes from UCG2, which is located near by and belongs to the same parent company. It purchases cabinets from a supplier located about 30 minutes away under a JIT arrangement. UCG2 has a local content ratio of about 85 per cent in terms of both the number of items procured and their value, and purchases from the EU region account for half of its total procurement. Another major factor in UCG2’s high local content ratio is the in-house production of 85 per cent of the required DY (deflection yokes), which most factories procure from outside firms. With regard to glass for cathode ray tubes, UCG2 had procured all its rear glass from Germany and France until 1996 and its panel glass from Japan until the spring of 1996. However, after Nippon Electric Glass Company set up production at NEG (UK), Ltd. in Cardiff, nearly all these parts began to be procured there. Steel plates are still shipped in from Japan. The 90 per cent local content ratio at UCM comprises 40 per cent from the UK, 30 per cent from Germany and close to 20 per cent from other EU countries. Japan and Southeast Asia account for the remainder six per cent and seven per cent, respectively. Cathode ray tubes are purchased from an affiliated factory and firms such as Philips NV and Thomson within the EU. The very limited procurement from Japan includes such parts as integrated circuits, microcomputers, diodes and clampers. UCQ2 procures 75 per cent of the parts needed for its TV production from EU countries. Japanese producers of other electronic products generally have an EU content ratio of at least 50 per cent. The exception is the relatively low 47 per cent

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for UCF, which manufactures video equipment, for which Europe’s own manufacturing base is weak. For products such UCL’s dot-matrix printers and UCF’s word processors the EU content is lower than that from Japan and Southeast Asia which accents for 20 to 30 per cent. The car assembly and automotive parts industries have an even higher local content than the electronics assembly industry. On the other hand, some electronics parts factories have local content ratios of just 20 per cent or so. In summary, partly because of pressure to achieve higher ‘EU Origin’ content ratios and partly because of the growth of parts production in the EU, TV factories generally use a high proportion of local parts. By contrast manufacturers of products for which the EU region is not particularly strong tend to have a relatively high dependence on parts from Japan or Southeast Asia.

Application of Japanese methods of material management The application ratio for production equipment and process management, in electronics assembly factories is higher in the UK than in the United States, equal to the ASEAN countries and lower than in South Korea/Taiwan. The ratio is lower than that for electronics component factories but higher than in the car assembly and automotive parts industries (Table 4.4).

Procurement management of parts and components First, it seems that the Japanese method has been realized to a limited extent in the procurement management of parts and materials, in such areas as guidance to suppliers. However, achievements have been fairly limited in terms of the Japanese parts procurement system. There are many difficulties with introducing the JIT (just in time) procurement system and it has only been realized in a few cases. UCG1 makes JIT deliveries of cathode ray tubes to UCG2 at intervals of one to two hours, and does the same with cabinets to a nearby domestic manufacturer that has been nurtured through cooperation with trader Mitsubishi Corp. In all, 50 per cent of deliveries are subject to the JIT method. UCQ2, receives deliveries of cabinets five times a day at intervals of one hour and CRTs two to three times a day at intervals of two to four hours. In general the surveyed companies reported few problems with parts deliveries, although there have been isolated cases of production lines having to be suspended due to a shortage of parts. By and large, stock levels are high. There does seem to be some problem with quality, including in the case of parts from Japanese-affiliated suppliers. To deal with this the surveyed companies and factories usually provide on-the-spot guidance to suppliers. UCM conducts assessments of suppliers of mechanical parts, and if these are substandard it gives stern warnings to the suppliers in question or even ceases to do business with them. UCM also sends out quality reports to suppliers of electronics components and urges them to improve their products.

92 United Kingdom: Electronics Assembly

As a result of its efforts the proportion of defective parts has been halved over the past few years. UCO and UCF send employees to suppliers to give guidance on quality improvement.

Equipment maintenance The localization of equipment maintenance has been fairly smooth. Local workers are responsible for everyday maintenance work and their ability is rated highly at most Japanese factories. Efforts are also being made to help workers acquire multifunctional skills. At UCM, operators are put in charge of 2.5 units (compared with four per worker in Japan), and at UCG2 each worker handles two to three units (compared with 0.8 per worker in Malaysia). While the capacity of workers to conduct maintenance work seems to be growing, this is not generally true of production workers and the degree of absorption of the Japanese method is far from adequate. The surveyed companies tend to hire separate maintenance staff and give them in-house training, including apprenticeships. There are few cases where maintenance employees are completely trained in-house. At UCG2, maintenance workers are usually recruited from outside and put through an apprenticeship. UCM has a double-track system of external recruitment and internal promotion for special skills, while UCE selects maintenance staff from among its production workers, gives them in-house training and encourages them to acquire certified qualifications from outside organizations. The electronics assembly industry in Japan once had a polarized system in which young female workers on short-term employment were assigned to production lines and male workers were recruited as maintenance staff and firstline supervisors. In recent years, however, marked advances in automation have resulted in operators becoming skilled technicians. While this has also happened to some extent in the UK as the degree of automation of TV and video equipment production is only slightly less than in Japan – and despite innovations such as total preventive maintenance, which involves production workers in the process – maintenance work is still largely dominated by separate engineering staff. One of the reasons for this is that the traditional barriers between skilled and unskilled workers still exist in the UK and Continental Europe. One notable example of successful application of the Japanese method concerns the automatic insertion process for printed circuit boards, the most automated part of TV and video manufacturing. At UCG2 more than 130 chip mounters are lined up to turn out 12000 to 13000 colour TV and display chassis per day. The factory is one of the largest in the UK and is large even by global standards. The production equipment is almost entirely made in Japan. The automation rate of 95 per cent is somewhat lower than in Japan but is nonetheless very high. With the experimental introduction of total preventive maintenance, a number of operators, maintenance staff, process controllers, and leaders and handlers of parts and components had been organized into a mixed team. At the time of our survey, by training

Tetsuji Kawamura 93

operators, managers and dispatch staff at the parent factory in Japan, UCG2 had been able to shorten the die-change time of up to three hours to just nine minutes. Though still a model case, involving just one team on the floor, it indicates the company’s willingness to introduce the Japanese method. UCG2 was in the process of substantially changing the floor and line layouts. At UCM, with a similar scale of operations to UCG2, over 90 automatic insertion machines turn out TV sets and PCBs (prints circuit boards) for microwave ovens. At 92 per cent, the proportion of automated insertion is as high as that in Japan and all maintenance is carried out by local staff. At UCQ2, which produces TVs and video equipment, the automation rate is a little over 90 per cent, just short of the target of 95 per cent. Maintenance work is the responsibility of maintenance staff, but regular checks are made by machine operators as part of total preventive maintenance. The defect rate lies between those at the main factory in Japan and a Japanese factory in Singapore. Meanwhile at UCF, where the automation rate is 94 per cent, down time is longer than in Japan. Not only is the equipment made in Japan but also management tools such as PC software for equipment is written in Japanese. This highlights one of the many problems that can arise when production equipment is not fully localized. UCF hires experienced maintenance staff from outside, production workers have little involvement in maintenance, and foremen and line leaders only perform simple everyday maintenance tasks. Finally, UCO has reduced its automation to 75–80 per cent. As the defect rate was high in the automated insertion process, inspection had to be conducted immediately after it. The defect rate has now fallen due to the relatively low automation rate and UCO is able to conduct most of the inspection work after chassis assembly.

Quality control: building quality into the production process The surveyed companies and factories aim to maintain high product quality, and to that end they aspire to follow the Japanese practice of ‘building quality into the production process’. However that aspiration appears to be limited among production workers. While there seems to be little problem with the quality of products despatched, the factories in question have tended to increase the degree of production-line inspections or rely heavily on outbound checks by quality-control personnel. Needless to say, all the surveyed companies incorporate inspection factors into their work standards. At UCM, according to company officials, the defect rate is 1.67 compared with 1.0 for factories in Japan, with 60 per cent of the defects being tracable to production workers and management problems, and the rest to problems with parts. Some claim that the quality problems are due to the large differences

94 United Kingdom: Electronics Assembly

in lot sizes. This points to the problems that can be associated with the tactic of producting a wide range of products in small lots. At UCO, production workers are responsible for all inspection work during the manual parts of chassis production. The work standards stipulate items for inspection. However decisions to stop the production lines are made not by production workers but by leaders and supervisors. Inspectors are posted on the line, and when a defective is found the chassis is sent to the repair staff, after ascertaining which production worker has installed the part. The manufacturing division is fully responsible for the quality of finished products, and no quality-control personnel are assigned to the production process. Instead they make random checks on products and the results are fed back to production workers. At UCG2, production-line inspections are carried out by quality-control staff from the manufacturing division, using the same ISO procedure as that employed in Japan. QAs are responsible for stopping the production lines when neccessary. At UCQ2, experienced senior employees check the work of individual production workers during the manual insertion process. At UCF, quality-check items are included in the standards set for specified processes (the work procedure instruction sheets come from Japan), but the rules have to be made clear because, unlike in Japan, workers tend to cover up for fellow workers and detest whistle-blowers. The items for quality checks are the same as in Japan, but the dependence on inspections is higher. Efforts to improve quality include monthly quality-control meetings to discuss data from various divisions.

Characteristics of personnel management Weakening of traditional job demarcations Our analysis so far has shown that Japanese methods of material management have been realized to a significant degree, despite limitations. These limitations are associated with styles of work organization, including Job classifications, Promotions and the presence of First-line supervisors. They also reflect circumstances that are unique to the UK. This section discusses selected aspects of human management. The application score for group I – Work organization and administration, which concerns shop-floor management and job supervision – shows that the use of Japanese methods is relatively high at electronics assembly factories in the UK. The average application score is 3.4, 0.4 lower than for car assembly factories (Table 4.4). The UK score is lower than the 3.8 scored by electronics assembly factories in South Korea/Taiwan, but 0.2 higher than those in the ASEAN countries (Malaysia, Thailand and Singapore) and 1.0 higher than those in the United States, which has the lowest score (Table 4.5). The British score is slightly higher than those achieved by Germany, France and the

Tetsuji Kawamura 95

Benelux countries, and far higher than the Southern European score (Italy, Spain and Portugal). Under the traditional craft system the UK had a plethora of Job classifications. Job classifications have been simplified in electronics assembly factories, but not as much as in the car assembly and automotive parts industries. Nonetheless the UK score for this item (4.3) is much higher than the 3.3 scored by Continental Europe, where there are strong social regulations in respect of job classifications and grade systems. The US score is lower still at 2.8, but this is partly because the survey was conducted in 1989, when traditional labour management and labour relations were still in place (although changes were beginning to take place in the automotive industry). It was easier to transfer Japanese methods to South Korea/Taiwan and the ASEAN countries because they did not have clear job classification systems with high barriers between jobs. The simplification of job classifications has usually been accompanied by efforts to teach workers multifunctional skills through frequent job rotations. In the UK an ability-based grade system has been introduced, whereby, many companies grade their workers on the basis of their skills. Moreover in some noteworthy cases the grading is based on the degree to which workers have become multiskilled, rather than by the level of skill reached in an occupational craft. This has substantially undermined the traditional barriers between crafts. There have also been cases of a performance appraisal system being introduced for production workers. These measures have given rise to performance-related pay and brought the wage system in the UK closer to that in Japan. Thus, Britain has adopted job grades and wage systems that differ, to varying degrees, from those in Continental Europe, which are still subject to strong ‘social regulations.’ Even on the Continent, it is possible to use those ‘social regulations’ within companies to institute ability-based grade systems linked to performance evaluations. In Britain, such social systemlike constraints themselves had been fading away, presumably easing the local transplant of Japanese work organizations and administration methods. Seniority is not always an explicit factor in determining wages, although continued service can lead to promotion and higher wages as long years of service usually mean greater skill. There is a fairly clear distinction between the hiring and promotion practices used for maintenance technicians and production workers. Maintenance jobs are linked to the national vocational qualification system introduced by the Thatcher government. Moreover the lingering influence of ‘diplomaism’ and ‘class society’ means that university graduates are appointed to managerial jobs, which works against the internal training and promotion of production workers. In these and other aspects the UK still differs from Japan. In the following section we shall look at some concrete examples.

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The transfer of Japanese methods of work organization and administration At UCM there are eight grades of workers (from A to H) under the supervision of white-collar team leaders. Grades A and B are process operators, C and D process controllers, and E and F section leaders. Shop-floor workers are broadly classified into three groups. For production workers there are two kinds of job (differentiated by job definition and wage grade): process operator and process controller. However jobs are broadly defined, include a variety of tasks, and intrasection job rotations are quite frequent. For skilled workers there is a separate group of grades, ranging from B2 to B5. In addition there is a Grade 1 for white-collar senior advisers and designers, who hold the same rank as team leaders. Grade B5 includes subgrades 1 to 8, and Grades B2 to B4 include subgrades 1 to 5. Production workers are graded A upon hiring and move up to Grade B a year later. Those rated A and B account for 70 per cent (approximately half each) of the total at UCM. Upgrading from B to C requires the acquisition of a level 2 NVQ, while promotion within grades is determined by experience, qualifications and job market conditions. Up to Grade 1, those who are suitably qualified can be promoted through internal posting procedures. Outside recruitment is conducted in the case of specific skills, with external and internal applicants being interviewed by a committee consisting of divisional managers and supervisors. The committee examines applicants’ past performance, project work, job reviews, training, experience, qualifications and other factors. The wages of production workers graded A to H are determined in negotiations between trade unions and management. Wage scales are amended once a year after labour–management negotiations. The job classification and wage systems are similar to those for ability-based grade systems, except in respect of job posting and individual performance appraisals. UCG1 and UCG2 have largely similar systems. At UCG2, first-line supervisors, including senior supervisors, are positioned at the lower end of the white-collar ranking, and below them are eight grades from A to G1, followed by G for ordinary workers on the shop floor. Unlike UCM, UCG2 places maintenance technicians in the same grade system, but there is a line that is pretty hard to cross between production workers graded A to E and the higher grades (F, G1 and G) given to maintenance technicians, other skilled workers, repair staff and designers. Crossing this line requires special qualifications, including college training. An apprenticeship system is also used, with 20 to 24 new apprentices being accepted each year. Experienced personnel recruited from outside make up the largest proportion of skilled workers with F to G grades. There are high hurdles between skilled and unskilled jobs and the promotion of operators and production workers is based entirely on the upgrading of

Tetsuji Kawamura 97

skills. The skills of production workers are evaluated by the Category Evaluation Panel (consisting of two shop stewards, the personnel manager and other section managers). Upon hiring, operators are graded B (Grade A was once given to cleaning and other jobs but was eliminated when those jobs were outsourced), but they are upgraded to C when they acquire more complex skills. Semiskilled operators with grades D and E have multifunctional skills that enable them to handle all production jobs as well as routine machine maintenance. Job rotations for operators are planned and systematic. Operators become multiskilled through on-the-job training, and ‘training score tables’ are managed by group leaders under the supervision of the line manager. There is no appraisal system for production workers and a uniform wage is applicable to all workers in the same grade. Hence these job and wage systems are different from the Japanese ability-based grade system. As mentioned earlier, wages are negotiated between the trade union and management once a year. Wage rises are applicable only within the company, unlike the nationwide uniform application that prevailed during the time of traditional labour relations. At UCL there are no barriers between skilled and unskilled workers, and there is a single integrated system of wage grades for managers and below. There are seven grades: grade 7 for supervisors, grades 4 and 5 for maintenance staff, grade 5 for team leaders and grades 1 to 3 for operators (production workers). Promotion depends on the number of additional skills acquired, plus length of service. The teaching of multifunctional skills is planned and systematic way, and is particularly active in single-product production lines. ‘Training score tables’ were introduced when the factory was established. Particularly noteworthy is the wide range of wages within each grade as the result of performance appraisals. According to company officials, trade unions exist in name only and present no obstacles to the wage grade system. The application ratio for ‘Labour Relations’ in Britain is higher than in other regions, except for the US. UCO, UCF and UCQ2 have similar ability-based rating systems. UCO has a slightly more complicated system than the others as it allocates six job categories to each of its grades 1 to 4. UCO also has a job rotation system to lower the barriers between jobs. The functions of first-line supervisor are shared by the supervisor, the assistant and the lead, indicating multitiered shop-floor management. The job involves a broad range of tasks, ranging from labour management/ discipline and training to IE functions and maintenance. Compared with factories in Japan, this function of supervisors at UK factories is apparently weak, although it is more integrated than in the United States and the ASEAN countries. At some factories an effort has been made to give first-line supervisors a Japanese-style function by cutting down the number of tiers (for example at UCE and UCF). UCG2 wanted group leaders to adopt integrated function, but due to the lack of IE functions the IE division has taken

98 United Kingdom: Electronics Assembly

charge of it. At UCO, production engineers from the IE division are responsible for it. However according to company officials, while the supervisor and the lead should take on IE functions, things could not be done there as in Japan. Thus integration of the functions of the first-line supervisors is inadequate in the case of shop-floor supervision and process management, and ‘team’-type management method of shop-floor organization and work management is insufficient. While it is said to be difficult, particularly in Southeast Asia, to get production workers to undertake even limited Taylorist jobs, there seem to have been no serious problems in the UK in respect of the ability of production workers to do jobs and maintain discipline. In fact British workers have a very high achievement rate for job standard time. Nevertheless our survey found that efforts were being made to put Japanese group functions into place by encouraging production workers to become multiskilled. This was making it easier to introduce ‘cell’ and other new production methods. In electronics assembly in the United States the traditional practices of job supervision and labour management still prevail, but in the UK the institution of Japanese methods is coming closer to reality. This appears to have been made possible by the needs for the efficient production of a large variety of products in small lots for the European markets, and the favourable environment created by the change in labour–management relations in the UK as a whole. However there is a long way to go before quality control circles and other small-group activities take firm root in the UK, and this may have to do with the weak ‘team’ function. The surveyed factories, which all have had long operational experiences in Britain, failed in their efforts to implant Japanese-style quality control circles and other activities. Thereafter, they tried to develop small group activities and make them take root by limiting the scope of activities, implementing model projects and making other efforts to adapt the activities to local conditions. Compared with the United States or Southeast Asia, Britain seems to have had a high degree of substantiality for small group activities. Yet, such activities seemed to be largely limited in terms of initiatives and in being substantial. The acquisition of multifunctional skills by workers and the stability of the workforce appear to offer a foundation for small-group activities, boosted by increased information sharing and encouragement of group consciousness. UCM, which has the longest history of operations in the UK, once operated Japanese-style quality control circles with the broad participation of British workers. However the activities eventually ground to a halt because of the differing degrees of commitment among the participants. A year before our survey, UCM had turned its quality control circles into continuous improvement groups (GIGs). There were ten CIGs at the time of the survey, each consisting of five to six workers. They met approximately once a week during working hours to learn such basics as the seven key tools for quality control,

Tetsuji Kawamura 99

problem solving and analytical methods. There was also a CIG committee, which included the firm’s president as a member and involved team leaders and managers in identifying problems. It planned to create 50 CIGs in the future, with all workers participating. UCF, with over ten years of factory operations in the UK, initially failed in its efforts to institute quality control circles but eventually succeeded by substantially altering the associated practices. There were up to 20 circles, with foremen and supervisors acting as circle leaders, although some circles were led by motivated workers. They met for about four hours a month after working hours, but this was unpopular so the activities were made part of work and the participants were paid overtime. Participants were given the ability to make full use of the seven key tools for quality control and allowed to take part in annual world conferences. UCQ2 set up quality control circles in 1989, five years after the launch of its operations. After a number of setbacks it now has 26 circles. Finally, UCO was forced to abandon its quality control circles due to cultural differences and lack of interest among the participants, some of whom saw the activities as a waste of time.

Conclusion This chapter has shown that Japanese electronics assembly factories in the UK have been able to introduce various elements of the Japanese management and production systems into their operations, particularly in respect of production equipment, personnel management and small-lot production. With regard to the work organization and administration methods that lie at the heart of the Japanese system, barriers between jobs have been systematically lowered and many companies conduct systematic job rotations that enable production workers to develop multifunctional skills. Some companies’ remuneration systems are similar to the Japanese ability-based grade system, in which the acquisition of additional skills is a prerequisite for promotion. In a few cases wages also depend on performance appraisal and seniority. Most Japanese-affiliated factories in the UK have not yet succeeded in instituting Japanese practices in such areas as small-group activities, integrated functions by first-line supervisors, the involvement of production workers in quality control and equipment maintenance, and kaizen-related production and management activities. On the whole, however, Japanese electronics assembly factories in the UK have achieved a higher degree of absorption of Japanese systems than other industrialized regions, including the United States and Continental Europe.

5 United Kingdom: The Automotive Industry Kunio Kamiyama

After the end of World War II the UK automotive industry became the world’s largest exporter of vehicles. In the 1950s, however, it began to show signs of decline as the US automotive industry reestablished its dominance of the US market and German, French and other European carmakers enjoyed a marked recovery. UK car production (excluding commercial vehicles) reached a peak of 19.2 million units in 1972, but declined to below the one million mark in the early 1980s.1 In a bid to reverse the decline of the industry the British government encouraged foreign carmakers, particularly Japanese, to enter the domestic market, thus paving the way for production by Japanese-affiliated carmakers from the 1980s onwards. As a consequence production recovered somewhat in the latter half of the 1990s, but it failed to return to the peak reached in the early 1970s. Moreover in recent years, partly because of the appreciation of the pound against the euro, production has slipped into stagnation again. It seems appropriate to point out here that the high-profile advance of Japanese carmakers into the UK led to the progressive Japanization of British industry and stirred up a major controversy.2 This Japanization, as exemplified by the notions of flexibility and single union agreements, was triggered in part by the establishment of UAR, one of the companies in our survey.

Overview of the surveyed plants As shown in Table 5.1, our survey covered eight Japanese automotive operations in the UK: four car assembly plants (the only four to be set up in the UK) and four automotive parts factories. One of the former has since ceased operations, leaving just three Japanese car assembly plants in the UK. The four automotive parts plants were owned by two Japanese companies (two each). None of these plants was newly constructed: they had either been purchased or operated as joint ventures. Given that an analysis of just these 100

Table 5.1

Overview of the plants surveyed

Car assembly Plant name Location Start of operations Ownership Number of employees Number of Japanese employees Production capacity (per year) Actual volume of production: 1996

UAE Luton Sept. 1989 Now 100% ownership by General Motors 1800 4 60 000–70 000 vehicles

31 479 vehicles

UAO Burnaston Dec. 1992 100% Japanese

UAR Sunderland July 1986 100% Japanese

UAS Swindon Oct. 1992 100% Japanese

2459 (as of end May 1997) 58 (including 6 in engine plant) 200 000 vehicles

4100 Fewer than 30

2571 (as of February 1997) 99

300 000 vehicles

130 000 vehicles, 200 000 engines

231 627 vehicles

105 810 vehicles, 137 824 engines 108 097 vehicles 112 089 vehicles 2 types of passenger car, engines Over 90% in 1996 UAM2 Shipley 1904

1997 1998 Type of product

25 048 vehicles 24 646 vehicles SUV (Sport-Utility Vehicle)

116 973 vehicles, 103 000 engines 104 615 vehicles 172 342 vehicles Passenger cars, engines

Local content

80% (target)

80%

271 666 vehicles 288 818 vehicles 2 types of passenger car, engines 80%

UBG1 Llanelli June 1943

UBG2 Washington June 1986

UAM1 Telford Feb. 1992

Automotive parts Plant Name Location Start of operations

101

102

Table 5.1

(Continued)

Ownership

100% ownership by the European head office, bought in 1989

Number of employees Sales

1000 £87 million (1996/97, estimated) Radiators, air conditioners, heater cores, evaporators, condensers

Main products

100% ownership by the Japanese parent company and the European head office, bought from a British–Dutch joint venture 147 Not available Exhaust systems, appliances for catalytic conversion

Joint venture with Italian company, 75% ownership by Japanese parent company

Joint venture with Italian company, now 100% ownership by the Japanese parent company

764 £92.9 million (1996)

810 £61.60 million (1996)

Evaporators, condensers, cooling units, heaters, heater units

Radiators, intercoolers, oil coolers, fan coils

Sources: Plant information provided by the management of the plants; production volume obtained from Japan Automobile Manufacturing Association, Statistics of Automobiles in Major Countries (Tokyo: JAMA, 2000).

Kunio Kamiyama 103

four plants might not present a full picture of all Japanese automotive parts factories in the UK, the analysis here will focus more on the management and operation of the four car assembly plants.

The four car assembly plants Japanese car assemblers started production in the UK in the mid 1980s, somewhat later than in the United States. The first to arrive was UAR, which was established in April 1984 and started production in July 1986. Then came UAS, which was set up in February 1985, but did not begin operations until October 1992. The third was UAE, which was established in September 1987 and began production in September 1989. The last entrant was UAO, which was set up in December 1989 and began production in December 1992. UAE was established as a joint venture that was dissolved the year after our survey. Thus although we shall include it in our analysis we shall concentrate on the other three plants. The factory occupied by UAE originally produced small lorries for General Motors (GM). After a string of loss-making years GM, which had an equity stake in UAE’s parent company, asked the latter to help turn the factory around. Shortly after its launch the joint venture was acclaimed as prime example of Japanese management know-how being applied to bring a failing venture back to life.3 The equity in UAE was initially split into 60 per cent for GM and 40 per cent for the Japanese side, but in 1995 GM raised its stake, thereby reducing the Japanese share to about 12 per cent. At the first plant turned out minivans and recreational vehicles, but production of the former was halted in 1992. While production of the latter continued for a while, declining price competitiveness and a succession of operating losses resulted in the joint venture being dissolved in September 1998. GM continued to produce recreational vehicles, but in December 2000 it announced it would shut down the plant and withdraw in 2002. In the face of strong opposition from British trade unions, however, in March 2001 it agreed to keep the plant open for the time being. UAO was established by a Japanese carmaker that had hither to concentrated on the North American market. However in December 1989, with its eyes set on the integration of the European market in 1992, it set up UAO in the UK. By that time the company, in addition to engaging in a joint venture with GM, had established an assembly plant of its own in the United States and gained considerable experience of applying the Japanese production system in a foreign country. Furthermore it was in a position to conduct research into earlier cases of investment in the UK by other companies. Hence from the start UAO incorporated many features of the Japanese system, including a salary-oriented wage system for all employees and performance appraisal for production workers. UAR, which was the first Japanese carmaker to move into the UK, began work on establishing a production subsidiary in April 1984 and started

104 United Kingdom: The Automotive Industry

operations in July 1986. Its arrival was welcomed as a far sighted response to the Thatcher government’s call for direct investment by Japanese companies as a way of revitalizing UK industry. Despite strong opposition, including by the parent company’s trade union, UAR went on to become the leading Japanese carmaker in the UK. The entry of UAS into the UK cannot be discussed without mentioning the parent company’s relations with Rover, which began with the conclusion of a technical cooperation agreement with British Leyland in 1979.4 The latter began production of a small passenger car in 1981, under a technology licensing agreement with the parent company. This was actually the first Japanese car to be produced in Europe, though it carried a local brand name. The cooperation between the two firms steadily expanded to include the joint development and production of other models, and they concluded a capital tie-up agreement in 1990. In the meantime UAS started PDI (pre-delivery inspection) operations on vehicles imported from Japan in September 1986, opened an engine plant in July 1989 and began assembly operations in October 1992. In 1994 the two companies decided to end their business association and Rover, the last remaining British carmaker, was later acquired by the German maker BMW. Although the cooperation had ended, when we visited the plant in 1997, UAS was still producing the model that had been jointly developed with Rover.

The four automotive parts plants The British firm that later became UBG1 was established in 1919 to manufacture heat exchangers in Oxford, southern England. It moved to its present location in 1943. In 1967 it became a member of the state-owned British Leyland and Austin group. In 1986 it signed a technical assistance contract with its present Japanese parent company, which purchased it in 1989 and subsequently transferred full ownership to its European umbrella company. UBG1’s sister company, UBG2, was established in 1984 as a joint venture with a Dutch firm. When the Dutch company decided to withdraw from the business in 1989 the factory became a wholly owned subsidiary of the Japanese parent company and an equity stake of 75 per cent was transferred to the European umbrella company. In 1990 it was merged with another subsidiary (a company that assembled air conditioners), and by the time of our survey it had become a division of that subsidiary. UAM1 has the long corporate history as it was established as a British firm in 1904. In 1989 the Japanese parent company made an equity investment in UAM1 and it was transformed into a joint venture in 1990, with 75 per cent being held by the Japanese company and 25 per cent by an Italian firm in the Fiat group. Its sister company, UAM2, was established in 1990 as a newly constructed greenfield plant. It too was a Japanese–Italian joint venture

Kunio Kamiyama 105

with equity ratios of 75 per cent and 25 per cent. Both UAM1 and UAM2 subsequently came under full Japanese ownership when the Japanese parent firm purchased its partners’ interests in the joint venture.5 Hence the four plants can be broken down into two that had been established as purely British firms but were later purchased by Japanese companies, and two that were established as joint ventures with European partners. Therefore none was wholly owned by a Japanese company at the outset. While we would hesitate to hold up these examples as typifying the ways in which Japanese parts makers have entered the UK, it is notable that the forms of entry chosen by the two leading Japanese automotive parts makers differed considerably from those chosen for entering the United States and Asia. As will be discussed later, this had implications for the adoption of Japanese management and production methods.

Application–adaptation analysis of Japanese car assembly plants in the UK Application of the Japanese production system When Japanese carmakers entered North America, beginning with Honda’s Ohio plant, they were keen to incorporate as many of the features of the Japanese production system as possible.6 In contrast when they set up operations in the UK, having gained considerable experience in the United States, they adopted a more flexible stance. Instead of seeking the total application of the Japanese system they analysed the local conditions and decided to apply Japanese methods only when there were compelling reasons to do so. Table 5.2 presents a regional comparison of the application scores for the car assembly and automotive parts plants in our international surveys. However it should be remembered that the surveys were conducted in different years (North America, 1989; South Korea/Taiwan, 1992; ASEAN, 1993; UK, 1997). The average application score for car assembly in the UK is 3.2, the same as the average for all industries in the UK. However this average falls short of the 3.3 for the electronic assembly industry and 3.4 for the electronic components industry, both of which are fairly oriented towards Japanese practices. Moreover the UK average is lower than those for the United States (3.5) and Taiwan (3.5), where in many respects local conditions are more conducive to the application of Japanese methods. Nevertheless the fact that the UK score is higher than that for ASEAN (3.0) indicates a certain intensity in the application of Japanese methods in the UK. Furthermore one of the four plants in the UK was a joint venture (later dissolved) with an American carmaker and the Japanese partner had a minority share, which served to restrict the use of Japanese methods. If this particular plant is

106

Table 5.2

Regional comparison of application scores, car assembly and automotive parts United Kingdom Car assembly

Automotive parts

North America

All industries

Korea and Taiwan

ASEAN

Car assembly

Automotive parts

Car assembly*

Automative parts

Car assembly

Automotive parts

I Work organization and administration (1) Job classification (2) Multifunctional skills (3) Education and training (4) Wage system (5) Promotion (6) First-line supervisor

3.8

3.3

3.4

3.3

3.1

3.9

3.7

3.4

3.3

5.0 3.5 3.8 3.5 3.8 3.5

4.5 3.0 3.0 2.3 3.5 3.3

4.4 3.3 3.5 2.8 3.4 3.4

4.8 3.2 3.4 2.1 3.2 3.1

4.2 2.7 2.9 2.6 3.3 3.0

5.0 3.8 3.6 4.4 3.4 3.4

4.8 3.3 3.3 3.7 3.7 3.2

4.8 3.1 3.4 3.1 3.0 2.9

4.7 2.5 3.2 3.2 3.2 3.0

II Production management (7) Equipment (8) Maintenance (9) Quality control (10) Process management

3.3 3.5 3.0 3.5 3.3

2.9 2.8 2.8 3.0 3.3

3.5 3.9 3.0 3.6 3.6

3.4 3.9 2.9 4.0 2.9

3.6 4.8 2.8 3.9 3.0

3.6 3.6 3.2 3.8 3.8

3.2 3.0 3.2 3.3 3.2

2.9 3.0 2.8 2.8 3.0

3.3 4.2 2.8 3.3 3.0

III Procurement (11) Local content (12) Suppliers (13) Procurement method

1.9 1.3 1.8 2.8

1.9 1.3 1.5 3.0

2.5 1.9 2.7 2.9

3.0 2.3 3.8 3.0

3.0 2.7 3.7 2.6

3.0 2.4 3.0 3.6

3.1 3.0 3.5 2.8

3.1 3.0 3.8 2.5

3.2 3.8 3.7 2.2

IV Group consciousness (14) Small-group activities (15) Information sharing (16) Sense of unity

3.3 2.3 3.8 3.8

3.3 3.0 3.3 3.5

3.3 2.7 3.6 3.7

3.9 2.7 4.4 4.6

3.8 2.9 4.1 4.4

3.9 4.0 3.8 4.0

3.4 3.3 3.2 3.7

2.9 2.9 3.3 2.6

3.1 2.7 3.2 3.5

V Labour relations (17) Hiring policy (18) Long-term employment (19) Harmonious labour relations (20) Grievance procedure

3.7 4.0 3.5 4.0 3.3

3.4 3.0 3.5 4.0 3.0

3.5 3.3 3.4 4.2 3.0

4.2 4.3 4.9 4.2 3.2

4.1 3.8 3.8 5.0 3.9

3.6 3.0 3.6 4.2 3.4

3.0 2.7 3.0 3.5 2.8

3.2 2.9 3.1 3.9 3.0

3.0 3.0 2.8 3.0 3.0

VI Parent–subsidiary relations (21) Ratio of Japanese expatriates (22) Delegation of authority (23) Position of local managers

2.6 2.5 2.5 2.8

2.5 2.5 2.3 2.8

2.8 2.4 3.0 3.0

3.5 3.8 3.3 3.3

4.2 4.6 4.0 4.0

2.2 1.6 2.4 2.6

2.4 2.0 2.5 2.8

2.4 1.3 2.8 3.3

2.7 1.7 2.7 3.7

Overall average

3.2

2.9

3.2

3.5

3.6

3.5

3.2

3.0

3.1

* Only Taiwanese plants were surveyed.

107

108 United Kingdom: The Automotive Industry

excluded the average score for the three plants comes to 3.4, just 0.1 less than the score for North America and Taiwan. With regard to the automotive parts industry, the UK’s low average application score of 2.9 can be partly explained by the fact that three of the plants in the survey started their operations as joint ventures and the other as a takeover. Moreover they entered the market with great uncertainty about whether it would be big enough to ensure volume efficiency. These factors mitigated against the application all aspects of the Japanese system.

The six-group, 23-item evaluation In this section we shall examine the application scores in greater detail. Looking first at the scores for the six main groups in the evaluation, the most outstanding score by car assembly plants in the UK is that for group I (Work organization and administration). Their average score of 3.8, though slightly shy of Taiwan’s 3.9, is not only higher than that achieved by other industries in the UK, which have a relatively high average, but is also higher than the scores for car assembly plants in other regions. Moreover if UAE is excluded their average score rises to 4.0, which is higher than Taiwan’s. Their score of 3.3 for group II (Production management), while lower than those for all other industries and most other regions, is still relatively high. Excluding UAE again, their score increases to 3.7. Based on the results so far it can be assumed that Japanese car assembly plants in the UK have incorporated at least some of the core features of the Japanese production system. However the same cannot be said of the four automotive parts plants in our survey, whose score for group II (Production management) is particularly low at 2.9. In the case of group III (Procurement) the very low score of 1.9 for both the car assembly and the automotive parts plants lies far behind those achieved by other regions and industries. This may reflect general circumstances such as the geographical distance between Europe and Japan and the fact that there are few Japanese automotive parts manufacturers in the UK. Presumably, however, it more strongly reflects the need for Japanese car assembly firms to have their vehicles recognized as made in the EU if they wish to export them from the UK to Continental Europe. It may also partly stem from UAS’s close ties with the Rover group. The UK car assembly plants’ score for group V (Labour relations) is relatively high at 3.7, second only to that achieved in North America. This is mainly attributable to the plants’ high scores for Hiring policy and Grievance procedures. Again, the UK automotive parts plants achieved a lower score (3.4). Finally, the regional comparison of the average application scores for car assembly plants in all five groups shows that North America has the highest overall score, ASEAN has the lowest, and the UK and Taiwan are positioned in between.

Kunio Kamiyama 109

The four-perspective evaluation As shown in Table 5.3, which also compares the UK scores with those of other countries and regions in the four-perspecive evaluation, in UK industry in general there is a sharp contrast between the scores for Method and those for Results, both Human and Material. The car assembly plants’ score for Material Method is 3.1 (2.9 for parts plants), slightly lower than the average score by all industries in the UK and not particularly high compared with other regions. The assembly plants’ score for Human Method is 3.6 (3.3 for parts plants), a fairly high score that may be lower than that achieved in Taiwan but matches that in the United States. The low Material Result scores are particularly marked, with just 2.2 for assembly plants and and an even lower 1.8 for parts plants, compared with the all-industry UK average of 2.8 and the generally much higher scores in other regions. The score for Human Result is 2.6 for both assembly and parts plants. This is slightly less than the average achieved by all industries in the UK but higher than the scores in ASEAN and South Korea/Taiwan. In short the high application scores for Method are particularly marked in the case of Human Method, indicating wide spread adoption of Japanese practices in this category. We shall now examine this finding by looking at the scores for the relevant items (Table 5.2). Eleven of the 23 items fall into the category Human Method: all the items in groups I (Work organization and administration) and IV (Group consciousness), plus Long-term employment and Grievance procedures in

Table 5.3 Four-perspective evaluation of the car assembly and automotive parts, industries, by region Method Industry

Result

Human

Material

Human

Material

United Kingdom

Car assembly Automotive parts All industries

3.6 3.3 3.4

3.1 2.9 3.2

2.6 2.6 2.7

2.2 1.8 2.8

Continental Europe

Car assembly Automotive parts All industries

2.9 2.9 2.9

3.1 2.8 2.9

2.8 2.8 2.9

2.3 3.0 3.0

North America

Car assembly Automotive parts

3.6 3.4

3.3 3.1

3.6 4.3

3.3 3.7

Korea and Taiwan

Car assembly* Automotive parts

3.9 3.5

3.5 3.1

2.1 2.4

3.0 3.2

ASEAN

Car assembly Automotive parts

3.2 3.2

2.7 2.8

2.3 2.5

3.3 3.9

* Only Taiwanese plants were surveyed.

110 United Kingdom: The Automotive Industry

group V (Labour relations). The assembly plants’ high score for Human Method owes much to their score of 3.8 for Information sharing and Sense of unity. Automotive parts plants have lower scores than assembly plants for all items other than Small-group activities. This is probably because these plants are acquisitions or joint ventures and as such are more or less under the constraints of old British workplace traditions. In contrast the assembly plants were established from scratch, with the exception of UAE. For example, for three of the four parts plants (excluding UAM2) the low score for Wage system is partly due to the absence of individual performance appraisals, or to the fact that where such a system exists the results are not reflected in wage levels. Conversely assembly plants’ high score for Wage system is due to the fact that they have introduced a performance appraisal system. For Small-group activities, parts plants score 3.0 and assembly plants 2.3. None of the four parts plants has a particularly high participation rate in this respect, but they still attain high scores for introducing such activities on a voluntary basis, for example kaizen-style improvement teams at UBG1 and UBG2 and quality control circles at UAM1 and UAM2. Assembly plants have a low score because they have been less keen to promote Small-group activities. The category Material Method consists of three items: Maintenance and Quality control (group II) and Procurement method (group III). The 3.1 scored by assembly plants and 2.9 by parts plants are lower than the 3.5 scored by assembly plants in Taiwan and 3.3 in the United States, but are mostly, on a par with those of other regions. The following reasons can be cited for the failure of assembly and parts plants in the UK to achieve a high degree of application of Material Methods. First, the scores for Maintenance are low because plants, at UK and at plants in other regions, it has proved difficult to introduce Japanese practices. Second, the low scores for Procurement method are due to the fact that, at the time of the survey, only a few Japanese parts makers were operating in the UK, and these were mostly joint ventures or acquired plants. Finally, the scores for Quality control are particularly low at plants that are still under the influence of old traditions. As one Japanese employee at a parts plant explained: ‘We have problems with sectionalism in Britain. When problems arise in one process, everybody thinks they can be dealt with and resolved on an ad hoc basis. They do not try to figure out why the problems occurred or share the solutions with other divisions.’ At another parts plant we were told that the defect rate on production lines that are similar to those used in Japan are about the same as in Japan because the line carries all the improvements accumulated in Japan. However the defect rate is two to three times higher than in Japan on lines that use equipment that differs from that employed in Japan. Turning to the scores for Material Method, these are particularly low at 2.2 for assembly plants and 1.8 for parts plants. The items that comprise Material Method are Local content and Suppliers (group III), plus Production equipment (group II). In the case of Equipment, some plants claim that

Kunio Kamiyama 111

Japanese equipment is too expensive. However we believe the low score for Equipment is due more to the fact that many plants were acquired or established as joint ventures. For assembly plants, the average application score is 4.3 for three of the plants (excluding UAE), which is quite high compared with those for other regions. Moreover during the survey we could not detect a strong orientation towards the localization of production equipment, and one plant even declared its intention to raise the ratio of Japanese-made equipment in the future. The low scores for the two other items reflect a particular characteristic of production in the UK – this will be discussed later. Finally, the UK automotive plants’ scores for Material Result are considerably lower than the scores achieved by other regions and other industries, although their score of 2.6 for Human Result (consisting of the Ratio of Japanese expatriates and the Position of local managers – group VI) is not particularly low in comparison with some other regions, though it is substantially lower than in the United States, where the application of Japanese practices is very strong, and Continental Europe.

Application of the core constitutents of the Japanese production system Japanese car assembly plants in the UK have a strong orientation towards the application of core constituents of the Japanese production system. When Japanese car makers began production in the United States they succeeded in breaking down the rigid US job classification system in which the jobs of individual workers were tightly defined and there were strict demarcations between jobs. Not surprisingly the car makers in our survey sought to do the same in the UK. Before UAE became a joint Japanese – General Motors venture in 1987 the plant had 48 job classifications. With the setting up of the joint venture a new labour contract gave equal status to all employees and an agreement was reached with trade unions on team work. In addition the number of job classifications was reduced to eight: manager, administrative/technical professional, manufacturing supervisor, analytical/technical support, manufacturing maintenance, manufacturing team leader, administrative staff, and manufacturing staff. The three other assembly plants also simplified their job classifications. As a result of these changes the plants’ score for job classification is the maximum 5. Japanese car assembly plants in the UK, like their counterparts in the United States, have arrangements for flexible shop-floor work organization and administration, and measures have been put in place to help workers become multiskilled. At UAE, each team is expected to do six jobs in turn. Hence the application score for this item is high at 3.5, but lower than the 3.8 for Taiwan. However at the time of our survey the workers at newer plants had not yet had the time to develop additional skills.

112 United Kingdom: The Automotive Industry

The UK plants achieved a high score of 3.8 for Education and training, which is related to the multiskilling effort. This score is higher than those achieved by the other regions. On-the-job training is provided to production workers and charts of multifunctional skills are posted in the workplace: the ‘flexibility chart’ at UAE and the ‘process versatility chart’ at UAO. Team leaders at all plants are responsible for ensuring that workers under their supervision gain experience of the jobs associated with the dozen or so processes, and group leaders coordinate and manage these activities. The application score for Promotion is also high at 3.8, surpassing the scores by other regions and industries. UAO assigns a group leader and four team leaders to a team of 20 members. When a vacancy is created the new occupant of the position is decided upon during consultations among the managers. All promotions require prior training, as in Japan. At the three other plants, applications from employees are solicited to fill any vacancies. While this differs from the Japanese practice, seniority is not the predominant factor it is in the United States. On the whole the high score for Promotion reflects the impact of positive performance appraisals on promotion and the adoption of an internal promotion system. The score of 3.5 For First-line supervisors is higher than in other regions but only slightly higher than in other industries in the UK. The role of first-line supervisors, who have been promoted internally since the start of the plants’ operations, is essentially the same as in Japan in terms of their supervision of a team or group. However in some cases team leaders, who preside over a group of about 15 workers, have less authority and relatively small roles, while group leaders, who oversee five teams with four or so members each, are few and inexperienced. These factors pulled down the score somewhat. The score for Wage system is 3.5, lower than Taiwan’s but higher than in the other regions. The same is true of Multifunctional skills. In UK industries it is common for different wage systems to apply to blue-collar workers on the shop floor and white-collar office workers, but UAR and UAO use the same annual salary system for both blue-collar and white-collar workers. At UAE there are eight job classifications, ranging from manufacturing workers to manager, but a single salary structure is applicable to all employees and there are no insurmountable barriers between jobs. In the automotive industry in the United States, where the wage system is based on job classification, it proved extremely difficult to use performance appraisals to create differential wages for production workers. At Japanese car assembly plants in the UK, however, it is common for appraisal results to be reflected in wage levels, which has helped to raise the application score for Wage system.7 As discussed earlier, the plants’ high application score for group I (Work organization and administration) reflects their very strong orientation towards Japanese practices in this area. While their score of 3.3 for group II (Production control) is lower than those of the other regions, apart from ASEAN, if UAE

Kunio Kamiyama 113

is omitted the score comes to 3.7, high enough to conclude that Japanese practices are strong in this area too. The score for production equipment is 3.5, lower than those obtained by all the other regions but ASEAN. As mentioned earlier, however, the application score for the three plants excluding UAE is high at 4.3. The score for Quality control is 3.5, which reflects acceptance of the idea of ‘building quality into the production process’. However some plants, primarily because of the recency of their establishment, have not yet reached this stage and have still to attain an adequate level of quality control. As for Maintenance, many plants train their staff in-house, and production workers are increasingly becoming involved in maintenance work. However many of our interviewees stated that there was a lack of experience with maintenance planning and that there were slightly more maintenance staff than justified by the scale of operations. Conversely some plants still have to recruit maintenance workers from outside because in-house training has not yet produced a sufficient number. These and other factors have kept down the application score for Maintenance to 3.0. The score for Process management is 3.3. The core constituents of Japanese process management have been established to a certain extent, including the just-in-time system (within plants) and material requirement planning. Also, with the exception of UAE the plants have been able to expand their production fairly smoothly. However process management capabilities on the shop floor are reportedly inadequate, partly due to lack of experience. For example at one plant work standards are set by the manufacturing staff, while salaried coordinators carry out work improvements. At another plant standard work time is set at about half the level of that in Japan because there are too few production workers. In summary, it can be concluded that in general Japanese car assembly plants in the UK have absorbed core constituents of the Japanese production system to a greater degree than other regions have and other industries, despite their relatively short operating period. However the reverse is true for automotive parts plants (Table 5.2).

The localization of parts procurement The application score for group III (Procurement) is 1.9 for both car assembly and automotive parts plants, far lower than in other regions and industries. The principal reason for this is that the Japanese car assembly plants in the UK were established not only to supply vehicles to the British market but also to export them to the entire European market, which requires a high local content ratio. In particular, after the French government set a local content ratio of 80 per cent as the basis for recognizing UAR’s vehicles as genuinely European, the assembly plants surveyed all raised their local content ratios to 80–90 per cent. As Japanese car assembly plants elsewhere

114 United Kingdom: The Automotive Industry

have tended to increase their local content ratio, the regional gap is likely to reduce in the future. The difference between the application scores achieved by assembly plants (1.8) and parts plants (1.5) for parts suppliers reflects the fact that assembly plants can take advantage of Japanese tier 1 parts makers with factories in the UK, while parts plants have few Japanese parts makers below tier 2 from which to procure, so they have to purchase a relatively large proportion of their parts from non-Japanese makers. With regard to Procurement method, the car assembler UAO accepts the delivery of parts under the so-called milk run method, in which lorries pick up parts from manufacturers at regular intervals. This method is also used in Canada, India and parts of the United States. At the time of the 1997 survey, some parts makers said they were keeping overly large stocks, but UAO was providing them with guidance on how to reduce them. In the case of UAS, manufacturers bring parts to a delivery centre located near the assembly plant. At the time of the survey UAS was having difficulty making its purchasing policy understood by its 188 parts suppliers, many of which produced a high proportion of defective parts, perhaps due to their ties with Rover. Under these circumstances the application score for procurement methods was a low 2.8.

Blending application and adaptation As discussed above, Japanese car assembly plants in the UK have very high application scores for groups I and II, the core constituents of the Japanese production system, but have extensively localized their parts procurement. The regional differences in blending of application and adaptation may reflect the fact that our UK survey was conducted later than those in North America, Taiwan and ASEAN. In other words, not only Japanese carmakers but most other Japanese companies have changed their attitude towards the application stance to local production overseas. In this period they did not have much experience in local production overseas, so they may have had a very strong orientation towards the application of the whole aspects of Japanese production systems. However, as they gained increased experience with overseas operations, they learned that in transferring the Japanese production system abroad in its entirety they would face difficulties in some areas. In such areas, they have avoided enforced application of Japanese production systems. But on the other hand, they remain strongly committed to the application of the core constituents of the Japanese production systems. Moreover, it can be also assumed that Japanese carmakers came to think that in some areas, notably parts procurement, stronger adaptation would contribute to the stability of local production, and depending on circumstances, would lead to higher competitiveness in cost and other aspects.

Kunio Kamiyama 115

The blending of application and adaptation is also discernible in the other three groups, to varying degrees. In the case of group IV (Group consciousness) the application score for Small-group activities is low at 2.3, but those for Information sharing and Sense of unity are relatively high. The low score for Small-group activities indicates a lack of robustness, but at the time of our survey efforts were being made at where UAS, almost 30 circles were operating after hours. However the number of circles was once as high as 70, so the institution of Small-group activities cannot be described as successful. At UAO we were told that they did not have Small-group activities as Westerners were not accustomed to engaging in workplace activities after hours, although they did have some quality control activities and kaizen groups. Meanwhile UAR had kaizen groups but no quality control circles. They seemed to be content with this situation, as long as the Kaizen groups produced results. With regard to group V (Labour relations), the car assembly plants scored a high 4.0 for both Hiring policy and Harmonious labour relations. Regarding these two items, application measures are judged to be significant for local operations. Parts plants scored a low 3.0 for Hiring policy, perhaps because of their smaller operations and lower profile compared with assembly plants. However their score for Harmonious labour relations for Automotive Parts was high at 4.3, which exceeded the score 4.0 for Car Assembly due to the absolute necessity of on-schedule delivery to car assembly plants. The high application score for Labour relations reflects the absence of the powerful trade unions of the past.8 UAS has no trade union, while UAO and UAR have single unions. UAE inherited five unions when it took over the plant, but all the unions willingly participate in works councils, which are forums for consultation between employees and management representatives. There are no unions at three of the parts plants, but two have works councils. UBG1 has four trade unions and a unionization rate of 95 per cent. However there is only one bargaining body and the unions play a positive part in kaizen teams, employee welfare and promotions. This leads us to conclude that good labour relations have been achieved. The application score for group VI (Parent–subsidiary relations) is low at 2.6, indicating a quite substantial delegation of authority to local subsidiaries and the localization of management. However the score is higher than in Asia, where Japanese companies owning minority equities is not uncommon, processes are not fully automated and the number of employees is usually higher. Moreover, considering the time difference between the North American and UK surveys, it is possible that the high score achieved in the former region may have reduced in subsequent years. On the whole it can be said that Japanese car assembly plants in the UK show a good blend of application and adaptation.

116 United Kingdom: The Automotive Industry

Past and future production in the UK As noted earlier, the advance into the UK by Japanese car makers was spearheaded by UAR, which set up operations in 1986 in response to the Thatcher government’s bid for Japanese investment. Until that time the UK’s powerful trade unions would have erected major barriers against application of the Japanese production system. After UAR succeeded in achieving flexible labour–management relations and production was running smoothly, the three other assemblers followed, establishing production bases by the early 1990s. They were also motivated by the 1992 integration of the European market. Although UAE had entered the UK by means of a joint venture with General Motors but subsequently withdrew and UAS ended its arrangement with the Rover group, the three assemblers put great effort into their UK operations. At the time of our survey in 1997 the three carmakers, excluding UAE, had made the UK their principal European production and export base. The UK passenger car market had slumped in the early 1990s, but later recovered and started to expand. At the end of the 1990s, however, exports suffered from the appreciation of the pound against the euro. In response to the consequent decline in the profitability of vehicle exports from the UK to Continental Europe, in 2000 Ford and General Motors announced their intention to withdraw from car production in the UK and BMW sold off Rover in May 2000.9 The three Japanese carmakers, however, decided to respond to the appreciation of the pound by procuring more of their parts from Continental Europe and strengthening their production in the UK. On 4 January 2001 UAO announced that it planned to raise production to full capacity (220 000 units) by the end of 2002, and on 15 March it said it would increase engine production to 400 000 units a year during 2003 by starting to manufacture diesel engines.10 In October 2000 UAS announced that it intended to export completed vehicles to Japan and the United States,11 and in July 2001 it began to produce small passenger cars at its new assembly plant,12 thus increasing its production capacity in the UK to 250 000 units. Meanwhile, UAR, whose parent company in Japan had formed an affiliation with Renault of France, considered moving the production of its new passenger car to France. However in January 2001 the British government offered UAR a subsidy of £40 million pounds, so the company not only decided to continue its operations in the UK but also announced its intention to increase production to 500 000 units in 2003–04.13 Thus while European and US carmakers became increasingly reluctant to remain in the UK because of the high value of the pound against the euro, Japanese car makers expanded the scale of their UK operations. How should we interpret this move? It appears that they opted to maintain and strengthen their production bases in the UK and turn a blind eye to the short-term

Kunio Kamiyama 117

disadvantages of the strong pound because they were planning an aggressive foray into the Continental European market, where their market share was very low, despite the lifting of EU restrictions on Japanese vehicles. With global competition intensifying in the automotive industry, the fate of the three Japanese car makers in the UK will not only provide insights into the success or failure of their parent companies’ European strategy, but will also serve as a test of the Japanese car industry’s global competitive strategy.

Notes 1. For developments in the UK motor industry after World War II, see Timothy R. Whisler, The British Motor Industry, 1945–94: A Case Study in Industrial Decline (Oxford: Oxford University Press, 1999); Roy Church, The Rise and Decline of the British Motor Industry (Cambridge: Cambridge University Press, 1995). 2. For discussions on the impact of Japanization on Britain see Kazuo Ishida and Harukiyo Hasegawa ‘Igirisu ni okeru Japanaizeishon wo Meguru Saikin no Kenkyu Doukou: Sono Igirisuteki Kenkyu Naiyo no Tokucho’ (Recent Developments in Research on Japanization in Britain: Characteristics of British Research), in Kazuo Ishida (ed.), Kigyo Roudoo no Nichiei Hikaku ( Japan–UK Comparison of Industrial Labour) (Tokyo: Otsuki Shoten, 1998). See also Nick Oliver and Barry Wilkinson, The Japanization of British Industry: New Developments in the 1990s (Oxford: Blackwell 1998); Roger Strange, Japanese Manufacturing Investment in Europe: Its Impact on the UK Economy (London and New York: Routledge, 1993); Philip Garrahan and Paul Stewart, The Nissan Enigma: Flexibility at Work in a Local Economy (New York: Mansell, 1992); John Bratton Japanization at Work: Managerial Studies for the 1990s (London: Macmillan, 1992); Ray Hudson and Eike W. Schamp (eds), Towards a New Map of Automobile Manufacturing in Europe? New Production Concepts and Spatial Restructuring (Berlin and Heidelberg: Springer-Verlag, 1995). 3. Nobuyoshi Yoshida, EC Jidosya Daisenso (Great Car War in the EC) (Tokyo: Toyo Keizai, 1990), p.140. 4. For the development of this process see Yasutaka Takahashi, Nihon Jidosya Kigyo no Guroubaru Keiei: Nihonka ka Genchika ka (Global Management of Japanese Carmakers: Japanization or Localization?) (Tokyo: Nihon Keizai Hyoronsha, 1997), pp. 156–66. 5. Head office news release, 26 November 2000; Nikkei Sangyo Shimbun, 29 November 2000. 6. See Tetsuo Abo, Hiroshi Itagaki, Kunio Kamiyama, Tetsuji Kawamura and Hiroshi Kumon, Amerika ni Ikiru Nihonteki Seisan Shisutemu: Genchi Koujo no ‘Tekiyou’ to ‘Tekiou’ (Japanese Production System at Work in the US: ‘Application’ and ‘Adaptation’ of Local Plants) (Tokyo: Toyo Keizai, 1991). 7. For the annual salary system for blue-collar workers and the introduction of performance appraisal for production workers at Japanese car assembly plants in the UK see Peter Wickens, The Road To Nissan: Flexibility, Quality, Team Work (London: Macmillan, 1987); Japanese translation: Ken Sakuma (ed.), Eikoku Nissan no Chosen: ‘Kaizen’ e no Michinori (Challenge of Nissan UK: The Road to ‘Kaizen’) (Tokyo: Toyo Keizai, 1989), ch. 7. 8. For labour–management relations in the UK motor industry from the latter half of the 1970s to the early 1980s, when the industry had become stagnant, see Hideo Totsuka, Tsutomu Hyodo, Mitsuzo Kikuchi and Mitsuo Ishida, Gendai Igirisu no Roshi Kankei, Ge: Jidosya, Tekko Sangyo no Jirei Kenkyu (Labour Relations in Modern

118 United Kingdom: The Automotive Industry

9.

10. 11. 12. 13. 14.

Britain. Volume 1: Case Studies in the Car and Steel Industries) (Tokyo: University of Tokyo Press, 1987). In March 2000, BMW decided to sell Rover to the Alchemy Partners but was forced to cancel the deal due to strong opposition in the UK. Ultimately Rover was purchased for just £10 by the Phoenix Investment Group, at the centre of which was the former President of Rover, John Towers. Nikkei Sangyo Shimbun, 17 January 2001. Head office news release, 15 March 2003. Head office news release, 31 October 2000. Head office news release, 18 July 2001. Head office news release, 25 January 2001.

6 Germany1 Tetsuo Abo

Japanese plants in Germany are not only different from those in the UK and Continental Europe, but are also unique in their hybridization pattern, with features leaning towards ‘Results’ both of ‘Human’ and ‘Material’ results in terms of the four-perspective evaluation. This suggests that it has not been easy to transfer Japanese systems into that country. However it does not mean that there is no place for production activities by Japanese firms. The question of how and what types of production management would make it possible for Japanese manufacturers to survive in Germany is the main focus of this chapter.

Outline of the surveyed companies The survey reported in this chapter was of 11 Japanese and three German plants. Since it was difficult to obtain sufficient data from the German plants to permit a detailed comparison with their Japanese counterparts they will not be included in the application–adaptation analysis. Instead their characteristics will be referred to when necessary. Table 6.1 shows the general characteristics of the Japanese plants in Germany. Of the 11 plants, five manufacture electronic components, three manufacture automotive parts and three are electronic assemblers. Thus the majority are parts-related; there are no Japanese car assembly plants in Germany. This set-up reveals much about the characteristics of Japanese operations in Germany. First, while the cost of labour is high in Germany, the sophisticated skills and technology available are suitable for the production of higher value-added and advanced functional materials. Second, in the domestic market for cars and other products there is a steady demand from customers with high expectations. Numerous parts manufacturers cater to this demand and are also in a position to supply products to the extended European market, and especially to the EU countries. Japanese firms in the automotive industry include GBB, a manufacturer of springs, GBC, a joint venture between the Japanese company GBJ and 119

120

Table 6.1

Japanese plants in Germany, September 1998 GBB

GBC

GBL

GDC

GDH

GDJ

GDO

GDN

GCD

GCH

GCP

Industry

Automotive parts

car parts

Automotive Electronic Electronic Electronic Electronic Electronic Electronic parts parts parts parts parts parts assembly

Electronic Electronic assembly assembly

Start of operations

1971

1976

1996

1988

1984

1980

1992

1984

1973

1990

1991

Mode of entry

New/wholly owned

Joint venture

New/ wholly owned

New/ wholly owned

New/ wholly owned

New/ wholly owned

New/ wholly owned

New/ wholly owned

New/ wholly owned

Joint venture/ wholly owned (now)

Capital

DM32 million

DM1.2 million

DM24 million

DM10 million

DM15 million

DM295 million

DM283 million

Joint venture/ wholly owned (now) DM98 million

DM26.29 million

DM69 million

DM8 million

Ownership (%) 100

40

100

100

100

100

100

100

100

100

100

Number of employees

174

62

240

225

192

650

450

280

661

430

153

Number of Japanese employees

10

1

6

2

7

19

11

5

13

4

5

Percentage of Japanese

5.7

1.6

2.5

0.9

3.6

2.9

2.4

1.8

2.6

0.9

3.3

Products (Volume/ capacity) (1998)

Ball bearings (48.7 million) Fabrication units (2.1 million)

Car pump seals Electronics mechanical

Air bags and related items (200 million)

Car tensioner (500 million)

Tuners, switches

PC Large high-grade (1 million) copiers (60000)

(185 million DM)

RF Modulator, power supply etc (total DM163 million)

toner filling (1120000), ink filling (3980000)

Tester (notebooks and desk-tops)

n.a.

Magnet heads VCRs (11.4 million)

16 DRAM DRAM IC (wafer), (memory, module asic):

Cylinder VCR Switches etc (246 million)

DRAM, etc. (12248 kp) IGBT module, EN-FAX (total DM110 million)

wafers (120000) assy (2.4 million)

HDD spindle motors, R&D mass production (170000)

Export ratio (%)

32

15–20

5

a little

14 (1997) n.a.

n.a.

n.a.

83

Export market

France 18%, UK 14%

Brazil, Australia, UK, France

USA

n.a.

USA

n.a.

Continental Europe

UK 18%, All Europe USA, Japan, France 16% UK, France, Thailand

n.a.

n.a.

Notes: HDD = hard disk drive; RF = radio frequency; IGBT = insulated gate bipolar transistor.

121

122

Germany

a German company GBG, which produces oil seals, and GBL, which manufactures air bags. These companies predominantly supply German car manufacturers, but also some Japanese manufacturers. In the case of Japanese electronic component manufacturers, since German electronic assemblers are neither as competitive nor require the same volume of parts as German car manufacturers, component manufacturers tend to supply the overall European market, including Japanese electronic manufacturers in Europe. Third, in the field of product assembly it is difficult for simple production plants to survive for long in Germany. Successful Japanese companies in this regard are GCD (which produces large advanced photocopiers), GCH (notebook PCs) and GCP (small motors). It is small wonder that Japanese manufacturers hesitate to get involved in the local car assembly industry, which includes world-class manufacturers. Some of the Japanese companies set up plants at a surprisingly early date. GBB, GBC and GCD began operations in the mid 1970s as part of the overall move towards overseas production by Japanese manufacturers and paralleling the first group of Japanese companies to begin activities in Asia. In 1980 GDJ became the first Japanese company in its field to set up operations in both Europe and the United States, where trade friction had become a major problem. These few early ventures in Germany contrast with the numerous cases of Japanese direct investment in the UK, which was to become the powerhouse of the European electronics industry from the mid 1980s. The reason for these early ventures into Germany was probably the companies’ recognition of the importance of Germany to the rest of Europe in terms of supply and demand. From the supply aspect, companies such as GBC, GCD and later GCP took note of the high levels of skill and technology in Germany’s machinery industry. For this reason, they had the desire to develop advanced technologies and new products through joint ventures or other forms of cooperation with local firms, rather than simply introduce Japanese technology. In this regard, most of the Japanese employees dispatched to these plants were unanimous in their praise of the manner in which mechanical engineering know-how had been adapted to the workplace, as well as of the high level of traditional trade skills. At the time of our survey, Japanese manufacturing plants in Germany were exclusively small or medium-sized operations. As Table 6.1 shows, the largest plant employed about 600 workers, and the majority of the rest employed for fewer. This compares unfavourably with France, Holland and some countries in Southern Europe, where several plants employed more than 1000 workers, and with plants in the UK, most of which employed more than 1000 workers and six had more than 2000. It seems that Japanese companies may have ventured into Germany with high expectations, but things failed to work out as expected and further progress was stifled. Many of the Japanese managers we interviewed admitted as much, and with the

Tetsuo Abo 123

wisdom of hindsight suggested that they might have been better off not to have come in the first place. The main problems were labour costs, regulations on working hours and restrictions imposed by unions. Another problem was that the technology and skills that were typical in the German industrial environment could not easily be adapted to electronicsand IT-related technology or to the Japanese system of multiskilled workers and flexible work organization. For this very reason GCD and GCP, which started out as partners in a joint venture, ultimately opted to go it alone. However, more recent Japanese arrivals have dealt more positively with the situation in Germany, partly because of the aggressive strategy for internationalization on the part of German industry as it confronts new aspects of EU integration. There has been a trend, particularly among globally competitive Japanese parts manufacturers, to select Germany rather than the UK as the location for their production centres because of the delay in bringing the pound sterling into the single European currency. Moreover traditional German labour practices and customs are crumbling under the impact of German reintegration, international and global competition, and market capitalism. This is particularly evident in the new types of company and plant that foreign and western German companies have established in eastern Germany. Representative among these is the GM plant that we visited in Eisenach, as well as the GBL plant. Another development that is likely to have important consequences for future investment, although it was not particularly notable among the plants we visited, is the growing number of jobs filled by part-time workers. In other words, the rigid social and system frameworks within which management had to operate in the past are becoming more flexible, and in many respects this is the advantage of local production by Japanese companies.

Hybrid evaluation Our application–adaptation analysis, produced a high average score for application (Table 6.2). The average application score of 3.2 for Germany is the same as that for the UK (3.2) and higher than those for France (3.0) and Italy (2.8). However there are more significant differences between the various countries’ scores for the individual groups and items in the evaluation.

The six-group, 23-item evaluation As can be seen in Table 6.2 (also Figure 3.6), Germany has a higher than the other countries score for group III (Procurement, 3.5) and group VI (Parent–subsidiary relations, 3.4). It takes second place to the UK for group II (Production management 3.4). On the other hand its score for group I (Work organization and administration), which represents the human method part of the Japanese production system, is not particularly high (3.1), and for group V (Labour

124

Germany

Table 6.2

Application scores in Europe

UK

Germany

France/ Benelux

Italy/Spain/ Portugal

Hungary

3.4

3.1

3.0

2.9

2.9

4.4 3.3 3.5 2.8 3.4 3.4

3.1 2.8 3.2 2.7 3.2 3.4

3.5 2.8 3.0 2.9 2.8 3.0

2.9 3.0 3.1 2.6 3.2 2.9

3.3 2.5 3.0 3.0 3.0 2.8

II Production management (7) Equipment (8) Maintenance (9) Quality control (10) Process management III Procurement of parts and components (11) Local content (12) Suppliers (13) Procurement method

3.5 3.9 3.0 3.6 3.6

3.4 3.9 2.7 3.5 3.4

3.0 3.2 2.7 3.0 3.2

3.0 2.6 3.1 3.1 3.2

3.2 4.8 2.5 2.5 3.0

2.5

3.5

2.7

2.4

2.3

1.9 2.7 2.9

3.6 3.8 3.0

2.8 2.8 2.6

2.0 2.1 3.0

2.0 2.8 2.3

IV Group consciousness (14) Small-group activities (15) Information sharing (16) Sense of unity

3.3 2.7 3.6 3.7

2.8 2.6 2.8 3.0

2.9 2.7 3.2 2.8

2.5 2.3 2.7 2.6

2.3 2.0 2.3 2.5

V Labour relations (17) Hiring policy (18) Long-term employment (19) Harmonious labour relations (20) Grievance procedure

3.5 3.3 3.4 4.2 3.0

3.0 3.1 3.0 3.2 2.8

3.5 3.1 3.6 3.9 3.3

3.2 3.4 3.2 3.1 3.0

3.1 2.5 2.5 4.3 3.3

VI Parent–subsidiary relations (21) Ratio of Japanese expatriates (22) Delegation of authority (23) Position of local managers

2.8 2.4 3.0 3.0

3.4 3.0 3.6 3.5

2.8 2.6 2.9 2.9

2.6 2.4 2.7 2.8

3.3 2.3 4.0 3.5

Overall average

3.2

3.2

3.0

2.8

2.9

I Work organization and administration (1) Job classification (2) Multifunctional skills (3) Education and training (4) Wage system (5) Promotion (6) First-line supervisor

relations), it has the lowest score (3.0) of all countries. We shall now consider these findings in more detail. The high score for III Procurement is largely related to the fact that many of the larger Japanese companies in Germany are parts manufacturers. That have little choice but to procure many of their own parts and materials from Japan or other Asian sources, for two reasons: they have to meet the stringent quality and function standards required by product assemblers competing

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on the German, European and global markets; and these assemblers expect parts makers, particularly when they are Japanese or other non-European companies, to help them meet ‘Euro-one’ (see note 8 in Ch. 3) and other EU local content regulations. In other words the parts makers cushion the product assemblers from local content requirements, and after that only the advanced parts and materials from Japan, or low-priced components from other sources in Asia were imported. In the case of VI Parent–subsidiary relations Japanese plants in Germany have a higher score than their counterparts not only in the countries in Table 6.2 but also in most other countries in the world. Indeed the only case of a higher application score for this item was the 3.6 recorded for Japanese plants in the United States ten years previously. Even there, an interim survey carried out in 1993 revealed a marked downward shift (Abo, 1998a), and yet another survey completed in 2000 confirmed this trend. Notable among the scores for the items in this group is the score of 3.0 for the ratio of Japanese employees. Because the manufacture of many of the products in question requires a high degree of technical competence, and because the plants tend to be small and medium-sized (which favours a high ratio of Japanese employees) problems would arise without a comparatively large number of Japanese employees. This is certainly not to imply a lack of supervisory or management skill on the part of German managers. In fact we were greatly impressed by the enthusiasm and skill of a number of German managers who had made a sincere effort to apply various methods practiced at the parent plants in Japan. At GCD a group of five German engineers who had visited the parent plant in Japan to prepare for the introduction of a new procedure for manufacturing ink cartridges had demonstrated their craftsmanship and engineering skills in various ways. For example they had formed ‘novice teams’ with inexperienced Japanese employees and succeeded in starting up the procedure without any help. They had also designed a computer inspection method to identify problems during parts inspection in the copier assembly process, and had invented devices for waste disposal at the plant. At GDH, highly motivated German managers had overseen the creation of a score sheet to record workers’ multiskill competencies, along with a detailed job chart. At GDC, German engineers had improved the Japanese equipment used in the assembly of tact switches, thereby achieving a higher production rate than at the parent plant in Japan. In the case of an GCH plant for the assembly of personal computers, the QC circle formation rate reached 30 per cent despite the complete absence of a bonus system. In addition, enthusiastic, self-initiated kaizen activities include a system for collecting suggestions from employees. As these many interesting cases show, German workers who demonstrate leadership on the shop floor and voluntarily utilize their technical expertise and competent job skills also contribute to a fairly high level of kaizen

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Germany

activities as well as creative job performance. However, for a number of reasons it would be problematic to entrust the overall management of plants to German employees. First, some German workers have a slightly narrow perspective when it comes to plant operation. It would be difficult for them to broaden their views of plant management, much less to coordinate their operations with those of other plants outside Germany and in Japan. Second, and this is related to differences in management style, while Germans tend towards a perfectionism that can only be satisfied by expert, comprehensive solutions, Japanese managers, despite their interest in system development and process change, tend to act in moderation and always give consideration to costs. In this respect there is little choice but to leave decisions up to Japanese managers. Finally, in most cases the German domestic market is of greatest importance to German plants. Consequently as long as a plant is a profit centre, it will be necessary to have Japanese managers who, as the representatives of Japanese headquarters, are concerned with market strategies such as sales and purchases. Turning now to human-related categories such as Work organization and administration, plus Labour relations, the reason why the German scores are fairly low is that there are pronounced differences between Germany and Japan in terms of the customs and systems that govern jobs and labour. When Japanese companies attempt to introduce practices employed at their parent plants they often run up against local restrictions. These are based on horizontal divisions of labour that are rooted in the traditional social hierarchy. Related rules and practices take precedence over those of the company in question and centre on the functions of the trade union. These characteristics do not coexist well with the vertical structures of the Japanese production system. This refers in particular, to the employee representative council (Betriebsrat) that exists in the organization, completely separate from the labour union. In fact, the council is closely related to the labour union, and its position and functions are rather delicately defined. An understanding of this point requires a brief explanation of what are known as Tarif wages. The Tarif is the German version of a European qualifications system that specifies the relationship between traditional jobs and the wages (or salaries) earned by workers doing those jobs (see Japan Institute of Labour, 1998; Jürgens, 1998b; Sudwestmetall, 1995) . It is based on an agreement between management and the union and conforms to the business organization law, according to which ten areas throughout the country determine wage levels (salaries in the case of white-collar workers) for eight to 12 (in most cases 10) wage groups (Lohngruppe). The qualifying conditions for each group are determined by negotiations between the unions and employer associations in each area. In the case of Sudwestmetall (introduced by GCP) in November 1995, there were 10 wage groups: jobs in group 1 were simple ones that required no prior knowledge or training; jobs in groups 2–4 required more experience

Tetsuo Abo 127

and knowledge; jobs in groups 5 and 6 required two months’ or more training; and jobs in group 7 and above required the completion of special training or the equivalent level of skill. The training and education is a particular system for the training of tradesmen (Facharbeiter) through a combination of vocational school (AZUBI: Auszubildende) training and in-house apprenticeship. Originally, Facharbeiter training was a fusion of the traditional in-house worker training system and a special German-style, external training system. Today, however, it has become standard training for about two-thirds of all male labourers and is no longer considered a particularly special qualification. The wage levels that correspond to these wage classes are approximately DM 2,501 for class 1, DM 2,934 for class 7, and DM 3,894 for class 10 (monthly, in 1995). Maintenance workers (groups 7 to 10) also had to have had ten years’ experience at the plant. Line leaders fell into group 9 or 10. The highest qualification for a plant worker is that of Meister (a standard classification since World War II, and distinguished from a similar term for ‘craftsmen’ in the handicrafts industry), which requires about two years of special training and education after the Tarif, culminating in a diploma upon graduation. The salaries for Meister would be about DM 5,500–6,500 a month (different source from the above). The Meister qualification used to be a prerequisite for becoming a foreman, but today this is not always the case, especially at Japanese subsidiaries. Even in German companies the qualification system leaves little room for compromise and is thus difficult to utilize. When investigating how the Japanese companies surveyed have dealt with this system we found that four of the 11 plants have not admitted a union, although all but one (located in eastern Germany) does have an employee representative council (Betriebsrat), which is required in any workplace with five or more employees. At all plants the wage structure conforms to the Tarif system. In the case of standard jobs, wage groups are determined either by the labour agreement or by a committee made up of company representatives and the employee representative council. As the Tarif wage system is job-specific, employers do not have the right to move employees to different jobs without regard to their job qualifications. However in comparison with US-type job wages, there is a greater degree of tolerance and flexibility. That is to say, firstly, a specific wage class specified through Tarif wages may be applicable to a number of different job types. Therefore, since job shifts within a particular wage class have no effect on wages, it is therefore possible to transfer workers between different jobs within their respective wage classes. Secondly, since each wage group only a certain minimum wage is stipulated it is possible to encourage workers to agree to job rotation by offering them incentives such as performance-related bonuses, provided their total pay does not exceed the level specified for the next wage group. Finally, although the wage group system is governed by local regulations, their structure is ultimately determined by the wage group committee and may therefore

128

Germany

reflect the company’s wishes. However this depends largely on the position of the employee representative council and the pressure exerted on it by the union. When such pressure is significant, many of the Japanese plants have chosen not to press the matter and tend to leave work organization and its operation in the hands of their German managers. But other plants (for example GDH, GCH and GDC) have managed to introduce performancerelated bonuses based on worker assessments, and GBB – in order to train and develop mechanical maintenance technicians – has successfully negotiated with the employee representative council for a pay increase equivalent to an entire wage class. Hence to a certain degree it is possible to stretch the boundaries of the wage group system in order to develop broader, more diverse skills among workers, and thereby to make process management more flexible. Indeed it is fairly standard among German firms for an average of 13–16 per cent of contractual wages to be subject to some kind of worker assessment. However this requires at readiness to spend time and trouble observing conventions and patiently negotiating with the union or the employee representative council. The majority of Japanese plants in our survey did not undertake the type of mass-production manufacturing operations that would warrant such a commitment. As mentioned previously, they have adopted a form of operating that allows them to utilize German technology and production skills in order to manufacture advanced components and higher value-added products on a scale that is appropriate to the demand. Consequently they allow plant managers to pursue a modified ‘Japanese style’ that is understood and accepted by them. Returning to the 23-item analysis, for the items (5) Promotion and (6) First-line supervisors (group I) the Japanese plants in Germany score as highly as Japanese plants in the UK (Table 6.2, Figure 3.6) because the somewhat more flexible internal promotion system for first-line supervisors and foremen allows the development of both operational and managerial skills. In contrast all the items in group V (Labour relations) receive a lower score. This is partly due to the presence of Germany’s strongest union, IG Metall, which represents workers in metal-working industries such as electrical machinery and car manufacturing. Although the union has become less rigid, painstaking negotiations are needed for any modification of regulations or practices. Such constraints greatly restrict companies’ ability to develop the type of accommodative labour relations found in Japan. The high average score for group II (Production management) reflects the high scores for (7) Equipment, (9) Quality control and (10) Process management. In fact, with the exception of (8) Maintenance, these item scores for Japanese plants in Germany are the highest in Continental Europe. The use of Japanese production equipment is essential because, as discussed above, it is difficult to introduce Japanese system elements through human-related items, and because of the need to supply advanced, high-quality products to

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the German market. In the case of quality control and process management, German managers implement Japanese production methods competently and effectively, although not precisely in the Japanese style. The reason why (8) Maintenance receives a lower score is that skills training only partly takes place in-house, so it is not easy for companies to provide training for firm-specific, multiskilled jobs, and it is especially problematic to find methods of rewarding such training.

The four-perspective evaluation We shall now consider the results of the foregoing analysis by reference to the four-perspective evaluation, which, as explained in chapter 1, looks at the substantive content of technology transfer. As Table 6.3 and Figure 6.1 show there is a very high application score for Material Result. This is not surprising, given the high application scores for all the items in group III (Procurement) and (7) Equipment in group II. There are two ways of looking at this. On the one hand it shows that it has not been easy for Japanese plants in Germany to procure local parts and technology for their all-important parts manufacturing plants, and therefore they have to import parts, materials and equipment from Japan. On the other hand it reflects the importance they attach to supplying advanced, high-quality products to the German market. This is also evident in the high application scores for Human Result. Not only is there a high ratio of Japanese expartriates, but also there is little commitment to developing the authority of German managers, compared with their counterparts in the UK. We encountered quite a few Germans with the rank of shop floor manager, but there were far fewer above that level. While there are five companies at which Germans occupy positions up to the level of president, there is a strong sense that these are only nominal appointments, and at all the other companies Japanese personnel dominate the positions of authority. At medium-sized parts manufacturing plants, broad knowhow on the part of local managers is not considered necessary for the creation and development of opportunities in the local market. Rather priority is given to the effective local application of technologies used at the parent plant.

Table 6.3

Four-perspective evaluations of hybrids in Europe

Human Method Human Result Material Method Material Result

UK

Germany

France/Benelux

Italy/Spain/ Portugal

Hungary

3.4 2.7 3.2 2.8

3.0 3.3 3.1 3.8

3.0 2.8 2.8 2.9

2.9 2.6 3.1 2.2

2.7 2.9 2.4 3.2

130

Germany Human Method 5

4

3

2

Material Result

Human Result

1

Material Method UK

Germany

France/Benelux

Italy/Spain/Portugal

Hungary Figure 6.1

Four-perspective comparison in Europe

The German plants’ score for Material Method is also high, despite striking differences between the German and Japanese systems, such as education and training, which, as pointed out above, partly account for the low score for Maintenance. One reason for the high overall score is that although electrical assembly plants outwardly follow German systems and practices, in substance they apply Japanese methods of production control. In other words, the companies followed ‘German-style genbashugi (work site-orientation)’ such as having specialists carry out the maintenance or quality control job functions. In practice, however, these specialists took it upon themselves to acquire Japanese methods such as ‘building quality into the production process’, and as a result of their interaction and communication with quality and process engineers, were able to achieve a wide range of kaizen effects. This is a case of what we have called ‘revised application’.

Performance evaluation How does the actual business performance of these plants relate to their hybrid evaluations? When our survey was conducted in autumn 1998, with

Tetsuo Abo 131

the exception of some of the semiconductor plants most plants were operating in the black, although their profits were not particularly large. Many of these operations had also succeeded in erasing their cumulative losses. Hence despite the high cost of labour, these Japanese plants were managing to survive in a European country whose markets were especially important. However, not many of the plants were entirely satisfied with their situation, particularly those which had set their sights on the German market in the 1970s, and had taken the lead in Japanese investment strategies there. Several had reconsidered their strategies in the light of later developments, or believed that the UK might have offered a more suitable environment. In general the value of being situated in Germany may gradually lessen as the integration of the European economy progresses. However the importance of having a production centre in the country that is likely to remain the focal point of the car manufacturing industry will probably increase. With respect to these and other points discussed above, we shall now proceed with an overall evaluation of the Japanese plants in Germany.

Overall evaluation The most distinctive feature of our hybrid evaluation is the strong resultoriented pattern, with high application scores for Material Result (through the bringing in of parts and production equipment) and Human Result (through the high ratio of Japanese employees). Behind the low scores for Human Method is a willingness to accommodate local systems and practices, such as the social systems that regulate the management of industrial enterprises in Germany (unions, the employee representative council, Tarif wages and so on). Even in plants where such systems do not exist the wage structure is similar to the Tarif wage system. This is perhaps the reason why Japanese employees’ commitment to local operations seems fairly weak and, as will be discussed below, production is left largely in the hands of German managers and technical specialists. Many of the Japanese personnel we interviewed were unable to provide an adequate response to our questions about work organization and the nature of small-group activities, a situation we rarely encountered in other regions. With the rather limited application of Human Method elements, and faced with a market that demands high-quality, advanced products, it is not surprising that Japanese plants bring in parts and equipment from Japan, as this is the easiest, most effective way for them to clear the various social and cultural hurdles that stand in their way. Also, since it would be almost impossible to run large-scale, mass-production plants in such an environment, companies have generally adopted a form of mixed-model production (small-lot production of a variety of high-quality products), mainly for the automotive industry.

132

Germany

With the expansion of the EU consequent and the removal of trade barriers against East European countries such as Hungary, Poland and the Czech Republic, with which Germany has strong historical ties, many companies are setting up productive facilities in that region. For example a number of German enterprises have established manufacturing plants for compact, inexpensive cars in Hungary, Poland, the Czech Republic, and former East Germany, GCH has subcontracted the production of certain components for its notebook PCs to EMS (Electronics Manufacturing Service) in Hungary and EPe has established a twin plant in Slovakia, employing approximately three times the number of workers it has at its plant in Germany. GBL is the only Japanese plant in former East Germany to be included in the present research. Although Japan lags behind other countries in terms of entry to this region, some small and medium-sized Japanese companies have recently begun to set up operations there. West German companies arrived first, followed by US multinationals. One of the ‘German’ investments was the General Motors plant in Eisenach, which was established with the help of OPEL, General Motors’ German subsidiary. This plant represented the introduction of Japanese-style operations, based on what General Motors had learned in about the Toyota system through its joint venture with Toyota in the United States) (Jürgens 1998a). We were given a tour of this plant during our survey in 1998. It seemed to be a very ‘lean’ plant indeed, probably because almost all the parts, components and subassembly factories required to produce a few number of car models were situated next to the plant, thus enabling just-in-time delivery. Plant management at some Japanese plants in Germany has been referred to as ‘German-style genbashugi’, a hybrid system that combines German precision machinery technology (mechanical technology) and skilled workers with the flexible work organization that results from Japanese mechatronics (mechanics and electronics) technology and mixed-model production. German technicians work under the guidance of managers and engineers, and Japanese manufacturing technology is blended with German methods and system frameworks. The technicians perform kaizen and small-group activities on the shop floor. A notable difference between this system and that in Japan is that it usually does not extend to regular shop floor workers. Consequently we see this model as an interesting case of ‘revised application’. Since it makes fairly heavy demands in terms of time and effort, it is sometimes viewed as ‘excessive application’ from the perspective of the basic necessities of the Japanese production system. In any case, it is probably best to say that its effectiveness is restricted to special cases. Changes are beginning to emerge in German society as there has been a certain easing of regulations in this rule-driven society. In the face of declining unionization and growing unemployment, unions and employee representative councils are becoming more accommodating in their dealings with management. There has been broad progress in areas such as worker

Tetsuo Abo 133

assessments and more flexible application of the Tarif wage system, which now uses these assessments. There have also been negotiations at GCD that could lead to a longer working week (from 35 to 37.5 hours), the introduction of overtime and more liberal rules on the employment of part-time workers. There are two categories of part-timers: ‘fixed period’ part-timers whose term of employment is limited but provisions such as eligibility for social insurance are the same as those for permanent employees; and part-timers who are employed via temporary staff agencies and do not pay social security if they earn less than a certain amount per week. Originally found mainly in the service industry, the latter type of part-time employment has spread to the manufacturing industry. Although not many of the Japanese plants in our study employ personnel from this category, there has been an increase in fixed-period workers, which reflects the softening of Germany’s rigid employment laws. These developments also mirror the trends sweeping across the whole of Europe as countries seek to increase their competitiveness in the face of globalization and European integration. In the case of Germany, these changes additionally reflect efforts to prevent German manufacturing enterprises from leaving the country, and there is no question that they produce an easier, more tractable environment for Japanese enterprises. From the above we can see that while having a manufacturing centre in Germany is not an easy matter, there are clearly certain merits. Maintaining a manufacturing presence in Germany, which is the industrial and economic if not the financial heartland of Europe and the EU, and which constitutes a very important market where consumers have sophisticated and exacting demands, is a matter of strategy – that is, establishing a foothold for the expansion of business activities, including sales and R&D, into the rest of Europe. The strategic advantage of Germany as a conduit to Eastern Europe is expected to become increasingly important in the future. Due to their geographical proximity to the countries in that region, the future role of plants in Germany will be to support large-scale production at plants in Eastern Europe. This support could range from logistical support such as the supply of application designs or functional components, to leadership and guidance in plant management. This is similar to the role played in recent years by plants in Korea, Taiwan and Singapore as intermediaries between to the parent plants in Japan and their production subsidiaries in Southeast Asia, China and India. It should be emphasized that the foregoing observations should be viewed in the context of an increasingly integrated economic region. It is precisely because of the protective barriers that surround this vast market that it is possible to carry out production in a country with wages and input costs as high as they are in Germany. Under ‘Euro One’, a set of import regulations that constitute a somewhat extreme form of this protective barrier, the assembly industry is able to compete effectively with Asian imports, on which an import duty of 40 per cent is levied.

134

Germany

The final point to stress is the stability of enterprises with production centres in Germany or other locations in the EU. Europe’s experiment in regional economic integration naturally involves a certain degree of trial and error, and its policies on monetary union, interest rates and the environment demonstrate the high priority on stability and safety. This contrasts with trends in other parts of the world: The expanded EU may not achieve and experience the sudden economic boom and the collapse that were seen in Asia and the United States since the 1990s and the early 2000s. However in the midst of Europe’s commitment to stability, a number of important German corporations have encountered difficulties. It was perhaps on account of being burned by US-style market capitalism that companies such as BMW, Daimler-Benz and the Deutsche Bank began to engage in largescale international mergers and acquisitions, and are now either facing failure or serious problems. Evaluating these developments could be an interesting project.

Note 1. This chapter is based on the proceedings of the 18th Annual Conference of the Euro-Asia Management Studies Association (EAMSA), Berlin, 2001, and was first published as Chapter 1, ‘Japanese Hybrid Factories in Germany: Survival in a Different Environment’, in S.-J. Park and S. Horn (eds), Asia and Europe in the New Global System (London: Palgrave, 2003).

7 France and the Benelux Countries Du-Sop Cho and Je-Wheon Oh

This chapter analyses the operations of Japanese multinationals in France and the Benelux countries. On-site surveys of 16 companies were conducted, 12 of which are included in our application–adaptation evaluation: the items in the evaluation were mainly designed for surveys of factories and therefore we have excluded two European headquarters that have no plants, and two other companies for which the data collected were inadequate. France is at the top of the host country list with eight companies (two of which are excluded from the analysis here due to the insufficiently high quality of the survey data), followed by the Netherlands (two), Belgium (one) and Luxembourg (one). The Netherlands and Belgium host the European headquarters of Nissan and Toyota respectively. Japanese companies’ main motive for venturing into Europe was to overcome import restrictions, non-tariff barriers and market closure, rather than adherence to a strategic plan. The region consists of individual countries with different languages, cultures, tastes and policies, and while the establishment of the EU has laid the foundation for a country named Europe it will take a long time for it to become a homogeneous entity. This suggests that Europe is not a suitable place for locating strategic manufacturing bases. In particular, France is considered unattractive as a location for factories and many Japanese were surprised when Toyota established a production base there. Toyota is well known for being extremely cautious about its site selection and already had an assembly plant in the UK, so why did it choose France as its production base on the Continent? While the purpose of this chapter is not to answer that question, the deeper we delve into the workings of that country the more we marvel at its flexibility and affinity with Japanese practices. It is presumed that Toyota has taken this into consideration. As implied above, France lags far behind the UK as an ideal location for Japanese ventures in Europe. More than 2000 Japanese affiliates are operating in the UK, whose attractiveness is partly due to the use of the English language, but primarily due to the reforms of the 1980s, when trade unionism was 135

136

France and the Benelux Countries

weakened and the UK clawed its way out of the so-called ‘British disease’ of repeated strikes (Yergin and Stanislaw, 1998). The decline of the trade unions and the restoration of the work ethic amid the new thinking on the economy and business had a strong impact on the overseas strategy of Japanese companies, as did the threat from the EU that no market access would be allowed to foreign companies that were not directly engaged in production in the European region. Whereas the UK possessed the attributes required by Japanese investors, France did not. As noted by Piore and Sabel (1993), American-style mass production (Taylorism) and big-business orientation were more accepted in France than anywhere else in Europe, and after World War II American technology and organizational structures swept over the country, making France little different from the United States in these respects, a fact that the French people now deplore. Allegedly it was France that taught the Americans the technique of mass production at the turn of the twentieth century, but the position reversed in about 50 years. Naturally in other respects there are large differences between France and the United States. The biggest in terms of business management is the major role the French state plays in labour relations, employment conditions and wages. As in the other countries of Continental Europe, the state is directly involved in decision making on labour agreements, wages and job grades. The formulae ‘state versus capital’ and ‘state versus labour’ actually exist. In this respect France is very different from the United States and Japan, where these matters are primarily determined by negotiations between the parties concerned, such as employers and trade unions. State regulation of such matters is a decisive factor in the application of Japanese methods, as will be discussed later in this chapter. French elitism is also a major challenge for Japanese companies (Yoshimori, 1996). In France the ‘golden parachuting’ of high-ranking government officials to executive positions in private companies is routine. For example 70 per cent of the executive managers of the top 24 French manufacturers, and 50 per cent of the top 50, are former high-ranking government officials. Because of this, French companies are characterized by top-down decision making by elites and by bureaucratic procedures. This system has long proceeded unhindered, albeit under strict state regulations, but in recent years there has been growing criticism of its detrimental effects, partly reflecting intensified global competition. Problems such as amateurism on the part of the former government officials, low morale among middle managers who are deprived of the possibility of promotion, weak entrepreneurship and disregard for what happens on the shop floor to have been cited as the principal reasons the poor competitiveness of French firms. In Japan, by contrast, the internal promotion system has become a serious problem in this regard, and firms are increasingly interested in obtaining new managerial blood from outside.

Du-Sop Cho and Je-Wheon Oh

137

The Japanese management and production systems, by respecting the judgment of shop-floor workers and giving corporate citizenship and equality to all employees, encourage every corporate member to make a commitment to the success of the company. These principles are obviously incompatible with the French practices described above, but the purpose of this chapter is not to discuss the transfer of Japanese management and production systems to French enterprises, rather it is concerned with the application and adaptation of Japanese production systems in Japanese-affiliated companies. Severe confrontations and conflicts are unlikely because French employees who have chosen to work for a Japanese company should to some extent be prepared to conform to Japanese practices. Likewise Japanese personnel should respect local societal practices and use common sense in their management methods. At the level of systems and business techniques, however, differences in thinking between the two could certainly cause some day-to-day conflict. Many people have a preconceived view that the French are incapable of engaging in Japanese-style manufacturing, but some Japanese companies speak favourably of the flexibility of the French, as demonstrated by the country’s adoption American of production and management systems after World War II. The degree to which Japanese companies have succeeded in introducing their systems is the subject of the following sections.

Japanese plants in France and the Benelux countries After the collapse of the Soviet Union, and in response to the further integration of the EU countries, many manufacturers in Western Europe have begun to move to Eastern or Southern Europe in pursuit of advantages in wages and labour supply. This trend is almost the same as that in postwar Asia, where production bases were moved from Japan to the newly emerging economies in Asia, then to the ASEAN countries and later to China. Japanese companies are no exception in the European trend, and are confronted with the question of: where to move, whether to start out with a joint venture or act alone and what to do with the current plants. Shifting production bases to countries where wages are lower is similar to the Asian pattern but there are differences in the handling of existing bases. In Europe, unlike in Asia, only the production function is moved and the existing bases are retained as R&D centres. In the case of France, for instance, one of the companies in our survey, FCD, established a research centre staffed with 60 personnel, including four Japanese. The centre will conduct R&D in the fields of communication and information processing to support the activities of the development team at the Japanese headquarters. It will capitalize on the R&D infrastructure in Rennes, where France’s largest high-tech industrial complex is located. Another company, FCO, has also established an R&D centre in Rennes with a view to tailoring the design of its mobile

138

France and the Benelux Countries

phone to the local market. It currently has a design team of about 90 members, including 10 Japanese. In the case of a third plant in our survey, FDI, it is being converted into an R&D centre in order to mitigate the unemployment caused by the closure of the plant. It is now in the process of localizing its designs and is working on a joint design with local engineers. A fourth plant, BDI, had intended to cease its operations in Belgium and shift its entire production to Portugal, but changed its mind in response to requests by the local government and trade unions. It now plans to turn its facilities into a design centre and a production base for new products. It will also be in charge of setting up a new plant in Portugal and training the workers there. This will result in a large cost saving in technical transfers as the Japanese headquarters will not have to involve itself directly. Europeans training Europeans should be effective in transferring experiences. In addition, favorable morale boosting can be expected through the healthy competition among Europeans.

Overview of the surveyed companies Twelve companies were included in our surveyed (Table 7.1). This may be a small number but the companies were representative of their industries so should provide an average profile.

Site location An unexpected finding of our study was the existence of active inducement by regional governments. While the French national government was indifferent to the entry of Japanese companies, local governments established offices in Japan to encourage companies to set up operations in their area (for example by offering subsidies or premises for plants). As a result there are Japanese plants throughout France. As mentioned earlier, Rennes in Brittany is known as France’s high-tech industrial complex, where many universities and institutes are engaged in research on electronics and communications, and electronics companies have ventured into the area one after the other. This region hosts two of the plants in our survey, FCD and FCO, as well as an institute that conducts research on communication software. Alsace has attracted many Japanese companies, including FCF and FCG, due to its convenient location for product distribution and its diligent workforce. Another attraction is its proximity to Strasbourg, home of the European Parliament. Orleans, where FCJ is located, is also a popular location for electrical and electronics plants. Its proximity to Paris is particularly favourable in respect of hiring engineers.

Starting period Most of the companies in our survey began to venture into the region from the mid 1980s in response to increasing European market integration and

Table 7.1

Overview of the companies surveyed in France and the Benelux countries

Company name Location Start of operations Percentage of equity Capital Annual sales Number of employees Number of Japanese expatriates Type of product

Markets of products

FCD

FCH

FDI

FCJ

FCO

FBH

FCF

FCG

BDI

France 1984

France 1986

France 1985

France 1992

France 1994

France 1984

France 1989

France 1987

Belgium Luxembourg Netherlands Netherlands 1992 1974 1991 1991

100

100

100

100

99.30

100

100

100

100

NAA

NEQ

99

50

80

3342 Flux n.a. 806

n.a. n.a. 4158

GD40 mn GD410 mn 438

9

25

35

11

F184.9 mn F152 mn F30 mn F100 mn F244.7 mn F136 mn F115 mn F107 mn F80B F1143 mn F3255 mn F150 mn F475 mn n.a. F482 mn F600 mn F2720 mn F3.4B 350 1360 328 603 400 139 140 517 163 7

6

6

Compact Speaker Disk copying systems storage units machines

Portable phones

Car stereos

Copying Videos, machines portable phones

Car stereos

Audios, videos, CD–R

Cars

Forklifts

n.a.

all GSM market

France, UK, Spain

EU

EU

EU

EU

EU, Africa

20

4

Compact copying machines cartridges EU

5

EU

9

n.a.

23

LDB

n.a.

139

140

Table 7.1

(Continued)

Turnover rate (%) Absenteeism rate (%) Ratio of direct– indirect job ratio Ratio of males to females Average age Annual working hours

1.16

n.a.

0

n.a.

0.5

1

1

n.a.

0.1

5.2

3.2

13

4.25

n.a.

1.6

n.a.

2.46

10

7

7

7

3.4

7

15

n.a.

n.a.

81:19

n.a.

65:35

57:43

70:30

n.a.

57:43

63:37

n.a.

40:60

43:57

n.a.

n.a.

n.a.

60:40

60:40

50:50

32:68

37:63

82:18

90:10

80:20

31 1699

n.a. n.a.

n.a. 1740

n.a. n.a.

28.7 n.a.

36 1755

31 1761

33 1755

35 1696

28.6 n.a.

40 1720

33 n.a.

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import restrictions (antidumping measures, import quotas). Their main concern was that foreign companies would be excluded from the integrated market, so the principal reason for the ventures was to establish a foothold and therefore their production activities were limited. However in the 1990s some companies decided to convert their factories into full production bases. For example BDI had arrived in the 1970s and limited its operations to knock-down production for a long time, but as the market expanded and became increasingly competitive it embarked on full-scale production.

Types of venture Nearly all the ventures are 100 per cent owned by Japanese firms. This differs from the situation in Asia, where joint ventures are more common. NAa, the only joint venture, is owned by three parties: Volvo, Mitsubishi Motors and the Dutch government. The venture promised to be beneficial to all three parties companies: Mitsubishi could sell its cars in the European market, Volvo could use Mitsubishi’s technology to manufacture small and medium-sized cars, and the Dutch government would avoid the unemployment problems that would be caused by a factory closure. In addition the two companies could expect cost reductions by using common parts and sharing platforms. Other companies started as joint ventures but the partnerships were quickly dissolved. Capitalization is larger than for Asian operations. Presumably this is to do with the large investments made in the late 1990s with an eye to the expanding market.

Products Most of the companies in our survey produce electronic products such as photocopiers, mobile phones, car audios and video recorders. Many of the plants are engaged in simple assembly operations, and the key components are imported from Japan and elsewhere in Asia. In a typical case, mechanical parts are imported from a sister plant in China, printed circuit boards from another in Malaysia and special parts from Japan. This implies a threat of greater competition from parts producers in Asia as trade liberalization progresses and import restrictions are removed. The same consideration applies to the focus on R&D and the shift of production facilities to Eastern and Southern Europe. One solution is to change to higher value-added products and more sophisticated technologies, but this would not be easy in France, where the base that supports industry is weak, as will be discussed in the section on local procurement.

Employment structure The employment structure in the region is distinctly different from that in Japan. Since the jobs of regular employees are strictly protected by law, fluctuations in production volumes are dealt with by hiring temporary or part-time workers. This will be explained in more detail in the section on

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France and the Benelux Countries

labour relations. Many companies are struggling to find a way of dealing with variables that are beyond the control of the management. The ratio of Japanese employees is considerably higher than the Asian average of 1 per cent. Indeed in one of the companies it exceeds 6 per cent. This shows that these companies are more than just assembly plants: as R&D activities grow and new products are introduced, the number of Japanese employees increases. In many cases R&D operations are conducted by a separate unit, and if the Japanese staff employed in these units were included in our analysis the ratio would be even higher. According to the manager of one Japanese plant: It is difficult to understand the market. There is no such thing as a European market. What exist are individual markets such as the British, French and German markets. One cannot expect the same economies of scale in Europe as in the United States. And the sales per dealer are less than a third of those of their US counterparts. We need different catalogues, different commercials and different direct mail for each market. Furthermore people have a strong affection for and attachment to cars made in their own country, and regulations on safety, exhaust emissions, noise and other environmental matters differ from country to country. When dealing with Europe as a whole, there is no way but to rely on Japanese staff in the end. This clearly demonstrates the reason for the large number of Japanese expatriates in the region. The staff turnover rate is extremely low in the region. It is close to zero in one of the companies, surveyed and about 1 per cent in most of the others. This is partly related to the high unemployment rate in Europe, but more importantly it indicates that workers do not feel uncomfortable with Japanese management methods. In Japanese plants in Asia the frequent resignation of employees is a major inhibitor of successful local management and technological transfers. Why should there be such a difference between regions when the management of Japanese companies is the same? Apart from the high unemployment rate, another explanatory factor in France and the Benelux countries is that in general people prefer to work near their own communities. Presumably this is the reason why, unlike in Asia, there is a wide geographical dispersal of Japanese plants in Europe.

Findings of the survey The application evaluation The average application score for the surveyed plants in France and the Benelux countries (3.0) is the same as that for Continental Europe but lower

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than those for the UK (3.2), North America (3.3) and East Asia (3.2) (Table 7.2). The score for the surveyed companies in France (3.1) is slightly higher and close to the German average (3.2), while that for the companies in the Benelux countries (2.8) is the same as the Southern European average. France is not very different from many other regions in the overall application of Japanese methods, while production and management practices in the Benelux countries and Southern Europe are more localized. This difference is not due to technological and industrial differences between the two regions, since most of the surveyed companies in both regions belong to the electronic assembly and parts industries. However there are differences between their managerial environments and institutional systems. For instance in the Benelux countries job streamlining is not as developed as it is in France and job rotation is more difficult. This prevents the smooth implementation of Japanese practices. With regard to the France/Benelux application scores for the six main groups (Table 7.3 and Figure 7.1), Labour relations (group V) receives the highest score. This is not due to the transfer of the Japanese system. Rather it is because the traditional French system is similar to the Japanese one in respect of Long-term employment and Harmonious labour relations. For example it is not easy to dismiss full-time employees, so companies cannot adjust their employment levels in accordance with falls in production and have therefore come to maintain a system that is close to the Japanese one. Moreover works councils, which are different from trade unions in nature, function as an institutional means of building harmonious and stable labour relations. The latter also has a bearing on the fairly favourable score for group IV (Group consciousness) in this region. In contrast to Labour relations, Procurement (group III) receives the lowest score of the six groups. The same is true of the other European regions, except for Germany, which has an exceptionally high score. The low French scores for Suppliers and Procurement method show that more parts are procured from local parts manufacturers than from Japanese ones, and that the style of transactions with local parts manufacturers differs from that in Japan. In France, short-term trade practices, as also seen in the United States, are the main procurement method and Japanese plants have no option but to follow the local practice. Moves are being made in France to change this situation because it prevents information and technological exchanges among companies, thereby making it difficult to achieve cost reductions, quality improvements and just-in-time component delivery. Together these factors act as a restraint on the technological sophistication of Japanese plants in France. The France/Benelux score for Parent–subsidiary relations (2.8) is considerably lower than that in Germany (3.4). This suggests that the Japanese plants in France are more advanced than those in Germany in terms of the delegation of authority to local subsidiaries and the employment of local managers.

144

Table 7.2

Comparison of application scores, by country and region Whole Europe

Conti. of Europe

France

Benelux

France and Benelux

UK

Germany

Italy/Spain/ Portugal

Hungary

3.1 3.6 3.0 3.2 2.8 3.2 3.2

3.0 3.2 2.8 3.1 2.8 3.1 3.1

3.1 3.8 2.8 3.0 3.0 2.9 3.0

2.9 3.0 2.8 3.0 2.8 2.8 3.0

3.0 3.5 2.8 3.0 2.9 2.8 3.0

3.4 4.4 3.3 3.5 2.8 3.4 3.4

3.1 3.1 2.8 3.2 2.7 3.2 3.4

2.9 2.9 3.0 3.1 2.6 3.2 2.9

2.9 3.3 2.5 3.0 3.0 3.0 2.8

II Production management (7) Equipment (8) Maintenance (9) Quality control (10) Process management III Procurement of parts and components (11) Local content (12) Suppliers (13) Procurement method

3.3 3.6 2.9 3.3 3.3

3.1 3.4 2.8 3.1 3.2

3.1 3.5 2.5 3.0 3.3

2.9 2.5 3.0 3.0 3.0

3.0 3.2 2.7 3.0 3.2

3.5 3.9 3.0 3.6 3.6

3.4 3.9 2.7 3.5 3.4

3.0 2.6 3.1 3.1 3.2

3.2 4.8 2.5 2.5 3.0

2.7

2.8

2.8

2.7

2.7

2.5

3.5

2.4

2.3

2.4 2.8 2.8

2.8 2.9 2.8

3.1 2.6 2.5

2.3 3.0 2.8

2.8 2.8 2.6

1.9 2.7 2.9

3.6 3.8 3.0

2.0 2.1 3.0

2.0 2.8 2.3

IV Group consciousness (14) Small-group activities (15) Information sharing (16) Sense of unity

2.9 2.6 3.1 3.1

2.7 2.5 2.8 2.8

3.0 2.6 3.3 3.0

2.8 2.8 3.0 2.5

2.9 2.7 3.2 2.8

3.3 2.7 3.6 3.7

2.8 2.6 2.8 3.0

2.5 2.3 2.7 2.6

2.3 2.0 2.3 2.5

I Work organization and administration (1) Job classification (2) Multifunctional skills (3) Education and training (4) Wage system (5) Promotion (6) First-line supervisor

V Labour relations (17) Hiring method (18) Long-term employment (19) Harmonious labour relations (20) Grievance procedure

3.3 3.2 3.3 3.8 3.0

3.2 3.1 3.2 3.5 3.1

3.6 3.3 3.8 4.1 3.4

3.1 2.8 3.3 3.5 3.0

3.5 3.1 3.6 3.9 3.3

3.5 3.3 3.4 4.2 3.0

3.0 3.1 3.0 3.2 2.8

3.2 3.4 3.2 3.1 3.0

3.1 2.5 2.5 4.3 3.3

VI Parent–subsidiary relations (21) Ratio of Japanese expatriates (22) Delegation of authority (23) Position of local managers

2.9 2.6 3.1 3.1

3.0 2.6 3.2 3.1

2.9 2.6 3.0 3.0

2.7 2.5 2.8 2.8

2.8 2.6 2.9 2.9

2.8 2.4 3.0 3.0

3.4 3.0 3.6 3.5

2.6 2.4 2.7 2.8

3.3 2.3 4.0 3.5

Overall average

3.1

3.0

3.1

2.8

3.0

3.2

3.2

2.8

2.9

145

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France and the Benelux Countries

Table 7.3 Comparison of the application scores for the six main groups, by country and region

France/Benelux

UK

Germany

Italy/ Spain/ Portugal

3.0

3.4

3.1

3.0

3.0 2.7 2.9 3.5 2.8

3.5 2.5 3.3 3.6 2.8

3.4 3.5 2.8 3.0 3.4

3.0 2.4 2.5 3.2 2.6

I. Work organization and administration II. Production management III. Procurement IV. Group consciousness V. Labour relations VI. Parent–subsidiary relations

I. Work organization and administration 5.0 4.0

VI. Parent–Subsidiary Relations

II. Production Management

3.0 2.0 1.0

V. Labour Relations

III. Procurement of Parts and Components

IV. Group Conciousness France/Benelux UK Figure 7.1

Germany Italy/Spain/Portugal

Comparison of the application scores for the six main groups, Europe

Nevertheless positions such as president and other key jobs are often held by Japanese employees. Finally the score of 3.0 for Work organization and administration (group I) and Production management (group II) is considerably lower than in the UK (3.4 and 3.5 respectively) but more or less the same as the Continental

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averages. Presumably a considerable effort has been made to introduce these two core constituents of the Japanese production system. However within these groups the scores for the items Multifunctional skills, Promotion system and Maintenance are quite low. Noteworthy is the exceptionally high score for Job classification. This appears to be inconsistent with the rigid demarkation between jobs that is generally observed in Europe. However, as will be discussed later, since the 1970s the discretionary power of companies has grown in terms of streamlining job classifications and determining wages and job allocations. This has brought the system and its operation closer to the Japanese style.

The four-perspective evaluation As we saw above, the surveyed companies in the region bear a similarity to their counterparts in Japan in terms of personnel management items such as Long-term employment, Harmonious labour relations and Job classification. To an extent, this is also manifest in our four-perspective evaluation (Table 7.4). However, as shown in Figure 7.2, the pattern produced by the fourperspective evaluation of the surveyed companies in the France/Benelux region does not have any striking characteristics. In fact it is similar to the European average for both Human Result (the Ratio of Japanese expatriates and Position of local managers) and Material Result (Equipment and so on), that is, about midway between Germany, which is strongly result-oriented, and Southern Europe, which is not. While France and the Benelux countries have the lowest score in Europe for Material Method (for example Equipment and Quality control), France has a high score for Human Method. This is strongly driven by France’s high scores for Long-term employment and Harmonious labour relations. The local institutional framework behind the latter, though different in form from that in Japan, functions in very much the same way. Harmonious labour relations should provide a favourable climate for skill development, the retention of key personnel, information sharing and participation in quality control. However, as shown by the low score for Material Result, ability in the areas of Maintenance and Quality control lags significantly behind that in Japan. The emphasis on possession of external

Table 7.4

Comparison of the four-perspective evaluations, Europe

Human Method Human Result Material Method Material Result

France/ Benelux

France

UK

Germany

Italy/Spain/ Portugal

3.0 2.8 2.8 2.9

3.2 2.8 2.7 3.1

3.4 2.7 3.2 2.8

3.0 3.3 3.1 3.8

2.9 2.6 3.1 2.2

148

France and the Benelux Countries Human Method 5.0 4.0 3.0 2.0

Material Result

1.0

Human Result France/Benelux France UK Germany Italy/Spain/Portugal

Material Method Figure 7.2

Four-perspective comparison, Europe

credentials by maintenance workers and the practice of hiring such workers from outside discourage production workers from getting involved in maintenance tasks. This is also the case with quality control, where the involvement of production workers is low. The executive manager of FCD told us that it took 15 years to build quality into the production process. In general, dealing with the irregularities and problems that occur in the production process depends on specialists such as maintenance workers and engineers. Therefore production workers are neither capable of solving problems nor are expected to do so.

Evaluation by item Work organization and administration The France/Benelux score for Job classification (3.5) is the highest in Continental Europe, although it is lower than that of the UK (4.4). In particular the French score of 3.8 is exceptionally high, which indicates that the institutional barriers to job rotation are relatively low in France. In view of the general perception that Taylorism is stronger in France than in other countries in Continental Europe, this is an unexpected result and suggests that changes have taken place. Job classifications in France are determined for each industry group at the national level. Jobs at the surveyed companies in the electronic and automotive industries are based on the job grade system for the French metal industry. With the latter, production workers are classified into three groups: general workers (O), special workers (P) and shop-floor technicians

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(TA) (Table 7.5). General workers are those who lack specific skills, special workers engage in more complex tasks and machinery maintenance, and shopfloor technicians are highly skilled and rank one rung below maintenance personnel and foremen (Matsumura, 2000). Workers in the three groups are further classified into three subgroups according to skill and experience. Each of the associated grades, classified by job complexity and job difficulty, is allotted a wage index. Job classifications in the surveyed companies, based on the above system, are as follows. Workers are generally classified into six grades: O2 to TA1 (index numbers 180 and 225 are not applicable). Grade O1 applies to probationary employees, but in practice it is not used in many of the companies. The most typical pattern is as follows. General production workers are placed in grades O2–P1, lower-level leaders and lower-ranking maintenance personnel in P2, and middle-ranking maintenance personnel and special technicians in P3–TA1. Line leaders (equivalent to group leaders in Japan) are placed in grades AM1–AM2, and senior supervisors in AM3 and higher. The actual distribution differs from company to company, depending on the scale and nature of the work conducted. For example in plants where work mainly involves assembly, production workers are mostly placed in grades Table 7.5

Job grade system in metal industry, France Classification

Level

Subgroup

Wage index

Workers

5

4 3 2 1

395 365 335 305

– – – –

AM7 AM7 AM6 AM5

4

3 2 1

285 270 255

TA4 TA3 TA2

AM4 – AM3

BTS/DUT

3

3 2

240 225

TA1 –

AM2 –

1

215

P3

AM1

BP/BT/BAC BT/Bac > 6 months BT > 10 months/ Bac +2

2

3 2 1

190 180 170

P2 – P1

– – –

1

3 2

155 145

O3 O2

– –

1

140

O1

–

Sources: Matsumura (2000); company documents.

Supervisors

Qualification A similes Cadres

CAP/BET

No formal qualifications

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France and the Benelux Countries

O2 and O3, whereas in plants with mainly machine work, many of the production workers are placed in grade P1. Compared with Japanese car assembly plants in the United States, which have reduced the number of their job classifications from over 100 to just two (production workers and maintenance staff), there are many more grades in France. However this does not prevent the nurturing of multifunctional skills. In the majority of companies production workers are grouped into three or fewer (most commonly two) grades. Job rotations can take place freely within the same grade, but rotations between jobs in different grades is not permitted without changing the grade of the worker. Turning now to the Benelux region, in Belgium workers are classified into four groups – production workers, special workers, qualified workers and multifunctional skilled trades persons – which in turn are subdivided into two or three classes. As in France, each class is linked to a wage range. In the surveyed companies there are eight grades. In the Netherlands, workers are classified into 11 groups, each of which is subdivided into five classes. Of the 55 classes, 11 are job-related. In Luxembourg there are five groups and these are subdivided into four or five classes. As job classifications in the Benelux region are more extensive than in France and there are more grades, Japanese plants in the Benelux countries are faced with more restrictions on job rotation than their counterparts in France. This explains the low score for job classification in that region (3.0). Next, we shall look at how multifunctional skills have been developed within the above frameworks. At the French plants there are no significant restrictions on job rotation so a higher application score could be expected for multifunctional skills than in the Benelux countries, but in fact they both scored a low 2.8. The reason for this seems to be that there has been no serious attempt to develop such skills, presumably because the management believes that it would be too difficult. Of the companies that have attended to multifunctional skills development, only a few have tried to develop them among production workers. Instead in most cases the focus has been on engineers and maintenance personnel, perhaps because the returns from multiskilling are seen as being greater for these types of job. However in order to respond flexibly to changes in the scope of jobs, to deal with fluctuations in production volume and to nurture workers who are capable of instructing others through on-the-job training, the possession of multifunctional skills by production workers is essential. For this reason a number of companies have introduced multiskilling programmes, although it is too early to tell whether these will become entrenched. The score for education and training in the France/Benelux region is 3.0, slightly lower than the all-Europe average (3.2) and the Continental average (3.1). On-the-job training is the principal method employed, as it is in Japan. It is common for companies in the region to send employees in the leader

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class to Japan to learn new skills, which they then teach other workers after their return. In some companies, however, employees trained in Japan have failed to impart what they have learned, in which case the practice has been discontinued and instructors have been brought in from Japan. A striking characteristic of training in the region is off-the-job training. Only a few companies have their own in-house education facilities so many depend on external bodies to train their workers. This is partly because of the smallness of the Japanese plants in the region, but mainly because in European society it is commonly held that skills and knowledge should be acquired through the public education system and not through companies. Consequently the public education system is more developed than in Japan. The average score for Wage system in the region is 2.9, slightly higher than the all-Europe and Continental average of 2.8. A striking characteristic is the existence of merit-based pay within the bounds of the local wage grade system. Of the 12 companies surveyed, all but one carry out performance evaluations that are similar to those conducted in Japan. As was explained earlier, jobs are classified into grades and wages are based on the national index specified for each grade. The system used by 11 of the companies in our survey diverges from the job-based wage system by treating the national index as the minimum wage and determining additional pay through in-house negotiations. The amount of additional pay varies among the companies, but in general it accounts for approximately 10 per cent of final pay and consists of overtime pay, seniority allowances, bonuses (equivalent to one month’s wages) and merit-based pay. Seniority allowances, like the wage index, are determined by agreement, but merit-based pay, which are not specified in the agreement, are left to the discretion of the company. Approximately half of the funds allocated for wage increases are taken up by merit-based pay, that is, if the general wage increase is 5 per cent, the merit-based pay accounts for 2–3 per cent. The extent of pay differences among individuals varies from company to company, and in some companies the variation is larger than in Japan – up to 6 per cent larger in one case. Hence merit-based pay is by no means an insignificant motivator for employees. Finally, the region’s score for Promotion system is 2.8, considerably lower than the all-Europe and Continental averages. This is due to the extremely low score achieved by two of the companies (2.0) because of their practice of hiring foremen from outside. The scores of the other companies – around 3.0 – are close to the European average. In France, production workers are classified into grade O1 or O2, depending on their educational background and experience, and may be promoted up the ranks to P1. Sub-leaders and shift leaders (equivalent to Japanese team leaders) mostly belong to grade P2, and they are promoted from grade P1 or recruited from outside. Promotion to shop-floor technician (TA) requires possession of recognized external qualifications, so if production workers to wish to be promoted to that level they have to go to a vocational school.

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France and the Benelux Countries

Supervisors (grade AM) have either risen up the company ranks or been hired from outside (in most of the surveyed companies the ratio is about 50:50). Most supervisors hired from outside have passed university entrance exams or graduated from a training course, both of which qualifications are considered advantageous for promotion to section chief or higher managerial ranks. In some companies supervisors have been promoted to such jobs, but this is extremely rare and the majority rise no higher than grade AM4.1

Production management The average score for Equipment in the France/Benelux region (3.2) is lower than the European average (3.6), indicating a higher rate of local procurement than in other European regions. However the combined score conceals a large difference between France and the Benelux countries: much more equipment is transferred from Japan to France (3.5) than to the Benelux countries (2.5). While the general tendency is towards increased local procurement the corporate policies of some companies demand the use of Japanese equipment – as much as 100 per cent in one company. Even companies that plan to increase their local procurement will continue to bring in key equipment and jigs from Japan. Some companies, while admitting that local equipment is less costly, continue to purchase from Japan because of delays in local deliveries and other problems with local suppliers. The fact that product development centres are located in Japan also stands in the way of local procurement. The France/Benelux score for Maintenance is 2.7, lower than the all-Europe and Continental averages. Here again there is a substantial difference between the scores for France (2.5) and the Benelux countries (3.0). The low French score is due to the fact that most of the Japanese plants in France hire their maintenance workers from outside, partly because of the small size of their operations and the consequent lack of internal training facilities, but mainly because maintenance workers in France are required to have recognized vocational credentials. In all but one company, production workers are not allowed to engage in maintenance tasks. The region’s application score for Quality control (3.0) is lower than the all-Europe average (3.3) and considerably lower than the UK (3.6) and German (3.5) scores. The majority of the surveyed companies have a policy of building quality into the production process and claim that the quality level, as measured by the percentage of defect in the production process, is no lower than in Japan. However, with the exception of one company they have yet to reach the stage where workers hold themselves accountable for quality, as revealed by remarks such as ‘problems and irregularities go unnoticed’ and ‘programmes are introduced cautiously to avoid problems caused by overstretching’. Instead quality control is mainly handled by a large number of designated inspectors and automatic checking machines in the last two thirds of the production process.

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Another problem is the quality of parts purchased locally. This is especially true in France, where parts manufacturers have problems with quality control and this affects quality improvement at the surveyed plants. Moreover production workers do not take part in small-group activities and are not involved in the setting of work standards, which is usually done by engineers and foremen. Thus production workers are not involved in identifying qualityrelated problems or in finding solutions to them. Finally, the region’s score for Process management is 3.2, close to the all-Europe average and the same as the Continental average. Many of the companies produce a wide range of products on the same production lines. In the case of U-shaped lines, which are used to produce many different products in small lots, workers are in charge of three or so processes and assembly workers are responsible for quality control. The reason for this wide-range, small-lot production is that product specifications vary from country to country in Europe.

Procurement The France/Benelux score for Local content is 2.8, the same as the Continental average but higher than the all-Europe average. This score means that on average slightly above 60 per cent of the parts used are procured locally, with the rest being imported from other regions, mainly Japan and elsewhere in Asia. However the local content ratio varies substantially from company to company. For instance at LDB and NAA it is over 90 per cent, whereas at FCG, FCF and FBH it ranges from 20 per cent to 40 per cent. This variance tends to be industry-specific, for example the local procurement ratio for cars is generally higher than that for electrical and electronic products. Another factor is the life cycle of products. Even within an industry, local content ratios vary according to product life cycle. The local content ratio is high with mature products such as videocassettes and low with new products or products with frequent model changes, for example car stereos. In the latter case, procurement is slow due to the difficulty of purchasing components in the local market and the fact that the products are developed and designed in Japan. With regard to Suppliers and Procurement methods, the region’s score for Suppliers is 2.8, which is more or less the same as the all-Europe and Continental averages, but France’s score is lower at 2.6. This implies that only key components are procured from Japan and that those procured in Europe tend to come from non-Japanese rather than Japanese-affiliated suppliers. As for Procurement method, France’s low score of 2.5 indicates that Japanese procurement methods are rarely used and there are problems with local suppliers in terms of quality assurance and delivery. Interfirm relations in France tend to be price-focused and short term, so it is difficult to build up long-term relationships based on mutual trust. Moreover information is often hidden for the sake of price negotiation. Since the mid 1980s there has been a move towards the adoption of a

154

France and the Benelux Countries

Japanese-style transaction practice called ‘partnerships’, but a strong degree of vigilance remains in respect of technical cooperation and the disclosure of information, which is hindering the solution of problems related to cost, quality and delivery. One company that has had success in this area is FCH. In its effort to create partnerships with its suppliers it has sent Japanese engineers to major local suppliers to provide guidance, invited local suppliers to visit Japan, and advised suppliers on such matters as management control, quality control, communication and on-the-job training. These activities have produced some impressive results. For example in 1989, when the activities began, 11 per cent of locally purchased components were defective, but this figure had fallen to less than 2 per cent by the mid 1990s. Although this is still higher than the defect rate in Japan, it is a vast improvement and more can be expected from providing technical guidance to suppliers as it possesses its own business logic.

Group consciousness The France/Benelux score for Small-group activities is 2.7, somewhat higher than the all-Europe and Continental averages but lower than the region’s scores for the other items in the category. Small-group activities have generally not been introduced in Europe, and where they do exist they are not extensive. In five of the 12 companies surveyed there are no small-group activities, and of the other seven, only one has followed the Japanese practice that most of the workers participate voluntarily in the activities. In the remaining six, participation is less than 20 per cent. This indicates that it has been difficult to introduce such activities into the region without modification. However employees who have volunteered appear to be very enthusiastic. For example we were told that they ‘love to do things on their own initiative’ and sometimes go ‘to extremes’ in proposing solutions to problems. While there are various factors behind the failure of all-employee participation in small-group activities, many of the interviewees said that it was due to France’s management culture, which is characterized by the belief that bottom-up initiatives never work. This signifies that French corporate management is generally top-down, so not much can be expected in the way of small-group activities unless top managers relax their stance and take steps to involve the entire workforce in total quality control activities, including quality control circles. Another reason for the failure of smallgroup activities in France is that maintenance is the preserve of engineers and specialized personnel. A question that springs in this regard is to mind why have Japanese companies accepted such elitism? Have they done so because there is no alternative? Or is it because they think that the French practice is more favourable to corporate management? Either interpretation is possible, but the end result is an unfavorable division between production and maintenance workers. The same applies to shop-floor supervisors and

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their work teams. As shown by the wage system – in which shop-floor supervisors are salaried and production workers are paid by the hour – in French organizational culture shop-floor supervisors are more like managers than members of the work team. Moving on to Information sharing and Sense of unity, the region’s score for Information sharing is 3.2, lower than in the UK but considerably higher than the Continental average. In fact Japanese plants in the region have introduced various activities to promote information sharing, including daily morning meetings, foremen’s meetings, regular conferences for all employees, get-togethers and the distribution of corporate bulletins. In addition management information is disseminated through works councils, as will be discussed later. Despite all these measures, employees’ sense of unity is weak, the score for this item being 2.8, the same as the Continental average. It is difficult to interpret this, and it may be that attempts have been made to strengthen the traditionally weak sense of unity among local employees but as get they have not borne fruit.

Labour relations The region’s score for Hiring policy is 3.1, the same as the Continental average. Full-time production workers are generally hired from the ranks of temporary employees or those on short-term contracts. In a typical case, temporary employees are hired through an employment agency, and when they have acquired some skills they are put on a short-term contract (six-month contracts are renewable twice, so last for a maximum of 18 months), after which they may be offered a permanent job. Conversely maintenance personnel and foremen, who are required to possess prior-knowledge and specialized skills, are mostly recruited from the open market. This also applies to clerical staff, accountants and buyers. Temporary and short-term contract employees account for a considerable proportion of the employees in the companies surveyed, and in many companies the ratio is 20–40 per cent. At BDI the ratio is an extraordinarily high 60 per cent because the company has plans to transfer its production base and has therefore curtailed the hiring of regular employees. There are two reasons for the high proportion of temporary and shortterm employees: they are used as a pool from which to draw competent personnel, as discussed above; and they are used as a buffer in times of fluctuation in production volume, a point that will be explained below. The score for Long-term employment in the France/Benelux region is 3.6, the highest in Europe. While this suggests that Japanese companies in the region are more disposed to provide long-term employment than companies in other regions the reality is somewhat different. It should be noted that a policy of long-term employment is applicable only to permanent employees, and not to temporary workers and those on short-term contracts. The large number of people in the latter categories reflects the extremely high severance

156

France and the Benelux Countries

costs in the region. Dismissing regular employees is legally possible but their cases often end up in the labour courts, which in many cases find in favour of the workers. This pushes up severance costs to an extremely high level and makes it very difficult for companies to make production adjustments through lay-offs, as is common in the United States. With regard to Harmonious labour relations, the region’s score for this item is 3.9, again slightly higher than the European average, and France’s score is a very high 4.1. One of the usual determinants of this score is whether or not relations are harmonious between management and the trade unions. In this region trade unions are either not present in the workplace or have only a few members. Of the 12 surveyed companies, six have no unions and at the rest the membership rate is very low. In France, however, a union is legitimate as long as it has at least one member and collective bargaining must take place with the union. Therefore the companies in question engage in collective bargaining with union representatives irrespective of the membership rate. Only one of the 12 companies has experienced a strike and in general labour relations are very stable. Another factor in these stable relations is the presence of works councils. These are required by law and meetings are held every month between the management and employee representatives. Daily work-related questions such as working hours, the workplace environment, holidays and work calendars are discussed and decided upon. In addition the management explains the company’s production and capital outlay plans. Wages are not among the subjects of negotiation. Hence the works council serves as a platform for daily workplace matters to be discussed and corporate information to be communicated and shared, and therefore it fulfils a function similar to that of the labour–management consultation system in Japan.

Conclusion Many of the Japanese managers we interviewed during our survey expressed their surprise at the flexibility of the French people, which had contradicted their preconceived notion that the transfer of Japanese management methods would be difficult and the transfer of manufacturing practices impossible because of the nature of the French system and national character. As analyzed in this chapter, the French system is not so rigid as to prevent Japanese-style manufacturing practices. The following are some examples. First, although detailed, state-regulated job classifications exist they are only loosely linked to wages and there are neither institutional barriers nor labour opposition to job rotation. In fact job classifications in France are simpler and more flexible than those in the Benelux countries. The lack of progress in the development of multifunctional skills is due not to institutional reasons but to the fact that Japanese companies have not actively promoted it.

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Second, labour relations are different from those in Japan, but strikes never take place and the presence of works councils serves to ensure harmonious management–worker relations. Third, the difference between the employment terms for regular employees and those for contract and temporary employees could be a problem in the future, but in the meantime the fairly extensive application of performancerelated pay is enhancing employees’ motivation. Finally, the heavy emphasis in France on educational achievements and external credentials in determining promotion is not usually found in Japanese companies. However the French view that skills and knowledge should be gained on one’s own initiative outside the workplace does not work against the implementation of Japanese manufacturing practices, as evidenced by the fact that Japanese companies have not actively promoted the internal provision of education and training. A major factor in the difficulties faced by Japanese plants is the weak local infrastructure for the supply of parts and materials. Suppliers are few in number and quality control is poor. Some of the Japanese Managers we interviewed lamented the lack of entrepreneurship on the part of French people, who are reluctant to start their own businesses despite the existence of promising opportunities. Another problem is that more than half of the 12 companies in our survey are operating at a loss. Indeed one of them, having depleted its capital, has been placed under the supervision of the French government. Some are considering shifting their manufacturing operations to Eastern Europe. This is not just a question of the companies’ financial performance but also includes broader considerations such as global competition, the division of labour among overseas subsidiaries of Japanese multinationals and the attractiveness of local communities in terms of competitive advantage.

Note 1. Newly hired engineers are placed in grade for V2 or higher, and are upgraded to the position of manager within 6–12 months. The grade system for cadres (a classification that consists of three grades) differs from that in Table 7.5.

8 Italy, Spain and Portugal Hiroshi Itagaki

While Italy, Spain and Portugal do not account for a significant share of Japanese investment in Europe, Japanese companies do have a certain presence in the manufacturing industry. The fact that in these countries the volume of manufacturing-related investment almost equals that of nonmanufacturing investment is unusual in Europe, where non-manufacturing investment generally prevails. According to the figures for cumulative Japanese investment in the 1990s (on a regulatory filing base, not including reinvestment) the three countries combined accounted for only 4 per cent of total investment in Europe, whereas their share of manufacturing exceeded 7 per cent (Table 8.1). In the case of transportation equipment, the three countries accounted for over 10 per cent of investment in Europe, and Spain alone for slightly over 8 per cent. Spain is host not only to the large Japanese car assembly plant in our study but also to major European and US car manufacturers such as Volkswagen, General Motors, Renault and Ford, and acts as a supply base for cars destined for the EU market.

Profile of the three countries As pointed out by Kobayashi (1998), northern and southern Italy differ greatly in terms of people’s behaviour and managerial environment. Our focus is on northern Italy as the surveyed companies are mostly located in the northern cities of Milan and Torino. Italy is often associated with political instability, social turbulence and unstable labour relations, which in the past served to deter investment by Japanese companies. In the 1990s, however, the situation changed dramatically.1 Above all labour relations stabilized and the number of working hours lost because of strikes decreased significantly. Managers are highly capable and productive, and high-calibre engineers can be hired at a relatively low cost. Although it is said that Italians are not good at teamwork, workers’ morale is fairly high in northern Italy. The biggest advantage of the region is its proximity to other countries in Continental Europe in terms of logistics. 158

Hiroshi Itagaki Table 8.1

159

Investment in Southern Europe, cumulative investment, 1990–99 100 million yen

Percentage of total

All industries Europe Italy Spain Portugal Total, Southern Europe

135 766 1886 3289 276 5451

100.0 1.4 2.4 0.2 4.0

Manufacturing Europe Italy Spain Portugal Total, Southern Europe

46 877 1189 2036 158 3383

100.0 2.5 4.3 0.3 7.2

7228 131 594 11 736

100.0 1.8 8.2 0.2 10.2

Electrical/electronics Europe Italy Spain Portugal Total, Southern Europe

10 044 138 396 10 544

100.0 1.4 3.9 0.1 5.4

Non-manufacturing Europe Italy Spain Portugal Total, Southern Europe

86 958 2341 1068 87 3496

100.0 2.7 1.2 0.1 4.0

Transportation equipment Europe Italy Spain Portugal Total, Southern Europe

Source: Ministry of Finance, monthly statistics.

In Spain, too, the socioeconomic environment varies from region to region, and regional differences can be as great as those between countries.2 Catalonia, the region surrounding Barcelona in the north–east, is the site of all the surveyed companies but one. It receives the largest share of EuroAmerican investment in Spain, (about a quarter of total direct investment) and 40 per cent of manufacturing investment. The rate of reinvestment by foreign companies is also high. Its major attractions are the availability of fairly high-quality labour and highly educated personnel, and the fact that suppliers’ prices are lower than in countries to the north. Although there is a strong sense of nationalism among the people, as illustrated by the use of

160

Italy, Spain and Portugal

Catalan in schools, the inclination towards independence is not so acute as in the Basque region. The relatively minor presence of Japanese plants in the region can be explained by the preconception among Japanese companies that labour relations are as bad in Spain as in Italy. While it is true that labour relations were strained and strikes were frequent when unions were legitimized after the collapse of the Franco regime, in the 1970s the situation improved considerably. Finally, Portugal is a small country with a population of ten million and a workforce of four million.3 In the 1990s many of the state-owned enterprises were privatized and the economy enjoyed high growth rates. However it is unclear whether this increased the attractiveness of the country as a location for foreign manufacturing businesses as the economic growth and increase in employment were driven by tourism and other tertiary industries. Moreover the population is aging and the birth rate is falling. Partly reflecting this, the proportion of female workers in tertiary industries is increasing rapidly. The main investors in Portugal are companies from Spain, Germany, France, the UK and the United States. There is only a small Japanese presence. The major trading partners are Germany, Spain, France, the UK and Italy, which account for over 60 per cent of the trade volume. The principal exports are clothing, machinery, fabric and mining equipment.

Outline of the surveyed companies Nine companies were surveyed in the three Southern European countries: three in Italy, five in Spain and one in Portugal (Table 8.2). We also surveyed an additional two companies in Italy and two in Portugal. However, due to the limited data obtained they are not included in the scoring and the application scores presented in this chapter refer only to the nine companies mentioned above. A notable characteristic of the surveyed companies is the high proportion of joint ventures and takeovers of existing operations (Table 8.3). Of the nine surveyed companies, six are either joint ventures or takeovers. This is something of a general trend: according to JETRO (1998), such ventures account for approximately half of all Japanese investment in the three Southern European countries. It should also be noted that two of the surveyed joint ventures (both in Italy) are more in the nature of technical associations than joint ventures. Both of these factors have an impact on the application scores. Another characteristic of the surveyed companies is that five of them (two in the automotive and three in the electrical industry) produce finished products. Finally, there is a high proportion of small factories, with five of the companies employing fewer than 500 people. Only one has more than 2000 employees.

Table 8.2

Profile of the plants surveyed in Southern Europe

Plant Country Industry Start of operations Mode of entry

Capital Japanese share of equity (%) Number of employees Number of Japanese employees Percentage of Japanese employees Main products

Production capacity (thousand units/ year)

ICG Italy Electronic components September 1988 Wholly owned Greenfield 1.5 billion lira

IBM Italy Automotive parts 1991

ICD Italy Electronic assembly March 1987

2 billion pesetas 99.3

Joint venture Equity commitment 1.18 billion pesetas 67

SBM Spain Automotive parts September 1991 Wholly owned Greenfield 5.16 billion pesetas 100

Joint venture Acquisition Greenfield

100

Joint venture Equity commitment 0.35 billion lira 25

9.8 billion lira 50–1 share

5.17 billion pesetas 99.56

277

1040

662

4226

286

267

3

0

3

26

4

1.1

0

0.5

0.6

Audiocassettes Heaters, air conditioners, radiators

Copying machines

66 000

180

n.a.

SAR SBD Spain Spain Car assembly Automotive parts 1980 April 1990

SCF Spain Electronic assembly November 1986 Greenfield

SCK Spain Electronic assembly 1977

PAP Portugal Automotive assembly Apr. 1996

Wholly owned Acquisition n.a.

Acquisition

100

5 billion escudos 99

776

257

391

12

13

6

14

1.4

4.5

1.7

2.30

3.60

4WD One box

Seat

Colour TVs, facsimile, machines

ATM, PC modems car radios

Small truck

125

416/day

lgnition apparatus Electronics control equipment n.a.

CTVs: 1000 Faxes: 400

n.a.

10

161

162

Table 8.2

(Continued)

Production volume (thousand units/ year) Sales

66 000

n.a.

150

83.5

n.a.

$446 million

Export ratio (%) Market

75 Europe

25 Europe

528 billion lira n.a.

8 billion pesetas 80 EU

n.a.

n.a.

CTV: 840 FAX: 200

n.a.

7.2

33.17 billion pesetas 70 Europe

18 billion pesetas 40 Europe

n.a.

0

6.8 billion pesetas 100 UK, Netherlands

70 Europe

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Table 8.3 Mode of acquisition of the surveyed companies in Northern and Southern Europe Joint venture Survey data: United Kingdom Northern Europe Germany France Benelux Southern Europe Italy Spain Portugal

Takeover

Wholly owned new plant

3 2 1 0 1 3 2 1 0

1 0 0 0 0 2 0 1 1

15 20 9 8 3 4 1 3 0

12 21 10 7 4 20 2 13 5

40 42 14 12 16 18 5 13 0

104 127 25 34 68 37 8 20 9

JETRO data:

Sources: Interview data; JETRO (1999).

We shall now look at each of the companies in turn, beginning with the three in Italy. ICG, which was closed after our survey was an audio cassette manufacturer and a subsidiary of an audiovisual equipment maker in Japan. The location of the venture, in Rovereto to the north-east of Milan and not far from the border with Austria, offered easy access to most of Continental Europe. While the plant accounted for approximately 60 per cent of the parent company’s total sales of audio cassettes in the European market, it was costly to run and this, combined with the market shift from analogue to digital technology, had resulted in its profitability deteriorating year after year. To counter this an attempt was being made to cut costs by localizing the procurement of materials and producing the shell cases for mini discs. IBM is a joint venture between a large Japanese manufacturer of electrical components for cars and a parts manufacturer affiliated with Fiat. It produces air conditioners, radiators, heaters and so on. Since the Japanese company is a minority stakeholder and therefore has no employees stationed at the plant, the joint venture is more in the nature of a technical cooperation. The products are delivered not to Japanese affiliates, but to French and other European

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Italy, Spain and Portugal

manufacturers, chiefly in the Fiat group. Three quarters of production is directed at the Italian market. ICD is a Japanese–Italian joint venture between two office equipment manufacturers, both of which ranking at the top of the industry in their own countries. The plant produces lower-end to middle of the range copying machines. Although the two partners have an almost equal stake in the company (the Italian company owns a 50 per cent stake plus one), the Italian partner has control over management and plant operation, while the Japanese side is mainly in charge of product development. Like IBM, therefore, the venture is more of a technical cooperation than a partnership. Turning now to Spain, all but one of the companies – SCK, which is in Malaga to the south of the country – are located in Barcelona and its surroundings. SAR is a car assembly plant and has the largest number of employees of all the companies surveyed in this book. It was established in 1920 as a subsidiary of Ford Motors, but in 1954 Ford sold it to a Spanish company. Then in 1980 a Japanese car manufacturer acquired a stake and two years later increased its share to a majority, thus gaining control of the management of the plant. At present the parent company holds 99 per cent of the shares (86 per cent by the European headquarters and 13 per cent by the Japanese headquarters). It has 4200 employees, but at its peak there were more than 8000. There have been two a major changes in recent years. First, there was a shift of focus from the Spanish domestic market to the wider EU market. Until 1992–93 approximately 60 per cent of the cars were produced for the Spanish market, but since the introduction of recreational vehicles the company has been able to export 80 per cent of its output, with a concomitant rise in annual production from 50 000–60 000 cars to 80 000–100 000. Second, to support the shift to the EU market and address the logistical complications that entailed, the company was split into six separate entities to take charge of such functions as sales, production, logistics and design. Each of these companies reports to the European headquarters. SBD is a subsidiary of a Japanese car seat manufacturer that belongs to the same corporate group (keiretsu) as the parent company of SAR. SBD was originally a Spanish company that supplied seats to SAR, and when the latter introduced its export-oriented recreational vehicles it asked SBD’s parent company to make a capital investment in the local supplier and to work on the development of custom-built seats. This led to the start of a joint venture company, with a 49 per cent share for the Japanese partner and a 51 per cent share for the Spanish one. Later a German group bought the Spanish stake and in the process the Japanese share increased to 67 per cent. SBM is a sister factory of IBM, the Japanese–Italian joint venture discussed earlier. SBM is a new plant that was intended as a joint venture with a French-affiliated manufacturer of electrical components for cars, but before production began the Japanese firm took full ownership. The company has

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165

been operating for nearly ten years, and with Japanese expatriates accounting for over 4 per cent of employees the management style is strongly Japanese, including the policy of training and nurturing young and inexperienced recruits. SCF manufactures colour TVs and fax machines. It was once a Spanish sales agency, and the founder of that firm still holds a 0.44 per cent stake. SCF produces all of the colour TVs that its parent company sells in Europe. In the European colour TV market no manufacturer holds more than a 10 per cent market share in any country and competition is fierce, involving not only powerful local manufacturers such as Philips but also all the major Japanese and Korean manufacturers. As for fax machines, only lower-end thermal-transfer printer types are produced, with top-of-the-range machines being manufactured by a subsidiary in Thailand. Although would be less costly to produce them all in Thailand, even taking transportation costs into account, production in Europe was deemed necessary to avoid the antidumping issue (which was resolved two years ago) and the 28 per cent import duty. A sister plant in the UK produces VCRs and microwave ovens. SCK, as mentioned earlier, is the only plant surveyed in Spain to be located outside Barcelona. It was originally a government-affiliated local company, but in 1977 SCK’s parent company made a capital investment in it and turned it into its first production base in Europe. In 1991 the Japanese company took full ownership. For the first few years the plant produced office computers and modems for the Spanish Telephone and Telecommunication Corporation, and then in 1984 it began to produce automated teller machines (ATMs), which now account for over 60 per cent of turnover. In 1987 it added dot-matrix printers to its range, but in the 1990s orders for printers dwindled so the plant also undertook the production of printed circuit boards under an OEM (original equipment manufacturer) arrangement, as well as car radios. All of the products enjoy a high market share in Spain. As mentioned earlier, three companies were surveyed in Portugal, but because we obtained only limited data on two of the companies just one of them, PAP, which produces small lorries, is included in the analysis. In 1980 a Japanese lorry manufacturer contracted the assembly of its vehicles to a local company in the suburbs of Lisbon. In 1991 the ownership structure was reorganized and 75 per cent of the shares were taken by the Japanese company’s marketing affiliate in Portugal. Then in 1996 a new company was incorporated, with 99 per cent of the shares being owned by Japanese parent company. In the early days its vehicles were mainly sold on the domestic market, but sales to other European countries gradually expanded and today 70 per cent of the vehicles are exported. Until the early 1990s there were only two Japanese employees, including the president, but after the new company was incorporated in 1996 the proportion of Japanese to 3 per cent when employees were sent by the parent company increased to provide guidance on new production methods.

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Italy, Spain and Portugal

Findings of the survey In this section we shall focus mainly on the items where the surveyed plants’ scores deviate significantly from the average for Continental Europe.

Material Result and Human Result As shown in Table 8.4, the overall average for the three countries is 2.8, slightly lower than the average for Continental Europe (3.0), but this does not necessarily mean that the introduction of Japanese methods into Southern Europe has lagged behind or been more difficult than in other European regions. In the four-perspective evaluation (Table 8.5 and Figure 8.1) the Table 8.4

Regional comparison of application scores Southern Conti. Taiwan/ N. Europe Europe UK ASEAN Korea America

I Work organization and administration (1) Job classification (2) Multifunctional skills (3) Education and training (4) Wage system (5) Promotion (6) First-line supervisor

2.9

3.0

3.4

3.3

3.7

2.9

2.9 3.0 3.1 2.6 3.2 2.9

3.2 2.8 3.1 2.8 3.1 3.1

4.4 3.3 3.5 2.8 3.4 3.4

4.5 2.6 3.3 3.1 3.1 2.9

4.9 2.9 3.4 3.9 3.7 3.4

3.7 2.4 2.6 2.9 3.1 2.9

II Production management (7) Equipment (8) Maintenance (9) Quality control (10) Process management

3.0 2.6 3.1 3.1 3.2

3.1 3.4 2.8 3.1 3.2

3.5 3.9 3.0 3.6 3.6

3.4 4.0 3.0 3.2 3.2

3.5 3.5 3.3 3.6 3.5

3.3 4.3 3.4 2.6 3.0

III Procurement (11) Local content (12) Suppliers (13) Procurement method

2.4 2.0 2.1 3.0

2.8 2.8 2.9 2.8

2.5 1.9 2.7 2.9

3.3 3.1 3.8 2.8

3.2 2.9 3.5 3.2

3.0 2.7 3.9 2.5

IV Group consciousness (14) Small-group activities (15) Information sharing (16) Sense of unity

2.5 2.3 2.7 2.6

2.7 2.5 2.8 2.8

3.3 2.7 3.6 3.7

3.2 2.9 3.3 3.3

3.4 3.2 3.5 3.6

3.2 2.5 3.6 3.5

V Labour relations (17) Hiring policy (18) Long-term employment (19) Harmonious labour relations (20) Grievance procedure

3.2 3.4 3.2 3.1 3.0

3.2 3.1 3.2 3.5 3.1

3.5 3.3 3.4 4.2 3.0

3.1 3.1 3.0 3.3 3.1

3.4 3.0 3.3 4.0 3.2

3.6 3.4 3.4 4.4 3.3

VI Parent–subsidiary relations (21) Ratio of Japanese expatriates (22) Delegation of authority (23) Position of local managers

2.6 2.4 2.7 2.8

3.0 2.6 3.2 3.1

2.8 2.4 3.0 3.0

2.9 1.6 3.2 3.8

2.3 1.5 2.7 2.7

3.6 3.7 3.6 3.6

Overall average

2.8

3.0

3.2

3.2

3.3

3.3

Hiroshi Itagaki Table 8.5

167

Regional comparison of the four-perspective evaluations

Human Method Human Result Material Method Material Result

Southern Europe

Conti. Europe

UK

ASEAN

Taiwan/Korea

N. America

2.9 2.6 3.1 2.2

2.9 2.9 2.9 3.0

3.4 2.7 3.2 2.8

3.2 2.7 3.0 3.6

3.5 2.1 3.4 3.3

3.2 3.7 2.8 3.6

Human Method 5 4 3

Southern Europe Continental Europe UK

2

Material Result

1

Human Result

Material Method Figure 8.1

Four-perspective comparison, Europe and UK

scores for Material Result and Human Result are lower than the Continental average, while those for Human Method and Material Method are almost the same as or slightly higher than the Continental average, respectively. The lowest score is for Material Result because the scores for the items in this category, namely Equipment, Local content and Suppliers, are almost 1.0 point lower than the Continental average. This is principally due to the high proportion of companies that are joint ventures or takeovers, which have a greater tendency than wholly owned new plants to purchase parts and equipment locally, as evidenced by the scores in Table 8.6. Of the five companies that are joint ventures or takeovers, three are assemblers and two are parts manufacturers, while the four wholly owned new companies are evenly divided between assembly and parts manufacture. Accordingly it can be presumed that the type of production engaged in has not affected the scores.

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Italy, Spain and Portugal

Table 8.6

Comparison of application scores by type of plant, Southern Europe

Average I Work organization and administration ratio (1) Job classification (2) Multifunctional skills (3) Education and training (4) Wage system (5) Promotion (6) First-line supervisor

Joint venture/ Wholly owned Assembly Component takeover new plant plant plant

2.9

3.1

2.8

2.9

3.0

2.9 3.0 3.1 2.6 3.2 2.9

3.0 3.2 3.0 2.6 3.8 3.2

3.0 2.8 3.3 2.5 2.5 2.5

3.0 3.0 2.8 2.5 3.5 2.8

3.0 3.0 3.4 2.6 3.0 3.0

II Production management (7) Equipment (8) Maintenance (9) Quality control (10) Process management

3.0

2.7

3.4

2.7

3.3

2.6 3.1 3.1 3.2

1.6 2.8 3.2 3.2

3.8 3.5 3.0 3.3

2.3 2.8 2.8 3.0

2.8 3.4 3.4 3.4

III Procurement (11) Local content (12) Suppliers (13) Procurement method

2.4 2.0 2.1 3.0

2.1 1.6 1.8 3.0

2.7 2.5 2.5 3.0

2.4 2.3 2.0 3.0

2.3 1.8 2.2 3.0

IV Group consciousness (14) Small-group activities (15) Information sharing (16) Sense of unity

2.5 2.3 2.7 2.6

2.3 2.4 2.2 2.4

2.8 2.3 3.3 2.8

2.3 2.5 2.3 2.0

2.7 2.2 3.0 3.0

V Labour relations (17) Hiring policy (18) Long-term employment (19) Harmonious labour relations (20) Grievance Procedure

3.2 3.4 3.2 3.1

3.3 3.6 3.4 3.2

3.1 3.3 3.0 3.0

2.9 3.3 3.0 2.8

3.5 3.6 3.4 3.4

3.0

3.0

3.0

2.5

3.4

VI Parent–subsidiary relations (21) Ratio of Japanese expatriates (22) Delegation of authority (23) Position of local managers

2.6 2.4

2.2 2.2

3.2 2.8

2.7 2.3

2.6 2.6

2.7 2.8

2.2 2.2

3.3 3.5

2.8 3.0

2.6 2.6

2.8

2.7

3.0

2.7

2.9

Overall average

In the case of Equipment, joint ventures/takeovers have a strikingly low score of 1.6 while that achieved by wholly owned new plants is a high 3.8, higher than the Continental average (3.4) and close to the UK average (3.9). The localization of equipment is conspicuous at IBM (the automotive parts manufacturer in Italy) and PAP (the small lorry manufacturer in Portugal). The former, as mentioned earlier, is more of a technical association than

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a joint venture, and the equipment it uses is made in Italy, Germany and other parts of Continental Europe. Although PAP is now under almost full Japanese ownership it has continued to use the equipment from its earlier operations, most of which was made in Germany, Spain and other EU countries. To a lesser extent European-made equipment also outweighs Japanese equipment at SAR, the large car plant in Spain that gradually came under full Japanese ownership. Considering the length of its operations it is interesting that there has not been more of a replacement of European by Japanese equipment at the time of renewal. First, almost all the metal moulds for stamping and jigs for vehicle welding are from Japan. This is unavoidable, as jigs and moulds are unique to the auto body. Stamping machines, to which this also applies, are mostly from Japan, as is 70% of the equipment relating to body welding. For the last eight-nine years, however, welding robots have been replaced by European ones, especially from Sweden, in view of the need for servicing when there are malfunctions and breakdowns and due to the transportation costs. For painting, European and Japanese equipment is mixed. Machines requiring strict temperature control and other similarly strict know-how are purchased from Japanese manufacturers. Conveyors and other assembly-related equipment are mainly procured locally. In contrast, at the newly established, wholly owned plants a high proportion of Japanese equipment is used. At ICG (the audio cassette manufacturer in Italy) 80 per cent of the equipment is from Japan. As for the remaining 20 per cent, before the plant began operations a Japanese equipment manufacturer and a team of local engineers discussed what equipment would be needed and concluded that it would not be sensible to bring some of the equipment from Japan as it would be about 30 per cent more expensive than that made locally. SCF (the colour TV manufacturer in Spain) uses mostly Japanese-made machines for its core operations. SBM (the automotive parts manufacturer in Spain) is an interesting case in that the ratio between Japanese and European equipment differs according to each of the products in its range. For example 90 per cent of the equipment used to produce ignition devices is European, while 90 per cent of the equipment used to manufacture electronic control parts is Japanese. This is due to the idea that if the parts are made in Japan, it is better to use Japanese equipment, and if the parts are made in Europe, it is better to use European equipment. This thinking can be observed not just at SBM, but also at the plants of European manufacturers, and seems to reflect the fact that European companies have an advantage in the area of mechanics while the Japanese ones are good at electronics. According to interviewees at SBD, European manufacturers have confidence in their own technology and are reluctant to change their designs. However their products often break down and they clearly lag behind others not only in precision equipment but also in electrical equipment.

170

Italy, Spain and Portugal

The low average scores for Local content and Suppliers cannot be fully explained by the high proportion of joint ventures/takeovers in the sample because, albeit to a lesser extent, the scores achieved by the wholly owned new plants are also lower than the Continental average (compare Tables 8.5 and 8.6). The Local content score for the three countries is 0.1 more than that of the UK, which has the lowest score of all the regions, and their score for Suppliers is distinctly lower than those for all the other regions. This seems to be due to the fact that a high dependence on European suppliers is inevitable in a region where there are few Japanese suppliers, and because on the Iberian Peninsula there is a fairly independent production and logistical network, presumably due to the distance factor. IBM (the automotive parts manufacturer in Italy) has the lowest score because it procures nearly 100 per cent of its supplies from the EU. Of its 180 suppliers, only four are Japanese affiliates. Its counter part in Spain, SDB, procures as much as 80 per cent from Spain alone. It has approximately 250 suppliers, of which only three or four are Japanese affiliates. The local procurement ratio at SAR (the car assembly plant in Spain) is 70 per cent from Spain or 80 per cent from Europe as a whole. For companies in the electriconics industry the ratios vary considerably according to the products they manufacture. ICD (the copying machine manufacturer in Italy) procures 60 per cent of its parts from the EU and 40 per cent from Japan and elsewhere in Asia. SCF (the manufacturer of colour TVs and fax machines in Spain) purchases 30 per cent of its colour TV parts in Spain, 50 per cent from elsewhere in Europe and 20 per cent from Southeast Asia, which is more or less the same ratio as in the autotive industry. However for fax machines the procurement ratio from Southeast Asia is a high 56 per cent, compared with 10 per cent from Spain, 8 per cent from Japan and 26 per cent European countries other than Spain. ICD’s suppliers include such leading European manufacturers as Philips, Thompson and Siemens. Due to cost considerations, cathode ray tubes are mostly purchased from Philips and Korean manufacturers, and very few from Japanese companies. For fax machines, procurement is mostly from Southeast Asia, including parts from its sister plant in Thailand. The low score for Human Result (Table 8.7) is obviously due to the large proportion of joint ventures/takeovers, whose score is 2.2 for Ratio of Table 8.7

Four-perspective evaluation by type of plant, Southern Europe

Human Method Human Result Material Method Material Result

Average

Joint venture/ takeover

Wholly owned new plant

Assembly plant

Component plant

2.9 2.6 3.1 2.2

2.9 2.2 3.0 1.7

2.8 3.1 3.2 2.9

2.7 2.6 2.8 2.2

3.0 2.6 3.3 2.3

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Japanese expatriates and Position of local managers. This is lower than the Continental average, and in the case of the Position of local managers it is even lower than in Korea and Taiwan, which are quite advanced in terms of employing local managers.4 With the two joint ventures in Italy (IBM and ICD) being more in the nature of technical associations, their scores are particularly low for the two items. The large car assembly plant in Spain (SAR) has a low score not only for the position of local managers but also for the ratio of Japanese employees. In contrast the scores achieved by the wholly owned new companies for these two items are above the Continental average. On average, therefore, and unlike in Korea and Taiwan, the localization of management is not a characteristic of the three Southern European countries.

Human Method As illustrated by the existence of national wage tables by industry and the difficulty of firing regular employees, the general framework for Human Method is almost the same as in other countries in Continental Europe. Therefore the application score for Human Method is little different from the Continental average, although the scores obtained for two of the items in this category – Job classification and Harmonious labour relations – are somewhat lower. However the institutional barriers between job categories are generally not as high as they are elsewhere in Europe, and indeed are lower than in Germany. No particular problems exist in respect of Labour relations either. Because of the fierce image that unions once had in Italy and Spain, Labour relations tend to be seen as a potential problem area. However the situation has changed dramatically in recent years,5 although some managers still complain about it. SCF in Spain has four trade unions that are very powerful and enjoy a unionization rate of 70 per cent or more, backed by a workersversus-management attitude among the workers. Even the divisional managers are union members, and rather than provoking the union by taking the side of management they seem to adopt a wait-and-see attitude. Labour– management meetings take place once a month, attended by the president, two vice presidents (all Japanese expatriates) and a human resources manager (local) from the management side, and by 17 union representatives, including all the executives and branch managers. Each union is represented by three or four people elected by the members. The agenda includes employees’ welfare and the business performance of the company, and the atmosphere can be quite confrontational. However the situation at SCF is not typical of the surveyed companies, many of which claimed they had no real problems with labour relations. Therefore the low scores for Job classification and Harmonious labour relations seem to be chiefly due to the lack of will among managers to introduce Japanese methods, primarily because of the small size of the operations

172

Italy, Spain and Portugal

and the fact that many are joint ventures. It also seems to be related to the fact that the assembly plants mostly employ unskilled workers. It should also be noted that the item Harmonious labour relations is evaluated from the perspective not only of whether labour relations are good or bad, but also whether or not the management implements programmes to promote good relations. Noteworthy in the three countries is the difference between old and newly established plants. In many of the takeover ventures, entrenched practices have acted as impediments to the introduction of Japanese methods. In contrast, in the newly established plants such methods have been introduced with relatively little resistance. Similar comments are made by Kochan et al. (1997) in respect of locally capitalized car plants, so this may also be true of domestic companies and not just Japanese ones. The first of these points can be illustrated by comparing SAR, the large car plant that had a long history of operations before it’s takeover, with SBM, the newly established automotive parts manufacturer. One of the problems that SAR has faced is the existence of an old labour– management agreement that governs the allocation of employees as well as the standard time allocated to each job. The trade unions have been loath to accept any shortening of the standard times and therefore it is no easy task for the management to increase the working speed to a level comparable to that in Japan. Not surprisingly, kaizen measures are frowned upon too. There are four unions – three large and one small – and the unionization rate is 100 per cent. A few years ago the unions formed a unified bargaining team, so to some extent it has become easier to conduct negotiations. Yet it is not easy to satisfy all the unions, which range from far left to far right. From the management’s point of view the remnants of the rigid egalitarian practices are affecting progress in respect of work organization and wages. However in the past few years it has managed to introduce total quality management, just-in-time production and Total Preventive Maintenance throughout the factory, taking a management by objective approach. This has had good logistical results, as shown by a large reduction in the plant’s inventory. SBM, on the other hand, has introduced many Japanese practices in the broad area of Human Methods, including Wages, Promotions, Education/ training, Participation/cooperation and Labour relations. All operators are in the same wage class. The results of their individual performance evaluations are reflected in their wages, although the differences are small. The posts of line leader and team leader are generally occupied by operators who have been promoted up the ranks, although college graduates are sometimes hired as top-tier line leaders. The company would also like to use the internal promotion system to fill the assistant manager posts, but at present experienced personnel are hired from outside. Training for operators is chiefly on the job, with team leaders acting as instructors after going through the training course themselves. A key aspect of training is teaching operators to

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distinguish between minor machine problems they can fix themselves from serious ones that require the attention of qualified maintenance personnel. The company’s skills training centre upgrades the skills of production and maintenance personnel, and instructors may be sent to Japan to attend a six-week instructor training course. The training programmes include nine courses of 80 hours each (to be increased to 12 courses), a ten-hour course on machine plan reading (participation is voluntary after regular working hours, but semicompulsory for maintenance personnel), and technical skills training on the company’s standards. When new equipment and products are introduced, top-tier line leaders, engineers and other personnel are sent to Japan to train for upto a month. There are ten teams engaged in quality control activities, and participation is voluntary but expected for production workers. The assistance of Japanese staff was once needed in all the activities, but now the groups act willingly on their own. The activities are decided upon by the teams, and many choose to concentrate on getting rid of defects. Activities take place outside working hours, with an extra allowance being paid for up to 20 hours a year, and there is an annual competition. The company has a completely open-plan office, and even the president has no private office. There is a monthly meeting of the communication committee, whose 20 or so members are selected by the management from different tiers in the various divisions. At the meetings the company’s activities are outlined and employees’ requests are passed on. There is no union but the management, we were told, would be ready to accept one if the majority of the employees so desired. As the above discussion shows, there are great differences in terms of human method between plants with long histories and those which have been newly established, even when they are located in the same area of the same country. ICG in Italy has a unique wage system. Although the overall framework is based on the national wage table, the company uses the Hay system to rate jobs in the plant, and for calculating a performance bonus on top of the base rate. This may well be an attempt to slip in elements of the Japanese wage system. The national wage table is not only rigid but also lacks, in Japanese managers’ eyes, precise ratings and therefore cannot relate ability to wages.

Material Method The Southern European application score for Material Method slightly exceeds the Continental average (Table 8.5). Of the items included in Material Method, the scores for Maintenance and Procurement method are higher than the Continental average, while that for Quality control matches the average. The chief reason for the somewhat higher score for Maintenance is that a few of the plants hire inexperienced personnel and train them internally, while in the other countries of Continental Europe the involvement

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Italy, Spain and Portugal

of general operators in maintenance jobs is restricted. As for procurement method, being industrially underdeveloped the region has few suppliers and therefore the plants have had to establish long-term business relations with those which do exist. This is reflected in the quite high score for procurement method.

Summary The three Southern European countries are characterized by very low scores for Material Result and Human Result, signifying a large degree of localization in these categories. The principal reason for this is the large number of joint ventures and takeovers in the sample. In addition the low scores for Material Result are presumably related to the existence of fairly independent logistical networks in the European periphery, particularly in the case of Spain and Portugal. The low scores for Human Result are due entirely to the high proportion of joint ventures and takeovers as the scores for wholly owned new plants are higher than the Continental average. The overall results for Material Method and Human Method are more or less identical to the Continental average. What differences there are can be explained by the small size of some of the plants, which pushes down the scores slightly. In addition, as the region is industrially underdeveloped and on the periphery of Europe its systems are not as rigid as systems in the advanced industrial regions, and the environment is more conducive to the introduction of new systems. In this respect there are similarities with East Asia. On the other hand, in plants with a long history of operations, conventional practices tend to act as an obstacle to the introduction of new methods. It seems that the future challenge for this region will be to compete effectively against East European countries such as Hungary and the Czech Republic, which are well on the way to becoming market economies and are attracting a large amount of direct investment from Europe and elsewhere.

Notes 1. 2. 3. 4. 5.

See Baba and Okazawa (1999); Japanese Chamber of Commerce in Italy. For an overview of the Spanish economy see Tokado and Hara (1998). See Overseas Vocational Training Association JETRO (each year). See Itagaki (1997) on Japanese-affiliated plants in Korea and Taiwan. For an outline of labour relations in Italy and Spain see Baba and Okazawa (1999) and Tokado and Hara (1998).

9 Hungary Kunio Kamiyama

The year 1989 marked the start of the fall of communism in Central and Eastern Europe and the transition from state-planned to market economies. Germany was reunified, the Soviet Union collapsed and the Warsaw Pact was disbanded, along with COMECON, thus dissolving the long-standing Central and Eastern economic and military bloc. Hungary’s economy remained stagnant until 1993. Following a slight recovery in 1994 and a slowdown in 1995 under a belt-tightening policy, the economy began to pick up in 1997, ‘deriving primarily from export drives by multinationals’.1 It was in September 1998, when the economy was booming, that we surveyed Japanese companies in Hungary. The overwhelming majority of foreign investors in Hungary are European and American, with Japanese investors accounting for just a small percentage. A breakdown of investments of $15 million or more in January 1998, provides the following figures: United States, 29 per cent; Germany, 26 per cent; France, 11 per cent; the Netherlands, 10 per cent; Italy, 5 per cent; Japan, 3 per cent.2 According to JETRO, 21 Japanese companies were operating in Hungary at that time,3 but we were only able to include four of them in our survey. Three of these allowed us to visit their plants but the fourth, HDB, would only grant an interview. An outline of the companies is provided in Table 9.1. HAK was the only car assembler in Hungary at the time of our survey. The German carmaker Opel had divested its assembly plant but maintained its parts production, and Audi did not move in until later. Compared with most of the Japanese companies operating in Hungary, which did not arrive until the late 1990s, HAK was an early entrant. In 1985 it submitted a proposal to the Hungarian government for a joint venture, and an agreement was concluded five years later. At the time of its inauguration HAK owned 40 per cent of the joint venture and a Japanese trading company 11 per cent, so the combined Japanese share was 51 per cent.4 In about 1996 the share held by the Hungarian side was reduced, and at the time of the survey HAK owned 83.7 per cent and the Japanese trading company 14.2 per cent, making a combined Japanese share of 97.9 per cent. 175

176

Table 9.1

Outline of surveyed plants

Plant name Start of operations Ownership

HAK October 1992 97.9% Japanese, including 14.2% of Japanese trading company

Number of employees 1450 Number of Japanese 18 employees Main products Passenger cars

HBF November 1993 92% ownership by Japanese parent company, including 10% of Japanese trading company 24 1

Capacity Actual production

Clutch disks and covers for cars 65 000 vehicles 100 000 sets 63 600 vehicles (1997) 60 000 sets

Export ratio Turnover rate

75% (1997) 2% per month

Note: Data obtained during our survey in 1998.

HBI March 1996 Branch factory of the French subsidiary of a Japanese producer of car audio equipment

HDB June 1997 100% ownership by manufacturing headquarters in Europe

240 2

699 6

Car audio cassette players

Transformers, ferrites, chip condensers

140 units (1997)

transformers 200 million per month, ferrites 100 tons per month, chip condensers 100 million per month 90% 2.4% per month

Nothing for direct export 100% to France

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HBF was established in 1992 to manufacture clutch discs and covers. The venture was motivated by the fact that HAK, the car assembler discussed above, had to procure more parts locally in order to meet the local content requirements. Thus a Japanese trading company teamed up with a Hungarian machinery manufacturer and the joint venture began production in November 1993. Initially the Japanese headquarters owned 82 per cent of the joint venture, the trading company 10 per cent and the local partner 8 per cent. Later, in March 1998, the Japanese headquarters purchased all the shares from the local partner and the company became a wholly owned subsidiary of the Japanese company. HDB was established in June 1997 to produce electronic parts such as transformers, ferrites, chips and condensers. The local company that was producing transformers for HDB became insolvent and HDB decided to set up its own plant, wholly capitalized by its European headquarters. For set makers, parts had to be made within Europe to meet the ‘Euro-one’ local content regulations, and apparently the venture was intended to satisfy this requirement. The plant appeared to be gearing itself to fit into the terms of the ‘custom free zone’, under which it would be exempt from taxes on imports of raw materials, parts and half-finished products for the purposes of assembling and processing, as well as on exports of finished products.5 Finally, HBI was established in 1996. In 1985 a Japanese manufacturer of car audio equipment and a French manufacturer established a 50/50 joint venture in France to produce car stereos. In 1991 the Japanese partner bought all the French shares and the company became a wholly owned subsidiary. With a view to cutting labour costs, in 1996 the subsidiary began to commission production to a privatized Hungarian video maker. This is now a branch factory of the French subsidiary. European companies are taking advantage of the low wages in Central Europe in the way that Americans did with twin plants in the United States and Mexico under the maquiladora system, of which HBI is a concrete example.

The Six-group, 23-item evaluation The application scores achieved by the four plants are shown in Table 9.2 and the results of the four-perspective evaluation are presented in Table 9.3. It should be noted that because we were unable to visit one of the plants and one of the others is only a branch operation, the application scores cannot be taken as representative of all Japanese plants in Hungary. Therefore our comments on the application scores should not be generalized. The average application score by the four companies is 2.9, lower than the European average of 3.1. However this does not mean that the transfer of Japanese production methods to Hungary has been more difficult than to other European countries. As will be discussed later, the low score is the result of one plant with a very low score pushing down the average. In Hungary

178 Table 9.2

Application scores Hungarian plants

European average

I Work organization and administration (1) Job classification (2) Multifunctional skills (3) Education and training (4) Wage system (5) Promotion (6) First-line supervisor

2.9 3.3 2.5 3.0 3.0 3.0 2.8

3.1 3.6 3.0 3.2 2.8 3.2 3.2

II Production management (7) Equipment (8) Maintenance (9) Quality control (10) Process management

3.2 4.8 2.5 2.5 3.0

3.3 3.6 2.9 3.3 3.3

III Procurement (11) Local content (12) Suppliers (13) Procurement method

2.3 2.0 2.8 2.3

2.7 2.4 2.8 2.8

IV Group consciousness (14) Small-group activities (15) Information sharing (16) Sense of unity

2.3 2.0 2.3 2.5

2.9 2.6 3.1 3.1

V Labour relations (17) Hiring policy (18) Long-term employment (19) Harmonious labour relations (20) Grievance procedure

3.1 2.5 2.5 4.3 3.3

3.3 3.2 3.3 3.8 3.0

VI Parent–subsidiary relations (21) Ratio of Japanese expatriates (22) Delegation of authority (23) Position of local managers

3.3 2.3 4.0 3.5

2.9 2.6 3.1 3.1

Overall average

2.9

3.1

Table 9.3

Four-perspective evaluation

Human Method Human Result Material Method Material Result

Hungarian plants

European average

2.7 2.9 2.4 3.2

3.1 2.8 3.0 2.9

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there are only limited remnants of the socialist system, and unlike in China in its transition to a socialist market economy, there are few external restrictions on the establishment of new internal systems. With regard to the six main groups, overall the application scores are low and the only one to exceed the European average is the 3.3 for group VI (Parent–subsidiary relations). It is noteworthy that the Delegation of authority and the Position of local managers received relatively higher scores than in any other area in Europe, despite the low Ratio of Japanese expatriates (the score for the latter is the same as in Germany). This seems to stem from the fact that the plants in Hungary were created to cater not to the domestic market but to the European market as a whole. As a result they are subject to their headquarters’ overall European strategies. The second highest score is 3.2 for group II (Production control), which is only slightly lower than the European average of 3.3 and is due to the high score of 4.8 for Equipment; the scores for the other items are considerably lower than the European average. It may be that in Hungary the inadequate application of Japanese methods of Maintenance and Quality control are compensated for by the transfer of equipment with Japanese know-how integrated into it. The application score for group V (Labour relations) is also relatively high at 3.1, although slightly lower than the European average of 3.3. Worth noting here is that the score for Harmonious labour relations is 4.3, higher than in any other area in Europe and offsetting the low scores for Hiring policy and Long-term employment. In Hungary there is a large pool of blue-collar workers from which to draw, but it is rather difficult to retain competent white-collar workers due to the wide spread practice of job-hopping. However this does not affect the score for labour relations. In contrast the scores for groups I (Work organization and administration, 2.9), III (Procurement, 2.3) and IV (Group consciousness, 2.3) are well below the European average. While almost all the scores for the items in these groups are below the European average, that for Wage system is above the average at 3.0. In Europe, and particularly in Continental Europe, there are strong societal and union-imposed regulations on wage systems, but this is far less the case in Hungary. The score for Suppliers is 2.8, comparable to the European average. One of the reasons for the slightly higher score for this item, despite the high procurement ratio within Europe, is the tendency to import from Japan whenever it is difficult to find parts in Europe. It has been said that this is related to the exemption from custom duties on knock down parts from Japan as part of the incentive to attract investment into Hungary. Officially, however, it is claimed that foreign companies receive no preferred treatment.6 It may also be related to quality requirements in the European market. As mentioned earlier, a detailed analysis of the four plants using the application scores would lead to inaccurate conclusions, so in the following

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Hungary

sections we shall focus on HAK and HBF, the two plants that we were able to study fairly thoroughly.

Car production in Hungary One of the two factories to be considered in greater detail is a car assembly plant; the other is an automotive parts factory that supplies the former with clutch discs and covers. At the time of our survey HBF was only producing parts for HAK, though from 1999 it was also to supply the Opel plant. Before examining the two factories we shall quickly review the recent history of automotive industry in Hungary. For a long period after World War II, buses and lorries were produced by Ikarus and automotive parts by automotive parts manufacturers under the specialization agreement of the socialist bloc’s Council for Mutual Economic Assistance (CMEA). No passenger cars were produced in Hungary. In the 1990s, following the collapse of the CMEA, HAK and GM Opel ventured into the country, followed by Audi. As shown in Table 9.4, by 1998 car production had grown from zero to 92 230 units. Although new car sales reached 130 760 in 1998, most of the cars produced in Hungary were for export. Of the 63 600 produced in 1997 by HAK, only 15 900 were sold in the domestic market, the remainder being exported to Western Europe.

The need for quality products Because HAK exports about three quarters of its cars to Western Europe, both it and its supplier HBF have to maintain a level of quality that is comparable to that of European and Japanese cars, and to apply the same quality standards that prevail in Japan. However it seems that they experienced numerous quality problems during the early years of their operations. To address this HAK and HBF made great efforts to generate awareness among shop-floor workers that quality should Table 9.4

Car production in Hungary, by company, 1991–98 1991

1993

1994

1995

996 9936

13 021 13 344

19 412 12 282

38 567 12 488

– 3546

– 3150

– 1574

– 1159

– 836

– 3909

13 862 1156

5001 14 478

29 515

33 268

52 214

63 869

79 792

92 930

Magyar Suzuki – General Motors – Hungary Audi – Ikarus 5001 Total

1992

1996

1997

51 778 63 948 11 255 11 935

1998 66 305 11 607

Source: Japan Automobile Manufacturing Association, Automobile Statistic of Main Countries (Tokyo: JAMA, 1996, 1999).

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be built into the manufacturing process. At HAK, Japanese instructors visited the plant to train workers in this, but recently the task has been turned over to local employees. Workers at HBF have grown accustomed to reporting all abnormalities, indicating that they now share the same degree of quality awareness as the Japanese. In addition a system has been introduced to shelve defective products for checking. Every Monday a quality control meeting is held, at which the general manager, the line manager, the quality control manager and a Japanese expatriate discuss the defect rate of the prior week and possible countermeasures, such as kaizen activities. The improvements in the quality control system are reflected in the fact that in June 1998 HBF obtained ISO9000 and QS9000 accreditation. Nonetheless the percentage of defects is still higher than in Japan. This is partly because of the shorter operating time and somewhat higher employee turnover, which is about 2 per cent a month at all four plants. In addition, many jobs that are handled by robots and/or automated machines in Japan are still done manually in Hungary, and this makes quality guarantee more difficult. Hence the companies have increased the monitoring of production processes and appointed quality control staff for each process, thereby bringing the quality of the finished products to a level comparable to that in Japan. At HAK we were told that ‘our completed cars and cars shipped to the market are by no means inferior to Japanese cars’, while HBF claimed that ‘the defect rate for our shipments is zero’. The remaining quality problems lie with parts made by outside contractors and the maintenance of metal moulds.

Procurement As stated earlier, the overall application scores achieved by the four surveyed plants in Hungary are low, and our four-perspective evaluation (Table 9.3) shows that in terms of Human and Material Methods their scores are below the European average. However their scores for Human and Material Results exceed the European average. The score for Material Result is 3.2, 0.3 above the European average of 2.9, and this is due, as already explained, to the high score for equipment. Both HAK and HBF use a considerable amount of equipment imported from Japan. Although some of the machines used at HBF, such as lathes, are Hungarian-made, we were told that 90 per cent had been brought in from Japan. As for components, HAK imports 30 per cent from Japan, including engines and transmissions, as there are no regulations in Hungary on local content. The plant has 46 local suppliers, of which approximately 10 receive technological assistance through technical association agreements. Only two are Japanese-affiliated. Parts that are not available locally can be easily obtained from other European countries. HBF’s local content ratio is 60 per cent, the remainder being imported from Japan. The plants’ dependence on Japan for

182

Hungary

equipment and some components may be related to securing a quality level that is comparable to that in Japan.

Labour relations Of the four plants we surveyed, only HBI has an organized union. The membership rate is 60 per cent, but the union has never called a strike and is not strong. HBF has neither a union nor a works council. This is probably due to the small size of the plant. The other two plants have works councils, which seem to function as a forum for the president and the personnel manager to discuss employees’ requests for facilities with labour representatives. The impression we received is that labour relations at the plants are highly flexible. Dismissing an employee appears to be easy, unlike in other parts of Continental Europe, where the procedure is complex. We were told that ‘it is possible to fire someone three days after giving a warning’ (HBF), and that ‘we can easily dismiss an employee if his or her attendance rate or other aspect of performance does not improve after one month, or if the person is unwilling to accept a reassignment’ (HAK). Performance evaluations for wage and promotion decisions are conducted in almost the same manner as in Japan, and there is no feedback to the employees on the results of the evaluation. We observed no instances of union dissent or local practices restricting the adoption of elements of the Japanese system.

Transferability of the Japanese production system Under the constitutional revision of October 1998, Hungary ceased to be the People’s Republic of Hungary and became the Republic of Hungary, thus officially departing from Soviet-type socialism. Since May 1990, when a coalition government of three non-communist parties came into power, the country has been engaged in economic reforms, including the privatization of state-owned factories. It is beyond the scope of this chapter to discuss the overall system of management and production in Hungarian companies in transition, so we shall confine ourselves to the transferability of the Japanese production system, based on information obtained in our interviews. According to HAK, which began operations in autumn 1992, at first the employees’ thinking was still socialist-oriented and they were reluctant to accept the idea of working eight hours a day. Over the subsequent years HAK sent as many as 340 trainees to a factory in Japan to learn about new technologies and gain new skills, and Japanese instructors were sent to Hungary to teach specific Japanese manufacturing methods such as creating quality in the production process. These instructors were in addition to the 18 Japanese expatriates working at the plant on a temporary basis. At one

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time there were as many as 15 instructors, but at the time of the survey there were only six. Both HAK and HBF have introduced a number of kaizen activities, but not after-hours small-group activities, partly because of the commuter bus timetable but possibly also because the workers have not yet reached the point where they can easily identify and solve production problems. At HAK we were told that ‘the workers are unable to digest what they have been taught’ and the management merely expected them to complete the quality control jobs they were given. HAK’s work organization is oriented towards fixed tasks and little progress has been made with multiskilling. HBF is more interested in producing multiskilled workers. However, while jobs are rotated among operators, there are no rotations between assembly and machine work and between assembly and quality control. In general it can be concluded that within the comparatively short period of six years a fairly problem-free system has been put in place. Though the assistance of Japanese employees is still necessary, local workers have become capable of addressing maintenance issues and defect analysis. In addition there are no obstacles – such as customary labour practices – to the transfer of Japanese production methods. Therefore it seems that Hungary is highly receptive to Japanese-style production, although a continuing concern is the fairly high employee turnover rate. The key factor for the success of Japanese companies will be securing and fostering able employees.

Notes 1. Koyama (1999), p. 153. 2. Hungarian Investment and Trade Development Agency (ITDH); World Economic Information Service (1999), p. 38. 3. JETRO (1999). HBI is not included in this report as it started with consignment production and is a branch of a plant in France. 4. Other investors include the International Financial Corporation (an agency of the World Bank) (10 per cent) and Autokonzern, capitalized by 62 Hungarian companies in the automotive industry (40 per cent). JETRO (1995), p. 26. 5. World Economic Information Service (1999), p. 39. 6. Ibid., p. 38.

10 Questionnaire Survey Analysis Rolf D. Schlunze

European politicians and scientists are concerned about the presence of Japanese companies in the European market, where push and pull factors in all countries are shaping the local investment and management style. The dominant trends outlined in the literature address restriction-driven motivates for entering Europe in general, and political and cultural reasons for the high share of Japanese affiliates in the UK (Ishikawa, 1990, 1991; Kamei, 1992; Tsukuda et al., 1992). However these studies provide surprisingly few insights into how Japanese manufacturers adjust their production methods at the regional or spatial level (Schlunze, 1992, 1997). When addressing these theoretical deficiencies, a number of authors have adopted a culture-based approach to the analysis of Japanese multinationals. They examine the impact of Japanese-style management (Dore, 1973; Yoshino, 1976; Trevor, 1983; Park and Schlunze, 1991; Kumazawa, 1993) and analyse the potential for the transfer of Japanese production methods (Koike, 1988; Tanaka, 1989; Abo, 1990, 1994a, 1994b; Abo et al., 1991; Kumazawa, 1993; Schlunze, 2000). Their results show that it is difficult successfully to transfer all elements of the Japanese production system. In the initial phase, Japanese subsidiaries tend to focus on the implementation of their methods, but in the long term they have to adapt to local customs, systems and styles of human relations, and the greater the degree of adaptation in some factors, the greater the possibility of success in the European market. Local affairs are best handled by local staff. Putting the functions of production and employment management in the hands of locals not only reduces costs but also alleviates friction and conflict (Hasegawa, 1998, p. 47). Local adjustment also involves learning on the Japanese side, with Japanese managers adjusting to the local environment and beginning to act as the locals do. Flexibility in the area of social relations is a strength of Japanese companies. Moreover the Japanese production system tends to change from a closed national system to an open one with greater structural flexibility 184

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(Munakata, 1998, p. 192). Today a larger percentage of Japanese employees receive special training for their overseas postings, are capable of making adjustments, are open to change and are able to utilize the creativity and unique characteristics of individual workers. Now that Japanese companies have consolidated their projects in Europe they are more aware that successful adjustment to the local environment is essential to the competitiveness and profitability of their operating units (Porter et al., 2000; Schlunze, 2001). The purpose of this chapter is to answer the following questions. How did the process of hybridization shape the management styles of companies? Are there identifiable groups of companies that mainly apply Japanese-style management methods and others that adapt to local management practices? Are there geographical differences in the managerial behaviour of Japanese multinationals in the EU?

Methodology The subjects of the survey reported in this chapter were all Japanese-affiliated manufacturing companies operating in the EU. The data sets and methodologies employed in the investigation differed according to the phase of the research. Interviews with Japanese manufacturers were conducted in the UK, Germany and the Netherlands in order to design a questionnaire. The database for the distribution of the questionnaire was based on JETRO’s Directory of Japanese-Affiliated Companies in the EU: 1996–97 (1996) and supplemented by The 11th Survey of European Operations of Japanese Companies in the Manufacturing Sector (JETRO, 1997). After pretests were conducted, questionnaires were sent to 791 manufacturing subsidiaries located in the EU. A total of 185 companies replied to the questionnaire; only five completed the English version. Nearly half of the respondents stated that their companies had at least one Japanese executive. Because European managers’ knowledge of production in Japan would be limited and therefore their ability to comment on the hybridization of their management system would be restricted, only the 180 Japanese responses were used for the analysis. The theoretical framework devised by Abo et al. (1994a, 1994b) to investigate the degree of hybridization of the Japanese management system was applied, and the questionnaire used by them was modified. Multiple answers stating on the applied managerial practices were possible. Instead of creating a long list of degrees of hybridization, multivariate statistics were used to classify hybridization. To avoid problems with statistical parameters, managers were asked to rank the degree of application for each item on a scale of one to five. A high score meant that Japanese-style practices had been adopted, and a low score indicated the use of local management practices. Thus we obtained ordinal data, and the median could be used as an average to judge the degree of application of Japanese methods.

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Results As shown in Figure 10.1, all the companies had adapted to local management practices rather than applying strict Japanese methods, especially in the case of the wage system. The degree of Japanese practices was high only in four areas: training for engineers and factory workers, quality control, plant equipment, and small-group activities. Table 10.1 shows the ratings by industrial sector. Localization was particularly high for the group ‘Other manufacturing,’ and again the wage system was more localized than other items. Only two industries – electronics and metalworking – had adopted Japanese-style quality control. It is also important to consider the question of who was applying certain practices. It is likely that a preponderance of local managers would mean greater adaptation to local practices, while domination by Japanese managers would result in Japanese-style practices. Figure 10.2 shows that the Japanese influence was quite strong, with management practices being mainly introduced by Japanese managers or transferred from the parent company. Only a third or so of local managers had initiated practices, and consultants and trade unions had played only a minor part. The local contribution was greatest for items such as the wage system, redundancy policy, job rotation and small-group activities. In the EU there are rigid rules on local content and practices, so foreign companies must adjust if they do not wish to attract criticism from their local counterparts. Therefore the participants in our survey have been keen to present their companies as advanced in the process of localization. To achieve a clearer picture, in the following pages we shall examine some of the items in detail and discuss actual management practices and methods. Job classification Community relations

5

Wage system

4

Complaints procedure

3 2

Subcontracting

Education and training ( job rotation)

1

Promotion (foreman)

0

Small-group activities Hiring policy Plant equipment Figure 10.1

Average application scores

Maintenance

Training Quality control

Table 10.1

Application score for each management element, by industry

Job classification Wage system Education and training Promotion (foreman) Maintenance Training Quality control Plant equipment Hiring policy Small-group activities Subcontracting Complaints procedure Community relations Average

Car assembly and parts

Electronics

Metal working

Chemical processing

Other manufacturing

Median

2.0 1.0 2.0 2.0 2.0 3.0 3.0 3.0 1.5 3.0 2.0 1.0 2.0 2.1

2.0 1.0 2.0 2.0 2.0 3.0 4.0 3.0 2.0 3.0 2.0 2.0 2.0 2.3

3.0 1.0 2.0 2.0 3.0 2.0 3.5 3.0 2.0 3.0 2.0 2.0 2.0 2.3

2.0 1.0 2.0 2.0 2.0 2.0 3.0 3.0 2.0 2.0 1.0 1.5 2.0 2.0

2.0 1.0 2.0 1.0 2.5 2.0 3.0 3.0 2.0 2.0 2.0 1.0 1.0 1.9

2.2 1.0 2.0 2.0 2.0 3.0 3.0 3.0 2.0 3.0 2.0 2.0 2.0 2.1

Note: For all averages the median was computed.

187

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Questionnaire Survey Analysis

Small-group activities Hiring policy Quality control Education and training Job rotation Wage system Job classification 0

20

40

60

80

100

Per cent

Figure 10.2

Parent company

Japanese staff

Local managers

Consultants

Union contract

Other

Source of practice for each managerial element

Due to space limitations only eight of the 23 items will be discussed: job classification, wage system, job rotation, training for engineers and factory workers, quality control, redundancy policy, small-group activities, and community relations.

Job classification The existence of a large number of job classifications can be seen as evidence of a traditional European-style work organization, while a smaller number indicates a more modern organization or Japanese-style management. Nearly 60 per cent of the Japanese respondents stated that job classifications on the shop floor were close to the local or European style; about 14 per cent cited more than 10 different job classifications. In contrast nearly 50 per cent of the Japanese-affiliated companies in the survey had fewer than five job classifications. In most cases it was Japanese managers who had decided on the classification system and the involvement of European managers or consultants was quite limited. Only 50 per cent of Japanese managers had changed the system once it was implemented, 33 per cent of whom had simplified the system. This indicates a lack of will to adjust to local management styles. We therefore conclude that there is a significant tendency for Japanese practices in respect of job classification.

Wage system The majority of respondents stated that their companies’ wage structure for blue-collar workers was close to that implemented in local firms. Eighty

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per cent set wages according to job classification or grade. 25 per cent of the companies offered performance-related bonuses, and 22 per cent based wage increases on seniority and length of service. Only 7 per cent had a profitsharing system. Thus almost 39 per cent of companies had wage systems that were typical of local companies in their industry. At 50 companies Japanese managers had set up the system, at 23 per cent it had been set up by local managers, and union agreements governed the system at 9 per cent. Because of employment laws and union agreements it had been difficult for companies not to localize their systems. Therefore only one fifth of companies had retained their original Japanese practices and one fourth had moved towards a local system.

Job rotation Japanese-affiliated plants in Europe have typically introduced job rotation for selected employees who are capable of handling a variety of work assignments. This practice was common at 48 per cent of the companies surveyed. At 17 per cent of companies, rotations were only partial, and 14 per cent used job rotation only to fill temporary vacancies. This correlates with the assertion by half of the respondents that training on the shop floor lay somewhere between the Japanese and the local style. Only one third stated that training had shifted towards Japanese methods. At 23 per cent of companies job rotation took place only within work groups, and at 16 per cent, all employees were systematically rotated across work groups. In nearly 40 per cent of companies the practice had been initiated by Japanese managers. About 10 per cent of companies rarely practiced job rotation. In summary, while job rotation is a common component of the Japan management system it is generally less intensive in Japanese companies abroad.

Training for engineers and factory workers Many of the companies in our survey had introduced on-the-job training because it was the cheapest way to train engineers and factory workers. At 56 per cent of the companies training was provided by Japanese employees sent by the parent companies, while 27 per cent sent engineers, technicians and factory workers to Japan for training and 47 per cent sent engineers and technicians to Japan but trained factory workers at the local plant. Facilities to educate workers are frequently provided by the state or local governments in Europe, and one fourth of the companies in our survey made use of such facilities; only a few had set up an internal training department. Local employees who had acquired skills in Japan played an important part in local training, and at 29 per cent companies the local managers had initiated on-the-job training.

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Questionnaire Survey Analysis

Quality control One strength of Japanese manufacturing is the efficient production of highquality products. While Japanese-style quality control prevailed at most of the companies surveyed their systems varied. At most of the companies, quality-control inspectors were involved at some point in the production process, although at some companies, and particularly those in the electronics industry, workers were responsible for quality control. The involvement of local managers in decisions on the matter was relatively high, but the actual practices had usually been introduced by Japanese managers in all manufacturing sectors. Nearly 40 per cent of the respondents mentioned a change towards Japanese-style practices.

Redundancy policy Until the Asian crisis, Japanese companies did not lay off workers as readily as their European counterparts did. At the time of our survey the majority of companies had a written or unwritten policy of avoiding redundancies for as long as possible. Only two had a written no redundancy policy and a few others had an unwritten one. Analysis shows that when Japanese managers are in charge of policy, redundancies are avoided, but local managers will resort to redundancies if necessary. Thus, we can conclude that more European than Japanese managers were in charge of redundancy policy at the Japanese companies in our study.

Small-group activities The majority of Japanese managers surveyed stated that the practice of small-group activities (SGAs) is closer to the local style, and was not changed at all. However, if we look at the SGA (small group activity) practices that were adopted, we see that the majority of companies had introduced this Japanese practice to very large extent. While 65 stated that they had no SGAs, in actuality 58 per cent had adopted some form of SGA. Eighteen per cent of companies stated that they had a policy of participation by all workers. At 31 of the companies where participation in SGAs was voluntary the participation, rate ranged from 20 per cent to 50 per cent. Since one fourth of the Japanese managers surveyed stated that they had moved their SGA practices towards the Japanese style we can assume that they are an important element of the Japanese production system in Europe. In general, although the participation rate is not as high as in Japan, and difficulties with implementation remain, SGAs are an important means of achieving high-quality products and gaining competitive advantage.

Community relations Most of the companies in our survey were members of local economic and industrial organizations. Only a few had no intention of joining one, and

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14 per cent stated that they had not been able to find a suitable organization. One third of those which had become members did not take an active part in the organizations’ affairs, particularly in the case of the electronics industry. Nearly 50 per cent reported that they participated in meetings and had been accepted as local businesses, and 1 per cent companies in the automotive industry had become important players. With regard to other local and social activities, half of the companies participated in local events and made donations to local establishments. Companies in the electronics industry were particularly active in this respect, and companies in the chemical processing industry often provided financial aid. Most companies recognized that involvement in local cultural and social affairs was necessary to ensure the long-term support of the local community for their operations. When asked whether their companies had experienced friction with local enterprises or communities, 70 per cent of the respondents said there had been none. However 13 per cent of companies had experienced negative responses to their Japanese-style management practices, and 8 per cent had experienced friction as a result of insufficient localization of management and production. Four per cent of companies had experienced negative reactions by local competitors: 2 per cent in the metalworking industry and 1.6 per cent in the electronics industry. Most of the Japanese expatriates believed that they were dealing well with community relations but had not essentially changed their customary practices. However companies in the fields of electronics (9.4 per cent), metalworking (6.1 per cent) and chemical processing (7.7 per cent) stated that they had adapted to local practices in community relations.

Types of hybrid factories In general, therefore, we can conclude that the majority of Japanese-affiliated are conducted across work groups for selected employees who are capable of handling a variety of assignments. First-line supervisors are promoted from production jobs on the basis of ability. Similarly maintenance workers are chosen from the ranks and trained internally. Quality control is the responsibility of line workers, but inspectors are assigned to the line and are part of the production organization. Most of the equipment is brought in from Japan. European subcontractors are provided with technical assistance. These companies are often members of local economic and industrial organizations, but are not well integrated. Application-oriented hybrid factories participate in local cultural and social activities. They make donations, visit local establishments and encourage voluntary activities by employees. The most distinctive feature of intermediate hybrids is that local managers have initiated certain practices, after consultation with their Japanese colleagues. Local managers have adapted such elements of the production system as job classification, wage system, the promotion or hiring of first-line supervisors, the training of engineers and factory workers, product quality,

192

Questionnaire Survey Analysis

procedures for dealing with lay-offs, small-group activities, complaints procedures and the support system for subcontractors. Finally, adaptation-oriented hybrids have adopted practices that are typical of local plants in their industry in respect of job classification, wage system, training and education on the shop floor, maintenance, quality control, complaints procedure and lay-off practices. Much of the equipment is local, and experienced first-line supervisors are usually hired from outside. Adaptation-oriented hybrids do not have small-group activities, which are a core constituent of the Japanese production system. They have joined local economic and industrial organizations, and take part in the operations of these organizations as main players. As can be seen in Figure 10.3, hybridization also varies by country. In the UK, Ireland, Portugal and Italy the application-oriented hybrid is dominant, while the adaptation-oriented hybrid is preponderate in France and Germany. In the Netherlands, Belgium and Spain the two hybrids have a roughly equal share. The intermediate type does not exist in Switzerland and Finland, but has a relatively large presence in other Continental countries. This lead us to believe that Japanese management practices are easier to implement in the culturally flexible environment of the Roman and Anglo-Saxon countries. Elsewhere management practices are more influenced by economic regulations and factors such as stronger unions and legislation, and therefore Japanese companies have had to adapt to local norms.

Conclusion The management systems of Japanese companies in Europe vary between Japanese application and local adaptation. The majority of Japanese managers surveyed suggested an advanced state of locational adjustment. A closer look at the actual practices implemented showed that these opinions have been exaggerated in areas sensitive to political or governmental regulations, like local content or procurement of equipment. Our investigation of actual practices has shown that the application of Japanese methods to certain managerial elements is particularly marked in the UK, and that the use of proven Japanese methods is still a useful way to compete. However, adaptation, with a continuing presence in Europe and progress in intercultural understanding, Japanese companies have become aware that successful adjustment to the local environment can ensure the competitiveness and profitability of their operating units (Schlunze, 2002). Each company has had decide which managerial elements should be adjusted, and this tends to vary according to country and industry. In Europe, Japanese manufacturing subsidiaries are competing not only against domestic firms but also against the subsidiaries of rival multinationals. They have recognized that Japanese managerial practices are not the only

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66 33 6.6 Adaptation-oriented hybrids Intermediate hybrids Application-oriented hybrids No classification

Figure 10.3

Distribution of types of management system in Europe

source of strength in competition, and that the adoption of local methods can add to the effectiveness of the Japanese system. It could also lead to the development of novel management methods that might even help to improve production systems in the home country.

194

Questionnaire Survey Analysis

Further research needs to be carried out on this cross-cultural management approach. According to Welge and Holtbrügge (1999), one of the central tasks of international management research is to develop research methods that make use of everyday experiences and theoretical approaches. Innovative ideas are likely to emerge from international research groups that draw on their multicultural backgrounds for theory building and empirical research.

Acknowledgement The author received a Marie Curie Research Fellowship from the European Commission (reference number ERB4001GT00951622) and is greatly indebted to Professor Peter Dicken for making possible this questionnaire survey based at University of Manchester.

Part II Japanese Companies in Europe

Introduction Chapters 11–20 examine the history and operations of 10 Japanese multinational companies with production bases in Europe namely Matsushita, Sony, Toshiba, Sharp, Canon, Toyota, Nissan, Honda, Denso and NEC. The discussions focus on the topics listed below, rather than on the features of hybrid factories discussed in the previous chapters. The first topic is the positioning of Japanese companies’ European operations within their global business activities – that is, how each of the 10 companies evaluates Europe in terms of quality (strategic importance and the characteristics of operations undertaken) and quantity. The second is how the companies have developed their business operations in Europe. The third concerns the strategic problems and challenges they face when developing their European operations, for instance the functions that regional headquarters should undertake and how the cross-border division of labour and investment should be managed both within Europe and outside. The final topic concerns the specific features of the companies’ production bases in Europe.

196

11 Matsushita Hiroshi Itagaki

This chapter first provides an overview of Matsushita’s operations in Europe, including how the company set up and expanded its business there. Then it examines the challenges Matsushita has faced with the establishment of its pan-European strategy and management system. (It should be noted that Matsushita is better known as Panasonic in Europe.)

Overview of Matsushita’s European operations As shown in Table 11.1, in 1999–2000 Matsushita’s sales in Europe amounted to less than half its sales in China and other Asian countries (excluding Japan), and roughly half its sales in the Americas. Moreover its European an operations reported the poorest business performance of the four regions in terms of operating profits, with losses being suffered in both years. However unlike in Asia, where a wide range of products are manufactured, including air conditioners, refrigerators and compressors, in Europe Matsushita concentrates on audiovisual products such as TV sets and video recorders. When this is taken into consideration the importance of Europe in Matsushita’s operations is far from negligible. Furthermore, although the trade friction between Japan and Europe has long been resolved, Japanese electronic companies are still not completely free of European import restrictions, which adds to the importance of their European operations. As can be seen in Table 11.2, Matsushita’s production bases in Europe are concentrated in the UK (seven plants) and Germany (six plants). Germany is also home to Matsushita’s European headquarters and pan-European marketing company. The UK operations include TV, R&D and the production facilities come under the umbrella of the UK holding company, which is directly controlled by the headquarters in Japan. Hence Matsushita’s UK operations, including marketing and logistics, are very much self-contained. It is therefore appropriate to consider that Matsushita has two centres in Europe, one in the UK and the other in Germany for continental operations. The relative weight of the UK and Germany as production bases, however, 197

198 Table 11.1

Matsushita’s business performance, by region (million yen and per cent) Sales

Operating profit and ratio

1999: Japan The Americas Europe Asia and other Total

5 764 362 1 115 125 695 540 1 301 039 8 876 066

64.9 12.6 7.8 14.7 100.0

165 721 15 334 −2487 44 334 222 902

2.9 1.4 −0.4 3.4 –

2000: Japan The Americas Europe Asia and other Total

6 186 629 1 179 235 653 605 1 508 231 9 527 700

64.9 12.4 6.9 15.8 100.0

214 521 11 569 −5910 43 632 263 812

3.5 1.0 −0.9 2.9 –

Sources: Compiled from financial statements. Note: Total sales are larger than actual sales due to some overlap between regions.

Table 11.2

Matsushita’s production bases in Europe, 2000 Company

UK

Matsushita Electric (UK) Ltd Kyushu Matsushita Electric (UK) Ltd Matsushita Communication Industrial UK Ltd Matsushita Electronic Components (UK) Ltd Matsushita Electronic Magnetron Corporation (UK) Ltd Matsushita Graphic Communication Systems (UK) Ltd Matsushita Industrial Equipment Company (UK) Ltd

Germany

Matsushita Audio Video (Deutschland) GmbH Matsushita Electronic Components (Europe) GmbH Matsushita Communication Deutschland GmbH Matsushita Business Machine (Europe) GmbH Matsushita Electronics (Europe) GmbH EPCOS AG

Ireland

Matsushita Kotobuki Electronics Ireland Ltd

Belgium

Philips Matsushita Battery Corporation NV (the joint venture was dissolved in 2001)

Spain

Matsushita Electric Espana SA

Czech Republic

Matsushita Television Central Europe s.r.o.

Slovakia

Matsushita Electronic Components (Slovakia) s.r.o.

Poland

Philips Matsushita Battery Poland SA (the joint venture was dissolved in 2001)

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199

is on the decline as Matsushita has been expanding its production capacity in the Czech Republic and other East European countries.

Development of Matsushita’s European operations Matsushita began its European operations in 1962 with the establishment of a sales office in Hamburg, Germany (Table 11.3), slightly later than the launch of its North American operations. It subsequently set up sales agencies in other major European countries, thereby penetrating the European market through exports. A sales company was established in France in 1968 and another in the UK in 1972. In the 1970s it expanded its marketing and service network by buying sales agencies in countries across Europe. Matsushita’s first production base was a battery factory, which it ran in a joint venture with the Philips group. Its first fully owned enterprise was a colour TV factory in Cardiff, Wales, which began operations in 1976 following European countries’ imposition of import quotas on Japanese colour TV sets. In the 1980s trade friction between Japan and Europe intensified over the sale of videocassette recorders (VCRs), as exemplified by the European Community filing an antidumping complaint against Japanese exporters and the implementation of local content requirements by European countries. In response to these developments, Matsushita constructed a VCR assembly plant and component factory in Germany. It also began local production of TV components such as tuners, power supply units and so on, making Germany the main destination of its European investments in the 1980s. In line with the expansion of production bases it established Panasonic Europe to provide support for the local operations, marking the first step towards the integration of its European business. In the 1990s Matsushita acquired a cathode-ray tube (CRT) factory in Germany and this, when combined with the manufacture of finished products and components in the UK, completed the integration of its production system for colour TVs in Europe. From the mid 1990s, however, Matsushita began to transfer some of its production to Central European countries such as the Czech Republic and Slovakia, which were transforming themselves into market economies and offered a cheaper, workforce more flexible than that in Germany. Meanwhile the strengthening of the British pound against the euro undermined the UK’s advantage as a production base, and the Central European countries’ attractiveness was further enhanced by their designation as a ‘Euro 1’ zone, which gave them preferential tariff treatment on goods exported to the EU. Matsushita thus set up a colour TV factory in the Czech Republic in 1996 and a TV and VCR component factory in Slovakia in 1997. The volume of colour TVs produced in the Czech Republic has since surpassed that of the UK, although the two countries are roughly equal in terms of production value as the manufacture of digital and wide-screen TVs has

200 Table 11.3

Development of Matsushita’s operations in Europe Major developments

Reasons for development

1960–69 Sales company established in Germany (1962) Sales company established in France (1968) 1970–79 Sales company established in the UK (1972) Colour TV factory opened in the UK (1976)

European countries introduced import quotas on colour TV sets from Japan

Sales and service network expanded through the purchase of sales agencies in countries across Europe 1980–89 VCR factory opened in Germany (1983) The EC filed an antidumping complaint against Japanese VCR producers. Tuner factory opened in Germany European countries introduced (1984) local content requirements VCR mechanism factory opened in Germany (1986) Power supply unit factory opened in Germany (1987) Panasonic Europe established. The need emerged for a support system for the operational bases 1990–99 Cathode ray tube factory acquired in Germany (1995) Colour TV factory opened in the Czech Republic (1996)

TV and VCR components factory opened in Slovakia (1997) Matsushita Electronics (Europe) established (1997)

An integrated TV production system was established in Europe East European countries began their transition to the market economy and strengthened their ties with the EU.

Matsushita needed to integrate its European management strategies Electronic components sales expanded.

Panasonic Industrial UK established (1998) Panasonic Industrial Europe established (1998) Panasonic Marketing Europe A pan-European sales and established (1999) marketing system was required Panasonic Logistics & Support Europe established. (1999) Panasonic Services Europe established (1999)

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201

remained in the UK. Part of the CRT production line has been transferred from Germany to the Czech factory and the manufacture of machine components has been moved to Slovakia. The expansion and geographical diversification of production bases, coupled with the further integration of the EU, increased the need for integrated management of Matsushita’s European operations. Hence in 1997 Matsushita Electronics (Europe) was set up as a regional control office. Although its main functions in the initial stage were sales and marketing, rather than controlling, after the establishment of Panasonic Marketing Europe in 1999 its responsibility shifted towards strategic planning. As mentioned earlier, Matsushita’s UK operations were self-contained and independent of the continental operations.

Challenges in European business Since the mid 1990s Matsushita has faced two major challenges in its European business: how to construct a pan-European strategy and management system, and how to acquire and accumulate digital technologies.

The construction of a pan-European system With the establishment of the European single market and the introduction of the euro, leading European retailers such as Carrefour of France, Metro of Germany and Kingfisher of the UK began to construct a transnational network of sales channels. This prompted Matsushita to set up its own pan-European marketing system, which involved equalizing prices, establishing a uniform brand image through Europe-wide advertising, and standardizing its product specifications. Established for this purpose were the Panasonic Marketing Europe, which controls and coordinates marketing, and the Panasonic Testing Centre (Europe) in Hamburg, which is responsible for standardizing product specifications. Sales strategies, however, have remained local in order to meet the individual needs of local markets. In other words Matsushita has a panEuropean approach to marketing and country-by-country approach to sales. The introduction of the euro meant more than just the convergence of prices – also increased the possibility of prices converging at a lower level than expected, so across-the-board cost reductions were required. The shifting of production bases to Central Europe can be seen as part of this. Matsushita also integrated its service and parts supply networks under Panasonic Services Europe in Hamburg, and consolidated its distribution centres by reducing the number of its warehouses from 22 in 1995 to 10 in 1999. In order to build a pan-European system it was necessary for senior managers and directors to be able to cope with the new environment and facilitate personnel exchanges among group companies. To this end Matsushita set up a programme in which top personnel were sent to an external school or the company’s training centre for two to 10 months. Under another programme,

202

Matsushita

called Production Support Control, several employees were sent from Japan on a temporary basis to instruct employees in Europe. Furthermore, to facilitate intercompany transfers within Europe, work procedures and employment conditions are now being standardized under the direction of the regional headquarters. As Matsushita proceeds with the consolidation of its pan-European system the regional headquarters is expected to play an increasingly important role. However matrix management – in which business divisions serve as the main axis and regional headquarters as the secondary – is likely to remain at the heart of Matsushita’s international business management strategy. Defining the business divisions as the main axis is a reasonable way to avoid the confusion that could arise from the presence of two bosses with an equal level of authority. However it has been pointed out that Matsushita’s overseas subsidiaries tend to have overlapping responsibilities and there is rivalry between them, a problem that is attributable to the excessive authority given to each business division. Thus in relation to Matsushita’s European operations, the authority and functions of the regional headquarters should not be overestimated at this stage.

The acquisition and accumulation of digital technologies The 1990s saw remarkable advances in digital technology. In January 2001 Matsushita announced that it planned to increase the number of its software engineers by 3200 in Japan and 2000 overseas (Nikkei Sangyo Shimbun, 6 March 2001). A task of special importance for Matsushita in Europe was responding to the introduction of interactive, digital TV broadcasting services. In addition to the existing R&D facilities for digital technology in the UK and Germany, Matsushita set up a new software development base in the Czech Republic in 2001 as a wholly owned subsidiary of the German R&D institute. Also, since 1999 Matsushita has worked jointly with British Telecommunications and Sky Broadcasting to develop a set-top box for interactive broadcasting services. If necessary, Matsushita intends to headhunt additional engineers from outside. The European headquarters is also actively engaged in the company’s response to the advance of digitalization. In 1997 it established the Panasonic Academy to improve sales engineers’ knowledge of digital technologies, and between then and 2000 it provided training to 800 sales engineers. Finally, Matsushita’s R&D centres in Japan, the UK and Germany have jointly developed base software that is applicable to all the digital broadcasting systems in Japan, the United States and Europe. Moreover Matsushita has kept ahead of its rivals in the development of software for European-standard digital interactive services (Nihon Keizai Shimbun, 25 August 2001).

12 Sony Nobuo Kawabe

Sony’s diverse product range includes electrical and electronic products, games, music, movies and insurance products. The company’s activities in Europe, however, are mainly restricted to the manufacture and sale of electrical and electronic products. As well as sales offices in various European countries, it has two manufacturing plants in the UK that produce broadcast cameras, colour TVs and cathode ray tubes, two French factories producing mobile audio equipment, notebook computers and video tapes, two Austrian factories producing compact discs and MiniDiscs, a Spanish plant producing colour TVs and LCD projectors, a Hungarian plant producing DVD players and audio equipment, and a Slovakian plant producing colour TVs and TV devices. Sony’s full-fledged production activities in Europe began in June 1974 with the opening of a colour TV plant in Bridgend, Wales. The plant, which has an annual production capacity of 200 000 units, initially procured some 30 per cent of its parts locally. In 1982 it also began to produce Trinitron cathode ray tubes. In contrast to the way in which it developed its business in the United States and UK, that is, through the construction of new manufacturing plants, Sony advanced into West Germany by acquiring a Stuttgart-based audio equipment manufacturer called Wega Radio in February 1975. The company, renamed Sony-Wega Productions, continued to produce audio equipment under both the Wega and the Sony brands. In 1980 it began to produce colour TVs, and in later years it also produced Betamax video recorders. In 1986 Sony DADC (Digital Audio Disc Corporation) Austria was founded, (with capital put up by the Sony Corporation of America) to embark on the production of compact discs, thereby establishing dual production with another plant in Alsace, France. The production of locally designed robots began in July 1991 in a plant in Stuttgart, Germany. Until then the plant had been producing robots designed in Japan, but Sony established an integrated design and production 203

204

Sony

system that would enable a quicker response to changes in European safety regulations and market demands. The move was prompted by Sony’s recognition that the localization of production facilities was essential – both for the sake of enhancing production technologies and in view of the need to curb exports from Japan – if the company was to expand its production of audiovisual equipment in Europe. At the same time it aimed to improve both the mass production technology at its factories across Europe and the marketability of its robots in order to increase sales to other manufacturers. With an eye to the imminent integration of the European market, Sony began to produce colour TVs at its Pencoed plant in Wales in February 1992. Its Bridgend plant concentrated on the production of display units and by 1996 the plant was producing 80 per cent of Sony’s demand for cathode ray tubes for its European operations. The production of colour TVs also began at Sony’s Spanish subsidiary in Barcelona, which had initially produced hi-fi equipment. In France, Sony set up a tuner plant in Alsace in 1986. The product range of the latter has since been extended to include video recorders, GSM (global system for mobile communications) phones and car stereos. In 1989 a plant was opened in Dax, France, to supply audio tapes to Sony’s audio equipment and video cassette plants in Europe. Meanwhile in 1988, its Rovereto plant in Italy began to produce tapes in response to the shift from analogue to digital technology. Geographical dispersion is an interesting feature of Sony’s overseas operations. This is based on what the company calls ‘global localization’, which involves blending into local communities in terms of day-to-day operations while pursuing global goals in technology and management philosophy. In the 1990s Sony rapidly increased its R&D bases in Europe in response to increased production and sales and the need to stay abreast of new developments in the industry, and in order to conform to European regulations and standards. At the moment it has four R&D bases in Europe: one in Stuttgart, Germany, focusing on advanced research in areas such as the environment, home networking and telecommunications; one in Paris in charge of computer science; one in Basingstoke, UK, undertaking research on broadcasting technologies, including equipment for digital video broadcasting (DVB); and one in Brussels for software and DVB-related technologies. It also has design development centres in Belgium, France, Germany, Spain and the UK, the total number of research staff being comparable to that in the United States. Sony’s manufacturing plants in Europe have different features that reflect the conditions in the country in which they are located and the nature of the products produced. In April 1997 the Bridgend plant had 1675 employees, including 22 Japanese and some 200 fixed-term contract workers and part-timers. Its employee turnover rate was 5.5 per cent and the absenteeism rate was 5.86 per cent. The Pencoed plant had 278 employees, including 39 Japanese, and female workers exceeded males by a ratio of

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60 to 40. The average age of the employees was 27, and the employee turnover and absenteeism rates were 7.5 per cent and 4.0 per cent respectively. The employees at both plants were recruited from nearby areas. In September 1998 the Alsace plant in France had 1368 full-time employees, including 23 Japanese and 92 fixed-term contract workers. The male to female ratio was 32 to 68. The average age for both male and female workers was 33, somewhat higher than in the UK factories. The absenteeism rate was 7 per cent. At the Rovereto plant in Italy there were 277 Italian employees (95 per cent of the total), and the rest included Moroccans and Brazilians. There were only three Japanese, namely the president, an accountant and an engineer. The plant also hired 56 local farmers as part-timers and fixed-term contract workers. A characteristic of this particular plant was job sharing – the first of its kind in Italy – under which female workers aged about 25–30 worked four hours a day for 50 per cent of the pay they would earn on a full-time basis. The employee turnover rate and absenteeism rate were 5 per cent and 4 per cent respectively. In terms of work organization, wage system and labour–management relations, the Pencoed and Bridgend plants have a set of common rules. Work is structured in such a way that a line manager, a supervisor and line workers (25 to just over 30) work as a team. Qualified jobs are ranked from R1 to R4 (supervisors, senior supervisors and engineers) and from R5 to R7 (managers, senior managers and general managers). Production workers start at rank A, which also applies to cleaners (currently outsourced), and then rise to B through to E in line with experience and the type of tasks handled. Those classified as F, G1 and G undertake equivalent tasks to those executed by master mechanics, repairers and designers. Only employees in the F and G ranks are union members. A uniform wage scale applies to each grade of workers, with the pay for each grade being determined by negotiations between the management and the union. Promotions are conducted through internal transfers when higher positions become vacant, and decisions on the matter are based entirely on proficiency in skills. As certain skills are developed through years of work experience, in essence the promotion system is similar to the seniority-oriented system in Japan. At the Alsace plant the wage system is divided into five grades. Each grade has three levels, except for the fifth grade, which has four. Each level has its co-efficient. Lowest workers fall in 145 to 146 levels of co-efficient. All employees are subject to evaluation, and the percentage of additional pay brought by the evaluation results depends on the coefficient designated to each level. For instance an additional 5 per cent on the minimum wage reflects evaluation results in the case of workers falling in the 145th range, and 10 per cent in the case of those in the 155th range. With regard to promotion, all supervisors have been internally promoted to their current post; 80 per cent of maintenance officers have been recruited from outside

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Sony

and 20 per cent internally promoted. Industrial engineers and supervisors are responsible for establishing work standards. The Rovereto plant offers payments on top of the nationwide wage scale for each job type. This plant has adopted the Hay evaluation system, developed in the United States, rather than the Japanese skills-based grade system, under which workers are classified according to their vocational skills and their pay is determined by that classification. Work is classified into 13 grades, ranging from manager to operator. In terms of job classification, assembly work is divided into five grades and eight types of task, designing work into three grades and three task types, and maintenance work into one grade and two task types. The nurturing of multifunctional work is no easy task as workers in Italy tend to be turf-conscious, unwilling to pass on their know-how to others and not good at teamwork. During the time of the bubble economy in Japan, companies were easily able to find buyers for whatever products they produced. But things changed when the bubble burst and today only the products that meet the exact needs of the market can sell. This has necessitated changes in the mode of production – with a shift from the conveyor belt system to a cellular manufacturing system – because with line production it is difficult to switch from one product type to another. The cellular manufacturing system, in which production set-ups can be easily adjusted, is better suited to producing a large variety of products in small lots. At the Bridgend plant the coil-winding process for deflection yoke production has been fully automated and operates around the clock. In the case of assembly work, conveyor belts had been gradually removed by 1997 and replaced by a cellular production system. Having simplified its inspection procedures and set up 17 production groups, the Bridgend plant now produces a wide variety of products in small lots. Following the production of integrated tube components, the plant is now working on aperture grills and fluorescent screens for cathode ray tubes. The Pencoed plant’s chip-mounting facility, with 134 machines lined up, is the largest of its kind in the UK and boasts an automation ratio of 95 per cent. On average one person takes charge of six machines, and the time required to change moulds has been reduced to less than 10 minutes. The cellular manufacturing system has been adopted for the hand-mounting process, but it is not well suited to Pencoed’s large-lot production, for which the use of conveyor belts is necessary. At the Alsace plant the audio and video factories have combined the cellular manufacturing system with the production line system in order to cope with model changes. A single-operator production system has been introduced too, but there are fewer of the multi-functional workers required to handle this system than these are in Japan. With regard to production equipment, machinery imported from Japan generally predominates in the UK. For instance the Bridgend plant has

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purchased 60 per cent of its new machines from Japan, and in the factory that produces automatic mounters all of the production equipment comes from Japan. At the Pencoed plant, Sony uses its own unique production equipment for the manufacture of aperture grills, but the rest of the equipment is the same as that used by other companies. Automation at these two UK plants is relatively low compared with that at Sony’s plants in countries such as Singapore. Processes undertaken at the Rovereto plant range from moulding to assembly and packaging. Only 20 per cent of its production equipment is procured locally, the rest being imported from Japan. In the moulding process, locally reproduced Japanese moulding machines are used. Original dies are imported from Japan and reproductions are procured from a French maker. The plant is highly automated. Maintenance technicians and shift leaders are responsible for general improvements of production equipment, while an engineering team takes care of technical improvements. Improvements undertaken locally account for some 40 per cent of the total. The production equipment used for a new product called a MiniDisc shell is identical to that used in Sony’s MiniDisc shell plant in Japan. There are various problems with the maintenance of equipment. In the UK, line workers – unlike their counterparts in Japan – only undertake production tasks. Therefore at the Bridgend plant maintenance is taken care of by supervisors, maintenance staff and outside service providers. The management has tried to encourage line workers to involve themselves in maintenance, but because the duties of workers are clearly defined, problems often arise with tasks falling between job boundaries. To address this problem a total production management system has been introduced on a team-by-team basis. At the Alsace plant, because it is fully automated and serves as a platform for Sony’s European operations, the role of maintenance is significant. Here 80 per cent of the maintenance staff are recruited from outside, the remaining 20 per cent being internally trained. The Rovereto plant recruits high school graduates and trains them in-house because it is difficult to hire capable technicians from outside. However skilled maintenance workers often leave to join another company. Parts procurement has been substantially localized in both the UK and Italy. In case of the production of cathode ray tubes and deflection yokes at the Bridgend plant, in 1996 internally procured parts accounted for 85 per cent both in number and value. Electron guns are procured from Slovakia and masks from other countries in Europe. For deflection yoke production, until 1996 all rear glasses were purchased from Germany and France, and front glasses from Japan, but today 85 per cent are manufactured in-house. Trinitron tubes used to be supplied exclusively by manufacturers in Japan, but when Nippon Sheet Glass began to produce them in Cardiff, Sony made it the plant’s sole supplier. Iron plates are still imported from Japan.

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Sony

The Pencoed plant’s local content ratio is 95 per cent, 35 per cent of which is accounted for by cathode ray tubes. Thus only 5 per cent of parts are imported from Japan. Procurements from Japan include fly-back transformers, the production of which lags behind demand in Europe, and integrated circuits that are produced only by Japanese firms. Plastic components such as cabinets are procured from a factory about 30 minutes’ drive away, thus enabling a just-in-time system to be used. The Rovereto plant procures 88 per cent of its parts locally. If jumbo rolls (magnetic tapes) are discounted, the local content ratio comes to 70 per cent. In order to increase the local content ratio the plant has been utilizing local contractors. Jumbo rolls are imported from Sony’s plant in Mexico and high-priced components from Japan. A quality management team provides technical guidance to suppliers in respect of improving the quality of their products to meet Sony’s high standards. At the Alsace plant, in contrast, the level of local procurement is low, standing at 20 per cent for car stereos and 50 per cent for video recorders and telephones. Parts are mainly imported from Asia, with 70 per cent of parts for car audio equipment being procured from Asian suppliers. Now that supply chain management is taking root, the Sony group as a whole is aiming to reduce its number of suppliers and increase its procurements from Asia in order to reduce costs. With regard to quality management, quality auditors are authorized to stop the production line when necessary as there are still problems with faulty parts and materials. They are also able to order the suspension of shipments if defects are subsequently found in parts or finished products. If the problem still cannot be resolved an officer is sent from the Japanese headquarters to deal with it. A quality management team was established in 1986 to inspect the quality of all European operations, which have become just as diverse as those in Japan. There are substantial rises and falls in production volume and stabilizing product quality remains a challenge. Meanwhile product quality standards differ from region to region because stricter standards are adopted for products intended for sale in certain markets. At the Alsace plant, as in Japan, both in-process and final inspections are performed. Quality auditors or quality management officials carry out random inspections of products as they come off the production line. With regard to labour–management relations, the Pencoed plant has a single-union agreement with the AEEU. Consultations between management and the shop steward committee are held every three to four months to discuss nationwide matters, and senior managers meet with shop steward committee members every two to three weeks to discuss insurance, safety and other issues. The Alsace plant deals with two unions: the CFGT and CGT. There is a 10-member work council, consisting of eight elected members plus two union representatives. Topics of discussion include wages, working hours,

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working conditions, social activities, recreation, family matters and so on. There are no negotiations on investment matters. At the Rovereto plant, which has an open-shop system, 25–30 per cent of workers belong to one of the two umbrella unions: the CGIL and CISL. The overall returns from being a union member are rather small. In 1995 Sony began to cast its eye on Russia and the Central and Eastern European countries, attracted by their market potential and driven by the appreciation of the British pound. In the spring of 1997 it set up an audiovisual equipment plant in Hungary and a TV parts plant in Slovakia. It is expecting Eastern Europe to become what Southeast Asia is to Japan and what South America is to the United States. In October 1999 Sony moved its European headquarters – which had been established in 1986 to control the diversification of the company’s European business – from Cologne to Berlin. The choice of Berlin was based on Sony’s belief that the European market would expand eastward and that Berlin would be at the geographic centre of the expanded EU. In 2001 Sony consolidated the production, distribution and parts supply functions of its 30 or so major regional plants. As part of this, a new organization was set up in Berlin to control production activities across Europe, thereby integrating the management of regional operations.

13 Toshiba Yanshu Hao and Tetsuo Abo

Toshiba, along with Hitachi and Mitsubishi Electric, is one of Japan’s major manufacturers of electrical and electronic products and ranks sixth in that industry in the world (Fortune Global, 2002). In March 2004 it had about 120000 employees in Japan and about 161000 on a group-wide basis. In 2003 fiscal year it recorded 3.400 trillion yen of non-consolidated sales and 5.580 trillion yen of consolidated sales. Since its foundation in 1875, Toshiba has undergone major organizational changes and was renamed several times before becoming the Toshiba Corporation in 1978. Starting with the manufacture of heavy electrical machinery, the company gradually expanded into almost all electrical and electronic products under a century-long capital and technological tie-up with General Electric of the United States spanning from the 19th century. During the course of its long history it has developed and marketed a number of ‘firsts’ in Japan, including an electric incandescent lamp (1890), an electric refrigerator (around 1930) and other white goods, a fluorescent lamp (1940), a nuclear power turbine generator and a satellite communications transmitter (1963). Among its ‘world firsts’ are the laptop (notebook) computer (1986) and a four-megabit NAND (circuit)-type EEPROM (electric erasable programmable memory) (1991). In the midst of the IT revolution it moved into the information and digital media business, focusing on network-related products. In 1999 Toshiba changed its organizational structure. Ten independently operating companies were established and the headquarters of Toshiba Corporation was duly transformed into the headquarters of the Toshiba Group. Its overseas subsidiaries are now under the control of the new companies.

The development of Toshiba’s overseas operations There was a time when Toshiba was a ‘reluctant’ multinational (Trevor, 1983), a characteristic commonly observed among Japanese manufacturers and one that prompted us to launch this study. As of 1991 Toshiba was one of the most internationalized of the Japanese electrical and electronic manufacturers 210

Yanshu Hao and Tetsuo Abo 211

in terms of export value as well as foreign investment and loans. Yet its overseas production only accounted for 10.5 per cent of total production, far less than Sanyo’s 27 per cent, Sharp’s 25 per cent and Sony’s 20 per cent. Along with Mitsubishi and NEC (both 7 per cent), Toshiba was an industry laggard in this respect. (Abo, 1998, pp. 158–160). There were two main reasons for this. First, because of its strong brand name and diverse product range it was able to make greater profits from the domestic market than it could overseas. Second, due partly to its long history it rather stubbornly adhered to Japanese-style manufacturing technologies (as demonstrated in its semiconductor and copier operations). Toshiba’s overseas operations developed in the following manner. Until the mid 1970s its overseas operations took place only in developing countries, especially those in Southeast Asia, and its export-oriented production was based on licensing agreements and technical associations with other companies. During the 1970s and 1980s, in a move to avoid trade friction, it set up plants in the United States and the UK to handle the final stage of assembling colour TVs and other products. At the same time it opened a plant in Singapore to produce chassis and other parts for the US and UK plants. In 1980 it established a small semiconductor plant in the United States. In the meantime its core production of semiconductors continued in Japan. However in the mid 1980s it finally stepped up its overseas production in response both to the sharp rise of the yen after the Plaza Accord and to the acceleration of market integration in Europe. It set up a chassis plant (to supply its TV plant in the United States) in the Maquiladora Zone in Mexico, a cathode ray tube plant in the United States and a semiconductor assembly plant in Malaysia, as well as plants in West Germany and France. It also began to produce various home appliances and electronic parts in Thailand and other Southeast Asian countries. Then in the 1990s it set up operations in Dalian and Shanghai in China with an eye not only to the growing potential of the Chinese domestic market but also to the cutting of labour costs. Another important expansion of Toshiba’s overseas operations occurred in the mid 1990s, when it established a joint semiconductor plant with IBM in the United States, and formed an alliance with Siemens and IBM for the joint research and development of the next generation of semiconductors. These moves attracted considerable attention as they marked a departure from Toshiba’s strategy of favouring its domestic plants for semiconductor production, and its technical associations distinguished it from other Japanese companies (Abo, 2002). Toshiba now seems to be moving away from mass production to concentrate more on high-value-added products such as custom-made LSIs (Toshiba sold its stake in the US joint venture with IBM in 1992). This move came against the backdrop of intensifying competition with South Korean semiconductor makers and electronic manufacturing services (EMS) companies, and in response to changes in the market environment, as exemplified by the IT slump in the United States.

212 Toshiba

Toshiba’s European operations As shown in Table 13.1, Toshiba’s overseas operations can be broadly classified into three key regions: North America, Europe and Asia. In terms of sales, Europe accounts for 22.9 per cent of total, outstripped by both North America and Asia. The same applies to the number of employees, with Europe accounting for only 11.2 per cent of the total. However in terms of sales per employee, Europe is at the top with 114 million yen, compared with 105 million yen for North America and a mere 29 million yen for Asia. It can therefore be said that the strength of Toshiba’s European operations lies in the high productivity of its employees. As the sales figures in Table 13.2 indicate, the emphasis of Toshiba’s European operations has shifted to IT and digital media products. The latter – of which notebook computers make up 70 per cent – and its related electronic device business together account for more than 80 per cent of the company’s total sales in Europe. Home appliances account for 30 per cent of digital media sales, and medical equipment and heavy electrical machinery for 10–20 per cent of sales. By continuing in this direction, will Toshiba be able to ride the wave of the IT revolution and contribute to new developments? Table 13.3 provides details of the Toshiba plants in Europe that we surveyed. The UK was Toshiba’s first European destination. Toshiba Consumer Products

Table 13.1

Toshiba’s operations by region, 1999 N. America

Europe

Asia

Other

Total

8700

4800

6100

1400

21 000

41.43 8300 22.13

22.86 4200 11.20

29.05 21 000 56.00

6.67 4000 10.67

100.00 37 500 100.00

1.05

1.14

0.29

0.35

0.56

Overseas sales (100 million yen) Percentage of total sales Number of employees Percentage of total employees Sales per employee (100 million yen)

Source: Compiled from material furnished by Toshiba.

Table 13.2

Toshiba’s sales in Europe, 1999

Sales (100 million yen) Percentage of total sales

Digital media

Electronic devices

Medical equipment

Other

Total

3000

1000

300

500

4800

62.50

20.83

6.25

10.42

100.00

Source: Compiled from material furnished by Toshiba.

Table 13.3

Toshiba factories in Europe United Kingdom

Local countries Company

Toshiba Consumer Products (UK) Ltd

Date of establishment Capital Accumulated investment Gross sales

Apr. 1984 £17 million £42 million Colour TVs, £62 million; VCRs, £9 million (1995) 50

Exports as a percentage of sales Export destination

Conti. Europe

France Toshiba Systems (France) SA

Germany Toshiba Systems European Branch

Toshiba Consumer Products (UK) Ltd, Air Conditioners Mar. 1990 £10 million £18.5 million N.a.

1986 Fr152 million N.a. Fr3255 million

Toshiba Semiconductor GmbH (TSG) Dec. 1992 DM 15 million N.a. DM 110.3 million

50

N.a.

14 (1997)

Spain, France, Holland, Austria, Italy 302

All Europe

United States

All sales in Europe England, France

192 (including 7 Japanese)

192 (including 4 Japanese)

Memory, ASIC, IGBT module, EN-FAX 10 Sep. 1998

PCs: portable, desktops

No. of employees

890 (including 8 Japanese)

Products

Colour TVs, VCRs

Air conditioners

890 (plant, 400; office, 400) (including 8 Japanese) Copiers, printers

Date of interview

4 Apr. 1997

4 Apr. 1997

3 Sep. 1998

Apr. 1990 DM 69 million ¥200 billion

3 Sep. 1998

Source: Field survey data.

213

214 Toshiba

(UK) Ltd – now known as Toshiba Information Systems (UK) Ltd – was originally set up in 1979 as Rank Toshiba Ltd, a joint venture between Toshiba and Rank Radio International of the UK, but it was reborn as a new company in 1981 when the joint venture was dissolved (Trevor, 1988). The plant began production of VCRs in 1984 and microwave ovens in 1985. VCR production was transferred to a plant in Germany in 1985 but returned to the UK in 1995. The production of microwave ovens was also transferred to a French plant in 1986 and the UK plant began to produce air conditioners instead. Then in 1996 the production of project TVs was launched at the UK plant. Hence the operations at that plant have undergone several changes, which suggests that Japanese companies have found it difficult to manage their plants in Europe. In 1997 the UK plant had 890 employees, more than at its other plants in Europe. Japanese-style management methods were introduced under the leadership of British managers (British nationals had continued to occupy the majority of the board seats after the dissolution of the joint venture). Toshiba and Sony were pioneers in introducing a single-union agreement, and labour–management relations were based on that agreement (Abo, 1998, p.169). Toshiba also promoted information sharing among employees and strove to achieve a sense of group unity. Under the joint venture with Rank there were four canteens, each serving a different rank of manager or employee, but after Toshiba became the sole owner the canteens were integrated into one. At the same time the company introduced a number of other Japanese customs. For instance it adopted open-plan offices (even the president did not have a private office) and all employees were issued with the same blue uniform. Toshiba’s copier plant in Dieppe, France, was set up in 1986 to avoid the possibility of antidumping action after the integration of the European market. The production of toners also began there in 1994. The number of employees at the plant currently stands at 400 (there are a further 400 at the sales office in Paris). At this plant, which sits in the heart of rural Normandy, numerous elements of the Japanese production and management systems (Fruin, 1997) have been introduced, including the management of work procedures and relationship building with suppliers. The success of this can be attributed to the enthusiasm of Japanese staff and the industriousness of local employees, mostly women (Abo, 1998, pp. 169–70). With the abolition of antidumping regulations in October 1997 Toshiba lost its entitlement to a reduced duty of 10 per cent (compared with 20 per cent on imports from outside Europe) and it became exposed to competition from copier manufacturers in China. This prompted the company to strengthen its efforts to implement Japanese management methods at the plant, which as a consequence became a model for the whole Toshiba group, especially in respect of quality control circles – a type of small-group activity – in which all

Yanshu Hao and Tetsuo Abo 215

employees participate. (Toshiba TEC Corp, a subsidiary of Toshiba Group, absorbed the plant in 1999.) Toshiba has two production bases in Germany: a semiconductor plant set up in 1984, and a notebook PC plant that began operations in 1990. Toshiba decided to advance into Germany because of the availability of high-quality technical staff, the ease of parts procurement and the strategic importance of having a production base in the country with the largest domestic market in Europe. The last point was particularly important in its decision to set up the notebook PC plant. The plan was first to secure a market share in Germany and then to seek access to the entire European market. Another factor in the location decision was Germany’s geographical and cultural closeness to East European countries, which would facilitate parts procurement from and the consignment of production to companies in these countries. As is the case with many other Japanese companies, the strategy that has governed Toshiba’s production activities in Europe has been based on measures to cope with the geographical and cultural diversity of local markets. In the case of Toshiba’s PC plant in Germany, its main mission has been to customize products to meet local regulations and customers’ requirements, including language requirements. At the time of our survey the plant was producing 10 basic models, software applications in 15 languages and keyboards for 12 languages. Such large-range, low-volume production is a traditional strong point of Japanese companies. Toshiba has also brought in Japanese production methods such as multi tasking, U-shaped production lines and cellular manufacturing systems. The colour TV plant in the UK used to have a traditional production line. With this system the plant produced 1200 colour TVs per day per line, with each line staffed by about 53 assembly workers. Then at the end of 1996 the plant introduced U-shaped production lines on an experimental basis, under which each line was staffed by a team of seven assembly workers who produced 200–300 colour TVs per day, which represented a 30 per cent increase in productivity per line. Toshiba is also unique in its global logistics management. Its PC plant in Germany mainly imports parts from Japanese plants operated by its parent company or ones run by Toshiba’s Asian subsidiaries in China, the Philippines and Thailand. Meanwhile tasks involving a substantial proportion of manual work and the production of low-value-added products are contracted out to a Canadian EMS producer and operators in Hungary, where labour costs are lower. To sum up, Toshiba’s operations in Europe can be characterized as follows. First, its European subsidiaries concentrate on the production of highvalue-added finished products (particularly in the fields IT and digital technology) that cater to the diverse needs of the European markets. Compared with its more extensive operations in North America and Asia, Toshiba’s European operations boast highest sales per employee.

216 Toshiba

Second, each of Toshiba’s three major production bases in Europe – the UK, France and Germany – produces different products that have been assigned with an eye to tariffs, trade barriers and other factors. In the UK, the longstanding base for the supervision of overall operations in Europe, Toshiba primarily produces home appliances such as TVs and video tape recorders for sale throughout Europe. When moving into France, Toshiba chose to concentrate on the production of printers and copiers. Its decision to set up production in France was partly based on the latter’s position in EU politics. Meanwhile its move into Germany, where operations centre on the production of semiconductors and PCs, was to do with the availability of high-quality technical staff and the strategic importance of the German market. As such, Toshiba has built a production network that divides roles among the three key nations by repeating selections and integrations in order to cope with the changing needs of time. And through such compartmentalization of products, Toshiba has been implementing production strategy for Europe as an integrated market. Finally, Toshiba has built up rational systems for parts procurement and production that conform both to the larger framework of its global operations and to the smaller framework of the three key European countries. Core parts are imported from Japan and the rest are procured either from other Asian countries or within Europe. With regard to production, it contracts out labour-intensive operations and the production of low-value-added products to operators in Hungary and other European countries with low labour costs. This is also related to the growing competition from Asian manufacturers.

14 Sharp Yanshu Hao

Sharp is a distinguished Japanese electronics manufacturer. In April 2003 it had 23100 employees within the parent company. On a group-wide basis there were 56100 employees: 31300 in Japan and 24800 overseas. In 2000, its overseas operations accounted for 42.9 per cent of total sales, showing that this business had become an indispensable part of its overall operations. In rapidly transforming itself from a home appliance maker into a producer of diverse electronic equipments, Sharp has coped with changing demands in an agile and flexible manner, thereby seizing various new business opportunities. It has designed and marketed a number of unique products, such as the ‘Viewcam’ series of liquid crystal display (LCD) digital cameras and the ‘Zaurus’ personal digital assistant (PDA), which have attracted considerable interest and met with substantial commercial success. More recently, the company has been trying to develop a new area of business with its unique Internet-linked home appliances, launching an microwave oven with online capability and mapping out an ‘LCD digital network strategy’ to link various home appliances and mobile devices to create a network. Sharp’s flexibility and its ability to seize new business opportunities reflect its 90-year tradition of pursuing world and industry ‘firsts’. In 1912, Tokuji Hayakawa, Sharp’s founder, patented his ‘Tokubijo’ snap buckle and started up a metal working shop in Tokyo with just three employees and a capital expenditure of 50 yen. Writing implements made of metal were not available at the time, and Hayakawa and his tiny company set about designing the production technology needed to create such a device. In 1915, the company invented a metallic propelling pencil and put it on the market as the ‘Ever-Ready Sharp Pencil’. It is from this innovative product that Sharp took its brand name. Later, using a US-made crystal radio as a model (radios were imported to Japan for the first time in 1924), the company conducted numerous experiments and produced the first Japanese-made radio. The company’s motto was ‘To expand business, open up new fields of business and always be ahead 217

218

Sharp

of others’. When Hayakawa foresaw the decline of crystal radios he turned his attention to the vacuum tube radio, which had yet to be produced in Japan. Again based on a foreign-made radio, he produced a test model and marketed the final version in 1928. In the meantime, the company also worked on producing state-of-the-art production machinery and achieved cost reductions and better quality through the introduction of a new production system. In 1931 Sharp began research on a TV set, foreseeing its future sales potential. It produced its first prototype in 1951, concluded a patent agreement with the Radio Corporation of America (RCA) in 1952, and then embarked on mass production. In 1953, just a month before the national broadcasting station began operations, Sharp put the first made-in-Japan TV set on the market. In 1962, it was the first Japanese company to manufacture and market the microwave oven, and in 1963 it became the first company in the world to mass produce solar cells. In 1965 it developed the world’s first all-transistor diode electronic desktop calculator. Thus Sharp fully lived upto its motto, and it continues to do so today.

Development of overseas operations Sharp’s overseas operations began and expanded in tandem with the development of technology and the growth of the company. In the prewar period it set up liaison offices in Shanghai and Southeast Asia to handle the importation and sale of its radios and other products. During the postwar reconstruction period (up to the mid 1960s) its export activities swung into full gear. It entered into original equipment manufacturing (OEM) agreements with leading companies in the United States and used sales agencies to market its products in developing countries. With the substantial technological progress being made in transistors and semiconductors, Sharp’s exports were dominated by audio equipments (transistor radios, tape recorders and so on), black and white TVs, electronic calculators and microwave ovens. Between the mid 1960s and the mid 1970s it set up overseas sales subsidiaries in the United States (1962), Germany (1968), the UK (1969), Australia (1971) and Canada (1974). The company also established an International Business Group at its headquarters in 1970. By that time Sharp’s overseas product range had expanded to include white goods (refrigerators, washing machines and air conditioners), copiers and cash registers. From the mid 1970s it began to set up overseas production bases from which to export products to markets throughout the world, plus bases in major consumer countries to meet the needs of local markets (Malaysia in 1974, 1980 and 1985, the United States in 1979 and the UK in 1985). This too was accompanied by an expansion of the product range, with the addition of stereo headphones, vacuum cleaners, paraffin heaters, facsimile machines, personal computers, typewriters and telephones.

Yanshu Hao 219

Between the mid 1980s and the mid 1990s Sharp reinforced its overseas bases and operations in response to the sharp rise of the yen after the Plaza Accord. It introduced a regional management system and established sales subsidiaries in Europe and major Asian countries. It strengthened its production bases in the United States, Europe and Asia, and embarked on production and sales operations in China. Moreover, in an effort to develop products that would better meet the needs of local markets, it set up R&D facilities in the United States, the UK and Malaysia, and to strength its financing operations in Europe it established finance subsidiaries in the UK and the Netherlands. The already extensive product range now also included CD players, LCD projectors, digital cameras, electronic organizers, portable computers, mobile phones, laser printers and scanners. Finally, from the mid 1990s onwards Sharp further reinforced its overseas operations by establishing sales subsidiaries in the Middle East, South Korea and India, setting up a production facility in Mexico, strengthening its electronics device business in China enhancing its R&D activities in India and establishing research centres in the United States and Europe. It also formed global alliances with companies such as Xerox, British Telecommunications, IBM and Lucent Technologies. New products included LCD TVs, DVD players, 1-bit audio equipment, notebook PCs, LCD displays, inkjet printers and point-of-sale systems. By April 2003 the company had 64 bases in 27 countries or regions, encompassing the United States, Europe and Oceania. More specifically, there were 27 sales companies in 23 countries, eight liaison offices in four countries or regions, five technology development companies in four countries, one finance company in one country, 22 manufacturing companies in 13 countries or regions, and one manufacturing and parts supply company in one country. The extent of its overseas bases shows not only that overseas operations have become a vital part of its overall operations, but also that, as a manufacturer of finished products, it places great emphasis on its sales and marketing activities. In 2002 the sale of products produced overseas accounted for 47.2 per cent of its total sales.

Production activities and the management of European plants Sharp has four production subsidiaries in Europe: Sharp Manufacturing and Sharp Precision Manufacturing (SPM) in the UK, Sharp Electronica in Spain and Sharp Manufacturing in France. All but SPM, which produces precision components, manufacture finished products. Here we would focus on the three finished-product manufacturers. As shown in Table 14.1, all three companies were established in the 1980s, a time when trade friction was intensifying and export-oriented policies were being reviewed. Against this backdrop, Sharp expanded its overseas operations and established production bases in major consumer countries to meet the needs of local markets.

220

Table 14.1

Overview of Sharp’s three finished-product factories in Europe

Company Location Start of operation Ownership Capital Products

Sharp Manufacturing UK Wrexham, UK February 1985 100% Sharp investment £16 million Video tape recorders, microwave ovens, electronic typewriters Total sales £1.63 billion (1995) Export ratio About 60% (Continental Europe) Number of employees 1080 (March 1997) Number of Japanese employees 16 Resignation rate (%) 1.5 Absence rate (%) 4.5 Ratio of direct to indirect workers 75:25 Ratio of males to females 2:1 Average age n.a. Annual working hours 1790

Note: n.a.=not available.

Sharp Manufacturing FRANCE Alsace, France May 1989 100% Sharp investment F115 million Photocopiers F600 million All products sold in Europe 350 6 1.0 7.0 70:30 1:1 31 1761

Sharp Electronica España Barcelona, Spain November 1986 99.56% Sharp investment Pta 5.167 billion Colour TVs (facsimile machines) Pta 33.17 billion (1997) 70% (to rest of Europe) 763 13 2.0 3.0 69:31 57:43 32 1780

Yanshu Hao 221

With regard to the division of production among the three European plants, TV sets and facsimile machines are produced in Spain, microwave ovens and video recorders in the UK, and copiers in France. Sharp also manufactures copiers in China and Japan: the French plant produces copiers with a speed of 8 to 20 sheets per minute, models capable of copying 20–52 sheets per minute are produced in Japan, and speedier ones are produced in China. Models that are not produced in France are imported from Japan or China. The share of imported models in total sales in Europe ranges from 30 per cent to 70 per cent, depending on the model. In a bid to increase its European market share, Sharp has provided its local subsidiaries with their own R&D facilities. These subsidiaries engage in joint R&D activities with local partners to develop products that are suited to the culture and customs of the countries or regions they serve, such as microwave ovens that are adapted to the preferred food and cooking methods in EU countries. The local subsidiaries also engage in basic research and the development of production technologies. With regard to the extent to which Japanese production methods have been adopted, the plant in the UK leads the way in this, followed by those in France and Spain. The differences between them stem from such factors as the strategy of each subsidiary, the length of time since operations began, and the managerial environment of the countries in which they are located. The UK plant has been operating the longest, and the local customs and practices are not too dissimilar from those in Japan, both of which factors facilitate the transfer of Japanese methods. In the matter of quality control all three plants are equal because quality control is of great importance to Sharp and standards are expected to be as high as in Japan. The procedures used to achieve this are not necessarily identical to those used in Japan, although the associated manuals have been brought in from Japan. Items that are subject to quality checks are included in the process specifications for each work station and quality management is carried out in accordance with set rules. The give-and-take that is found among Japanese workers to make up for each other’s shortcomings is generally not present among workers in the European plants, and what is seen as ‘snitching’ is frowned upon. Also, different plants have different ways of doing things. In the French plant, for instance, although great importance is placed on trust, the bar code data records the names of the workers, so any mistakes found later can be traced back to specific individuals. A quality control meeting is held every day, and random inspections are carried out regularly. In this way the in-process defect rate is kept to the level of that in Japan. When a problem arises with the quality control system, workers at the UK plant are capable of solving the problem on their own, but instruction by Japanese staff is necessary at the Spanish plant. In the procurement of parts, the UK plant conducts monthly quality checks in which suppliers are classified as A, B or C. In the case of those

222

Sharp

classified as C (the lowest ranking), steps are taken to inform the suppliers of the importance of quality control and to ensure that the situation improves. At the plant in France, quality-control workers conduct random inspections of supplied parts and line workers carry out in-process checks. Parts that are subject to safety standards are checked at the time of receipt. The three plants’ production facilities differ according to the types of product they produce and the conditions in the country in question. In the case of the highly automated UK plant, 90 per cent of the production facilities are imported from Japan and the equipment is state-of-the-art. In contrast many of production facilities at the French plant are made in France. Specialist jigs and machinery for the initial production line are imported from Japan, and the rest of the equipment is procured locally. Sharp’s European plants are adept at trying out new production methods. The UK plant, for instance, has shortened its video assembly lines and introduced a cellular manufacturing system on an experimental basis. With the full introduction of this system, which is designed for small-lot production, the company intends to capitalize on the largerange, low-volume production required for the European markets. The new method has also proved effective in improving workers’ efficiency, with production efficiency increasing by 40 per cent. At the French plant there are four production lines for copiers, but for the larger models that are not suitable for mass production the island system has been adopted. With this new Japanese production layout, two rows of workbenches are placed face to face. Work organization and administration differ among the three plants. The UK plant is the closest to Japan in this respect. There is an internal promotion system and it is planned to introduce a grade system in the future. Supervisors and those ranked below receive regular promotion, depending on performance, while white-collar staff and those in higher positions are considered for promotion when vacancies occur. At the French plant the posts of supervisor, assistant manager and manager are first offered to internal applicants, but if none is suitable outside applicants are considered. Half of the supervisor positions are filled by people from outside and the other half by promoted employees. The UK plant has built up multifunctional skills among workers by rotating the jobs undertaken by line teams. Although some workers do not like the idea of job rotation, most are willing to participate and have gained the ablility to identify mistakes that have occurred in the preceding processes. At the French plant workers acquire multifunctional skills through on-the-job training by team leaders, who are themselves capable of undertaking all the operations on their line. Instructions are is also provided by supervisors. Improving work procedures is the task of supervisors and leaders, while general workers engage in kaizen (continuous improvement) activities by participating in quality control circles.

Yanshu Hao 223

Quality control circles and/or an improvement suggestion system have been introduced as a means to enhance the sense of unity among workers. There are five such circles at the French plant. At the UK plant, kaizen activities are conducted by one or more groups, and each group is usually headed by someone with the rank of supervisor. The process starts with the identification of a defect. This is followed by an investigation into the cause of the defect and the devising of measures to solve the problem. During this process the seven key tools of quality control management are utilized. In principle, participation in quality control circles is voluntary, but in practice the associated activities are deemed to be part of workers’ duties and are normally undertaken during the designated working hours. It is difficult to persuade workers to engage in such activities outside the working hours, despite the paying of overtime. In order to ensure the continuation these activities, Sharp has made it a rule that four hours should be devoted to them each month. A quality control committee checks the activities and provides various incentives for workers to participate. For example, each plant selects its best team to participate in the annual convention in Japan, where team members report on their activities. As mentioned earlier, Sharp’s overseas operations also include production bases in the United States, China and other Asian countries. There is a need for the European operations to strengthen their price competitiveness vis-à-vis products made in China and elsewhere in Asia, where labour costs are much cheaper. This can be done by transferring some production to Central and East European countries, taking full advantage of the merits of having local production bases (short delivery time, products adapted to local needs and so on), and concentrating on high-value-added products such as LCD TVs, digital TVs, DVDs and mobile phones.

15 Canon Wooseok Juhn

Canon is Japan’s leading camera maker. It is also known to the world as a precision equipment maker, with products ranging from copying machines and printers to semiconductor production equipment, medical equipment and broadcasting equipment. In 2001 its consolidated sales amounted to 2.9 trillion yen (Table 15.1) and it had a total of 93 620 employees.1 It had 132 overseas bases (Table 15.2) which accounted for 35 per cent of total production. On 14 September 2000 it listed its shares on the New York Stock Exchange. As such the company is deservedly called ‘Canon of the world’. The company dates back to 1933, when the Precision Optical Instruments Laboratory was founded to develop high-quality cameras. A year later the laboratory introduced a prototype of Japan’s first 35 mm focal-plane shutter camera. It was named the ‘Kwanon’ by its developer, who was a devotee of Kwanon (the Buddhist goddess of mercy) and hoped that the goddess would help him to realize his dream of creating the best camera in the world. In 1935, a year after Kwanon was adopted as the brand name, the company decided that in the interest of overseas sales it was necessary to find a name that would be accepted around the world. It duly chose ‘Canon’ – which among other things means ‘norm’ and ‘standard’ – as it hoped that its products would become the world standard and the industry norm. In 1947, it was adopted as the name of the company. Thus, while the word ‘Canon’ may seem quite Western, its origin is in fact very Japanese. This is indicative of the way in which it has proceeded with international expansion. ‘Canon’s overseas operations, which are often described as a ‘centralized federal system’, are characterized by brave and aggressive ‘localization’ with ‘Canonization’ at its core. This chapter discusses how Canon began and expanded its operations in Europe with the help of Japanese-style production methods.

Canon’s operations in Europe Canon divides the world into four operational regions – The Americas, Europe, Asia and Japan, of which Europe is the second largest overseas 224

Table 15.1

Canon’s overseas operations, by product and region, 2001 (million yen and per cent) Japan

Copying machines Computer peripherals Information and communication equipment Cameras Optical equipment and other Total

Americas

251 529 (30.4)† (28.2)* 160 528 (19.4) (15.7) 185 525 (22.4) (60.6) 89 509 (10.8) (23.5) 140 197 (16.9) (46.3)

335 209 (37.6) 420 753 (41.0) 49 089 (16.0) 132 523 (34.7) 44 530 (14.7)

827 288 (100.0) (28.5)

982 104 (100.0) (33.8)

(34.1) (42.8) (5.0) (13.5) (4.5)

Europe

Other

Total

253 635 (31.5) (28.4) 325 412 (40.4) (31.7) 59 516 (7.4) (19.4) 124 265 (15.4) (32.6) 43 276 (5.4) (14.3)

51 441 (5.8) 118 659 (11.6) 12 193 (4.0) 35 070 (9.2) 74 714 (24.7)

(17.6)

806 104 (100.0) (27.7)

292 077 (100.0) (10.0)

(40.6) (4.2) (12.0) (25.6)

891 814 (100.0) 1 025 352 (100.0) 306 323 (100.0) 381 367 (100.0) 302 717 (100.0)

(30.7) (35.3) (10.5) (13.1) (10.4)

2 907 573 (100.0) (100.0)

Source: Canon Inc. * The % of each region in total amount by products. † The % of each product in total amount by region.

225

226 Canon Table 15.2

Geographical distribution of Canon’s overseas affiliates, end 2001

Sales and marketing companies

Manufacturing companies

Research and development companies

Other affiliates

Total

14 46 10 4 74

8 2 18 – 28

2 4 2 1 9

3 12 3 3 21

27 64 33 8 132

Americas Europe Asia Oceania Total Source: Canon Inc.

market. Unlike most large Japanese companies, Canon has greater presence in Europe than in Asia, which is mainly attributable to the nature of its products: cameras and office equipment are affordable only in high-income countries. In the early days Canon’s activities in Europe were restricted to the importation and sale of its cameras. In September 1957 it set up Canon Europe in Geneva, Switzerland, to organize a sales network encompassing 13 countries. By 1961 its camera sales in Europe had reached some $3 million, accounting for 40 per cent of Canon’s overall exports. In 1963 Canon Europe was reorganized into Canon Geneva, a local subsidiary with its own sales network. Later on, and following the expansion of its office equipment business, Canon recognized the need to broaden the scope of its operations in Europe. Because the subsidiary in Switzerland was unable to conduct this task due to various restrictions, Canon Amsterdam was established for the purpose in September 1968. In the 1970s Canon began to acquire stakes in a number sales agencies, or what it called the ‘Canonization of capital’. Starting with the 100 per cent acquisition of Canon Business Machines (UK) in 1976, it injected capital into a series of local companies and turned them into subsidiaries. In tandem with this the company ventured into overseas production. Its first production base was in Germany, where in 1972 it acquired a West German company called ECE. ECE, a copying machine developer based in Gissen, had been conducting research for Canon on a contractual basis as well as producing and marketing copying machines under its own brand. However the company went bankrupt and duly came under the umbrella of Canon. The company resumed production of copying machines under Canon’s technical guidance, thereby becoming Canon’s first office equipment production base in the world. Canon’s European operations flourished and its sales soared from about $20 million in 1970 to $430 million in 1980, the year in which the European recession began. Against this backdrop the company decided to embark on

Wooseok Juhn 227

a drastic reorganization of its European subsidiaries. In 1982 it set up Canon Europe in Amsterdam to serve as the European headquarters. However its sales subsidiaries in the UK, Germany and France were placed directly under the Japanese headquarters, so there was a divided system in which the three independent markets of the UK, Germany and France were supervised by the Japanese headquarters and the rest of the European market by Canon Europe. With this new system and thorough rationalization measures, Canon managed to generate profits in 1985. Meanwhile new production bases were established in France and Italy. In 1983 it set up Canon Bretagne in response to a request by the French government. The subsidiary commenced production of personal copying machines in 1984, electronic typewriters in 1986 and facsimile machines and laser printers in 1987. Also in 1987, Olivetti Canon Industriale was established as a joint venture with Olivetti, to which Canon had been supplying copying machines on an OEM basis since 1984. The joint venture undertook the development and production of middle of the range copying machines. In the 1990s Canon began to expand into Eastern Europe and the former Soviet Union. In 1994 Canon East Europe Vertriebsgesellschaft was set up in Austria to supervise sales and marketing activities in Eastern Europe, and in 1997 Canon North-East was established in Finland to perform the same tasks in the Commonwealth of Independent States and the Baltic countries. These developing regions constitute a crucial market for Canon’s European operations as demand in the EU countries has almost reached its peak. In the meantime, as a logical step following the localization of production, R&D bases have been set up in France (1990) and the UK (1998). Although most R&D is still conducted in Japan, the operations of these bases have steadily developed. In the case of the research centre in France, for instance, in 1998 R&D projects commissioned by Japanese research teams accounted for most of its operations, but today it is also working on applications commissioned by Canon Europe and other sales companies in Europe. Meanwhile the research centre in the UK has successfully developed 3D software applications and the products are exported to Japan. In October 2000 a second European headquarters was set up in the UK. The original headquarters in the Netherlands has retained charge of distribution and sales, and the UK headquarters is responsible for the company’s pan-European business strategy. By means of this double-headquarters system, Canon hopes to reinforce its European strategy. In the next section we shall examine how Japanese-style production methods have been implemented in Canon’s manufacturing plants in Europe.

The implementation of Japanese production methods As discussed in the previous section, in the 1970s and 1980s Canon set up production bases in Germany, France and Italy. These were still operating in

228 Canon

1998 when we visited Europe for our survey. Afterwards, in the latter half of 1998, a plant was established in the UK to producing bubble jet printers, bringing the number of production bases in Europe to four. However this plant was closed in January 2001 when price competition intensified. Then in March 2001 Canon dissolved its joint venture with the Olivetti Group,2 leaving just the plants in Germany and France (Table 15.3). In the following pages we report the findings of our survey of the plants in Germany, France and Italy. Subsequent interviews were conducted with officials at Canon’s headquarters in Japan to bring our information up to date. The plants in Germany and France are both wholly owned by the Canon Group (Table 15.3). Hence both companies more or less follow Canon’s production methods and procedures, but with differences arising from local customs and practices. At the French plant quality control is now conducted by means of the Japanese tsukurikomi ( built-in) quality system, but it took quite a long time for the system to function properly. Small-group activities are carried out, although they have yet to take firm root. A workers’ suggestion system has been introduced, and to date the suggestions have been solid in content but small in number. There are no unions and labour – management relations are relatively good. The local procurement ratio is 50 per cent. The number of Japanese employees, including the president and plant manager, is relatively large, standing at 20 in 1998 and 18 in 2002. Some of the Japanese employees have been stationed there for six years or more. French is the working language, both on the shop floor and at meetings. While much of the ordinary production equipment is made in France, equipment for toner

Table 15.3

Profile of Canon’s two plants in Europe

Company

Canon Giesen

Canon Bretagne

Location Commencement Ownership

Giesen, Germany 1973 Canon Inc. 82.5%, Canon Europe 17.5% €13.452 billion 33 389 m2 447 10

Brittany, France 1984 Canon Inc. 87.8%, Canon Europe 12.2% €28.179 million 46 700 m2 672 18

Copying machines, toner refills, Bubble Jet Printers, ink refills

Copying machines, toner cartridges, and integrated cartridges for Laser Beam Printers

Capital Floor space Number of employees Number of Japanese employees Products

Source: Compiled from material furnished by Canon’s public relations department.

Wooseok Juhn 229

cartridge production, which embodies considerable know-how, is imported from Japan, along with many other manufacturing devices. As the above details suggest, Japanese-style production methods have been introduced at the French plant by stationing Japanese staff there and importing Japanese production equipment. This approach has been taken partly because the production copying machines requires complex knowledge of mechanics, electronics and chemistry. With this foundation in place the plant is moving on to the next stage and encouraging ‘production innovation’ activities. For instance innovative ideas suggested by French employees were incorporated when the company recently introduced the cellular manufacturing system. Because the plant concentrates on the production of non-specialist consumer models, competition with Asian subsidiary within Canon Group is expected, so the challenge is to demonstrate its originality in terms of product mix and production process through collaboration with its nearby R&D centre. At the german plant, German is the working language and all the management posts of general manager and above (but not that of president) are held by Germans. Here the Japanese employees do little more than fill niches and their roles are quite a different from those of their counterparts in France. Small-group activities are conducted within working hours and all the employee participate. The plant uses locally developed manufacturing devices. The product check sheet was designed by a German and some local improvements have been made to the toner refilling method. A cross-sectional management system has been implemented to enable close communication among sections. While this is based on an idea by a Japanese employee, it does not exist in Japan and can therefore be perceived as an example of modified adoption. Similarly the overall production flow basically follows the Japanese system but individual work procedures are unique to the German plant. There are no unions and the company has built up good relations with the employee representative committee. It is a characteristic of the German plant that the production system, while deeply rooted in the Japanese system, has been localized by both German and Japanese employees. The cost of this, coupled with the high wages in Germany, have caused the company to focus more on the production of top of the range copying machines. The future challenge is to develop other high-value-added products. Turning now to the former Olivetti–Canon joint venture in Italy, the capital structure of this company was unique, with the Olivetti Group holding a 50 per cent stake plus one share and Canon holding a 50 per cent stake minus one share. This was indicative of Olivetti’s determination to retain control of the plant’s management, including the management of production. Canon’s activities were restricted to development tasks. This allocation of responsibilities was another unique aspect of the venture, in that Japanese

230 Canon

companies typically take charge of production when they form joint ventures with foreign partners. Because production was managed by the Olivetti side the operational procedures were mainly those of Olivetti. Workers’ tasks were fixed, there were no job rotations and no quality control circles were established. There were three unions, which put up fierce opposition to the adoption of Japanese employment practices. Evaluations of employees’ performance were permitted to some extent, but wages were essentially determined by the rank assigned to the employee in accordance with a nationwide agreement. Most of the suppliers were Olivetti-related and there was no procurement from Japanese companies in Italy. Some elements of the Japanese production system – such as the employee suggestion system and the so-called ‘5S’ workplace organization – were adopted, but this was more likely to have been the result of Olivetti wishing to use some of Canon’s procedures than of Canon attempting transfer its methods. With regard to product development, for which Canon was responsible, optical lenses, drums and toners were developed by research staff at the Japanese headquarters and the other items in Italy. At the time of our survey, two Japanese development engineers were stationed at the Olivetti plant to help design a new copying machine based on one developed at the Canon headquarters. In conclusion, the characteristics of the three plants can be summarized as follows. At the german plant, where Japanese staff laid the groundwork for the Canon production system in the initial stage, local employees have creatively modified the Japanese system by suggesting original ideas. Meanwhile the French plant is in the final stage of laying the foundation of the Canon system. In contrast the joint venture in Italy was essentially an all-Italian operation under the direction of local partner. The fact that all three plants used the local language as the lingua franca is indicative of Canon’s prolocalization stance. Nonetheless, as pointed out at the beginning of this chapter, it is firmly based on the idea of ‘Canonization’.

Notes 1. Canon’s overseas sales began to exceed domestic sales in 1969, and overseas employees began to outnumber domestic employees in 1996. 2. Following the dissolution of the joint venture, Olivetti Canon Industriale became a wholly owned Olivetti subsidiary called Alladium, and the production of Canon copying machines was terminated at the end of 2002.

16 Toyota Kunio Kamiyama

Toyota Motors is Japan’s top carmaker and holds about 10 per cent of the global market share. However it was not until 1999 that Toyota was listed among the top 10 brands in Europe, following Nissan’s entry to the top 10 the previous year (both companies entered at ninth place). Despite this, Toyota’s market share in Europe is still a modest 3 per cent.1 As the birthplace of the ‘horseless carriage’, Europe has a long history of motoring culture, and each country retains its distinct market features. Moreover Europe, along with the United States, is home to powerful car manufacturers that are expected to play a leading part in global competition in the twenty-first century. The following sections analyse the strategies and operational methods Toyota has deployed in its operations in Europe, with a particular focus on its production system.2

History of Toyota’s European operations Toyota’s entry into the European market is said to have begun with the exportation of just one car, the Crown, to Denmark in December 1962. At that time Toyota was thinking of its advance into the European market as something that might occur in the rather distant future. In June 1963, however, it signed a distribution contract with Erla Auto Imports of Denmark and shipped out 190 units of its Crown car. In March 1964 it entered into a contract with another distributor, Louwman & Parqui of the Netherlands, thereby increasing its presence in Europe.3 Its European operations have since gone through two stages – the first running from the 1960s to 1990 and the second from 1991 to 2000 – and it entered a third stage in 2001. In the first stage, Toyota’s presence in Europe was entirely through cars made in Japan. To conform to the regulations imposed by the countries in question, Toyota modified the cars it had developed for the Japanese and US markets. Its strategy at this point was to seek a foothold in countries where there would be little competition from domestic manufacturers. It also focused primarily on countries that belonged to the European Free Trade 231

232

Toyota

Association, rather than on EC member states, because regulations were less stringent in the former countries.4 At the beginning of the 1970s it stepped up its European operations, although it had to concentrate on the UK, German, Scandinavian and Benelux markets as it was unable to penetrate such countries as France, Italy and Spain. In 1968 it opened a production facility in Portugal. This move, as with similar moves in Asia, was aimed at acquiring preferential tariff treatment rather than engaging in fullyfledged local production. Toyota began to make genuine efforts to capture the European market only in the 1990s, when the economic bubble burst in Japan and it became clear that the Japanese domestic car market had reached maturity. In the meantime it had entered the North American market through the establishment in 1984 of New United Motor Manufacturing, a joint venture with General Motors. This move was in response to growing trade friction between Japan and the United States, which had been provoked by the rapid increase in Japanese exports to the United States from the 1970s to the early 1980s. In 1988 it set up its own plant in Kentucky and in 1989 it introduced its Lexus model. With the launch of these operations, Toyota had completed most of the steps it needed to take at that stage.5 In Europe, however, where a gigantic market equivalent to that in North America was set to emerge with the consolidation of the EU in 1992, Toyota’s undertakings were far from sufficient. In particular, because of the voluntary restraint on shipments to the EC since 1986 there were limits to the extent to which Toyota could expand its market solely through the exportation of completed cars. Thus in 1992 at its new UK plant, Toyota began to produce the Carina E (changed to the Avensis in 1997), the first model designed exclusively for the European market but with sales limited to the UK and Germany. It also set about reinforcing its sales network in Europe. In 1989, before the establishment of the UK plant, it had commenced production of the HiLux model (suspended in 1997) in a joint venture with Volkswagen. But this exercise had mainly been aimed at gaining knowledge and experience of European operations, just as it had in the United States with its joint venture with General Motors. In 1997 Toyota began production of a five-door Corolla. Then in spring 2002, with an eye to future pan-European operations and the consequent need to produce cars that reflected the taste of European drivers, it launched the Yaris, the European version of a model in its New Basic Car series. The Yaris, which was manufactured in France, not only sold well but was also chosen as Car of the Year in Europe in 2000. In this way Toyota set up a system that would enable operations throughout Europe, including France, Italy and Spain, where it had been able to sell only a limited number of cars due to the imposition of a quota system (this was abolished in 1999). Table 16.1 records the progress of its sales from the mid 1990s.

Kunio Kamiyama

233

Table 16.1 Toyota’s vehicle production and sales in Europe, 1990–2002 (1000 units)

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

Production

Sales

7.1 9.7 11.7 49.5 93.5 95.5 124.4 108.8 175.7 181.5 173.3 217.0 344.6

450.8 449.6 423.4 393.8 389.3 384.1 411.9 471.2 540.9 592.3 655.8 666.0 755.6

Note: Vehicles with a local content of 40 per cent or more are included in the figures.

In 2001 Toyota entered the third stage, the goal of which is to capture 5 per cent of the European market by 2005. By concentrating on its three core models – the Yaris, the Corolla and the Avensis – it hopes to reap economies of scale that will enable it compete with its local rivals in the fierce price competition in the European market. In 2002 it began to produce Corollas at its Turkish plant for export to Europe. At the same time it reinforced its production facilities for key components such as engines and transmissions by expanding its engine production facilities in the UK and launching a manual transmission plant in Poland, a move that would also increase the local content ratio.

Toyota’s production activities in Europe Toyota has four vehicle manufacturing plants in Europe: Salvador Caetano in Portugal (an assembly plant in which Toyota holds a minor share), Toyota Motor Manufacturing (UK) (its first production base in Europe), Toyota Motor Manufacturing France (its first full production base in Continental Europe) and Toyota Sabanci Motor Manufacturing in Turkey, which was incorporated into Toyota’s European operations following the EU’s formal recognition in December 1999 of Turkey as a candidate for EU membership. For vehicle component production it has two plants: one in the UK for engine production and one in Poland, which began production of manual transmissions in 2002. In addition a headquarters (Toyota Motor Europe Manufacturing) was established in Brussels in October 1998 to control Toyota’s

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purchasing activities throughout European. Table 16.2 provides an overview of the above operations. Production activities at Toyota plants in Europe In order to analyse Toyota’s activities in Europe we shall concentrate on the Salvador Caetano plant in Portugal and UK, the car assembly plant in the both of which were visited during the course of our survey. Salvador Caetano was founded in 1946. In 1969 it started to produce Toyota cars on a contractual basis. In March 1971 the company’s new Ovar plant, commenced assembly of the Corolla and Corona models. Today the Ovar plant serves as Toyota’s main assembly base in Portugal. Although it ceased to assemble passenger cars in 1977, it still produces commercial vehicles, including the Coaster (a minibus), which was added to the range in 1996. Hence Salvador Caetano has maintained a long relationship with Toyota. However Toyota’s stake in the company is just 27 per cent, with Salvador Caetano holding the majority stake. At of the time of our visit in October 1998 the local content ratio was 30 per cent. Components procured locally include tyres, batteries, seats, carpets, glass, silencers and wire harnesses. Three models are assembled there: the Dyna and Hiace (marketed under the Toyota brand) and the Optimo (under the local brand). Because only a small number of units are produced there is little automation and no robots are used for any of the processes. Rather 400 or so assembly workers manually assemble about 28 units a day. Assembly workers can be promoted to team leader and then group leader, depending on their performance evaluation. Five or Six kaizen (continuous improvement) groups have been formed. Hence some elements of the Japanese production system have been implemented, although it does not seem as though Toyota has made a great effort to introduce its full system. Great attention is paid to quality control because some 10 per cent of the vehicles assembled at the plant are exported to countries such as the UK and Germany. Those responsible for production and quality control meet once a week to discuss problems and find solutions. As a result of their efforts the defect rate has fallen by 75 per cent since 1992. Unlike the Portuguese plant, the UK plant was founded as a wholly owned subsidiary of Toyota and its operations have followed a meticulous plan. By September 2000 accumulated capital investment amounted to £1.1 billion. All the production equipment has been made in Japan, and the plant has the capacity to produce 220 000 vehicles and 400 000 engines a year. The local content ratio, which was 60 per cent at the time of inception, has since been raised to 80 per cent: about half from the UK and the remainder from other EU countries. Between the founding of the company in December 1989 and the start of production in December 1992, Toyota staff visited 400 potentially suitable parts suppliers to ascertain whether they would be able to comply with the company’s standards. At the time of our visit in 1997 there were

Table 16.2

Toyota’s production subsidiaries in Europe Manufacturing headquarters

Name

(Abbreviation)

Completed cars

Toyota Motor Toyota Motor Toyota Motor Toyota Sabanci Manufacturing Manufacturing Motor Europe Manufacturing France S.A.S. Manufacturing (UK) Ltd. Turkey Inc. (TMEM) (TMUK) (TMMF) (TMMT)

Components Salvador Caetano I.M.V.T.,S.A. Salvador Caetano 1946

Date of Oct. 1998 establishment Start of – operations

Dec. 1989

Oct. 1998

July 1990

Dec. 1992

Jan. 2001

Oct. 1994

Location Capital

Belgium 30.2 billion BEF

France 260 million Euro

Turkey 5400 billion TL

Ownership

Toyota Motor Co. 100%

UK £650 million, including engine plant TMEM 100%

From 1969 contracted production started Portugal 7 billion Escude

TMEM 100%

Investment

–

¥216 billion

¥80 billion

Toyota Motor Co. 65% Local 25% ¥30 billion

Toyota Motor Co. 27% Local 73% –

Toyota Motor Toyota Motor Manufacturing Manufacturing Poland (UK) Ltd. SP.ZO.O. (TMUK) (TMMP) Dec. 1989

Sep. 1999

Aug. 1992

April 2002

UK £650 million, including assembly plant TMEM 100%

Poland 50 million Zloty, at the end of 2000 TMEM 100%

¥75 billion

estimated ¥10 billion

235

236

Table 16.2

(Continued) Manufacturing headquarters

Completed cars

Components

Number of employees

241 End of Jan. 2001

2502 End of Jan. 2001

1500–2000 Estimated

725 Feb. 2001

360 End of About 2000 Including 400 in Jan. 2001 Opar plant for Toyota vehicles

About 300, Estimated

Japanese expatriates Products

47 End of Feb. 2001 –

25 End of Jan. 2001 Yaris

12

–

Corolla

Capacity (000)/year Production (2000) (000)/ year

–

34 End of Jan. 2001 Avensis, Corolla 220

150

100

Dyna, Hiace, Optima About 20

350–400

5 Estimated in May 2001 Manual transmission 250

–

Corolla 15

5

133

–

–

Source: Toyota Motor Corporation.

Avensis 115 Corolla 57

8 End of Jan. 2001 Engine

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160 parts suppliers and 50 material suppliers. With the aim of forging a long and amicable relationship with these suppliers, a technical support team was set up to provide advice on the improvement of product quality and productivity. Furthermore an association of Toyota suppliers was established in July 1997 and since 2000, 36 member companies have been conducting research on cost reductions and quality improvements. Despite these measures the company has not been able to realize just-in-time production to the extent it has in Japan,6 and it has more quality problems than are encountered in Japan. On the matter of labour–management relations, Toyota has drawn lessons from the experiences of its plants in the United States and of Nissan, an earlier arrival in the UK. In the United States there is a union at the plant owned jointly with General Motors, but not at its wholly owned Kentucky plant. In the UK, Toyota agreed to the presence of a single union (the Amalgamated Engineering Union AEU) and also set up a labour–management consultation committee called the Toyota Members’ Advisory Board to resolve problems and negotiate wages and working conditions. By so doing it hoped to create an atmosphere mutual trust between workers and management that would facilitate the adoption of Japanese production methods and employment practices. For instance, following an agreement with the AEU it simplified the UK job classification structure by restricting the number of occupational categories to five – manufacturing team member, manufacturing team leader, administrator, group leader/engineer/specialist, and senior group leader/senior engineer/ senior specialist. – so as to allow maximum flexibility with regard to the tasks undertaken by assembly workers.7 It has also introduced a performance-related remuneration system, in line with its company-wide principle of rewarding all employees who work hard (in the business environment that prevails in the United States, this has been impossible to realize). Performance is evaluated against criteria that are almost identical to those used in Japan. Moreover it has introduced a salary system for assembly workers – despite the fact that in the UK such a pay system is generally reserved for white-collar employees – and abolished the so-called slowdown rule, in which a percentage cut is made when additional pay based on performance and length of service reaches one quarter of the standard wage for the job in question. The transfer of some Japanese production methods has been realized, including kaizen activities and quality control circles, although the level and sophistication of these are far lower than in Japan. Before closing this section we shall take a brief look at the situation at Toyota’s plant in France, which produced its first car, the Yaris, in January 2001. When launching this plant Toyota’s aim was to achieve the localization of management as quickly as possible. From past experience the company knew that it would be difficult to reduce the number of Japanese staff once they were in place, so at the founding of the plant it sent just 22 Japanese

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employees, far fewer than when the US and UK plants were established (the number of Japanese employees in the latter country still stood at 26 in September 2003). It has also adopted a new process arrangement in which all products completed in each process are placed in a single location in the centre of the plant. It is believed that this arrangement will facilitate better quality control.

Future challenges in Toyota’s European operations The substantial appreciation of the British pound against the euro over the years has caused serious problems for many manufacturers based in the UK. Indeed in 2000 it prompted Ford to withdraw from passenger car production in that country. In contrast Toyota announced in January 2001 that the production of its three-door Corolla for the European market would be transferred from Japan to the UK in order to prop up its operations there, thus demonstrating its commitment to its production bases in Europe.8 Europe is one of the three major markets in the world. Moreover it is a highly competitive market where leading carmakers are constantly jostling each other for market share. At the moment Toyota is striving to reinforce its production bases and to forge a lean and powerful pan-European sales network in order to achieve a 5 per cent share of the market. In 2000 it set up a second design centre in France (the first, situated in Brussels, was opened in 1989) to strengthen its ability to produce cars that are suited to European tastes, especially in respect of exterior design. Another matter that needs attention is that, despite the fact that diesel cars are quite popular in Europe, such cars only account for 20 per cent or so of Toyota’s overall passenger car sales there. Toyota should also strive to blend more into the communities in which it operates. This is necessary anywhere in the world, but is particularly important in Europe, a region with long-standing and unique cultural practices. In this regard it should step up its localization efforts in terms of both management methods and management staff. To sum up, Toyota’s challenges in Europe consist of enhancing its competitiveness as a market player, cooperating with local industries and companies, and blending more into local communities.

Notes 1. Based on preliminary figures for new car registrations in 2000 in 18 European countries (15 EU member states plus Switzerland, Norway and Iceland) by the European Automotive Manufacturers Association. See Asahi Shimbun, 16 January 2000. According to the Association, Toyota’s share in new European registrations rose from 3.2 per cent in 1999 to 3.7 per cent in 2000. 2. When preparing this chapter we not only visited Toyota plants in Europe but also interviewed Mr Yukio Azuma, general manager of European Division at the Toyota headquarters in Japan, and Mr Kunio Shibata, chief of the project office at the European Division. We would like to express our thanks to them as without their

Kunio Kamiyama

3.

4. 5. 6. 7.

8.

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cooperation this chapter could not have been completed. Needless to say, responsibility for the content of the chapter lies with us. Sozo Kagirinaku: Toyota Jidosha 50-nenshi’ (Eternal Creation: 50-year History of the Toyota Motor Corporation); (Tokyo: Toyota), pp. 413–16 Toyota Motor Corporation, Toyota A History of the First 50 Years (Tokyo: Toyota), pp. 219–26. Toyota, Sozo Kagirinaku, op. cit., p. 513. Toyota set up further production bases in North America during the 1990s. The just-in-time system has recently been digitalized at the UK plant. ‘Agreement on Procedures and Terms and Conditions of Employment between Toyota Motor Manufacturing (UK) Ltd and the Amalgamated Engineering Union’, 31 October 1991, pp. 9, 18–21. Asahi Shimbun, 4 January 2001; Nihon Keizai Shimbun, 5 January 2001.

17 Nissan Hiroshi Kumon

The Nissan Motor Company began to produce cars before the World War II and for decades after the war it occupied second place in the domestic market. Having earned a reputation for excellence it took the lead over other Japanese carmakers in terms of both exports and overseas production. In the 1990s, however, the company suffered a serious management crisis and sought a capital injection from Renault of France. Thus Renault, which was trying to globalize its operations, acquired a 36.8 per cent stake in Nissan in March 1999. Among the reasons for Nissan’s crisis were union intervention in the management of the company, the marketing team’s failure to adapt to market changes after the collapse of the bubble economy, and Nissan’s failure to draw up a company-wide strategy. The latter has been attributed to the company’s lack of organizational strength and inefficient management (Ghosn, 2001, p. 163). Carlos Ghosn, who was sent from Renault to take charge of Nissan’s reorganization gave top priority to reforming the organizational structure and changing the mentality of employees. First, a cross-functional team consisting of middle mangers from various sections was formed and this team drew up a reconstruction plan. The goal of the ‘Nissan Revival Plan’, which was unveiled in October 1999, was to return the company to profitability by the end of 2001. To that end, the plan included the closure of three vehicle assembly plants, the reduction of parts purchasing costs by 20 per cent and the number of suppliers from 1145 to 600 or fewer. All goals were met on schedule. In October 2001 Nissan drew up a business plan for the next stage, called ‘Plan 180’ (running from 2003 to 2005), which aims to increase global car sales by one million, achieve a wide operating margin and relieve the company of all debt by the end of 2005. Second, Nissan adopted a matrix organizational model to promote the implementation of a global management strategy. It was not the familiar matrix model structured by region and product type, rather it was structured by region and function. With production bases and regional headquarters in key overseas locations, Nissan was geographically well-balanced, but each of the subsidiaries operated in accordance with its own strategy. The new matrix 240

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structure was based on two axes: a regional axis (Japan, North America, Europe, and so on) and a functional axis (marketing and sales, product planning, research and development, production, purchasing, accounting, personnel, corporate support and so on). By adding the functional axis, Nissan strengthened the role of the Japanese headquarters. Specifically, it eliminated the post of regional president in North America and Europe and replaced it with a management committee. The two regional management committees are headed by vice presidents. Because employees in these regions belong to two axes, they bear two types of responsibility. Thus Nissan has created a matrix structure that necessitates communication among functional divisions as well as among regional divisions in the management of global operations. The following sections outline the development of Nissan’s operations in Europe.

Nissan’s advance into Europe In 1957 Nissan began to export finished cars, first to Asia, then to North America and finally to Europe. Gaining a foothold in Europe would not be an easy task as it had a highly competitive car industry so Nissan started with the EFTA region, where competition was less intense. Sample exports were sent to Norway in 1959, and full operations began export in 1962. In 1964 the company set up a liaison office in Brussels and participated in an international motor show. Then it began to export cars to the Netherlands and Belgium, followed by the UK and France in 1968. By 1980 exports to Europe amounted to 300 000 units per year, or 23 per cent of the company’s total exports. Nissan now has a fairly strong presence in Europe, with a market share of some 3 per cent. Turning now to Nissan’s overseas production activities, these began with a technical arrangement with a local manufacturer in Taiwan in 1958 and the construction of its own manufacturing plant in Mexico in 1966. In 1980 the overseas operation department at the Japanese headquarters was separated from the export division, upgraded to the overseas division and given the task of coordinating the company’s overseas production bases. As its first step into developed countries, in 1980 Nissan decided to construct a plant in the United States; this started production in 1983. Meanwhile production activities in Europe, began with capital investment in a Spanish commercial vehicle company. Then in 1981 Nissan announced its intention to construct a passenger car plant in the UK. Sunderland in north-east England was selected as the location, and the plant began operations in 1986. It also set up a joint venture with Alfa Romeo of Italy when the latter asked Nissan to help reconstruct its business. Nissan duly acquired its first production base in Continental Europe, and production began in 1983. The joint venture, however, was later dissolved when Alfa Romeo was taken over by Fiat.

242

Nissan

Nissan Spain Nissan’s Spanish subsidiary, which produces commercial vehicles, began its life as a subsidiary of the Ford Motor Company. When Ford withdrew from Spain in 1954 it was reborn as a 100 per cent Spanish-owned company. Nissan invested in the company in 1980 and acquired a majority stake in 1982. The company adopted its current name, Nissan Motor Iberica, in 1987. When new products were introduced in the early 1990s, Nissan increased the production capacity at the Spanish plant to 120 000 units a year and extended its marketing activities to the whole of Europe. Today, Nissan Europe and the Japanese headquarters hold 99 per cent of Nissan Motor Iberica, which has 4226 employees, including 26 Japanese expatriates. A Spanish chairman and a British president lead the company; one of the two vice presidents is Japanese and the other Spanish. The wage system at the plant basically conforms to the local one, but within this framework Nissan has introduced a job rotation system and a training programme to improve the skills of workers. There are 13 grades, of which grades 10 and below apply to general workers, 11 and 12 to unit chiefs, and 13 to subsection managers. General workers are graded according to level of skill and tasks undertaken. Workers’ skills are evaluated on a scale of one to three, and unit chiefs act as evaluators. Job rotation is flexible and impromptu, being conducted as the need arises due to changes in the production volume of certain lines, rather than being carried out in a systematic and planned way. Vacant posts of unit chief and subsection manager are filled by assembly workers who have acquired the necessary qualifications, but only members of the staff division can be promoted to serve as section managers. The role of unit chiefs is similar to that of their counterparts in Japan, but the scope of their tasks is more limited. Technical staff provide assembly workers with the necessary technical assistance. With regard to quality control, the quality control system is the same as that used in Japan, and Japanese advisers are stationed at the plant on a full-time basis to provide instructions. Workers’ ability to cope with quality control problems, however, has yet to reach the level attained in Japan. For labour–management relations, Nissan follows the local practices. There are three unions, each supporting a different political party. Union membership stands at 100 per cent, with supporters of the Communist Party accounting for the majority. Working hours are governed by a labour– management agreement. There is also a designated working time for each task assigned to employees, and the unions keep an eye on any changes to this. While kaizen (continuous improvement) groups, consisting of selected workers, have been formed to conduct small-group activities they are not very active. Greater flexibility in the workplace is a matter for labour–management consultations. As for the discharging of workers, the company is able to lay off workers with fixed-term contracts but it is virtually impossible to lay off

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regular employees because this requires the approval of the unions. In summary, while Nissan has managed to introduce some Japanese methods in its production operations, the same is not true of labour–management relations. After the formation of the Nissan–Renault alliance the two companies decided to start supplying finished cars to each other under an original equipment manufacturing (OEM) agreement. Accordingly in 2002, using a new assembly line at its Spanish plant, Nissan commenced production of a small commercial vehicle developed jointly by Renault and General Motors. With the addition of this new line, the plant’s annual production capacity was expected to increase by 64 000 units, bringing the total capacity to 180 000 units. Meanwhile Nissan would be supplied with cars by General Motors under an OEM arrangement and sell them under its own brand in Europe.

Nissan UK Nissan Motor Manufacturing (UK) has achieved high productivity by implementing Japanese-style management practices and is regarded as a benchmark plant not only by Japanese companies but also by European ones. As mentioned earlier, Nissan’s plan to construct a passenger car plant in the UK was announced in 1981. However, the announcement met strong opposition from the Japanese union. The Nissan union – which had been formed in 1953 amid a major labour–management confrontation and had replaced the older, more hardline union – had been cooperative about changing production activities but often intervened in managerial issues. The president of Nissan thought that the reform of labour–management relations was essential if Nissan was to recover its market share, and it was during the process of reorganizing these relations that the confrontation over Nissan’s plan to begin production in the UK occurred. Eventually the management agreed to reduce the planned production volume in the UK, and it and the union signed a new agreement in 1986 in which it was confirmed that the management would have decision-making authority over personnel matters and that the management–labour consultation group was not a decision-making body but merely a consultation body. The UK plant has a production capacity of 300 000 units a year and has 4133 employees, including 30 Japanese. It produces three models of car: the Micra (1000 cc), the Almera (1500–1800 cc) and the Primera (1600–2000 cc). In most of its overseas operations Nissan has employed local managers to take charge of plant management from the outset. In the UK, however, all the members of the initial management team were Japanese. Later on, in 1989, a Briton was appointed as president. Today the posts of vice president an accounting manager are still held by Japanese, and others are employed as advisors. As indicated above, Nissan attracted considerable attention when it became the first car manufacturing plant in Europe to adopt Japanese management

244

Nissan

and production practices. The measures implemented included the following. First, Nissan adopted a single-status personnel system to replaced the hierarchical system that generally prevailed in UK factories. Instead of using complicated job classifications, Nissan set just two categories: production workers and skilled workers. Annual pay was introduced for all employees, thus eliminating the distinction between salaried employees and those working for hourly wages. It has also introduced performance-related pay for plant workers. Supervisors evaluate the performance of each worker on a scale of one to five, and employees’ annual wages depend on the result of that evaluation. For instance in 1997 the annual wage for production workers ranged from £14 243 to £16 459 and that for technicians (classed as skilled workers) from £16 388 to £19 049. Wage increases have two components: a general increase and a performance-related increase, the former being subject to labour–management negotiations. In line with the company’s singlestatus policy there is a single canteen for all employees and a common car park. Second, multiskilling is fostered through on-the-job training. Workers’ skill levels are graded on a scale of one to four and each is encouraged to master three kinds of task. This has made it less necessary to recruit skilled workers from outside. Third, Nissan has institutionalized a company council system that is similar to the works council system in Continental Europe. The company concluded a single-union agreement with the Amalgamated Engineering and Electrical Union (AEEU) in which it is stipulated that the company council, consisting of elected employees, is responsible for negotiating annual wage increases and other employment matters but that the union can participate when necessary. The council and the management also deliberate on management accomplishments, investment plans, production plans and so on. Nissan UK has the highest productivity of all car assembly plants in Europe. In a survey conducted in the late 1990s by the Economist Intelligence Unit (EIU, 1999), Nissan’s Sunderland plant came top in terms of the number of cars produced per employee, with 98 units per employee in 1997 and 105 in 1998. The runner-up was Volkswagen’s plant in Navarra, Spain, where workers each produced 70 units and 76 units respectively. At one point the strong pound caused Nissan to question whether it could afford to maintain the scale of its UK operations, but the UK government obtained approval from the EU to provide subsidies to Nissan on condition that it produced its planned new Micra model at the Sunderland plant. This it did, and also increased its annual production capacity from 300 000 units to 500 000.

Nissan’s collaboration with Renault In North America and Asia, where Nissan has production bases, and in South America, where Renault’s production bases are located, the two companies’

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operations are complementary and they use each other’s production facilities. However in Europe, the home base of Renault, the two companies are in competition with each other. To overcome this they have agreed to supply each other with finished cars and to integrate their sales and marketing divisions. More specifically, they plan to start supplying small commercial vehicles to each other under an OEM arrangement, create a ‘common hub’ on a region-by-region basis to put the both companies’ dealers under integrated control, and set up a joint purchasing company for the procurement of parts and components. The two companies also plan to set up a new organization to provide support to hub partners, and Nissan Europe’s sales and marketing division will be transferred to Paris. As it was responsible for all key functions except product development, Nissan Europe used to be in charge of management strategies for the company’s European operations. After entering the alliance with Renault, Nissan’s Japanese headquarters took over this task and the European operations are currently managed by a regional management committee. However, with Nissan’s restructuring programme running according to schedule, and Nissan with set to invest in Renault, the two companies plan to set up a joint company that will be responsible for planning their European management strategy.

18 Honda Nobuo Kawabe

The Honda Motor Company produces automotive parts and components in Belgium, motorcycles and motorcycle parts in Italy and motorcycles in Spain. In France, where Honda’s headquarters for its Southern European operations is located, the company produces engines for mopeds and general-purpose power products. In the UK it produces cars, production tools and machinery for use in its European plants, and engages in R&D activities. The UK is also home to its pan-European headquarters. In Germany it has R&D companies and a headquarters for supervising operations in Northern Europe. In the Netherlands it has set up a finance subsidiary to coordinate financing within the Honda group and to raise funds from outside. In addition, sales and logistics subsidiaries have been set up in the UK, France, Germany, the Netherlands, Belgium, Switzerland, Italy, Spain, Portugal, Sweden, Austria, Poland, the Czech Republic, Slovakia and Hungary. Honda’s advance into Europe began in 1961, when it established a distribution centre for motorcycles. It then set up sales and marketing companies throughout Europe, and in 1962 established a wholly owned subsidiary in Belgium to produce mopeds. The 1960s also marked the beginning of its production of four-wheel vehicles, starting with light lorries in 1962 and moving on to a light passenger car in 1967. The company subsequently embarked on full-scale production of small passenger cars. The Civic model was released in 1972, followed by the Accord in 1976, the Prelude in 1978 and the Ballade in 1980. During the 1970s and 1980s Honda shifted the focus of its overseas strategy from export sales to local production. In 1977 it began work on a plant in Marysville, Ohio. Motorcycle production commenced in September 1979 and car production in 1981. In April 1982 Honda entered into an agreement with the French motorcycle manufacturer Peugeot. Under the agreement Peugeot would supply two types of engine for mopeds produced by Honda in Belgium, while Honda would produce 50 cc and 80 cc scooters for sale in Europe under the Peugeot brand. In May 1982, in anticipation of Spain’s accession to the EC in 1986, Honda entered into a similar agreement with Motocicletas Montesa of Spain 246

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in respect of the production of 50 cc and 80 cc sports motorcycles. This arrangement led to the establishment of a joint venture with the Rato-Montesa Group in March 1986, in which most of Rato-Montesa’s production facilities were put under the control of Honda. The production of 125 cc motorcycles was undertaken by Honda Italia. In March 1989, Honda acquired all the shares of CIAP. In this way, Honda established a substantial network of production bases in the EC for low-powered motorcycles. The company took a much more cautious approach when launching its car production in Europe. In contrast with its entry to the United States, where it set up its own production bases from the start, in Europe it opted to move forward slowly. In order to make profit on the restricted number of car sales, Honda had to reduce its production costs, which necessitated the forging of relationships with various local companies, including suppliers of parts and components. In December 1979 it entered into an agreement with British Leyland (which subsequently became the Rover Group) whereby British Leyland would produce Honda’s Ballade cars under license in the UK and market them in the EC as the Triumph Acclaim, and Honda would provide British Leyland with parts such as engines and transmissions, as well as production tools and technologies. Production at British Leyland began in 1981. Honda’s first fully owned car plant was set up in the UK in February 1985. This was followed by an inspection centre in September 1986, an engine plant in July 1989 and a car assembly plant in February 1992. In 1988 British Aerospace purchased the then state-owned Rover Group from the UK government for £150 million. Under the terms of the sale British Aerospace was prohibited from selling its controlling shares in Rover to a third party for five years. However this did not prevent Honda and Rover acquiring 20 per cent of each other’s shares. The purchase of Rover in 1994 by BMW of Germany marked the end of the Honda–Rover alliance. In the 1990s the focus of Honda’s global strategy shifted from North America to Europe, where the integration of the European market was nearing completion. As Honda’s Japanese rivals – Nissan and Toyota – had started manufacturing cars in the UK, Honda realized that it would have to expand its production capacity there. At the same time it stepped up its sales and marketing activities in continental Europe. In October 1990 it set up a sales subsidiary in Verona, Italy, which had become the second largest car market in Europe, next to West Germany. In line with this shift in strategy, Honda’s European headquarters, which had been established in October 1989 to control the company’s production, sales, service, marketing, logistics and administrative divisions in continental Europe, absorbed Honda UK and the UK plants duly became subsidiaries of Honda Europe. In October 1992 the Honda plant in Swindon commenced production of the European version of the Accord model, the sale of which began in

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February 1993 in Germany and in May in the UK, France and Italy. Sixty per cent of the parts and components used by the plant were procured locally. In August 1993, Honda Engineering Europe Ltd, a developer of automotive production equipment fully capitalized by Honda of Japan, agreed to supply production technology to STADCO, the UK’s top car manufacturing machinery producer and number four in Europe. Until then Honda had supplied production equipment and machinery only to the companies in its group, but in light of the stagnation of the car market it saw little prospect of an increase in demand by these companies and therefore decided to develop a new market through external sales. In September 1994 Honda’s European headquarters announced that the new Civic five-door hatchback, a model designed exclusively for the European market, would be manufactured in the UK for release on the local market in December that year. Honda’s UK plant duly embarked on the production of the Civic, which became the company’s largest seller in Europe, with an annual sale of about 60 000 units. The sale of Honda’s other model, the Accord, reached some 40 000 units in 1995. Thus Honda was rolling out 100 000 cars a year. At that time the UK plant’s local procurement rate stood at some 80 per cent and the number of employees had increased from 1500 to 2000. By February 1997 the number of employees had reached 2472, the average length of service being 3.3 years. At the time 99 Japanese employees were stationed at the plant, but the number increased to 130 when the second version of the Accord was subsequently introduced. The dissolution of the alliance with Rover in 1994 meant that Honda had to undertake car body production, and to this and it constructed a pressing factory in March 1995. Meanwhile four of the Honda group’s component suppliers set up operations in the UK: Yutaka Giken for the production of small parts and metal moulds, Yachiyo Industry for small parts, Takao Kinzoku Kogyo for small pressed products and Yanagawa Seiki for the machining of transmission gears. The Swindon plant had been procuring 70 per cent of its parts and components from suppliers associated with Rover, but these suppliers were not very reliable in terms of product quality and delivery time. There was a notion in the UK at the time that the generation of defective parts was nothing to fuss over, and some suppliers’ defect rate was as high as 50 per cent. This problem was attributable to a lack of communication between the top management and the production workers, which served to prevent the implementation of appropriate improvement measures. Hence, Honda began to produce some parts and components and urged Japanese manufacturers to set up operations in the UK. In the meantime Honda lost the benefits that had derived from the economies of scale enabled by joint production with Rover. By 1997, locally procured parts and components for both its models accounted for more than 90 per cent of the total.

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For a plant with an annual production of some 100 000 units, the Swindon plant has a surprisingly compact layout. Its production lines are relatively short and the paintwork is done by vertically dipping car bodies into a paint tank, a method that allows for quick drying. The use of robots is modest, with only 78 units in operation, but the automation rate is high at 90 per cent. At the time of our survey the body welding lines were arranged round a general welding machine, but the plant subsequently changed to spot welding. In the pressing factory, one 2300 ton pressing machine and three 1000 ton pressing machines are used to produce various parts. Moulds can be changed in seven minutes. Transfer machines are not used as the plant does not have staff who are capable of maintaining them. The plant used to import all its metal moulds from Japan but has produced some of its own since 1996. Meanwhile the car assembly factory uses robots that simultaneously install engine and suspension systems in car bodies. This method, which was first used at the Ohio plant in the United States, is said to be better at ensuring quality than is separate installation. In 1998 Honda decided to construct a second assembly factory in the UK, and this began operations in the spring of 2001. Meanwhile in August 2000 Honda announced that it was going to export the Civic hatchback to Japan. The announcement came at a time when Japanese carmakers in the UK were suffering from the effect that the strong pound and weak euro were having on their profits. Thus Honda’s move was intended to prop up the deteriorating fortunes of its UK plant. At the moment Honda is attempting to improve the cost-effectiveness and efficiency of its operations in Japan, North America, Asia and Europe. For instance at its key plant in Japan, production lines that allow for the simultaneous assembly of different models have been introduced. Similarly, at its plants in the United States, Canada and the UK, production systems that can be quickly adapted to model changes have been installed. With these measures Honda also hopes to reduce demand-and-supply gaps in each region and prepare itself for possible foreign exchange volatility. When it comes to cars, consumers’ tastes differ greatly and each market has different requirements. Local production is essential if manufacturers are to detect and respond quickly to changing trends and tastes. Thus Honda has made it a basic rule to produce cars where they are sold. The global car industry has been undergoing a major realignment, but Honda is not convinced of the long-term viability of the idea that merging with other company will result in growth, so it intends to continue on its independent path.

19 Denso Du-Sop Cho

Denso is Japan’s largest automotive parts and components manufacturer and ranks fourth in the world in terms of sales. In Japan the company stands out from its competitors in every respect, ranging from its wide array of products and excellent production technology to its solid organizational structure. The same can be said of its management of global operations. The company began to eye the overseas market in the early 1960s, when the Japanese car industry was still in its infancy, and has since evolved into a fully fledged multinational with 75 subsidiaries in 24 countries across the world. In Europe, Denso has 17 subsidiaries in 10 countries. Nine of the subsidiaries are manufacturers and the rest consist of sales companies, a regional headquarters in the Netherlands and an R&D centre in Germany. There are two features of Europe that can pose problems for multinationals. The first is the diversity of Europe, which comprises a large number of countries and each is unique in terms of culture, language, social system, religion and ways of thinking. Safety standards and industrial standards also differ from country to country, and this likely to continue for quite some time, despite integration under the umbrella of the European Union. The second problem concerns the transitional countries in Eastern Europe. Some of these countries – such as Hungary, the Czech Republic and Poland – have been pursuing market development by inviting foreign capital. As a location for manufacturing bases, these countries have a number of attractive features, including relatively low labour costs, relatively high ethical standards among employees and a well-established infrastructure. But there remain problems with market scale and supporting industries. Some companies have been quick to start working on the realignment of their European operations, setting up new plants in Eastern Europe and/or shifting the weight of their production activities from West to East. Most companies, however, have adopted a wait-and-see approach. How to manage the diversity and uniqueness of Europe and what sort of commitment to make to the countries in transition to the market economy are common challenges confronting Japanese companies with subsidiaries 250

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in Europe. It is challenging enough to establish a workable management system and framework that enable Japanese-style manufacturing in countries with different industrial models and labour–management relations, and it is even more difficult to integrate these operations and to achieve systemic advantages as an integrated corporate entity. On top of these general challenges, Japanese automotive parts and components manufacturers such as Denso face further obstacles in expanding their operations in Europe. Unlike in North America and Asia, in Europe Japanese car assembly companies are not major players. Their market shares are still low, and therefore their production volumes are not large. Hence parts and components suppliers cannot expand their business simply by relying on Japanese companies. Moreover Europe is home to a number of giant automotive parts and components suppliers, such as Bosch, Valeo and Magneti Marelli. It is no easy task for Japanese companies to competite with these giants, each of which boasts a high technological capacity and has close relations with local car assemblers. For Denso, an additional factor is its need to maintain amicable relations with Bosch, a long-term technical partner. When launching its operations in Europe, in line with its tacit agreement with Bosch, Denso concentrated on car air conditioning parts such as compressors, which Bosch did not produce, and refrained from producing components in Bosch’s area of expertise. This tacit agreement, however, is gradually losing substance as global competition intensifies and Denso’s technological capacity improves. Denso’s strategy for Europe now hinges on the extent to which it will be able to cut into Bosch’s territory in the coming years. The following sections provide an overview of the development of Denso, examine its strategy for Europe and the historical background of its European operations, and consider the challenges it faces in overseeing its European operations.

The development of Denso Here we shall look at the development of Denso by using a set of basic indices that enable a comparison between the situation in 1985 and that today. In 1985 Japanese companies began to attract international attention for their ability to maintain their export levels despite the rapid appreciation of the yen after the Plaza Accord, and this in turn led to considerable attention being paid to Japanese management and production systems. However then came the devastating decade of the 1990s, during which Japanese companies suffered the after effects of the burst of the bubble economy and the effectiveness of their management systems plummeted. Remarkably, Denso was hardly affected by Japan’s economic downturn; rather it managed to maintain sustainable growth by successfully upgrading its products.

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Composition of shareholders Between 1985 and 2000 Toyota Motors’ stake in Denso rose from 21.90 per cent to 24.63 per cent, that of Toyota Automatic Loom Works rose from 7.02 per cent to 7.13 per cent and that of Bosch fell from 6.17 per cent to 5.23 per cent. The latter is a sleeping partner and has no involvement in the management of Denso. In contrast Toyota has strengthened its commitment to Denso, for instance by sending one of its personnel to serve as vice president. This is part of Toyota’s strategy of coping with global competition by enhancing the excellence and unity of its keiretsu group (companies linked by cross-ownership).

Growth in sales In 2000 Denso’s unconsolidated sales stood at 1.33 trillion yen compared with 908.8 billion yen in 1985, and consolidated sales at 1.76 trillion yen, up from 954.8 trillion yen in 1985. Over the 15-year period, sales increased by 46.2 per cent on an unconsolidated basis and by 84 per cent on a consolidated basis. The remarkable rise in consolidated sales is attributable to the favourable performance of the company’s overseas subsidiaries, particularly those in the United States. In 1985 Denso became the first Japanese automotive parts and components manufacturer to set up operations in the United States, and it now has 10 bases there.

Major products Air conditioning equipment is the top contributor to Denso’s sales, accounting for 31 per cent of total sales. In this field the company is highly competitive, both in Japan and overseas, with a 41 per cent share of the domestic market and a 23 per cent share of the global market. The next most important contributors are automotive electrical components and electric control products, which together account for 29 per cent of total sales and hold a 52 per cent share of the Japanese market (24 per cent of the global market in the case of alternators). In third place are fuel injection systems, which make up 17 per cent of total sales and hold 27 per cent of the domestic market 9 per cent of the global market in the case of electronic fuel injection systems. Denso is not only striving to develop a product that will take first place in the global market, but has also embarked on an ambitious programme to increase the number of its products from the current 12 to 19 by the end of 2005.

Overseas manufacturing subsidiaries The number of Denso’s overseas manufacturing subsidiaries nearly quadrupled between 1985 and 2000, rising from 15 to 59. Denso began its overseas production activities in 1985, and since then the number of its overseas production bases has steadily increased, as has its product range. Over the same period its export ratio increased from 14 per cent to 21.3 per cent. It is

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thought that this was the result of increased shipments of raw materials and components for overseas subsidiaries, which shows that Denso’s overseas production does not amount to export substitution or an exodus of the type that would cause a hollowing out of domestic industry in Japan.

Number of employees The number of people employed by Denso increased from 33 279 in 1985 to 39 751 in 2000. The company’s sales grew 1.9-fold over the 15-year period while the number of employees increased only by 20 per cent, which translates into a substantial increase in productivity per employee. This can be attributed to progress in the automation of production and the multiskilling of production workers. The pace at which Denso has improved its production systems and mechanical equipment has been so rapid that it is often said that engineers who have been assigned to overseas subsidiaries for some years feel like total strangers when they return to Japan. Yet the company’s ability to remain highly competitive would not have been possible without well-trained workers with a broad range of skills.

Denso’s future strategy In 1995 Denso unveiled a management plan that called for the doubling of consolidated sales between then and 2005. Not only is this an ambitious target, but also the plan represents a move away from Denso’s traditional area of business: given that demand in the automotive industry is unlikely to grow much further, Denso considers that the development of components for non-automotive industries is the key to sustainable growth. Under the plan, Denso aims to increase the proportion of non-automotive component sales to 20 per cent of overall sales. However it has to be pointed out that very few companies that specialize in automotive parts and components have succeeded in areas unrelated to car production. It has been said that this is because they have been unable to rid themselves of organizational inertia, and Denso would probably be no exception in this regard. Modest success might be possible, but considerable difficulties are likely to be encountered. The key components of Denso’s vision for 2005 are (1) valuing people, (2) perfecting global management and (3) developing new products. The first of these is based on the management’s firm belief that the foundation for producing the world’s top products can only be laid by nurturing good human resources. Calls are mounting for drastic reform of the Japanese personnel management system, for instance through the introduction of merit-oriented promotion and pay. But Denso has stuck firmly to its Japanese-style management system. It still maintains technical skills by having experienced workers pass them for to those with less experience on the production front’s where automation is proceeding rapidly. It also runs a skills school – called Tensei-kan after the Japanese proverb Garyo Tensei, which stresses the importance of

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finishing touches – and encourages its employees to take part in the World Skills Competition, in which workers from across the world compete in terms of vocational skills.

Denso Europe Denso took its first small step into Europe in 1974 when it set up a sales company in the Netherlands. Its production operations in Europe lagged far behind those in Asia and North America because of the constraints imposed by its agreement with Bosch, including conditions on the transfer of technologies. It was also not possible for Denso to be seen as competing with Bosch as the latter was one its large shareholders. Thus for the first 10 years of its operations in Europe, Denso confined itself to limited activities that would not trespass on Bosch’s territory. A turning point came in the mid 1980s, when the demand for car air conditioners began to grow. Fortunately, these were not part of Bosch’s product range so Denso was free to expand its business in this field. Yet it remained difficult for Denso to set up a plant of its own. For one thing Toyota, to whose keiretsu group Denso belonged, had delayed the establishment of its production facilities in Europe. For another, the ratio of air-conditioned cars in Europe was still only 30 per cent. Against this background, Denso decided to enter a joint venture with Magneti Marelli, an automotive parts and component manufacturer affiliated with the Fiat group. Denso and Magneti Marelli set up three joint ventures, two in the UK and one in Italy. Denso and Magneti Marelli respectively held 75 per cent and 25 per cent of the shares in each of the two UK companies, and 25 per cent and 75 per cent of the one in Italy. Management of the two companies in the UK was put under the full control of Denso and there were no Magneti Marelli employees. The reverse was true at the Italian company. This liaison can be described as a mutually advantageous strategic alliance in which Denso took advantage of Magneti Marelli’s market bases and experience in Europe, and Magneti Marelli utilized Denso’s technology. Indeed there seems to have been an agreement between Denso and the Fiat group to divide the European market into two regions in the interest of peaceful coexistence. More specifically, it was agreed that the two joint ventures in the UK would supply Japanese and German companies in northern Europe and the one in Italy would to serve companies in southern Europe. What proved to be a relatively stable arrangement was shaken by the major realignment of the car industry in the mid 1990s, including an alliance between Fiat and General Motors. After a series of twists and turns, Denso dissolved its partnership with Magneti Marelli at the end of March 2001 and took full ownership of the three joint ventures. Moreover when Magneti Marelli decided to sell off its automotive electrical components division in Italy, this provided a perfect opportunity for Denso to enter this field of

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business in Europe. Until then Denso had refrained from doing so because of its relationship with Bosch. Now, however, it was able to establish a bridgehead for launching its own business by buying Magneti Marelli’s component division. Formally the sell-off of the division was carried out through competitive bidding, but in reality it was a two-horse race between Denso and the Valeo Group, a major automotive parts and components manufacturer based in France. Denso managed to win the bid, wheupon the current dominance of the European automotive electrical components market by Denso, Valeo and Bosch came into being. As the commoditization of electrical components for cars is proceeding apace, price competition is intensifying everywhere. But Denso may have a good chance of winning the game by combining the advantages of its production technology with full exploitation of the market bases it took over from Magneti Marelli. Unlike the competition among manufacturers of car air conditioners, for which the market is growing, competition in the field of automotive electrical components is a battle to grab a larger piece of the existing pie.

Regional Management As Denso’s headquarters in the Netherlands is not a fully fledged regional headquarters and has only limited functions. The relevant business divisions at Denso’s Japanese headquarters are responsible for the strategy and management of the company’s nine manufacturing subsidiaries in Europe, and for technological transfers to these subsidiaries. The role of the headquarters in the Netherlands is therefore limited to supporting divisions that are common to all the subsidiaries, namely the legal, computer system, accounting, tax accounting and R&D divisions. It has no control over public relations, personnel management, logistics, distribution and purchasing, all of which are crucial elements of the control function. This lack of integrated control is surely something that needs to be remedied, but given the substantial country-by-country differences, it may take a considerable time. A notable feature of Denso’s organizational structure is that the various business groups (which are an enhanced version of the conventional manufacturing division) do not have a sales department and instead the Denso sales group is responsible for the cross-sectional coordination of sales activities. Divisions of the sales group set plans for the overseas manufacturing subsidiaries, while the business groups are responsible for management. Denso has a matrix organizational structure in which the business groups make up the vertical component and the sales group the horizontal component.

Future development of European operations An immediate challenge for Denso is what to do about the management of its plant in Italy. The two plants in the UK, the management of which

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Denso was responsible from the very beginning, have been operating under Denso for over 10 years and thus, are receptive to Japanese-style manufacturing methods. In contrast the Italian plant has operated according to Italian practices and has a well-entrenched local culture. Denso will have to take a very cautious approach because this will be a key plant in its manufacturing operations. To date Denso’s internationalization strategy has been to set up completely new facilities and to use Japanese production and management methods from their inception. Hence the company’s overseas plants are more or less identical in appearance and operational methods. As the Magneti Marelli plant was both fairly successful and competitive under its Italian management and quality control was stringent enough to satisfy local customers, if Denso were to try to change the system to conform to Japanese ways it might spark various problems. For example capable employees might leave and local customers’ confidence in the plant and its products might be undermined. Should Denso choose to retain the features of the Italian management system, this would mark a major turning point in its practices as allowing for diversity has not been part of its modus operandi. However every region has its own way of doing things, and acceptance of this by a Japanese multinational could be deemed a big step forward. But what if such an approach resulted in a deterioration of productivity and product quality? This dilemma is at the heart of our adoption and adaptation evaluation model, which in general has shown that diversity is not good for the maintenance of quality.

20 NEC Zhijia Yuan

When NEC decided to expand its semiconductor business in Europe, it chose Scotland as its base because this would enable it to derive benefits from collaboration between the new plant and sister plants operated by group companies in the area. It would also shorten the turn-around time for semiconductor production (the time between the input of silicon wafers to the despatch of finished semiconductor chips) because of the comparatively short travelling time between Scotland and its semiconductor plant in Dublin, Ireland, where the final assembly would take place. The Scottish plant was set up in 1981. With 1440 employees it was the largest Japanese semiconductor plant in the whole of Europe, and of the plants in our survey it was the only one to have an integrated production system covering preprocess procedures (fabrication) through to post-process (assembly) ones. Its main products were dynamic random access memory (DRAM) chips, the most competitive area of the semiconductor industry. The plant is located in Livingston, a quiet town near the motorway that links Scotland’s two major cities – Edinburgh and Glasgow – and next to a main national road, an ideal situation in terms of transportation and distribution. NEC’s aim was to create the top plant in Europe, and it eventually succeeded in both name and substance.1 The following sections discuss the management of the plant and the situation that prevailed at the time of our survey in 1997.

Work-team management Between 1994 and 1996 the number of plant workers steadily increased from 963 to 1440, including an additional 200 technical workers. The demand for the latter grew in line with the increasing volume of work requiring greater technical knowledge – the maintenance of devices, settingup and adjusting machinery and so on – under the integrated production system. Workers were divided into teams of seven or so, depending on the types of task assigned. Each team was headed by a group leader, who was responsible 257

258 NEC

for supervising and managing team activities. At the time of our survey there were 80 group leaders. Above them, shift leaders supervised and managed several teams, and the shift leaders were in turn overseen by supervisors. None of the people occupying these three positions were Japanese, that is, management and operations on the shop floor (except for technology management) were left in the hands of local employees. There were two types of technical worker – operators and setters – so the job classification system was very simple. Each category was divided into four grades and four wage scales, although actual wages were also linked to performance. While wages were subject to an annual increase, it was possible that some workers would receive no rise if their performance was not good enough. Age was taken into consideration when determining individuals’ annual wage increase but its impact on overall wages was modest. Length of service and degree of experience were also an important factor both in the US and Europe – taken into account to some extent. With regard to the evaluation of job performance, twice a year team leaders interviewed the operators and setters under their supervision. While there were separate evaluation forms for operators and setters, the items on the forms were quite similar. There were six possible scores for each item (25, 21, 17, 13, 7 and 3), and the items were divided into four sections. In the case of operators the first section, ‘achievement’, contained two items: quality of work and output levels. The first of these was related to operators’ participation in total-preventive-maintenance activities and zero defect management practices, including the improvements resulting from such efforts. Individuals’ scores for the latter item were based on on their actual performance, as gauged by the quality and completeness of their work. The items in second section, ‘skill’, were job knowledge, skill level, judgment ability and training progress. These were directly linked to training and skills development, which will be discussed later. The main item in the third section was attendance, the score for this being determined by frequency of absence and frequency of late arrival. The fourth section, ‘attitude’, contained four items: positive, which evaluated how an operator performed his or her task; cooperation, which evaluated the operator’s team spirit; diligence, which was to do with whether the operator was suited to the task assigned; and responsibility, the degree to which the operator demonstrated a sense of responsibility when conducting his or her tasks. If the evaluators (group leaders) awarded the highest (25 points) or lowest (3 points) score for any item they were required to state their reasons for their decision. Operators whose total score was 95 or above were rated ‘outstanding’ and became top candidates for promotion. Below this there were five ratings: highly satisfactory (84–95 points), above average (68–84), average (52–68), below average (28–52), and unsatisfactory (0–28). Needless to say, the lower the score the less chance there was of a pay rise.

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As stated above, the items for setters were more or less the same as those for operators, the only difference being that the item ‘quality of work’ was replaced by ‘work performance’. Setters’ primary task was to set up devices and machinery, which was a job that could not be undertaken by robots and had a direct impact on efficiency on the shops floor. When we visited the plant it was planning to increase the number of setters and reduce that of operators because semiconductor production was becoming more and more automated. The implementation of Japanese wage and performance evaluation systems had been made possible by the relatively flexible labour situation in the UK. Indeed none of the semiconductor plants we visited in Continental Europe had adopted Japanese practices to the same extent as had the Scottish plant. We shall now look at the education and training system at the Scottish plant, which combined outside courses with on-the-job training and education. Operators, setters and group leaders were required to obtain a nationally recognized qualification that was relevant to their particular tasks. In parallel with this, the plant organized regular education and training seminars, to which external instructors were invited to give lectures to plant workers. Each plant worker was required to pass an exam to obtain the requisite qualification. Meanwhile the plant had made arrangements with external educational institutions, including the University of Edinburgh, for white-collar employees take specialized degree courses. The on-the-job training scheme included a range of detailed programmes, mainly in the areas of total preventive maintenance and zero defect production. Training in the latter was primarily targeted at new recruits, but all workers were required to participate in the total preventive maintenance programme so that the Scottish plant could keep pace with its parent plant in terms of product quality, production costs and production time. In 1994 the plant had received an award for its excellent performance in total preventive maintenance, becoming the first NEC overseas base to be so honoured. Finally, every year 30 plant workers were sent to NEC’s Kyushu plant in Japan, where they received one month’s training on workshop management and quality control.

Management of production activities The production management system at the Scottish plant was essentially a copy of the system used at NEC’s plants in Kyushu and Hiroshima, and the production equipment was identical that employed in Japan. The management of production activities was based on the methods used at the Hiroshima plant, but when new production lines were introduced the plant borrowed successful ideas from other NEC plants, for instance quality standards were a copy of those at the Kyushu plant.

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With regard to the maintenance of production facilities, there was a separate team of maintenance staff who worked independently from setters and operators. However all plant workers were expected to have some knowledge of maintenance, and to this end they were obliged to participate in total productive maintenance activities during their off-duty hours. Managers and engineers provided technical support to work teams. It had not been easy to introduce such practices as the plant workers’ attitude towards, say, the cleaning of production equipment had been completely different from that of their counterparts in Japan – cleaning was a task for cleaners, not production workers. To overcome this and related problems, local engineers and Japanese staff sent by the parent company had jointly developed a programme based on what was called a ‘supervisor model’. The first two years or so of the programme were devoted to teaching production staff and engineers the basics of total productive maintenance. Then the production division formed its own team to focus on maintenance tasks, while the technical division engaged in planned maintenance duties and technical activities to improve the capacity utilization ratio. To overcome workers’ negative attitude towards cleaning, managers joined line workers in conducting the initial clean-up of equipment, working together with team members and teaching them the details of cleaning and checking for signs of deterioration. Line managers were required to evaluate each team’s performance and head weekly feedback meetings, while also serving as promoters of maintenance activities. The skills and know-how derived from these activities were passed on from engineers to setters, and then from setters to operators. Within four years labour productivity at the plant had increased almost twofold, while the time and cost of production were reduced to one third. Most importantly the walls between technical staff and line workers and between Japanese staff and local employees were broken down, bringing a sense of unity, improved morale and a shared desire achieve to the targets set for the plant.2

Conclusions Elements of the Japanese production system were quite evident at NEC’s plant in Scotland. It is believed that the following factors enabled this. First, labour conditions in the UK were far more flexible than in Continental Europe and this facilitated the transfer of various Japanese practices. From the launch of its operations in 1981 the plant maintained a no-union policy, which would have been unthinkable in Continental Europe. Second, the company’s efforts to instil a sense of belonging among the workers bore considerable fruit. Among the various measures to enhance management–worker communication were monthly meeting at which the management and all employees discussed problems that had arisen on the

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shop floor (the solution of which was entrusted to shop-floor workers), and social events such as coffee evenings. Finally, the active support of the parent company, for instance in the form of training UK employees in Japan and sending Japanese support teams to the Scottish plant to provide technical assistance, helped to enhance workers’ understanding of the Japanese production system.

Notes 1. Operations at the plant are currently suspended and NEC is considering a future plan for the plant. 2. For a discussion of total productive maintenance activities at the plant see NEC, NEC no TPM (NEC’s TPM) (Tokyo: Japan Institute of Plant Maintenance, 1996), ch. 6.

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Part III Conclusion

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21 Conclusion Hiroshi Kumon

Chronologically, as well as in terms of accumulated FDI, Europe ranks third after North America and Asia in attracting investment by Japanese industries. The relatively late advance of Japanese companies into Europe was due to a number of factors, including the segmented market and the existence of numerous (explicit and implicit) government and EC regulations on trade and direct investment (Mason, 1997). However in the 1980s, trade friction and the forthcoming integration of the European market acted as incentives for Japanese companies to secure a production foothold in the region, although once integration got under way the spectre of ‘Fortress Europe’ never really materialized. In the second half of the 1990s another wave of Japanese investment was prompted by the planned currency integration and EU expansion. The strategic characteristics of the Japanese advance into Europe deserve closer examination. The first notable characteristic was the cooperation with local industry that took place when Japanese companies set up operations in Europe. In the early years Japanese companies sought various forms of cooperation with European governments and businesses, and there were numerous cases of harmonious arrangements being established. For example there were joint ventures in car assembly (Honda and Rover, Isuzu and General Motors, Toyota and Peugeot), government investment (by the Dutch government in Nedcar) and cooperative investments to avoid severe competition with local industry (by Japanese automotive parts makers). Although the ventures between Honda and Rover and Isuzu and General Motors have been dissolved and the Dutch government has ceased to invest in Nedcar, Japanese companies still take a very cautious approach when establishing production facilities in Europe. Secondly, companies in the electronic assembly industry were similarly restrained in the manner in which they entered Europe. Therefore the wholesale arrival of Japanese car assembly and electronic manufacturers did not come to pass as it had in North America. Nor did Japanese electronic companies build factories purely for the purpose of export, as they had in 265

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Asia. Indeed the activities of companies in both industries were geared to supplying the European market. Finally, investment strategies varied according to the area in which the investment took place. In the UK the strategies were characterized by sizable investments and large factories, while in Continental Europe, which became a subsequent target for manufacturing ventures, the degree of investment was generally more modest.

Application of the Japanese system The average application score for Japanese companies in Europe is 3.1, which means that Japanese manufacturers have been able to introduce more than half of the elements of the Japanese production system. The European hybridization pattern differs from that for North America (whose application score is 3.3) and is closer to that for East Asia (3.3). The four-perspective evaluations show that there is a comparatively small focus on ‘Result’, and that more emphasis is placed on the application of ‘Method’ (Human Method 3.1, Material Method 3.0, Human Result 2.8, Material Result 2.9). It is also notable that there are substantial regional differences between the application scores, with relatively high scores in the UK and Germany (3.2) but , becoming lower towards the south: France and Benelux 3.0, Southern Europe 2.8. The differences between the UK and Continental Europe hybridization patterns will become more apparent when we examine the patterns region by region.

The United Kingdom The UK hybridization pattern is characterized by Method-application and Result-adaptation. From the Japanese perspective, this type of pattern is almost ideal. System application facilitates the efficient manufacture of high-quality products, while local parts procurement and reliance on local managers serve to lower the cost of inputs and the dispatch of managerial staff from Japan. The UK pattern is the result of an active expansion strategy by Japanese companies and the highly supportive manufacturing environment in the UK. British workers have been very flexible in their acceptance of the Japanese management and production system. This is due to various factors, including the Thatcher government’s efforts to change the UK’s traditional labour practices, diminished self-confidence on the part of both management and workers as a result of the UK’s decline in international competitiveness, and the spread of a human resource management style that emphasizes employee motivation. With regard to the application or adaptation of ‘Method’ features, cases range from functional application to formal adaptation to outright revision of traditional practices. Taking the hybridization of work organization as an example, at electronics assembly plants the wage system is based on the

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UK’s industry-specific wage classifications with the addition of Japanese-style performance-related pay. At car assembly plants, in addition to the introduction of a simplified wage system with only two job classifications, wage increases are determined by performance evaluations in a manner that is very similar to the job-ability pay system in Japan. Managements have also abolished the traditional distinction between hourly pay and salaries, replacing them with a uniform salary system. The introduction of multiskilling has eliminated the barriers between jobs and resulted in extensive job rotation. However the distinction between skilled and unskilled workers has been preserved. Regarding the hiring and/or training of skilled workers, while all of the plants depended on qualified external applicants when their operations first started, some later adopted an internal training system. New practices such as job rotation, performance evaluation, single union and works councils have been imitated not only by second-wave Japanese entrants but also domestic companies. Although it is difficult to exert a significant influence on external systems such as labour markets and trade unions, to some extent the Japanese system has had a revolutionary effect on the UK industrial environment.

Germany Results–application is the predominant hybridization pattern in Germany, where medium-sized Japanese parts manufacturers tend to employ Japanese managers and procure their parts from Japan. There are also constraints on flexible management practices. For example specialization among workers, clearly demarcated boundaries between jobs and departments, and nationwide union regulations constitute major obstacles to a Japanese system that places great value on internal flexibility. On the other hand there is no shortage of skilled workers and the works council system has the potential to mitigate the effects of regulations imposed by industrial unions. Rather than attempting to make major changes to the German system, companies have tended to adhere to the German organizational form while searching for practices that will allow elements of the Japanese system to function. For parts manufacturers, a plant management system that relies on inputs and manufacturing technology from the Japanese parent companies is a feasible temporary solution. A similar tendency is evident in the case of human organization. While the industry-based Tarif wage classification system permits workers to be rotated to different jobs within the same wage classification, as well as allowing performance-related bonuses, the actual introduction of such practices requires patient negotiation.

France and the Benelux countries In France and the Benelux countries the average application score is 3.0, and the hybridization pattern produced by the four-perspective hybrid evaluation is close to the Continental European average. What is notable about the

268 Conclusion

manufacturing plants in this region is that they have no particularly distinctive characteristics. This may be due to a rather hesitant entering made into the region, or it could be that companies take a soft approach to plant management on account. While there are numerous Japanese electronic assembly plants in the region, there is only one Japanese car assembler and one automotive parts plant. On average the plants are medium sized, and in many cases they are wholly owned rather than joint ventures. Like their counterparts in Germany, Japanese plants adhere to the local system while at the same time attempting to apply aspects of the Japanese system, such as conforming to the local wage system but supplementing this with performance-related bonuses. The multiskilling of workers clearly differs between those factories which have attempted to apply the Japanese system and those which have adopted a more passive approach. Related to this point is the fact that evaluation of the elements in ‘Maintenance’ reveals a leaning towards the local system. In other words plants tend to hire experienced maintenance workers from outside rather training shop-floor workers for the job. Although it is company policy to build quality into the production process, in fact there is not a great deal attention to quality control by production workers, and therefore quality control is essentially a matter of post-production inspection. Regarding Labour relations, there is no evidence of a strong union influence on working conditions at Japanese companies. Indeed in France half of the companies surveyed had no union at all. Instead labour relations in the region are generally mediated by a works council, and management–works council negotiations function in much the same way as the Japanese management and labour consultation system.

Southern Europe (Italy, Spain and Portugal) The average application score of 2.8 and the hybridization pattern for Japanese companies in Southern Europe indicate that plant managers in this region make no great effort to apply the Japanese system. Indeed many Japanese companies were unenthusiastic about entering this area in the first place because a large number of Japanese plants targeted narrow local markets in the region. Of the plants included in our survey, electronics assembly plants are the most numerous, followed by car assemblers and automotive parts manufacturers. Most of the factories are small and were either purchased as existing plants or started as joint ventures. This is interpreted as a modest element as far as application of the Japanese production system is concerned, in that if the motivate for investment is moderate, purchased or joint ventures will prevail and there will be relatively few newly established plants. In fact, as in France and the Benelux countries, there is a search for functional equivalence. Two characteristics of the region are the existence of typically European social regulations and receptiveness to the application of Japanese

Hiroshi Kumon 269

methods. The latter is particularly evident at plants that are distant from traditional industrial regions and at newly established plants, and it is similar to the receptiveness towards the Japanese system observed developing countries in Asia. In Italy and in Spain there are strong union regulations on working conditions and practices. As a result it is not always possible to introduce performance evaluations, and while job rotation is practiced the stationing of workers is sometimes subject to regulations. As far as Maintenance is concerned, at many plants this task is equally shared between maintenance personnel trained on the job and skilled workers hired from outside. In general production workers do not participate in maintenance. Quality control is mainly limited to post-production inspection, although there are cases of production workers conducting quality checks. Unions are organized according to political party, as in France and the Benelux countries. However unlike in France, multiple unions exist at single plants and some plants have a management–labour consultation system or works council.

Hungary While there seems to be potential for the application of the Japanese system in Hungary, as only a limited number of plants were visited there, this can only be a tentative conclusion. The average application score is 2.9 and the four-perspective evaluation reveals a hybridization pattern that inclines towards Results. It appears there are two motives for setting up operations in Hungary: to establish a production base from which to export products to the EU countries, and to take advantage of the low wages. In the case of car assembly plants the objective is to supply products to the EU; for automotive and electronic components plants the purpose is to supply parts to Japanese assembly plants located elsewhere in Europe that must meet the Euro one requirements. With regard to Work organization and Labour relations, Hungarian factories are not subject to the national and social regulations that exist in many other parts of Continental Europe. This is probably because Hungary is in transition towards a market economy and systems for Work organization and Labour relations have yet to take shape. A notable characteristic of Japanese plants in Hungary is variability in the application of the elements of the Japanese production system. Few companies have invested in this region, and those which have tend to have had little experience of overseas production. Since they have no model to serve as a guide, they are probably groping for ways to apply the system. Japanese companies place great store on internal flexibility and the business environment in Hungary is very conducive to this. Presumably the same applies to other Central and Eastern European countries, so setting up operations in

270 Conclusion

the region would not only be advantageous to other Japanese companies in this respect but would also be a means of gaining a broader foothold in Europe as the EU expands.

Hybridization patterns in Europe There are few notable differences between the hybridization patterns of the various industries in Continental Europe. The car assembly, automotive parts and electronics assembly industries all have approximately the same pattern, and only the electronic components industry has a slightly different one. Market conditions in Europe are mainly determined by trade within the region, and the primary motive for Japanese electronics and automotive firms investing in the region is to avoid international trade friction. This means that the products manufactured by these firms are mainly marketed within the region, and very few are exported outside of Europe. Consequently, neither industry has an advantageous position from which to adopt a significantly vigorous strategy. In the United States, in contrast, there is a notable difference between the industries’ patterns: the car assembly and automotive parts industries are clearly application oriented, while the electronics assembly industry is more inclined towards adaptation. Inter industry differences are less pronounced in Asia, and the hybridization patterns are the reverse of those in the United States. While the hybridization patterns for Japanese industries in the UK and Continental Europe differ, they share a ‘revised application’1 pattern that reflects adaptation to elements of the local system at the formal level and application at the functional level. Application of the Japanese production system has been easiest in the UK. For example, because of the easing of the traditional labour relations and regulations, companies have been free to make substantial revisions to the local wage system (car assembly plants), or at least to adapt the existing system to include performancerelated pay (electronics assembly plants). In Continental Europe, social regulations are still powerful, and while Japanese companies have had to adapt to this they have simultaneously attempted to apply functional elements of Japanese work organization. This is evident throughout Continental Europe, and to some extent in the UK. Let us consider this in terms of Work organization and Labour relations. In the US car industry, where Job classifications are subdivided, jobs are defined by their position on the promotional ladder. Because seniority rather than skill determines promotion it is difficult to persuade workers to add to their range of skills. To address this situation, Japanese managers at car assembly plants have simplified their Job classification systems as this is a prerequisite for the multiskilling of workers. In Europe, in contrast, it has been possible to allocate a variety of job functions to production workers without having to simplify the Job classification system because wage grades are relatively

Hiroshi Kumon 271

broad, regulations on promotion are lenient, it is possible to rotate jobs within the same wage grade and promotion is based on job skills. It has also been possible to persuade production workers to broaden the scope of their tasks to the point of becoming multifunctional workers. Moreover many plants have a works council – an internal employee representation system that plays a similar role to that of the Japanese enterprise unions – and negotiations on working conditions with works councils tend to be more flexible that is the case with trade unions. Even if a union is present at a plant the management negotiates working conditions only with the works council. Whether Japanese manufacturers comprehensively or selectively apply features of the Japanese production system is determined by their managerial strategies, the strategic positioning of the plants in question and external factors. In general, if one compares methods for managing production with methods for managing people, as in the case of work organization, then it is clearly the human organizational elements that present the greatest difficulty. As mentioned earlier, there are differences between Japanese operations in Continental Europe and the UK. In the latter there have been numerous cases of managements comprehensively applying structural elements of the Japanese system. Determining factors include differences in the local business environments and the motives the companies had for investing in these countries. Companies that established ventures in the UK were quite resolute about implementing the Japanese managerial system, while those which invested in Continental Europe took a more passive approach. With regard to the core elements of the Japanese system – the multskilling of production workers, rational production management and long-term relationships with suppliers – many of the plants in the UK have put these into practice. Measures include on-the-job training, putting up skill charts to help individual workers to improve their skills, small-lot production, new production methods and the introduction of just-in-time production after establishing long-term relations with suppliers. Of course some Japanese plants in Continental Europe have also adopted these measures, but they are for fewer in number. In some places the high rate of absenteeism and the presence of numerous foreign labourers have limited companies ability to develop multiskilled workers, jobs are rigidly defined and quality control is often restricted to post-production inspection. In the latter regard the nationality of managers also has a bearing. In North America the high application scores for method-related items can be attributed to the large proportion of Japanese managers and the degree of responsibility they continue to assume. In Europe, while Japanese managers took the lead in planning and maintaining operations in the early years, at many plants they have since been replaced by local managers. A similar situation prevails at Japanese plants in Asia.

272 Conclusion

This book has shown that the universality of the Japanese production system is limited by various local factors and that varying degrees of hybridization are necessary. In Europe, core elements of the system have been combined with elements of the local systems. Japanese production methods such as mixed-model, small-lot production and just-in-time parts procurement function in much the same way as in Japan. Local forms of work organization and labour relations have been adapted in such a way as to become the functional equivalent of their Japanese counterparts. Japanese-style, long-term business relationships have been established with local parts suppliers, which have been given technical support to improve delivery time, lower costs and raise quality. The multiskilling of workers has proved difficult in some regions, and there are limits to the extent that production workers can be counted on for quality control, maintenance and problem solving. Even where it has been possible to conduct job rotations it has not been easy to combine jobs that require higher skills. Related to this are the limitations on the ability to train skilled workers internally. Of course at the start-up stage there was no choice but to hire experienced workers, but plants in Continental Europe continued to rely on external sources for trained workers even after production was well under way. In conclusion, despite the existence of a number of restrictive conditions, Japanese companies have found ways to apply many of the elements of their production and management system to the European managerial environment. Indeed their flexibility in this regard may be one of the most salient characteristics of Japanese manufacturers. In the future we shall expand our research to include a longitudinal examination of changes to the Japanese production system, the transferability of the system beyond the discussed in this book region, and the introduction of new technologies at overseas plants.

Note 1. We first used the term ‘revised application’ during our survey of Japanese plants in North America in reference to plants that had responded to the difficulty of applying Japanese methods in their original form by adapting the local methods to achieve the functional outcome of the Japanese methods (Abo, 1994, p. 30).

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Index

Abo, Tetsuo 16, 52–74, 184, 185, 272 absenteeism, Europe 140 on Germany 119–34 research studies 3, 14 and Toshiba 210–16 Accord, Honda 246, 247–8 Adler, Paul S. 31 AEEU 244 AEU 237 air conditioners 81, 86, 254 Alfa Romeo 241 Alsace 205, 206, 207, 208 Amalgamated Engineering and Electrical Union (AEEU) 244 Amalgamated Engineering Union (AEU) 237 antidumping, Toshiba 214 application and adaptation 105–8, 111–13 Asia 16 blending of 114–15 North America 16, 112 application scores application ratio 52–3, 97 Benelux 144–5 by region 77; group consciousness 146; labour relations 146; parent–subsidiary relations 146; production management 146; work organization and administration 146; by type of plant 168 car assembly and automotive parts by region 105–8 delegation of authority 166 education and training 166 electronics assembly 86; North America 76 equipment 166 Europe 66, 124, 146; comparison 144–5; Southern 168

first-line supervisor 166 France 142–7 grievance procedure 166 group consciousness 166, 168, 178 hiring method 166 Hungary 178 information sharing 166 inter-industry 84–5 labour relations 64, 65, 166, 168, 178 local content 166 long-term employment 166 maintenance 166 management element by industry 187 material management 88–9 multifunctional skills 166 parent–subsidiary relations 115, 166, 168, 178 position of local managers 166 process management 113, 166 procurement 166, 168, 178 production management 166, 168, 178 promotion 112, 166 quality control 166 ratio of Japanese expatriates 166 regional comparison 166 sense of unity 166 small-group activities 166 suppliers 166; access to Japanese 114 United Kingdom 76 wage system 166 work organization and administration 166, 168, 178 Asanuma, Banri 5 ASEAN countries 60–1, 62 Asia 5, 16 procurement 208 audio tapes 163, 204 authority see delegation 283

284 Index

automation 207 quality control 93 automotive industry, UK 65, 100–18 export from 100 local content 101 number of plant employees 101 ownership of plants 102 plant locations 101 sales by plant 102 Avensis see Toyota Babson, Steve 16, 31 Ballade, Honda 246 Barcelona 164 Basingstoke 204 Belgium see Benelux Benelux 135–57, 267–8 application scores 144–5 education and training 144–5, 150–1 employment structure 141–2 four-perspective evaluation 147–8 grievance procedure 144–5 group consciousness 143, 144–5, 146, 154–5 hiring policy 144–5 human method 147–8 human result 147–8 information sharing 144–5 Japanese expatriates 139–40, 146 Japanese practice implementation 143 job classification 144–5, 149–52 job streamlining 143 on the job training 150–1 joint venture 141 just in time 143 labour practices 142 labour relations 143, 144–5, 146, 155–6 local content 144–5 maintenance 144–5 market 142 material method 147–8 material result 147–8 off the job training 151 parent–subsidiary relations 144–5, 146 plant locations 139–40

position of local managers 144–5 process management 144–5 procurement 144–5, 146, 152–4 production management 144–5, 146, 152–3 quality control 144–5 ratio of Japanese expatriates 142, 144–5 regional government 138 sense of unity 144–5 sex ratio 139–40 small-group activities 144–5 suppliers 144–5 survey findings 142 turnover rate 139–40, 142 type of products 139–40 unemployment 142 wage system 144–5, 151 work organization and administration 144–5, 146, 148–52 worker age 139–40 working hours 139–40 Betamax 203 betriebsrat 126, 127 BMW 116, 134, 247 Bosch 251, 254–5 Denso 254 Boyer, Robert 6, 14, 17–18 Brewster, Chris 6 Bridgend 204, 205, 206, 207 British Aerospace 247 British Leyland 104, 247 British Telecommunications (BT) 219 Brussels 204 bubble jet printers 228 business groups, Denso 255 calculators 218 cameras 203, 217, 219 Canon 196, 230–27 Japanese methods 227–30, 228 profile of plants 228 Canonization of capital 226 capital by region, Toshiba 213 Canonization of 226

Index 285

Japanese plants in Germany 120–1 Southern Europe 161–2 car assembly and automotive parts by region: application scores 105–8; car audio 141; group consciousness 106–7; Hungary 180; labour relations 106–7; parent–subsidiary relations 106–7; procurement 106–7; production management 106–7; United Kingdom 111; work organization and administration 106–7 four-perspective evaluation 109–11 see also automotive industry Carina see Toyota Carrefour 201 cash registers 218 cathode ray tubes 78, 81, 90, 170, 203 CD players 219 cell production 82, 83, 86, 87, 206 introduction of 98, 215 CFGT 208–9 CGT 208–9 characteristics of surveyed factories 78–83 Citroën 47 Civic, Honda 248, 249 clampers 90 cleaning, outsourcing of 97 closed-shop contracts 75 Coaster, Toyota 234 COMECON 175 commoditization, electrical components 255 community relations 187, 190–1 competitiveness 7, 45, 136 computers 218 continuous improvement see kaizen contract employees, France 155, 157 conveyor belt system 206 copiers 46, 218, 221 Corolla, Toyota 233, 234, 238 corporate society 56

criteria for application scores 19–29 cross-ownership 252, 254 Crown, Toyota 231 cultural diversity of local markets 215 custom duties, Hungary 179 Dax 204 defect identification 181, 223 Delbridge, Rick 14 delegation of authority 29, 55, 56, 62, 64 application scores 166 Europe 144–5 Hungary 179 Denso 196, 250–6 air conditioners 254 Bosch 254 business groups 255 development 251 Europe 254–5; operations development 255–6 future strategy 253 joint ventures 254 keiretsu 254 Magneti Marelli 254 major products 252 market share 251 number of employees 253 overseas subsidiaries 252–3 production and management 256 regional management 255 sales growth 252 shareholder composition 252 skills school 253–4 design 82 Dieppe 214 diesel, Toyota 238 digital technology 202 diodes 90 dismissal of employees 57 Dohse, K. 13 donations 191 Dore, Ronald P. 6, 184 dot-matrix printers 91 DRAM chips, NEC 257 Dutch government 141 DVD players 219

286 Index

East Asian Research Centre vii education and training 20–1, 187–8 application scores 56, 57, 62, 166, 187 Benelux 144–5, 150–1 Europe 144–5, 150–1 United Kingdom 112 electrical components 255 electronic organizers 219 electronics 65 North America 76 Southern Europe 159 United Kingdom 75–99 Elger, Tony 14, 16 employees see workers equipment 23, 56, 144–5, 166, 169 Benelux 144–5 effect of ownership 169 European made 169 Japanese made 169 joint venture 168 Erla Auto imports 231 Euro 49 convergence of prices 201 effect of 201 exchange rates 199 introduction of 47 Euro One 133 Europe 104, 137, 142, 195–262, 277 absenteeism 140 acquisition of companies 163 advance of Nissan 241 application score, six main groups 146 application scores 66, 124, 144–5; by region 63–4 automotive parts suppliers 251 current Japanese investment in 35–44 delegation of authority 144–5 Denso 254–6 dismissal of employees 57 education and training 144–5 equipment 144–5, 169 European suppliers 170 European Union expansion 132 first-line supervisor 144–5

four-perspective evaluation 129–30 government regulations 82 grievance procedure 144–5 group consciousness 144–5 hiring policy 144–5 human resource development 56 hybridization patterns 270–2 information sharing 144–5 integration of market 47–9, 103 Japanese move to 35–1, 46–7, 104, 243–4, 265 job classification 270 labour market reform 75 labour relations 6, 57, 144–5, 270 local content 90, 144–5 long-term employment 144–5 maintenance 144–5 market 142 multifunctional skills 144–5 parent–subsidiary relations 144–5 position of local managers 144–5 procurement 144–5 production base shifting 137–8 promotion 144–5 quality control 144–5 ratio of Japanese expatriates 144–5 regional comparisons within 62–6 safety standards 250–1 segmented market 265 sense of unity 144–5 small-group activities 144–5 social policy 75, 76 suppliers 144–5 survey of Japanese plants 8–13 transitional countries 250–1 wage system 144–5 work organization 144–5 see also Southern Europe exchange rates 78, 123 Euro 199 Honda 249 Nissan 244 sterling 199, 209, 244 Toyota 238

Index 287

and UK 100, 116–17, 123 yen 81, 251 exports 1 from United Kingdom 100 Japanese plants in Germany 120–1 ratio Southern Europe 161–2 Toshiba 213 failing ventures 103 fax machines 165, 170, 218, 221 FDI see foreign direct investment Fiat 104–5, 163–4, 254 takeover of Alfa Romeo 241 first-line supervisor 22–3, 56, 62 application scores 166 Benelux 144–5 Europe 144–5 Florida, Richard 14 Ford 76, 116, 158, 164, 242 foreign direct investment 1, 45 in Asia 1–3 by industry 2–3, 36, 41–3 by region 2–3, 36–41 chemicals 2–3 in Europe 1–3, 33–194; current status 35–44; Southern 159; timing and motives 44–7 in North America 1–3 forms of entry, Japanese manufacturing 105 four-perspective evaluation 12, 77, 129–30, 167 Benelux 147–8 car assembly and auto parts 109–11 France 147–8 Germany 129–30 Hungary 178 Southern Europe 170–1 France 135–57, 267–8 absenteeism 140 annual sales 139–40 application scores 142–7 competitiveness 136 contract employees 155, 157 evaluation by item 148–56 findings of the survey 142–8 flexibility of people 156

four-perspective evaluation 147–8 group consciousness 154 infrastructure 157 job grade system in metal industry 149 job rotation 156 job streamlining 143 just in time 143 labour relations 136, 155, 157 location 135, 138–9 long-term employment 155 maintenance 152 number of employees 139–40; Japanese 139–40, 142 overview of surveyed companies 138–42 percentage of equity 139–40 politics 216 process management 153 procurement 153–4 products 139–40, 141 quality control 152, 153 sex ratios 139–40 small-group activities 154 start of operations 138–41 Taylorism 148 turnover rate 139–40, 142 friction, local 191 Fruin, W. 214 Fucini, Joseph 14 Fucini, Suzy 14 Fujimoto, Takahiro 5 G–5 46 games 203 Garrahan, Philip 14 genbashugi 130, 132 General Electric (GE) 210 in Spain 158, 243 withdrawal from UK 116 General Motors (GM) 132, 254 joint ventures 103, 111, 243, 265 Germany 119–34, 120–1 capital 120–1 cost of labour 119 exchange rates 123 four-perspective evaluation 129–30 hybrid evaluation 123

288 Index

Germany – continued Japanese expatriates 120–1 Japanese plants, exports 120–1 Japanese products 120–1 labour costs 122–3 management 129 mode of entry 120–1 number of employees 120–1 outline of surveyed companies 119–23 ownership 120–1 pattern of hybridization 119 procurement 124–5 regulations 122–3 skills and technology 119 stability of production centres 134 start of operations 120–1 training and education 127 Ghosn, Carlos 240 Gissen 226 global expansion 1 global localization 204 golden parachute 136 government regulations, Europe 82 Graham, Laurie 14 grievance procedure 56, 62 application score 166, 187 Benelux 144–5 Europe 144–5 group consciousness 55, 60, 62, 65, 67, 68 application scores 166, 168, 178; by region 146 car assembly and automotive parts 106–7 Europe 144–5; Benelux 143, 144–5, 146, 154–5; France 154 hybrid evaluation model 11 information sharing 26 labour 59 sense of unity 26–7 small group activities 26 Hasegawa, Harukiyo 184 Hayakawa, Tokuji 217 headphones 218 HiLux 232 Hino Motors 45

hiring method application scores 166 policy 56, 62, 115, 188; application scores 187; Benelux 144–5; Europe 144–5 Hiroshima, NEC 259 Hitachi 45, 48 Holtbrugge, Dirk 194 Honda 45, 105, 196, 246–9, 265 Accord 246, 247–8 Ballade 246 British Leyland 247 Civic 248; export to Japan 249 exchange rates 249 mopeds 246 Motocicletas Montesa of Spain 246–7 motorcycles 246 Peugeot 246 Prelude 246 production costs 247 production strategy shift 246 Rato-Montesa Group 247 Swindon 247–8, 248, 249 human method 66, 167, 170, 171–3 Benelux 147–8 Hungary 178 human resource development, compatibility 56 human result 66, 147–8, 167, 170, 178 Hungary 175–83 application scores 178 business environment 269–70 car production 180 companies surveyed 176 custom duties 179 delegation of authority 179 four-perspective evaluation 178 human method and human result 178 labour relations 182, 269 material method and material result 178 quality control 180 six-group, 23-item evaluation 177 wages 269

Index 289

hybridization 1, 16–19, 192 by industry 60–73 by region 7, 53, 60–73 diffusion of 52, 54 evaluation 8–13, 54–73; model 10 pattern Europe 270–2; Germany 119; United Kingdom 266–7 transfer by region 18 see also application scores; practices/production system; and individual countries IBM

163, 168–9, 170, 171, 211, 219 ICD 164 Ikarus 180 implementation of Japanese practices 143 import restrictions 197 in-house production 90 industrial action 75–6 see also trade unions industrial cooperation 45–6 industrialization and work organization 6 industry specialization by region 44 information sharing 56, 62, 115, 155 application scores 166 Benelux 144–5 Europe 144–5 infrastructure, France 157 inkjet printers 219 insurance products 203 integrated circuits 46, 90 investment see foreign direct investment Ishikawa, Kaoru 5 Ishikawa, Kenjiro 184 island type production 82, 87 Isuzu 45, 265 Itagaki, Hiroshi 3, 14, 16, 158–74, 197–202 Italy 158–74, 268–9 companies surveyed 160–5 Roverto 204, 205, 206, 207, 208 stability 158

unions 268–9 wage system 173 see also Southern Europe Japan Industrial Policy Research Institute (JIPRI) vii Japanese Multinational Enterprise Study Group (JMNESG) vii, 1 Japanese practices see practices/production system, Japanese JETRO 48, 175, 185 JIPRI vii JMNESG vii, 1 job classification 56, 62, 149, 151, application scores 187, 188 Benelux 144–5, 149–52 Europe 270 metal industry, France 149 North America 6 system 111 job rotation 4, 20, 188, 189 France 156 United Kingdom 267 job-hopping 179 jobs barriers between 96–7, 99 standards 4 streamlining 143 supervision 4 joint research and development 45 joint ventures 163–4, 243, 265 Benelux 141 equipment 168 Hungary 175–7 local procurement 167 Rover 116 Southern Europe 160, 170–2, 174 United Kingdom 103, 111 just in time 90, 91, 113, 132, 143 kaizen 4, 24, 99, 242 Germany 125–6, 132 Hungary 181, 183 Nissan 242 quality control 4–5, 110, 115, 181 Sharp 222, 223 Toyota 234, 237 Kamei, Hirokazu 184

290 Index

Kameoka, Etsuko viii Kawabe, Nobuo 35–51, 203–9, 246–9 keiretsu 252, 254 Kenney, Martin 14 Kingfisher 201 Kobayashi, Gen 158 Kochan, Thomas A. 16, 172 Koike, Kazuo 4, 184 Krafcik, John 14 Kujawa, Duane 13 Kumazawa, Makoto 184 Kumon, Hiroshi 1–31, 240–5, 265–72 Kyushu, NEC 259 labour Benelux 142 costs in Germany 122–3 group consciousness 59 labour management 4 innovation 82 job demarcations 94–5 promotions 96 seniority 95 labour market reform 75, 87 labour relations 11–12, 60, 61, 67, 68 application scores 64, 65, 146, 166, 168, 178; ratio 97 Benelux 143, 144–5, 146, 155–6 car assembly and automotive parts 106–7 delegation of authority 55 disputes 88 employee turnover 27 employment laws 75 employment structure 141–2 Europe 6, 57, 144–5, 160, 270; France 136, 155, 157 grievance procedure 28 harmonious 56, 62 hiring policy 27, 115 Hungary 182 hybrid evaluation model 11–12 Japanese methods 171 long-term employment 27 management relations 75, 237, 242

North America 6 old agreements 172 promotion 172 transfer of Japanese system 87–8 turnover 27, 181 labour–management councils 88 laser printers 219 lean production system 16 licensing technology 104 Liker, Jeffrey K. 14, 17 local content 25, 56, 62, 170, 181 application scores 166 Benelux 144–5 Europe 90–1, 144–5 requirements 199 Toyota 234 UK automotive industry 101 local management, nationality of 29 local purchase 58, 113–14, 167 joint venture 167 localization equipment 168–9; maintenance 92 management 191 parts procurement 113–14 product design 82 production 227; equipment 111 location 78, 81, 135–6, 138–40, 235–6 long-term employment 56, 62 application scores 166 Benelux 144–5 Europe 144–5 France 155 Lucent technologies 219 Luxembourg see Benelux MacDuffie, John Paul 14, 16, 17 Magneti Marelli 251, 254 maintenance 23–4, 56, 62, 259 application scores 166, 187 Benelux 144–5 Europe 144–5 France 152 and staff 92, 113 Major, John 75 Malaga 164

Index 291

management localization of 191 performance and factory profitability 70–2 see also practices/production system maquiladora 177 Marie Curie Research Fellowship 194 market Benelux 142 Europe 142; integration of 47–9, 103 segmentation 265 share of local 60 Mason, Mark 265 mass production 13, 136 material management 88–91 analysis of application scores 88–9 application of Japanese methods 91 procurement of production equipment 89–91 material method 66, 147–8, 167, 170 Benelux 147–8 Hungary 178 Southern Europe 173–4 material result 66, 147–8, 167, 170 Benelux 147–8 Hungary 178 matrix organizational model 240 Matsumura, Fumito 148–9 Matsushita 45, 47, 196, 197–202 business performance 198 challenges in Europe 201 development of operations 199–201 operating profits 197 production bases 198 Maurice, Marc 15 Mazda 45 Meister 56, 127 mergers and acquisitions 46 Metro of Germany 201 microcomputers 90 microwave ovens 78, 81, 93, 165, 214, 218, 221 Milkman, Ruth 14

Mitsubishi 45, 211 mixed-model production 131 mobile phones 141, 219 mode of acquisition of companies 163 mode of entry Japanese plants in Germany 120–1 Southern Europe 161–2 Motocicletas Montesa of Spain, Honda 246–7 motorcycles, Honda 246 movies 203 multifunctional skills 20, 56, 62, 92, 150, 215 application scores 166 Europe 144–5 Munakata, Masayoshi 184 music 203 Nakamura, Keisuke 4 NEC 45, 196, 211, 257–61 conclusions 259 DRAM chips 257 Hiroshima 259 on-the-job training 259 Kyushu 259 maintenance of facilities 259 management and production activities 259–60 Scotland 257 semiconductor plant 257 wage and performance evaluation 259 work team management 257–8 Nedcar 265 Netherlands see Benelux Nihon Keizai Shimbun 202 Nikkei Sangyo Shimbun 202 Nippon Sheet Glass 207 Nishiguchi, Toshihiro 5 Nissan 45, 135, 196, 237, 240–5, 247 advance into Europe 241 Almera 243 collaboration with Renault 244–5 exchange rates 244 management practices 243 Micra 243 Primera 243

292 Index

Nissan – continued revival plant 240 Spain 242 UK 243 non-manufacturing investment 159 North America 57 application and adaptation 16, 112 job classification 6 labour relations 6 production system 5 off-the-job training 151 OJT see on-the-job training Oliver, N. 14–15 Olivetti 227, 228, 230 on-the-job training 56, 112, 150, 189 Benelux 150–1 NEC 259 Ono, Taiichi 4 Opel 132, 175, 180 operating time 181 organizational options, Japanese systems 6 outsourcing of workers 97 Ovar plant 234 ownership Japanese plants in Germany 120–1 and proportion of Japanese equipment 169 UK automotive plants 102 pan-European system 201–2 Panasonic 197, 201 paraffin heaters 218 parent–company commitment 55–6 parent–subsidiary relations 28–9, 55, 61, 65, 67, 68 application score 115, 166, 168, 178; by region 146 Benelux 144–5, 146 car assembly and automotive parts 106–7 Europe 144–5 hybrid evaluation model 12 Park, Sung-Jo 184 Parker, Mike 14

parts 82 local procurement 58, 113–14 suppliers, automotive 251 PDI (pre-delivery inspection) 104 Pencoed 204, 205, 206, 207, 208 performance evaluation 4, 130–1 effect on promotion 112 NEC 259 United Kingdom 267 performance-related pay 95, 151 personnel exchanges 201–2 personnel management 94–9 Peugeot 246, 265 photocopiers 141 Piore, Michael J. 136 Plaza Accord 2, 211, 251 point-of-sale systems 219 politics 216 Porter, Michael E. 184–5, 192 Portugal 158–74, 268–9 companies surveyed 160–5 union 268–9 see also Southern Europe position of local managers 56, 62, 144–5 application scores 166 practices/production system, Japanese 16, 143, 184, 215 application 16, 52–74, 105, 105–8, 266; by industry in Europe 68–9, 70; successful 92–3 core constituents 4–5, 7, 17, 111–13; interdependence of 15–16 equipment from Japan 88–91 four organizational options 6 high dependence 15 human method 172 inter company relationships 5 material management 91 prior experience with 103 receptiveness 268–9 transferability 4, 5, 13, 17, 75, 182–3 universality and societal influence 14–15 v. British model vii pre-delivery inspection (PDI) 104 Prelude, Honda 246

Index 293

price competition, electrical components 255 printed circuit boards 93 process management 24–5, 56, 62 application score 113, 166 Benelux 144–5 France 153 procurement 55, 61, 65, 68, 181–2 application score 166, 168, 178; by region 146 Asia 208 Benelux 144–5, 146, 153–4 car assembly and automotive parts 106–7 France 153–4 Germany 124–5 hybrid evaluation model 10 local 25, 152–3, 167 method 25–6, 56, 62, 66, 114; application scores 166 Sharp 221–2 suppliers 25 production activities and management 24, 219–23 control 4 equipment 57, 111 localization of 227 management 55, 57, 60, 61, 65, 67, 68, 152; application scores 146, 166, 168, 178; Benelux 144–5, 146, 152–3; car assembly and automotive parts by region 106–7; equipment 23 method: cell type 82, 83, 86, 87, 98, 206, 215; island 83; U-shaped lines 83 politics 216 problems 183 productivity 212 ratios 3 social relationships 15–16 subsidiaries in Europe 235–6 see also practices/production system products Benelux 141 design 82, 83 development 82

diversity 82–3 France 141 quality 72–3 Southern Europe 161–2 of UK automotive industry 102 profitability 70–2 promotion 56, 62, 96, 205–6 application score 112, 166, 187 Benelux 144–5 Europe 144–5 labour relations 172 qualifications by country 6–7 quality control 24, 94, 113, 114, 190 application score 56, 57, 62, 166, 186–8 automation 93 Benelux 144–5 Canon 228 company wide 5 comparison with Europe 72–3 differences due to equipment 110 Europe 144–5 France 152, 153 Hungary 180 kaizen 4–5, 110, 115, 181 material method 66 multi-functional skills 20, 173 of parts 91–2 production process 93–113 quality management 208 Sharp 221 Toyota 234, 238 Quasar 81 questionnaire survey analysis 184–94 ratio of Japanese expatriates 56, 62 application score 166 Benelux 144–5 Rato-Montesa Group, Honda 247 RCA 218 redundancy policy 190 refrigerators 218 regional comparisons 166 four-perspective evaluations 167 Spain 159–60 within Europe 62–6 see also application scores

294 Index

regional management, Denso 255 regulations, Germany 122–3 Renault 116, 158, 240, 243 Nissan 244–5 research and development 45, 137–8 research studies vii-viii questions 3–4, 7 survey analysis 184–94 revival plant, Nissan 240 rivalry, subsidiaries 202 Rover 104, 108, 265 joint venture 116 quality control 114 Roverto 163, 204, 205, 206–8 Sabanci 233 Sable, Charles F. 136 safety standards, Europe 250–1 Sakakibara, Mariko 184–5, 192 sales growth, Denso 252 Southern Europe 161–2 UK automotive industry 102 Salvador Caetano 233, 234 Sanyo 45, 211 scanners 219 Schlunze, Rolf D. 184, 184–94 Schonberger, R.J. 13 Scotland, NEC 257 semiconductors 216 seniority 95 sense of unity 56, 62, 155 application scores 166 Benelux 144–5 Europe 144–5 Sharp 45, 196, 217–23 development of operations 218 procurement 221–2 quality control 221 Shibata, Hiromichi 4 Siemens 211 six-group, 23-item evaluation, Hungary 177 skills training 4 Slaughter, Jane 14 small-group activities 56, 62, 188, 190 application scores 166, 187 Europe 144–5, 154

small-lot production 4 Smith, Chris 14, 16 social policy, Europe 75, 76 social relationships, production process 15–16 societal effect theory 15 Sony 45, 47, 196, 203–9 Sorge, Arndt 15 South Korea 60–1, 62 Southern Europe 268–9 application scores 168 capital 161–2 export ratio 161–2 finished products 160 four-perspective evaluation 170–1 investment 159 Japanese share of equity 161–2 joint ventures 160 main products 161–2 material method 173–4 mode of entry 161–2 number of employees 161–2; Japanese 161–2 production volume 161–2 profile of plants 161–2 receptiveness to Japanese methods 268–9 sales 161–2 small factories 160 start of operations 161–2 takeovers of existing operations 160 unions 268–9 see also Italy; Portugal; Spain Spain 158–74, 268–9 companies surveyed 160–5 labour relations 160 Nissan 242 rate of reinvestment 159–60 regional differences 159–60 union 268–9 stability of production centres 134 STADCO 248 Stanislaw, Joseph 135–6 start of operations France 138–41 in Germany 120–1 Southern Europe 161–2

Index 295

Stewart, Paul 14 subcontracting 187 subsidiaries, rivalry 202 suppliers 25, 56, 62 application scores 166 Benelux 144–5 Europe 144–5 Japanese, effect of 114 relationships 5 supply chain management 208 survey 18–19, 100–3 analysis 184–94 Benelux 142 Germany 119–23 sensitive areas 192 Swindon, Honda 247–8, 249 Taiwan 60–1, 62 Takamiya, Makoto 13 Takao Kinzoku Kogyo, Honda 248 takeovers 172 Southern Europe 160 Takeuchi, Hirotaka 184–5, 192 Tanaka, Takuo 184 Tarif 56, 126, 127, 131, 133 tariffs 216 Taylorism 136 France 148 technology 119 transfer 57 telephones 218 television 82, 197, 203 Sharp 218, 219, 221 Spain 165, 170 UK 78, 81, 92–3 Tensei-kan see Denso skills school Thatcher, Margaret 75, 76, 104, 116, 266 Toshiba 47–8, 196, 210–16 anti-dumping 214 capital by region 213 European operations 212–16 exports 213 number of employees 213 politics 216 productivity 212 products 213, 215 sales 212, 213 Total Quality Control 4 see also quality control

Toyo Kogyo 45 Toyota 196, 231–8, 247 Avensis 232 Benelux 135 Coaster 234 Corolla 232, 233, 234, 238 Corona 234 Crown 231 diesel 238 European operations 44, 45, 231–8 exchange rates 238 joint ventures 47, 132, 265 labour–management relations 237 local content 234 production subsidiaries in Europe 235–6; Japanese expatriates 235–6; ownership 235–6 quality control 234, 238 tariff treatment 232 Yaris 233, 237 TQC see quality control trade barriers 216 trade conflicts 45 trade friction 199, 219, 232 appreciation of yen 81 trade unions 7, 208–9, 243 Benelux 143 effect on application score 115 Germany 127, 131 Italy 230, 268–9 Portugal 268–9 Southern Europe 172, 268–9 Spain 268–9 UK 87, 103, 267 weakening 135–6 traditional class society 56 craft system 95 traditions, effect on quality 110 training 4, 172–3, 185, 189 application scores 187 Germany 127 transfer of Japanese companies by region 18 exchange rates 78 labour relations 87–8

296 Index

transfer of Japanese companies – continued management and production system 75 methods 96–9 transferability issues 13, 17, 182–3 transitional countries, Europe 250–1 transportation equipment, investment in 159 Trevor, Malcolm 13, 59, 184, 214 Tsukuda, Chikao 184 tsukurikomi 228 Tsurumi, Y. 13 typewriters 78, 81, 218 U-shaped production lines 215 Udagawa, Masaru 5 unemployment benefits 75 Benelux 142 unions see trade unions United Kingdom absorption of Japanese system 99, 113 application scores 76 as attractive location 135–6 automotive industry 100–18 business environment 75–8 car assembly plants 111 education and training 112 electronics: assembly 75–99, 87; factories surveyed 79–80 exchange rates 123; effect 116–17 hybridization pattern 266–7 industrial environment 267, 269–70 job rotation 267 labour market reforms 87 labour relations 75 performance evaluation 267 production cuts 77–8 production past and future 116–18 single unions 267 trade unions 87, 103, 267 wage system 266–7 weakness of local industry 90 worker flexibility 266

worker and management confidence 266 works councils 267 United States see North America universality and societal influence 14–15 vacuum cleaners 218 Valeo 251 Victor 45 Volkswagen 158, 232 Volvo 141 wages 4, 6, 75, 87 labour–management councils 88 shifting of production bases 137 system 21–2, 56, 62, 112, 188–9, 242; application scores 166, 187; Benelux 144–5, 151; Europe 144–5; Italy 173; NEC 259; tables 171; United Kingdom 266–7 Wales vii Warsaw Pact 175 washing machines 218 Welge, Martin K. 194 Westney, D. Eleanor 6 whistle-blowers 94 White, Michael 13 Womack, James P. 4, 13 word processors 78, 81, 91 work ethic 136 work organization and administration 4, 9–10, 62, 87 application scores 166, 168, 178; by region 55, 60–1, 65–70, 146; as criteria 19–23 Benelux 144–5, 146, 148–52 car assembly and automotive parts 106–7 effect of late industrialization 6 Europe 144–5 hybrid evaluation model 9–10 labour relations, Hungary 269 multifunctional skills 20 Sharp 222 team management, NEC 257–8 transfer of Japanese methods 96–9

Index 297

workers age 139–40 barriers between jobs 99 France 139–40 Germany 120–1 hours 139–40 Japanese 139–40, 146, 165; in France 139–40; ratio of 83, 142, 144–5, 171 and Japanese method 92 labour–management councils 88 and maintenance 92 and management confidence, UK 266 number of 161–2; Japanese plants in Germany 120–1; Japanese in Southern Europe 161–2; UK automotive industry 101

outsourcing of 97 sex: division by 92; ratio 139–40 skilled and unskilled 88, 96–7 whistle blowers 94 workplace harmony 88 works councils 7, 156 United Kingdom 267 Xerox

219

Yachiyo Industry, Honda 248 Yaris, Toyota 233 yen, appreciation of 48, 49, 251 trade friction 81 Yergin, Daniel 135–6 Yoshino, Michael 13, 184 Yutaka Giken, Honda 248