Director of INSEAD's Euro-Asia and Comparative Research Centre Gordon Redding and co-author Ted Chan offer four mini-cases describing some of the challenges involved in conducting business in two of Asia's most advanced economies. These include Merrill Lynch's catastrophic and short-lived operations in Japan; the collapse of leading Korean chaebol Daewoo; Japan's bizarre patent-issuing system, and how Japan and Germany compare in job-preservation tactics.
1. Bull Run
Merrill Lynch's Unhappy Experiences in Japan
Even the biggest players in an industry can run afoul of cultural obstacles when entering new markets. As Director of INSEAD's Euro-Asia and Comparative Research Centre Gordon Redding and co-author Ted Chan explain, Merrill Lynch saw opportunities aplenty in Japan in the late 90s. The world's second-biggest economy was to be a centrepiece in the American brokerage giant's goal of exporting its business model to retail offices around the globe.
Alas, Merrill Lynch was soon to be taught a painful lesson in looking very carefully before leaping. Its entry put it head-to-head with Japan's "Big Three" brokerage houses, each of which was both deeply entrenched and enjoying strong customer loyalty.
Moreover, Merrill Lynch suffered from both bad timing and a lack of appreciation of the mentality of the average Japanese investor. In the authors' words, they entered into a "grinding bear market, hoping to attract potential customers who were very cautious even in a bull market".
Despite the fact that 90% of personal accounts within the $10 trillion personal savings market were earning very low interest, most Japanese -- with good reason, considering their performance at the time -- saw domestic stock markets as very risky arenas.
Redding and Chan conclude with a description of other Merrill Lynch major missteps, from its TV advertising campaigns, to its corporate branding attempts. The case provides a first-rate lesson in how difficult entry into foreign markets can be when cultures are so different and economic circumstances are so adverse to full-scale entry approaches.
2. Keeping Busy
Preserving Jobs in Japan and Germany
In 2001, many of Japan's biggest companies were finally forced to face the consequences of a long decade of economic stagnation. An unprecedented wave of layoffs sent a psychological shockwave through a society that had taken secure employment in the post-war era almost as a given.
In Germany, a decade of worsening unemployment had led to calls for major reforms of the country's labour laws. Major companies, however, had shown much the same reluctance to enforce mass layoffs. In both nations, a sense of community obligation on the part of corporate leaders made such decisions highly unpopular.
Redding and Chan compare the reactions of corporations in both countries to intense cost-cutting pressures, and contrasts it with their American counterparts, far more willing to "wield the axe" if necessary. They describe the mentality of Japanese chiefs to see layoffs as an investment loss. When such decisions became fully inevitable, they took pains to soften the social impact in ways almost unthinkable in the USA.
In Germany, until very recently workers enjoyed a degree of protection that also stood in stark contrast to the easy hire/easy fire American system. The authors explain why for so many unemployed, trying to find work simply did not make much personal economic sense, and why government policies acted as a disincentive for companies to hire. Moreover, attempts to overhaul employment policies have long met with fierce resistance from unions and other powerful vested interests
Korea's Chaebol House of Cards
The enormous family-owned conglomerates in South Korea, the chaebols, were the mainstay of the national economy for decades. Buttressed by enormous amounts of government aid, firms like Daewoo and Samsung pursued a "size and diversity equals strength" approach, came to make everything from ships to shampoos.
Redding and Chan focus on the Daewoo Group, which became the country's second biggest chaebol by the early 90s. Its founder, Kim Woo Choong, had long enjoyed a very cosy working relationship with the country's president. For many chaebols, a stifling bureaucracy meant that bribery was the fastest - and perhaps only - means to assure growth.
For Kim, however, a swollen ego and a tendency to ignore or override almost all decisions by subordinates were partly his undoing. His gambler's instinct saw him trying to expand his way out of the predicament Daewoo found itself in during the 1997 Asian currency crisis. It was only afterwards that government regulators were to discover the massive understatement of Daewoo's liabilities. But by then, Kim was in hiding.
4. Pain Without Gain
Japan's Anachronistic Patent System
Shuji Nakamura became a hero for many Japanese researchers. In 1993, he invented an LED system that was to make his low-profile company, Nichia, a world leader in the field. His reward from his bosses, about $15,000, was considered generous by Japanese standards. For Nakamura, it was a call to both take his talents to America, and sue his former company.
Redding and Chan give a detailed account of the Japanese patent law system, which hardly favours the researchers who have done so much to propel the country's post-war economy. While some reform-minded bureaucrats in Tokyo have expressed their fears that revisions in compensation are the best way to reverse a brain drain to more lucrative markets, current patent laws hardly encourage loyalty to Japanese employers based on compensation. "While the whole economy stands to benefit", under the current structure, "the system fails to reward a lone inventor or innovative start-up firm."
The authors describe the stark contrasts between the American and Japanese patent laws. The latter's first to file system, for example, encourages the filing of a large number of applications that tend to be "hurriedly written, narrowly defined and an incremental advance over the original invention."
Bandai, inventor of the Tamogotchi electronic pet that was a late 90s global craze, soon saw more than 30 imitation products flood the world market. The speed of the patent protection process in Japan - where backlogs of up to four years are standard -- virtually guaranteed that the rip-off artists would reap most of the profits from Bandai's innovation.