Studying Japan from the Inside

What comes next for Japan’s economy? Masako Egawa, executive director of Harvard Business School’s Japan Research Office, sees a period of fundamental change ahead.
by Cynthia Churchwell

Harvard Business School started its Japan Research Office in December 2001—smack in the middle of an incredibly turbulent time for the country's economy. The boom years of the 1970s and 1980s—when Japanese management practices and innovativeness led the world—are in the past. Now economic and political leaders in the country are wrestling with the question, what comes next? Will Japanese companies adopt western business practices, and at what cost to its own uniqueness?

As with the School's four other international research outposts, the JRO is charged with a number of tasks including developing business cases in the country, helping faculty conduct research, and acting as a liaison between the School and the host country. The JRO has completed eight case studies, which will be studied in HBS classrooms for years to come. Another fourteen cases are in production. Executive Director Masako Egawa (HBS MBA '86) discusses the evolution of the JRO and of Japan itself in this e-mail interview.

Churchwell: What has been the most interesting company to write about in your case development?

Egawa: All the companies on which we developed cases are very interesting, and it is difficult to choose one. But if I have to choose one, I would say I enjoyed the case on Nissan Motor, the auto manufacturer that had been turned around by Carlos Ghosn. Ghosn was sent from Renault, the French auto company, which acquired management control of Nissan in March 1999. At the time Nissan had been in deep financial distress and had no choice but seek a foreign partner. Ghosn, who had never worked in Japan but had extensive experiences in other parts of the world, motivated the middle management at Nissan and transformed the culture of the company, leading to the dramatic recovery of its performance. What struck me most from this case was the power of the great leader. It was fascinating to learn that all the reforms Ghosn implemented were originally proposed by the middle managers who had been working for Nissan for twenty years, and that they were instrumental in the transformation process. The same group of people who had been working for an under-performing company can produce outstanding results if they have the right leader.

Japan may be the first country in the world where companies can choose from two different governance systems.

Q: Are Japanese companies receptive to the idea of having cases written about them? How do you work with reluctance or hesitation?

A: Most Japanese companies I contacted to ask for cooperation to develop cases have been quite cooperative. I believe that the high academic standards of our faculty and the reputation of the school certainly make it easier for me to approach Japanese companies. However, a small number of companies in the midst of restructuring declined to become the case site and said that they would like us to write cases when their companies' performance has improved one or two years down the road. I guess all the companies would like to become the case site when they have a good story to tell, but it may be that Japanese companies might be more sensitive to this issue. In those situations, I do not push those companies since there are many other interesting companies for us to research or write cases about.

Q: What types of unique challenges do the managers and companies in your cases face? Do you have a sense of how these might be different from those highlighted by cases produced at the other Global Initiative Research Centers?

A: The cases I am working on with Tarun Khanna and Mihir Desai deal with globalization, which is one of the major challenges Japanese companies face. While globalization is a challenge for all companies in the world, I believe that the issues are quite different for Western companies and Japanese companies. When U.S., European, or Latin American companies go overseas, they can find many countries where they share similar cultures and languages. When Japanese companies go overseas, they have to face completely different cultures and languages. (Other Asian companies may face the same issue. But in Asia, outside Japan, there are only a limited number of companies operating globally, while in Japan quite a few companies have to face this issue.)

Another challenge that Japanese companies face is corporate governance. I understand it is also a major challenge for U.S. companies because of the problems at Enron. Historically, Japanese companies had different corporate governance system from U.S. companies; banks acted as monitors for Japanese companies, and the boards of Japanese companies had been dominated by insiders. In April this year, however, the commercial code was revised, and now Japanese companies can choose from two types of governance systems; one is similar to the U.S. system where outside directors and three committees (nomination, compensation, and audit) are established, and the other is the traditional Japanese system where boards are dominated by insiders and mutual monitoring is conducted. Japan may be the first country in the world where companies can choose from two different governance systems, and it will be interesting to see which system will turn out to be more effective. We are already seeing companies divided into two camps: Sony, Hitachi and Nomura Securities are opting for the former (U.S. style) governance system, while Toyota, Canon, and Matsushita are saying the latter system is better. Companies adopting U.S.-style governance, however, are in the minority.

Q: Besides case production, what other activities is the JRO involved in that may be of interest to managers in Asia?

A: I am currently working with HBS Publishing to figure out how to distribute HBS cases more widely in Japan and how to translate those cases into Japanese so that Japanese business schools can adopt them. There is growing interest in management education among Japanese corporations and universities, and I believe they would like to have easier access to HBS cases.

Q: How do you foresee the JRO contributing to the study and practice of management in the region?

A: In the future I would like to organize academic conferences where we will contribute part of our intellectual capital to the local community which has been supporting the activities of the JRO. Such conferences could provide a learning opportunity for the local business leaders but it is also a great learning experience for our faculty. I would also like to be the catalyst for joint research projects between HBS professors and local academics so that both parties bring their strengths to produce in-depth, state-of-the-art research.

Q: What are some of your plans and goals for the office in the next two to four years? How do you see business in Japan developing in the years ahead? What trends are you noticing?

A: We are currently trying to hire a research associate to enhance our capacity to support the faculty research. Although our activities to date have been heavily focused on case development, we recently received requests related to academic research. As HBS faculty produce more academic research papers, we would like to be involved in those activities as well. We would also like to engage in global research projects in collaboration with other research centers.

I believe it was a wise decision for HBS to establish a research office in Japan. Even though the interest in Japan has significantly declined, compared to the 1980s, major changes are currently taking place in the Japanese economy, politics, and society. The qualities that brought success to Japanese business during 1970s and 1980s, such as lifetime employment, cross-shareholding, and keiretsu (Japanese corporate groupings) are going through fundamental changes. There is ongoing debate as to where Japanese companies are headed, and whether they will adopt many U.S.-style business practices or will maintain its uniqueness. Those changes present very interesting research challenges for HBS.

About the Author

Cynthia Churchwell is a business information librarian at Baker Library, Harvard Business School, with a specialty in the international economy.