Keio Research Highlights

Why Japanese MNCs succeeded in the West but not the East

Japanese multinational corporations (MNCs) expanded to Western countries in the late 1970s and 1980s and flourished. Performance of many Japanese MNCs in Eastern emerging markets, however, has not been so promising. A study authored by Katsuhiko Shimizu at the Keio University Graduate School of Business Administration recently scrutinized this discrepancy, focussing on China, the largest emerging market.

Given that China is geographically and culturally closer to Japan than countries in Europe and the US, it would not be unreasonable to expect Japanese MNCs to thrive there. To understand why this has not been the case, Shimizu first described the pitfalls encountered by Japanese electronics behemoths that manufactured mobile phones with cutting-edge technology in China. Although this technology proliferated in the West, it lagged behind in China and faced stiff competition from local manufacturers of lower quality phones―affordable by the populous middle-class in China. A lack of understanding of Chinese consumers and their preferences was an obvious, but important factor.

To gain an insider's perspective, Shimizu subsequently conducted in-depth interviews with senior executives at 10 MNCs on issues such as marketing, human resources, and operations. His survey suggested that top-level executives at Japanese MNCs are usually expatriates, who inevitably hold positions for short periods of time that are not long enough to implement policies effectively. Furthermore, these companies struggle with hiring skilled workers locally. Interestingly, all the firms placed great value on the Chinese market and were disappointed with the growth there. Why then, weren't measures taken to prevent this situation? Shimizu attributes this to a "quasi-global" mindset.

When entering a new and culturally diverse market such as the United States, company management actively shifts their mindset to understand the systems, preferences, and workings of the new market. This led to initial success, but was ineffective when companies entered the Chinese market to promote their superior technology and products. In reality, markets that are perceived as similar, as in the case of China, are not given sufficient importance to fully understand minor but significant differences in consumer behavior, preferences, and patterns. This complacency results in a mindset that is "quasi-global."

Understanding this concept can be extremely helpful in building strategies to enable companies to thrive in emerging markets. "It is not a lack of knowledge or capability that contributed to the demise of Japanese MNCs in China. It is a lack of understanding of what truly made Japanese MNCs succeed in the 1970s and 1980s in the context of Western markets," concludes the author.

Published online 27 June 2019

About the researcher