Abstract
“Business practices which place a high value on human relationships tend to raise entry costs. This applies equally, however, to Japanese and foreign companies trying to enter the market” — this has already been quoted.1 A high value on human relationships is also placed on the execution of power.2 The idyllic-humanrelationships image is part of the official front. Reference to Japan’s special character and the roots of its past distribution system has been made: “In defending the keiretsu shops, Matsushita vice-president Shoji Sakuma said the home appliance retail industry’s practices are not exclusive because they are inherited sales methods established collectively by the Japanese industry.”3 This defense is not based on facts. Sales methods in electrical appliances trade have no history by definition, and cannot have been inherited. The present distribution system has been imposed collectively and dates back only a few decades. Seven firms have resolutely built up “families” of distribution, human relationships, the distribution keiretsu. Rigid protection through tariffs and quotas, which held imports at negligible levels, enabled major firms to enjoy windfall profits at a time of double digit economic growth and high demand for consumer durables.4
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Notes Chapter V
The Japan Chamber of Commerce (1989), p. 18.
Dahl (1957), pp. 202–203: “…A has power over B to the extent that he can get B to do something that B would not otherwise do.’ Comparable definitions have been made in game theory. The critique on some elements of the definition can be discarded. It is a human relationship, as has also been stressed in game theory. In economic terms the definition could be translated into the following statement: ”A has power over B to the extent that B does not maximize his profit on a product by product basis“.
The Japan Economic Journal, June 2 1990.
The more criticism is voiced about Japan, the fewer statistics become available. The latest data about export performance are from Keizai Koho Center’s “Japan 1986”. In Dodwell (1988), the following domestic performance in 1986 has been given: It is evident that Sony’s introduction of the 8mm video camera recorder helped that company on the domestic market.
Akai was a specialist maker relying on export markets and would certainly have been bankrupt. Financial Times, September 2, 1988.
Sources: Keizai Koho Center: “Japan 1988, an International Comparison”, Tokyo, 1988; MITI Statistics; “Export Magazine”, Economische Export Bevorderingsdienst, The Hague, May 20, 1989; Japan Economic Journal, June 2, 1990; Tokyo Business Today, September 1990, p. 27. Dodwell Marketing (1988); Nikkei News, November 21, 1990.
It explains why Mr Morita could not desist from complaining about the international monetary system in the period that the Yen was high, called the endaka. In 1990, he was more reticent. In any case, he is more dependent on international trade and the exchange rate of the yen than Mr Tanii, president of Matsushita.
Prestowitz (1986) p. 77. Relatively young companies like Sony and Sanyo have also a higher share of overseas production in total output, according to McMillan (1985), p. 36.
Japan Economic Journal, June 2, 1990. That is a few thousand fewer than in the table given before.
Nikkei News, June 26, 1990: “Toshiba Corp. overtook Sharp Corp. for second place in domestic color television shipments in 1989, scoring 15% against its rival’s 14.5%. This was attributed to Toshiba’s success with large-screen TVs. Matsushita Electric Industrial Co. expanded its range of large screen TVs and retained top spot with 24%. Domestic shipments of colour TV sets in 1989 numbered 9,485,000, down 0.2% from previous year. At least in 1987.” TV Digest, July 13, 1987. Keizai Koho Center: “Japan, An International Comparison”, 1991.
Source: UNICE, External Relations Department: “Main Obstacles to Imports in Japan. Working Paper”; Brussels, February 1985. An updating has been composed from various marketing data, MITI statistics, miscellaneous newspaper articles, such as ACE, Vol 11 No. 9, EIAJ Statistics.
In the Court: Matsushita Electric Industrial versus Council of Ministers“ Case C104/90–1a, No. 362762, 1990, and Defence of the Council, July 11, 1990.
High prices were maintained by first establishing customer loyalty and then limiting availability of the product to keiretsu retail stores“, Tokyo Business Today, September 1990, p. 35.
The interest rate of in-group members of gurupu is substantially lower than that of independent firms: Hoshii, Kashyap, and Scharstein (1991), pp. 33–60.
A Matsushita - National - shop owner is allowed to place on deposit 1 per cent of every wholesale purchase with Matsushita, which in turn pays the retailer 20 per cent interest on the deposit. At the end of March 1991, Matsushita held a total of Y63.6 bn in deposits. Financial Times, May 12, 1992.
The sales margin is about 25% and, in addition, rebates are higher. Japan Economic Journal, June 2, 1990.
The same applies as to the financing of the distributor’s stock: the interest for gurupu members is lower.
International Herald Tribune, March 27, 1992.
Mainichi Daily, July 28, 1988: “Currently, the company [Gold Star of Korea] is selling 14-inch TVs, priced 10 to 15 percent cheaper, than Japanese TVs, he said… At present, its goods are only available in smaller shops and some supermarkets, the official said.”
With the exception of the Dai-ichi Katei Denki home appliances retail chain, which had bought Sears Roebuck refrigerators, although “in 30 years of business it had offered only Japanese goods in its 196 stores.” Financial Times, June 1, 1989.
The Japan Economic Journal, June 2, 1990.
United States International Trade Commission (1990), pp. 68–72.
Mainichi Daily News: “No Barriers To Imports In Distribution System”, April 20, 1983. The Japanese Fair Trade Commission (FTCJ) launched a series of investigations into the electrical appliances and consumer electronics industry. The first took place in 1956, then again in 1966, cases were filed against all the major producers except Sony. Sony was investigated in a related case. The charges concerned cartelization of the domestic market, retail price-fixing, and non-deliveries to non-related traders. The industry, in effect, pleaded nolo contendere. “No fines were levied, no structural changes were ordered, and the manufacturers were allowed to continue meeting on a monthly basis.” Yamamura (1986), p. 182.
Statement by the President“, The White House, Office of the Press Secretary, June 28, 1990.
Financial Times, August 16, 1990.
The source is not mentioned by Beaux, but the figures are supported by experience in antidumping cases, in which sales costs have been calculated and compared. Gross margin comprises all costs and profits. In general, selling costs between factory and consumer are roughly equal to the ex-factory price of general non-fashion consumer products. The experiencewith Japan stems from evidence received as being representative of Japanese firms in such cases. According to the Annual Reports of Matsushita Electric Industrial and Sony, selling, general and accounting costs were respectively 15.4% and 15.7% of total costs in 1990. Costs of Matsushita’s trading companies in Japan come in addition and so do profits. These companies do not publish data and, consequently, there is hardly any insight into cost and profit structures in Japan.
In 1982 Japan’s distribution plus restaurants and hotels had a share of 23% in employment and of 14.09% in GDP, whereas these figures for the United Kingdom were 18.25% and 10.97% respectively. Japan’s employment to income ratio was 1.63 and the United Kingdom’s 1. 67. Sources: United Nations National Account Statistics and OECD Labour Force Statistics.
The Japan Economic Journal, November 4, 1989: “Japanese consumer tastes can be a headache for foreign manufacturers. That’s in part because many Japanese demand perfection in quality and place less emphasis on price than in some other nations.”
Wall Street Journal, April 21, 1987. Other of the many examples are inter alia quoted by Nester (1991), p. 63.
Source: GfK, Gesellschaft für Handelsforschung, Nuremberg, surveys of December 1989-January 1990 in Japan and Germany respectively. In the case of Germany, traceable video cassette players (VCRs without tuner and without recording facilities) have been excluded. In the case of the Japanese product, this procedure has not been followed. The difference might, consequently, be greater.
The Japan Times, January 20, 1988.
International Herald Tribune, February 15, 1988.
The Japan Economic Journal, January 7, 1987.
Financieel Dagblad, November 10, 1989.
The Economist, January 4, 1992: “Retailing in Japan, Toy Joy”.
Dr. William Brooks, Economic Attachee of the American Embassy in Tokyo, Hotel Okura News, Tokyo, December 1989, Vol. 13, No. 12.
Sunday Observer, May 7, 1989: “A Japanese feud from beyond the grave”.
The Wall Street Journal, November 1, 1989.
The Japan Economic Journal, April 7, 1990.
Nikkei News, March 28, 1990.
Handelsblatt, August 14, 1990.
Wirtschaftswoche, No. 22, May 25, 1990: “Spott und Schaden”.
De Volkskrant, Trouw, February 6, 1992.
Porter (1990), p. 97. His remark that “saturation in the Japanese home market is rapid” as an explanation of success of the Japanese consumer electronics industry is not evident from his data, but that market disruption can be a consequence, may be concluded in following chapters.
Van Wolferen (1989), p. 393, reference to: Ishida Hideto: “Anti-Competitive Practices in the Distribution of Goods and Services in Japan”, Journal of Japanese Studies, Summer 1983, pp. 319334.
In the United States the Sherman Act of 1890 and the Clayton Act of 1914 and the and Articles 85 and 86 of the EEC Treaty of Rome make such practices, with some exceptions impossible. According to the case Continental TV, Inc.,v, GTE Sylvania Corp., and later cases some restrictions on deliveries are allowed, but generally only when the economic impact on the market is limited, what could not be maintained of the market share of Matsushita. Source: Clarkson and Leroy Miller (1982), pp. 413–443.
Handelsblatt, April 25/26, 1981.
The Telefunken partner system was approved on some condition that the selection of resalers is based on objective criteria concerning performance of the dealer, his personnel and the equipment of dealer. The criteria should also be applied uniformly and without discrimination. (Source: Gloy (ed.) (1986), p. 245. Consequently, it had nothing to do with the question whether Telefunken would “place high value on human relations”. In the European Community such constructions as made by Telefunken are only allowed if they have no notable influence on the European market. (Hoge Raad, 13 December 1991, No 14 443 “Selectieve verkoopstelsels in de parfumeriesector. Merkbaarheidsvereiste.Motiveringsklachten”; Rechtspraak van de Week 1992, Nr. 8. (High Court, 13 December 1991, No 14 443 “Selective selling systems in the perfume sector. Proprietary brand requirement. Complaints of motivation”)
Moreover, Matsushita maintains unique financial reserves for dealer business development and dividend payments.“ ”Although Toshiba suffered a decrease in sales last spring as a result when retailers turned to hawking other companies’ items, the company claims the trade-off was worthwhile.“ The Japan Economic Journal, June 2, 1990.
Wall Street Journal, January 6, 1982: “Imitators Thwart Sony Unit, Exporting Is Easier Than Importing in Japan”.
Wall Street Journal, August 31, 1989: “Electrolux Forms Alliance With Sharp to Sell in Japan”. Electrolux’s Mr Johansson, who conceded that quick revenue was not expected, is quoted: “This is an experiment in opening up the Japanese distribution system.”
TOKYO Business Today: “Intimate Links Within Japan’s Corporate Groups”, reveals that Kirin beer is preferred by Mitsubishi Group companies, whereas the product brewed by Asahi has the preference of Sumitomo.
Morita (1986), p. 204. “The Japanese economy is a market economy characterized by the vitality of private firms and the discipline of competition,” says MITI: “Background Information on Japan’s Industrial Policy”, May 1983.
The Fair Trade Commission raided nearly 20 Tokyo-based sales affilitates of Matsushita, Toshiba, Sony and Hitachi, because they were suspected of controlling the prices of independent retailers; International Herald Tribune, March 27, 1992.
Japan Chamber of Commerce (1989), p.16.
Czinkota and Woronoff (1986), p.54.
United States International Trade Commission (1990), p. 57.
The debate is neatly outlined in Clarkson and LeRoy Miller (1983), pp. 342–388.
United States International Trade Commission (1990), p. 59.
Car maker’s European strategy, Nissan may export cars to Japan“, is the encouraging heading of an article by Kevin Done, Motor Industry Correspondent, in London in The Financial Times, February 2 1990.
Financial Times, June 18 1990.
Newsletter from Ted Masuda“, November 30, 1991.
Korean Business Electronics, July 1988. Import statistics of the Japan Tariff Association.
According to market data of GfK, Gesellshaft für Handelsforschung, an independent and highly esteemed marketing institute in Nuremberg. Average Japanese and European video recorder prices have previously been compared and there is a price gap. A specific price comparison will be made in Chapter IX.
Mainichi Daily News, July 28, 1988.
Business Korea Electronics, July 1988.
Japan Economic Journal, July 25, 1987, quotes a manager of a large chain store having sold 500 Samsung video recorders.
The calculations have been based on some selected products in the Japanese market in 1983. The source is the Electronics Industry Association of Japan (EIAJ). Prices are ex-works (i.e. excluding selling expenses and some overheads). The market is calculated by adding imports and subtracting exports from the statistics of the Japan Tariff Association, December 1983.
The Economist, December 21, 1991-January 3, 1992
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© 1993 Physica-Verlag Heidelberg
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van Marion, M.F. (1993). Harmony or Economic Power: Japan’s Trade Cohesion. In: van Marion, M.F. (eds) Liberal Trade and Japan. Contributions to Economics. Physica-Verlag HD. https://doi.org/10.1007/978-3-642-46942-8_6
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