The Effect of Japan's Structural Difficulties in the 1990s on the Japanese Management Model

Essay 2003 18 Pages

Business economics - Business Management, Corporate Governance



1. Introduction

2. The Japanese Management Model

3. A Changing Context for Japanese Management in the 1990s

4. Radical Change or Incremental Adjustment?

5. Conclusion


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In the decades after the second World War the Japanese economy experi-enced phenomenal growth. Western academics and press have often praised the Japanese management model as a major success factor for the “Japa-nese miracle”. Many have called for the adoption of Japanese practices in Western firms in order to remain competitive against the Far-Eastern counter-parts. But in the 1990s the burst of the bubble economy and the resulting re-cession have lead to a change in the view on Japanese management prac-tices. Many now see the Japanese model as outdated and ready for a thor-ough overhaul.

This essay explores in how far the problems and structural changes that Ja-pan experienced over the last ten to fifteen years have necessitated a radical change in her management practices. After briefly introducing the Japanese management model in the second section, several social and economic de-velopments are discussed that might have a lasting impact in the manage-ment practices. The fourth section examines and explains observations made about the actual effect on Japanese management in the face of these devel-opments. Finally, the essay concludes that, while incremental adjustments are taking place, rather than a radical change or, indeed, a westernisation of Japanese management, a more fundamental rethinking might take place in the future.


A large amount of literature has been written on the subject of Japanese management, which oftentimes does not capture the complexity of the subject (Handy et al, 1988). On the other hand one can observe a wide array of con-cepts being linked to the Japanese system of management. These include general management practices like long-term planning and consensus deci-sion-making, manufacturing systems like JIT and TQC, and human resource management (HRM) practices like life-time employment and seniority-based wages (Keys et al, 1994).

As is often done in current literature, in this essay the Japanese management model will be understood as a set of HRM practices (Dedoussis, 2001). The key elements of the model upon which many authors agree include a system of wages and promotions based on seniority, enterprise-level labour unions, long-term planning, a bottom-up decision-making approach, recruitment from within the firm, and a range of company incentives like bonuses (Handy et al, 1988). The most prominent feature of Japanese-style management, however, is lifetime employment. Lifetime employment principally refers to the recruit-ment of graduates directly from university which will then be retained until their retirement at the age of 55 or 60 (Sullivan & Peterson, 1991). The indi-vidual elements of this management system are coherent in that they are in-terrelated and build upon each other, at least in principal: for example, since employees must have less fear of becoming redundant, organising industry- level unions is not thought necessary (Fingleton, 1995). This, in turn, reduces union pressure on firms.

As Dedoussis (2001) argues, the Japanese management system has to be seen in the context of the keiretsu, big industrial groupings that are “invariably characterised by cross-shareholdings among major companies and subcon-tracting of labor-intensive activities to smaller firms” (p.175). In 1990 Japan’s eight horizontal groupings, the biggest of which were Sumitomo and Mitsubi-shi, accounted for 18.7% of revenues generated in the economy (Eli, 1998). The management model in its above form only exists within the keiretsu. It does not apply to Japan’s small and medium-sized enterprises (SME), which constitute the vast majority of the country’s companies. Even within the large firms, the model’s application is limited. The internal labour market is a dual one, divided into core and peripheral employees. Only the former enjoy the privileges of the above described practices (Handy et al, 1988), while the pe-ripheral workers are subject frequent fluctuations.

Taking into account the dual labour market, the trend in literature towards adopting “a unified model of Japanese management and the implicit assump-tion about its applicability among all segments of the workforce” (Dedoussis, 1994, p. 187) seems to be an oversimplification of the matter. For the purpose of analysing changes in Japanese management, it is therefore proposed to look at the management model as consisting of an inner and an outer sphere: the inner sphere, or core, consists of the core workers who are managed un-der the principles of lifetime employment and the seniority system. The outer sphere consists of the peripheral workers within a keiretsu, for whom much harsher employment regulations apply.

Many authors have praised Japanese management for being a major reason for the country’s economic success in the post-war period. However, the fact that SME constitute 99.1% of all firms and employ 78% of all privately em-ployed workers (Bosse, 1998a) limits the credibility of these claims severely. The assumption of a link between economic performance and Japanese management practices is safer once the cause-effect chain is reversed: to as-sume that Japan’s economic performance and a changing context influence her management practices. Nevertheless, the size of the keiretsu -networks and their central and dominant role within the export-oriented Japanese econ-omy make the management model a worthwhile object of research.


Although Japanese-style management in its above-described form has only emerged shortly after the second World War, its social roots have been traced back to close-knit agricultural communities and traditional family behaviour patterns, among others (Sullivan & Peterson, 1991). Thus, the management model does have cultural ties in the Japanese society.

On the other hand, the “contingency theory” of Japanese management states that the management model is “a design that served the needs of Japanese companies and of the ‘developmental state’ during the game of catch-up with the Western stage of development” (Mroczkowski & Hanaoka, 1998, p.29). While these findings seem somehow conflicting, one can combine them in saying that the Japanese management model has come into life in the setting of the post-war boom economy, while its components do reflect certain cul-tural values of Japanese society. Under this context-specificity, if Japanese management is confronted with a lasting shift in economic conditions, one might expect to find it under a certain pressure of change, constrained by a cultural resistance to the same.

Since the 1980s Japan has been increasingly confronted with problematic structural developments. One of them is a rapidly aging population, a problem becoming apparent in the 1980s and worsening in the 1990s: The share of population over 65 has risen from 5% in 1950 to 15,1% in 1996 - in 2020 it is predicted to be almost 27% (Bosse, 1998b; Sato, 2002). According to Selmer (2001), a result of this demographic shift is that the systems of lifetime em-ployment and seniority pay put heavy financial burdens on the Japanese companies. As the average employee age rises, the system of increasing wages with seniority would result in more highly-paid senior employees and fewer less-earning, and probably more efficient, young workers.

Some authors have also observed a shift in cultural values among the younger generations in Japan since the 1980 that might affect the system of management.



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University of Nottingham – Nottingham University Business School
1,3 (A)
Effect Japan Structural Difficulties Japanese Management Model East Asian Business Society




Title: The Effect of Japan's Structural Difficulties in the 1990s on the Japanese Management Model