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Assess Vogel's argument that foreign ownership and/or foreign management has been the crucial determinant of the extent of corporate restructuring in Japan. Refer to at least two cases of corporate restructuring to illustrate your answer.
Corporate restructuring can be defined as "a major change in the composition of a firm's assets combined with a major change in its corporate strategy" (Hoskinsson & Turk 1990, cited in Heugens & Schenk 2004). There are three distinct types of corporate restructuring: portfolio, financial and organisation restructuring. Portfolio restructuring is the reform of the firm's main lines of business, usually through acquisitions and divestitures. Financial restructuring is the adjustment of capital and ownership structure in the firm. Organisational restructuring is significant alteration to the structural properties of the organisation, the most common examples being personnel reductions and alterations in supplier relations. Often organisational restructuring is a by-product of portfolio or financial restructuring (Heugens & Schenk 2004).
An important linguistic point to note in the case of Japan is that the Japanese commonly use the term restora, a loan word from the English restructuring, however, restora typically just has a connotation of layoffs.
For this paper the notion of corporate restructuring as being of portfolio, financial or organisational restructuring will be used to analyse Vogel's assertion that foreign ownership or foreign management has been the crucial determinant of the extent of corporate restructuring in Japan.
Vogel (2006) proposes two hypotheses regarding restructuring and foreign ownership and management. First he posits that Japanese companies with higher levels of foreign share ownership support and impose greater restructuring and corporate governance reform because these companies have to cater to the demands of foreign investors. Secondly companies under foreign management restructure more aggressively than those with solely foreign ownership because foreign management is less likely to be bound by Japanese social norms. Furthermore foreign managers are not restricted by social ties to Japanese partners, such as banks, suppliers and employees, so they are less constrained from loosening and breaking these ties.
To test these hypotheses Vogel analyses 10 cases studies in a range of sectors: automobiles, electronics banking, retail and IT. Within each sector Vogel analyses the extent of restructuring in two types of company, one a Japanese firm with foreign ownership or foreign management, the other a "purely Japanese firm" (Vogel 2006, pg. 159). The firms selected include Sony, NEC, Seiyu and Mitsukoshi.
Within the automobile sector Vogel chooses Nissan, the most prominent example a company controlled by foreign management in Japan, and Toyota, which Vogel regards as embodying the Japanese model more than any other company. Indeed these two cases are clearest examples of Vogel's analysis in the extent of restructuring and hence will be elucidated on here.
Through interviews with the chairman of Toyota, Hiroshi Okuda, and other managers in Toyota Vogel explains how Toyota has made relative few adjustments in the four realms of restructuring: labour relations, corporate governance, strategy, supplier relations and financial structure.
Hiroshi Okuda proudly states that while other companies have reported layoffs Toyota has not changed their approach to labour relations (Vogel 2006, pg.165). Other managers are keen to emphasis the key responsibility of Toyota to provide and maintain lifetime employment. Nevertheless there has been a gradually change to Toyota's labour relations. Toyota has trimmed the workforce from 73,000 in 1992 to 67,000 in 2002 (Vogel 2006 , pg. 166) through reducing graduate recruitment and transferring workers to affiliates. Temporary transfers, shukkou (å‡ºå‘), are also used to aid collaboration with its key suppliers. The composition of the workforce has also gradually altered with a greater use of non-regular workers and dispatch workers. This gives Toyota greater flexibility in meeting fluctuations in demand. In 2004 Toyota swiftly took advantage of the Working Dispatch Law with the hiring of five hundred dispatch assembly-line workers on 3 month contracts. The advantages of employing this type of worker are that they are generally paid less, have shorter contracts and they can be deployed to assembly lines more quickly compared to other non-regular workers (Nikkei April 12th 2004, cited in Vogel 2006). Furthermore Toyota has used more performance-based pay for white collar workers.
Similarly Toyota has made restructuring moves in supplier relations and corporate governance. Other Japanese automobile manufacturer have sought to loosen ties with their suppliers and offload their shares in their suppliers. Toyota, however, has taken the opposite approach, strengthening ties with suppliers and recentralizing control over core group companies. With corporate governance Toyota had never reformed its board until 2003 when it reduced the number of board members from 58 to 27. Despite this change Chairman Hiroshi Okuda is adamant that there is no need for outside directors (Vogel 2006).
While Toyota continued to perform well financially during Japan's "Lost Decade" its rival Nissan delved deeper and deep into financial difficulties during the 1990s. By 1999 Nissan faced huge debts of $16.4 billion and low margins, with only 3 out of 48 models generating profit. Furthermore capital was locked up in keiretsu partnerships, while models became outdated due to a lack of cash flow. Purchasing costs were 15-25% higher than other car companies for the same components. (Ghosn 2002).
Nissan managers tried to cut costs by substantially reducing the workforce. In 1993 they decided to close the Zama plant but met fierce resistance and condemnation from the LDP labour minister, Masakuni Murakami, the Socialist Party and local authorities. They also looked to reduce domestic sales networks, cut inventories and suspend new overseas operations (Vogel 2006). Towards the end of the 1990s Nissan, with assistance of the government, looked for an outside investor. Nissan's preferred partner DaimlerChrysler dropped out believing Nissan was too risky, while another potential partner, Ford, stepped out of the running long before (Ghosn 2002). In March 1999 Nissan signed an "alliance" with Renault, however, in practice it was more akin to a Renault takeover of Nissan with Renault holding 44.4% of Nissan shares while Nissan holding 15% of Renault. Renault appointed its own Chief Operating Officer, Carlos Ghosn, as Chief Operating Officer of Nissan.
Under Ghosn Nissan has implemented a comprehensive restructuring plan that has rejuvenate the finances and status of Nissan. First Ghosn sought to raise capital to revitalise Nissan's dated models. Renault invested billion, while Ghosn raised billion by selling fixed assets and another billion from divestment of shares in other companies and suppliers (Economist, 2/9/2002, cited in Vogel 2006).
Nissan under Ghosn adopted much more strictly cost based approach to procurement. The overall number of suppliers was reduced from 1,145 in 2000 to 595 in 2002 (Vogel 2006). Despite fears of damaged relationships with suppliers from the selling-off the shares Nissan held in those suppliers and demand for price reductions, all Nissan's suppliers posted profits in 2000 (Ghosn 2002).
The other key component in the restructuring of Nissan was the altering of organisational structure, culture and labour relations. Ghosn promoted the use of cross-company teams rather than solely a joint venture. His aim was to merge talent into Nissan and its culture while developing trust with existing Nissan managers. He also created cross-functional teams and replaced regional presidents with committees to foster greater accountability and co-ordination within the company. Ghosn would occasionally sit-in on these committees to monitor emerging talent in Nissan that could be promoted to higher ranks based on ability instead of the old-system of seniority. Performance-related pay was introduced to further incentivize accountability, with high level performers now receiving stock options as part of their pay package (Ghosn 2002).
From analysing the cases of Toyota and Nissan, Vogel concedes that the relative financial performance of the two companies is a powerful impact on the extent of restructuring. However Vogel states that aside from financial performance, foreign ownership and management has the clearest and most powerful impact on the extent of restructuring (Vogel 2006, pg. 197). To emphasise this, from the Nissan case he notes that even though both Ghosn and pre-Ghosn managers at Nissan wanted to restructure it was only under Ghosn that Nissan a comprehensive restructuring could be implemented as Ghosn was not bound by local ties and cultural norms. Kazuhiko Sato, a close adviser top executives at Nissan agreed, "The previous leaders faced the same choices and made similar calculations but when push came to shove, they could not pull the trigger. They were too bound by the web of human relationships" (Vogel 2006, pg. 168).
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