Tag: economics

Wharton Professor Michael Useem joins host Gene Tunny to discuss his new book, Resolute Japan, which unveils Japan’s emerging shift in management practices fueling a corporate revival. Japanese companies are adopting ambidextrous management, empowering frontline employees, and embracing Western practices while retaining stakeholder-first traditions. He emphasizes the importance of top management in driving change and the potential for Japan to regain global economic prominence by learning from both domestic and international best practices.

If you have any questions, comments, or suggestions for Gene, please email him at contact@economicsexplored.com  or send a voice message via https://www.speakpipe.com/economicsexplored.

You can listen to the episode via the embedded player below or via podcasting apps including Apple Podcast and Spotify.

Timestamps for EP260

• Introduction and Overview of the Podcast (0:00)
• Japan’s Economic Downturn and Resurgence (3:30)
• Methodology and Interview Process (5:44)
• Innovative Management Practices in Japan (11:29)
• Ambidextrous Management and Global Influence (21:51)
• Challenges and Opportunities for Japan (42:36)
• Economic Research on Management Impact (42:58)
• Final Thoughts and Recommendations (52:47)

Takeaways

1. Japanese companies are adopting innovative management practices, such as empowering frontline employees and embracing the “gemba walk” to better understand operations.
2. Japanese companies are retaining their commitment to stakeholders, including employees, the community, and the country, while also becoming more open to adopting Western-style management principles.
3. The concept of “ambidextrous management” is emerging, where companies are exploring new industries while exiting declining ones, demonstrating a willingness to adapt to changing market conditions.
4. There is an increasing openness among Japanese companies to learn from and adopt best practices from other countries, which is helping drive their resurgence.
5. The impact of top management changes can significantly influence a company’s performance, suggesting the importance of resolute leadership in driving change and improvement.

Links relevant to the conversation

Professor Michael Useem’s profile:

https://mgmt.wharton.upenn.edu/profile/useem

Resolute Japan book:

https://www.amazon.com.au/Resolute-Japan-Leaders-Corporate-Resurgence/dp/1613631820

OECD Economic Surveys – Japan 2024:

https://www.oecd-ilibrary.org/economics/oecd-economic-surveys-japan-2024_41e807f9-en

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Transcript: Japan’s Corporate Comeback: Inside the Resolute Japan Model, w/ Wharton Prof. Michael Useem – EP260

N.B. This is a lightly edited version of a transcript originally created using the AI application otter.ai. It may not be 100 percent accurate, but should be pretty close. If you’d like to quote from it, please check the quoted segment in the recording.

SPEAKERS

Female speaker, Obsidian, Michael Useem, Gene Tunny

Michael Useem  00:03

Some of the impediments to competing globally, Japanese firms have begun to push back against those impediments, to adopt their own resolute method, and thus believe that companies everywhere in the world would behoove themselves to take a look at Japanese companies, close in if they have a partner, go to visit, walk around, what’s going on, what can we borrow back here in our home country that Japan is now mastering?

Gene Tunny  00:34

Hello and welcome to the show today, we’re joined by one of the foremost experts in corporate leadership. Professor Michael Yaseen from the Wharton School, and we’re talking about his new book, resolute Japan. In the 1980s Japan was seen as an unstoppable economic force, but the 1990s brought a sharp downturn, leading to the lost decades. Now, Professor you seems extensive interviews with top Japanese executives reveal how the country is experiencing a resurgence. Japan’s companies are adopting innovative management techniques, empowering frontline employees, embracing the gemba walk and incorporating Western practices while still valuing their stakeholder first traditions. In this episode, we’ll explore the remarkable resurgence we’re starting to see in Japan’s corporate giants. A special thanks to Lumo coffee for sponsoring this episode. This top quality organic coffee from the highlands of Peru is packed with healthy antioxidants, economics explored. Listeners can enjoy a 10% discount. Details are in the show notes. Now let’s jump into the episode. I hope you enjoy it. Professor Michael, you seen Welcome to the program. Gene,

Michael Useem  01:53

thank you for having me.

Gene Tunny  01:54

It’s good to connect. About your new book, resolute Japan. Now Japan is, yes, it’s a fascinating economy. I mean, you set it up the book by talking about the the fact that Japan had a reversal of fortune. They’re all the concerns or, well, in the US in the 80s, about how potentially Japan could overtake the US. And then there was some really now they seem crazy predictions of the coming war with Japan and all of that. But then Japan had the economic crisis in the 90s and the lost decade. But now it looks like things are turning around. And part of that is a a resurgence in corporate Japan due to new practices. So this is the this is the thesis of your new book, resolute Japan. Can you tell us please? Well, one is that summary broadly correct about the thesis of your book. And two, how did you get interested in this topic. What? What motivated you to write this book? Please. Michael gene,

Michael Useem  03:04

the thesis is absolutely on, on the mark. And just to elaborate a little bit before about 1990 to paraphrase the title of a book by one of my professional colleagues, Japan, was number one. The growth rate was extraordinary. Toyota cars were being sold all over the world. Panasonic is a brand that everybody came to know. Some of the largest banks in the world were Japanese banks. And then came 1990 and Japan went off a cliff. And in fact, it lost not only a decade, but it probably lost three decades, as at least indicated by the big stock index for the Japanese or the Tokyo Stock Exchange, which at one point was close to a value of 40,000 and us, by the way, is just a little bit above that. So there’s a certain parallel here, we hope not, with what happened in Japan after in 1990 the index got to 40,000 and then it just the index went off a cliff. Japan went into reverse. Searches on Google for the name Japan dropped by about 80% so coming into that 1990 turning point, the adverse turning point, Japan had become a model and Gene if I can just be a little bit colorful about and I’ll get to your second question in a second about that period, I had attended a conference that included a number of practitioners, A number of business leaders, a number of academics. It must have been around 1989 everybody was talking about, how are we going to learn from Japan how to run an economy, or at least big companies? Because they seem to be extraordinarily successful, and we at the end of three days of lots of academic. Can practical talk somebody, a CEO of a company, in fact, said we haven’t come up with any sure fire way to learn how Japan does it. So what we actually ought to do is teach Japanese managers to be like us. If we can’t raise ourselves up to them, we at least can bring them down to where we are. Well, as it turned out, Japan needed no help whatsoever. On that, the index plummeted down to about a value of about 10,000 it’s now, though, over the last couple years, it’s not only a lost decade, it’s probably a lost three decades. It’s 1990 almost, well more than 30 years later, almost 35 years the index over the last several months has just come back to life and is up over 40,000 right now. It’s quite remarkable. It’s one of the great comebacks. And our book is based on interviews with a number of Japanese company leaders, typically chief executive officers. We wanted to know. We didn’t go in with this question, but we ended up asking it because it was pretty obvious. It was the big question. We went into our interviews with over 100 was 102 leaders of big Japanese companies with other theories at hand, or other indications of what we might find at hand, but what we did find in talking over the last couple of years with people who run these well known companies, some less well known, is that they have adopted a new set of let’s call them leadership principles at the top, which seem to be doing the trick. So Gene started to go on so long on that, but that’s the long and the short of it.

Gene Tunny  06:46

Okay, now we’ll get to those leadership principles. I think I want to explore what they are. But first, can you tell us about the methodology I’m interested so you’re talking with Japanese corporate leaders, so C suite executives, who did the interviews? Did you have Japanese speakers, or were they conducted in English? Can you tell us a bit about how the interviews were conducted? Please?

Michael Useem  07:11

Really good question. I’ll give you a little background on it too. I myself have interviewed many, many senior leaders, sometimes directors, non executive directors at companies in the US. I’ve done that extensively and recently with several other colleagues, we did a similar study of leaders of Indian companies. We’ve done subsequent to that, a similar study of leaders of non state owned large Chinese companies like Lenovo and Alibaba. And our method is very simple. We simply call up or write and then send an email message and then, if accepted for an interview, we simply get on the phone, or, in the case of India, we actually went to India and talk directly, informally with those and generally speaking, we’ve received a lot of yeses from people in that high office. They’re busy. We appreciate that, but explaining what we’re doing, they seem to be drawn to it. In the case of Japan, because of COVID, we worked with a Japanese associate, a Japanese colleague, who is now the dean of the Waseda business school, one of Japan’s major business schools. He’s fluent in English and obviously in Japanese. And he arranged for interviews, typically zoom based interviews with the 102 individuals, in some cases, they were conducted in English. That was great for us, and other circumstances, no, but we had a simultaneous interpreter working with us. So between to put a put a bit of a stripe, or maybe a to tie a bow around the question, we decided based on our prior experience. Certainly this was coming partly from me as well, not just my other colleagues, by the way, and working also with a Wharton colleague. His name is far beer Singh. Is professor of strategy here at the Wharton School, the professor in Japan, the Dean now of the waste of Business School is a professor of management, and we essentially set out to hear we looked at the data that you can find, publicly released data, of course, but we worked on the premise that the best way to understand what companies are doing, or one very Good way, is to talk with people who are doing it, chief executives, board chairs and beyond. So we talk to people who are on the inside of Japan’s amazing comeback, right?

Gene Tunny  09:52

Okay, and what were the practices, or what were the the innovations in leadership, in. Management that you found in your interviews, please. Michael, yeah,

Michael Useem  10:04

this is the key, sort of the key, central issue that we were trying to get at. What exactly are Japanese senior executives and some board members doing now to stage this remarkable comeback? And by the way, the comeback is being matched by investor interest. Even Warren Buffett is now increasingly looking at Japan for investment opportunities. All this is because the Japanese share prices of many companies are way up and on. Talking with the 102 it’s we’re a little bit like anthropologists. We’re listening, how does, how does everybody but what are they saying they’re doing? And then we look for the common themes across what we’ve heard, and they’re really three or four. Let me just mention maybe the two, most important, number one, they are shaking off in some of the traditions of Japanese management, which in the day prior to 1990 seemed to be a very good thing, no layoffs. Seniority prevails, pretty much a male dominated world of management. And since 1990 but especially in the last 10 years, some, not all, but many companies have decided, almost Australian us great style, to rethink how they manage by instead of kind of making pronouncements from the from a high cast list of what People ought to do, they the CEOs, sometimes board directors as well, have made a point to listen to their middle and frontline employees. Instead of telling them what to do. There’s a much, much more of an act of seeking out from the ranks what should do, which is a way of saying, let’s talk to management much if it’s the consumer products company, much more in touch with consumers of that kind, they know far better than somebody at headquarters where the market’s going what’s critical and for reasons we could go into Japanese new fairly recently appointed Japanese managers have adopted what is almost commonplace in the west and in Australia, which is to you are the chief executive, you have enormous authority, but in making decisions, what people are saying in the mid ranks, and even better, let’s talk to some consumers. Case in point, just, I’ll end on this, just to anchor the point, Lawson is one of Japan’s great call them convenience stores, a little bit like we have in the US, 711 and I’m sure in Australia, have similar stores, very convenient, often open 18 hours. In the case of 711 7am to 11pm Speedway is another brand here in the US. Lawson is akin to those brands convenience stores. And the tradition at Lawson, going way back, is the people at the headquarters would say, look at this store. You need to stock the following, and here’s how you need to sell, and here’s how you need to bring what you’ve got on the store shelves to the attention of local customers. But a new chief executive came in and said, This is nuts. The people in the stores know far better than I do from from afar, what people should have available on the shelves. Case in point, to make that very tangible, there are a number of losses stores near Fukushima, the nuclear power plants that almost went sky high after the tsunami of 2011 in Japan. And the store already, this is now more than a decade ago, the stores were permitted to stock what people needed. Well, around Fukushima, what they needed was water. They needed food supplies. They needed gasoline. And instead of that coming from Tokyo, kind of a top down instruction, make these things available. Store managers simply said, we have authority. We’ve been delegated authority to get the job done, and we’re going to do it. There are a lot of course parameters around that. It’s not just a free for all of course, but it is a management method that is more familiar to companies in many companies out countries outside of Japan. That’s my number one. That’s our number one finding is a willingness to adopt some of the principles that describe management of large companies and many in many countries in Europe, certainly Australia and New. Zealand and in the US. But before we go too far with that, what Japan has not given up, what these large Japanese companies has not given up is the commitment to multi stakeholder obligations that is, unlike in the US, where we tend to focus on total shareholder return, market value plus dividends paid out in the given year. It’s the currency. It’s sort of the currency of the land. Japan has long put a huge emphasis, you know this, your listeners will know this, a huge emphasis on stakeholders. That’s one of the reasons that they were typically knowing that employees are one of the great stakeholders. No layoffs for a long standing tradition, no layoffs and seniority. That the the point I’m making is just to round it out. And then back to you is that some, not all, I want to stress not all, but many Japanese companies have retained that commitment to stakeholders other than shareholders. So the community, the country, the employees still are at are right up there on the level with the big investors, the big institutional holders, the as we call them, in the US, sometimes the small investors, the widows who have their life savings tied up in stock, say, in general motors. In the case of, let’s make a Toyota the closest parallel to General Motors. The commitment there, we did an interview there. The commitment is to not only shareholders, but retaining what was pre 1990 the commitment remains very strong, to make certain that the country serves the society, the community, and the people who make the automobiles that come off the line. Gene back to you. Oh,

Gene Tunny  17:01

great. Yeah, very good. So on Toyota. That’s interesting. One of my colleagues, Nicholas, grew and who’s an economist as well. He’s often on the show. He used to work on auto industry policy in Australia. Well, we had a car industry once that it was protected by the tariff wall, that’s another story. We got rid of that. But he he visited, like, he tells a story about, you know, visiting the Toyota factory back in the 80s or something, and just how impressed he was with their production methodology and how they actually did listen to workers on the factory floor. This was 40 years ago. So it sounds like Toyota were all already well advanced in moving away from very traditional business models. But have they made more changes? Are they more flexible? Or you talk about ambidextrous, ambidextrous management? Can you tell us a bit about how has Toyota itself changed a bit more about Toyota, please? Yeah,

Michael Useem  18:05

yeah. Well, Toyota was pretty much already there back in 1990 the phrase that comes from the title of a book written by several US observers of Toyota, the machine that changed the world. It’s a book that probably many of your listeners and viewers know, a person named Womack was one of the authors. If you want to track that down, on one of the websites, the Machine that Changed the World in Toyota, going all the way back to the 1940s right after the war, developed a course, and you alluded to it, the Toyota lean production system, and it worked extremely well, and still does work well, and in fact, in the US, just to anchor the point, a year ago, Toyota emerged as the number one producer of automobiles sold in the US General Motors, our historic giant of auto making, which at one point had 50% of the US auto market back in the early 50s, is now exceeded in cars sold in the United States by Toyota. And that’s essentially, I think, traceable to the fact that Toyota, going way back, came up with continuous improvement the lean production system. There are many features to it, and in some respects, Toyota was already there. Other companies less so, less concerned with the microcosm of the production line. You know this, I’ve walked through a Toyota plant. It is a marvel to see in that the micromanagement of people on the floor is quite extraordinary, very disciplined. And I say that because I want to reference the fact that these Japanese companies have not given up what has historically defined some of their stronger manufacturing and management. Methods, but they have, though, in addition to those methods, the discipline on the floor, and there’s a long tradition of Japanese managers doing what’s called a GEMBA walk, which I love as a concept. I wish it happened more often in my own sandbox here, which is to go to where automobiles or maybe home products, if it’s the consumer company of that kind, where they’re actually made, and then even equally important, where they’re sold, to see how the company can add more value to the production and to the sale of the products. So gene, it’s again a long winded way of saying that what we call resolute Japan is resolute in its ongoing commitment to many of these methods that serve these companies very well back in the 1990s but then as some of those methods were adopted by Western firms in North America, Europe and, I’m sure, Australia, the advantage that Japan had in the world market began to erode against some of the international firms, non Japanese firms that were becoming very good at Japanese and their own management methods. Quick summary point is that Japan has in the last decade many companies, certainly not all, but many have not given up the good that they had prior to the falling off the cliff in 1990 but they have since, especially over the last 10 years, come to appreciate, and you referred to it earlier on, appreciate that sitting on assets that are no longer performing is not a good idea. They got to move off from that traditionally, that was hard because they had to lay people off that was resisted, seen as UN Japanese, and so some of the impediments to competing globally that became increasingly pronounced, some of the impediments increasingly pronounced after 1990 Japanese firms have begun to push back against those impediments, to adopt their own resolute method. And thus, to a quick final summary point. We believe, myself and my two co authors here, believe that the world, companies everywhere in the world would behoove themselves to take a look at Japanese companies, close in, if they have a partner, go to visit, walk around, what’s going on. What can we borrow back here in our home country that Japan is now mastering, without giving up its traditional some of its traditional commitments, which turn out to be an asset as well.

Gene Tunny  22:51

Okay, and do you have a hypothesis for how this has occurred? How? Why have these methods? Why are they increasingly adopted what you call this resolute Japan model, the RJ model. Is it out of necessity? Is it out? Well, I suppose necessity is driving a lot of this. But is it? Are they? Are they doing? Are they studying in in other countries, their senior leadership, are that? Are they going on study tours? What’s the what’s your hypothesis? Could you tell us a bit about that, please?

Michael Useem  23:22

I think it’s yes, yes, and yes, they have made pilgrimages to, I’m sure, to various enterprises in Australia. They’ve come to the US. We have many Japanese students, for example, in our in our business programs at the Wharton School, some sent by their company. These are sometimes people in their 30s and 40s, not just 2627 year old students. So that’s a yes on that. I think the care seems to be a kind of discipline. When the bubble burst, when the Japanese market that had hit a value of 40,000 tumbled down to 10,000 in the years that followed. You can imagine that boards of directors and senior managers were extremely vexed by that, and it did seem to open up their eyes to what could they borrow, what could they adopt, what could they bring in from other national settings, even if there weren’t a lot of examples within Japan at the time, I think also American and some of the larger elsewhere based consulting firms, which you know this, bring ideas from one company to another. Here are some ideas on how to think about your strategy, how to sell your product. What is one is a good time to get out of a sector. How do you get out of a given arena and get into a new arena that can be more productive? I think it’s the combination of all the above. We asked all of the 100. And two managers to help us understand their appraisal to that question. And there was no simple single factor. It was a combination of many to make that put that in the positive, though, I think it’s an era where learning from other companies, wherever they may be, Japan, China, we spend a good bit of time in India, Australia, New Zealand, US, Mexico, Canada. Good to take a look, especially at companies in your own industry that are doing very well, even if they’re not in your home country. And in fact, we’ve been running into people who have done what might be called industrial tourism. They’ll take off a couple months. They’ll go to visit Apple they’ll look in the US here though. They’ll spend a couple days at Walmart. What exactly, even if they’re not in either of those particular industries, smartphones, in one case, consumer products. In another case, we believe, and this is, I think, evident in the fact that many senior managers now do, and I strongly advocate this. Make themselves, put themselves on it. Let’s call it a sabbatical. They’ll take off for a couple weeks. One person we’ve interviewed at length took a three month sabbatical, the CEO of a US firm, bank, in fact, go take a look at what other firms are doing. Most of what they’re doing you can’t import to your home territory, but some things are good. That’s a way gene of saying good ideas, fresh ways of dealing with relatively tough global economy these days are invented, often not here. So if we’re into NIH, not invented here, we only look at our own ideas, which was part of Japan’s problem, you’re probably going to end up in a small niche cornered in by companies that have, have looked around, have got some really good ideas on how to make better products at a lower price.

Gene Tunny  27:00

That’s good that they’re, yeah, they’re open to those, those ideas that they’re they’re flowing in. Because maybe this is more of a gratuitous comment, but Japan is, I suppose, seen by many, as a bit of a closed society or a hard society to to get into. And certainly they have very low immigration, like I looked at the OECD Economic survey for Japan before I popped on this call, and the population projections are just dreadful, and that’s that’s seen as a potential challenge economically. So perhaps they need to be more open to immigration. You know, they could absorb some of the immigration that some of the Western economies are taking and which are causing sort of growth problems for us now, and absorbing them anyway. That’s, that’s a good that’s a gratuitous comment. You don’t need to respond to that. But I just, I was, it just occurred to me when you were talking about their openness to ideas, well, maybe they could be a bit more open in other areas. So yes,

Michael Useem  28:04

and then to add one more area to that list, from my standpoint, you’re totally on the money. Japanese management is still very male dominated sport arena, and I think in time watching what’s happening in many European countries, maybe above all Scandinavia, but also even here in the US, the inclusion of women in middle and senior management ranks and going on to boards. Those trend lines in many countries are strongly up, not yet up in Japan, although there is some movement, and I actually think in time, excluding half the population from consideration of employment or service on your board seems a little bit arbitrary. I think because many Japan companies are open to ideas now not invented here, including the fact that we may want to look for people who didn’t grow up in Japan, aren’t Japanese citizens, aren’t of the male persuasion. I think next five or 10 years, stay tuned. We’ll see where that goes. But I’m cautiously optimistic that we’re going to get some movement and all the above.

Gene Tunny  29:18

Okay, we’ll take a short break here for a word from our sponsor.

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Gene Tunny  29:53

now. Back to the show. I’d like to ask about this concept of ambidextrous. Business Management. You talk about Panasonic and how it it ended up with a new CEO for Amber, dexterity. Can you tell us a bit about that, please? What happened with Panasonic?

Michael Useem  30:12

Yeah, yeah, sure. Well, maybe just to back up a little bit and add one more element to what’s what are pushing some of the changes we’ve been talking about, everybody can change. I teach a whole course on organizational change, so I’m optimistic that we’re not born as an a person for the rest of our lives. We can make changes. Some of the changes come hard, but they can be embrace and in our experience with these interviews, many of the companies that had not changed after Japan went off that their company went off the cliff with the other companies back in 1990 new management came in and said, the way we’ve been working in the past is nuts. And so we did see that that a number of companies, and Panasonic is one of those. And if you think about, what does it mean to be open to change if you’re running a company like Panasonic or Hitachi? Hitachi, by the way, 300,000 employees Panasonic, not as many, but these are just enormous companies, and they’re in many markets and ambidexterity, to use that phrase you used a few minutes back, as people become more ambidextrous, senior managers become more ambidextrous, what that means is they are more Ready to get out of a declining industry and more ready to even if they’ve never really been in some new terrain to get into it. So you need to exploit what you’re already good at. But you also need to know that DVD tapes, at one point were like number one around the world if you wanted to watch a film. But that industry died as streaming came along. Netflix in the US made that change. Blockbuster arch rival did not make that change. They were not ambidextrous. They were not willing to get rid of the DVD format in favor of the streaming service. Revision of films and beyond. So ambidexterity slowly coming, but definitely coming to Japan. It’s worldwide. Means that senior managers, probably in consultation with consulting firms, are working hard now about how do we get out of an industry that doesn’t have much of the future. Let’s go explore and see if we can’t get into something else. One person we spoke with at another company put it this way. He said to his senior team in in 10 years, 2030 this was an interview a couple years ago. Now, by 2030 I want 80% of our income to come from five sectors we’ve not been in before, and here they are. So kind of starting from scratch. And it was, I think, a good move, because the sectors he wanted to get into, one of his senior managers to pursue actively turned out to be growing, and other areas were dying. So ambidexterity references the call it the portfolio and a willingness new part of the resolute Japan to exit areas that are that are ultimately slated to phase out. Think about what digital has done to so many areas of business these days, and with some trepidation, you want your managers to explore, where else can we go with what with the strengths that we have, with the capabilities that we’re good at, that we wouldn’t even think of as necessarily part of our own company? Anyway, I think Panasonic is out there. Is that the frontier of doing exactly that Gotcha.

Gene Tunny  34:01

So which company was it that wanted, just so I get this right, what was the company that wanted to have 80% of its revenue coming from five new business lines? Is that Panasonic? Or is that another company?

Michael Useem  34:17

That’s another that is another company, but we heard the same thing in Panasonic, not quite so sharp edged, okay, but, you know, I’ll throw a phrase at you which kind of sums up the point when it comes to leading enterprise, what got you here won’t get you there. So we were really good at, for example, producing DVD players, but that got us, that got us to our executive vice president title. We were excellent at managing that technology. But those that are following us in these elements. Positions aren’t going to get ahead by doing the same thing. So it’s almost an axiom of leadership. If you’re good for four or five years with the fundamentals, thinking, strategically, communicating, persuasively, those don’t change, but the specifics do, and thus, what got you here in terms of what you’ve managed, will not get you say that the year 2030, and many Japanese firms that we interviewed, we heard a refrain, not in so many well, in so many words, not quite the same phrasing, but in so many words,

Gene Tunny  35:33

gotcha. And I think what I found interesting about the book is you do think you highlight the areas where Japan is still, it’s still strong and very, some very high tech production techniques, isn’t it? Is that, right? It’s involved in, yes, yeah. So there are there, they do still have a lot of there’s still some advantages and things that they’re doing very well,

Michael Useem  35:58

absolutely. And that’s why resolute seem to us to be the right title, because there’s it really refers to the attitude of top management, and that is a resolute determination to take what they do well, to borrow from other national settings, not to mention one another, to adopt the best practices for getting the job done the product sold in a way where consumers, or other business consumers, really want the product that the price offered. They are determined to kind of revamp how they getting the business done, which is a way of saying, this is at the micro level, the macro questions, which are the presume the the preserve of economists with wonderful insights into what can stimulate or discourage, say, Japanese business, all that’s very important. Let’s call that the macro drivers. But at the micro level, the people that go to work every day and run the enterprise, they have stumbled on resolutely, a new set of practices that we think are going to bring the Japanese stock market, that’s one of the macro consequences above where it is now, and bring back some of the Japanese competitors that the US competitors feared back in 1990 But for the last 30 years, I’ve not paid much attention to and we think that in time, companies, it’ll take a while, companies around the world are going to increasingly stop off in Tokyo, as they are looking for best practices around the world. Japanese resolute management or leadership, is one of the topics they need to take a look at.

Gene Tunny  37:43

And the book you mentioned that like, while this resolute Japan model is growing in, in in the adoption of it, it’s still only a minority of companies, isn’t it? Is it still? Is it 10% or so you said? But perhaps, yeah, right, yeah, right.

Michael Useem  38:01

There are beach ball and beach heads. But because I think that those that are in that 10% or whatever it might be, it’s still a minority, are bringing back the luster of their brand, the value of their products, not only in Japan, but worldwide, making Japan actually no wonder the stock market is up. These companies have become more competitive those that have been at the frontier. And we think that other other Japanese managers, or certainly a new generation of Japanese managers coming up the ranks, whether at JL or Nissan, they are going to, just by looking around thinking, they’re going to be thinking, well, look these, these companies that are our neighbors, maybe not in the same industry, they’re making pretty good headway. And just to make it a little bit more tangible, one of the one of the observations, or one of the extracted conclusions from our interviews is that Japanese managers, senior managers, increasingly, do not stand on their station. They’re willing to get out of the corner office to get out to where the this is the gemba walk to where the product is being made and sold, and to not tell people what to do when they’re there. This is what Elon Musk tends to do, as I think you know from his management or his ownership and management of Tesla, he not only walks the line, but he tells people then how to improve the line. In the case of these Japanese managers that are out of the corner office onto the shop floor, working with customers at Lawson’s directly. They’re on listening tours. They again, they said this to us. This is one thing we picked up. We say, Well, why would you go to a local store in the case of Lawson? Well, I kind of want to know what’s going on. How do they sell what? What do customers want these days? That’s. Different so gene, I think this is one of the, maybe the hidden engines of change, which is, and there’s a long tradition in many national economies of looking for better ways of getting a job done in management, by looking at what high performing companies are doing that are new, fresh and something that we could adopt resolutely and try in our own enterprise.

Gene Tunny  40:28

Yep, very good. So I found the bit in your book. I like this. There’s a good list of worldwide markets that Japan is dominating in a wide variety of product niches, and I think it’s a really good list, and I’ll just read a couple of them, silicon wafers. Japanese companies account for 60% of the global share of silicon wafers, for making semiconductors, bearings, so something probably not a lot of us think about. And there’s three companies, Japanese companies accounting for 34% of the global market. And there are variety of other important products there for manufacturing. So I think it’s, I think your book is useful just in that regard, and learning about what Japanese companies are doing its role in the global economy. So, I mean, I recommend it, because I think your thesis is an interesting one, and there’s some good evidence there. And also, yeah, all of the you know stuff, all of the information and knowledge about the Japanese economy and its role in the in the global, global supply chain. So I think that’s, that’s really good, right? Gene.

Michael Useem  41:34

Think, yeah, thank you, Annette. And just my, I guess, of going away thought, here is, how do we learn more about how these companies that are making semiconductors and ball bearings and glass and construction and equipment and auto electric autos? How do we learn about what they’re doing? Lots of commentary and business periodicals about that these days, Japan has kind of come back in terms of our paying attention, but in my own humble view, thinking about, how do we learn to lead what we have not let’s make it semiconductors. How do we acquire the capabilities to build a Fab Lab, a billion dollars at least, to put that up. And then how do we make the best of what we’re doing once we’re there? I actually think there’s no better way to understand that than to pay a visit to those that are doing it. And I say that gene in part because we run a program, and I’ve learned, I guess, through experience, we run a program for CEOs, and they so think about that a CEO who, at that point in life, pretty much knows everything about everything, marketing, finance, operations, how equity markets operate. And nonetheless, the CEOs they do come there, these are often new CEOs who want to learn more about the art of being at the top of a rather big pyramid in some cases. But having said that, I’ve noticed that they pay special attention to other top executives and directors in that new CEOs trying to learn the trade or the craft of being a company leader, I tell them to, you know, take a course, for example, at a university along the line, pick up a book or two. But above all, I’ve noticed, and I reinforce this now, spend some time with people who are making the changes, who are leading the new way of doing business, and you come back with a proof of concept and a couple of concepts that are going to make the difference. So going to Japan, taking a look, no better way to learn it than to see it.

Gene Tunny  43:54

I think that’s right. You’ve got time for two more questions. I hope. I think they might be, should be quick ones, one. I’m just wondering, are you talking to any economists, or any economic researchers that you know of interested in quantifying the contributions to Japan’s, you know, stronger economic performance in the last, what, several years, or whatever it is, or decade, relative to the period before in from 1990 through to the early, mid 2010s I suppose, because I think this is, you know, potentially, these new management practices part of that. But I’m not sure what fraction of that improved performance that account for. So that’s just wondering, if you, if you know of any research going on there. So

Michael Useem  44:43

gene, I don’t know of any research going on directly by economists just way outside my my field of knowledge, having said that, it’s really important to take those factors into account. Interest rates. So the Bank of Japan has been trying to shake off the senevolence of the last 35 years with various central government edicts that change how interest rates or what they are, for example, and other methods to try to stimulate the economy. Really, really important. But gene, here’s a summary way of thinking about the world we’re in. There are several really good studies of the impact of top management, aside from the world you’re in, the province of, say, economic research. What is the impact? For example, here’s how the research goes, what is the impact of a change in the top person at a company? Same kind of research is done for sports teams. So think about a rugby team, or, in our case, a US style football team, where the research has been done, if we don’t change the rules of American football, if we take the bulk of the sports club with the same players, the same venue, the same fans, and then we change out the general manager or the head coach and watch what happens next season. Same thing has been done for private sector companies in the US, the right or the wrong person, the right or the wrong management philosophy at the top can make as much as 20 to 30% difference within the next 12 to 36 months. What next one to three years? It’s a way of saying, I think, to come back to what’s implicit in your question, in in the Japanese government itself put forward policies, and it’s been working, by the way, in reforming governance in ways that I think are going to be very productive, new rules that guide board behavior, just as you had in your country. We certainly have had a lot in the US after the failure of Enron some years ago. All that’s really important. It’s part of the story of how we bring companies into the into the current era in the best possible sense, and how do we help them get the best possible job, job done, the best best possible performance out there. But having referenced all these, those call them more macro factors, very important. At the heart, at the end of the day, also at the heart of what’s going to make a difference is who is running the show, and what precepts or capabilities do they do they bring? Yeah, and I’ll end on I was a little bit shocked when I saw the data on sports teams. I’m thinking, if you got a great group of players, yes, a new manager coming in, a new coach, is going to make some difference. Maybe move a few players around in the positions they play, bringing over the next couple of years, new new players on the payroll. But in the short run, if you bring in a coach or general manager who knows a lot about how the sport should be played, they will increase the one loss record by up to 20 or 30% within one to three years, regardless of the context, regardless of everything macro. Yeah, and that the gene is why we actually focused, in this case, not on the macro factors, which are, among other aspects of Japan, widely researched, especially by economists. But we decided to take a look at the people who actually run the show within those macro factors. And they find some find leverage. They find the ways of making a difference in the affirmative sense, aided, by the way, now with some wind at their back, because Japan has been trying to shake off its senevolence for some years, which is, I think, by way of summary, saying, I think we need the micro. We need the macro, if we’re looking to understand the Japanese economy and it’s opportunities for comeback. Absolutely,

Gene Tunny  49:02

that’s a, it’s a good point about, like you made the point about sports. You really see it in sports teams. And I can’t think of any American examples, but the one of the classic sort of British examples is Alex Ferguson at Manchester United. So, you know, led to a really, you know, great period for that, for that club. So very good, very good point.

Michael Useem  49:27

If I can intervene here for just a second, here would be two examples in the US that will show up in your experience, in your home country, in the business sector, let’s take two big companies. Let’s take Disney, and let’s take Starbucks, and if we want to appreciate what they’re going to be doing in the next four or five years, both have been very troubled. Both have replaced their CEOs. We’ll see how it goes. Starbucks, I think, as you know, has. A triple boomerang CEO. So the famous port Schultz, who got it going retired, was called back retired a second time, has now be called, has been called back a third time. And I personally think same as your illustration from from football. I think that we’ll see what they bring to the table. It hopefully is positive. It may not necessarily be, but hopefully it is that they’re taking the helm, regardless of everything else that affects the ability of Starbucks to sell coffee and just make it in Melbourne or Disney to have its film shown or locally available by virtue of a whole host of economic factors. I think the person at the top can, and often they do, make an enormous difference, fairly short term, in a football in a football league or in the s, p5, 100 here in the US, absolutely.

Gene Tunny  51:04

Okay. My final question, Michael, it’s reading through the I read the OECD Economic survey of Japan, the 2024 before I like when I was preparing for this call. And there was a part of it that I’m wondering about, that they make an observation. And given your research, I’m wondering if their observation is perhaps it’s a like, I guess there’s truth to it, but maybe it things are changing, and things aren’t as bad as the OECD is. Yes, I just like to get your reaction to it. Yeah,

Michael Useem  51:41

yeah, no, I think there’s good reason to be pessimistic. We’ve touched on some of the factors that are still barriers, and some of those factors, I think, are not going to be readily thrown off as barriers in the short run. Having said that, there are enough companies that are adopting some of these new methods, greater focus on getting out of industries that are dying, getting into sectors that are prospering. A new kind of management at the top, a willingness of people in the corner office to get out of that office and walk the floor and get more directly acquainted and bringing ideas up from from the shop floor. I think these over time and time might could be five or 10 years, maybe more than that, are probably going to erode some of the other factors that mitigate against Japan’s comeback. But the comeback, I think, just to maybe a summary line on it, the sun back is significant enough and affecting enough companies that I think we’re getting close to a tipping point where companies that are still languishing are probably beginning to think, Well, geez, I’m looking over my shoulder. Hitachi is coming back. Panasonic is doing pretty well. The airlines are pretty competitive. We’re selling Toyotas like crazy in the North American market. How come my company is still kind of in the doldrums and so gene on that, I guess on that note, I end, uh, optimistically, but it may take some years,

Gene Tunny  53:15

okay, so, but it may be right for the OECD to write, then business dynamism is weak with relatively few startups. So they’re talking about, yes, yeah, okay, so there are some issues there, but you’re optimistic because you’re seeing these, this resolute Japan model, and the the trend is that that’s being increasingly adopted. And they said, That’s good news. Yes, yes,

Michael Useem  53:42

yes, yes to all the above. And maybe gene a question in the back of your mind, and certainly in the back of my mind, well, what exactly is moving the needle? What will the move the needle in the next five years? That leads one to be optimistic in the Warren Buffett sense, I’m going to put some money in Japanese stocks the way I haven’t in the past, and I think it’s because of the rational calculus that senior managers bring to the table. So imagine you’re the new chief executive of Lawson, the huge convenience store chain in Japan. And let’s say you’re one of the languishing firms some years ago, and you begin to say, well, what can I do? Well, you talk to maybe make a visit to Germany or the US or Australia. You talk to some of the people over at Toyota. You bring some of them maybe onto your board, which, by the way, is another driver of change we haven’t talked about, but refreshing the board, bringing new people on the board, bringing people onto the board who can speak independently to you as the top executive, is part of a bigger story that we could talk about some other time. So. Uh, by way of putting pulling all those factors together, if you are kind of in your office, you’re a 55 year old senior, let’s make it a chief executive of a Japanese company that just can’t seem to increase its revenue, let alone its income much over last year, you’re saying, Well, why is that? Especially when you see some other companies doing quite well. So I think it’s the contagion of success that is going to move, maybe not the government or policymakers, although they help in their own special ways, but are probably going to move individual people to say, just like you look at another sports team, well, what is it, in our case, that makes the New York Yankees or the Los Angeles Dodgers such great baseball teams? Well, their budget is one factor, but there are lots of other factors I’d like to find out what the other factors are.

Gene Tunny  55:59

Yeah, very good. We better wrap up there that that’s been terrific, Professor Michael, you seem co author of Resolute Japan. Thanks so much for coming on to the show. Really appreciate your insight. So I’ll put a link in the show notes to your book. I recommend if you’re listening, I think, and you you’re interested in Japan or management, and you know, management’s important for economic performance, so of course, I think it’s important to consider. So yeah, please consider getting a copy of the book, Michael, again, thanks so much for your time. Really enjoyed the conversation.

Michael Useem  56:34

Thank you. I appreciate the questions right on the mark. Let’s keep an eye out. We’ll hope Japan’s going the way it seems to be going.

Gene Tunny  56:42

Thank you Absolutely. Thanks. Michael Righto, thanks for listening to this episode of economics explored. If you have any questions, comments or suggestions, please get in touch. I’d love to hear from you. You can send me an email via contact at economics explored.com or a voicemail via SpeakPipe. You can find the link in the show notes. If you’ve enjoyed the show, I’d be grateful if you could tell anyone you think would be interested about it. Word of mouth is one of the main ways that people learn about the show. Finally, if your podcasting app lets you, then please write a review and leave a rating. Thanks for listening. I hope you can join me again next week.

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Credits

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