Japanese Economy Essay Research Paper Central in

Japanese Economy Essay, Research Paper

Central in the Japanese economy is the family approach. Somebody who joins a company

joins a family. And there are families of companies. The three sacred treasures makes this


1. lifetime employment

Since you know that you are going to work in the same company until you retire you care

much more for that the company is doing well. If the company is doing well you get

bonus(can be considered profit sharing). Up to 30 % of the wage is bonus-based.

In Japan they have so called J-mode (not H-mode as in the US and European corporations

with hierarchy) meaning that there is horizontal communications between management and

workers. The fact that difference in wages are relatively small and that managers often have

been workers themselves before enables good relations between management and workers. So

when a decision is to be made everyone is involved because everyone cares.

Another element of lifetime- employment is that the company teaches you how to work in

many different ways within the company, but the workers know little about how to work in

other companies so this creates a loyalty to the company. The company is also loyal to the

workers and is willing teach them these skills because they know that the workers will stay

within the company.

2. Wages based on seniority

Another thing why workers are loyal to the company. If they stay in the company they get

higher and higher wages. But there is a movement now towards performance-based pay.

3. enterprise units

Same basic idea as above. If you are attached to one company through lifetime employment

and have learned many different skills there it is natural to belong to a union that negotiates

with this company. Both management and workers join the union and support it.

Another central aspect is the keiretsu system. There is the horizontal keiretsu and the vertical


Horizontal keiretsu: Large companies in different industries linked to a bank. It is in these

large companies that these three sacred treasures are practised with the labor-management

relation. One implication on the economy is that workers tend to buy things from companies

within their keiretsu. There is much cross-holding of stocks within the keiretsu and one

company can belong to more than one keiretsu. They depend a lot on the loans from the bank

and the bank owns a lot of the companies. A few years ago it was proved that too much real

estate loans had been given when the bubble collapsed when the money was used to

speculate in property and stock markets. The government didn+t react in time to stop this

process. This backfired Japans economy a lot and from being a threat to the US of being the

world-leading economy it is now much further behind.

Vertical keiretsu:

Smaller companies (where the three sacred treasures are not practiced) work as suppliers and

distributors for large companies that in a way outsource the smaller companies. They are

linked by long-term contracts. A large company can both be at the top of a vertical keiretsu

and take part in a horizontal keiretsu, but some companies like Honda and Sony don+t take

part in any horizontal keiretsu so they are very independent. One aspect of efficiency with the

vertical keiretsu is the practice of just-in-time delivery which reduces costs for storage. It also

enables big quality controls which leads to competitiveness among different suppliers. If we

say that the three treasures provides high life quality than it is quite the opposite in small firms

with unemployment (which creates a buffer for the large companies that helps them maintain

their lifetime employment system) and so forth.

This vertical keiretsu system makes sure that suppliers are from Japan, which brings me to the

industrial policy set by the government. The government tries to promotes the business and

protects it from international rivals. They wouldn+t for example let the US export rice to

Japan. So we can say that the Japans have a lot of culture and patriotism.

The government and the business work together making indicative planning. The business is

concerned what is best for the country and government is concerned what is good for the

business. They both gain on both the country and the business working.

The export strategy depended first on handicrafts, textiles and other small-scale industries

with low-cost labor and modern machinery, but later also on heavier industry as shipbuilding

and cars.

One important aspect of Japanese economy is that they have few natural resources. So

although they try to favour the Japanese companies they have to import certain things.

The government also gives grants and low-interest loans.

They apply monetary and fiscal policies to the economy. They use tax incentives to promote

savings and investment.


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