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Letter from Japan: Lean and Mean
Finally, Japan wakes up to economic reality
By PETER McKILLOP
October 20, 1999
Web posted at 1 a.m. Hong Kong time, 1 p.m. EDT
For all those people who say that Japan never changes, yesterday's news from Nissan was a stun gun to the temple. A collective gasp rippled through the country following the announcement by Carlos Ghosn, Nissan's tough new foreign chief operating officer, that he would be shutter five plants and eliminate 21,000 jobs.
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The reasoning behind the announcement was simple. Said Nissan's president Yoshikazu Hanawa: "There is no alternative for us. In order to survive we must implement this revival plan." A few recidivists had tried to prevent the bloodletting. For weeks, the Japanese press had been leaking reports that Renault's much anticipated restructuring of Nissan would be more bark than bite--slash a few production lines here, retire a few old folks there. Ghosn would have none of it.
Instead, he unveiled the most ambitious corporate restructuring plan since Gen. Douglas MacArthur took a crack at Japan's giant conglomerates known as "zaibatsu." The Nissan announcement marks a day of reckoning for Japan Inc. To reach this milestone it's taken 10 years, a wrecked stock market, collapsed banks and a government deficit gone out of control.
But Japan is finally doing what it has to do to remain a first-rate economic power. It is beginning to play by the rules of market capitalism that it was allowed to ignore for years. Those rules are very simple. You need to make a profit to stay in business. To make a profit you need to make sure your costs are less than your profits. If you don't, you go out of business or you end up operating your business like a tractor factory in the Soviet Union. And that, of course, is what Nissan doing until yesterday.
For years, Japanese companies were able to ignore those rules, making it extremely difficult for Western competitors. But then years of bad capitalist habits began to slowly suffocate Japanese companies. As losses mounted in the early 1990s, Japanese companies were deprived of desperately needed capital--both financial and intellectual--required to compete with their now lean-and-mean competitors in the West.
The Nissan decision shows this decade-long nightmare is coming to an end. It's going to be very painful--just ask British coal workers or American autoworkers--but Japan Inc. is finally doing what it has to do to keep the rest of the country prosperous. It's also a wakeup call to Western companies who have grown smugly complacent as their Japanese rivals struggled with their economic debacle.
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