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How Korean Multinationals Imitated Japanese Ones

Introduction

In East Asia, China, Japan and Korea have been seen to share different things ranging from cultural, religious and economic activities. One of the most visible issues is the imitation of Japanese multinational corporations (MNCs) strategies and operations by Korean multinational corporations. In a bid to enhance their performance both regionally and internationally, Japanese MNCs have successfully implemented numerous strategies and operations control mechanisms. Their success has resulted in Korean MNCs following suit by establishing similar companies and using the same management strategies as those practiced by Japanese MNCs. Some of these strategies include the relocation of labor intensive activities to foreign countries where they can access cheap labor. The corporations have also embarked on production of capital and technology- oriented products with the intention of increasing their market share. This paper is aimed at analyzing some of the ways in which Korean MNCs have imitated Japanese MNC’s strategies and operations.

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Some of the Korean companies that have imitated Japanese companies are the electronics companies. For instance, Samsung Company has established most of its global strategies based on Panasonic Company. Samsung Company realized that Panasonic was benefiting from relocating most of its operations to foreign countries. This led to its also relocating its labor intensive processes in other countries. Despite Korean MNCs imitating Japanese MNCs, there are other companies that appear to have significant differences with respect to their structures, management as well as operations. Some of these companies are the pharmaceutical companies in such as Takeda Pharmaceutical Company in Japan and Dowzon Phar Co. Ltd in Korea.

Imitations of Japanese global strategies by Korean MNCs

Numerous reasons have been cited as the driving forces behind the decision by Japan corporations to embark on global strategies. These include the growth of potential markets in industrialized countries, high cost of labor in their country as well as threat of domestic companies by foreign products. As countries continue establishing new industries, employment rates in these countries also increases. In return, income among people in such countries goes high. This leads to people demanding for various goods and services. Most of the Japanese MNCs have taken this advantage to come up with global strategies that will help them harness potential markets from the emerging economies. A good example has been establishment of the various Japanese corporations in China such as Panasonic Corporation. China has been one of the countries that are experiencing rapid industrialization (Bartlett & Ghoshal 1998, p. 243). The living standard of the Chinese people is improving with time due high level of employment in the country. In return, their rate of need for different services and products has also increased. This has led to Japanese companies focusing on China as emerging potential market for their manufactured products.

High demand for products in Japan coupled with high labor cost in the country has been another factor that has led to Japanese MNCs such as Panasonic coming up with global strategies. It is possible for these corporations to get cheap labor in foreign countries as opposed to local labor. For most of the Japanese MNCs, the highest percentage of their cost of goods sold comprises labor cost. To cater for this, corporations have deemed it economically feasible to establish themselves in foreign countries where they will have access to cheap labor. These corporations produce their products in foreign countries and then ship them to Japan where they have high demand. This is evident in the business of electronics production (Dunning 1996, p. 112). Supplementary products have also infiltrated the Japanese market as well. These products come at a lower price leading to consumers not buying products manufactured by domestic corporations. As a result, Panasonic Corporation has felt threatened thus sought to explore foreign markets. Currently, most of the Japanese multinational corporations are coming up with global strategies to help them escape from collapsing due to poor domestic market.

On the other hand, Korea is a small country with a huge population and limited space for industrial expansion. The country’s economy has witnessed an exponential rate of growth in recent years. Consequently, there has been an increase in the demand for goods and services in the country, over time. Inability of domestic corporations to expand to Korea has made it hard for them to exploit domestic market. On realizing how Japanese MNCs have managed to serve their domestic market by establishing themselves in foreign countries, Korean Samsung Corporation has also come up with similar global strategies. Samsung has established itself in foreign countries where it has exploited host countries’ resources as well as the market. At the same time, it has managed to supply its domestic market with cheap products. This is because it has access to cheap labor in foreign countries (Dunning 1996, p. 123).

Korea decided to embrace international business strategies because of change in both the domestic and foreign business environment. Continued decrease in competitive power of its traditional product has called for the establishment of other strategies to help the country sell its products to foreign markets. Korean international business strategies enjoy three unique characteristics. One of them is the effort by Korean corporations to relocate production processes that are labor intensive in foreign countries. This is aimed at reducing their production cost. Korean corporations are not able to attract enough domestic labor to help in producing all their products locally. It becomes expensive to produce those products that are labor intensive in the country. As a result, corporations have been found to relocate most of their labor intensive processes to foreign countries where they can get enough labor resources at a cheaper cost. One of the companies that have relocated most of its labor intensive products to other countries is Samsung Company (Harzing 1999, pp. 67-93). Rather than outsourcing some of their processes, this company has decided to maintain them overseas. Second characteristic of Korean international business strategies is where corporations have embarked on relocating their producing firms close to their markets. This has been triggered by trade conflicts that have been affecting their traditional export items. Globalization together with corporations’ movement towards North American Free Trade Area (NAFTA) also has made Korean MNCs to come up with strategies that will help them establish their business close to their foreign markets. This has been through establishment of subsidiary companies in foreign market.

Competition in foreign market has made Korean corporations strive to ensure that their products are technology and capital oriented. In cases where these corporations have remained in their initial market, they have been compelled to improve the quality of their products as product differentiation strategy. As these corporations continue focusing on research and development, they have ended up establishing subsidiaries in developed countries to facilitate in gaining experience and knowledge on methods of improving their operations. There has been a significant reorientation of globalization policies within most of the Korean corporations. They have increased their direct foreign investment (FDI) in the last decade. As a result, companies have experienced rapid growth while their international transactions have increased drastically (Nitsch, Beamish & Makino 1996, pp. 27-32). As a method of exploiting foreign market, Samsung Company has embarked on diversifying its products to those that are capital and technological oriented such as wireless mobile phones and semiconductors.

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Korean MNCs have been seen to imitate Japanese MNCs on issues to do with control and management of operations within their overseas subsidiary companies. For the Korean companies, these have been found to exhibit both centralized and decentralized control modes. Participation of regional headquarters in influencing operations within overseas subsidiary companies is limited. In bid to solve communication crisis, Samsung Company has resulted in centralizing its operations under Edelman (Lee 1995, pp. 249-266). This has been considered as one way of ensuring that the company will be able to produce and offer consistent services thus strengthen its brand name. Because of the company’s structure, different headquarters work in collaboration with the numerous subsidiary companies in ensuring that the company has been able to effectively serve its market.

Overtime, Samsung Company has gradually changed its operations to deal with four business networks. These are digital media, telecommunication, devices and appliances. Each of these networks has in turn collaborated with other subsidiary companies to facilitate in production and distribution of their products. To provide its services in telecommunication, the company has formed an alliance with other companies offering telecommunication services such as the HP Company (Ungson, Steers & Park 1997, p. 52).

For Japanese companies to cope with the changing global policies, they have resulted in collaborating with domestic companies of different countries in offering their services. Panasonic Company has established programs to teach its employees on how to comply with competition laws in European market. This has helped them escape the overheads of having to meet the numerous regulations required for them to be allowed to operate in foreign countries (Ogasavara 2009, para. 2-4). The same case has applied to Korean companies with them collaborating with other companies in offering their services. For instance, for Samsung Company to offer its telecommunication services in United States, the company collaborated with HP Company. This did not only help the company reduce the overhead of having to meet numerous requirements but it also helped it offer its services at a low cost. For these companies to compete in global market, they have embarked on manufacturing indigenous models of products. Others such as the electronics companies from both countries, they have embarked on producing technological oriented products. This has helped them come up with high quality products thus withstanding competition in global market. For Korean companies, KOTRA has significantly helped them through promoting their products in global market. The agency has helped in creating awareness of their products in the market thus helping them gain ready market (Shah 2009, para. 3-5).

Differences between industries and type of business

Despite Korean MNCs appearing to imitate Japanese MNCs, there are some clear differences between corporations dealing in the same line of products. Some of the corporations that show significant difference are the pharmaceutical corporations. There is a clear difference between Takeda Corporation in Japan and Dowzon Corporation in Korea. One of the significant differences between these corporations is in market relation and business strategies. While the two companies understand that there is competition in business market, they use different strategies. Takeda has managed to strengthen its business relation through trade alliances and advanced corporate cross-holdings. For Takeda, increasing its market share forms the main strategy in overcoming competition. On the other hand, Dowzon relies on locating government in specific areas that are indicated by the government as the most competitive. The company aims at taking advantage of its good relationship with governmental institutions to gain monopoly in pharmaceutical industry.

Another significant difference between the corporations is in their management structure. For Takeda, they focus more on information sharing within the different branches. This helps in ensuring that they have achieved consistent management. They also promote self-control by employees. The company understands the benefits accrued from employee empowerment. On the other hand, Dowzon Company appears to emphasize more on output-focused control system. The company do not attach great value to information sharing within its various branches neither does it encourage self-control among its employees (Nitsch, Beamish & Makino 1996, pp. 33-47).

Most of the subsidiary companies established in host nations by Korean MNCs are aimed at supplying the home company with various products or helping the home country access global market. One of the ways in which the home country cooperates with foreign subsidiary is in conducting market analysis. This is done through the help of Korean Trade Investment promotion agency (KOTRA). This agency is responsible of looking for potential market for Korean companies. Information relayed to home MNCs by this agency is then conveyed to foreign subsidiary. With foreign subsidiaries being managed by expatriates from Korea, every undertaking within them has to be approved by the home company. Each subsidiary is given the freedom of coming up with its expansion and growth strategies but they have to be approved by the home company (Chang & Taylor 1999, pp. 541-565).

Global and regional control of corporations

To ensure that it has been able to harness foreign market, Panasonic Corporation has come up with programs that help it manage its regional operations. It has established a program in every country that the company has a subsidiary company. Through these programs, it ensures that all their subsidiary companies comply with the required regulations as well as market forces. The programs are designed in a manner that they are aligned with characteristics of every region or area of specialization within the business as per the corporate rules. For instance, to ensure that the company has complied with regulations established in European market, the company has come up with a compulsory annual training. All its employees in companies established in European markets are taken through a training seminar where they are educated on competition laws (De Silva 2006, pp. 93-110).

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Among the Japanese corporations that are already well established in foreign countries, their success is mainly attributed to collaboration with various Japanese corporations as opposed to partnering with domestic companies of these countries. Lack of experience among staffs who managed these industries led to the failure by these industries to gain a substantial market share in the countries (Mansour & Hoshino 2002, pp. 231-247). To ensure that their companies were able to overcome competition, corporations decided to operate and learn the local market. Operations within the established companies are managed by Japanese. This has helped them gain experience on operations and market forces of the foreign country. In a bid to maintain their identities, most of the Japanese subsidiaries borrow operation mechanisms from their mother companies. They also send local experts to foreign countries that are in charge of ensuring that operations within the subsidiary companies are consistent with those of the local company. In its global control strategy, Panasonic Company has established autonomous subsidiary companies in different countries. All these companies work independently towards attaining the overall objective of the entire corporation. The mother company has little influence on the established subsidiary companies. These companies reflect a high degree of decentralization with respect to decision making (Cherry 2001, p. 169). The centralization is attained through ensuring that they have come up with an international network of expatriate managers who originate from Japan. Control of operations within these companies is found to exhibit a direct expatriate control system.

The level of operations control of subsidiary companies by headquarters is based on the nature of the operations done in the subsidiary company. For companies that deal with productions of goods that are consumed globally, local activities are heavily managed by the headquarter company. On the other hand, subsidiary companies established overseas with an aim of supporting local market, decisions to do with their operations are made locally. This is because the local company has clear information about the market forces and trend than the overseas subsidiary company (Fitzgerald & Kim 2005, pp. 441-462).

Conclusion

Looking at Japanese and Korean corporations, there are numerous characteristics that they have in common. These include coordination between home country MNCs and their various subsidiary companies established abroad. Management methods for these corporations in both countries are similar. It is from the Japanese that the Koreans learnt importance of establishing their labor intensive companies in foreign countries where they can access cheap labor. Currently, most of Korean labor intensive processes are conducted in foreign countries. To overcome competition in foreign markets, corporations from the two countries have resolved to concentrate on producing indigenous models of products. This has helped them in coming up with unique products in the market.

Reference

Bartlett, C.A. & Ghoshal, S., 1998, Managing Across Borders: The Transnational Solution. Boston, MA: Harvard Business School Press.

Chang, E. & Taylor, M. S., 1999. Control in Multinational Corporations (MNCs): The Case of Korean Manufacturing Subsidiaries. Journal of Management, Vol. 25, No. 4, pp. 541-565.

Cherry J., 2001. Korean multinationals in Europe. London: Curzon.

De Silva, L. S. 2006. Direct Investment and Japanese Subsidiaries in Australia. The Otemon Journal of Australian Studies, Vol. 32, pp. 93-110.

Dunning, J.H., 1996, Japanese Participation in British Industry. London: Routledge.

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Fitzgerald, R. & Kim, Y. C. 2005. Business strategy, government and globalization: policy and miscalculation in the Korean electronics industry. Asia Pacific Business Review, Vol. 10, pp. 441-462.

Harzing, A.W., 1999. Managing the Multinationals – An International Study of Control Mechanisms. Cheltenham: Edward Elgar.

Lee, A., 1995, Globalization of a Korean firm: the case of Samsung, in Simon D. F. (ed.) 1997. Corporate strategies in the Pacific Rim: global versus regional trends. London: Routledge.

Mansour, M. & Hoshino, Y. 2002. Entry Mode Choice of the Japanese MNEs in Europe: Impact of Firm and Industrial Factors. Japanese Journal of Administrative Science, Vol. 5, No. 3, pp. 231-247.

Nitsch, D, Beamish, P. & Makino, S., 1996. Entry Mode and Performance of Japanese FDI in Western Europe. Management International Review, 36, pp. 27-43.

Ogasavara, M. H., 2009. Japanese Multinational Companies: Performance of Overseas Subsidiaries. [Online] Web.

Shah, A., 2009. Samsung streamlines its global PR with Edelman. [Online] Web.

Ungson, G., Steers R. M. & Park S., 1997. Korean enterprises: the quest for globalization. Boston: Harvard Business School Press.

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