Nonmarket Strategy in Japan

How Foreign Firms Lobby "Inside the Castle"

Eric Romann

• Publisher: Palgrave Macmillan
• Year: 2020
• Print ISBN:
  9789811573248
• eBook ISBN:
  9789811573255
• Topic: Business
• Subtopic: Business Strategy
• Index: Business

This book focuses on foreign firms' nonmarket strategies and lobbying in Japan, in which important readjustments in traditional power configuration have taken place, giving more leeway to various stakeholders. The author analyzes in-depth how firms deploy their influence in a country that used to be dubbed "the castle" due to its difficulty of access, a theme on which minimal information currently exists. As professionals acknowledge, and contrary to what is usually assumed, similarities with the United States or the European Union outweigh local differences that though must still be addressed are no longer insuperable. With globalization and the rise of economic interdependence, it is now easier for foreign players with valuable assets to be part of the game.
A significant feature of the country is the weight of collective action and the reluctance towards individual or direct lobbying as reflected in the perceptions and firms' organization. The consequence for foreign firms is that they are often compelled to circumvent with soft strategies. This book will take the reader over 20 cases that display a striking multiformity and highlight conditions for success for foreign businesses in Japan and will be of interest to scholars as well as practitioners.

© The Author(s) 2020

E. RomannNonmarket Strategy in Japanhttps://doi.org/10.1007/978-981-15-7325-5_1

Begin Abstract

1. Introduction

Eric Romann¹

(1)

Department of Management, Japan University of Economics, Tokyo, Japan

Keywords

JapanInternational Business (IB)Nonmarket strategyCorporate Political Activity (CPA)LobbyingInfluenceForeign pressure

End Abstract

1.1 Nonmarket Strategy, Influence, Lobbying: Laws Fall from Heaven?

Interactions between firms and governments are not a new topic and may be as old as the market economy itself. Lobbying is one of the most well-known forms, albeit hardly the only one and maybe resonating excessively as a bilateral duo between business and government. The concepts of nonmarket strategy and influence offer the advantage of being more comprehensive, including the variety of stakeholders’ interactions that are found in the complexity of reality. The term “influence” may be more related to political science, while nonmarket strategy reflects a strategic management approach. However, the ultimate goal still consists of influencing and shaping the political or regulatory rules, directly or indirectly. In academic literature, the consecrated term is Corporate Political Activities (CPA). This concept will be determined with more details in the chapters related to definitions and framework, but for a first apprehension here, a simple and broad definition of the subject could be “actions taken by a firm to affect its regulatory environment in a favorable way.” In this book, the terms CPA or lobbying will be generally used as a proxy for the whole, but with the broader acceptation mentioned above and close to that of nonmarket strategy, considering the greater than usually considered variety of forms encountered.

The question of nonmarket strategy and influence is becoming increasingly important in a world where boundaries between states and firms are blurring due to the effects of globalization and the ensuing connectivity, with the rise of transnational actors that co-opete in complex patterns. On the states’ side, new concepts such as business diplomacy, public diplomacy, or commercial diplomacy are attempts to describe the new roles of states searching to influence the public or business. This trend should be related to the rise, from the firms’ side, of the private rule and the de jure norms as opposed to the de facto rule, which traditionally led to the emergence of a winning standard through mere market competition and selection. Various authors (Fujii 2012; Revel 2013, etc.) have noticed this growing significance of norms in terms of competitive strategy in numerous areas and institutions. The best-known example is the autonomous car whose success will depend, beyond technology, on the establishment of a relevant regulation allowing the functioning of its ecosystem by determining the necessary infrastructures, the systems to be used, and the responsibilities of each actor and stakeholder in case of casualty: manufacturers, software makers, insurers, and so on.

Thus, in the context of this general trend toward a greater co-foundation of regulations and norms by the public and the private spheres, myriads of influence levels can be observed, from operational support to shaping of the environment. Coming back to lobbying in a narrower sense, even if it is widely practiced, it has its own history with still different degrees of acceptance across countries. Historically, lobbying developed in the US, where pluralism ensured access to every kind of stakeholder to the political scene for the expression of their interests. Over time, the practice expanded in the world and throve particularly in the EU, where the political life is organized around a multiplicity of interests ranging from citizens to businesses and states. However, even if it became a common occupation at the EU level, it may not be the case in member states, for example, France, where it is still seen with suspicion and synonym of corruption, at least in the public opinion.

In Japan, the situation is fairly similar with a combination of skepticism toward politicians and a conception of the political sphere completely separate and superior to the economic one. As a Daikin’s representative illustrates when faced with the necessity of initiating an action to maintain business in Europe: “we could not think of telling the government to change the law; for us, laws fall from heaven, it is impossible to modify them.”

1.2 Why a Study About Nonmarket in Japan: Inside the Castle?

After having observed the two big poles of the US and the EU that have already given birth to an extensive literature, it appeared that it might be of interest to examine the case of a third country with a similar level of political and economic development, preferably different from the Anglosphere for a better and contrasting perspective. Moreover, the focus would be on firms active on the international and global scene, that is, an international business (IB) angle, and not on domestic affairs. In the EU or the US, this distinction is often blurred since the presence of international companies and the weight of FDIs are substantial, with the participation of foreign firms in political life a long-established reality. In the EU, in a sense, all firms (of different member states) are foreign to each other since no real pan-European firm exists yet, despite the existence of the Societas Europaea. In this context, Japan seemed to offer an interesting study field and a gap to be filled.

Of the numerous studies that have been conducted in the US or the EU from a domestic point of view, a large number concerns the question of the “Why” firms turn to political activities. When the “How” is addressed, it is typically at a very general level with, for example, the identification of several generic strategies. In an international business context, most approaches remain at the macro or semi-macro sectoral levels frequently in a zero-sum bargaining perspective of “states against big business,” FDIs, and so on. In the case of Japan, foreign pressure (gaiatsu ) has been a dominant topic. Moreover, the phenomenon of CPA can be analyzed through various fields and theories such as economics, political science, or strategic management, but few investigations really synthesize the partial contributions and knowledge brought by each field in an interdisciplinary view.

There used to be a time, not so far in the past (the 1980s), where Japan was conquering the world with FDIs and trade surplus, epitomizing the strategic association between the state (MITI) and the MNCs such as Toyota, Sony, Mitsubishi Corp. and so on to the point to be designated “Japan Inc.” As with the parallel case of present China, the major problems with that position from the vantage point of its trading partners were the lack of reciprocity and the closure of its market even though the barriers were often subtler than simple tariffs or anti-foreign investment regulations. The Japanese market was therefore perceived as a fortress to be invested in (in both senses of the term), as the expression “Inside the castle,” common in American documents of the time, attests. Now, with globalization and many domestic crises and reforms, the castle gates have opened, and the question has shifted from entering the castle and trading with Japan to doing business in Japan. But even now, the weight of foreign FDIs is the lowest of the OECD, and the value of endeavoring business in Japan still a challenging issue for global MNCs.

Altogether, little research focuses on the very micro level of firms’ strategy with concrete business implications, and this is precisely the gap, at least partly, that is intended to be filled with this book. The purpose was to explore at a very fine level nonmarket strategies and influence situations for foreign firms in the international market, that is Japan, with concrete links to strategic and business outcomes. The primary ambition was first to understand precisely “How” firms deploy their means, with which objectives, tactics, and results in an open theoretical landscape.

The first research questions could then be formulated simply as follows:

• How do foreign firms engage in CPA in Japan?
• Which strategies, channels, and resources?
• For which outcomes?
• To what extent do they adapt, “Japanize” their practices?

By foreign firms, it is meant here the American and European ones which constitute the majority in Japan, but with the rise of Chinese investments in the country, it might be worthwhile to include them in further research. It must also be said that, at the beginning, it was considered a second research question, that is, to investigate whether or not the nationality of the firm has an impact on its CPA strategy. For example, in the literature,¹ there used to be a debate to assess whether or not the American lobbying is aggressive compared to its European counterpart, supposedly more disposed to compromises. A consensus is seemingly emerging to say that, even if style differs, institutions are the most differentiating element determining the rules in a specific arena. In conformity with this view, most of the interviewees remarked that this question was not highly relevant so that it was abandoned.

At this stage, the difficulty of access to information must be stressed due to a double wall, the inherent and universal confidentiality of the matter, and the specific Japanese disinclination to discuss it openly. This is a limiting factor that had to be dealt with and explains the methodology followed.

Therefore, this research should be rather considered as a propaedeutic effort to create a base for further deepening through data sampling and testing whenever possible. Hopefully, the coalescence of this book’s empirical observations and the conceptual elements brought by its framework should help to identify lessons workable for strategic management in international markets beyond Japan.

The field covered is rather wide since this book did not limit itself to the traditional and most frequent understanding of lobbying, that is, modifications of laws at the legislative level. Drawing on studies and surveys describing the major issues encountered by foreign firms in Japan, as well as direct interviews, a broad range of actions extending from the approval of a new business to influence through public opinion were included, the common point being to obtain a reaction from some part of the political body in a broad sense, whether legislative, executive, judicial, or regulatory, and leading to a regulative modification with direct impact on business in terms of sales, profit, or investment decision. This extended interpretation corresponds to the concepts of nonmarket strategy and influence mentioned above.

1.3 The Substance of This Book: A Multiformity of Strategies Leaning on the Cooperative Side

An overview of Japan’s political economy and institutional characteristics is presented to highlight the scenes where lobbying can take place and how it differs from its Western counterparts with the peculiar roles of the Ministry of Economy, Trade and Industry (METI) and the advisory committees, for instance. A major feature is the weight of collective action and the reluctance to individual or direct lobbying, as reflected in perceptions and firms’ organizations. The consequences for foreign firms are that they are often compelled to circumvent with soft strategies. Of course, the principal ally of foreign firms should be their home government through their embassies or other bodies such as the USTR, resulting in foreign pressure (gaiatsu ). This used to be an instrument, but seemingly not as much effective as usually thought and certainly considerably scaled down today.

With this background, the journey will take the reader over a number of cases displaying a striking multiformity of nonmarket strategies and CPA. From a political science and communication point of view, this may not be too surprising, as many scholars have already pointed out when compared to a mere strategic management perspective. Indeed, the key basic bricks of these strategies, resources, and the way they are mobilized may only be limited by the imagination.

In this sense, and in all likelihood, new and subtle forms of nonmarket strategy are in potentiality somewhere, still waiting to be discovered and exploited. Meanwhile, a significant number of contrasting examples are offered for an in-depth understanding of Japanese reality. As mentioned above, access to this kind of information is difficult. Therefore, this collection of cases may be considered per se original and hopefully useful for interested scholars as well as practitioners with the suggestion of a number of conditions of success for foreign business in Japan.

A major lesson is the prominence of the collaborative facet as opposed to adversarial. This is linked to many factors such as the liability of foreign firms and is echoed in various social sciences, but this is, for sure, a key for efficient lobbying in Japan and other global markets.

A widely shared phantasm and prejudice in many cultur...

Table of contents

• Cover
• Front Matter
• 1. Introduction
• 2. How to Approach Nonmarket Strategy and Corporate Political Activity
• 3. Framework
• 4. General Features of Domestic Lobbying in Japan
• 5. The Context for Foreign Firms: Trade, Investment, and Business Issues
• 6. Case Study
• 7. Implications for Business Strategy and Lessons from Japan in a Global Business Perspective
• 8. General Conclusion
• 9. Annexes
• Back Matter