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Adjustment to less-developed country competition in some Japanese industries 1983

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ADJUSTMENT TO LESS-DEVELOPED COUNTRY COMPETITION IN SOME JAPANESE INDUSTRIES by JAMES THOMAS GOODE B.A., U n i v e r s i t y Of B r i t i s h Columbia, 1972 M.Sc, U n i v e r s i t y Of B r i t i s h Columbia, 1976 M.A., Rikkyo U n i v e r s i t y (Tokyo), 1977 A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY i n THE FACULTY OF GRADUATE STUDIES I n t e r n a t i o n a l Business And I n t e r d i s c i p l i n a r y S t u d i e s ( i n The F a c u l t y of Commerce and Business A d m i n i s t r a t i o n ) We accept t h i s t h e s i s as conforming to the r e q u i r e d standard THE UNIVERSITY OF BRITISH COLUMBIA A p r i l 1983 © James Thomas Goode, 1983 In presenting t h i s thesis i n p a r t i a l f u l f i l m e n t of the requirements fo r an advanced degree at the University of B r i t i s h Columbia, I agree that the Library s h a l l make i t f r e e l y available for reference and study. I further agree that permission for extensive copying of t h i s thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. I t i s understood that copying or publication of t h i s thesis f o r f i n a n c i a l gain s h a l l not be allowed without my written permission. Department of The University of B r i t i s h Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3 DF.-6 n / f m i i A b s t r a c t T h i s e x p l o r a t o r y study addresses the i s s u e of adjustment to l e s s - d e v e l o p e d country (LDC) c o m p e t i t i o n by a f f e c t e d firms and i n d u s t r i e s i n developed c o u n t r i e s (DCs). E m p i r i c a l l y - b a s e d i n s i g h t s i n t o the nature of the adjustment problem are i n d u c t i v e l y d e r i v e d from examination of adjustment in four Japanese i n d u s t r i e s (producing, r e s p e c t i v e l y ; c u t l e r y , footwear, umbrellas, and mosaic t i l e ) which have faced severe c o m p e t i t i o n from producers i n the Asian newly i n d u s t r i a l i z i n g c o u n t r i e s (Korea, Taiwan, Hong Kong, and Singapore). The study employs e x i s t i n g p u b l i c and non-public r e p o r t s , i n t e r v i e w s with informants i n Japanese government and i n d u s t r y and the r e s u l t s of f- i e l d r e s e a r c h i n a p r o d u c t i o n c e n t r e . E x t e r n a l f a c t o r s f a v o u r i n g r a p i d development of LDC c o m p e t i t i v e s t r e n g t h are i d e n t i f i e d , i n c l u d i n g e a r l i e r Japanese exports which i n t e r n a t i o n a l i z e d O.E.C.D. markets for the products examined. The p a t t e r n of e v o l u t i o n of LDC c o m p e t i t i v e s t r e n g t h along dimensions other than those of r e l a t i v e product s t a n d a r d i z a t i o n and f a c t o r - i n t e n s i t y i s d i s c u s s e d . Japanese f o r e i g n d i r e c t investment i n competing LDCs served to i n c r e a s e the adjustment problem of Japanese producers. T h i s i s r e l a t e d to the r a p i d i t y of LDC c o m p e t i t i v e development and to the s t r u c t u r e of the Japanese i n d u s t r i e s examined. Adjustment a l t e r n a t i v e s are d i s c u s s e d , i n terms of the concept of value-added, under the c a t e g o r i e s o f : c o s t - i m p r o v i n g , p r i c e - i m p r o v i n g , and margin-improving adjustment. The l a s t of these i n c o r p o r a t e s improvements i n value-added a r i s i n g from a change of product or of f u n c t i o n a l a c t i v i t y . The adjustment problem i s seen to be a f u n c t i o n not only of LDC development but a l s o of concurrent DC development e x t e r n a l to the a f f e c t e d i n d u s t r i e s . V a r i a t i o n among i n d u s t r y p a r t i c i p a n t s i n the impact of the adjustment problem and i n the number and nature of adjustment a l t e r n a t i v e s was h i g h l y r e l a t e d to d i f f e r e n c e s i n the f u n c t i o n a l a c t i v i t i e s of f i r m s . Where e x i s t i n g producers are unable to a d j u s t w i t h i n an i n d u s t r y , the i n d u s t r y , i t s e l f , i s found to " r e t r o g r e s s " and pr o d u c t i o n a c t i v i t i e s are t r a n s f e r r e d to a geographic and socio-economic p e r i p h e r y w i t h i n the DC. Th i s s h i f t s the u l t i m a t e exposure to LDC competition onto those who have the l e a s t m o b i l i t y and are l e a s t able to a c t i v e l y a d j u s t to that c o m p e t i t i o n . Some suggestions are made re g a r d i n g the i m p l i c a t i o n s of the f i n d i n g s f o r government, bu s i n e s s , and f u r t h e r r e s e a r c h . i v T a b l e of C o n t e n t s A b s t r a c t i i L i s t of T a b l e s i x L i s t of F i g u r e s x Acknowledgements x i I. THE PROBLEM ADDRESSED AND THE PURPOSES OF THE RESEARCH 1 1. DEVELOPED COUNTRY ADJUSTMENT TO LESS-DEVELOPED COUNTRY INDUSTRIALIZATION 1 1.1 A d j u s t m e n t To A C h a n g i n g Economic E n v i r o n m e n t ...1 1.2 L e s s - d e v e l o p e d C o u n t r y I n d u s t r i a l i z a t i o n 2 1.3 A d j u s t m e n t And L e s s - d e v e l o p e d C o u n t r y I n d u s t r i a l i z a t i o n 4 2. APPROACHES TO THE ADJUSTMENT PROBLEM 8 2.1 R e s e a r c h On The A d j u s t m e n t P r o b l e m 8 2.2 Government P o l i c y 9 2.3 B u s i n e s s P o l i c y 11 3. PURPOSES.OF THE RESEARCH 14 4 . AN OVERVI EW OF THE STUDY 16 I I . METHODOLOGICAL CONSIDERATIONS AND CASE SELECTION ...18 1 . METHODOLOGY 18 1.1 E x p l o r a t o r y R e s e a r c h 18 1.2 A M e t h o d o l o g y F o r E x p l o r a t o r y R e s e a r c h 21 2. THE NAIVE CONCEPTUAL FRAMEWORK 24 2.1 Some A s p e c t s Of R e a l - w o r l d C o m p l e x i t y 24 2.1.1 A S i m p l e Example 24 2.1.2 Some F u r t h e r C o m p l e x i t i e s 25 2.1.3 Some I m p l i c a t i o n s 27 2.2 The Framework 29 2.2.1 B a s i c C o n c e p t s 29 2.2.2 S i n g l e P r o d u c t Framework 30 2.2.3 G e n e r a l i z e d Framework 33 2.2.4 Some H y p o t h e t i c a l E x a mples 34 3. CASE SELECTION 37 3.1 J a p a n And The A s i a n Newly I n d u s t r i a l i z i n g C o u n t r i e s 37 3.2 I d e n t i f i c a t i o n Of A f f e c t e d I n d u s t r i e s 38 3.2.1 Q u a n t i t a t i v e S e l e c t i o n 39 3.2.2 Q u a l i t a t i v e S e l e c t i o n 40 3.3 The I d e n t i f i e d P r o d u c t / I n d u s t r i e s 41 4. METHODOLOGICAL IMPLICATIONS OF THE AFFECTED INDUSTRIES 43 4.1 C h a r a c t e r i s t i c s Of The I d e n t i f i e d I n d u s t r i e s ...43 4.2 O u t l i n e Of M e t h o d o l o g y Employed 44 4.2.1 A B r o a d S u r v e y Of The A d j u s t m e n t P r o b l e m 44 4.2.2 An O v e r v i e w Of A d j u s t m e n t In Some S p e c i f i c A f f e c t e d I n d u s t r i e s 44 4.2.3 Case S t u d i e s 45 I I I . BACKGROUND TO THE CASE STUDIES ...47 1. JAPAN AND THE ASIAN NEWLY INDUSTRIALIZING COUNTRIES .47 .1.1 J a p a n 47 V 1 .2 The A s i a n NICs 52 1.3 C o n t e n d i n g Views Of J a p a n - A s i a n NIC R e l a t i o n s ..54 1.3.1 C o m p e t i t i o n 54 1.3.2 C o l l a b o r a t i o n 60 1.3.3 D i f f e r i n g P e r s p e c t i v e s 61 2. THE IDENTIFIED INDUSTRIES IN PERSPECTIVE 62 2.1 The R o l e Of S m a l l - And M e d i u m - s i z e d E n t e r p r i s e s In The J a p a n e s e Economy 62 2.1.1 D e f i n i t i o n s 62 2.1.2 D e s c r i p t i o n 64 2.2 S a n c h i And J i b a Sangyo 65 2.2.1 I n t r o d u c t i o n 65 3. GOVERNMENT POLICY AND INTERVENTION 68 IV. A CASE STUDY OF ADJUSTMENT: THE TSUBAME FLATWARE INDUSTRY 72 1. BACKGROUND TO THE TSUBAME FLATWARE INDUSTRY 72 1.1 N i i g a t a P r e f e c t u r e 72 1 .2 Tsubame 73 1.3 The S t r u c t u r e Of The Tsubame S t a i n l e s s S t e e l F l a t w a r e I n d u s t r y 77 1.3.1 The S o c i a l D i v i s i o n Of L a b o u r 77 1.3.2 P r o d u c t V a r i e t y , D e s i g n , And D i s t r i b u t i o n ....83 1.3.3 Q u o t a s And Tsubame's I n d u s t r i a l S t r u c t u r e ....85 1.3.4 Summary 90 2. ENVIRONMENTAL CHANGE AND THE ADVENT OF ASIAN NIC COMPETITION 92 2.1 E n v i r o n m e n t a l Change 92 2.2 The A d v e n t Of LDC C o m p e t i t i o n 95 2.3 A d j u s t m e n t To A s i a n NIC C o m p e t i t i o n 100 3. REVIVAL OF PRICE COMPETITIVENESS 102 3.1 S a l e s 102 3.2 P r o d u c t i o n 102 3.2.1 Methods 102 3.2.2 O r g a n i z a t i o n 106 3.2.3 O t h e r 109 4. SHIFT TO NEW MARKETS 110 4.1 S a l e s F u n c t i o n 111 4.1.1 L o c a t i o n 111 4.1.2 O r g a n i z a t i o n 112 4.1.3 Method 113 4.2 D e s i g n 114 5. SHIFT TO HIGHER-GRADE LINES 115 5.1 P r o d u c t 115 5.1.1 Gr a d e 115 5. 2 P r o d u c t i o n 115 5.2.1 O r g a n i z a t i o n And L o c a t i o n 116 5.2.2 Methods 116 5. 3 D e s i g n 116 5.4 S a l e s 1 17 5.4.1 O r g a n i z a t i o n 117 5.4.2 L o c a t i o n 117 5.4.3 Method 118 6. MOVE TO A NEW BUSINESS 119 6.1 STAINLESS STEEL HOUSEWARES 121 v i 6.1.1 Product 122 6.1.2 Production 122 6.1.3 S a l e s 123 6.1.4 Design 1 24 6.2 Other New Businesses 126 7. MIXED STRATEGIES 131 8. ADJUSTMENT EFFECTIVENESS AND PROSPECTS 133 8.1 Apparent E f f e c t i v e n e s s Of Adjustment S t r a t e g i e s 133 8.2 Prospects 135 8.2.1 Tsubame Region 135 8.2.2 The Flatware Industry 137 8.2.3 Industry P a r t i c i p a n t s 139 V. EVIDENCE FROM SOME OTHER INDUSTRIES 144 1 . OUTLINE 1 44 2. NON-LEATHER FOOTWEAR ~. 145 2.1 I n t r o d u c t i o n 145 2 . 2 Background 1 46 2.3 Industry S t r u c t u r e 147 2.4 Adjustment S t r a t e g i e s 149 2.4.1 Export Markets 149 2.4.2 Domestic Market 150 2 . 5 Summary 1 58 3 . UMBRELLAS 160 3.1 I n t r o d u c t i o n 160 3.2 Background 161 3.3 S t r u c t u r e Of The Industry 163 3.4 Advent Of Asian NIC Competition 168 - 3.5 Adjustment S t r a t e g i e s 170 3.5.1 Larger Wholesaler/Manufacturers 170 3.5.2 The Industry As A Whole 171 4. CERAMIC TILE 177 4.1 I n t r o d u c t i o n 177 4.2 Background 178 4.2.1 The Tokai Ceramics Region 178 4.2.2 The Ceramic T i l e Industry 180 4.3 Industry S t r u c t u r e 180 4.3.1 T i l e Types And The Role Of Exports 180 4.3.2 D i f f e r e n t Production Processes And Firm C h a r a c t e r i s t i c s 182 4.3.3 Sales And D i s t r i b u t i o n 184 4.4 The Advent Of LDC Competition 185 4.5 Adjustment 186 4.5.1 The Impact Of LDC Competition 186 4.5.2 Adjustment S t r a t e g i e s 189 5. THE MIGRATION MODE OF ADJUSTMENT 199 5.1 The S c a r c i t y Of Comparative Data 199 5.2 Government Data On Adjustment A s s i s t a n c e 200 5.2.1 Aggregate P a t t e r n s 200 5.2.2 Linkages By Broad Economic Sector 201 5.2.3 D i f f e r e n c e s By Industry Of O r i g i n 204 5.2.4 I m p l i c a t i o n s Of Adjustment A s s i s t a n c e Data ..206 VI. LESS-DEVELOPED COUNTRY COMPETITION AND FOREIGN DIRECT INVESTMENT 208 v i i 1. THE NATURE OF THE LDC COMPETITIVE CHALLENGE 208 1.1 The Role Of Exogenous Change 208 1.2 Japanese C o m p l i c i t y In Asian NIC Competitive Development 210 1.3 The Course Of LDC Competitive Development 213 1.3.1 Products And Production Technology 213 1.3.2 Other Dimensions Of Competitive Development .215 1.3.3 S p e c i f i c i t y - G e n e r a l i t y Of I n d u s t r i a l S k i l l s .220 ' 2. THE ROLE OF FOREIGN DIRECT INVESTMENT 222 2.1 I n t r o d u c t i o n 222 2.1.1 The Dearth Of FDI 224 2.1.2 FDI By Wholesaler/Manufacturers 228 2.1.3 FDI And LDC F u n c t i o n a l Competence Development 229 V I I . ADJUSTMENT ALTERNATIVES 231 1. ADJUSTMENT AND VALUE-ADDED 231 2. COST-IMPROVING ADJUSTMENT 2 34 2.1 Change Of Production Technology 235 2.1.1 The "Deus Ex Machina" Syndrome 235 2.1.2 F a i l u r e s 236 2.1.3 Developing And D i f f u s i n g New Production Technology 238 2.2 Domestic T r a n s f e r s Of L o c a t i o n Of Production ..241 3. PRICE-IMPROVING ADJUSTMENT 242 3.1 Product D i f f e r e n t i a t i o n (Product V a r i a n t s ) ....242 3.2 S h i f t Of Markets 244 3.2.1 Temporally P r o t e c t e d Markets 244 3.2.2 S t r u c t u r a l l y P r o t e c t e d Markets 245 4. MARGIN-IMPROVING ADJUSTMENT 246 4.1 F u n c t i o n a l Change 246 4.1.1 Divestment Of E x i s t i n g Functions 247 4.1.2 Entry Into New F u n c t i o n s 248 4.2 Product Change 248 4.2.1 V e r t i c a l Product Change 248 4.2.2 H o r i z o n t a l Product Change 249 V I I I . THE ADJUSTMENT PROCESS 250 1. INTRA-INDUSTRY VARIATION AND ADJUSTMENT 250 1.1 I n t r a - i n d u s t r y V a r i e t y 250 1.2 Industry S u b s t r u c t u r e 252 1.2.1 D i f f e r e n c e s Among Competitors 252 1.2.2 D i f f e r e n c e s Among F u n c t i o n a l Groups 254 1.2.3 D i f f e r e n c e s Among F u n c t i o n a l C o a l i t i o n s 255 1.3 I n t e r a c t i o n In Adjustment 260 1.3.1 U n d e r l y i n g P r i n c i p l e s 260 1.3.2 I n t e r a c t i o n With C o l l a b o r a t o r s ...260 1.3.3 I n t e r a c t i o n With Competitors 262 2. DIFFUSION AND DURABILITY IN THE ADJUSTMENT PROCESS 263 2.1 D i f f u s i o n Of The Adjustment Problem 263 2.2 The D u r a b i l i t y Of Adjustment Niches 264 2.3 S u c c e s s f u l Adjustment S t r a t e g i e s 266 2.3.1 S u c c e s s f u l Adjustment 266 2.3.2 The D i s t a n c e - D u r a b i l i t y Dilemma 266 2.3.3 Determinants Of S u c c e s s f u l Adjustment 267 v i i i 2.3.4 A d a p t a b i l i t y In A d j u s t i n g I n d u s t r i e s 268 2.4 T r a n s n a t i o n a l Decoupling Of F u n c t i o n a l Competences 270 3. INDUSTRIAL RETROGRESSION 272 3.1 A l t e r n a t i v e P e r s p e c t i v e s On Adjustment 272 3.1.1 The P e r s p e c t i v e Of The Firm 272 3.1.2 The P e r s p e c t i v e Of The Industry 273 3.2 I n d u s t r i a l R e t r o g r e s s i o n 274 3.2.1 R e t r o g r e s s i o n And Development In The Periphery 275 3.2.2 C h a r a c t e r i s t i c s Of Movement Towards The Per i p h e r y 276 3.3 LDC Competition And The Immobile Periphery ....277 IX. CONCLUSIONS 280 1. GENERALITY OF THE FINDINGS 280 2. IMPLICATIONS FOR BUSINESS 283 3. IMPLICATIONS FOR GOVERNMENT 288 4. AREAS FOR FURTHER RESEARCH 290 APPENDIX A - GOVERNMENT POLICY ON SME ADJUSTMENT: INSTITUTIONS AND PROGRAMMES 292 5. THE INSTITUTIONAL FRAMEWORK 292 5.1 S t r u c t u r e Of The Bureaucracy 292 5.2 F i n a n c i a l I n s t i t u t i o n s 293 5.2.1 "The Big Three" (San Kikan) 293 5.2.2 Other F i n a n c i a l I n s t i t u t i o n s 294 5.3 O r g a n i z a t i o n a l I n s t i t u t i o n s 295 5.3.1 C e n t r a l Assembly Of SME Cooperative A s s o c i a t i o n s 295 5.3.2 Commerce And Industry Conference H a l l 296 5.3.3 Conference On Commerce And Industry 296 5.3.4 SME Promotion O r g a n i z a t i o n 296 5.3.5 N a t i o n a l A s s o c i a t i o n For The Advancement Of Sub c o n t r a c t i n g Firms 297 5.4 D e l i b e r a t i v e C o u n c i l s 297 5.4.1 C o u n c i l On SME P o l i c y 297 5.4.2 C o u n c i l On SME Mode r n i z a t i o n 297 5.4.3 C o u n c i l On SME S t a b i l i z a t i o n 298 5.4.4 C o u n c i l On SME Business F i e l d R e g u l a t i o n ....298 6. AN OUTLINE OF SME POLICY 299 6.1 P o l i c y Overview 299 6.2 SME Modernization P o l i c y 302 6.2.1 Modernization 302 6.2.2 En t r y Into New L i n e s Of Business 303 6.2.3 Reform Of I n d u s t r i a l S t r u c t u r e 305 6.3 SME Change Of Business P o l i c y 306 6.3.1 O u t l i n e 306 6.3.2 E l i g i b i l i t y C r i t e r i a 309 6.4 D i s t r e s s e d Regional Industry ("Sanchi") P o l i c y 309 6.5 Trade P o l i c y And SMEI 310 BIBLIOGRAPHY 313 ix L i s t of Tables 1. C h a r a c t e r i s t i c s of Va r i o u s Types of Research ....22 2. Some S u b d i v i s i o n s of an H y p o t h e t i c a l Chain of Prod u c t i v e A c t i v i t i e s 26 3. Some H y p o t h e t i c a l Examples of Adjustment to Competition 36 4. P r o d u c t / I n d u s t r i e s Facing Severe Asian NIC Competition 42 5. Change i n Japan's I n d u s t r i a l S t r u c t u r e : 1960-1975 ...49 6. Change i n the Composition of Japan's Major Ex p o r t s : 1950-1971 51 7. Machinery Products i n Which Asian NIC's T e c h n o l o g i c a l Competence Pr o v i d e s a Present or P r o s p e c t i v e Competitive Strength 59 8. A Comparison of the Role of Small- and Medium-sized Firms i n Some Major O.E.C.D. C o u n t r i e s 66 9. Comparison of Major Firms i n the Flatware I n d u s t r i e s of Japan, Korea, and Taiwan; c i r c a 1974-75 96 10. M i g r a t i o n s Out of the Flatware Industry i n t o New Manufacturing Businesses 128 11. D i s t r i b u t i o n of Firms and Workers i n the Umbrella Industry, c i r c a 1977 165 12. Volume of Ceramic T i l e P roduction by Type and Market, c i r c a 1968 181 13. A Comparison of Firm S i z e i n the Korean and Japanese I n d u s t r i e s 187 14. Trends i n Japanese and Korean Market Share i n Some Major Markets 188 15. Linkage P a t t e r n s i n Change of Business A s s i s t a n c e Approvals up to A p r i l , 1980 202 16. Linkage P a t t e r n s by Industry of O r i g i n 205 17. H y p o t h e t i c a l I n t e r n a l F u n c t i o n a l V a r i e t y Among Industry P a r t i c i p a n t s 257 18. N a t u r a l C o a l i t i o n s i n an Industry 258 19. An Overview of Japanese SME P o l i c y Measures 300 20. A Comparison of P o l i c y Measures Employed i n Three Adjustment Programmes 301 21. Modernization P o l i c y : Some Rep r e s e n t a t i v e Designated I n d u s t r i e s 304 22. Change of Business P o l i c y : Some Re p r e s e n t a t i v e Designated I n d u s t r i e s 308 X L i s t of F i g u r e s 1. H y p o t h e t i c a l Three-dimensional C o n f i g u r a t i o n f o r a Firm 35 2. Change i n the Commodity Composition of Asian NIC Exports 55 3. Changes i n Japanese and Korean 1 - d i g i t S.I.T.C. Export P r o f i l e s 56 4. Map Showing Names, Products, and Lo c a t i o n s f o r Some Japanese Sanchi 69 5. Production Stages f o r a S t a i n l e s s S t e e l Spoon (Tsubame, Japan) 78 6. P a t t e r n s of S u b c o n t r a c t i n g ; I n t e r n a t i o n a l l y and i n Tsubame 80 7. P a r t i c i p a n t s and P a t t e r n s of Production i n the Tsubame Flatware Industry - 81 8. V a r i e t y i n P a r t i c i p a n t s ' F u n c t i o n a l Scope; Tsubame ...88 9. Product D i s t r i b u t i o n Under a Quota System: Tsubame ...89 10. Changing Regional C o n t r i b u t i o n s to Japanese I n d u s t r i a l i z a t i o n 93 11. A l t e r n a t i v e Forms of C o a l i t i o n Between Flatware and Complementary Products 142 12. Trends i n A r t i f i c i a l Leather Footwear ; Produ c t i o n , Exports, and Unit P r i c e s 152 13. P a t t e r n of Production and D i s t r i b u t i o n i n the Umbrella Industry 166 14. Trends i n Japanese Exports and Imports of Umbrellas; 1962-1977 169 x i Ac knowledqeroent F i n a n c i a l s u p p o r t f o r t h i s r e s e a r c h was p r o v i d e d by t h e S o c i a l S c i e n c e and H u m a n i t i e s R e s e a r c h C o u n c i l of Canada, The J a p a n S o c i e t y f o r t h e P r o m o t i o n of S c i e n c e , The Department of I n d u s t r y T r a d e and Commerce, Canada, The Aluminum Company of Canada, t h e F a c u l t y o f Commerce and B u s i n e s s A d m i n i s t r a t i o n a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , and by my w i f e and r e l a t i v e s . The r e s e a r c h i n J a p a n was dep e n d e n t upon t h e k i n d n e s s e s of many i n d i v i d u a l s b u t I would p a r t i c u l a r l y l i k e t o a c k n o w l e d g e h e r e t h e s u p p o r t I r e c e i v e d from s t a f f a t t h e I n s t i t u t e o f D e v e l o p i n g E c o n o m i e s ( A j i a K e i z a i K e n k y u s h o ) , t h e Tokyo O f f i c e of t h e N i i g a t a P r e f e c t u r a l Government, and from t h e l i b r a r y s t a - f f of t h e C o m m e r c i a l and I n d u s t r i a l C o o p e r a t i v e s ' C e n t r a l F i n a n c i a l C o r p o r a t i o n (Shoko K u m i a i Chuo K i n k o ) . Among t h o s e who h e l p e d me a t t h e U n i v e r s i t y o f B r i t i s h C o l u m b i a , I would l i k e t o thank B i l l T o m l i n s o n , Sam Ho, and F r a n k Langdon f o r p r o v i d i n g much h e l p f u l comment and e n d u r i n g many i n c h o a t e d r a f t s o f t h e d i s s e r t a t i o n m a t e r i a l as w e l l a s John Howes and T e r r y McGee f o r t h e i r c o n s i d e r a b l e m o r a l s u p p o r t . To no one, however, do I owe a d e e p e r d e b t o f g r a t i t u d e t h a n t o my w i f e , J e n n y , whose s u p p o r t , f o r b e a r a n c e , and s e l f - s a c r i f i c e have been f a r beyond a l l w i f e l y d u t y . 1 I. THE PROBLEM ADDRESSED AND THE PURPOSES OF THE RESEARCH 1. DEVELOPED COUNTRY ADJUSTMENT TO LESS-DEVELOPED COUNTRY INDUSTRIAL!ZATION 1.1 Adjustment To A Changing Economic Environment The economic environment i s one of constant change and the w e l l - b e i n g or s u r v i v a l of f i r m s , i n d u s t r i e s , and n a t i o n a l economies i s u l t i m a t e l y dependent upon adapta t i o n to that changing environment. Pressure f o r adjustment can a r i s e from environmental change in technology or i n ; the c o n d i t i o n s of supply and demand. Moreover, environmental change, i t s e l f , i s in l a r g e part induced by economic and governmental a c t i v i t y . Adjustment to environmental change serves to maintain or to i n c r e a s e e f f e c t i v e n e s s and e f f i c i e n c y . Thus, those who a d j u s t r a p i d l y and w e l l have an advantage over competitors f o r whom adjustment comes more slowly, or not at a l l , and they are more l i k e l y , t h e r e f o r e , to s u r v i v e and prosper. Environmental change and adjustment to i t can, over time, l e a d to major s t r u c t u r a l change in an economy. 1 Adjustment i t s e l f however, need not be a problem, i f those a f f e c t e d by environmental change can a d j u s t at a pace commensurate with the pace of change. 2 Change can, however, occur at a pace which s t r a i n s the 2 1 See, f o r example; United Nations, S t r u c t u r e and Change in European Industry (U.N., New York, 1977). See. Matthews, R. A., " I n d u s t r i a l V i a b i l i t y i n a Free Trade Economy" pp 23-24 i n , Regional and Adjustment Aspects of Trade L i b e r a l i z a t i o n ( U n i v e r s i t y of Toronto Press, Toronto, 1973). Matthews g i v e s some examples of s u b s t a n t i a l s t r u c t u r a l changes that d i d not present s e r i o u s adjustment problems. 2 a d a p t i v e c a p a c i t y of t h o s e a f f e c t e d and i t i s t h e n t h a t an a d j u s t m e n t " p r o b l e m " a r i s e s . The e n e r g y c r i s e s of t h e 1970's r e f l e c t e d r a p i d change i n c o n d i t i o n s of p e t r o l e u m s u p p l y , t o w h i c h many were u n a b l e t o r e a d i l y a d j u s t . I t a l s o t r i g g e r e d r a p i d change i n t h e n a t u r e of demand f o r some r e l a t e d p r o d u c t s ; t o w h i c h t h e N o r t h A m e r i c a n a u t o m o b i l e i n d u s t r y , f o r example, was h a r d - p r e s s e d t o a d j u s t . R e c e n t d e v e l o p m e n t s i n m i c r o - e l e c t r o n i c s and a u t o m a t i o n r e p r e s e n t , on t h e o t h e r hand, t e c h n o l o g i c a l change w h i c h i s w i d e l y e x p e c t e d t o r e d u c e l a b o u r r e q u i r e m e n t s i n some i n d u s t r i a l s e c t o r s a t a pace w h i c h e x c e e d s t h e a b i l i t y o f t h e a f f e c t e d l a b o u r f o r c e t o a d j u s t ( v i a i n t e r - f i r m o r i n t e r - r e g i o n m i g r a t i o n , r e t r a i n i n g , e t c . ) . In r e c e n t y e a r s , an a g g r e g a t e of c h a n g e s i n s u p p l y , demand, and t e c h n o l o g y has g i v e n r i s e t o t h e p r o b l e m of a d j u s t i n g t o c o m p e t i t i o n from l e s s - d e v e l o p e d c o u n t r y m a n u f a c t u r e s i n many of t h e d e v e l o p e d c o u n t r i e s and i t i s t h i s p a r t i c u l a r t y p e of a d j u s t m e n t p r o b l e m t h a t i s t h e f o c u s of t h e p r e s e n t r e s e a r c h . 1.2 L e s s - d e v e l o p e d C o u n t r y I n d u s t r i a l i z a t i o n I t has now l o n g s i n c e been d e m o n s t r a t e d t h a t t h e complex o f s o c i o - t e c h n o l o g i c a l change we t e r m " i n d u s t r i a l i z a t i o n " has t h e c a p a c i t y t o improve t h e l o t of man by making, him more p r o d u c t i v e . As a r e s u l t , i n d u s t r i a l i z a t i o n , or f u r t h e r i n d u s t r i a l d e v e l o p m e n t , has become a c e n t r a l g o a l o f a l l c o u n t r i e s . Nowhere has t h i s r e c e i v e d more e x p l i c i t a t t e n t i o n t h a n i n t h e l e s s - d e v e l o p e d c o u n t r i e s (LDCs) w h i c h f a c e t h e d i f f i c u l t t a s k of t r y i n g t o co m p r e s s what has o f t e n i n t h e p a s t been an e v o l u t i o n a r y p r o c e s s i n t o a d i r e c t e d , r e v o l u t i o n a r y 3 t r a n s f o r m a t i o n of t h e i r s o c i e t i e s . The p r o b l e m s of economic d e v e l o p m e n t i n t h e LDCs has been a p a r t i c u l a r l y p r o m i n e n t t o p i c i n t h e po s t w a r p e r i o d as so many c o u n t r i e s have newly a c h i e v e d p o l i t i c a l i n d e p e n d e n c e . The p r o b l e m s t h e y f a c e a r e f a r - r e a c h i n g ; f o r , as Moore has put i t : " G i v e n t h e o p t i o n or even t h e knowledge of a l t e r n a t i v e s e x i s t i n g e l s e w h e r e , . . . most p e o p l e i n most p l a c e s p r e f e r f o o d t o hunger, h e a l t h t o s i c k n e s s , p h y s i c a l c o m f o r t t o s u f f e r i n g and l i f e t o d e a t h . Whether t h e y a l s o p r e f e r work t o ' l e i s u r e ' , u r b a n a g g l o m e r a t i o n t o v i l l a g e l i f e , c l o s e t e m p o r a l s y n c h r o n i z a t i o n t o t h e uneven p a c e of t r a d i t i o n a l p r o d u c t i o n i s more d o u b t f u l , and i t i s a t t h i s l e v e l t h a t p r o b l e m s a r i s e i n t h e p r o c e s s of d e v e l o p m e n t and i n d u s t r i a l i z a t i o n . " 3 B e c a u s e of t h e e n o r m i t y of t h e p r o b l e m s of i n d u s t r i a l d e v e l o p m e n t i n t h e LDCs, few of them made d r a m a t i c p r o g r e s s i n t h e e a r l y p o s t w a r p e r i o d . By t h e 1960's, i t had become e v i d e n t , m o r e o v e r , t h a t i n d u s t r i a l i z a t i o n b a s e d on i m p o r t - s u b s t i t u t i o n was n o t a v i a b l e l o n g - r a n g e s t r a t e g y even f o r t h e l a r g e r LDCs and was c l e a r l y i n a p p r o p r i a t e f o r s m a l l - and m e d i u m - s i z e d LDCs. I t was n e c e s s a r y f o r them t o d e v e l o p i n d u s t r i e s w h i c h c o u l d 3 Moore, W. E., S o c i a l Change 2nd E d i t i o n ( P r e n t i c e - H a l l , Englewood C l i f f s , N.J., 1973) pp 92-93. 4 c o m p e t i t i v e l y export to the l a r g e r world market." During the 1960's and 1970's, a number of LDCs a t t a i n e d unprecedented economic growth based l a r g e l y on such export- o r i e n t e d i n d u s t r i a l i z a t i o n s t r a t e g i e s . 5 Such c o u n t r i e s have, as a group, come to be known as the newly i n d u s t r i a l i z i n g c o u n t r i e s , or "NICs", and are d i s t i n g u i s h e d from the m a j o r i t y of LDCs by: r a p i d growth i n the l e v e l and share of i n d u s t r i a l employment in t h e i r economies, a r i s i n g share of world i n d u s t r i a l p r o d u c t i o n and exports of manufactures, and r e l a t i v e l y high ( f o r LDCs) l e v e l s of per c a p i t a n a t i o n a l income. The c r i t e r i a are not exact and, however one a p p l i e s them, the makeup of the group w i l l undoubtedly change over time. 6 1.3 Adjustment And Less-developed Country I n d u s t r i a l i z a t i o n NIC economic development i n v o l v e s change in the i n t e r n a t i o n a l d i v i s i o n of labour, as producers i n those c o u n t r i e s move i n t o the p r o d u c t i o n of i n d u s t r i a l manufactures that were h i t h e r t o produced elsewhere. The most general and " See, f o r example, Lary, Hal B., Imports of Manufactures from Less Developed C o u n t r i e s ( N a t i o n a l Board of Economic Research, New York, 1968) pp F-17; and G i e r s c h , Herbert (ed.), The I n t e r n a t i o n a l D i v i s i o n of Labour: Problems and P e r s p e c t i v e s P a r t I I I , "The developing c o u n t r i e s export n e c e s s i t i e s . . . " (J.C.B. Mohr, Tubingen, 1974). 5 See, Donges, J . B., "A Comparative Survey of I n d u s t r i a l i z a t i o n P o l i c i e s i n F i f t e e n S e m i - i n d u s t r i a l i z e d C o u n t r i e s " i n , W e l t w i r t s h c a f t l i c h e s A r c h i v V 112, 1976 pp 626-657; Herman, B., The Optimal I n t e r n a t i o n a l D i v i s i o n of Labour ( I n t e r n a t i o n a l Labour O r g a n i z a t i o n , Geneva, 1975); and, G i e r s c h , , op. c i t . 6 See, O r g a n i z a t i o n f o r Economic Cooperation and Development, The Impact of the Newly I n d u s t r i a l i z i n g C o u n t r i e s on Production and Trade i n Manufactures (O.E.C.D., P a r i s , 1979). T h i s study d e f i n e d the f o l l o w i n g c o u n t r i e s as NICs: Greece, P o r t u g a l , Spain, Y u g o s l a v i a , B r a z i l , Mexico, South Korea, Taiwan, Hong Kong, and Singapore. 5 f a m i l i a r e x p l a n a t i o n of t h e i n t e r n a t i o n a l d i v i s i o n of l a b o u r i s th e t h e o r y o f c o m p a r a t i v e a d v a n t a g e . T h i s t h e o r y h o l d s t h a t even i f one of two c o u n t r i e s i s a b s o l u t e l y more e f f i c i e n t ( p r o d u c t i v e ) t h a n t h e o t h e r i n p r o d u c i n g any and e v e r y p r o d u c t , i f e a c h s p e c i a l i z e s i n t h e p r o d u c t s i n w h i c h i t has a c o m p a r a t i v e a d v a n t a g e ( i . e . , t h e g r e a t e s t p r o d u c t i v i t y r e l a t i v e t o o t h e r g o o d s ) , t r a d e c an be m u t u a l l y p r o f i t a b l e ; i n t h e s e n s e t h a t more t o t a l goods can be made a v a i l a b l e t o e a c h of them. E n v i r o n m e n t a l change o f v a r i o u s t y p e s c an l e a d t o c h a n g e s i n c o m p a r a t i v e a d v a n t a g e . Thus, change i n t h e i n t e r n a t i o n a l d i v i s i o n o f l a b o u r w h i c h r e f l e c t s u n d e r l y i n g c h a n g e s i n c o m p a r a t i v e a d v a n t a g e c an be seen a s a b e n e f i c i a l phenomenon. In t h e non-communist c o u n t r i e s , t h e p o s t w a r p e r i o d has been d o m i n a t e d by t h e b e l i e f , g r o u n d e d i n c o m p a r a t i v e a d v a n t a g e t r a d e t h e o r i e s , t h a t f r e e t r a d e i n goods i s i n t h e n a t i o n a l i n t e r e s t s o f a l l c o u n t r i e s . T h i s has l e d t o t h e c o d i f i c a t i o n , p r i m a r i l y w i t h i n t h e G.A.T.T. framework, o f r u l e s aimed a t p r o m o t i n g f r e e t r a d e . T h e s e r u l e s have s o u g h t , by common c o n c e n s u s , t o c o n s t r a i n t h e p o l i t i c a l i n d e p e n d e n c e of s t a t e s t o u n i l a t e r a l l y h i n d e r f r e e t r a d e . P a r t l y a s a r e s u l t of t h i s , a n o t h e r m a j o r f e a t u r e of t h e p o s t w a r p e r i o d has been an i n c r e a s e i n ec o n o m i c i n t e r d e p e n d e n c e o r , t o p u t i t t h e o t h e r way, a d e c r e a s e i n economic i n d e p e n d e n c e . D e v e l o p e d c o u n t r y (DC) p r o d u c e r s a l s o f a c e c h a n g i n g c o m p a r a t i v e a d v a n t a g e and where t h i s b r i n g s them i n t o c o m p e t i t i o n w i t h LDC p r o d u c e r s who e n j o y an a b s o l u t e c o s t a d v a n t a g e t h e y may need t o f u n d a m e n t a l l y a d j u s t t h e i r b u s i n e s s 6 a c t i v i t i e s i f they are to s u r v i v e . At the aggregate l e v e l , t h i s a c t s as a f o r c e f o r s t r u c t u r a l change i n the o v e r a l l economies of the DCs. In p r i n c i p l e , DC governments do not view t h i s process of adjustment with alarm; such s t r u c t u r a l change i s as fundamental a f e a t u r e of t h e i r ongoing economic development as i t i s of that of the LDCs. Indeed, at the i n t e r n a t i o n a l p o l i t i c a l l e v e l , the DCs have an expressed commitment to LDC economic development. The adoption i n March of 1975 of the Lima D e c l a r a t i o n and Plan of A c t i o n on I n d u s t r i a l Development and Cooperation, f o r example, aims f o r the LDCs to account f o r 25% of the world's i n d u s t r i a l p r o d u c t i o n by the year 2000. 7 Moreover, as a concrete step to s t i m u l a t e LDC development through "trade not a i d " , an i n t e r n a t i o n a l scheme to favour DC imports of LDC manufactures was i n s t i t u t e d in the 1970's. 8 Despite the c o n s i d e r a b l e amount of DC-LDC agreement i n p r i n c i p l e as to the wisdom and i n e v i t a b i l i t y of complementary s t r u c t u r a l change, there i s growing c o n f l i c t i n p r a c t i c e . C o n f l i c t has only p a r t l y been due to r a p i d export expansion by the NICs. I t has a l s o been exacerbated by slow r a t e s of growth in the DC economies duri n g the 1970's. T h i s has served to i n c r e a s e the d i f f i c u l t i e s a r i s i n g from LDC competition because i t has o f t e n meant not merely lower growth but an a b s o l u t e 7 See, U n i t e d Nations, R e s t r u c t u r i n g of World Industry (U.N., New York, 1978) 8 See, Ginman, Peter J . and Murray, T., "The G e n e r a l i z e d System of P r e f e r e n c e s : A Review and A p p r a i s a l " i n , The New I n t e r n a t i o n a l Economic Order Sauvant, K. P. and Hasenpflug, H. (eds . ) , (Wilton House, London, 1977) 7 d e c l i n e i n l e v e l s of production and an inc r e a s e in unemployment. Moreover, f o r those firms which have not been able to withstand LDC c o m p e t i t i o n , low r a t e s of n a t i o n a l economic growth have made i t more d i f f i c u l t f o r them, or t h e i r employees, to move i n t o other a c t i v i t i e s . There has been, t h e r e f o r e , i n c r e a s e d d i f f i c u l t y i n making the a p p r o p r i a t e DC adjustments to LDC i n d u s t r i a l i z a t i o n j u s t when , with the advent of the NICs, the need i s gr e a t e r than ever. T h i s has c o n t r i b u t e d to a r i s i n g t i d e of p r o t e c t i o n i s m i n i n t e r n a t i o n a l t r a d e . 9 The problem of p r o t e c t i o n i s m i s not e x c l u s i v e l y r e l a t e d to trade between DCs and LDCs. 1 0 N e v e r t h e l e s s , the most s e r i o u s and s t r u c t u r a l l y important examples are probably found i n r e l a t i o n s between DCs and LDCs. As a r e s u l t , the problem of DC adjustment to LDC com p e t i t i o n has r e c e i v e d i n c r e a s i n g a t t e n t i o n d u r i n g the 1970's and i s l i k e l y to remain prominent throughout the 1980's. 1 1 9 See, f o r example: Jackson, John H., "The Crumbling I n s t i t u t i o n s of the L i b e r a l Trade System" i n , J o u r n a l of World Trade Law VI2 No2 ,March/April 1978; Balassa, B e l a , "The 'New P r o t e c t i o n i s m ' and the I n t e r n a t i o n a l Economy" in J o u r n a l of World Trade Law V12 No5 Sept/Oct 1978; Cohen, Stephen D., "Changes i n the I n t e r n a t i o n a l Economy: Old R e a l i t i e s and New Myths" i n , J o u r n a l of World Trade Law V12 No4 July/August 1978; B l a c k h u r s t , Richard et a l , Trade L i b e r a l i z a t i o n , P r o t e c t i o n i s m , and Interdependence (General Agreement on T a r i f f s and Trade[G.A.T.T.], Geneva, 1977) . 1 0 For example, see; Strange, Susan , "The management of su r p l u s c a p a c i t y or how does theory stand up to p r o t e c t i o n i s m 1970's s t y l e ? " , i n , I n t e r n a t i o n a l O r g a n i z a t i o n V. 33, NO. 3 (Summer, 1979) and; T s o u k a l i s , L. and F e r r e i r a , A. da S i l v a , "Management of i n d u s t r i a l s u r p l u s c a p a c i t y i n the European Community", i n I n t e r n a t i o n a l O r g a n i z a t i o n V. 34, No. 3 (Summer, 1980). 1 1 See, B a l a s s a , B., "Prospects f o r Trade i n Manufactured Goods Between I n d u s t r i a l and Developing C o u n t r i e s , 1978-1990" i n , J o u r n a l of P o l i c y M o d e l l i n g V2 No3, 1980. 8 2. APPROACHES TO THE ADJUSTMENT PROBLEM 2.1 Research On The Adjustment Problem Research on the adjustment problem has, to date, p r i m a r i l y been c a r r i e d out by n a t i o n a l or i n t e r n a t i o n a l o r g a n i z a t i o n s concerned with government p o l i c y . Such res e a r c h has g e n e r a l l y adopted the " a t o m i s t i c " view that adjustment i s a matter of the movement of i n d i v i d u a l u n i t s of p r o d u c t i v e f a c t o r s (e.g., i n d i v i d u a l workers) between d i f f e r e n t p r o d u c t i v e a c t i v i t i e s . As labour i s commonly viewed as being r e l a t i v e l y immobile and because unemployment i s the most p o l i t i c a l l y v o l a t i l e f e a t u r e of the adjustment problem, t h i s r e s e a r c h and p o l i c y concern has focussed on the DC employment impact of LDC c o m p e t i t i o n , on ways of f a c i l i t a t i n g labour m o b i l i t y out of a f f e c t e d i n d u s t r i e s , and on a l l e v i a t i n g the hardships imposed on the unemployed. 1 2 The r e s e a r c h has shown t h a t , in the aggregate, the net employment impact of trade with the LDCs has been s l i g h t and, i n any case, the impact on employment has been dwarfed by the much more s i g n i f i c a n t employment impact of changes in demand and in p r o d u c t i o n technology. They have a l s o shown, however, that LDC exports have had s i g n i f i c a n t adverse impact on DC producers at 1 2 See, f o r example: United Nations Conference on Trade and Development [UNCTAD], Adjustment A s s i s t a n c e Measures [TD/121 and supplements] (UNCTAD~ Geneva, 1972); UNCTAD, Adjustment A s s i s t a n c e Measures [TD/B/C.2/171] (UNCTAD. Geneva") 1977); Warnecke, S. J . , I n t e r n a t i o n a l Trade and I n d u s t r i a l P o l i c i e s (Holmes and Meier, New York, 1978); MacBean, A l a s d a i r , A P o s i t i v e Approach to the I n t e r n a t i o n a l Economic Order, Part I: Trade and S t r u c t u r a l Adjustment ( B r i t i s h North-American Committee, London, 1978). 9 the narrow s e c t o r a l l e v e l s and t h i s has l e d to severe adjustment problems f o r some s p e c i f i c r e g i o n s , i n d u s t r i e s , f i r m s , and segments of the labour f o r c e . 1 3 2.2 Government P o l i c y " The r e s e a r c h and p o l i c y focus on i n d i v i d u a l f a c t o r m o b i l i t y does not mean that government adjustment a s s i s t a n c e programmes have been l i m i t e d to those aimed s p e c i f i c a l l y at i n d i v i d u a l d i s p l a c e d workers. Indeed, over the past decade or so, the most notable change i n DC p o l i c y f a l l i n g under the r u b r i c of "adjustment a s s i s t a n c e " has been the p r o l i f e r a t i o n of s p e c i a l t a r i f f s and quotas on LDC manufactured goods. These p o l i c i e s i m p l i c i t l y take the f i r m or, i n the aggregate, the i n d u s t r y as the r e l e v a n t p o l i c y u n i t . Matthews has d i s c u s s e d the r a t i o n a l e f o r adjustment a s s i s t a n c e at the l e v e l of the f i r m or i n d u s t r y . 1 " Too o f t e n however, and e s p e c i a l l y i n the case of t a r i f f s and quotas, p o l i c y has acted not to f a c i l i t a t e t i m e l y adjustment, but to delay e f f o r t s to a d just by removing or reducing the p r e s s u r e s 1 3 For reviews of r e s e a r c h and methodology re g a r d i n g the employment impact see; U n i t e d Nations I n d u s t r i a l Development O r g a n i z a t i o n [UNIDO], "The Impact of Trade with Developing C o u n t r i e s on Employment in Developed C o u n t r i e s : E m p i r i c a l Evidence From Recent Research" i n , Working Papers on S t r u c t u r a l Change , No. 3 (UNIDO, Vienna, 1978), and O r g a n i z a t i o n f o r Economic Cooperation and Development [OECD], The Impact of the Newly I n d u s t r i a l i z i n g C o u n t r i e s on Production and Trade in Manufactures (OECD, P a r i s , 1979). 1 4 See, Matthews, R. A. (1973) , op. c i t . . 10 for a d j u s t m e n t . 1 5 N e v e r t h e l e s s , the p o t e n t i a l importance of, e f f e c t i v e adjustment a s s i s t a n c e at the l e v e l of the f i r m and in d u s t r y i s i n c r e a s i n g l y s t r e s s e d by re s e a r c h e r s and i t has a c e n t r a l r o l e i n c u r r e n t normative d i s c u s s i o n s of government p o l i c y . 1 6 However, d e s p i t e the acknowledged importance of adjustment by firms w i t h i n a f f e c t e d i n d u s t r i e s , there has been l i t t l e e m p i r i c a l r e s e a r c h focussed on c o r p o r a t e - or e n t e r p r i s e - l e v e l a d j u s t m e n t . 1 7 If e n t e r p r i s e - l e v e l adjustment a s s i s t a n c e schemes are to be e f f e c t i v e i t i s , t h e r e f o r e , necessary to develop a c l e a r e r understanding of the nature of the adjustment problem at that l e v e l . The development of a body of e m p i r i c a l r e s e a r c h focussed on e n t e r p r i s e - l e v e l adjustment can make a c o n t r i b u t i o n to the 1 5 See, f o r example: O.E.C.D., The Case f o r P o s i t i v e Adjustment P o l i c i e s (O.E.C.D., P a r i s , 1979); M u t t i , John H. and Bale, M. D., "Output and Employment Changes i n a 'Trade S e n s i t i v e ' S e c t o r : Adjustment i n the U. S. Footwear Industry" i n , W e l t w i r t s c h a f t l i c h e s A r c h i v V117, 1981; and, Krueger, Anne 0., " R e s t r u c t u r i n g f o r Import Competition from Developing C o u n t r i e s , I: Labour Displacement and Economic Redeployment" i n , J o u r n a l of P o l i c y M o d e l l i n g V2 No2 1980 pp 165-183. 1 6 See, O.E.C.D., , op. c i t . , and: Wolter, Frank, " R e s t r u c t u r i n g f o r Import Competition from Developing C o u n t r i e s , I I : The Case of the F e d e r a l Republic of Germany" i n , J o u r n a l of P o l i c y M o d e l l i n g V2 No2 1980; Adelman, Irma, "Some Thoughts on the R e s t r u c t u r i n g of North-South I n t e r a c t i o n " i n J o u r n a l of P o l i c y M o d e l l i n g V2 No2 1980; Matthews, R. A., D i s c u s s i o n Paper No 172, Canadian Industry and the Challenge of Low-Cost Imports (Economic Counci1 of Canada, Ottawa, 1 980); A u s t r a l i a n Government P u b l i s h i n g S e r v i c e (AGPS), Study Group on S t r u c t u r a l Adjustment, Report March, 1979 Volume I (AGPS, Canberra, 1979) ; and, L l o y d , P. J . , "A K n i g h t i a n Model f o r the A n a l y s i s of S t r u c t u r a l Adjustments by Firms" i n , W e l t w i r t s c h a t l i c h e s A r c h i v V1 17, 1981 pp 672-685. 1 7 L l o y d , P. J . , , op. c i t . , e x p l i c i t l y adopts the p e r s p e c t i v e of the f i r m but presents a t h e o r e t i c a l econometric model and examines i t s p r o p e r t i e s , rather than d i r e c t l y examining the e m p i r i c a l f e a t u r e s of adjustment from that p e r s p e c t i v e . 11 development of t h i s understanding. 2.3 Business P o l i c y Quite a s i d e from the i n t e r e s t of n a t i o n a l government policymakers i n the adjustment problem, i t has an obvious importance f o r managers of firms which face the r e a l i t y or prospect of LDC competiton. There i s a vast l i t e r a t u r e on management but the area of g r e a t e s t apparent relevance i s the f i e l d of "business p o l i c y " or " s t r a t e g i c management". The f i e l d i s r e l a t i v e l y young and i n a s t a t e of f e r m e n t . 1 8 There i s , t h e r e f o r e , no u n i v e r s a l theory of s t r a t e g i c management that has s t r u c t u r e d r e s e a r c h i n t h i s f i e l d . 1 9 Research has l a r g e l y r e f l e c t e d the concerns of business p r a c t i t i o n e r s and these have changed, i n t h e i r p a r t i c u l a r s , over t i m e . 2 0 As a consequence, and i n r e f l e c t i o n of the steady economic growth that has c h a r a c t e r i z e d most of the postwar p e r i o d , there has been c o n s i d e r a b l e e m p i r i c a l r e s e a r c h emphasis on the 1 8 See, Hofer, C. W. et a l , S t r a t e g i c Management: A Casebook i n Business P o l i c y and Planning (West, New York, 1980) pp 2-26. Hofer i d e n t i f i e s as many as four "paradigm s h i f t s " s i n c e the 1950's, in response to i n c r e a s e d (or i n c r e a s e d awareness of) complexity i n the managerial task. 1 9 See, Schendel, Dan E. and Hofer, C. W. ( e d s . ) , S t r a t e g i c Management -A New View of Business P o l i c y and Planning ( L i t t l e , Brown, Toronto, 1979). T h i s volume i s responsive to the f e l t need f o r a more widely accepted paradigm f o r the f i e l d of s t r a t e g i c management/business p o l i c y . I t was prepared under the auspices of the Business P o l i c y and Planning D i v i s i o n of the Academy of Management and can be c o n s i d e r e d the most thorough and d e f i n i t i v e recent survey of the f i e l d . 2 0 See, A n s o f f , H. Igor, "The Changing Shape of the S t r a t e g i c Problem" i n Schendel and Hofer , op. c i t . , pp30-44. Ansoff presents a schema r e l a t i n g change in the o v e r a l l business environment s i n c e 1900 to the changing focus of managerial i n t e r e s t s . 1 2 s t r a t e g i c management of co r p o r a t e growth and d i v e r s i f i c a t i o n , 2 1 f o r example, but r e l a t i v e l y l i t t l e focussed on c o r p o r a t e retrenchment or d e c l i n e or on fundamentally adverse i n d u s t r y envi ronments. 2 2 T h i s i s not to say that these l a t t e r s i t u a t i o n s have been ignored at the conceptual l e v e l . T h e o r i s t s have proposed conceptual frameworks based, f o r example, on the concept of a product l i f e - c y c l e which e x p l i c i t l y i n c l u d e a " d e c l i n e " stage c a l l i n g f o r a d i f f e r e n t approach to s t r a t e g i c management. 2 3 There does not appear, however, to have been much e m p i r i c a l r e s e a r c h i n the area. 2 1 Ansoff, , op. c i t . , makes t h i s p o i n t , which i s echoed i n D i l l , Wm. R., "Commentary" i n the same volume, p 49. 2 2 See, S t e i n e r , George A., "Contingency T h e o r i e s of Stra t e g y and S t r a t e g i c Management" i n Schendel and Hofer (1979), , op. c r t . , p 408. Acco r d i n g to S t e i n e r , r e s e a r c h i n t e r e s t i n t h i s area i s c o mparatively r e c e n t . He does, however, c i t e some s t u d i e s , i n c l u d i n g : Schendel, Dan E. and Patton, G. R., "Corporate Stagnation and Turnaround" i n J o u r n a l of Economics and Business Spring/Summer 1976; A r g e n t i , John, Corporate C o l l a p s e : The Causes and Symptoms (Wiley, New York, 1976); Altman, Edward, Corporate Bankruptcy i n America (Lexington Books, Lexington, Mass., 1971); Ross, J o e l E T and Kami, M. J . , Corporate Management i n C r i s i s : Why the Mighty F a l l ( P r e n t i c e - H a l l , Englewood C l i f f s , N.J., 1973); and, Wilcox, J a r r o d W., "The Gambler's Ruin Approach to Business Risk" i n Sloan Management Review F a l l f 1976. 2 3 See, f o r example, Fox, Harold, "A Framework f o r F u n c t i o n a l C o o r d i n a t i o n " i n A t l a n t a Economic Review November/December 1973; and, Hofer, C. W., "Towards a Contingency Theory of Business S t r a t e g y " i n , Academy of Management J o u r n a l December, 1975. For a survey of "stages t h e o r i e s " , see the chapter "Stages of Development T h e o r i e s and S t r a t e g i c Management" i n Glueck, Wm. F., Business P o l i c y and S t r a t e g i c Management T h i r d E d i t i o n , (McGraw H i l l , New York, 1980). 1 3 Recent research by H a r r i g a n 2 " and by M i l e s 2 5 are major e x c e p t i o n s . Both H a r r i g a n and M i l e s examined s t r a t e g i c response to adverse environmental change i n the form of " d e c l i n i n g demand". They develop q u i t e d i f f e r e n t p e r s p e c t i v e s , however, on the nature of the s t r a t e g i c adjustment problem posed by t h i s environmental change. Harrigan c o n s i d e r e d only a l i m i t e d set of p r e - s p e c i f i e d investment and disinvestment s t r a t e g i e s with respect to the d e c l i n i n g business and was not concerned with what might r e p l a c e a business i f i t were abandoned or d i v e s t e d . 2 6 Moreover, Harrigan's r e s e a r c h assumed a b u s i n e s s - l e v e l , as opposed to an e n t e r p r i s e - l e v e l , p e r s p e c t i v e and assumed a d i v e r s i f i e d ( m u l t i - business) parent e n t e r p r i s e . 2 7 M i l e s , on the other hand, adopted an e n t e r p r i s e - l e v e l p e r s p e c t i v e and made the range of s t r a t e g i c o p t i o n s , i t s e l f , an o b j e c t of i n q u i r y . Moreover, he e x p l i c i t l y c o n s i d e r s movement i n t o a d i f f e r e n t business as an adjustment s t r a t e g y . It i s not c l e a r what might be the range of r e l e v a n t adjustment s t r a t e g i e s f o r adjustment to LDC c o m p e t i t i o n , but " H a r r i g a n , K. R., S t r a t e g i e s f o r D e c l i n i n g Businesses (Lexington Books, Lexington, Mass., 1980) and H a r r i g a n , RT R., " E x i t D e c i s i o n s i n Mature I n d u s t r i e s " i n , Academy of Management J o u r n a l V2 N04, 1982. 5 M i l e s , Robert H., C o f f i n N a i l s and Corporate S t r a t e g i e s ( P r e n t i c e - H a l l , Englewood C l i f f s , N.J., 1982). 6 N e v e r t h e l e s s , she found the s t r a t e g i c problem presented c o n s i d e r a b l y more complexity than had been a t t r i b u t e d to i t i n the e x i s t i n g l i t e r a t u r e . 7 H a r r i g a n (1980) , op. c i t . , p 55. 1 4 they would have to i n c l u d e movement i n t o d i f f e r e n t business which i s l e s s exposed to that c o m p e t i t i o n . 2 8 T h i s , i n turn, i m p l i e s an e n t e r p r i s e - l e v e l p e r s p e c t i v e on the adjustment problem. In t h i s r e s p e c t , a comprehensive o r i e n t a t i o n ( i . e . , one c l o s e r i n s p i r i t to M i l e s than to Harrigan) i s a p p r o p r i a t e to an examination of the problem of adjustment to LDC c o m p e t i t i o n . The concrete circumstances of the DC adjustment problem may d i f f e r c o n s i d e r a b l y from those r e l e v a n t i n the cases examined by M i l e s and by H a r r i g a n . In p a r t i c u l a r , a d e c l i n e i n o v e r a l l demand i s not n e c e s s a r i l y a f e a t u r e of the DC adjustment problem. The problem would, however, b e n e f i t from s i m i l a r l y motivated e f f o r t s to o b t a i n a more d e t a i l e d e m p i r i c a l understanding of i t s dimensions. 3. PURPOSES OF THE RESEARCH The e v o l v i n g c o m petitiveness of LDC manufactures and the problem of adjustment to that competition by DC producers i s of growing importance and has a t t r a c t e d i n c r e a s e d a t t e n t i o n as a problem f o r DC government and b u s i n e s s . I t has not yet, however, s t i m u l a t e d much e m p i r i c a l research.on p a r t i c i p a n t s in See, Spender, J . C , "Commentary" in Schendel and Hofer, , op. c i t . , pp 394-404. Spender argues that most s t r a t e g i c management contingency theory takes the e x i s t i n g environment as a given and overlooks the o p t i o n of moving to a l e s s h o s t i l e environment. "Hence i t overlooks by assumption a whole dimension of the s t r a t e g i s t ' s o p t i o n s f o r coping with...the f i r m ' s environment". 1 5 a f f e c t e d DC i n d u s t r i e s . 2 9 There i s , i n p a r t i c u l a r , a d earth of s t u d i e s of the adjustment problems of DC producers i n the a f f e c t e d i n d u s t r i e s . 3 0 The main o b j e c t i v e of the r e s e a r c h i s , t h e r e f o r e , to advance what i s known about the adjustment environment presented by LDC c o mpetition to DC e n t e r p r i s e s i n a f f e c t e d i n d u s t r i e s . To t h i s end, the r e s e a r c h seeks to develop e m p i r i c a l l y - b a s e d i n s i g h t s i n t o ; i . The nature of e n t e r p r i s e - l e v e l adjustment a l t e r n a t i v e s . i i . The nature of i n t r a - i n d u s t r y ( i . e . , i n t e r - f i r m ) v a r i a t i o n r e l e v a n t to the adjustment environment i i i . The dynamics of the adjustment process. i v . The dynamics of the DC-LDC co m p e t i t i v e environment. 2 9 Surveys of the P u b l i c A f f a i r s Information S e r v i c e (PAIS) and the ABI/INFORM b i b l i o g r a p h i c databases as r e c e n t l y as December, 1982 r e a f f i r m e d t h a t , as p r eceding d i s c u s s i o n has suggested, most of the l i t e r a t u r e c o n s i s t s of t h e o r e t i c a l l y - b a s e d or macro- economic d i s c u s s i o n s of e i t h e r the growth of LDC c o m p e t i t i v e n e s s , the aggregate DC employment impact of LDC p r o d u c t i o n , or government adjustment p o l i c i e s . 3 0 There was very l i t t l e that addressed the q u e s t i o n at the l e v e l of the e n t e r p r i s e at a l l . L l o y d (1981, , op. c i t . ) and Mickwitz [Mickwitz, Gosta, "The New I n t e r n a t i o n a l P r i c e Competition" i n , European J o u r n a l of Marketing V13, No4, 1979 ] are motivated by a concern for e n t e r p r i s e - l e v e l adjustment but n e i t h e r of these are e m p i r i c a l s t u d i e s . 1 6 The r e s e a r c h r e s t s upon two f u n d a m e n t a l a s s u m p t i o n s . The f i r s t i s t h a t t h e DC a d j u s t m e n t p r o b l e m i s , i n t h e f i r s t i n s t a n c e , a p r o b l e m of c o r p o r a t e ( o r " e n t e r p r i s e - l e v e l " ) a d j u s t m e n t t o a c h a n g i n g e n v i r o n m e n t . The s e c o n d i s t h a t t h e a d v e n t of LDC c o m p e t i t i o n i s an e n v i r o n m e n t a l change w i t h s p e c i f i c f e a t u r e s and a g e n e r a l dynamic w h i c h have some g e n e r a l i t y and y e t , a t t h e same t i m e , a r e u s e f u l l y d i s t i n g u i s h e d from t h o s e of o t h e r forms of e n v i r o n m e n t a l c h a n g e . 4. AN OVERVIEW OF THE STUDY The o r g a n i z a t i o n of t h e s t u d y a p p r o x i m a t e s t h e c h r o n o l o g y of t h e r e s e a r c h p r o c e s s . C h a p t e r two d i s c u s s e s t h e e x p l o r a t o r y o r i e n t a t i o n of t h e s t u d y and t h e m e t h o d o l o g y employed. I t a l s o p r e s e n t s a n a i v e c o n c e p t u a l framework t h a t s e r v e d t o o r g a n i z e t h e f i e l d r e s e a r c h and p r e l i m i n a r y a n a l y s e s . C h a p t e r t h r e e p r o v i d e s b a c k g r o u n d i n f o r m a t i o n f o r t h e c a s e s t u d i e s . C h a p t e r s f o u r and f i v e p r e s e n t t h e e m p i r i c a l c o r e o f t h e s t u d y . C h a p t e r f o u r p r e s e n t s a d e t a i l e d c a s e s t u d y of a d j u s t m e n t i n t h e s t a i n l e s s s t e e l c u t l e r y i n d u s t r y and C h a p t e r f i v e p r e s e n t s more a b b r e v i a t e d c a s e s t u d i e s of t h r e e o t h e r i n d u s t r i e s . T h i s l a t t e r c h a p t e r a l s o i n c l u d e s an a n a l y s i s o f o t h e r d a t a r e g a r d i n g t h e m i g r a t i o n o f f i r m s from a l a r g e v a r i e t y of i n d u s t r i e s i n t o new b u s i n e s s e s . The f o l l o w i n g t h r e e c h a p t e r s p r e s e n t t h e r e s u l t s of i n d u c t i v e a n a l y s e s o f t h e e m p i r i c a l d a t a . C h a p t e r s i x d i s c u s s e s t h e p a t t e r n o f d e v e l o p m e n t o f LDC c o m p e t i t i o n and how t h i s i s r e l a t e d t o f o r e i g n d i r e c t i n v e s t m e n t . C h a p t e r s e v e n a n a l y z e s t h e v a r i e t y o f p o t e n t i a l modes o f a d j u s t m e n t s u g g e s t e d by t h e 1 7 s t u d y and r e l a t e s them t o one a n o t h e r a r o u n d t h e c o n c e p t o f v a l u e - a d d e d . C h a p t e r e i g h t d i s c u s s e s t h e n a t u r e of i n t r a - i n d u s t r y v a r i a t i o n and t h e o v e r a l l d y n a m i c s of t h e a d j u s t m e n t p r o c e s s s u g g e s t e d by t h e c a s e s t u d i e s . In a c o n c l u d i n g c h a p t e r , t h e r e s u l t s a r e summarized and some i m p l i c a t i o n s f o r b u s i n e s s , government, and f u t u r e r e s e a r c h a r e d i s c u s s e d . 18 I I . METHODOLOGICAL CONSIDERATIONS AND CASE SELECTION 1. METHODOLOGY 1 .1 E x p l o r a t o r y Research In view of the dearth of pr e v i o u s e m p i r i c a l s t u d i e s of the t o p i c i t seemed p a r t i c u l a r l y a p p r o p r i a t e to adopt an o v e r t l y e x p l o r a t o r y approach based on f i e l d - or c a s e - s t u d i e s of some a f f e c t e d i n d u s t r i e s . T h i s approach i s co n s i d e r e d to be an e f f e c t i v e way of l e a r n i n g the v a r i a b l e s , and the ranges and combinations of them which might most f r u i t f u l l y reward f u r t h e r and more d i r e c t e d s t u d y . 3 1 It can be c o n s i d e r e d almost an a b s o l u t e l y e s s e n t i a l technique when e x p l o r i n g new f i e l d s . 3 2 As Mintzberg has s a i d , i n the context of resea r c h on business p o l i c y ; "Students of resea r c h methodology i n the s o c i a l s c i e n c e s g e n e r a l l y agree that at e a r l y stages i n the study of an phenomenon, there i s a need to use l e s s r i g o r o u s , more e x p l o r a t o r y approaches, that can encompass more v a r i a b l e s . Only by remaining open to the r i c h complexity of r e a l i t y can e f f e c t i v e theory b u i l d i n g be i n i t i a t e d i n a new f i e l d . " 3 3 3 1 Runkel, P. J . and McGrath, J . E., Research on Human Behaviour (H o l t , R i n e h a r t , and Winston, New York^ 1972) p 94. 3 2 Helmstadter, G. C. Research Concepts i n Human Behaviour (Meredith, New York, 1970) p 53. 3 3 Mintzberg, Henry, " P o l i c y as a F i e l d of Management Theory" i n Academy of Management Review January, 1977, p 94. 1 9 I t i s e m p h a s i z e d t h a t , i n t h e p r e s e n t c o n t e x t , " e x p l o r a t o r y " does not mean t h e s e a r c h , i n a n o v e l e n v i r o n m e n t , f o r t h e p r e s e n c e of v a r i a b l e s and r e l a t i o n s h i p s t h a t have been s p e c i f i e d , a p r i o r i . I t means, on t h e c o n t r a r y , a commitment t o t h e i d e a t h a t t h e r e l e v a n t v a r i a b l e s and r e l a t i o n s h i p s s h o u l d be d e f i n e d by t h e p r o b l e m , i t s e l f . A c e n t r a l t a s k of t h e i n v e s t i g a t i o n , t h e n , i s t o r e m a i n open t o t h e p e r c e p t i o n of t h o s e v a r i a b l e s and r e l a t i o n s h i p s . The c h o i c e o f t h i s a p p r o a c h d o e s n o t , however, o b v i a t e t h e need f o r some a p r i o r i s t r u c t u r e . F o r w i t h o u t some, t e n t a t i v e , c o n c e p t u a l i z a t i o n o f t h e d i m e n s i o n s o f t h e p r o b l e m , one c a n n o t d e c i d e where t o b e g i n . T hus, t h e r e i s an i n h e r e n t t e n s i o n between t h e d e s i r e t o be o p e n l y e x p l o r a t o r y ; t o l e t t h e p r o b l e m i t s e l f s p e c i f y t h e r e l e v a n t d i m e n s i o n s and v a r i a b l e s , and t h e f a c t t h a t one must impose some a p r i o r i o r d e r on t h e i n v e s t i g a t i o n i f i t i s t o b e g i n a t a l l . A c o n c e r n w i t h t h i s p a r a d o x i s n o t p a r t i c u l a r l y e c c e n t r i c . I t i s a c e n t r a l , even i f o n l y i m p l i c i t , c o n c e r n of a l l e m p i r i c a l r e s e a r c h i n w h i c h t h e commitment t o t h e a p r i o r i model i s l e s s t h a n t o t a l . A l l e m p i r i c a l r e s e a r c h , t h a t i s , w h i c h s e e k s t o l e a r n n o t o n l y ( o r n o t a t a l l ) a b o u t t h e a d e q u a c y of t h e model but a b o u t t h e n a t u r e of t h e e m p i r i c a l p r o b l e m as w e l l . Nor i s i t l i k e l y t h a t anyone can r e s o l v e t h e p a r a d o x . T h e r e i s , r a t h e r , an i n h e r e n t t r a d e - o f f between commitment t o an a p r i o r i model and commitment t o an e m p i r i c a l p r o b l e m . The p a r t i c u l a r mix a d o p t e d i n any g i v e n i n s t a n c e must i n v o l v e s u b j e c t i v e c h o i c e on t h e p a r t of t h e r e s e a r c h e r . In t h e p r e s e n t 20 i n s t a n c e , the choice was made to s t r o n g l y emphasize a commitment to a problem area b e l i e v e d to be of importance. A s i m i l a r c h o ice i s i m p l i c i t in a l l p o l i c y - o r i e n t e d r e s e a r c h though, in many cases, a c o n s i d e r a b l e degree of commitment i s given to an a p r i o r i model; o f t e n one d e r i v e d from a s i n g l e academic d i s c i p l i n e , such as economics. I t i s i n c r e a s i n g l y e v i dent, however, that the very complexity of r e a l - world problems, such as the one addressed here, makes i t h i g h l y improbable that any, s i n g l e , model can do j u s t i c e to the e m p i r i c a l r e a l i t y . 3 " There i s , t h e r e f o r e , a growing emphasis on i n t e r - d i s c i p l i n a r y approaches i n which a number of r e s e a r c h e r s from d i f f e r e n t d i s c i p l i n e s , and with a v a r i e t y of e x p l i c i t and i m p l i c i t p e r s p e c t i v e s , j o i n t l y address a problem. Laudable though t h i s t a c t i c may be, i t need not be the only one and, i n any case, i t i s not f e a s i b l e i n the present instance', where the resear c h must c u s t o m a r i l y be c a r r i e d out by the i n d i v i d u a l r e s e a r c h e r . 3 " Of course, one i s not n e c e s s a r i l y r e s t r i c t e d to " o f f the s h e l f " models based on a s i n g l e d i s c i p l i n e . The researcher i s f r e e to s p e c i f y h i s own a p r i o r i and , i f he wishes, " m u l t i d i s c i p l i n a r y " model which he c o n s i d e r s more a p p r o p r i a t e . However, as Runkel and McGrath ( op. c i t . pp 406-407) have put i t ; " ( i n domains which have been l i t t l e s t u d i e d ) . . . the researcher must go i n with only guesses as guides. In such a case, the i n v e s t i g a t o r must choose between (1) c o l l e c t i n g data with l i t t l e theory to guide him i n i t s i n t e r p r e t a t i o n . . . [or c o l l e c t i o n ! (author's comment)]...or (2) pausing to b u i l d theory while having few f a c t s to give him confidence that he i s b u i l d i n g something u s e f u l . Given such a c h o i c e , most of us choose the a l t e r n a t i v e we f i n d p e r s o n a l l y the l e s s f r u s t r a t i n g . " In any case, the b a s i c t r a d e - o f f between commitment to a model and commitment to an e m p i r i c a l problem remains. 21 1 .2 A Methodology For E x p l o r a t o r y Research Table 1 p r e s e n t s an a r r a y of r e s e a r c h approaches and c h a r a c t e r i s t i c s of those v a r i o u s approaches. The c h a r a c t e r i z a t i o n of e x p l o r a t o r y r e s e a r c h presented there emphasizes the "unfocussed" and " u n s t r u c t u r e d " nature of the r e s e a r c h design and data c o l l e c t i o n methods. C l e a r l y , t h i s i s a matter of degree; i t i s unfocussed and u n s t r u c t u r e d r e l a t i v e to the other types of research shown. There must, however, be some a p r i o r i focus and s t r u c t u r e . How t h i s might be provided i s a fundamental but u n s e t t l e d methodological problem of e x p l o r a t o r y r e s e a r c h . 3 5 In any i n v e s t i g a t i o n the researcher b r i n g s to i t some a p r i o r i "impressions" of the nature of the phenomenon being examined. These c o n s t i t u t e an ^ i m p l i c i t a p r i o r i c o nceptual framework. Even where (perhaps, e s p e c i a l l y where) a t i g h t l y s p e c i f i e d a pr i o r i model i s employed, the r e s e a r c h e r ' s p r i o r impressions w i l l normally only be p a r t i a l l y r e v e a l e d i n that model. Those not r e v e a l e d i n the model w i l l , n e v e r t h e l e s s , 3 5 See, f o r example; A d m i n i s t r a t i v e Science Q u a r t e r l y V 24 No 4, December, 1979. T h i s i s a s p e c i a l issue on q u a l i t a t i v e r e s e a r c h methodology e d i t e d by John Van Maanen. While q u a l i t a t i v e r e s e a r c h does not equate with e x p l o r a t o r y r e s e a r c h the reverse i s o f t e n t r u e . Thus, many of the papers r e f l e c t the problems of conducting e x p l o r a t o r y r e s e a r c h . The paper by M. B. M i l e s , " Q u a l i t a t i v e Data as an A t t r a c t i v e Nuisance: The Problem of A n a l y s i s " (pp 590-601), s p e c i f i c a l l y d e a l s with the r o l e of rough p r e l i m i n a r y frameworks i n e x p l o r a t o r y r e s e a r c h . See, a l s o ; G l a s e r , B. G. The Discovery of Grounded Theory: S t r a t e g i e s f o r Q u a l i t a t i v e Research ( A l d i n e , Atherton, Chicago, 1967) and, G l a s e r , B~. G~. T h e o r e t i c a l S e n s i t i v i t y : Advances in the Methodology of Grounded Theory (The S o c i o l o g y Press, M i l l V a l l e y , 1978). 22 T a b l e 1 - C h a r a c t e r i s t i c s of V a r i o u s Types of R e search Normative Descriptive Characteristics yt of the / research / process / / T y pes / 0 f / research Theory Building Theory testing Exploration Concept Develop- ment Hypothesis Generation Hypothesis testing internal v a l i d i t y Hypothesis testing external v a l i d i t y Purpose Explore t e r r i t o r y Draw maps of t e r r i t o r y Improve maps of t e r r i - tory Test maps of the t e r r i t o r y Nature of research question What's there? and What are the key issues? What are the key variables' What are the r e l a t i o n - ships among variables? Are the theories r e a l l y valid? Where do the theories apply? Nature of research design In-depth unfocused longitudi- nal case studies Few focu- sed comp- arative longitudi- nal case studies Several focused compara- • tive longi- tudinal case studies Large-scale sample of o r i g i n a l population Large-scale sample of multiple population Data gathering methods Observation Unstructured interviews Documents Observatic Structurec interviews Documents >n Observation Structured interviews Documents Small-scale questionnair Structured interviews Documents Open-and closed- :s ended questionnai Lab experi- ments Field experiments Structured interviews Documents Open-and closed-ended questionnaires res Lab experi- ments, Field experiments i Data analysis methods Insight Categori- zations M Factor analysis Semantic d i f f e r e n t i a l s ultidimensional scaling Sign test X " Kendal's Tau Correlation analysis of var Pearson's Product Moment Cor lation Multiple Simultaneous Regression Regression Nature of results I d e n t i f i - cation and description of pheno- menon Refined descrip- tion of pheno- menon Development of hypotheses about phenomenon Corroboration or refutation of hypotheses for similar organizations Corroboration or refutation of hypotheses for different organizations Source: Schendel, Dan E. and Hofer, Charles W. (eds.) Strategic Management: A New View of Business Policy and Planning, ( L i t t l e , Brown, Toronto, 1979) p. 387. 23 i n f l u e n c e t h e r e s e a r c h e n t e r p r i s e even i f o n l y i n t h e i n t e r p r e t a t i o n of t h e f i n d i n g s . T h us, w h a t e v e r t h e m e r i t s of t h e s e u n d e r l y i n g i m p r e s s i o n s as a p a r t i a l model of t h e e m p i r i c a l p r o b l e m , t h e r e i s m e r i t i n t r y i n g t o make them e x p l i c i t . I f n o t h i n g e l s e , t h i s c a n e n c o u r a g e o t h e r s t o a s k : g i v e n t h i s u n d e r l y i n g v i e w p o i n t , what f a c t s and i n t e r p r e t a t i o n s i s t h e r e s e a r c h e r l i k e l y t o have o v e r l o o k e d o r ( s u b c o n c i o u s l y , one h o p e s ) s u p p r e s s e d o r u n d u l y m i n i m i z e d ? Thus, one p u r p o s e of t h e f o l l o w i n g s e c t i o n i s t o p r o v i d e an e x p l i c i t o u t l i n e o f t h e a p r i o r i " i m p r e s s i o n s " b r o u g h t t o t h e r e s e a r c h . More c e n t r a l l y , however, t h e s e same i m p r e s s i o n s p r o v i d e d t h e raw m a t e r i a l from w h i c h was c o n s t r u c t e d a " n a i v e " c o n c e p t u a l framework w i t h w h i c h t o s t r u c t u r e t h e f i e l d r e s e a r c h . W h i l e not a r b i t r a r y , i n s o f a r a s i t i s d e r i v e d from some s p e c i f i c a p r i o r i s u b j e c t i v e i m p r e s s i o n s of t h e d i m e n s i o n s of t h e p r o b l e m t o be a d d r e s s e d , t h e p u r p o s e of t h e n a i v e c o n c e p t u a l framework i s e n t i r e l y p r a g m a t i c . I t i s m e r e l y a " t o o l " t o l e n d some o r g a n i z a t i o n a l s t r u c t u r e t o t h e f i e l d r e s e a r c h and p r e l i m i n a r y a n a l y s i s . T h e r e i s no a p r i o r i i n t e l l e c t u a l commitment t o i t as a model of DC a d j u s t m e n t . I n d e e d , i t c o u l d not c o n s t i t u t e even an i n a c c u r a t e "model" of a d j u s t m e n t as i t does not s p e c i f y a s e t of s p e c i f i c v a r i a b l e s and v a r i a b l e i n t e r a c t i o n s . I t does no more t h a n p r o p o s e a s e t o f h y p o t h e t i c a l l y r e l e v a n t d i m e n s i o n s a l o n g w h i c h a d j u s t m e n t m i g h t t a k e p l a c e . I t i s d e r i v e d from a p r i o r i i m p r e s s i o n s of some o f t h e r e l e v a n t c o m p l e x i t y i n t h e m a n a g e r i a l e n v i r o n m e n t . 24 2. THE NAIVE CONCEPTUAL FRAMEWORK 2.1 Some Aspects Of Real-world Complexity 2.1.1 A Simple Example Begin, by c o n s i d e r i n g some of the r e a l - w o r l d complexity of manufacturing a c t i v i t i e s . The number of manufacturing firms (or i n d u s t r i e s ) which produce a s i n g l e product f o r s a l e to one market, using one technology, must be t r i v i a l l y s m a l l . At a minimum, one would expect a v a r i e t y of "models" of the product which the market p e r c e i v e s (or has been persuaded to p e r c e i v e ) as being d i f f e r e n t i n some s u b s t a n t i v e way. 3 6 In g e n e r a l , firms w i l l o f t e n d i s p l a y f a r more complexity than t h i s and w i l l i n c o r p o r a t e a number of d i s t i n c t products and pr o d u c t i o n processes, and serve a v a r i e t y of markets. P o t e n t i a l complexity i s , however, f a r gre a t e r even than t h i s . Even i f we focus on j u s t a s i n g l e product and t r y to t r a c e i t back to i t s f i n a l raw m a t e r i a l s , we w i l l f i n d a whole s e r i e s 3 6 A Japanese manufacturer of audio products ( S a n s u i ) , f o r example, i n t r o d u c e d a "LIMITED" e d i t i o n of an e x i s t i n g a m p l i f i e r product, at a higher p r i c e , i n which the d i f f e r e n c e c o n s i s t e d i n a s e l e c t i o n procedure f o r the component p a r t s which was more r i g o r o u s than that employed f o r the standard v e r s i o n . Thus, except f o r the d e s i g n a t i o n "LIMITED" on the f a c e p l a t e the product was t o t a l l y i n d i s t i n g u i s h a b l e from the standard v e r s i o n even i f disassembled. Of course, i t was expected t h a t , s t a t i s t i c a l l y , these models would o f f e r an average l e v e l of performance and r e l i a b i l i t y higher than that of the standard v e r s i o n . We can a l s o note the i m p l i c i t l y d i f f e r e n t input mix, i . e . , more s k i l l e d labour hours i n the s e l e c t i o n and t e s t i n g p r o c e s s . Thus, even t h i s example p r e s e n t s a product d i f f e r e n c e which i s arguably more s u b s t a n t i v e than in the case of " s p e c i a l e d i t i o n s " which o f f e r more obvious but merely cosmetic d i f f e r e n c e s . 25 of p r o d u c t i o n p r o c e s s e s and ( i n t e r m e d i a t e ) p r o d u c t s from w h i c h i t i s d e r i v e d . T a b l e 2 i l l u s t r a t e s t h i s f o r t h e h y p o t h e t i c a l c a s e of a s e t of p l a s t i c lawn f u r n i t u r e . In t h e example g i v e n , v a r i o u s p r o c e s s / p r o d u c t s e t s o f t e n c o r r e s p o n d t o what a r e commonly p e r c e i v e d as d i s t i n c t " i n d u s t r i e s " . T h i s i s p a r t l y b e c a u s e of t h e v e r y c r u d e d e g r e e of s u b d i v i s i o n i n t h e example. A much f i n e r s u b d i v i s i o n would p r e s u m a b l y be p o s s i b l e g i v e n t h e n e c e s s a r y d e t a i l e d f a m i l i a r i t y . I n d e e d , t h e a c t i v i t i e s i n e a c h of t h e s e " i n d u s t r i e s " t h e m s e l v e s , c o u l d p r o b a b l y be s u b d i v i d e d t o a d e g r e e s i m i l a r t o t h a t i n t h e t a b l e . 2.1.2 Some F u r t h e r C o m p l e x i t i e s D e s p i t e t h e c o m p l e x i t y even t h i s i m p l i e s , t h e t a b l e c o n c e a l s t h r e e f u r t h e r t y p e s of c o m p l e x i t y . " F i r s t , i t p r e s e n t s a f i n a l p r o d u c t as i n v o l v i n g s e q u e n t i a l and s i n g u l a r i n t e r m e d i a t e ( p r i o r ) goods and p r o d u c t i o n p r o c e s s e s . Even i n t h e example g i v e n t h i s i s n o t s t r i c t l y t r u e and i t i s o b v i o u s l y not t r u e f o r most f i n a l g o o d s . T y p i c a l l y , a f i n a l good a r i s e s f r o m a number of d i s t i n c t raw m a t e r i a l s w h i c h a r e , i n v a r i o u s c o m b i n a t i o n s , u s e d t o p r o d u c e a number o f n o n - s e q u e n t i a l ( p a r a l l e l ) i n t e r m e d i a t e goods o f w h i c h , u l t i m a t e l y , t h e f i n a l good i s c o m p r i s e d . Thus t h e l i n e from f i n a l good, t o raw m a t e r i a l i s n o t i n f a c t a s i n g l e s t r a i g h t l i n e as t h e t a b l e s u g g e s t s b u t , r a t h e r , a t r e e - s h a p e d b r a n c h i n g network r u n n i n g back t h r o u g h v a r i o u s i n t e r m e d i a t e p r o d u c t s and s t a g e s t o p r i m a r y raw m a t e r i a l s . S e c o n d , t h e i n t e r m e d i a t e goods shown ( e . g . , p e t r o c h e m i c a l 26 Table 2 - Some Subdivisions of an Hypothetical Chain of Productive A c t i v i t i e s ACTIVITY Oi l exploration O i l extraction O i l transport Petrochemical production Furniture design Mold production Injection molding Finishing Assembly Packaging Advertising Distribution and Sales Service LOCATION Geographic/Organizational various/external various/external various/external various/external Toronto/external Toronto/external York/internal York/internal various/external (customer) York/internal Toronto/external various/external various/external OUTPUT Known o i l reserve Crude o i l Relocated crude o i l Petrochemical feedstock Design for set of lawn furniture Injection mold for lawn furniture set Lawn furniture parts Finished parts for lawn furniture sets Assembled lawn furniture Packaged set of lawn furniture Demand for lawn furniture Relocated furniture, + Revenue Maintained demand, ± Revenue Source: Compiled by author 27 f e e d s t o c k , p l a s t i c r e s i n , e t c . , ) a r e d e p i c t e d as h a v i n g u t i l i t y o n l y i n terms of one " f i n a l good". T h i s , t o o , i s m i s l e a d i n g . Most, i f not a l l p r i m a r y and i n t e r m e d i a t e goods w i l l have m u l t i p l e downstream u s e s and, t h u s , t h e l i n e from any one o f them t o f i n a l goods i s a l s o a t r e e - s h a p e d , b r a n c h i n g network r u n n i n g f o r w a r d t o a v a r i e t y of f i n a l g o o d s . T h i r d , t h e t a b l e d e p i c t s a c h a i n of a c t i v i t i e s c a r r i e d o ut t h r o u g h an i m p l i c i t l y g i v e n p h y s i c a l p l a n t . No e x p l i c i t a t t e n t i o n i s g i v e n t o t h e f a c t t h a t a f i n a l good i s t h e r e s u l t a l s o o f t h e p r o d u c t i o n and c o n s u m p t i o n ( d e p r e c i a t i o n / o b s o l e s c e n c e ) of c a p i t a l g oods. Thus, a f u r t h e r , p a r a l l e l , s e t of s u b d i v i s i o n s i s a l s o i n v o l v e d . 2.1.3 Some I m p l i c a t i o n s T h e r e a r e f o u r i m p o r t a n t i m p l i c a t i o n s of t h i s r e a l - w o r l d c o m p l e x i t y t h a t bear e m p h a s i s . The f i r s t i s t h a t s u b d i v i s i o n s of p r o d u c t i v e a c t i v i t y s u c h as t h o s e shown i n t h e t a b l e do n o t n e c e s s a r i l y d e l i m i t t h e a c t i v i t i e s of i n d i v i d u a l f i r m s , much l e s s t h o s e of a g r o u p of r e l a t e d c o r p o r a t i o n s . A s i n g l e f i r m ( o r i n d u s t r y ) c an span a number of f i n a l and i n t e r m e d i a t e a c t i v i t e s e ven i n t h e c a s e of a s i n g l e f i n a l p r o d u c t and t h e s c o p e o f i t s i n t e r n a l a c t i v i t i e s c a n b r a n c h f o r w a r d and backward i n t o ( d i r e c t l y o r i n d i r e c t l y ) r e l a t e d downstream and u p s t r e a m a c t i v i t y a r e a s and i n t o t h e p a r a l l e l s t r e a m s t h a t c o r r e s p o n d t o t h e r e l e v a n t c a p i t a l goods employed. S e c o n d , i n c o n c e r t w i t h t h i s web o f a c t i v i t i e s , t h e f i r m may have, even a t one s i n g l e l e v e l o r s t a g e o f p r o d u c t i o n , m y r i a d s e t s of i n t e r a c t i o n s w i t h a m u l t i p l i c i t y o f e x t e r n a l 28 a c t o r s i n v a r i o u s e x t e r n a l environments and, i n a d d i t i o n to the p h y s i c a l and f i n a n c i a l t r a n s f e r s that each of these i n t e r a c t i o n s i n v o l v e , there w i l l be flows of in f o r m a t i o n or " i n t e l l i g e n c e " between the f i r m and these a c t o r s and environments. T h i r d , while the complex of i n t e r n a l a c t i v i t i e s and environmental i n t e r a c t i o n s of the f i r m may be, f o r r o u t i n e a d m i n i s t r a t i v e convenience, normally sealed o f f i n t o a number of r e l a t i v e l y d i s c r e t e d i v i s i o n s or o p e r a t i n g u n i t s , the f i r m has c o n s i d e r a b l e p o t e n t i a l to a l t e r the nature and s t r e n g t h of these i n t e r n a l d i v i s i o n s and of the l i n k a g e s among them. Fourth, the f i r m a l s o has a more l i m i t e d p o t e n t i a l to a l t e r i t s i n t e r a c t i o n s with the e x t e r n a l environment. I t can, f o r example, i n t e g r a t e forward or backward to i n c o r p o r a t e a p r e v i o u s l y e x t e r n a l a c t i v i t y or i t can choose to d i v e s t i t s e l f of an i n t e r n a l a c t i v i t y . Thus, even c o n s i d e r a t i o n of t h i s s i m p l i f i e d h y p o t h e t i c a l example suggests c o n s i d e r a b l e complexity. The f i r m i t s e l f may produce one or many products. I t may c a r r y on few or many of a sequence of r e l a t e d p r o d u c t i v e a c t i v i t i e s and i t may have a l t e r n a t i v e s as to how (e.g. a l t e r n a t i v e p r o d u c t i o n processes, a l t e r n a t i v e i n t e r n a l l i n k a g e s between a c t i v i t i e s , e tc.) and where i t c a r r i e s out any one of them. The example a l s o suggests the p o t e n t i a l f o r complexity i n i t s l i n k a g e s with the e x t e r n a l environment. I t may have many or few such l i n k a g e s and the r e l a t i v e importance of a l i n k a g e to i t s p a r t n e r s , and t h e i r r e l a t i v e power i n the r e l a t i o n s h i p , may vary over l i n k a g e s , over f i r m s , and over time. 29 2.2 The Framework 2.2.1 B a s i c C o n c e p t s The e a r l i e r example of an h y p o t h e t i c a l s e t of p l a s t i c lawn f u r n i t u r e , s u g g e s t s t h e major d i m e n s i o n s of t h e n a i v e framework. These a r e ; p r o d u c t s , t e c h n i c a l l y d i s t i n c t f u n c t i o n a l a c t i v i t i e s ( d e s i g n , i n j e c t i o n m o l d i n g , s a l e s , e t c . ) , and g e o g r a p h i c and o r g a n i z a t i o n a l l o c a t i o n s . As t h e c o n c e r n i s w i t h c o m p e t i t i o n between DC and LDC m a n u f a c t u r e r s , t h e c o n c e p t of p r o d u c t i s c e n t r a l . I t i s p r o d u c t s , n o t b u s i n e s s o r g a n i z a t i o n s , p e r se, wh i c h compete i n th e m a r k e t . Change i n t h i s d i m e n s i o n , h o w e v e r , need not o n l y be between d i s c r e t e p r o d u c t s . One c a n u s e f u l l y make a d i s t i n c t i o n between p r o d u c t c a t e g o r i e s and p r o d u c t s t y l e s ; w i t h t h e f o r m e r r e f e r r i n g t o f u n d a m e n t a l d i f f e r e n c e s i n t h e f u n c t i o n o f t h e p r o d u c t t o t h e e n d - u s e r and t h e l a t t e r t o d i f f e r e n c e s between p r o d u c t s h a v i n g a common f u n c t i o n a l p u r p o s e . Many m a n u f a c t u r e r s , of c o u r s e , p r o d u c e more t h a n one p r o d u c t . Thus one s h o u l d d i s t i n g u i s h between a " b u s i n e s s " , w h i c h i s p r o d u c t - s p e c i f i c , and a " f i r m " , w h i c h may i n c o r p o r a t e a number o f b u s i n e s s e s ( i . e . , p r o d u c e a number of p r o d u c t s ) . M o r e o v e r , i t i s a p p r o p r i a t e t h a t t h e a c t o r f o c u s s e d on not be t a k e n a s a s i n g l e l e g a l e n t i t y ( e . g . , t h e company o r c o r p o r a t i o n ) b u t as a s i n g l e o r g a n i z a t i o n a l e n t i t y . Thus a number o f l e g a l l y d i s t i n c t c o m p a n i e s w h i c h a r e o r g a n i z a t i o n a l l y l i n k e d under common management, f o r p r e s e n t p u r p o s e s , c a n be c o n s i d e r e d a s i n g l e e n t i t y , " t h e f i r m " . I f we t e n t a t i v e l y 30 c o n s i d e r product category and s t y l e h e l d constant, we can focus on some other r e l e v a n t dimensions of change. As e a r l i e r d i s c u s s i o n i n d i c a t e d , the manufacture of a given product i n v o l v e s a v a r i e t y of c o n c r e t e a c t i v i t i e s . The c o n c r e t e f u n c t i o n a l a c t i v i t i e s ( i n our example, mold p r o d u c t i o n , i n j e c t i o n molding, etc.) a s s o c i a t e d with v a r i o u s products d i f f e r enormously. For purposes of a g e n e r a l d i s c u s s i o n i t i s , t h e r e f o r e , necessary to impose some a b s t r a c t c a t e g o r i e s (such as d e s i g n , p r o d u c t i o n , s a l e s , e t c . ) on f u n c t i o n a l a c t i v i t i e s . The number and nature of the a b s t r a c t c a t e g o r i e s i s a matter not of e m p i r i c a l f a c t but Of s u b j e c t i v e c h o i c e . Whatever the number and nature of these f u n c t i o n a l c a t e g o r i e s , we can ask, with r e s p e c t to each one of them, how i t i s c a r r i e d out (method); how i t i s l o c a t e d with respect to, or l i n k e d to, other f u n c t i o n s ( o r g a n i z a t i o n a l l o c a t i o n ) ; and where, g e o g r a p h i c a l l y , i t i s c a r r i e d out ( g e o g r a p h i c a l l o c a t i o n ) . We expect that firms at any given p o i n t i n time would d i s p l a y d i f f e r e n c e s with r e s p e c t to these . v a r i o u s c h a r a c t e r i s t i c s . S i m i l a r l y , a s i n g l e f i r m at two p o i n t s i n time might d i s p l a y such d i f f e r e n c e s . More to the p o i n t , i t i s our assumption that a d a p t i v e change can be u s e f u l l y mapped in terms of these c h a r a c t e r i s t i c s . 2.2.2 S i n g l e Product Framework If we l e t Pj i n d i c a t e a s p e c i f i c s t y l e ( j ) of a p a r t i c u l a r category ( i ) of product, then we can speak of a f i r m ' s c o n f i g u r a t i o n (C^ ) with r e s p e c t to that product. E i t h e r s i n g l e - p r o d u c t f i r m s or s i n g l e - p r o d u c t c r o s s - s e c t i o n s of m u l t i - 3 1 product firms could be described i n t h i s way. We can designate that c o n f i g u r a t i o n as; C. . = Lf F , where: 3 i j o a F stands for f u n c t i o n a l a c t i v i t y and L for l o c a t i o n 3 7 a = category of f u n c t i o n a l a c t i v i t y t = technical/method parameter (how i t i s c a r r i e d out) o = o r g a n i z a t i o n a l parameter (where p o s i t i o n e d or how lo c a t e d with respect to other f u n c t i o n s ) and, g = geographic parameter (where i t i s c a r r i e d o u t ) . In t h i s case, with a given P , adaptive change over time i s i j equivalent to change i n the parameters t , o, and g ("a" i s a constant set of f u n c t i o n a l a c t i v i t y c a t e g o r i e s a l l which are always a p p l i c a b l e ) . In the general case, where more than one s t y l e or category of product may be produced by a given f i r m , adaptive change could c o n s i s t of a change i n the r e l a t i v e p r o p o r t i o n of a c t i v i t y accounted f o r by the v a r i o u s products and f u n c t i o n a l a c t i v i t i e s ; even where the set of products and a c t i v i t i e s , themselves, remain the same. Thus a f u l l d e s c r i p t i o n of a firm's c o n f i g u r a t i o n , (C ), would r e q u i r e s p e c i f i c a t i o n of a l l of the products produced and a weighting or d e n s i t y parameter to i n d i c a t e the r e l a t i v e l e v e l of a c t i v i t y for each f u n c t i o n a l a c t i v i t y for each product. We might w r i t e , for example L F (D. . ) , where the p a r t i c u l a r D. . i s a decimal c o a j.)a r i |a 3 7 The n o t a t i o n , F , might have been used and has the merit of g i v i n g v i s u a l l y s i m i l a r treatment to t , o, and g; a l l of which are e q u a l l y parameters of F . The device of separating out the con c e p t u a l l y s i m i l a r " l o c a t i o n a l " (L) parameters o and g were adopted for mnemonic purposes. 32 f r a c t i o n i n d i c a t i n g the p r o p o r t i o n of t o t a l f i r m a c t i v i t y f o r F v i s - a - v i s P.. and the sum of a l l D ; ; f o r a f i r m i s 1.0. a i.j i.l Which measures or c a t e g o r i e s are a p p r o p r i a t e f o r a, t , o, and g i s a s u b j e c t i v e q u e s t i o n . Moreover, i t i s l i k e l y t h a t no s i n g l e answer i s e q u a l l y s u i t a b l e to a l l circumstances (e.g., products or f u n c t i o n s ) . In our naive framework we t e n t a t i v e l y s p e c i f i e d some. These were: a = 1 Design, 2 P r o d u c t i o n , 3 S a l e s t = 1 L a b o u r - i n t e n s i v e , 2 C a p i t a l - i n t e n s i v e o = 1 I n t e r n a l , 2 E x t e r n a l (to the firm) and; g = 1 Domestic, 2 F o r e i g n Thus,the n o t a t i o n ; C. . = L-i Fi , i n d i c a t e s a s a l e s f u n c t i o n (F_ ) which i s l a b o u r - i j 2 3 3 i n t e n s i v e ( F 1 ) and c a r r i e d on e x t e r n a l to the f i r m (L 2 and domest i c a l l y ( L 1 ) . T h i s may appear as a r a t h e r simple schema but, i n f a c t , i t d e f i n e s 512 d i s t i n c t c o n f i g u r a t i o n s . If we view adjustment as a s i n g l e - s t e p move from one c o n f i g u r a t i o n to another ( i t c o u l d , of course, be a m u l t i - s t e p s e r i e s of moves), then the number of p o t e n t i a l a d a p t i v e p a t t e r n s we might observe i s 262,144. And t h i s i s without any c o n s i d e r a t i o n of p o s s i b l e change i n product s t y l e or category or i n the d i s t r i b u t i o n of a c t i v i t y as between f u n c t i o n a l a c t i v i t i e s . 33 2.2.3 G e n e r a l i z e d Framework In the g e n e r a l case, the products produced are not n e c e s s a r i l y s i n g u l a r nor are they f i x e d . Thus, a f i r m ' s t o t a l c o n f i g u r a t i o n , G, at any p o i n t i n time may not be given by a s i n g l e L F f o r a s i n g l e s t y l e and category of product and may i n c o r p o r a t e a number of d i s t i n c t s t y l e s and c a t e g o r i e s of products l i n k e d to v a r i o u s C „ . While LDC c o m p e t i t i o n may impinge narrowly on only one, s p e c i f i c product (C - s e t ) in a i j f i r m , the a d a p t i v e behaviour observed w i l l determined not by f a c t o r s r e l a t i v e to that s i n g l e - s e t but r e l a t i v e to the e n t i r e c o n f i g u r a t i o n ( C ) of the f i r m . Thus, two f i r m s which have, with r e s p e c t to a given s t y l e and category of product, e x a c t l y the same c o n f i g u r a t i o n ( i . e . , with respect to the given P „ , e x a c t l y the same C ) may d i s p l a y q u i t e di-fferent adjustment p a t t e r n s because of d i f f e r e n c e s i n the o v e r a l l c o n f i g u r a t i o n s of the f i r m s . One way to v i s u a l i z e a t o t a l c o n f i g u r a t i o n i s to c o n s i d e r C as a v e c t o r of L F -values with the l e n g t h of the v e c t o r o a 3 (number of L g F1" -values) determined by the t o t a l number of a l l o a •* • . p o s s i b l e ( d i s t i n c t s t y l e s and c a t e g o r i e s of) products. Thus, there w i l l be a separate L F -value f o r each d i s t i n c t product o n o a Because we need to accomodate mul t i - p r o d u c t cases we must r e i n t r o d u c e the d e n s i t y parameter, D , which g i v e s the p r o p o r t i o n of t o t a l f i r m a c t i v i t y f o r each r e l e v a n t P . The sum of a l l Dj_^ f o r a f i r m i s 1.0. The general vector C would, then, have the form; C = [ L 8 Fl (D ) ] . o a i j An h y p o t h e t i c a l f i r m c o n f i g u r a t i o n ( i n only three 34 dimensions) i s d e p i c t e d g r a p h i c a l l y i n Fig u r e 1. Assuming one co u l d a c t u a l l y d e f i n e a p p r o p r i a t e m e t r i c s f o r the dimensions s p e c i f i e d ; a f i r m ' s c o n f i g u r a t i o n c o u l d be mapped i n m u l t i - dimensional space, though i t would not be c o n f i n e d to t h r e e - dimensions and would be u n l i k e l y to present as coherent a shape as the f i g u r e suggests. I t would best be v i s u a l i z e d as a swarm of p o i n t s w i t h i n the m u l t i - d i m e n s i o n a l space, with the d e n s i t y of the p o i n t s v a r y i n g c o n s i d e r a b l y but d i s p l a y i n g i n the aggregate the fir m ' s " c o n f i g u r a t i o n " . 2.2.4 Some H y p o t h e t i c a l Examples By way of example, l e t us assume there are a t o t a l of ten p o s s i b l e products and that there are only e i g h t (not 512) p o s s i b l e d i s t i n c t c o n f i g u r a t i o n s with r e s p e c t to a given product. These c o n f i g u r a t i o n s can be l a b e l l e d with the i n t e g e r s from 1 to 8 and we can l e t a "zero" i n d i c a t e an absence of f i r m a c t i v i t y . Then, the three f i r m s , A, B, and C might have the c o n f i g u r a t i o n s shown i n Table 3 before (T1) and a f t e r (T2) adjustment to LDC competition i n product number 5. Firm A's adjustment c o n s i s t s of s h i f t i n g the emphasis ( d e n s i t y ) of i t s a c t i v i t i e s among i t s p r e - e x i s t i n g range of products. Firm B's adjustment c o n s i s t s in a d j u s t i n g i t s r o l e with respect to product 5 from C3 to C5; the l a t t e r being a r o l e with which i t has had some p r e v i o u s experience v i s - a - v i s product 4. Firm C s adjustment c o n s i s t s i n a p p l i c a t i o n of i t s pre- e x i s t i n g r o l e (C3) to a d i f f e r e n t product (product 8) the c a p a b i l i t y requirements of which presumably have some important o v e r l a p s ( i n technology? In markets?) with those of product 5.; Source: Compiled by author 36 T a b l e 3 - Some H y p o t h e t i c a l Examples of Adjustment to C o m p e t i t i o n co FIRM C l FIRM A B C A B C p- 1 0 0 0 0 0 0 R 2 0 0 0 0 0 0 0 3 0 0 0 0 0 0 D 4 K . 2 ) 5 ( .2 ) 0 K . 2 ) 5 ( .2 ) 0 U 5 3 ( .6 ) 3 ( .8) 3(1.0) 3( .2) 5 ( .8 ) 0 C 6 0 0 0 0 0 0 T 7 0 0 0 0 0 0 8 3 ( .2 ) 0 0 3 ( .6 ) 0 3 9 0 0 0 0 0 0 10 0 0 0 0 0 0 .0) No te ; The t a b l e e n t r i e s x ( y ) i n d i c a t e the type of c o n f i g u r a t i o n (x = i n t e g e r s f rom 1 to 8) and d e n s i t y of f i r m a c t i v i t y (y = 0 to 1.0) a c r o s s the range of f e a s i b l e p r o d u c t s . Source: Compi led by au tho r 37 as we m i g h t have d e d u c e d from t h e i r c o - e x i s t e n c e i n t h e T1 c o n f i g u r a t i o n f o r F i r m A. I t w i l l be e v i d e n t t h a t t h e c o n c e p t u a l framework i s , as i n t e n d e d , q u i t e g e n e r a l and p r e s u m a b l y can accommodate much t h a t i s r e l e v a n t t o an adustment p r o c e s s ; w h a t e v e r t h e s p e c i f i c c a u s e or outcome. 3. CASE SELECTION 3.1 J a p a n " A n d The A s i a n Newly I n d u s t r i a l i z i n g C o u n t r i e s The r e s e a r c h examines a d j u s t m e n t i n some J a p a n e s e i n d u s t r i e s f a c i n g c o m p e t i t i o n from p r o d u c e r s i n t h e A s i a n N I C s . J a p a n and t h e A s i a n NICs a r e d i s c u s s e d i n more d e t a i l i n t h e f o l l o w i n g c h a p t e r but t h e i r r e l e v a n c e t o e x a m i n a t i o n of t h e a d j u s t m e n t p r o b l e m can be b r i e f l y a d d r e s s e d , h e r e . J a p a n i s t h e most r e c e n t a d d i t i o n t o t h e i n d u s t r i a l i z e d d e v e l o p e d c o u n t r i e s and many o f t h e e x p o r t p r o d u c t s i n w h i c h LDC p r o d u c e r s a r e p r e s e n t l y d e m o n s t r a t i n g c o m p e t i t i v e n e s s were m a i n s t a y s o f J a p a n ' s e a r l i e r p o s t w a r d e v e l o p m e n t . J a p a n ' s p o s t w a r d e v e l o p m e n t and s t r u c t u r a l change has been so r a p i d as t o a t t r a c t a g r e a t d e a l of a t t e n t i o n t o t h e " J a p a n e s e m i r a c l e " . Most of t h i s a t t e n t i o n has been f o c u s s e d , a t t h e s e c t o r a l l e v e l , on J a p a n e s e a c q u i s i t i o n and d e v e l o p m e n t of new l e a d i n g i n d u s t r i e s and n o t on c o n c u r r e n t c h a n g e s i n l a g g i n g i n d u s t r i e s and s e c t o r s . Y e t , J a p a n ' s p o s t w a r d e v e l o p m e n t and s t r u c t u r a l change has i m p l i c a t i o n s a c r o s s t h e e n t i r e s p e c t r u m o f i n d u s t r i e s and s e c t o r s . E x a m i n a t i o n of J a p a n e s e i n d u s t r i e s f a c i n g LDC c o m p e t i t i o n c a n , a c c o r d i n g l y , p r o v i d e some needed b a l a n c e t o t h e 38 u n d e r s t a n d i n g o f J a p a n e s e p o s t w a r d e v e l o p m e n t . From th e p e r s p e c t i v e of t h e p r e s e n t r e s e a r c h , however, e x a m i n a t i o n o f a d j u s t m e n t i n J a p a n e s e i n d u s t r i e s has i t s own a t t r a c t i o n s . T h e r e i s , f i r s t , t h e l i k e l i h o o d t h a t b e c a u s e of the r a p i d i t y of p o s t w a r d e v e l o p m e n t t h e r e w i l l r e m a i n a s u b s t a n t i a l number of L D C - c o m p e t i n g i n d u s t r i e s t o examine. S e c o n d l y , t h e f a c t t h a t many of t h e s e J a p a n e s e i n d u s t r i e s were e x p o r t - o r i e n t e d means t h a t t h e r e i s more l i k e l i h o o d of o b s e r v i n g a d j u s t m e n t "unmuddied" by p r o t e c t i o n i s t d o m e s t i c government p o l i c y . T h i r d l y , J a p a n i s b o t h g e o g r a p h i c a l l y p r o x i m a t e t o t h e most dynamic o f t h e LDCs, t h e A s i a n NICs, and has e x t e n s i v e , e c onomic r e l a t i o n s w i t h them. T h u s , t h e i n t e r r e l a t i o n s of DC and LDC d e v e l o p m e n t and s t r u c t u r a l change i s an i s s u e of c o n s i d e r a b l e p r a c t i c a l i m p o r t a n c e i n J a p a n and, as s u c h , has a t t r a c t e d t h e s e r i o u s a t t e n t i o n of b o t h b u s i n e s s and government. 3.2 I d e n t i f i c a t i o n Of A f f e c t e d I n d u s t r i e s To examine a d j u s t m e n t t o A s i a n NIC c o m p e t i t i o n i n J a p a n e s e i n d u s t r y , one must i d e n t i f y a r e l e v a n t s e t of i n d u s t r i e s t o examine. As i t i s p r o d u c t s , and n o t i n d u s t r i e s or c o m p a n i e s , p e r s e , w h i c h compete i n t h e i n t e r n a t i o n a l m a r k e t one must f i r s t i d e n t i f y a s e t of p r o d u c t s . T h e s e c a n t h e n be l i n k e d t o a s e t of s p e c i f i c i n d u s t r i e s and f i r m s . The more d i s a g g r e g a t e d t h e . l e v e l a t w h i c h r e l e v a n t p r o d u c t s a r e i d e n t i f i e d , t h e more l i k e l y a r e we t o be a b l e t o l i n k t h e p r o d u c t s t o n a r r o w l y - d e f i n e d and homogenous i n d u s t r i e s . 39 3.2.1 Q u a n t i t a t i v e S e l e c t i o n A q u a n t i t a t i v e a p p r o a c h t o t h e s e l e c t i o n p r o b l e m would u t i l i z e e x i s t i n g s t a t i s t i c a l d a t a t o examine r e l a t i v e J a p a n e s e and A s i a n NIC c o m p e t i t i v e s t r e n g t h f o r v a r i o u s p r o d u c t s . W h i l e one would l i k e t o s e l e c t t h o s e p r o d u c t s i n w h i c h J a p a n e s e l o s s i s due t o A s i a n NIC g a i n , i t i s not i n g e n e r a l p o s s i b l e t o d e m o n s t r a t e s u c h a c a u s a l l i n k ; even where i t a l m o s t c e r t a i n l y e x i s t s . S i m i l a r l y , w h i l e t h e r e s p e c t i v e s h a r e s o f t h e w o r l d m a r k e t ( t h e a g g r e g a t e of a l l n a t i o n a l m a r k e t s ) i s an a t t r a c t i v e measure of c o m p e t i t i v e s t r e n g t h , t h i s c a n n o t be r e a d i l y d e t e r m i n e d . T h e r e a r e numerous o t h e r p r o b l e m s i n i m p l e m e n t i n g a q u a n t i t a t i v e s e l e c t i o n p r o c e d u r e . From our p r e s e n t p e r s p e c t i v e , t h e most c r u c i a l p r o b l e m w i t h q u a n t i t a t i v e a p p r o a c h e s i s t h a t t h e l e v e l of p r o d u c t c a t e g o r i z a t i o n a t w h i c h t h e y a r e f e a s i b l e i s h i g h l y a g g r e g a t e d . As a r e s u l t , t h e i d e n t i f i e d " p r o d u c t / i n d u s t r i e s " w i l l c o r r e s p o n d , i n g e n e r a l , t o a c o l l e c t i o n of d i s p a r a t e p r o d u c t s p r o d u c e d by what a r e i n p r a c t i c e q u i t e d i s t i n c t i n d u s t r i e s . The i d e n t i f i e d a g g r e g a t e p r o d u c t c a t e g o r i e s a r e n o t l i k e l y t o c o n t a i n a l l o f t h e r e l e v a n t s u b c a t e g o r i e s o f p r o d u c t s . M o r e o v e r , i t i s even p o s s i b l e ( t h o u g h not p r o b a b l e ) t h a t t h e y c o n t a i n none. F i n a l l y , even i f t h e e x i s t i n g s t a t i s t i c a l d a t a were a v a i l a b l e i n h i g h l y d i s a g g r e g a t e d form, i n t h e a b s e n c e o f m i c r o - l e v e l d a t a on b u y e r b e h a v i o u r , one would s t i l l have no a s s u r a n c e t h a t J a p a n e s e l o s s e s were due t o A s i a n NIC g a i n s . 40 3.2.2 Q u a l i t a t i v e S e l e c t i o n F o r r e a s o n s s u c h as t h e a b o v e , we d i d n o t a t t e m p t a q u a n t i t a t i v e s e l e c t i o n p r o c e d u r e . We r e l i e d , i n s t e a d , on t h e a d v i c e of i n f o r m e d o p i n i o n i n J a p a n e s e government, b u s i n e s s , and ac a d e m i c c i r c l e s . S p e c i f i c a l l y , we a s k e d p e o p l e t o s u g g e s t some n a r r o w l y - d e f i n e d p r o d u c t s i n w h i c h J a p a n e s e p r o d u c e r s have f a c e d s e v e r e c o m p e t i t i o n from t h e A s i a n NICs. The c h o i c e o f i n f o r m a n t s was q u i t e i n f o r m a l and o p p o r t u n i s t i c b u t began w i t h r e s e a r c h e r s a t The I n s t i t u t e of D e v e l o p i n g E c o n o m i e s and p r o c e e d e d , i n l a r g e measure, t h r o u g h a c h a i n o f s u b s e q u e n t i n t r o d u c t i o n s and s u g g e s t e d i n f o r m a n t s t h a t began t h e r e . In t h e c o u r s e of i n q u i r y we c o n t a c t e d a l a r g e number of p e o p l e i n government, b u s i n e s s , and a c a d e m i a b u t , f a i r l y e a r l y on, c o n s i d e r a b l e r e p e t i t i o n became e v i d e n t i n t h e n o m i n a t e d p r o d u c t / i n d u s t r i e s . T h i s p r o c e d u r e , a s i d e from d i r e c t l y i d e n t i f y i n g n a r r o w l y - d e f i n e d p r o d u c t / i n d u s t r i e s , comes c l o s e r t o " t a p p i n g i n " t o m i c r o - l e v e l i n f o r m a t i o n on b u y e r b e h a v i o u r r e l e v a n t t o i d e n t i f y i n g p r o d u c t s i n w h i c h J a p a n e s e l o s s e s a r e a t t r i b u t a b l e t o A s i a n NIC g a i n s . T h a t i s t o s a y , t h e i n f o r m a n t s g e n e r a l l y had r e l a t i v e l y d i r e c t i n f o r m a t i o n a s t o w h i c h s u p p l i e r c o u n t r i e s were w i n n i n g b u s i n e s s away from t h e J a p a n e s e i n d u s t r y . They were a l s o a b l e t o i d e n t i f y p r o d u c t s a t a v e r y f i n e l e v e l o f d i s a g g r e g a t i o n ; and a l l t h e f i n e r as we p r o c e e d e d from a c a d e m i c / g o v e r n m e n t s o u r c e s t o t h e l e v e l o f i n d u s t r y a s s o c i a t i o n s and b u s i n e s s m e n . I n d e e d , i n f o r m a n t s o f t e n made d i s t i n c t i o n s among p r o d u c t s 41 o r p r o d u c t t y p e s t h a t went f a r beyond t h e f i n e s t l e v e l o f d i s a g g r e g a t i o n a v a i l a b l e f o r o f f i c i a l s t a t i s t i c s . The g o a l , however, was f o r i d e n t i f i c a t i o n o f p r o d u c t s a t t h e e q u i v a l e n t of the f i n e s t ( 6 - d i g i t ) l e v e l of t h e Japa n S t a n d a r d P r o d u c t C l a s s i f i c a t i o n ( J . S . P . C . ) . 3 8 In p r a c t i c e , even t h i s goes beyond the l e v e l o f d i s a g g r e g a t i o n f o r w h i c h much o f f i c i a l s t a t i s t i c a l d a t a i s a v a i l a b l e . As a r e s u l t , when s e e k i n g s t a t i s t i c a l d a t a , i t i s g e n e r a l l y n e c e s s a r y t o r e v e r t t o t h e c o r r e s p o n d i n g 4 - d i g i t l e v e l s of t h e J.S.P.C. 3.3 The I d e n t i f i e d P r o d u c t / I n d u s t r i e s The i d e n t i f i e d 6 - d i g i t p r o d u c t c a t e g o r i e s a r e i n d i c a t e d i n T a b l e 4. In some c a s e s , o n l y a few r e p r e s e n t a t i v e 6 - d i g i t p r o d u c t s from an e n t i r e 4 - d i g i t c a t e g o r y i d e n t i f i e d a s r e l e v a n t by our i n f o r m a n t s a r e l i s t e d . The l i s t i n g i s , t h e r e f o r e , n o t c o m p r e h e n s i v e i n t h a t s e n s e . T h e r e i s no r e a s o n t o b e l i e v e , m o r eover, t h a t t h e a g g r e g a t e of a l l of t h e 6 - d i g i t p r o d u c t c a t e g o r i e s n o m i n a t e d by i n f o r m a n t s i s c o m p r e h e n s i v e i n t h e l a r g e r s e n s e of c o m p r i s i n g a l l r e l e v a n t 6 - d i g i t c a t e g o r i e s . T h e r e a r e u n d o u b t e d l y r e l e v a n t p r o d u c t c a t e g o r i e s t h a t i n f o r m a n t s d i d not a d v i s e us o f . M o r e o v e r , by t h e n a t u r e o f t h e s e l e c t i o n p r o c e s s employed, an e f f o r t , even by o u r s e l v e s , t o r e p e a t t h e p r o c e d u r e would be u n l i k e l y t o p r o d u c e an i d e n t i c a l l i s t o f p r o d u c t s . We a r e c o n f i d e n t however t h a t , were t h e r e t o be a c o m p r e h e n s i v e l i s t i n g o f r e l e v a n t 6 - d i g i t p r o d u c t T h i s c l a s s i f i c a t i o n i s a v a i l a b l e , f o r example, i n S h o h i n B u n r u i - h y o ( M . I . T . I . , 1979) T a b l e 4 - P r o d u c t / I n d u s t r i e s F a c i n g Severe A s i a n NIC C o m p e t i t i o n 42 J.S.P.C. CODE PRODUCT CATEGORY 202111 Cotton Thread 202112 Blended Cotton Thread 203111 - 119 Twisted or Braided Yarn 204111 - 119 Wide-Woven Plain.Cotton Textiles 205i21 Men's Circular-Knitted Outerwear 205124 Underwear 205512 Knitted Dress Gloves 208211 Plain Knitted Lace 209611 Cotton or Jute Carpeting 209612 Tufted Carpeting 212111 Men's Dress-Shirts 222211 Plain Plywood Board 281211 Bicycle Tires 282113 A l l Rubber Boots 289211 Footwear Made of Plasti c s 296112 Leather Briefcases and School Backpacks 296121 P l a s t i c Briefcases and Luggage 304212 Western-Style Ceramic Diningware 304611 Mosaic Til e 332111 Stainless Steel Cutlery 332119 Other Stainless Steel Tableware 332411 Handtoo Is 337111 Bolts and Nuts 337114 Wood Screws etc. 348211 Household Sewing Machines 354311 Radio Receivers (more than three tubes/or transistors) 354312 Black and White T.V. (including k i t s ) 357919 Communications-Use Resistors 357913 " " Capacitors 357914 " " Transformers 363113 Sports and Recreational Bicycles 363115 Bicycle Parts etc. 375112 Binoculars 376112 Eyeglass Frames 277114 El e c t r i c and Electromagnetic Watches 392311 Acoustic and E l e c t r i c Guitars 393112 Metal Toys 393116 Inflatable Vinyl Toys 393119 Miscellaneous (other) P l a t i c Toys 393214 Stuffed Animals 393411 Tennis, Ping Pong and Badminton Equipment 393415 Skiing, Waterskiing and Skating " 393417 Fishing equipment and Accessories 394211 Ballpens 395111 Table and Pocket Lighters 395113 Cultivated Pearls 396911 Miscellaneous Household Notions 398211 Tatami Covers and Mats 399111 Men's Western-style Umbrellas 399113 Frames (Skeletons) for Wester-style Umbrellas 399511 Vacuum Bottles and Jars Source: Compiled by the author 43 c a t e g o r i e s , i t would i n c l u d e most, i f n o t a l l , of t h o s e l i s t e d i n t h e t a b l e . The m a j o r i t y of t h e s e l e c t e d i n d u s t r i e s d i s p l a y l e v e l s of e s t a b l i s h m e n t s c a l e d i s t i n c t l y below t h e a l l - i n d u s t r y a v e r a g e s . In f a c t , i t was b r o u g h t t o our a t t e n t i o n t h a t t h e m a j o r i t y of t h e s e l e c t e d i n d u s t r i e s f a l l among t h e a p p r o x i m a t e l y 200 d e s i g n a t e d S m a l l - and M e d i u m - s i z e E n t e r p r i s e I n d u s t r i e s (S.M.E.I.) w h i c h a r e t h e s p e c i a l c o n c e r n o f t h e S m a l l - and M e d i u m - s i z e E n t e r p r i s e Agency (S.M.E.A.) of t h e M i n i s t r y of I n t e r n a t i o n a l T r a d e and I n d u s t r y ( M . I . T . I . ) . 4. METHODOLOGICAL IMPLICATIONS OF THE AFFECTED INDUSTRIES 4.1 C h a r a c t e r i s t i c s Of The I d e n t i f i e d I n d u s t r i e s The o v e r a l l c h a r a c t e r i s t i c s o f t h e i n d u s t r i e s i d e n t i f i e d as f a c i n g LDC c o m p e t i t i o n a r e d i s c u s s e d - i n more d e t a i l i n t h e f o l l o w i n g c h a p t e r . Some of t h e s e c h a r a c t e r i s t i c s , however, had i m p o r t a n t m e t h o d o l o g i c a l i m p l i c a t i o n s . S p e c i f i c a l l y , t h e i d e n t i f i e d i n d u s t r i e s were c h a r a c t e r i z e d by a p r e p o n d e r a n c e of s m a l l e r , p r i v a t e l y - o w n e d f i r m s and were w i d e l y s c a t t e r e d , g e o g r a p h i c a l l y , t h r o u g h o u t J a p a n . As a r e s u l t , v e r y l i t t l e o p e r a t i n g i n f o r m a t i o n r e g a r d i n g i n d i v i d u a l f i r m s i s p u b l i c l y a v a i l a b l e and t h e v a s t m a j o r i t y of f i r m s a t t r a c t no o n g o i n g a t t e n t i o n i n t h e p o p u l a r p r e s s . M o r e o v e r , i n i t i a l i n f o r m a n t s (who had h e l p e d i d e n t i f y t h e a f f e c t e d i n d u s t r i e s ) s u g g e s t e d t h a t , b e c a u s e most f i r m s a r e run by o w n e r - o p e r a t o r s , a t t e m p t s t o g a t h e r s u r v e y d a t a d i r e c t l y from t h e f i r m s w o u l d n o t l i k e l y be s u c c e s s f u l , e s p e c i a l l y i n a p e r i o d 44 of a d v e r s i t y and u n c e r t a i n t y . F i n a l l y , the geographic s c a t t e r of the i d e n t i f i e d i n d u s t r i e s presented c o n s i d e r a b l e l o g i s t i c a l problems to f i e l d r e search, e s p e c i a l l y i n l i g h t of the time and f i n a n c i a l c o n s t r a i n t s of the study. 4.2 O u t l i n e Of Methodology Employed The problems presented by the c h a r a c t e r i s t i c s of the a f f e c t e d i n d u s t r i e s were coped with by means of a sequence of r e s e a r c h a c t i v i t i e s t h a t can be broadly d i v i d e d i n t o three stages. 4.2.1 A Broad Survey Of The Adjustment Problem T h i s i n v o l v e d a survey of e x i s t i n g l i t e r a t u r e d e a l i n g with the adjustment problem i n g e n e r a l and i n t e r v i e w s with academics, government bureaucrats, and r e p r e s e n t a t i v e s of r e s e a r c h o r g a n i z a t i o n s a t t a c h e d to government or f i n a n c i a l i n s t i t u t i o n s . These i n t e r v i e w s d e a l t p r i m a r i l y with the o v e r a l l adjustment problem, the i n s t i t u t i o n a l environment of adjustment, and the a v a i l a b i l i t y and whereabouts of data sources r e l e v a n t to adjustment in the s p e c i f i c , n a r r o w l y - d e f i n e d i n d u s t r i e s . 4.2.2 An Overview Of Adjustment In Some S p e c i f i c A f f e c t e d I n d u s t r i e s T h i s a l s o i n v o l v e d surveys of e x i s t i n g l i t e r a t u r e and i n t e r v i e w s but was focussed on sources r e l e v a n t to s p e c i f i c i n d u s t r i e s . Interviews and l i t e r a t u r e o b t a i n e d from i n d u s t r y a s s o c i a t i o n s f i g u r e d prominently i n t h i s stage and the emphasis was on c o l l e c t i n g a modicum of i n f o r m a t i o n on a wide s e l e c t i o n of a f f e c t e d i n d u s t r i e s . 45 4.2.3 Case S t u d i e s On the b a s i s of the. preceding stages i t was p o s s i b l e to make some informed judgements as to which i n d u s t r i e s would be s u i t a b l e f o r case s t u d i e s . N e v e r t h e l e s s , a number of e q u a l l y p l a u s i b l e a l t e r n a t i v e s remained and the l o g i s t i c a l problems and re s e a r c h c o n s t r a i n t s a l l u d e d to e a r l i e r p r e c l u d e d the s t r a t e g y of conducting case s t u d i e s of a l l of them. I t was decided, t h e r e f o r e , to concentrate on an in-depth study of one i n d u s t r y and to supplement t h i s with b r i e f e r case s t u d i e s of a few other i n d u s t r i e s . The i n d u s t r y chosen f o r the in-depth case study i s the s t a i n l e s s s t e e l c u t l e r y i n d u s t r y , c e n t r e d i n Tsubame C i t y i n N i i g a t a p r e f e c t u r e . T h i s i s seen, both p o p u l a r l y and o f f i c i a l l y , as a p r o t o t y p i c a l -Japanese r u r a l manufacturing i n d u s t r y . In conducting the re s e a r c h f o r t h i s case study, a much more i n t e n s i v e l i t e r a t u r e survey and s e r i e s of i n t e r v i e w s with r e l e v a n t sources was conducted i n Tokyo. In a d d i t i o n , f i e l d r e s e a r c h was conducted i n N i i g a t a C i t y , the p r e f e c t u r a l c a p i t a l , and i n Tsubame, i t s e l f . The people i n t e r v i e w e d ranged from p r e f e c t u r a l - and m u n i c i p a l - l e v e l i n d u s t r y and commerce department r e p r e s e n t a t i v e s , to l o c a l i n d u s t r y a s s o c i a t i o n r e p r e s e n t a t i v e s , l o c a l bank managers, company founders, managers, and foremen. The companies v i s i t e d i n c l u d e d s u b c o n t r a c t o r s , i n t e g r a t e d producers, and d i s t r i b u t i o n - o r i e n t e d f i r m s . The other case s t u d i e s i n v o l v e d a s i m i l a r l y i n t e n s i v e 46 l i t e r a t u r e survey and s e r i e s of i n t e r v i e w s in Tokyo. With the exception of a b r i e f , one-day, v i s i t to footwear firms i n the Shizuoka area, however, none of these l a t t e r case s t u d i e s had the b e n e f i t of f i e l d r e s e a r c h . In a l l , four case s t u d i e s are presented; of which, two are t r a d i t i o n a l l y urban-based (footwear and umbrellas) and two are r u r a l - b a s e d (mosaic t i l e and s t a i n l e s s s t e e l c u t l e r y ) . A l l of them have been h i g h l y export- o r i e n t e d and each has encountered severe competition from producers i n the Asian NICs. 47 I I I . BACKGROUND TO THE CASE STUDIES 1. JAPAN AND THE ASIAN NEWLY INDUSTRIALIZING COUNTRIES 1.1 Japan Japan's r a p i d postwar growth and development as an i n d u s t r i a l s t a t e i s a w e l l known s t o r y and we w i l l only summarize some of i t s main f e a t u r e s here. I t i s important to recognize that r a p i d and ex t e n s i v e prewar i n d u s t r i a l i z a t i o n c o n t r i b u t e d much to Japan's c a p a c i t y f o r growth and development in the postwar p e r i o d . Thus, recovery from the d e s t r u c t i o n and d i s o r g a n i z a t i o n of the Second World War was r a p i d . While the l e v e l of i n d u s t r i a l p r o d u c t i o n i n 1946 had f a l l e n to that of 1915, by 1955 i t had recovered to immediate prewar l e v e l s and by 1965-66 had surpassed the p r o j e c t e d prewar t r e n d . 3 9 T h i s , of course, i m p l i e s an a c c e l e r a t e d postwar growth r a t e and, i n f a c t , the postwar growth r a t e of Japanese gross n a t i o n a l product (GNP) has c o n s i s t e n t l y exceeded that of most c o u n t r i e s and has been and i s expected to continue to be higher than that of the other i n d u s t r i a l i z e d market economies. 4 0 As a r e s u l t , between 1960 and 1980 Japan's share of t o t a l world GNP i n c r e a s e d from 4.4% to i n excess of 8%. In trade as 3 9 See M. Shinohara, The Japanese Economy and Southeast A s i a , p28 I.D.E. O c c a s i o n a l Papers No. T5~, ( I n s t i t u t e of Developing Economies, Tokyo, 1977). 4 0 Japan Economic Research Centre, r e p r i n t e d i n H. Kanamori, Kanamori Hisao no Nihon K e i z a i Kogi pp 207-208. (Nihon K e i z a i Shinbunsha, Tokyo, 1979). 48 w e l l , Japan's share of t o t a l world exports has i n c r e a s e d from 3.7% (1963) to 5.9% (1979) and i t s share of world exports from 3.4% (1963) to 6.3% (1979). 1 , 1 T h i s growth has been accompanied by major s t r u c t u r a l change i n p a t t e r n s of Japanese employment, p r o d u c t i o n , and trade and i n the p r o d u c t i v i t y and g e o g r a p h i c a l d i s t r i b u t i o n of domestic i n d u s t r i a l p r o d u c t i o n . Despite i t s c o n s i d e r a b l e i n d u s t r i a l development, prewar Japan remained p r i m a r i l y an a g r i c u l t u r a l s o c i e t y with as much as 50% of i t s workforce engaged in primary i n d u s t r y as l a t e as 1930. T h i s percentage f e l l , however, from 48% to 19% i n the twenty years between 1950 and 1970. Indeed, the primary s e c t o r moved from being the most important (41%) to being the l e a s t important (25%) in the ten years from 1955 to 1965. Since 1975, the r e l a t i v e weight of the secondary s e c t o r has d e c l i n e d and that of the t e r t i a r y s ector has i n c r e a s e d , i n common with the p a t t e r n s i n other developed i n d u s t r i a l c o u n t r i e s . Moreover, the a b s o l u t e l e v e l of employment in the manufacturing (secondary) s e c t o r peaked around 1970 at 11,679,680. A more d e t a i l e d c o n s i d e r a t i o n of Japan's p a t t e r n s of p r o d u c t i o n r e v e a l s f u r t h e r change. Table 5 d i s p l a y s change i n some major f e a t u r e s of Japanese i n d u s t r y at the 2 - d i g i t l e v e l of the Japanese Standard I n d u s t r i a l C l a s s i f i c a t i o n ( J S I C ) . Because of i t s t r i v i a l s i z e , we w i l l ignore the weapons and munitions s e c t o r i n our d i s c u s s i o n . As the t a b l e shows, a l l s e c t o r s * 1 G.A.T.T., I n t e r n a t i o n a l Trade 1979/80 1980);Appendix Table A22. (GATT, Geneva, T a b l e 5 - Change i n Japan's I n d u s t r i a l S t r u c t u r e : / 1960-1975 J. s . I. c . Industry 1975 Indices (1960=100) Composition Employment ^ Zalue Added No. Employment Value Added 1975 % Change 1 1 9 6 0 - 7 5 L975 % Chai 1 9 6 0 - lge /5 1 8 / 1 9 Food Processing 145 1023 1 0 . 3 +3.0 L0 .2 2 0 . 20 Textiles 74 460 8.1 - 4 7 . 1 5.0 - 4 6 . S 21 Clothing and Textile Manufactures 264 1766 4 .7 8 8 . 0 2.1 40.4 22 Wood and Wood Products • 104 740 4.1 - 2 5 . 5 2.5 - 1 6 . ; 23 Furniture 170 1413 2.5 1 9 . 0 1.8 8.7 24 Pulp, Paper and Paper Products 121 730 2 .9 - 1 2 . 1 3.1 - 1 6 . 7 25 Publishing and Printing 157 1118 4 . 3 1 0 . 3 5 .3 110.C 26 Chemicals 107 698 4 . 3 - 2 3 . 2 8 .9 - 1 9 . 1 27 Coal and Petroleum Products 150 905 .4 0 1.5 17.6 28 Rubber Manufactures 115 697 1.5 - 1 6 . 7 1.4 - 1 3 . 9 29 Leather and Leather Products 186 1115 .7 4 0 . 0 .5 25.0 30 Non-metallic Mineral Manufactures 140 923 5.0 0 5.1 0 31 Steel 119 638 4 . 7 - 1 4 . 5 6.1 - 4 0 . 0 32 Non-ferrous Metals 128 513 1.9 - 9 . 5 2.1 - 3.9 33 Metal Manufactures 180 1209 7.3 2 8 . 1 6.6 13.0 34 General Machinery 145 931 9.9 3.1 11 .2 8.5 35 E l e c t r i c a l and Electronic Equipment 181 825 1 1 . 3 2 9 . 9 9 .9 80. C 36 Transportation Equipment 187 969 8 .7 3 1 . 8 L 0 . 4 20. C ) 37 Precision Equipment 161 1037 2.2 1 5 . 8 1.8 20. C ) 38 Weapons and Munitions 128 7 0 0 7.] 39 Other Manufactures 183 1524 5.2 3 0 . 0 4 .5 29. . 3 Total 140 857 100 0 100 0 Note: Establishments with 4 or more employees. Source: Calculated from data i n ; Sangyo Tokei Kenkyu Hokoku: Sengo Waga Kuni Kogyo Choki Doko Bunseki - M.I.T.I. S t a t i s t i c s Division ( 1 9 7 9 , Tokyo, Tsusho Tokei Kyokai) 50 except t e x t i l e s have i n c r e a s e d t h e i r l e v e l of employment and t h e i r (nominal) value added over the p e r i o d 1960-1975. D i f f e r e n t i a l r a t e s of growth have, however, changed the s e c t o r a l composition of employment and p r o d u c t i o n (value-added b a s i s ) . In p a r t i c u l a r , there has been a drop i n the r e l a t i v e importance of employment and p r o d u c t i o n i n some high wage, c a p i t a l - i n t e n s i v e , and n a t u r a l resource-based " b a s i c " i n d u s t r i e s ; such as chemicals, s t e e l , non-ferrous metals and i n pulp, paper, and paper products as w e l l as i n some i n d u s t r i e s dependent upon the i n t e n s i v e u t i l i z a t i o n of r e l a t i v e l y u n s k i l l e d , low-wage labour; such as t e x t i l e s , wood and wood-products, and rubber goods. These changes have been r e f l e c t e d i n the composition of export trade which has undergone r a d i c a l change. The comparison of Japan's top ten export items i n 1955 and i n 1970, given i n Table 6., suggests the nature of these changes. While n a t u r a l t e x t i l e s and c l o t h i n g items accounted f o r e i g h t of the top ten export items i n 1955, they accounted f o r none in 1970. In t h e i r p l a c e was a broader v a r i e t y of manufactures, the production of which r e q u i r e d higher l e v e l s of technology and/or c a p i t a l - i n t e n s i t y . The decade of the 1970's presented a number of new f o r c e s f o r change i n the Japanese i n d u s t r i a l economy. By the e a r l y 1970's the adverse impact of postwar development on the environment and on the a v a i l a b i l i t y of i n d u s t r i a l l a n d s i t e s and water resources was i n e s c a p a b l y e v i d e n t . The move to a regime of f l o a t i n g i n t e r n a t i o n a l exchange r a t e s l e d r a p i d l y to an a p p r e c i a t i o n of the yen r e l a t i v e to the c u r r e n c i e s of many major 51 Table 6 - Change in the Composition of Japan's Major Exports: 1950-1971 Year RarnV 1 2 3 4 5 6 7 8 9 10 1950 C o t t o n T e x t i l e s S t e e l N o n - F e r r o u s M e t a l s S i l k (raw) Rayon T e x t i l e s M a r i n e P r o d u c t s S h i p s C l o t h i n g M e t a l M a n u f a c t u r e s S i l k Goods 1971 S t e e l A u t o m o b i l e s S h i p s M e t a l M a n u f a c t u r e s R a d i o R e c e i v e r s S y n t h e t i c F i b r e s and T e x t i l e s M o t o r c y c l e s S c i e n t i f i c O p t i c a l s T e l e v i s i o n R e c e i v e r s Tape R e c o r d e r s (New e n t r i e s t o Top Ten) S o u r c e : H a y a s h i , Y u j i r o e d . , S e k a i n i K a k e r u N ih o n no G i j u t s u ( J a p a n e s e T e c h n o l o g y C h a l l e n g i n g the Wor ld >- J a p a n e s e - T o k y o , K o g a k u s h a , 1972. p . 55 52 f o r e i g n markets and reduced the competitiveness of many Japanese products; e s p e c i a l l y those, such as l a b o u r - i n t e n s i v e consumer's goods, where p r o d u c t i v i t y improvements were e l u s i v e . At the same time, continued p r o d u c t i v i t y i n c r e a s e s i n other s e c t o r s , and the v a s t l y i n c r e a s e d weight of Japanese exports i n world trade, l e d to i n c r e a s i n g l y v o c a l complaints and c a l l s f o r p r o t e c t i o n by competitors of Japan i n the major markets of the OECD c o u n t r i e s . The f i r s t o i l c r i s i s , i n l a t e 1973, i n j e c t e d a sense of both urgency and d i r e c t i o n i n t o t h i s atmosphere of u n c e r t a i n t r a n s i t i o n and ushered in a d i f f i c u l t p e r i o d of reassessment and change i n the fundamental s t r u c t u r e of demand and in the p r i c e s t r u c t u r e of the economy. P a r t l y out of n e c e s s i t y and p a r t l y out of commitment and consensus, Japan, i n the l a t t e r h a l f of the 1970's made major e f f o r t s to ad j u s t t o, ra t h e r than evade, these new economic r e a l i t i e s . By 1980, much had been accomplished and Japan's r a t e of economic growth, while lower than the r a t e s of the 1960's, had r i s e n again and was c o n s i d e r a b l y higher than those of the other OECD c o u n t r i e s . 1.2 The Asian NICs A recent OECD study shows that the most dynamic of the NICs i s the A s i a n , or F a r - E a s t e r n , group composed of Hong Kong, Singapore, Taiwan, and Korea." 2 These c o u n t r i e s r a t e s of growth in output and demand have not only c o n s i s t e n t l y exceeded those " 2 O r g a n i z a t i o n f o r Economic Cooperation and Development, The Impact of the Newly I n d u s t r i a l i z i n g C o u n t r i e s on Production and Trade i n Manufactures (OECD,Paris, 1979). 53 of the advanced i n d u s t r i a l i z e d c o u n t r i e s of the OECD but have g e n e r a l l y been higher than those of other r e p r e s e n t a t i v e NICs; such as Greece P o r t u g a l , Spain, Y u g o s l a v i a , B r a z i l , and Mexico." 3 T h i s e x c e p t i o n a l performance by the Asian NICs i s due in l a r g e p a r t to t h e i r r e l a t i v e l y v igorous and e a r l y change to an outward-looking, or e x p o r t - o r i e n t e d , i n d u s t r i a l i z a t i o n s t r a t e g y . " " In r e f l e c t i o n of t h i s , the export o r i e n t a t i o n of the manufacturing s e c t o r i s c o n s i d e r a b l y higher i n the Asian NICs than i t i s i n the other NICs and t h e i r share of t o t a l OECD imports has in c r e a s e d more r a p i d l y than has that of the o t h e r s . " 5 In abs o l u t e terms as w e l l , the Asian NICs are dominant and accounted f o r about 60% of t o t a l OECD imports from the NICs in 1977. In t u r n , the developed market economies, of which the OECD c o u n t r i e s comprise the major markets, accounted f o r 75% of t o t a l Asian NIC exports of manufactures i n 1976, up from around 50% i n 1963.* 6 T h i s strong growth i n the volume of exports and i n the o r i e n t a t i o n to OECD markets has been accompanied by remarkable changes i n the commodity composition of exports from the Asian NICs. T h i s i s evident even at the h i g h l y aggregate 1 - d i g i t 3 , i b i d . . pp 50-51. " See Donges, J . B., "A Comparative Survey of I n d u s t r i a l i z a t i o n P o l i c i e s i n F i f t e e n Semi - I n d u s t r i a l i z e d C o u n t r i e s " W e l t w i r t s c h a f t A r c h i v 112, 1976 pp 626-657 ( e s p e c i a l l y , pp 655- 656) and Suzuki, N., " A j i a Chushinkogyokoku no Kogyoka to Yushutsu no Yakuwari" i n N. Suzuki (ed.), NIRA OUTPUT NRC-78-22 ; A j i a Shokoku no Kyusokuna Kogyoka to Waqa Kuni no T a i o (Sogo Kenkyu K a i h a t s u Kiko, Tokyo, 1980) pp 53-113. 5 OECD, Impact , op. c i t . 6 Suzuki, NIRA OUTPUT , op___ c i t . . p 85. 54 l e v e l of the Standard I n t e r n a t i o n a l Trade C l a s s i f i c a t i o n (SITC) as shown i n F i g u r e 2. In the l a t e 1950's and e a r l y 1960's a l l of the Asian NICs , tended towards a commodity composition of exports dominated by a g r i c u l t u r a l products, raw m a t e r i a l s , and semi-processed goods and by a few low technology manufactures ( e s p e c i a l l y t e x t i l e s p i n n i n g and weaving) w i t h i n SITC category 6. By the l a t e 1970's however, t h e i r export p r o f i l e s had changed d r a m a t i c a l l y and were dominated by a broader range of f i n i s h e d manufactures w i t h i n SITC c a t e g o r i e s 6, 7, and 8. The p r o f i l e f o r Singapore appears somewhat d i f f e r e n t because of i t s r o l e as petroleum r e f i n i n g c e n t r e . If the p r o f i l e s were redrawn on the b a s i s of the value-added embodied in exports, the Singapore p r o f i l e would l i k e l y conform more c l o s e l y to those of the other Asian NICs. 1.3 Contending Views Of Japan-Asian NIC R e l a t i o n s / 1.3.1 Competition At one l e v e l , the Asian NICs are seen as a t h r e a t to Japanese i n d u s t r y . T h i s view i s more common among the general p u b l i c than i t i s among the government and the f e d e r a l technocracy. Moreover, i t i s s t r o n g e s t i n those i n d u s t r i e s , r e g i o n s , and i n d i v i d u a l s most s u b j e c t to the e f f e c t s of competition from Asian NIC producers; e i t h e r d o m e s t i c a l l y or, more commonly, i n t h i r d county markets. Those h o l d i n g t h i s view look at changes i n the c o m p e t i t i v e s t r e n g t h of the Asian NICs and see, i n p a t t e r n s such as those shown in F i g u r e 3., si g n s of i n e v i t a b l e and growing c o m p e t i t i v e c o n f l i c t between Japan and F i g u r e 55 2 - Change i n the Commodity Composition of A s i a n NIC E x p o r t s TAIWAN % of 7 0 | T o t a l Exports (by volume) 50 PRIOR KOREA HONG KONG i of 7 0 r T o t a l Exports (by volume) 5Ol PRESENT !70 SOL SINGAPORE (1957) —i—i—I—i—i—i—i—i—i—i ° 1 2 3 4 5 6 7 8 9 [70 50 i i ' — i '—I—i I i—r "—r—l—r < " i — i — p — i — r - Q 1 2 3 4 5 6 7 8 9 Q 1 2 3 4 5 6 7 8 9 (1978) —i—i—i—i—i—i—i—i 1—i o 1 2 3 4 5 6 7 8 9 S.I.T.C. 1 - D i q i t Categories, Key: 0 - Processed Foods 5 1 - Beverages & Tobacco Manufactures 6 2 - Selected Processed Materials 3 - Coal & Petroleum Products 7 4 - Fats and Oils 8 9 ChemicaIs Manufactures Classed by Mat e r i a l s (includes T e x t i l e s ) Machinery s Transport Equipment Miscellaneous Manufactured A r t i c l e s Other Trade Source: 56 Figure 3 - Changes in Japanese and Korean 1 - d i g i t S.I.T.C. Export P r o f i l e s JAPAN S.I.T.C. 1-Digit Categories, Key: 0 - Processed Foods 1 - Beverages & Tobacco Manufactures 2 - Selected Processes ratarials 3 - Coal & Petroleum Products 4 - Fats and Oils 5 - Chemicals 6 - Manufactures Classed by Materials (includes T e x t i l e s ) 7 - Machinery & Transport Equipment 8 - Miscellaneous Manufactured A r t i c l e s 9 - Other Trade Source: Compiled from data in U.N. Yearbook of I n t e r n a t i o n a l Trade S t a t i s t i c s (U.N., New York, various years) except for 1907 Japanese data which was estimated from data i n ; Nabeta, Mitsuo S e n 1 i Gyokai (Kyoikusha, Tokyo, 1979) p 18 57 the Asian NICs. As that f i g u r e shows, for the case of Korea and Japan, changes i n the Asian NIC's p a t t e r n s of exports p a r a l l e l those that Japan has undergone but are t a k i n g p l a c e much more r a p i d l y . As a r e s u l t , the Asian NICs export p r o f i l e s are " c a t c h i n g up" with those of Japan and are p l a c i n g those c o u n t r i e s i n t o an i n c r e a s i n g l y c o m p e t i t i v e r e l a t i o n to Japanese producers. Of course, at a s l i g h t l y f i n e r l e v e l of a g g r e g a t i o n , i t i s evident that the s u b - c a t e g o r i e s i n which Japan and the Asian NICs have the g r e a t e s t c o n c e n t r a t i o n of exports are o f t e n d i s t i n c t l y d i f f e r e n t . In some s e c t o r s such as t e x t i l e s however, there i s a c l e a r a s s o c i a t i o n . between i n c r e a s i n g Asian NIC c o m p e t i t i v e s t r e n g t h and a d e c l i n e , not j u s t i n the r e l a t i v e export performance but i n the a b s o l u t e s i z e of the Japanese s e c t o r . T h i s was most d r a m a t i c a l l y brought home in the t e x t i l e s s e c t o r i n 1972-1973 when, in the wake of the f i r s t o i l c r i s i s , there was a sudden l a r g e i n c r e a s e i n the volume of Japanese t e x t i l e imports. In the space of one year, t e x t i l e imports i n c r e a s e d more than t h r e e - f o l d and, as a r e s u l t , the Japanese producer's index of i n v e n t o r i e s soared to an average of. 171 (1970=100) i n 1974-1975. The major source f o r these imports was the Asian NICs and, in p a r t i c u l a r , South Korea and Taiwan.* 7 Even w i t h i n the machinery i n d u s t r i e s there i s concern regarding the growing c a p a b i l i t i e s of the Asian NICs. A recent 4 7 See M. Shinohara, The Japanese Economy and Southeast A s i a , p50. I.D.E. O c c a s i o n a l Papers No. ]5~. ( I n s t i t u t e of Developing Economies, Tokyo, 1977). 58 s u r v e y o f s i x t y - f i v e r e p r e s e n t a t i v e J a p a n e s e m a c h i n e r y m a n u f a c t u r e r s w i t h o p e r a t i o n s i n o t h e r A s i a n c o u n t r i e s e x a m i n e d t h e p r e s e n t a n d p r o s p e c t i v e c o m p e t i t i v e n e s s o f t h e l o c a l i n d u s t r i e s v i s - a - v i s J a p a n e s e m a n u f a c t u r e r s . The s u r v e y r e s u l t s r e v e a l e d a w i d e r a n g e o f p r o d u c t s i n w h i c h t h e A s i a n N I C s h a d e i t h e r a l r e a d y r e a c h e d a c o m p e t i t i v e c a p a b i l i t y o r w o u l d s oon do so ( s e e T a b l e 7 . ) . T h i s p o i n t o f v i e w i s n o t r e c e n t a n d , f u e l e d p r i m a r i l y by e x p e r i e n c e s i n t h e t e x t i l e i n d u s t r i e s , h a s h a d c u r r e n c y s i n c e t h e l a t e 1 9 6 0 ' s . I t h a s , m o r e o v e r , n o t l a c k e d f o r s u p p o r t i n t h e p o p u l a r p r e s s o r i n b u s i n e s s and e c o n o m i c j o u r n a l s . A v a r i a n t o f t h i s c o n c e r n t h a t t h e A s i a n N I C s a r e c a t c h i n g up w i t h J a p a n ( o r , " o i a g e - r o n " ) f o c u s e s on t h e p o s s i b i l i t y t h a t J a p a n e s e t e c h n o l o g y t r a n s f e r s , p r i m a r i l y v i a f o r e i g n d i r e c t i n v e s t m e n t ( F D I ) , w i l l h a v e a " b o o m e r a n g - e f f e c t " ; w i t h o f f s h o r e p r o d u c t i o n f o r t h e J a p a n e s e m a r k e t w r e a k i n g h a v o c on p u r e l y d o m e s t i c p r o d u c e r s and on t h o s e r e g i o n s o f J a p a n i n w h i c h t h e r e l e v a n t d o m e s t i c i n d u s t r i e s a r e l o c a t e d . A more r e c e n t r e f i n e m e n t o f t h i s i d e a f o c u s e s l e s s on t h e d i r e c t i m p a c t on t h e d o m e s t i c m a r k e t o f s u c h FDI a n d more on t h e i m p a c t i n t h e t h i r d c o u n t r y m a r k e t s o f t h e d o m e s t i c J a p a n e s e i n d u s t r y . " 8 See S h i n o h a r a , , o p . c i t . p p 5 0 - 5 1 . 5 9 T a b l e 7 - Machinery P r o d u c t s i n Which A s i a n N I C s T e c h n o l o g i c a l Competence P r o v i d e s a P r e s e n t or P r o s p e c t i v e C o m p e t i t i v e S t r e n g t h Product Type Country Singapore Hong Kong Taiwan Korea Washing Machines 2 3 4 4 R e f r i g e r a t o r s 3 3 3 4 ! L i g h t i n g Equipment 2 3 4 4 Radio R e c e i v e r s 3 4 4 4 T e l e v i s i o n R e c e i v e r s 3 3 4 4 R e s i s t o r s • Condensers 2 2 3 3 Semi-conductors 2 3 3 3 B a t t e r i e s 4 - 3 4 Automobiles 1 1 1 3 i Buses • Trucks 1 1 2 3 Auto P a r t s 1 . 1 2 3 Mo t o r c y c l e s - — 3 — B i c y c l e s - — 3 3 Locomotive Wheelsets 1 1 3 3 S h i p b u i l d i n g 3 2 3 3 Cameras 2 3 3 2 Valves 2 1 3 3 Tanks 2 3 3 3 Pumps 2 2 2 3 Water P u r i f i c a t i o n Equip. 3 3 3 3 A g r i c u l t u r a l Machinery 2 1 3 3 T e x t i l e Equipment 1 1 2 3 Desktop C a l c u l a t o r s 3 3 3 3 E l e c t r o n i c R e s i s t o r s 1 2 2 3 E l e c t r i c Power Meters - - 3 3 Generators 1 1 2 3 E l e c t r i c Motors 2 4 3 3 Transformers 2 1 3 3 Key: 1 = 10 years or more, 2 = 5-10 y e a r s , 3 = w i t h i n 5 y e a r s , 4 = Today- Source: E x c e r p t e d from survey data on 65 Japanese companies i n Asu no Rai b a r u ( N i k k e i Shinbunsha, Tokyo, 1978) 60 1.3.2 C o l l a b o r a t i o n At t h e o t h e r extreme i s t h e view t h a t t h e i n d u s t r i a l d e v e l o p m e n t o f t h e A s i a n NICs has e x t r e m e l y i m p o r t a n t p o s i t i v e i m p l i c a t i o n s f o r J a p a n . The f o r m a l emergence of t h i s view i s more r e c e n t t h a n i s t h a t of t h e " o i a g e - r o n " but i t i s of g r o w i n g i n f l u e n c e e s p e c i a l l y w i t h i n t h e f e d e r a l government and t e c h n o c r a c y . * 9 To b e g i n w i t h , t h e v e r y f a c t t h a t J a p a n has a l a r g e and g r o w i n g p o s i t i v e - b a l a n c e of t r a d e w i t h t h e A s i a n NICs makes i t d i f f i c u l t t o a r g u e t h a t t h e i r i n d u s t r i a l i z a t i o n has not been, i n t h e a g g r e g a t e , b e n e f i c i a l t o J a p a n . M o r e o v e r , even w i t h i n s e c t o r s t h a t h a v e , i n t h e a g g r e g a t e , s u f f e r e d from A s i a n NIC c o m p e t i t i o n , t h e r e i s a g r o w i n g c o m p l e m e n t a r i t y between J a p a n and t h e A s i a n NICs -as e v i d e n c e d i n t h e g r o w t h of i n t r a - i n d u s t r y t r a d e . Thus, w i t h i n t h e t e x t i l e s s e c t o r , J a p a n e s e i m p o r t s of s i l k and s i l k t e x t i l e s , c o t t o n t e x t i l e s and c l o t h i n g a r e a c c o m p a n i e d by J a p a n e s e e x p o r t s t o t h e A s i a n NICs of a r t i f i c i a l t e x t i l e f i b r e s and t e x t i l e s , t h r e a d and y a r n , and i n d u s t r i a l t e x t i l e p r o d u c t s . O t h e r s , more d r a m a t i c a l l y , a r g u e t h a t t h e i n d u s t r i a l i z a t i o n of t h e A s i a n NICs p r e s e n t s an o p p o r t u n i t y f o r J a p a n t o become t h e c e n t r a l member o f a v i t a l r e g i o n a l economic community. The de f a c t o d e v e l o p m e n t of s u c h an i n t e g r a t e d economic community * 9 Two r e c e n t s t u d i e s whose f i n d i n g s s u p p o r t t h i s view a r e t h e p r e v i o u s l y r e f e r e n c e d , NIRA OUTPUT and a s t u d y by a JETRO r e s e a r c h g r o u p , T. Watanabe ( e d . ) , A j i a Kogyoka no S h i n j i d a i (JETRO, Tokyo, 1979). 61 would, i t i s hoped, p r o v i d e f o r J a p a n (and t h e o t h e r members) some of t h e s t a b i l i t y and r e g i o n a l e f f i c i e n c y w h i c h i s s o u g h t , f o r example, by t h e E u r o p e a n i n d u s t r i a l i z e d c o u n t r i e s w i t h i n t h e E u r o p e a n Economic C o m m u n i t y . 5 0 1.3.3 D i f f e r i n g P e r s p e c t i v e s These two o p p o s i n g v i e w s of A s i a n NIC i n d u s t r i a l i z a t i o n a r e due i n l a r g e measure t o a d i f f e r e n c e i n p e r s p e c t i v e . On t h e one hand, from t h e macro-economic p e r s p e c t i v e , i t seems c l e a r t h a t A s i a n NIC i n d u s t r i a l i z a t i o n has b e n e f i t t e d t h e J a p a n e s e economy and t h a t t h e main d i r e c t i o n of s t r u c t u r a l change i n J a p a n - A s i a n NIC economic r e l a t i o n s i s t o w a r d s an i n c r e a s i n g l y i m p o r t a n t and m u t u a l l y b e n e f i c i a l c o m p l e m e n t a r i t y . A t t h e same t i m e , a t a more m i c r o - l e v e l o f a n a l y s i s , i t i s e q u a l l y c l e a r t h a t i n d u s t r i a l i z a t i o n i n t h e A s i a n NICs has been a s s o c i a t e d w i t h d e c l i n e i n s p e c i f i c s u b - s e c t o r s o f J a p a n e s e i n d u s t r y and w i t h c o n s i d e r a b l e r e g i o n a l s o c i a l d i s r u p t i o n i n J a p a n . Thus, t h e s i t u a t i o n i n J a p a n i s s i m i l a r t o t h a t n o t e d e a r l i e r f o r OECD c o u n t r i e s i n g e n e r a l . The impact of LDC i n d u s t r i a l i z a t i o n i s , i n t h e a g g r e g a t e , f a v o u r a b l e but p o s e s some p r o b l e m s o f a d j u s t m e n t i n s p e c i f i c s e c t o r s . 5 0 See, T o s h i o Watanabe, A j i a C h u s h i n k o k u no Chosen N i k k e i S h i n s h o , ( N i h o n K e i z a i S h i n b u n s h a , Tokyo, 1979). 62 2. THE IDENTIFIED INDUSTRIES IN PERSPECTIVE As t h e i n v e s t i g a t i o n has come t o f o c u s on a s e l e c t e d s e t of S.M.E.I., i t would be w e l l t o p ut them i n t o a b r o a d e r p e r s p e c t i v e . T h i s i s done by, f i r s t , d e s c r i b i n g b r i e f l y t h e r o l e of S.M.E. i n t h e J a p a n e s e economy and, s e c o n d , by o u t l i n i n g some f e a t u r e s of a p a r t i c u l a r t y p e of i n d u s t r i a l o r g a n i z a t i o n w h i c h a p p e a r s t o be more p r e v a l e n t i n t h e i d e n t i f i e d s e t o f S.M.E.I. t h a n i t i s among S.M.E.I. i n g e n e r a l . 2.1 The R o l e Of S m a l l - And M e d i u m - s i z e d E n t e r p r i s e s I n The J a p a n e s e Economy 2.1.1 Def i n i t i o n s S m a l l - and m e d i u m - s i z e d e n t e r p r i s e s (SME) a r e o f f i c i a l l y d e f i n e d i n a number of ways i n J a p a n . The f u n d a m e n t a l d e f i n i t i o n i s t h a t g i v e n i n t h e B a s i c Law f o r S m a l l - and Medium- s i z e d E n t e r p r i s e s ( C h u s h o k i g y o K i h o n h o ) and i s b a s e d j o i n t l y on t h e number o f employees and on t h e c a p i t a l i z a t i o n of t h e e n t e r p r i s e . 5 1 By t h a t d e f i n i t i o n , S.M.E. a r e d e f i n e d v a r i o u s l y f o r t h e w h o l e s a l e , r e t a i l a nd s e r v i c e , and m a n u f a c t u r i n g s e c t o r s a s f o l l o w s ; i . M a n u f a c t u r i n g s e c t o r : 3 0 0 o r fewer employees and c a p i t a l i z a t i o n o f o n e - h u n d r e d m i l l i o n y en o r l e s s . i i . R e t a i l T r a d e and S e r v i c e s e c t o r s : 5 0 o r fewer 5 1 T h i s , and o t h e r l e g i s l a t i o n r e g a r d i n g b u s i n e s s , c a n be f o u n d i n t h e a n n u a l p u b l i c a t i o n , T s u s h o Rokuho ( M . I . T . I . , T o k y o ) . 63 employees and c a p i t a l of 30 m i l l i o n yen or l e s s , i i i . Wholesale Trade s e c t o r : 100 or fewer employees and c a p i t a l of 10 m i l l i o n yen or l e s s . There are, however, many other p i e c e s of l e g i s l a t i o n d e a l i n g with SME and some of these laws are a p p l i e d i n accordance with d i f f e r e n t f i g u r e s f o r the two c r i t e r i a of maximum employment and c a p i t a l i z a t i o n while o t h e r s , i n a d d i t i o n , are r e s t r i c t e d to s p e c i f i c i n d u s t r i e s that have been designated by the government f o r the purposes of the l e g i s l a t i o n . P r a c t i c a l l y a l l of these a l t e r n a t i v e o f f i c i a l d e f i n i t i o n s apply a more l i b e r a l i n t e r p r e t a t i o n of SME and have the e f f e c t , f o r the purposes of the s p e c i f i c l e g i s l a t i o n , of broadening the coverage of the term "SME". 5 2 The " e n t e r p r i s e " in SME r e f e r s to any l e g a l l y d i s t i n c t economic e n t i t y whether a company, p a r t n e r s h i p or p r o p r i e t o r s h i p . The fundamental u n i t f o r purposes of government s t a t i s t i c s i s , however, the "establishment" ( J i g y o s h o ) , or p l a c e of business, and a given e n t e r p r i s e may c o n s i s t of more than one e s t a b l i s h m e n t . T h i s d i s p a r i t y between the o f f i c i a l s t a t i s t i c a l u n i t and the o f f i c i a l l e g a l and p o l i c y u n i t o f t e n complicates e f f o r t s to examine the r o l e of SME, as o f f i c i a l l y d e f i n e d , i n the Japanese economy. The two major problems presented by most o f f i c i a l s t a t i s t i c a l sources are; 1. The data are presented f o r 5 2 A t a b l e o u t l i n i n g the r e l e v a n t c r i t e r i a f o r SME f o r purposes of v a r i o u s l e g i s l a t i o n i s given on page four of Chushokigyo Seisaku no Gaiyo (SMEA, June, 1980). 64 establishments and not aggregated for e n t e r p r i s e - l e v e l a n a l y s i s and, 2. The data are disaggregated by number of employees or by c a p i t a l i z a t i o n l e v e l but not j o i n t l y f o r both of these. These f a c t o r s both confound e f f o r t s to d e s c r i b e s t a t i s t i c a l l y the p o s i t i o n of SME w i t h i n the Japanese economy. In p r a c t i c e , the concerned government agencies themselves o f t e n r e l y i n t h e i r own p u b l i c a t i o n s on data f o r establishments and employ only one of the two d e f i n i t i o n a l c r i t e r i a , u s u a l l y the employment c r i t e r i o n , i n s e l e c t i n g d e s c r i p t i v e s t a t i s t i c a l a g g r e g a t i o n s . T h i s approach i s a l s o adopted h e r e . 5 3 2.1.2 D e s c r i p t i o n Manufacturing establishments employing 300 or fewer employees account f o r s l i g h t l y more than 99% of a l l manufacturing establishments i n Japan and t h i s f i g u r e has been s t a b l e between 1969 and 1978. The weight of such establishments in t o t a l manufacturing employment i s lower but s t i l l s u b s t a n t i a l and has i n c r e a s e d from 69% i n 1969 to 73% i n 1978. P r o d u c t i v i t y and wage l e v e l s are r e l a t i v e l y low and, i n 1977, were r e s p e c t i v e l y 51% and 58% of the f i g u r e s f o r l a r g e r e s t a b l i s h m e n t s . While t h e i r r e l a t i v e p r o d u c t i v i t y has i n c r e a s e d s l i g h t l y (from 49% i n 1967), t h e i r r e l a t i v e wage l e v e l s have dropped q u i t e s h a r p l y (from 63% i n 1967). SME are r e l a t i v e l y more important i n Japan than i n the other OECD c o u n t r i e s , as the comparisons between Japan, U.S.A., 5 3 Except where otherwise noted, the f i g u r e s i n the f o l l o w i n g s e c t i o n are drawn from data i n SMEA op. c i t . pp 4-12 i n passim. 65 West Germany, U.K., and F r a n c e g i v e n i n T a b l e 8 i n d i c a t e . The w e i g h t o f SME i n t h e t o t a l number of e s t a b l i s h m e n t i s h i g h i n a l l f i v e of t h e c o u n t r i e s but h i g h e s t i n J a p a n . The s h a r e of J a p a n e s e SME i n t o t a l m a n u f a c t u r i n g employment i s , a t 71.9%, much h i g h e r t h a n i n t h e o t h e r c o u n t r i e s and i s a p p r o a c h e d o n l y by t h e 67.6% f i g u r e f o r F r a n c e . W i t h r e s p e c t t o v a l u e added, t h e J a p a n e s e SME a r e even more o u t s t a n d i n g and a c c o u n t f o r a f a r h i g h e r p r o p o r t i o n (56.6%) of t o t a l v a l u e added i n t h e m a n u f a c t u r i n g s e c t o r and a f a r l o w e r l e v e l o f p r o d u c t i v i t y r e l a t i v e t o l a r g e r e n t e r p r i s e s (51.3%) t h a n i n any of t h e o t h e r f o u r OECD c o u n t r i e s ( t h e c o r r e s p o n d i n g f o u r - c o u n t r y a v e r a g e s a r e , r e s p e c t i v e l y , 27.1% and 7 5 . 9 % ) . 2.2 S a n c h i And J i b a Sangyo 2.2.1 I n t r o d u c t i o n P r e l i m i n a r y e x a m i n a t i o n of t h e i d e n t i f i e d s e t of S.M.E.I, r e v e a l e d a t e n d e n c y f o r p r o d u c t i o n t o be h i g h l y c o n c e n t r a t e d i n a s m a l l number of narrow g e o g r a p h i c r e g i o n s and, i n many c a s e s , f o r t h e i n d u s t r y as a whole t o be a r e l a t i v e l y dominant f o r c e i n t h e r e g i o n a l i n d u s t r i a l economy. As e x p e c t e d , f o r a s e t of S.M.E.I., t h e s e i n d u s t r i e s a r e composed o f many s m a l l - and m e d i u m - s i z e d f i r m s r a t h e r t h a n one, or a few, l a r g e f i r m s . T h e s e c h a r a c t e r i s t i c s c o r r e s p o n d q u i t e c l o s e l y t o t h o s e o f a d i s t i n c t c a t e g o r y o f J a p a n e s e i n d u s t r i a l o r g a n i z a t i o n termed, " s a n c h i " ( p r o d u c t i o n r e g i o n ) o r " j i b a s a n g y o " (community-based i n d u s t r y ) and, i n f a c t , a l m o s t a l l o f t h e i d e n t i f i e d p r o d u c t / i n d u s t r i e s a r e g e n e r a l l y c o n s i d e r e d t o be of t h i s t y p e ; 66 T a b l e 8 - A Comparison of the Role of S m a l l - and Medium- s i z e d F i r m s i n Some Major O.E.C.D. C o u n t r i e s INDICATOR COUNTRY JAPAN U.S.A. W. GERMANY U.K. FRANCE Number of I n d u s t r i a l Establishments ('000) Share a ) (%) 711 (99.5) 299 (95.6) 410 (98.3) 88 (84.7) 326 (98.8) Number of I n d u s t r i a l Employees C000) Share a ) (%) 7802 (71.7) 7702 (42.7) 3819 (37.0) 1558 (21.9) 1403 (67.6) I n d u s t r i a l Value Added Share a> (%) (100 B i l l i o n Yen) 2969 (56.6) (100 M i l l i o n D o l l a r s ) 1304 (36.8) (100 M i l l i o n D.M.) 726 (31.7) ( M i l l i o n Pounds) 5635 (18.2) (100 M i l l i o n Franc) 1 3 5 7 M ( 2 1 . 7 ) b ) P r o d u c t i v i t y (Value Added per Employee) (Larger Firms=100) 51.3 78.3 79.1 79.2 66.9 Date / Maximum No. of / Employees i n / S.M.E. / 1977 / 299 / 1972 / 249 / 1970 / 199 / 1975 / 199 / 1975 / 199 / Note: a) Share i s the percentage of the respective n a t i o n a l t o t a l . b) Sales Source: Chushokigyo Seisaku no Gaiyo (Small and Medium-sized E n t e r p r i s e Agency, Tokyo, June, 1980) 67 t h o u g h t h o s e b a s e d i n u r b a n a r e a s s u c h as Tokyo and Osaka o b v i o u s l y do not d o m i nate t h e i r l o c a l e c o n o m i e s t o t h e d e g r e e o f t h o s e b a s e d i n r u r a l a r e a s . T h e r e i s no r e a s o n t o b e l i e v e t h a t , i n g e n e r a l o u t l i n e , t h i s f o r m o f i n d u s t r i a l o r g a n i z a t i o n i s u n i q u e l y J a p a n e s e . Some J a p a n e s e o b s e r v e r s c o n s i d e r them a n a l o g o u s t o s u c h well-known f o r e i g n examples as t h e c u t l e r y i n d u s t r i e s of S h e f f i e l d , i n t h e U.K., and S o l i n g e n , i n Germany. T h e r e a r e , i n f a c t , a number o f E u r o p e a n r e g i o n a l i n d u s t r i e s t h a t s h a r e t h e i r b a s i c f e a t u r e s w i t h t h e J a p a n e s e s a n c h i . N e v e r t h e l e s s , t h e form may be more common i n J a p a n and, i n any c a s e , i s v e r y common i n t h e i d e n t i f i e d s e t o f S.M.E.I. F o r t h i s r e a s o n some s e p a r a t e d i s c u s s i o n of s a n c h i p r o v i d e s u s e f u l b a c k g r o u n d t o c o n s i d e r a t i o n of t h e a d j u s t m e n t i s s u e . The t e r m s , " j i b a s a n g y o " and " s a n c h i " a r e i l l - d e f i n e d even i n t h e i r J a p a n e s e usage and a r e o f t e n u s e d i n t e r c h a n g e a b l y . An e x a m i n a t i o n o f t h e a c t u a l usage of t h e s e t e r m s by J a p a n e s e w r i t e r s on t h e t o p i c s u g g e s t s t h a t t h e y m ight be most u s e f u l l y d i s t i n g u i s h e d i n terms o f t h e mode of p r o d u c t i o n w i t h i n t h e i n d u s t r y . W r i t e r s on j i b a s a n g y o , when t h e y d e a l w i t h t h i s a s p e c t , a l m o s t i n v a r i a b l y e m p h a s i z e a " s o c i a l d i v i s i o n o f l a b o u r " ( s h a k a i - t e k i bungyo) w h e r e i n t h e p r o d u c t i o n p r o c e s s i s f i n e l y d i s a g g r e g a t e d i n t o d i s t i n c t p r o c e s s e s c o r r e s p o n d i n g t o s e p a r a t e " s u b - i n d u s t r i e s " c o m p r i s e d o f d i s t i n c t t y p e s of f i r m s , o f t e n q u i t e s m a l l i n s i z e , and s p e c i a l i z e d i n o n l y one or a few of t h e s t a g e s o f p r o d u c t i o n . The p o l a r o p p o s i t e t o t h i s p a t t e r n would be e x e m p l i f i e d by 68 t h e c a s e where a l l or most o f t h e p r o d u c t i o n p r o c e s s e s a r e c a r r i e d out w i t h i n a s i n g l e e s t a b l i s h m e n t . Seen i n t h i s l i g h t , t h e n , " s a n c h i " can be t a k e n as a b r o a d e r t e r m r e f e r r i n g t o g e o g r a p h i c a l l y c o n c e n t r a t e d (and, o f t e n , r e g i o n a l l y d o m i n a n t ) i n d u s t r i e s d o m i n a t e d by S.M.E.I., w i t h t h e n a r r o w e r t e r m " j i b a s a n g y o " r e s e r v e d f o r t h o s e s a n c h i w h i c h d i s p l a y a h i g h l y d i f f e r e n t i a t e d s e t of p r o d u c t i o n p r o c e s s e s c a r r i e d o u t by v a r i o u s , s p e c i a l i z e d , e s t a b l i s h m e n t s d i f f u s e d t h r o u g h o u t t h e c o m m u n i t y . 5 " F i g u r e 4 i n d i c a t e s t h e names, p r o d u c t s , and l o c a t i o n s o f some r e p r e s e n t a t i v e J a p a n e s e s a n c h i . 3. GOVERNMENT POLICY AND INTERVENTION The J a p a n e s e government does not have a s i n g l e c o h e r e n t s e t of i n s t i t u t i o n s and p o l i c y - b a s e d i n t e r v e n t i o n s aimed a t t h e p r o b l e m of a d j u s t m e n t i n i n d u s t r i e s f a c i n g LDC c o m p e t i t i o n . T h e r e a r e , however, a s e t of i n s t i t u t i o n s and more g e n e r a l l y f o r m u l a t e d p o l i c i e s w h i c h s e r v e t o p r o v i d e a d j u s t m e n t a s s i s t a n c e t o a f f e c t e d i n d u s t r i e s . T h e s e i n s t i t u t i o n s and p o l i c i e s a r e o u t l i n e d i n some d e t a i l i n A p p e n d i x A. H e r e , a summary of t h e i r main c h a r a c t e r i s t i c s i s p r e s e n t e d . The c h a r a c t e r i s t i c s of t h e i d e n t i f e d i n d u s t r i e s i n d i c a t e s t h a t t h e a f f e c t e d i n d u s t r i e s a r e p r i m a r i l y t h o s e d o m i n a t e d by s m a l l - and m e d i u m - s i z e d e n t e r p r i s e s and t h e r e l e v a n t i n s t i t u t i o n s and p o l i c i e s a r e , t h e r e f o r e , l a r g e l y t h o s e a s s o c i a t e d w i t h t h e S m a l l - and M e d i u m - S i z e d E n t e r p r i s e Agency 5 * I t s h o u l d be n o t e d t h a t t h e s e d e f i n i t i o n a l d i s t i n c t i o n s a r e mine. They w o u l d not be u n i v e r s a l l y a c c e p t e d ( o r r e j e c t e d ) by J a p a n e s e s c h o l a r s . 69 F i g u r e 4 - Map Showing Names, Pr o d u c t s , and L o c a t i o n s f o r Some Japanese Sanchi K a w a g u c b i ( M o l d e d f o o d * ) Y o k o h a m a Scarves) T o k y o (Cigarette i ighter . T o y i . B i n o c u l a r i ) S h i m i z a ( C a n n e d tangerine) S h i r u n k a * ( O s m e t i c cab ine t . 0 Furn i tu re ) (>taka (Household sewing machine. B i t y c l e t , r i a l tit sandal* Umbrel las. T h e r m m ) I : 6 . 0 0 0 . 0 0 0 Source: Yamazaki, Mitsuru Japan's Community-based In d u s t r i e s : A'Case Study of Small Industry (Asian P r o d u c t i v i t y Organization, Tokyo, 1980). 70 (SMEA), or "Chushokigyo-cho", an agency of the M i n i s t r y of I n t e r n a t i o n a l Trade and Industry (MITI), or "Tsushosangyo-sho". In r e f l e c t i o n of the importance a t t a c h e d to SME i n Japan, there i s an ex t e n s i v e and i n t r i c a t e network of SME-oriented i n s t i t u t i o n s running from the f e d e r a l bureaucracy down to the g r a s s - r o o t s l e v e l . The i n s t i t u t i o n s can be roughly d i v i d e d i n t o f i n a n c i a l , o r g a n i z a t i o n a l , and c o n s u l t a t i v e / d e l i b e r a t i v e bodies. The "Big Three" ("San Kikan") of the SME-oriented f i n a n c i a l i n s t i t u t i o n s are, in terms of c a p i t a l i z a t i o n and loans o u t s t a n d i n g , as l a r g e as i f not l a r g e r than the big g e s t of the Japanese commercial banks. They p r o v i d e , i n the aggregate, the f u l l range of f i n a n c i a l s e r v i c e s to SME; ranging from the p r o v i s i o n of c r e d i t guarantees and insurance to f i n a n c i a l , managerial, and t e c h n i c a l c o n s u l t a t i o n and the p r o v i s i o n of venture c a p i t a l through e q u i t y investment. The o r g a n i z a t i o n a l i n s t i t u t i o n s promote the formation and e f f e c t i v e o p e r a t i o n of c o o p e r a t i v e and i n d u s t r y a s s o c i a t i o n s among SME and provide e d u c a t i o n a l , r e s e a r c h , and promotional s e r v i c e s to member f i r m s ; as w e l l as p r o v i d i n g f o r a f o r government-business c o n s u l t a t i o n and i n t e r a c t i o n that extend down to the l o c a l , g r a s s - r o o t s l e v e l . In a d d i t i o n , there are a number of d e l i b e r a t i v e / c o n s u l t a t i v e c o u n c i l s that are concerned with monitoring and recommending p o l i c y with respect to v a r i o u s s m a l l - and medium-sized e n t e r p r i s e dominated i n d u s t r i e s (SMEI). 71 The p o l i c i e s most r e l e v a n t to the adjustment problem are; 1. The SME Modernization and Advancement P o l i c y , 2. The SME Change of Business P o l i c y , and, 3. The Depressed Regional Industry P o l i c y . The p o l i c i e s g e n e r a l l y employ a s i m i l a r set of p o l i c y instruments (loans, guarantees, tax p r o v i s i o n s , g r a n t s , e t c.) but d i f f e r c o n s i d e r a b l y i n terms of t h e i r e l i g i b i l i t y requirements and i n the basic p o l i c y u n i t ( i n d u s t r y , r e g i o n , i n d i v i d u a l f i r m , e t c . ) to which they apply. A l l a p p l i c a n t s must be i n a government-designated set of e l i g i b l e i n d u s t r i e s and, i n some cases, must a l s o be based i n designated r e g i o n s of the country as w e l l . Some programmes r e q u i r e industry-wide agreement on an adjustment programme while others are a v a i l a b l e to small groups of firms or to i n d i v i d u a l f i r m s . O v e r a l l , the programmes are c h a r a c t e r i z e d by; the fo r m u l a t i o n of s p e c i f i c adjustment plans by the a p p l i c a n t (not the government), review of p r o p o s a l s and a d m i n i s t r a t i o n of the programmes by bodies which i n c o r p o r a t e l o c a l ( t h i r d - p a r t y ) business r e p r e s e n t a t i v e s , and an a p p a r e n t l y - d e t a i l e d a t t e n t i o n to the f e a s i b i l i t y of proposed p l a n s accomplishing a p p r o p r i a t e o b j e c t i v e s w i t h i n a short (say, f i v e year) p e r i o d of time. 72 IV. A CASE STUDY OF ADJUSTMENT: THE TSUBAME FLATWARE INDUSTRY 1 .. BACKGROUND TO THE TSUBAME FLATWARE INDUSTRY 1.1 N i i g a t a P r e f e c t u r e The longest r i v e r i n Japan, the Shinanogawa, tumbles down the western slopes of the mountain range that separates the east and west co a s t s of Honshu and then meanders more p l a c i d l y a c r o s s a wide f l o o d p l a i n i n c e n t r a l N i i g a t a to empty i n t o the sea near N i i g a t a c i t y , the c a p i t a l of the p r e f e c t u r e . The t r a i n from Tokyo p a r a l l e l s the r i v e r f o r much of i t s course through the f l o o d p l a i n and the p a s s i n g , panorama of f e r t i l e r i c e f i e l d s , broken o c c a s i o n a l l y by small towns and v i l l a g e s , c r e a t e s i n the f i r s t - t i m e v i s i t o r a sense of r u r a l t r a n q u i l l i t y which seems not f i v e hours, but decades removed from' the u r b a n - i n d u s t r i a l clamour of the Tokyo-Osaka i n d u s t r i a l b e l t . Despite a l l the m a t e r i a l comforts of modern r u r a l l i f e , people here, one can e a s i l y imagine, are l i v i n g a s t y l e of l i f e much c l o s e r to Japan's a g r a r i a n o r i g i n s . A s t y l e of l i f e , that i s , i n which the pace and rhythm of a c t i v i t y i s determined l a r g e l y by the seasons and the l o c a l weather and i n which people have an i n s u l a r focus upon t h e i r own, immediate, community. There may be some s l i g h t t r u t h to t h i s romantic image, but i t i s t e r r i b l y inadequate. T h i s i s a f t e r a l l , s u b s i d i z e d , not s u b s i s t e n c e , a g r i c u l t u r e and even the most i n s u l a r of r i c e - farmers cannot h e l p but have a keen i n t e r e s t i n the l e v e l s at which the c e n t r a l government i n Tokyo can be persuaded to support the p r i c e of r i c e and i n the success of the c e n t r a l 73 a u t h o r i t y ' s e f f o r t s to o f f l o a d excess domestic p r o d u c t i o n on the world market. Even more at odds with the r o m a n t i c - p a s t o r a l image of N i i g a t a are the pockets of i n d u s t r y d o t t e d about the c o u n t r y s i d e i n small towns and v i l l a g e s . There, the dependence on developments in f o r e i g n c o u n t r i e s and the l e v e l of awareness of changes i n f o r e i g n currency exchange r a t e s may f a r exceed that of the m a j o r i t y of Japanese l i v i n g i n the more cosmopolitan atmosphere of Tokyo. In no p l a c e i s t h i s more true than i n the small town of Tsubame which s i t s i n the middle of the Shinanogawa " r i c e b o w l " and i s , incongruously, the world's l a r g e s t s i n g l e p r o d u c t i o n c e n t r e f o r s t a i n l e s s s t e e l knives, f o r k s , and spoons. 1.2 Tsubame Tsubame began as a r i v e r p ort on the Shinanogawa i n the Kamakura era (1185-1333) and, together with the nearby town of Sanjo, prospered d u r i n g the Ashikaga p e r i o d (1392-1573) as a d i s t r i b u t i o n c e n t r e f o r the surrounding r e g i o n . 5 5 The area was s u b j e c t to frequent f l o o d i n g ( i t was, f o r example, inundated about once every three years between 1625 and 1875) and, d e s p i t e the fundamentally good a g r i c u l t u r a l f e r t i l i t y of the area the farmers l i v e d a p r e c a r i o u s e x i s t e n c e . Perhaps f o r that reason, when the surrounding p r o v i n c e of Echigo (present-day N i i g a t a ) 5 5 T h i s and other h i s t o r i c a l m a t e r i a l presented here i s p r i m a r i l y drawn from; S. Ikeda (ed.) N i i q a t a - k e n no Kinzoku Kako Sangyo [ l i m i t e d d i t r i b u t i o n ] U.N.U. Document No. HSDRJE-51J/UNUP-356 (United Nations U n i v e r s i t y , Tokyo, 1982); Kinzoku Yoshokki no Enkaku [mimeo] (Japan Metal Flatware Industry A s s o c i a t i o n , Tsubame, undated); and on p e r s o n a l i n t e r v i e w s i n Tsubame in September, 1980. 74 came under the d i r e c t c o n t r o l of the Tokugawa shogunate, Tsubame was developed by the shogunate as a c e n t r e f o r J a p a n e s e - s t y l e (hand-forged) n a i l p r o d u c t i o n p r o v i d i n g supplementary employment f o r the l o c a l farming p o p u l a t i o n . T h i s came to support, as w e l l , dozens of wholesale merchants and hundreds of a r t i s a n s with a more s i n g u l a r commitment to the i n d u s t r y . From t h i s foundation, the metalworking i n d u s t r y d i v e r s i f i e d i n t o the pr o d u c t i o n of copper v e s s e l s and smoking p i p e s , u t i l i z i n g ore from a nearby mountain, and developed a cadre of a r t i s a n s s k i l l e d i n d e c o r a t i v e techniques f o r ornamenting these a r t i c l e s . The p r o d u c t i o n of n a i l s , however, remained the dominant i n d u s t r y . The M e i j i R e s t o r a t i o n and the subsequent inflow of western products had a severe and u n r e m i t t i n g impact on Tsubame. The in f l o w of- machine-made (drawn) n a i l s decimated the l o c a l i n d u s t r y and f o r c e d the s u r v i v o r s to t r y to s h i f t p r o d u c t i o n i n t o such products as metal smoking p i p e s , metal w r i t i n g brush cases and copper ki t c h e n u t e n s i l s . However, these products a l s o s u f f e r e d from the s u c c e s s i v e i n t r o d u c t i o n from the west of; c i g a r e t t e smoking, the f o u n t a i n pen, and aluminum kitchenware. As a r e s u l t , Tsubame experienced a long p e r i o d of d e c l i n e from i t s e a r l i e r p o s i t i o n of r e l a t i v e p r o s p e r i t y . The c y c l e of d e c l i n e and b r i e f recovery through change to a new product was broken, i r o n i c a l l y , only when Tsubame reversed the p a t t e r n and began p r o d u c t i o n of a product of western o r i g i n . In 1914, samples of t a b l e knives and f o r k s from a Netherlands t r a d i n g company were sent to Tsubame by an Osaka 75 t r a d i n g company. I t proved p o s s i b l e to d u p l i c a t e them by means of t r a d i t i o n a l methods and t o o l s such as the hammer, saw, and f i l e . T h i s l e d to exports i n that year of 200 dozen u n i t s . 5 6 More modern methods employing metal r o l l i n g and p l a t i n g techniques and mechanized stamping equipment were soon int r o d u c e d and by 1921 some pro d u c t i o n had moved out of the households and i n t o small f a c t o r i e s . These, together with the wholesalers and cottage workers came to comprise the b a s i c u n i t s of a complex i n d u s t r i a l s t r u c t u r e woven i n t o the l o c a l economy. Development of the i n d u s t r y was aided i n no small measure by the d i s r u p t i o n s to western p r o d u c t i o n occasioned by the F i r s t World War. The extension of the n a t i o n a l r a i l w a y to Tsubame in 1922 g r e a t l y f a c i l i t a t e d the subsequent establishment of the region as an a c t i v e s u p p l i e r to the world market. Prewar pr o d u c t i o n peaked i n 1925 with shipments worth 3.5 m i l l i o n yen, of which 86% was exported. Production then s t e a d i l y d e c l i n e d as men, m a t e r i a l s , and equipment were i n c r e a s i n g l y d i v e r t e d i n support of Japan's war e f f o r t s . P r oduction of tableware ceased d u r i n g World War Two but recovered r a p i d l y i n the postwar p e r i o d with the i n i t i a l impetus f o r recovery being provided by p r o d u c t i o n to supply the army of occupation and, subsequently, the troops engaged in the Korean War. Around 1950, the i n d u s t r y switched from brass and chrome 5 6 There are a l t e r n a t i v e accounts of the d e t a i l s of Tsubame's e a r l y development as a s u p p l i e r of f l a t w a r e (see, f o r example, Kamikojima's account on page 27 of, Ikeda, op. c i t . . What seems c e r t a i n , i s that the i n i t i a l i n i t i a t i v e came from o u t s i d e of Tsubame. 76 s t e e l to s t a i n l e s s s t e e l as the b a s i c raw m a t e r i a l . Despite some i n i t i a l problems with q u a l i t y c o n t r o l , the Japanese s t e e l i n d u s t r y was soon able to provide s t a i n l e s s s t e e l of s u i t a b l e q u a l i t y and the i n d u s t r y began a p e r i o d of r a p i d expansion focussed p r i m a r i l y on the U.S.A. market. T h i s l e d to the im p o s i t i o n of quotas f o r the U.S.A. market f o r s t a i n l e s s s t e e l f l a t w a r e i n 1957. While t h i s l e d some producers to make s t r a t e g i c changes (some, f o r example, moved i n t o the pro d u c t i o n of s t a i n l e s s s t e e l housewares) most found that the r a t e of growth of the U.S.A. market p r o v i d e d them with s u f f i c i e n t o p p o r t u n i t i e s there d e s p i t e the e x i s t e n c e of quotas. T h e i r judgement appeared to be v i n d i c a t e d when the U.S.A. removed quotas i n the l a t t e r h a l f of the 1960's and ushered i n a golden age of even g r e a t e r p r o s p e r i t y f o r Tsubame. By 1970, Japan h e l d 69% of the U.S.A. import market and, in Tsubame (which accounted f o r more than 90% of Japanese p r o d u c t i o n ) , around 80% of the workforce was i n v o l v e d in one way or another i n the pr o d u c t i o n of s t a i n l e s s s t e e l c u t l e r y . The i n d u s t r y was both more prosperous and p e r v a s i v e than ever b e f o r e . A l l t h i s was to change, i n but a few yea r s , through a s e r i e s of developments so t h r e a t e n i n g as to r a i s e some qu e s t i o n as to whether t h i s i n d u s t r y , l i k e the n a i l i n d u s t r y before i t , might be f a t e d to wither away. 77 1.3 The S t r u c t u r e Of The Tsubame S t a i n l e s s S t e e l F l a t w a r e I n d u s t r y An u n d e r s t a n d i n g of t h e s t r u c t u r e of t h e Tsubame f l a t w a r e i n d u s t r y i s i m p o r t a n t f o r an u n d e r s t a n d i n g of b o t h Tsubame's p r o s p e r i t y and i t s s u b s e q u e n t p r o b l e m s . I t i s a l s o i m p o r t a n t , however, as an example of a p a t t e r n of o r g a n i z a t i o n and d e v e l o p m e n t t h a t i s f o u n d i n much of J a p a n e s e l i g h t i n d u s t r y ; e s p e c i a l l y t h a t c e n t r e d i n p r e d o m i n a n t l y r u r a l a r e a s . 1.3.1 The S o c i a l D i v i s i o n Of L a b o u r The m a n u f a c t u r e of even an a p p a r e n t l y s i m p l e p r o d u c t c an i n v o l v e a number of d i s t i n c t s t a g e s of p r o d u c t i o n . As F i g u r e 5 i n d i c a t e s , n e a r l y two dozen s t e p s c an be i n v o l v e d i n t h e p r o d u c t i o n o f a s p o o n . D e p e n d i n g on t h e t y p e and q u a l i t y o f t h e f l a t w a r e i n v o l v e d , as many as 42 p r o d u c t i o n s t a g e s c a n be i n v o l v e d . The t y p e of equipment employed c a n , w i t h i n l i m i t s , a f f e c t t h e t h e t o t a l number of s t e p s r e q u i r e d . F o r example, t h e more p o w e r f u l (and e x p e n s i v e ) t h e f o r g i n g equipment u s e d ; t h e c l e a n e r i s t h e r e s u l t and t h e fewer t h e number of s u b s e q u e n t l y r e q u i r e d f i n i s h i n g o p e r a t i o n s . In Tsubame, s u c h t r a d e - o f f s have g e n e r a l l y been r e s o l v e d i n f a v o u r of s m a l l e r - s c a l e equipment and more p r o d u c t i o n s t a g e s . I n c o n c e r t w i t h t h i s , t h e r e has been an e l a b o r a t e d i v i s i o n of r e s p o n s i b i l i t y f o r t h e v a r i o u s p r o d u c t i o n s t a g e s among f i r m s i n a v a r i e t y of n a r r o w l y s p e c i a l i z e d " s u b - i n d u s t r i e s " w h i c h a r e s o l e l y engaged i n , f o r example; mold p r o d u c t i o n , d i e c a s t i n g , f o r g i n g , e l e c t r o p l a t i n g , o r p o l i s h i n g . F i g u r e 6 i l l u s t r a t e s t h e 78 Figure 5 - Production Stages for a S t a i n l e s s Steel Spoon (Tsubame, Japan) 2. E 3 4. • 7 SB B L J 1 13. 3 14H w 3 - = ± C 16. 19, (a) (b) (c) WJ B E 20. 21. 22. 23. 1. 2. 3. 4. 5. 6. 7. 8. 9. I n . 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. Cutting out blanks. Grinding blanks. Cutting out rough shape. Rolling out bowl material (rough). Acid Bath cleansing. E l e c t r o l y t i c polishing. Rolling out bowl material ( f i n i s h ) . Heat treatment. Acid Bath cleansing. Rough shaping of handle. Embossing of handle pattern. Cutting bowl material to size. Grinding bowl blank. Polishing bowl blank. Pressing out bowl of spoon. Surface buffing. Inspection. Rough polishing. F i n i s h polishing: a) E l e c t r o l y t i c polishing. or b) Lathe polishing. or c) Barrel polishing. Cleansing Hand polishing and f i n a l inspection. Packaging. Crating for export. Source Ikeda (ed.) op. cit. 79 major s u b - i n d u s t r i e s i n Tsubame and t h e i r i n t e r r e l a t i o n s h i p s . F i g u r e 7 shows t h e major p a t t e r n s of s u b c o n t r a c t i n g b o t h i n t e r n a t i o n a l l y and w i t h i n Tsubame. The downstream d i s t r i b u t i o n and m a r k e t i n g c a p a b i l i t y o f t h e i n d u s t r y i s m i n i m a l and o n l y r a r e l y e x t e n d s beyond l o c a l w h o l e s a l e r s and J a p a n e s e t r a d i n g c o m p a n i e s b a s e d i n T o k y o , Osaka, and Nagoya. A c r u c i a l s t r a t e g i c r o l e i s p l a y e d by a s u b s e t of f i r m s w h i c h a c t as t h e i n t e r f a c e between t h e Tsubame i n d u s t r y and t h e downstream w h o l e s a l e r s , t r a d i n g c o m p a n i e s and f o r e i g n b u y e r s . W h i l e some of t h e s e c e n t r a l f i r m s r e l y on b o t h i n t e r n a l p r o d u c t i o n and s u b c o n t r a c t o r s , o t h e r s depend a l m o s t e n t i r e l y upon s u b c o n t r a c t o r s f o r p r o d u c t i o n . The s u c c e s s of t h e s e c e n t r a l f i r m s , and e s p e c i a l l y t h o s e o f t h e l a t t e r t y p e , depends upon t h e i r c o n t a c t s , i n f o r m a t i o n , and c o o r d i n a t i n g s k i l l s and r e q u i r e s n o t o n l y an i n t i m a t e knowledge o f Tsubame's i n d u s t r i a l s t r u c t u r e but a l s o a d e g r e e o f f a m i l i a r i t y w i t h downstream s a l e s c h a n n e l s . T h e r e i s a h i g h d e g r e e o f c o m p e t i t i o n among f i r m s i n a l l s u b - i n d u s t r i e s b u t t h e s e c e n t r a l , c o o r d i n a t i n g , f i r m s compete n o t o n l y f o r downstream c u s t o m e r s but a l s o f o r t h e s e r v i c e s o f u p s t r e a m s u b c o n t r a c t o r s . As an example, one c e n t r a l f i r m s t u d i e d by K a m i k o j i m a 5 7 r e p o r t e d t h a t t h e p r o d u c t i o n o f a medium-grade spoon i n v o l v e d i n - h o u s e i n v o l v e m e n t i n s t a g e s 1. 3. 4. 11. 12. 15, 20, 21, and 23 (see p r e c e d i n g f i g u r e ) ; w i t h t h e r e m a i n i n g s t a g e s b e i n g l e t o u t t o v a r i o u s s u b c o n t r a c t o r s . 5 7 S. I k e d a (ed.) , op. c i t . p. 46 80 F i g u r e 6 - P a t t e r n s of S u b c o n t r a c t i n g ; I n t e r n a t i o n a l l y and i n Tsubame [Western Manufact- urers (e.g. WMF, West Germany)) Top Grade High Grade Medium Grade Low Grade Internat- i o n a l Sub contracting!! .Japan Japan, Korea, Taiwan Japan,. Korea Japanese Industry (Tsubame) Semi-Integrated Sub-Contractors .Other Manufacturers (15%) High Grade -> 3f- Selected C a p i t a l - or Skill-intensiv-fe Production Stages liiaoour- intensive prod+ uction staSes 1 (85%) Medium. & low grade '/////////MM \\ E x p a n d i n g . 1 0 " V ° 1 U m e ' h i 9 h V " i a t y l l n 6 S 3 n d K O r e a f o r h i * h • low v a r i e t y l i n e s . 3. D e c l i n i n g . Source: Interviews, Japan Metal FI atware Industry A s s o c i a t i o n ; September 1980 F i g u r e 7 81 P a r t i c i p a n t s and P a t t e r n s of P r o d u c t i o n i n the Tsubame F l a t w a r e I n d u s t r y S t a i n l e s s S t e e l S uppliers Major Contractors Semi-integrated Manufacturers Manufacturing Wholesalers Intermediate Production Forge Operators Power Press Operators E l e c t r o p l a t e r s Welders Mold & Die Producers P l a s t i c Parts P roduc e rs Packaging M a t e r i a l s S M D D I i o r s Scrap Metal Dealers Secondary Intermediate Processing Rough Blank Cutting Rough P o l i s h i n g E l e c t r o l y t i c p n l i i h i n c f Blade Sharpening F i n i s h P o l i s h i n g Source: Adapted from Kinzoku Yoshokki no Enkaku [undated, mimeo.] (Japan Metal Flatware A s s o c i a t i o n , Tsubame) 82 D i f f e r e n c e s among t h e v a r i o u s s u b - i n d u s t r i e s a r e n o t c o n f i n e d t o t h e i r d i f f e r e n t r o l e s and s t r a t e g i c i m p o r t a n c e ; t h e y d i f f e r a l s o i n t h e s c a l e of t h e i r o p e r a t i o n s and t h e n a t u r e o f t h e i r p a r t i c i p a n t s . In p a r t i c u l a r , t h e more l a b o u r - i n t e n s i v e o p e r a t i o n s , s u c h as p o l i s h i n g , a r e d o m i n a t e d by v e r y s m a l l - s c a l e c o t t a g e i n d u s t r y i n and a r o u n d Tsubame. Thus, w h i l e t h e a v e r a g e s c a l e of o p e r a t i o n s (1978) i n t h e s t a i n l e s s s t e e l f l a t w a r e i n d u s t r y , p e r s e , i s o n l y 9.8 p e r s o n s p e r e s t a b l i s h m e n t t h i s i s , n e v e r t h e l e s s , more t h a n f o u r t i m e s t h e a v e r a g e s c a l e i n t h e m e t a l p o l i s h i n g s u b - i n d u s t r y (2 .3 p e r s o n s p e r e s t a b l i s h m e n t ) ; i n w h i c h more t h a n 70% o f e s t a b l i s h m e n t s a r e o p e r a t e d by i n d i v i d u a l s and f a m i l y w o r k e r s . T h e s e p e t t y c o t t a g e - b a s e d f a m i l y f i r m s a r e p r e d o m i n a n t l y o p e r a t e d by members of t h e s u r r o u n d i n g f a r m i n g community, w h i c h a l s o p r o v i d e s much of t h e l a b o u r f o r t h e l a r g e r f a c t o r i e s . Between 1955 and 1965, t h e r e was a d i f f u s i o n of s i m p l e i n d u s t r i a l o p e r a t i o n s o ut i n t o t h e c o u n t r y s i d e . T h i s t y p i c a l l y i n v o l v e d t h e p u r c h a s e of some s m a l l - s c a l e equipment and m a c h i n e r y , sometimes f i n a n c e d by t h e s a l e o f a p o r t i o n o f t h e f a m i l y f a r m . In t h i s way, t h e s u r r o u n d i n g a g r i c u l t u r a l community has p r o v i d e d , n ot o n l y a s u p p l y of l o w - c o s t l a b o u r , but has a l s o made a s i g n i f i c a n t i n c r e m e n t t o t h e c a p i t a l s t o c k of t h e i n d u s t r y . W h i l e t h e i n t e r d e p e n d e n c e among s u b - i n d u s t r i e s i s g r e a t , i t d i d n o t l e a d t o t h e f o r m a t i o n of permanent c o n s o r t i a o r t o c o r p o r a t e g r o u p s s p a n n i n g t h e v a r i o u s p r o d u c t i o n s t a g e s . R e l a t i o n s h i p s between u p s t r e a m and downstream f i r m s w i t h i n t h e 83 i n d u s t r y are, r a t h e r , extremely f l u i d . T h i s i s due i n no small measure to the a c t i v i t i e s of the pr o d u c t i o n c o o r d i n a t i o n sub- i n d u s t r y d i s c u s s e d e a r l i e r . These f i r m s , and e s p e c i a l l y those engaged i n l i t t l e or no d i r e c t p r o d u c t i o n themselves, both make p o s s i b l e and depend upon a complex web of independent and h i g h l y c o m p e t i t i v e s u b - i n d u s t r i e s and f i r m s . 1.3.2 Product V a r i e t y , Design, And D i s t r i b u t i o n While there i s some f u n c t i o n a l v a r i e t y between v a r i o u s types of k n i f e , f o r k , and spoon (e.g., soup spoons, teaspoons sugar spoons, baby spoons, e t c . ) ; there i s a f a r grea t e r v a r i e t y in the q u a l i t y and s t y l e s of each of these. The i n d u s t r y a s s o c i a t i o n operates a program f o r members to r e g i s t e r f l a t w a r e designs and i n 1980 there were around 13,000 d i s t i n c t designs r e g i s t e r e d . 5 8 A c t u a l v a r i e t y i n s t y l e i s , of course, even g r e a t e r . By way of example, one l o c a l w h o l e s a l e r / p r o d u c t i o n c o o r d i n a t o r handles a t o t a l of 4,000 items with a s t a f f of 36 people and i s a c t i v e l y i n v o l v e d i n d i s t r i b u t i n g around 750 of these items at any one t i m e . 5 9 Q u a l i t y v a r i e t y i s a l s o c o n s i d e r a b l e and r e f l e c t s , among other t h i n g s , d i f f e r e n c e s i n the q u a l i t y of s t e e l used. Up u n t i l the l a t t e r h a l f of the 1960's, the Tsubame i n d u s t r y r e c e i v e d s p e c i f i c a t i o n s of q u a l i t y , design and t a r g e t p r i c e almost e x c l u s i v e l y from 100 or so small export t r a d i n g 5 8 Interview, September, 1980. 5 9 Ikeda, op. c i t . , p. 56; These t o t a l s probably i n c l u d e some s t a i n l e s s s t e e l hollow-wares (pots, bowls, e t c.) i n a d d i t i o n to f l a t w a r e . 84 companies based in Tokyo, Nagoya, and Osaka which acted as l i a s o n f o r f o r e i g n buyers. The l o c a l sanchi-based w h o l e s a l e r / c o o r d i n a t o r s were p r i m a r i l y i n v o l v e d i n forwarding and e x p e d i t i n g orders f o r these e x p o r t e r s and i n s e r v i c i n g the small domestic market through urban-based w h o l e s a l e r s . Rapid growth and i n c r e a s e d p e n e t r a t i o n of f o r e i g n markets induced some changes d u r i n g the 1960's. In p a r t i c u l a r , the i n d u s t r y came to the a t t e n t i o n of wholesalers based i n f o r e i g n markets who i n c r e a s i n g l y looked to Japan as a source of supply and sought to e s t a b l i s h more d i r e c t t i e s with the producers. U l t i m a t e l y , f o r e i g n manufacturers such as WMF, i n Germany, and Oneida, i n the U.S.A., turned to Tsubame as a s u p p l i e r of (medium- and higher-grade) items in the lower p r i c e range of t h e i r product l i n e s . In the case of European c o u n t r i e s , the i n s e r t i o n of Japanese-made items i n t o the product l i n e "was p a r t i c u l a r l y easy f o r the l o c a l manufacturers because of the absence of any " c o u n t r y - o f - o r i g i n " l a b e l l i n g requirements. T h i s c o u l d have been an o p p o r t u n i t y f o r the Tsubame i n d u s t r y to shorten i t s d i s t r i b u t i o n channels to the major overseas markets and f o r some of the firms i n the i n d u s t r y to e s t a b l i s h a c o r p o r a t e i d e n t i t y w i t h i n those markets. T h i s , i n t u r n , c o u l d have been expected to l e a d to a r a t i o n a l i z a t i o n of the i n d u s t r y . By and l a r g e , t h i s d i d not happen. C e r t a i n l y , by the end of the 1960's, Tsubame was producing a wider q u a l i t y range; running from the u t i l i t y - g r a d e s found in f a c t o r y lunchrooms and s c h o o l s , to the lower reaches of the premium q u a l i t y products of the famous western manufacturers. 85 P r a c t i c a l l y a l l of t h i s p r o d u c t i o n was, however, marketed under the brand names of western producers and d i s t r i b u t o r s or as unbranded, u t i l i t y - g r a d e , product. Thus, while s u r p a s s i n g the t r a d i t i o n a l western i n d u s t r i e s i n q u a n t i t a t i v e t e r m s 6 0 (and, i n c r e a s i n g l y , matching t h e i r q u a l i t y as w e l l ) ; Tsubame, l e t alone i t s manufacturers, remained unknown to the f i n a l users of i t s product. Thus, Tsubame entered the 1970's as a much l a r g e r i n d u s t r y but with a s t r u c t u r e of p r o d u c t i o n and d i s t r i b u t i o n that was l i t t l e changed from that of the e a r l y 1960's. A major reason for t h i s l a c k of change was the impact of the quotas imposed with re s p e c t to the overwhelmingly dominant U.S.A. export market. 1.3.3 Quotas And Tsubame's I n d u s t r i a l S t r u c t u r e By 1956, Tsubame's exports to the U.S.A. amounted to j u s t under 6 m i l l i o n dozen s t a i n l e s s s t e e l knives, f o r k s , and spoons. The U.S.A. i n d u s t r y was thrown i n t o a s t a t e of near panic by the inundation of t h e i r home market by Japanese producers and l o b b i e d v i g o u r o u s l y f o r p r o t e c t i o n . The Japanese Fo r e i g n O f f i c e and MITI took an intense i n t e r e s t in these p r o t e s t s because of the fear that U.S.A. i m p o s i t i o n of import r e s t r a i n t s would set a precedent f o r other and more n a t i o n a l l y c r u c i a l Japanese exports to that market. 6 0 Chusho Kigyo Kinyu Geppo , op. c i t . (1979, 1-6) c l a i m s the f o l l o w i n g 1979 p r o d u c t i o n c a p a c i t i e s , i n m i l l i o n dozen; U.S.A., 12.0; West Germany, 2.5; Japan, 75.0; Korea, 37.1; and Taiwan, 13.6. 86 In 1957, i n an e f f o r t to f o r e s t a l l U.S.A. a c t i o n , an export adjustment c o o p e r a t i v e was formed under t h e . p r o v i s i o n s of the Export-Import T r a d i n g Law 6 1 and t h i s evolved in the f o l l o w i n g year i n t o the i n d u s t r y a s s o c i a t i o n which p e r s i s t s today. Under the d i r e c t i o n of MITI i t was decided to e s t a b l i s h a self-imposed quota system with r e s p e c t to the U.S.A. market. While MITI's i n i t i a l impulse was to e s t a b l i s h a simple system of pr o d u c t i o n quotas f o r the U.S.A. market, i t had not reckoned on the s t r u c t u r a l complexity of Tsubame's p r o d u c t i o n and d i s t r i b u t i o n systems. As p r e v i o u s l y i n d i c a t e d , the s t r u c t u r e was, and i s , complex. Le t , f o r the present, those firms whose pro d u c t i o n a c t i v i t i e s encompass, among other t h i n g s , the f i n a l packaging of the product be termed "manufacturers"; and c o n s i d e r a l l other firms i n v o l v e d i n the a c t u a l p r o d u c t i o n process as " s u b c o n t r a c t o r s " . A s i m i l a r dichotomy can be formed on the d i s t r i b u t i o n s i d e to d i s t i n g u i s h between "wholesalers", who are i n v o l v e d in moving orders i n t o and product out of the sa n c h i , and " e x p o r t e r s " , who manage the a c t u a l s a l e and shipment of the product to the U.S.A. market. At the time of establishment of the quota system there were some s u b c o n t r a c t o r s who were, i n f a c t , l a r g e r than the manufacturers they d e a l t with. Moreover, among the manufacturers, there were some who disposed of t h e i r output l o c a l l y , to wh o l e s a l e r s , as w e l l as others who shipped t h e i r 6 1 Yushutsunyu T o r i h i k i - h o ; S e c t i o n 3, A r t i c l e 5: see, Tsusho Rokuho (MITI, Tokyo, 1980) p 127. 87 o u t p u t t o e x p o r t e r s i n p o r t c i t i e s . Some few of t h e m a n u f a c t u r e r s a p p a r e n t l y even engaged i n a l i m i t e d amount of d i r e c t e x p o r t s t o b u y e r s i n t h e U.S.A.. m a r k e t . So t o o , on t h e d i s t r i b u t i o n s i d e , some a c t e d s i m p l y as p u r e w h o l e s a l e r s and i n t e r m e d i a t e d between m a n u f a c t u r e r s ( o r s u b c o n t r a c t o r s ) and t h e e x p o r t e r s i n p o r t c i t i e s , w h i l e o t h e r s a l s o engaged i n d i r e c t e x p o r t a c t i v i t i e s f r o m a base w i t h i n t h e s a n c h i . In a d d i t i o n , t h e r e were u r b a n - b a s e d f i r m s who were p u r e e x p o r t e r s , t o t a l l y s p e c i a l i z e d i n e x p o r t t r a d i n g , and w i t h no d i r e c t i n v o l v e m e n t i n Tsubame, i t s e l f . F i g u r e 8 i l l u s t r a t e s g r a p h i c a l l y some of t h i s v a r i e t y . I t i s p a r t i c u l a r l y n o t a b l e t h a t t h e r e were v e r y few f i r m s t h a t i n t e g r a t e d t h e i r a c t i v i t i e s a c r o s s t h e e n t i r e s p e c t r u m from m a n u f a c t u r i n g t o d i s t r i b u t i o n t o e x p o r t i n g . T h u s , t h e i m p o s i t i o n of a s y s t e m t h a t v e s t e d q u o t a s s o l e l y i n t h e " m a n u f a c t u r e r s " would c r e a t e a tremendous s h i f t i n r e l a t i v e power and p r o s p e r i t y . M o r e o v e r , i t would n o t r e f l e c t p a r t i c i p a n t s ' r e l a t i v e c o n t r i b u t i o n s t o t h e p r e v i o u s d e v e l o p m e n t of t h e e x i s t i n g e x p o r t m a r k e t . C l e a r l y , any s y s t e m t h a t was t o e q u i t a b l y meet t h e demands of t h e m a j o r i t y o f e x i s t i n g p a r t i c i p a n t s i n t h e U.S.A. market would have t o r e f l e c t t h e i r v a r i e t y . In t h e e v e n t , t h r e e p a r a l l e l q u o t a s y s t e m s were e s t a b l i s h e d ; one e a c h f o r p r o d u c t i o n , s h i p p i n g ( w h o l e s a l i n g ) , and e x p o r t i n g . The g e n e r a l f u n c t i o n i n g o f t h e s e s y s t e m s i s i n d i c a t e d i n F i g u r e 9. As t h e d i a g r a m i n d i c a t e s , however many f i r m s were i n v o l v e d , t h e p r o d u c t needed t o p i c k up a l o n g t h e way a f u l l complement of p r o d u c t i o n , s h i p p i n g , and e x p o r t e n t i t l e m e n t s . 88 F i g u r e 8 - V a r i e t y i n P a r t i c i p a n t s ' F u n c t i o n a l Scope; Tsubame Foreign Importers Exporters Direct Exporting Manufacturers Wholesalers Manufac- turers Sub-contractors Source: Compiled by author on basis of interviews at Tsubame in September 1980. 89 F i g u r e 9 - Product D i s t r i b u t i o n Under a Quota System: Tsubame Manufacturers with Production Quotas Subcontractors and Sub-industry S p e c i a l i s t s Manufacturers without Production Quotas Wholesalers with Shipping Quotas Manufacturers with Production and Shipping Quotas As above plus Export Quotas 30% 60% 10% 90% Trading Firms with Export Quotas U.S.A. D i s t r i b u - •s tors & Importers ? R e t a i l e r s 10% U.S.A. (Quota System) Domestic (No Quota System) L o c a l Manufacturers Urban Wholesalers R e t a i l e r s Note: Percentages i n d i c a t e r e l a t i v e volume of t o t a l f o r export and f o r domestic s a l e s . Sources: The pattern of d i s t r i b u t i o n i s derived from industry a s s o c i a t i o n m a t e r i a l . The percentage f i g u r e s are estimates based on the various (and sometimes c o n f l i c t i n g ) studies referenced i n the text. 90 The i n i t i a l l e v e l of quotas set i n 1957 w i t h i n the Japanese i n d u s t r y was 5.9 m i l l i o n dozen. Despite t h i s self-imposed export quota system, the U.S.A. d i d impose import quotas i n 1959 which, except for the years from 1966 to 1971 i n c l u s i v e , l a s t e d u n t i l 1975. The quotas set by f o r e i g n c o u n t r i e s , and r e v i s e d from time to time, then set the standard to which the domestic Japanese quota system was c o o r d i n a t e d . 6 2 The U.S.A. quota system a p p l i e d to low - p r i c e d tableware and was sanctioned by a 40% surcharge to normal d u t i e s on a l l imports above the quota maximum (a " t a r i f f - q u o t a " ) . The Japanese quota system, which was modelled on the pre- e x i s t i n g s t r u c t u r e s of p r o d u c t i o n and d i s t r i b u t i o n , continued to be the system of d i r e c t r elevance f o r the i n d u s t r y . At the same time, however, i t served to fre e z e these s t r u c t u r e s i n t o p l a c e and to i n h i b i t any fundamental r e o r g a n i z a t i o n of the i n d u s t r y . 1.3.4 Summary Tsubame's i n d u s t r i a l development i s a good example of the development of r u r a l i n d u s t r y i n response to an underemployed a g r i c u l t u r a l workforce. In the modern era, the Japanese network of s m a l l - s c a l e t r a d i n g companies enabled Tsubame to v a s t l y expand i t s p o t e n t i a l by p r o v i d i n g a l i n k with f o r e i g n markets. In t h i s way, Tsubame was abl e to be s u c c e s s f u l i n a product and in markets i n which i t would otherwise have never been i n v o l v e d . 6 2 F o l l o w i n g the U.S.A., quotas were imposed by many other Western c o u n t r i e s i n c l u d i n g ; Canada, France, I t a l y , the U.K., the Benelux c o u n t r i e s , Norway, West Germany, Denmark, and Greece. (Japan Metal Flatware Ind u s t r y A s s o c i a t i o n , undated mimeo.). 91 The h i g h l y disaggregated p r o d u c t i o n system evolved from a t r a d i t i o n of s m a l l - s c a l e cottage i n d u s t r y but has undoubtedly been supported in the postwar p e r i o d by the n a t i o n a l government's support of r i c e p r i c e s . T h i s has served to maintain a p o p u l a t i o n of under-employed p e t t y farmers which c o n t r i b u t e low-cost labour and s m a l l - s c a l e c a p i t a l to the Tsubame f l a t w a r e i n d u s t r y . T h i s p r o d u c t i o n system brought with i t c e r t a i n advantages. It f a c i l i t a t e d the u t i l i z a t i o n of low-cost labour which was p a r t i a l l y employed i n a g r i c u l t u r e and, i n l a t e r years, was able to a t t r a c t p e t t y c a p i t a l investment from that same group. With respect to the s t a i n l e s s s t e e l f l a t w a r e i n d u s t r y , i t s e l f , the system d i s p l a y e d a high degree of r e s i l i e n c y i n r e a c t i n g to v a r i a t i o n s i n business c o n d i t i o n s and f l e x i b i l i t y i n coping with wide v a r i a t i o n s i n the l o t s i z e of o r d e r s . T h i s l a t t e r f l e x i b i l i t y was due i n l a r g e measure to the presence of a l a r g e number of firms i n v o l v e d e x p l i c i t l y i n c o o r d i n a t i n g the v a r i o u s p a r t s of the p r o d u c t i o n system and to the l a r g e number of p e t t y p a r t i c i p a n t s who were only p a r t i a l l y dependent on the i n d u s t r y . Thus, the system of d i s a g g r e g a t e d p r o d u c t i o n and d i s t r i b u t i o n systems was not without c o n s i d e r a b l e s t r e n g t h s ; to which Tsubame's postwar success a t t e s t s . N e v e r t h e l e s s , the system might have been expected to undergo c o n s i d e r a b l e change in the face of the growth and o p p o r t u n i t i e s presented to the i n d u s t r y i n the 1960's. The f a c t that i t d i d not i s l a r g e l y a t t r i b u t a b l e to the i m p o s i t i o n of quota systems in the l a t e 1950's which had the e f f e c t of i n s t i t u t i o n a l i z i n g the s t r u c t u r a l 92 s t a t u s quo. The s u c c e s s e s of t h e 1960's s u g g e s t t h a t t h e s e p r e - e x i s t i n g s t r u c t u r e s were, by and l a r g e , a b l e t o cope w i t h u n p r e c e d e n t e d g r o wth o p p o r t u n i t i e s . I t was l e s s e v i d e n t t h a t t h e y c o u l d cope w i t h t h e e n v i r o n m e n t a l c h a n g e s t h e i n d u s t r y came t o f a c e i n t h e 1970's. 2. ENVIRONMENTAL CHANGE AND THE ADVENT OF ASIAN NIC COMPETITION In t h e 1970's, a number o f d o m e s t i c and i n t e r n a t i o n a l e n v i r o n m e n t a l c h a n g e s , t o g e t h e r w i t h t h e a d v e n t of f o r m i d a b l e c o m p e t i t i o n from t h e A s i a n NICs, t h r e a t e n e d t h e p r o s p e r i t y , i f not t h e c o n t i n u e d e x i s t e n c e , of t h e Tsubame f l a t w a r e i n d u s t r y . 2.1 E n v i r o n m e n t a l Change In p o s t w a r J a p a n , i n i t i a l i n d u s t r i a l i z a t i o n was c o n c e n t r a t e d i n t h e p r e - e x i s t i n g i n d u s t r i a l h e a r t l a n d , but t h e r e has been a s t e a d y d i f f u s i o n of i n d u s t r i a l a c t i v i t y o'ut i n t o t h e r u r a l h i n t e r l a n d ( s e e F i g u r e 1 0 ) . More r e c e n t l y , a h i g h - s p e e d n a t i o n a l highway and t h e new J o e t s u S h i n k a n s e n " b u l l e t t r a i n " make Tsubame an even more a t t r a c t i v e i n d u s t r i a l l o c a t i o n . As a r e s u l t , p r e - e x i s t i n g p o c k e t s of r u r a l i n d u s t r y , s u c h as Tsubame, have f a c e d i n c r e a s i n g c o m p e t i t i o n f o r l a b o u r f r o m o t h e r i n d u s t r i e s w h i c h have moved i n t o t h e i r r e g i o n s . A t t h e same t i m e , t h e s i z e o f t h e u n d e r e m p l o y e d a g r i c u l t u r a l w o r k f o r c e has shown a s t e a d y d e c r e a s e and t h e a v e r a g e age o f i t s r e m a i n i n g members has s t e a d i l y r i s e n . A l l t h i s has t e n d e d t o b i d up t h e wage l e v e l f o r t h e f l a t w a r e i n d u s t r y . The a d d i t i o n o f o t h e r , new, i n d u s t r i e s i n t h e r u r a l a r e a s may a l s o have made l o c a l m u n i c i p a l i t i e s l e s s d e p e n d e n t upon t h e t r a d i t i o n a l l o c a l F i g u r e 10 - Changing R e g i o n a l C o n t r i b u t i o n s to Japanese I n d u s t r i a l i z a t i o n Note The shaded areas represent regions (prefectures) which increased t h e i r share of the n a t i o n a l i n d u s t r i a l workforce i n each p e r i o d . Source Osono, et a l , Chiho no J i d a i to Kogyo no S a i h a i c h i (Toyo K e i z a i Shinposha, Tokyo, 1980). 94 i n d u s t r y and, thus, l e s s indulgent towards any e x t e r n a l diseconomies they imposed upon the community. C e r t a i n l y , i n Tsubame, the i n d u s t r y faced s t e a d i l y i n c r e a s i n g labour c o s t s and, i n the l a t t e r h a l f of the 1960's, strong p r e s s u r e s from government to move the n o i s e , v i b r a t i o n , and t r a f f i c a s s o c i a t e d with p r o d u c t i o n out of the c e n t r a l areas of the town. For a l l t h e i r undoubted impact, these l o c a l environmental changes were l e s s important than i n t e r n a t i o n a l environmental change. The i n d u s t r i a l i z e d c o u n t r i e s , i n c l u d i n g Japan, undertook i n the l a t e 1960's to provide e a s i e r access to t h e i r markets f o r LDC manufactures. T h i s r e s u l t e d , the 1970's, i n p r e f e r e n t i a l r a t e s of t a r i f f which i n c r e a s e d the al r e a d y c o n s i d e r a b l e p r i c e - c o m p e t i t i v e n e s s of LDC manufactures. For s t a i n l e s s s t e e l f l a t w a r e , the U.S.A. and the European Economic Community i n t r o d u c e d such t a r i f f p r e f e r e n c e s i n 1972 6 3 and thus i n c r e a s e d Japan's exposure to competition from the LDCs. When the Nixon a d m i n i s t r a t i o n broke the l i n k between the U.S.A. d o l l a r and gold, pressure i n c r e a s e d f o r an upward r e v a l u a t i o n of the Japanese Yen; which had, h i t h e r t o , been pegged to a f i x e d exchange r a t e with the U.S.A. d o l l a r (360 Japanese Yen per U.S. D o l l a r ) . In February, 1973, the Japanese government p l a c e d the Yen onto a f l o a t i n g exchange r a t e b a s i s and the r a t e v i s - a - v i s the U.S.A. d o l l a r (and most other c u r r e n c i e s ) rose c o n s i d e r a b l y . T h i s had the e f f e c t of f u r t h e r 6 3 These were s u b j e c t , however, to r e s t r i c t i v e volume quotas so that the p r e f e r e n t i a l t a r i f f s a p p l i e d only to 15% or so of t o t a l LDC exports of f l a t w a r e to those markets. 95 i n c r e a s i n g the r e l a t i v e p r i c e of Tsubame's output i n the major export markets The immediate impact of t h i s was modulated somewhat by the U.S.A.'s r e - i m p o s i t i o n of import quotas i n 1971. Th i s was a country-based quota system with a g l o b a l maximum and Japan was awarded 70% of the g l o b a l amount. However, the u l t i m a t e impact of the i n c r e a s e d r e l a t i v e p r i c e of the Japanese product, when the U.S.A. removed quotas i n 1975, was a l l the more dramatic as new low-cost producers i n the Asian NICs r a p i d l y captured market share from the Japanese i n d u s t r y . 2.2 The Advent Of LDC Competition Japan's share (by value) of the U.S.A. import market f o r s t a i n l e s s s t e e l f l a t w a r e f e l l , between 1970 and 1976, from 69% to 42%. 6" The vast m a j o r i t y of t h i s l o s s of share was a t t r i b u t a b l e to gains i n share by the s t a i n l e s s s t e e l f l a t w a r e i n d u s t r i e s of Taiwan and, e s p e c i a l l y , South Korea. Table 9 presents some comparative data f o r the major firms i n the fl a t w a r e i n d u s t r i e s of Japan, Korea, and Taiwan. Of these i n d u s t r i e s , the most dynamic i s that of South Korea, the low- cost producer. Korean exports of f l a t w a r e amounted to only $430,000. i n 1970 but r a p i d l y rose i n value to $40 m i l l i o n i n 1975, $75 m i l l i o n i n 1976, $116 m i l l i o n i n 1977, and $127 m i l l i o n i n 1978. 6 5 The Korean share i n i t s major market, the U.S.A., showed 6 * Chiho J i s e i Geppo ( M i n i s t r y of Finance, Kanto O f f i c e ; Tokyo, August 1978) p 11. 6 5 Kankoku n i Okeru Kinzoku Yoshokki Sangyo [ l i m i t e d d i s t r i b u t i o n ] (JETRO, Tokyo, 1979) p 4. Table 9 - Comparison of Major Firms in the Flatware I n d u s t r i e s of Japan, Korea, and Taiwan; c i r c a 1974-75 97 s i m i l a r l y r a p i d growth. The Korean i n d u s t r y i n i t i a l l y c o n c e n t r a t e d almost e x c l u s i v e l y on producing low-grade (e.g., No. 13 Chrome s t e e l ) f l a t w a r e s o l d i n bulk. Within a short time, however, i t was a l s o competing in the market for higher grade (e.g., No. 18 and No. 18-8 s t e e l ) 6 6 f l a t w a r e and boxed s e t s of f l a t w a r e . I t was h i g h l y dependent upon imports of s t a i n l e s s s t e e l from Japan but has a p p a r e n t l y reduced t h i s dependence somewhat i n the l a t t e r h a l f of the 1970's with an increase i n domestic procurement and a p a r t i a l s h i f t to other, lower-cost, f o r e i g n s u p p l i e r s i n West Germany and the U.K. 6 7 The Korean i n d u s t r y i s d i s t i n g u i s h e d from that i n Japan by a smaller number of firms and a much l a r g e r average f i r m s i z e . In 1978 there were a t o t a l of 50 firms and they employed an average of 116 employees per f i r m . 6 8 T h i s i s more than ten times the average s i z e of firms i n Tsubame; even i f we ignore the l a r g e number of cottage-based m e t a l - p o l i s h i n g f i r m s which form such an important part of the i n d u s t r y t h e r e . As the preceding t a b l e i n d i c a t e d , the top seven Korean firms are even l a r g e r than t h i s and have an average of 1,000 employees per f i r m . The Korean firms engage i n l i t t l e or no s u b c o n t r a c t i n g and c a r r y out p r o d u c t i o n almost e n t i r e l y in-house. The s i z e of the firms a l s o enables them to purchase s t a i n l e s s s t e e l s u p p l i e s d i r e c t l y from 6 6 The numerical d e s i g n a t i o n s i n d i c a t e the percentages of chromium and n i c k e l i n the s t e e l . Thus, No. 18-8 s t e e l c o n t a i n s 18% chromium and 8% n i c k e l . The top-grade of f l a t w a r e uses No. 18- 8 or No. 18-10 s t e e l . 6 7 i b i d . . pp 6-7. 6 8 JETRO, Kankoku p 6. 98 the m a n u f a c t u r e r s 6 9 and they t y p i c a l l y d e a l d i r e c t l y with f o r e i g n b u y e r s . 7 0 Despite t h e i r v a s t l y g r e a t e r s i z e , the Korean firms appear to u t i l i z e about the same equipment and technology as i n Tsubame 7 1 but do so v i a l i n e p r o d u c t i o n w i t h i n the c o n f i n e s of a s i n g l e f i r m . The " a s s e m b l y - l i n e " o r g a n i z a t i o n , c e n t r a l i z e d management, d i r e c t , large-volume, buying of raw m a t e r i a l s , and r e l a t i v e l y s h o r t e r channels of d i s t r i b u t i o n to export markets may a f f o r d some advantages to Korean f i r m s . Much more c e r t a i n l y , however, they have a d i s t i n c t advantage i n labour c o s t s . One a n a l y s i s i n d i c a t e s t h a t , even a f t e r c o n s i d e r a b l e post-1973 Korean wage i n f l a t i o n (and i n c l u d i n g the low-wage m e t a l - p o l i s h i n g firms i n the Japanese f i g u r e s ) , the average wage in the Korean i n d u s t r y i s only one-quarter of that i n Tsubame. 7 2 Whatever the r e l a t i v e importance of the v a r i o u s sources of Korea's lower c o s t s , the Korean producers e x h i b i t a major p r i c e advantage i n i n t e r n a t i o n a l markets. The preceding t a b l e i n d i c a t e d a c o s t advantage of around 15% but, by way of example, one Japanese i n d u s t r y r e p r e s e n t a t i v e has suggested t h a t , f o r the i d e n t i c a l product, the Korean a r t i c l e may be as much as 40% cheaper than the Japanese product and 85% cheaper than the West German p r o d u c t . 7 3 By the l a t e 1970's, f u r t h e r wage i n f l a t i o n , and problems i n 6 9 Chushokigyo Kinyu Koko Geppo 1979, 1-6, p 39. 7 0 JETRO , 0__ c i t . pp 24-48. 7 1 "Kankoku no Oiage to Tsubame Sanchi no T a i o " i n , Chushokigyo Kinyu Koko Geppo 1979, 1-6 (Chushokigyo Kinyu Koko, Tokyo) p 39. 7 2 i b i d , p 37. 7 3 K a i g a i S h i j o 1980 No. 9, (JETRO, Tokyo) p 56. 99 meeting d e l i v e r y schedules, had app a r e n t l y eroded the Korean i n d u s t r y ' s competitiveness and some of i t s customers had r e v e r t e d to Tsubame as a s u p p l i e r . 7 " Some p a r t i c i p a n t s i n the Tsubame i n d u s t r y took t h i s as a s i g n that the Korean i n d u s t r y had peaked and that the prospects f o r the continued v i a b i l i t y of the Tsubame i n d u s t r y were thereby improved. 7 5 In f a c t , such optimism does not seem warranted. The Korean producers' d i f f i c u l t i e s i n meeting d e l i v e r y schedules were a r e f l e c t i o n of orders o v e r t a k i n g t h e i r e x i s t i n g p r o d u c t i o n c a p a c i t i e s and t h i s s o r t of problem i s r e l a t i v e l y e a s i l y overcome. S i m i l a r l y , wage i n f l a t i o n i n Korea was a problem f o r fl a t w a r e producers because the Korean exchange rate was pegged at what came to be an a r t i f i c i a l l y high l e v e l . Subsequent d e v a l u a t i o n of the Korean Won has recouped much of t h e i r p r i c e advantage. There are, i n any case, other p o t e n t i a l LDC competitors f o r the Japanese i n d u s t r y . In r e a l i t y , the m a j o r i t y of Japanese observers, both i n s i d e and o u t s i d e of the i n d u s t r y , f e l t that the problems of p a r t i c i p a n t s in the Tsubame f l a t w a r e i n d u s t r y would not be e l i m i n a t e d by e x t e r n a l events and co u l d only be r e s o l v e d by adjustment w i t h i n Tsubame, i t s e l f . 7 " Chushokigyo Kinyu Koko Geppo 1979, 1-6, p 45. 7 5 Interviews i n Tsubame, September, 1980. See a l s o , i b i d . p 45. 1 00 2.3 Adjustment To A s i a n NIC C o m p e t i t i o n The l o n g - e s t a b l i s h e d m e t a l f l a t w a r e i n d u s t r i e s i n such c o u n t r i e s as the U.K., West Germany, and the U.S.A. have undergone a l o n g p e r i o d of postwar d e c l i n e i n p r o d u c t i o n c a p a c i t y . Much of t h i s d e c l i n e was a t t r i b u t a b l e t o an i n a b i l i t y t o compete w i t h the Japanese i n d u s t r y i n the l o w e r - and medium- p r i c e f l a t w a r e l i n e s which c o n s t i t u t e the bu l k of the t o t a l market. In f a c t , the Japanese i n d u s t r y was a l r e a d y , i n terms of p r o d u c t i o n c a p a c i t y , e i g h t e e n times the s i z e of the West German i n d u s t r y and more than t h r e e and o n e - h a l f t i m e s the s i z e of the U.S.A. i n d u s t r y by 1 9 7 4 . 7 6 As a consequence, the i n d u s t r i e s i n the western c o u n t r i e s have come t o be c e n t e r e d on a few, well-known, companies s p e c i a l i z i n g i n the l a r g e l y domestic or r e g i o n a l s a l e , under t h e i r own brand-names, o f - medium-priced l i n e s of f l a t w a r e produced t o o r d e r i n E a s t A s i a ; and i n the d e s i g n , p r o d u c t i o n , and i n t e r n a t i o n a l s a l e of s m a l l e r volumes of h i g h e r p r i c e d , p r e s t i g i o u s , l i n e s of s t a i n l e s s s t e e l f l a t w a r e . In the s e h i g h e r p r i c e d l i n e s , the U.K. and West German i n d u s t r i e s remained h i g h l y c o m p e t i t i v e . Thus, the c o l l a p s e of the i n d u s t r i e s around th e s e s t r o n g h o l d s of c o m p e t i t i v e s t r e n g t h has been accompanied by a r a p i d l y i n c r e a s i n g e x p o r t - o r i e n t a t i o n as the p r o d u c e r s have l o s t t h e i r mass ma r k e t s , even d o m e s t i c a l l y , but have m a i n t a i n e d t h e i r dominance i n e x p o r t markets f o r h i g h e r p r i c e d f l a t w a r e . 7 7 7 6 Chusho K i g y o K i n y u Koko Geppo 1979, 1-6, p 37. 7 7 For West Germany see, i b i d . ; f o r the U.K. s e e , " E i k o k u S h e f f i e l d no Kanamono/Kinzoku Y o s h o k k i S a n c h i " i n , K a i g a i S h i j o Sept. 1980, p 36. 101 In t h i s sense, they c o u l d be s a i d to have made a s u c c e s s f u l adjustment, a l b e i t at g r e a t l y reduced volume, to the c h a l l e n g e of low-cost Asian p r o d u c t i o n . The advent, i n the l a t e 1960's and e a r l y 1970's, of Korea and Taiwan as the new low-cost producers of f l a t w a r e posed a g r e a t e r t h r e a t , t h e r e f o r e , to producers i n Japan than to those in the major consumer n a t i o n s . Not only d i d the Japanese i n d u s t r y by then account f o r the l a r g e s t s i n g l e share of world p r o d u c t i o n , i t had a t t a i n e d that p o s i t i o n almost s o l e l y by means of p r i c e - c o m p e t i t i o n based on p r e c i s e l y those c o s t advantages that underlay the development and growth of the i n d u s t r y in t h e i r Asian NIC competitors. Thus, i t was the Japanese i n d u s t r y , more than any other, which faced the need to a d j u s t to the changed c o m p e t i t i v e environment. Not s u r p r i s i n g l y , the problem of LDC competition has been the dominant t o p i c i n the i n d u s t r y from the e a r l y 1970's to the p r e s e n t . While any number of s p e c i f i c p r o p o s als have been made with res p e c t to the adjustment problem, four major adjustment s t r a t e g i e s seem to underly most of them. These are; 1. R e v i v a l of p r i c e c o m p e t i t i v e n e s s 2. S h i f t of markets 3. Move to higher-grade l i n e s 4. M i g r a t i o n to new businesses F o l l o w i n g d i s c u s s i o n of each of these s t r a t e g i e s , u s ing the a n a l y t i c framework o u t l i n e d e a r l i e r , c o n s i d e r a t i o n i s given to t h e i r e f f e c t i v e n e s s and i n t e r r e l a t i o n s h i p s . 1 02 3. REVIVAL OF PRICE COMPETITIVENESS T h i s i s i n h e r e n t l y a r e v i v a l - o r i e n t e d s t r a t e g y aimed a t r e s t a b l i s h i n g and m a i n t a i n i n g J a p a n e s e dominance i n t h e p r i c e - c o m p e t i t i v e end of t h e f l a t w a r e market t h a t a c c o u n t s f o r t h e b u l k of i n t e r n a t i o n a l t r a d e and of Tsubame's p r o d u c t i o n . The s t r a t e g y i n v o l v e s no change i n p r o d u c t c a t e g o r y or s t y l e and i s f o c u s s e d on change i n t h e " P r o d u c t i o n " f u n c t i o n a l a r e a . 3.1 S a l e s T h e r e has been some e f f o r t t o r e d u c e t h e p r i c e t o t h e i m p o r t e r by c u t t i n g o u t middlemen and d e a l i n g more d i r e c t l y w i t h o v e r s e a s i m p o r t e r s o r m a n u f a c t u r e r s . T h i s i s o n l y p o s s i b l e , however, f o r goods and c o u n t r i e s t h a t a r e n o t on a q u o t a , o r f o r c o m p a n i e s w h i c h p o s s e s s a f u l l s e t of p r o d u c t i o n , s h i p p i n g , and .export .quota e n t i t l e m e n t s . 3.2 P r o d u c t i o n - a r e a o f major change T h i s i s t h e f u n c t i o n a l a r e a of most i m p o r t a n c e f o r t h i s s t r a t e g y . A t t e n t i o n i s f o c u s s e d on t h e f a c e t s of Methods and O r g a n i z a t i o n . 3.2.1 Methods i . A p p r o p r i a t e Q u a l i t y T h e r e was a g e n e r a l p e r c e p t i o n t h a t Tsubame's c o m p e t i t o r s were o f t e n t a k i n g market s h a r e w i t h goods t h a t were n o t o n l y o f l o w e r c o s t b ut a l s o o f l o w e r q u a l i t y . Put t h e o t h e r way, t h i s s u g g e s t e d t h a t 1 03 Tsubame's p r o d u c e r s were o f t e n o f f e r i n g goods t h a t were of e x c e s s i v e l y h i g h q u a l i t y f o r p a r t i c u l a r m a r k e t s . As t h e r e i s a f a i r l y d i r e c t l i n k between q u a l i t y and c o s t s o f p r o d u c t i o n , i t a p p e a r e d t h a t p r i c e - c o m p e t i t i v e n e s s m i g h t be i m p r o v e d by s i m p l y d e v o t i n g more a t t e n t i o n t o a f i n e - t u n i n g of p r o d u c t i o n methods so as t o p r o d u c e l o t s whose q u a l i t y j u s t met - but d i d n o t e x c e e d - t h e demands of t h e r e l e v a n t ma r k e t s . i i . Lower Q u a l i t y / C o s t P r o d u c t i o n The s u c c e s s of t h e A s i a n NIC p r o d u c e r s a l s o s u g g e s t e d t h a t Tsubame's q u a l i t y l e v e l s (and c o n c o m i t a n t c o s t s ) , even a t t h e i r l o w e s t , may have c r e p t up b eyond t h e l e v e l s a p p r o p r i a t e t o some m a r k e t s . T h i s r e q u i r e d t h e i n t r o d u c t i o n o f new, o r p r e v i o u s l y abandoned, p r o d u c t i o n p r a c t i c e s aimed a t p r o d u c i n g much l o w e r q u a l i t y (and c o s t ) f l a t w a r e . T h e s e p r a c t i c e s i n c l u d e d : • The s u b s t i t u t i o n of l o w e r - c o s t c h r o m e - p l a t e d s t e e l f o r s t a i n l e s s s t e e l . • The i n t r o d u c t i o n o f " t u m b l e - p o l i s h i n g " w h e r e i n t h e f l a t w a r e i s p o l i s h e d o n l y by b e i n g t u m b l e d i n a b a r r e l of a b r a s i v e powder (much as amateur " r o c k h o u n d s " p o l i s h g e m s t o n e s ) . i i i . C a p i t a l I n t e n s i f i c a t i o n I t r e m a i n s an open q u e s t i o n as t o whether l o w e r - g r a d e f l a t w a r e c a n be c o m p e t i t i v e l y p r o d u c e d by means 1 04 of h i g h l y c a p i t a l - i n t e n s i v e production techniques. The Korean i n d u s t r y does not provide a r e l e v a n t example as, while they i n t e g r a t e p r o d u c t i o n stages w i t h i n l a r g e - s c a l e f i r m s , t h e i r a c t u a l p r o d u c t i o n techniques are s i m i l a r t o , and perhaps even more l a b o u r - i n t e n s i v e than, those in Tsubame. The Japanese i n d u s t r y has, however, made some moves in t h i s d i r e c t i o n . • I n t r o d u c t i o n of S o p h i s t i c a t e d P o l i s h i n g Equipment P o l i s h i n g i s the most l a b o u r - i n t e n s i v e stage of p r o d u c t i o n . During the 1970's, h i g h l y mechanized p o l i s h i n g equipment of i n c r e a s i n g l y high c a p a c i t y was developed and i n t r o d u c e d i n t o the i n d u s t r y . T h i s was p a r t l y a response to the d e c l i n e i n the number of cottage-based m e t a l - p o l i s h e r s (see below) and p a r t l y a c o n t r i b u t i n g cause of that d e c l i n e . An i n i t i a l p i e c e of automatic p o l i s h i n g equipment was imported from West Germany and, using t h i s as a model, an improved v e r s i o n was developed for the l o c a l i n d u s t r y . By 1978, 800 of these machines were in use w i t h i n the s a n c h i . As equipment of t h i s c a p a c i t y i s expensive and r e q u i r e s h i g h volumes, i t has mainly been adopted by the l a r g e r f i r m s i n the m e t a l - p o l i s h i n g sub-industry and by the l a r g e r s e m i - i n t e g r a t e d manufacturers. • Automated Production Systems Of greater s i g n i f i c a n c e than the above, piecemeal, mechanization would be the development of automated 1 05 pr o d u c t i o n systems which c o u l d c a r r y out a s e r i e s (or a l l ) of the r e q u i r e d p r o d u c t i o n processes at co m p e t i t i v e cost l e v e l s . Some p a r t i a l e f f o r t s to develop t h i s s o r t of i n n o v a t i o n were c a r r i e d out i n the 1970's. The g r e a t e s t e f f o r t s were focussed on the development of automated methods of s e r r a t i n g k n i f e edges and forming t i n e s f o r f o r k s . I t would appear that most of the development c o s t s f o r t h i s s o r t of equipment are covered by government agencies with only a nominal (say, 5%) c o n t r i b u t i o n by the i n d u s t r y , i t s e l f . 7 8 While no d i r e c t evidence was found as to the ra t e of d i f f u s i o n or the impact on p r o d u c t i v i t y of t h i s s o r t of equipment, i t i s app a r e n t l y not yet i n common use. In the l a t e 1970's, f u r t h e r development work was s t i l l underway. Even were such equipment to prove e f f e c t i v e and economical however, there may be few firms f i n a n c i a l l y capable of making the necessary investment. The l i m i t e d f i n a n c i a l c a p a b i l i t i e s of the firms i n the i n d u s t r y may a l s o account f o r the remarkably low l e v e l of the i n d u s t r y f i n a n c i a l c o n t r i b u t i o n s to these p o t e n t i a l l y c r u c i a l r e s e a r c h and development e f f o r t s , i v . Lower-cost Labour There was some suggestion that the v a n i s h i n g While no d e t a i l e d i n f o r m a t i o n f o r t h i s recent development work was obtained, i n d u s t r y a s s o c i a t i o n data f o r the f i r s t h a l f of the 1970's shows p r o d u c t i o n technology development expenses of n e a r l y one-half m i l l i o n d o l l a r s of which l e s s than 5% was borne by the i n d u s t r y (mimeo., Japan Metal Flatware Industry A s s o c i a t i o n , [undated]). 1 06 s u p p l y of l o w - c o s t l a b o u r be augmented by o p e n i n g up o p p o r t u n i t i e s w i t h i n t h e i n d u s t r y f o r s e n i o r c i t i z e n s . Such an e f f o r t m i ght r e q u i r e a r e v i s i o n of p r o d u c t i o n p r a c t i c e s so as t o f a c i l i t a t e t h e i r p a r t i c i p a t i o n ; j u s t a s t h e (now d e c l i n i n g ) p a t t e r n o f d i f f u s e , c o t t a g e - b a s e d , p o l i s h i n g o p e r a t i o n s had done w i t h r e s p e c t t o t h e a g r i c u l t u r a l l a b o u r f o r c e . However, no c o n c r e t e e v i d e n c e of t h i s was e n c o u n t e r e d . O r g a n i z a t i o n S h i f t more p r o d u c t i o n t o s u b - c o n t r a c t o r s . Wage l e v e l s among t h e s m a l l s u b c o n t r a c t o r s a r e g e n e r a l l y much l o w e r t h a n among t h e m a n u f a c t u r e r s . T hus, t h e s e l a t t e r f i r m s c o u l d l o w e r t h e i r c o s t s by t r a n s f e r r i n g some uneconomic i n - h o u s e p r o d u c t i o n a c t i v i t i e s t o s u b c o n t r a c t o r s . Of c o u r s e , t h i s g e n e r a l p a t t e r n has l o n g been t h e b a s i s o f t h e i n d u s t r y ' s s t r u c t u r e . The s u g g e s t e d change, t h e r e f o r e , i s n o t i n t h e p a t t e r n o f t r a n s f e r , p e r s e , but i n t h e n a t u r e of what i s t o be t r a n s f e r r e d . However, as some of t h e c e n t r a l f i r m s i n t h e i n d u s t r y have a l r e a d y r e l e g a t e d a l m o s t a l l but t h e f i n i s h i n g , i n s p e c t i o n , and p a c k a g i n g s t a g e s t o s u b c o n t r a c t o r s , i t was n o t e v i d e n t t h a t t h i s t a c t i c o f f e r e d a g r e a t d e a l of a d d i t i o n a l o p p o r t u n i t y f o r c o s t r e d u c t i o n . Change o f I n d u s t r y S t r u c t u r e T h e r e i s a view t h a t t h e most i m p o r t a n t a d j u s t m e n t must be i n t h e v e r y s t r u c t u r e o f t h e 1 0 7 i n d u s t r y i t s e l f . T h i s i s i n c o n t r a s t t o measures ( s u c h as i ) , above) w h i c h seek t o e x t e n d o r m o d i f y , but m a i n t a i n , t h e b a s i c f e a t u r e s of t h e e x i s t i n g s t r u c t u r e . T h e r e seem t o be two d i s t i n c t m o t i v a t i o n s f o r t h i s v i e w . One i s r e l a t e d t o t h e p e r c e i v e d d i s a d v a n t a g e s o f t h e e x i s t i n g s y s t e m and t h e o t h e r t o t h e presumed o r g a n i z a t i o n a l r e q u i r e m e n t s of new t e c h n o l o g y . • D i s a d v a n t a g e s of E x i s t i n g S t r u c t u r e The a d v a n t a g e s of t h e t r a d i t i o n a l p r o d u c t i o n s y s t e m i n Tsubame l a y p r i m a r i l y i n i t s a b i l i t y t o t a p i n t o a s u p p l y of l o w - c o s t l a b o u r p r o v i d e d by an u n d e r e m p l o y e d a g r i c u l t u r a l l a b o u r f o r c e . As t h e s u p p l y o f t h i s l a b o u r has d e c r e a s e d and i t s c o s t has i n c r e a s e d , t h i s a d v a n t a g e of t h e p r o d u c t i o n s y s t e m has d i m i n i s h e d . At t h e same t i m e , i t has not p a s s e d u n n o t i c e d t h a t t h e s u c c e s s of t h e Kor e a n i n d u s t r y a p p e a r s t o be b a s e d , a t l e a s t i n p a r t , on a d i s t i n c t l y d i f f e r e n t p a t t e r n of i n t e g r a t e d p r o d u c t i o n w i t h i n l a r g e - s c a l e f i r m s . T h i s , t o g e t h e r w i t h r i s i n g l a b o u r c o s t s i n Tsubame, has l e d t o a r e a p p r a i s a l . o f t h e m e r i t s of t h e d i s a g g r e g a t e d s t a g e s of p r o d u c t i o n and s o c i a l d i v i s i o n o f l a b o u r t h a t have c h a r a c t e r i z e d t h e i n d u s t r y t h e r e . Thus, t h e t r a d i t i o n a l s t r u c t u r e of p r o d u c t i o n i n Tsubame i s now s e e n t o i n v o l v e some c o n s i d e r a b l e 108 d i s a d v a n t a g e s , i n c l u d i n g ; -Low (and d i f f i c u l t t o r a i s e ) p r o d u c t i v i t y l e v e l s - H i g h l e v e l s of wastage w i t h i n and between p r o d u c t i o n s t a g e s - H i g h i n t r a - i n d u s t r y t r a n s p o r t a t i o n c o s t s - E x c e s s i v e m a n a g e r i a l c o s t s due t o t h e d i f f i c u l t i e s of m o n i t o r i n g q u a l i t y and c o o r d i n a t i n g p r o d u c t i o n a c r o s s d i f f u s e p r o d u c t i o n l o c a t i o n s • O r g a n i z a t i o n a l R e q u i r e m e n t s of Newer T e c h n o l o g y Even a t e x i s t i n g l e v e l s of m e c h a n i z a t i o n and p a r t i a l a u t o m a t i o n t h e newer equipment employed r e q u i r e s l a r g e r v o l u m e s t o be e c o n o m i c a l . T h i s demands some c o n s o l i d a t i o n o f p r o d u c t i o n i n t o o r g a n i z a t i o n s ( f i r m s o r c o n s o r t i a of f i r m s ) of c o n s i d e r a b l y l a r g e r s i z e . M o r e o v e r , t h e i n t r o d u c t i o n of more a d v a n c e d e q u i p m e n t , as i t i s d e v e l o p e d , w i l l make t h i s c o n s o l i d a t i o n even more i m p e r a t i v e . I n d e e d , even from t h e f i n a n c i a l p e r s p e c t i v e , i t i s u n l i k e l y t h a t much o f t h e c a p a c i t y o f t h e i n d u s t r y c an be m o d e r n i z e d w i t h o u t c o n s i d e r a b l e p o o l i n g o f r e s o u r c e s by p a r t i c i p a n t s . The p r i m a r y means of moving to w a r d s a new o r g a n i z a t i o n a l s t r u c t u r e w i t h i n t h e i n d u s t r y a p p e a r s t o be t h e e n c o u r a g e m e n t o f c o n s o r t i a of f u n c t i o n a l l y d i s t i n c t f i r m s i n t o g r o u p s c a p a b l e of i n t e g r a t e d p r o d u c t i o n and of t h e f o r m a t i o n of more c l o s e l y i n t e g r a t e d c l u s t e r s o f s u b c o n t r a c t o r s 109 around the e x i s t i n g c e n t r a l manufacturing f i r m s . Moreover, while the r e l o c a t i o n of firms i n t o the suburban i n d u s t r i a l parks was l a r g e l y j u s t i f i e d on the grounds of reducing environmental d i s r u p t i o n in the town c e n t r e , i t was widely hoped that the r e s u l t i n g geographic p r o x i m i t y and shared f a c i l i t i e s would encourage the formation of such c o o p e r a t i v e groups. To date, however, t h i s does not seem to have commonly oc c u r r e d . Decades of f i e r c e i n t r a - i n d u s t r y competition and a deep-seated independence among the owners of firms seems to i n h i b i t an easy t r a n s i t i o n to c o o p e r a t i o n . 3.2.3 Other There are two important t a c t i c s which do not f i t e a s i l y i n t o any of the c a t e g o r i e s i n our framework. i . Reduction i n the Cost of S t a i n l e s s S t e e l S t a i n l e s s s t e e l , i n i t s e l f , accounts f o r c l o s e to 50% of Tsubame's f l a t w a r e p r o d u c t i o n c o s t s . The f l a t w a r e i n d u s t r y firms f e l t that the s t e e l producers were segmenting t h e i r markets and charging lower p r i c e s to customers, such as Korean f l a t w a r e producers, i n the more c o m p e t i t i v e export market. The i n d u s t r y n e g o t i a t e d with s t e e l s u p p l i e r s f o r a p r i c e r e d u c t i o n but i t was not u n t i l November 1978, a f t e r the f l a t w a r e producers had made a c o o p e r a t i v e d i r e c t import of West German s t a i n l e s s s t e e l , that domestic producers granted a p r i c e r e d u c t i o n . The r e d u c t i o n of 1 10 10% in s t e e l p r i c e s was estimated to t r a n s l a t e i n t o an approximately 5% r e d u c t i o n i n t o t a l p r o d u c t i o n c o s t s , i i . Reduction in S u b c o n t r a c t i n g Costs There was a major s h i f t of the burden of adjustment onto the s u b c o n t r a c t o r s - e s p e c i a l l y those o p e r a t i n g out of t h e i r own homes. These cottage-based s u b c o n t r a c t o r s were o f t e n too o l d , too u n s k i l l e d , or too i s o l a t e d to e a s i l y o b t a i n a l t e r n a t i v e employment and yet had come to depend on the i n d u s t r y and on t h e i r c a p i t a l investment i n i t f o r some or a l l of t h e i r income. Reductions of from 30% to 50% i n rates, p a i d to s u b c o n t r a c t o r s were not uncommon and i n some cases reduced incomes to one-half of the l o c a l average or l e s s . While, i n the s h o r t term, t h i s undoubtedly had the e f f e c t of reducing manufacturing c o s t s and improving p r i c e c o m p e t i t i v e n e s s ; in the medium term, the long hours, onerous working c o n d i t i o n s , and low pay drove many of the p a r t i c i p a n t s i n t o r e t i r e m e n t . The p o l i s h i n g sub-industry i s the prime example where t h i s t a c t i c was employed and between 1970 and 1977 there was a 23% decrease i n the number of firms and a 31% decrease i n the number of employees. 4. SHIFT TO NEW MARKETS Thi s s t r a t e g y i s premised on the idea that there are p o t e n t i a l new markets i n which Japanese producers have, or can develop, a c o m p e t i t i v e advantage over lower cost producers on the b a s i s of s u p e r i o r i n f o r m a t i o n r e g a r d i n g both the needs of 111 t h o s e m a r k e t s and t h e r e l e v a n t d i s t r i b u t i o n c h a n n e l s . In e s s e n c e , t h e s t r a t e g y i n v o l v e s no change i n p r o d u c t c a t e g o r y or s t y l e and f o c u s e s on change i n t h e s a l e s f u n c t i o n . 4.1 S a l e s F u n c t i o n - a r e a of major change 4.1.1 L o c a t i o n The s t r a t e g y i s aimed a t two g e o g r a p h i c a l l y d i s t i n c t a r e a s ; newly e m e r g i n g f o r e i g n m a r k e t s and t h e d o m e s t i c , J a p a n e s e , m a r k e t . i . Newly E m e r g i n g F o r e i g n M a r k e t s The p r i m e examples of newly e m e r g i n g m a r k e t s f o r w h i c h t h i s s t r a t e g y has had some r e l e v a n c e a r e i n t h e M i d - E a s t and A f r i c a . The c u s t o m e r s i n t h e s e m a r k e t s a r e n o t v e r y d i s c r i m i n a t i n g v i s - a - v i s m e t a l f l a t w a r e and t h e b u l k of t h e p o t e n t i a l market i s l i k e l y t o be f o r l o w - g r a d e , l o w - c o s t , f l a t w a r e . i i . The D o m e s t i c J a p a n e s e M a r k e t H e r e , as i n t h e w e s t e r n c o u n t r i e s , t h e r e i s a major d i s t i n c t i o n between t h e i n s t i t u t i o n a l m a r k e t , where t h e e m p h a s i s i s p u r e l y on p r i c e and u t i l i t y , and th e h o u s e h o l d m a r k e t , where s t y l e and q u a l i t y a r e a l s o of i m p o r t a n c e . In e i t h e r c a s e , t h e s i z e o f t h e market i s much s m a l l e r t h a n i t would be i n a W e s t e r n c o u n t r y of c o m p a r a b l e p o p u l a t i o n . I t i s n o t g e n e r a l l y b e l i e v e d t o be p o s s i b l e t o s i g n i f i c a n t l y i n c r e a s e t h e s i z e o f t h e i n s t i t u t i o n a l market t h r o u g h p r o m o t i o n a l a c t i v i t y . I t i s f e l t , however, t h a t t h e r e i s a 1 1 2 p o t e n t i a l l y much l a r g e r h o u s e h o l d m a r k e t . 4.1.2 O r g a n i z a t i o n i . E m e r g i n g F o r e i g n M a r k e t s The o n l y s e r i o u s examples of r e l e v a n t m a r k e t s , t o d a t e , a r e t h o s e i n t h e M i d - E a s t and A f r i c a . As t h i s s u g g e s t s , t h e l i k e l y m a r k e t s a r e i n t h e d e v e l o p i n g c o u n t r i e s . The a p p r o a c h t o t h e s e m a r k e t s has t h u s f a r not i n v o l v e d t h e e x t e n s i o n of t h e i n d u s t r y ' s c a p a c i t y i n t o t h e a r e a s of downstream s a l e s and d i s t r i b u t i o n . I t h a s , however, a p p a r e n t l y i n v o l v e d a g r e a t e r u t i l i z a t i o n t h a n i n t h e p a s t of t h e i n t e l l i g e n c e - g a t h e r i n g and t r a d e p r o m o t i o n c a p a b i l i t i e s of s u c h government o r g a n i z a t i o n s as JETRO and of J a p a n e s e t r a d i n g c o m p a n i e s c a p a b l e of d e a l i n g w i t h t h e s e n o v e l m a r k e t s f o r f l a t w a r e . Thus, t h e c o m p e t i t i v e edge o v e r l o w e r - c o s t c o m p e t i t o r s i n market i n f o r m a t i o n i s t o be p r o v i d e d n ot by t h e i n d u s t r y , p e r s e , but by a hoped f o r s u p e r i o r i t y i n government t r a d e p r o m o t i o n o r g a n i z a t i o n s and i n t h e network of p r i v a t e J a p a n e s e t r a d i n g c o m p a n i e s . i i . The D o m e s t i c J a p a n e s e M a r k e t As we have a l r e a d y i n d i c a t e d , t h e d o m e s t i c i n s t i t u t i o n a l market does n o t o f f e r much p r o s p e c t o f s i g n i f i c a n t g r o w t h and i n d u s t r y hopes a r e c e n t e r e d on t h e h o u s e h o l d market f o r f l a t w a r e . O r g a n i z a t i o n a l l y t h i s has l e d t o t h e i n c o r p o r a t i o n i n t o t h e i n d u s t r y a s s o c i a t i o n (and some i n d i v i d u a l f i r m s ) o f r e t a i l 1 1 3 s a l e s p r o m o t i o n and e x t e n d e d d o m e s t i c d i s t r i b u t i o n c a p a b i l i t i e s . 4.1.3 Method i . E m e r g i n g F o r e i g n M a r k e t s No f u n d a m e n t a l change i n t h e method of s a l e s i s i n v o l v e d . The n o v e l g e o g r a p h i c f o c u s does mean, however, t h a t i n d u s t r y and o c c a s i o n a l c o r p o r a t e p a r t i c i p a t i o n i n t r a d e shows and government i n i t i a t e d t r a d e p r o m o t i o n a c t i v i t i e s c a n now i n v o l v e t h e need t o p r e p a r e new l i t e r a t u r e and d i s p l a y m a t e r i a l s a p p r o p r i a t e t o t h e n o v e l c u l t u r a l and l i n g u i s t i c e n v i r o n m e n t s . i i . D o m e s t i c J a p a n e s e M a r k e t The m a j o r p r o b l e m o f t h e J a p a n e s e h o u s e h o l d market f o r f l a t w a r e i s t h a t , w h i l e t h e p e o p l e a r e a f f l u e n t and c o s m o p o l i t a n , b o t h c u s t o m and t h e n a t i v e c u i s i n e f a v o u r t h e use o f c h o p s t i c k s a s an e a t i n g u t e n s i l . T hese r a n g e from l o w - g r a d e d i s p o s a b l e c h o p s t i c k s (now m a i n l y i m p o r t e d from c o u n t r i e s s u c h as Taiwan) t o e x p e n s i v e , h i g h - g r a d e , c h o p s t i c k s s u i t a b l e f o r t h e most e l e g a n t of o c c a s i o n s . T h e r e h a s , however, been a d r a m a t i c w e s t e r n i z a t i o n of t h e J a p a n e s e d i e t d u r i n g t h e postwar p e r i o d and a h i g h d e g r e e o f r e c e p t i v i t y t o t h e m a t e r i a l a s p e c t s o f W e s t e r n c u l t u r e s . I t a p p e a r s , t h e r e f o r e , t h a t t h e r e i s some p r o s p e c t of d e v e l o p i n g a l a r g e r h o u s e h o l d market t h r o u g h a c o n c e r t e d e f f o r t t o p o p u l a r i z e m e t a l 1 1 4 f l a t w a r e a s an a d d i t i o n t o , and not a r e p l a c e m e n t f o r , t h e t r a d i t i o n a l e a t i n g u t e n s i l s . T h e s e e f f o r t s have been c a r r i e d o ut l a r g e l y by t h e i n d u s t r y a s s o c i a t i o n t h r o u g h a d v e r t i s e m e n t s i n women's m a g a z i n e s and t h r o u g h s p o n s o r s h i p or p a r t i c i p a t i o n i n u r b a n e x h i b i t s and d i s p l a y s of h o u s e w a r e s . T h i s l a t t e r a c t i v i t y has i n v o l v e d t h e p r e p a r a t i o n of v i d e o t a p e r e c o r d i n g s o u t l i n i n g t h e p r o p e r o r g a n i z a t i o n of t a b l e s e t t i n g s and t h e e t i q u e t t e of d i n i n g w i t h m e t a l f l a t w a r e . In a d d i t i o n t o t h e s e s a l e s p r o m o t i o n a c t i v i t i e s , a s w i t c h t o t h e d o m e s t i c market a l s o means an i n c r e a s e i n p e r - u n i t o p e r a t i n g c a p i t a l r e q u i r e m e n t s b e c a u s e t h e d o m e s t i c market i n v o l v e s much more d e l a y i n r e c e i p t of c a s h f o r s h i p m e n t s t h a n does t h e e x p o r t m a r k e t , where payment i s made upon s h i p m e n t . 4.2 D e s i g n W i t h r e s p e c t t o b o t h t h e e m e r g i n g f o r e i g n m a r k e t s and t h e d o m e s t i c m a r k e t , d e s i g n r e s p o n s i b i l i t y f o r t h e p r o d u c t i s u s u a l l y w i t h i n t h e i n d u s t r y and c o m p a n i e s . In c o n t r a s t , i n t h e c a s e o f many t r a d i t i o n a l e x p o r t m a r k e t s , t h e f o r e i g n b u y e r s p r o v i d e t h e d e s i g n s p e c i f i c a t i o n s . Thus f a r , t h e i m p o r t a n c e of d e s i g n f e a t u r e s has been l i m i t e d , b u t t h e r e i s some hope t h a t t h e J a p a n e s e i n d u s t r y might g a i n a c o m p e t i t i v e a d v a n t a g e by d e v e l o p i n g d e s i g n s w h i c h have g r e a t e r l o c a l a e s t h e t i c a p p e a l , f o r example, by c o p y i n g or t r a n s f o r m i n g t r a d i t i o n a l m o t i f s i n t o t h e f l a t w a r e d e s i g n . 1 15 5. SHIFT TO HIGHER-GRADE LINES T h i s s t r a t e g y aims t o a d j u s t t o l o w - c o s t c o m p e t i t o r s by s h i f t i n g p r o d u c t i o n i n t o t h e h i g h e r - g r a d e l i n e s o f f l a t w a r e i n w h i c h t h o s e c o m p e t i t o r s do not pose as g r e a t a t h r e a t . I t has s i g n i f i c a n t t a c t i c a l i m p l i c a t i o n s f o r a l l t h r e e f u n c t i o n a l a r e a s . 5.1 P r o d u c t 5.1.1 Grade - a r e a o f major change The h i g h e r p r i c e range o f s t a i n l e s s s t e e l f l a t w a r e i s d i s t i n g u i s h e d from t h e l o w e r p r i c e d f l a t w a r e i n a v a r i e t y of ways. The m a t e r i a l s a r e of t h e h i g h e s t q u a l i t y ( e . g . , u s u a l l y 18-8 o r . 18-10 - q u a l i t y s t a i n l e s s s t e e l ) , a s i s t h e f i n i s h . The d e s i g n i s o f t e n ( b u t not a l w a y s ) more i n t r i c a t e and m a s s i v e and i s embossed i n g r e a t e r r e l i e f . I m p o r t a n t l y , w h i l e a move t o h i g h e r q u a l i t y , h i g h e r p r i c e , f l a t w a r e r e d u c e s t h e e x p o s u r e t o A s i a n NIC c o m p e t i t i o n , t h e h i g h e r t h e q u a l i t y and p r i c e , t h e more t h e p r o d u c t i s e x p o s e d t o c o m p e t i t i o n f r o m t h e t r a d i t i o n a l p r o d u c e r s i n E u r o p e and N o r t h A m e r i c a . 5.2 P r o d u c t i o n - a r e a o f change 1 1 6 5.2.1 O r g a n i z a t i o n And L o c a t i o n The p r o d u c t i o n o f h i g h e r q u a l i t y s t a i n l e s s s t e e l f l a t w a r e a p p a r e n t l y f a v o u r s t h e o r g a n i z a t i o n a l i n t e g r a t i o n of t h e p r o d u c t i o n s t a g e s . T h i s f a c i l i t a t e s q u a l i t y c o n t r o l , a s w e l l as th e c o n t r o l of i n f o r m a t i o n r e g a r d i n g n o v e l d e s i g n s and p r o d u c t i o n p r a c t i c e s . T h i s p r o b a b l y f a v o u r s t h e e x i s t i n g l a r g e r m a n u f a c t u r e r s and, p e r h a p s , t h o s e g r o u p s of f i r m s w i t h s h a r e d f a c i l i t i e s and g e o g r a p h i c p r o x i m i t y w i t h i n i n d u s t r i a l p a r k s . 5.2.2 Methods I t i s p r o b a b l y f a i r t o say t h a t t h e p r o d u c t i o n t e c h n i q u e s and s k i l l s r e q u i r e d f o r s u c c e s s i n t h e h i g h - p r i c e d range of t h e f l a t w a r e market a l r e a d y e x i s t w i t h i n Tsubame. I n d e e d , i n many c a s e s , t h e s e a r e a l r e a d y b e i n g a p p l i e d i n t h e p r o d u c t i o n of f l a t w a r e under s u b c o n t r a c t t o f o r e i g n m a n u f a c t u r e r s . I t i s p o s s i b l e , however, t h a t J a p a n e s e c o m p e t i t i v e n e s s i n t h i s p r i c e r a n g e m i g h t be i m p r o v e d by t h e i n t r o d u c t i o n of i m p r o v e d , a u t o m a t e d , equipment s u c h as t h a t d i s c u s s e d under t h e " p r i c e - c o m p e t i t i v e n e s s " s t r a t e g y . Changes i n methods of p r o d u c t i o n a r e , n e v e r t h e l e s s , n o t l i k e l y t o be o f major i m p o r t a n c e f o r t h i s s t r a t e g y . 5.3 D e s i g n D e s i g n i s an i m p o r t a n t a s p e c t o f t h i s s t r a t e g y and c l e a r l y t h e i n d u s t r y and f i r m s f e e l a need t o s t r e n g t h e n t h e i r i n - h o u s e c a p a b i l i t i e s i n t h i s r e g a r d . In a d d i t i o n , t h e r e has been some c o n s i d e r a t i o n of u t i l i z i n g t h e s e r v i c e s of wel l - k n o w n f o r e i g n d e s i g n e r s . I t i s n o t c l e a r , however, whether t h e main p u r p o s e 1 1 7 of t h i s w ould be t o u t i l i z e t h e i r d e s i g n s e r v i c e s or t h e p r e s t i g e of t h e i r names. I f i t i s t h e l a t t e r , t h e t a c t i c w ould more a p p r o p r i a t e l y be c a t e g o r i z e d as a s a l e s method. In any c a s e , i t i s n o t o r i o u s l y d i f f i c u l t a s a p r a c t i c a l m a t t e r t o p r e v e n t t h e c o p y i n g o f f l a t w a r e d e s i g n s . Thus, w h i l e a p p r o p r i a t e d e s i g n i s an i m p o r t a n t p r e r e q u i s i t e f o r t h e s u c c e s s of t h i s s t r a t e g y , i t i s not by i t s e l f d e c i s i v e . 5.4 S a l e s - a r e a of major change 5.4.1 O r q a n i z a t i o n B e c a u s e o f t h e i m p o r t a n c e t o t h i s s t r a t e g y of p r o d u c t d i f f e r e n t i a t i o n and t h e c r e a t i o n of a h i g h - q u a l i t y b r a n d image, more d i r e c t c o n t r o l o f t h e downstream s a l e s and d i s t r i b u t i o n f u n c t i o n s i s s e e n as t h e c r u c i a l s t e p i n i t s i m p l e m e n t a t i o n . 5.4.2 L o c a t i o n The major m a r k e t s f o r h i g h - q u a l i t y f l a t w a r e a r e , as e v e r , i n E u r o p e and i n N o r t h A m e r i c a and t h e s e must be t h e u l t i m a t e t a r g e t of any e f f e c t i v e i m p l e m e n t a t i o n o f t h i s s t r a t e g y . As a p r a c t i c a l m a t t e r , however, t h e i n d u s t r y as a whole, an d i n d i v i d u a l f i r m s w i t h i n i t , see t h e i r g r e a t e s t i n i t i a l o p p o r t u n i t i e s i n m a r k e t s w h i c h a r e r e l a t i v e l y more open t o new b r a n d s , due t o t h e a b s e n c e o f e s t a b l i s h e d , l o c a l , c o m p e t i t o r s . The p r i m e examples where t h i s seems t o have h e l p e d t h e J a p a n e s e p r o d u c e r s a r e A u s t r a l i a and J a p a n . N e v e r t h e l e s s , t h e a f f l u e n c e and s o p h i s t i c a t i o n of t h e J a p a n e s e consumer mean t h a t , i f t h e i n d u s t r y s u c c e e d s i n i n c r e a s i n g demand f o r q u a l i t y f l a t w a r e i n 1 1 8 t h e d o m e s t i c m arket, some of t h e b e n e f i t s of t h e i n c r e a s e w i l l a l m o s t c e r t a i n l y be c a p t u r e d by t h e i r c o m p e t i t o r s i n t h e West. 5 . 4 . 3 Method Of m a j o r i m p o r t a n c e i s t h e method o f s a l e i n w h i c h p r o m o t i o n a l e f f o r t s e m p h a s i z e n o n - u t i l i t a r i a n f e a t u r e s s u c h as s t y l e and e x c l u s i v i t y and a t t e m p t t o c r e a t e p r o d u c t d i f f e r e n t i a t i o n l i n k e d t o b r a n d names. W i t h r e s p e c t t o a l l p o t e n t i a l m a r k e t s , th e i n d u s t r y a s s o c i a t i o n i s a t t e m p t i n g t o e s t a b l i s h an i n t e r n a t i o n a l r e p u t a t i o n f o r q u a l i t y by t h e a d m i n i s t r a t i o n o f a s t a n d a r d s s y s t e m t o g o v e r n t h e use o f a p r o p r i e t a r y " h a l l m a r k " , or t r a d e m a r k , symbol i n t h e form of a s t y l i z e d s w a l l o w (which i s t h e meaning of t h e J a p a n e s e c h a r a c t e r p r o n o u n c e d " t s u b a m e " ) . In p r a c t i c e , however, f o r e i g n b u y e r s a r e g e n e r a l l y u n e n t h u s i a s t i c a b o u t h a v i n g t h i s symbol embossed on t h e f l a t w a r e t h e y o r d e r and, when the f l a t w a r e i s t o be s o l d u n der a f o r e i g n brandname, t h e y do not p e r m i t i t . The Tsubame h a l l m a r k may, a s i s hoped, become t h e b r a n d i d e n t i f i c a t i o n f o r a g u i l d - l i k e c o n s o r t i u m o f s m a l l e r f i r m s p r o d u c i n g and m a r k e t i n g h i g h - q u a l i t y f l a t w a r e on a c o o p e r a t i v e b a s i s . F o r t h e moment, however, t h e h i g h l y c o m p e t i t i v e a t m o s p h e r e among f i r m s has i n h i b i t e d t h e d e v e l o p m e n t of i n t e r - f i r m s o l i d a r i t y and commitment t o s u c h a c o o p e r a t i v e p o o l i n g of f o r t u n e s . The H a l l m a r k d o e s , however, f i g u r e p r o m i n e n t l y i n i n d u s t r y a s s o c i a t i o n p r o m o t i o n a l m a t e r i a l aimed a t s t i m u l a t i n g o v e r a l l demand f o r t h e s a n c h i ' s f l a t w a r e , e s p e c i a l l y w i t h i n t h e J a p a n e s e m a r k e t . A s i d e f r o m p a r t i c i p a t i o n i n e x h i b i t s and d i s p l a y s i n u r b a n a r e a s o f J a p a n , t h e i n d u s t r y a s s o c i a t i o n 1 1 9 a d v e r t i s e s o c c a s i o n a l l y i n t h e more e l e g a n t , up-market, J a p a n e s e m a g a z i n e s . The l a r g e r i n d i v i d u a l f i r m s engage i n s i m i l a r p r o m o t i o n a l e f f o r t s aimed a t e s t a b l i s h i n g a q u a l i t y image, but do so under t h e i r own, p r o p r i e t a r y , t r a d e m a r k s . Some of t h e f i r m s have e s t a b l i s h e d s a l e s p r o m o t i o n o f f i c e s i n Tokyo and two have had some s u c c e s s i n d e v e l o p i n g a b r a n d i d e n t i t y and market i n A u s t r a l i a . 6. MOVE TO A NEW BUSINESS T h i s i s a M i g r a t i o n - o r i e n t e d s t r a t e g y i n w h i c h t h e aim i s t o move o u t o f t h e p r o d u c t f a c i n g c o m p e t i t i o n f r o m l o w e r - c o s t p r o d u c e r s and i n t o a b u s i n e s s o r b u s i n e s s e s a f f o r d i n g t h e p r o s p e c t o f a h i g h e r d e g r e e of c o m p e t i t i v e s t r e n g t h r e l a t i v e t o t h e r e l e v a n t , u s u a l l y d i f f e r e n t , s e t o f c o m p e t i t o r s . The s t r a t e g y c a n , of c o u r s e , i n v o l v e change i n any of t h e f a c e t s o f a l l t h r e e o f t h e f u n c t i o n a l c a t e g o r i e s . The n a t u r e o f t h e s e c h a n g e s i s , however, as v a r i o u s a s t h e s p e c i f i c new b u s i n e s s e s i n t o w h i c h f i r m s move. F o r t h a t r e a s o n , t h e d i s c u s s i o n i n t h i s s e c t i o n d i f f e r s from t h a t f o r t h e p r e c e d i n g t h r e e s t r a t e g i e s . F i r s t , t h i s s t r a t e g y , i n c o n t r a s t t o t h e p r e c e d i n g t h r e e , i s most e a s i l y d i s c u s s e d i n t e r m s of what has not c h a n g e d , o r has c h a n g e d t h e l e a s t . What, t h a t i s t o s a y , i s t h e p o i n t o r p o i n t s o f maximum l i n k a g e w i t h t h e p r i o r b u s i n e s s ? T h i s r e q u i r e s a s l i g h t l y d i f f e r e n t s l a n t i n t h e a p p l i c a t i o n o f t h e a n a l y t i c framework. Second, t h e s h e e r v a r i e t y o f c o n c r e t e examples c o m p l i c a t e s any a t t e m p t t o g e n e r a l i z e . 1 20 T h i r d , t h e f a c t t h a t t h e a d j u s t m e n t i n v o l v e s movement t o not one, but a v a r i e t y of o t h e r b u s i n e s s e s , e n o r m o u s l y c o m p l i c a t e s t h e t a s k of f i n d i n g r e l e v a n t i n f o r m a t i o n . In most c a s e s , t h e i n t e r e s t o f i n f o r m a t i o n s o u r c e s f o r t h e f l a t w a r e i n d u s t r y c e a s e s when a f i r m l e a v e s t h e i n d u s t r y . F o r t h e s e r e a s o n s , t h i s s t r a t e g y i s a d d r e s s e d by d i s c u s s i n g f i r s t , an e x c e p t i o n t o much of t h e p r e c e d i n g and t h e s i n g l e "new b u s i n e s s " t h a t has f i g u r e d most p r o m i n e n t l y i n t h e a d j u s t m e n t p r o c e s s ; s t a i n l e s s s t e e l h o u s e w a r e s . C o n s i d e r a t i o n w i l l t h e n be g i v e n , more b r i e f l y , t o some of t h e v a r i o u s o t h e r b u s i n e s s e s t h a t have a t t r a c t e d m i g r a n t s from t h e f l a t w a r e i n d u s t r y . 1 2 1 6 . 1 STAINLESS STEEL HOUSEWARES B a c k g r o u n d The s t a i n l e s s s t e e l h o u sewares i n d u s t r y p r o d u c e s a wide r a n g e of p r o d u c t s i n c l u d i n g ; c o okware, k i t c h e n t o o l s , b a r e q u i p m e n t , c o f f e e p o t s , wine g o b l e t s , t r a y s , and s e r v i n g d i s h e s . As t h i s l i s t s u g g e s t s , t h e p r o d u c t s a r e e x t r e m e l y v a r i e d but c e n t r e on a r t i c l e s r e l a t i n g t o f o o d and d r i n k . In Tsubame, t h e i n d u s t r y had i t s o r i g i n s i n t h e e a r l y p o s t w a r p e r i o d and i t s d e v e l o p m e n t has p a r a l l e l e d t h a t of t h e f l a t w a r e i n d u s t r y . I t i s a s m a l l e r i n d u s t r y and, w h i l e t h e Tsubame p r o d u c e r s a c c o u n t f o r a s u b s t a n t i a l p r o p o r t i o n of n a t i o n a l p r o d u c t i o n , t h e y a r e much l e s s d ominant i n t h i s i n d u s t r y t h a n a r e t h e f l a t w a r e p r o d u c e r s i n t h e i r s . The h o u s e w a r e s i n d u s t r y has a l a r g e r d o m e s t i c market t h a n t h e f l a t w a r e i n d u s t r y and i s l e s s e x p o r t - o r i e n t e d . The a v e r a g e f i r m s i z e i s a l s o l a r g e r t h a n i n t h e f l a t w a r e i n d u s t r y , i n p a r t , b e c a u s e of t h e h e a v i e r equipment and c o n c o m i t a n t l y g r e a t e r c a p i t a l i n v e s t m e n t r e q u i r e d . The i n d u s t r y has a g r e a t d e a l of s t r u c t u r a l s i m i l a r i t y t o t h e f l a t w a r e i n d u s t r y however, and, a t t h e l e v e l of t h e s u b - i n d u s t r i e s , t h e r e i s e x t e n s i v e o v e r l a p . W h i l e a m a j o r i t y o f t h e m a n u f a c t u r e r s i n t h e i n d u s t r y have n e v e r been d i r e c t l y i n v o l v e d i n t h e p r o d u c t i o n of f l a t w a r e , some of them a r e " r e f u g e e s " f r o m t h e f l a t w a r e q u o t a s y s t e m s i n t r o d u c e d i n t h e l a t e 1950's. In t h e .1 22 1970's, with the advent of Asian NIC competition i n f l a t w a r e , there has been an i n c r e a s e i n the number of migrants moving from a base in the f l a t w a r e i n d u s t r y i n t o the housewares i n d u s t r y . T h i s i s somewhat i r o n i c as, with a s l i g h t time l a g , the housewares i n d u s t r y i s coming to face much the same p a t t e r n of competition from Asian NICs as occurred i n the f l a t w a r e i n d u s t r y ; and i s beginning to implement analogous adjustment s t r a t e g i e s . N e v e r t h e l e s s , the housewares i n d u s t r y does provide the advantages of a l a r g e r domestic market, higher value-added, g r e a t e r product v a r i e t y , and r e l a t i v e l y reduced l e v e l s of c u r r e n t competition from Asian NICs. 6.1.1 Product -change w i t h i n the same product genera While t h i s does represent a change of product, the p e r v a s i v e and high degree of o v e r l a p i n customers, s a l e s channels, p r o d u c t i o n m a t e r i a l s and methods and circumstances of product usage p o i n t up a " g e n e r i c " s i m i l a r i t y to the f l a t w a r e b u s i n e s s . 6.1.2 Production -area of some change There i s an enormous o v e r l a p with the o r g a n i z a t i o n , l o c a t i o n , and methods of p r o d u c t i o n of the f l a t w a r e i n d u s t r y . For some s u b - c o n t r a c t o r s , the move may i n v o l v e l i t t l e more than a s h i f t i n c l i e n t f i r m s . For the f l a t w a r e manufacturers, entry i n t o the housewares i n d u s t r y can r e q u i r e the a c q u i s i t i o n of new, h e a v i e r , equipment and the management of a more complex set of 1 23 p r o d u c t i o n s t a g e s ( a c o f f e e p o t , f o r example, r e q u i r e s as many as 45 d i s t i n c t and m a j o r p r o d u c t i o n s t a g e s ) . The f u n d a m e n t a l a s p e c t s of p r o d u c t i o n a r e , however, r e l a t i v e l y f a m i l i a r t o them. 6.1.3 S a l e s i . L o c a t i o n W h i l e t h e h o usewares i n d u s t r y has t r a d i t i o n a l l y e n j o y e d a s u b s t a n t i a l e x p o r t m a r k e t , one of t h e p r i m e a t t r a c t i o n s t o f l a t w a r e f i r m s i s t h e l a r g e r d o m e s t i c market of t h e h o u s e w a r e s i n d u s t r y . T h i s a l l o w s f i r m s t o e n j o y an a d v a n t a g e o v e r A s i a n NIC c o m p e t i t o r s i n b o t h i n f o r m a t i o n and d i s t r i b u t i o n c o s t s . Thus, t h e move i n t o h o u s e w a r e s has g e n e r a l l y meant an i n c r e a s e i n t h e r e l a t i v e w e i g h t of d o m e s t i c s a l e s . i i . O r g a n i z a t i o n and Method The u s u a l web of w h o l e s a l e r s and t r a d i n g c o m p a n i e s i s i m p o r t a n t but t h e r e l a t i v e l y g r e a t e r w e i g h t of t h e d o m e s t i c m a r k e t , and t h e p r o d u c e r ' s g r e a t e r f a m i l i a r i t y w i t h i t , makes i t f e a s i b l e f o r f i r m s t o d e v e l o p a more e x t e n s i v e i n t e r n a l s a l e s and d i s t r i b u t i o n c a p a b i l i t y . M a n u f a c t u r e r ' s b r a n d names a r e common and b a s i c s a l e s methods d i f f e r somewhat from t h o s e employed i n t h e f l a t w a r e i n d u s t r y . T h e r e a p p e a r s t o be, f o r example, no e f f o r t on t h e p a r t of t h e h o usewares i n d u s t r y a s s o c i a t i o n t o i n c r e a s e o v e r a l l f i n a l d o m e s t i c demand as t h e r e i s a l r e a d y a s u b s t a n t i a l e x i s t i n g market f o r "housewares" i n 1 24 g e n e r a l . 7 9 Thus, p r o m o t i o n aimed a t t h e f i n a l consumer i s a l m o s t a l l c a r r i e d o ut by i n d i v i d u a l m a n u f a c t u r e r s on b e h a l f of t h e i r own b r a n d s . T h e s e p r o m o t i o n a l e f f o r t s , m oreover, a r e g e n e r a l l y on b e h a l f o f not one i t e m b u t of a, o f t e n d e s i g n - c o o r d i n a t e d , " l i n e " o f h o u s e w a r e s . T h i s i s u n d o u b t e d l y one m a j o r a d v a n t a g e o v e r t h e f l a t w a r e i n d u s t r y ; t h e c o s t o f d e v e l o p i n g and u t i l i z i n g an i n - h o u s e s a l e s and d i s t r i b u t i o n c a p a b i l i t y can be s p r e a d o v e r a l a r g e r p r o d u c t b a s e . 6.1.4 D e s i g n i . O r g a n i z a t i o n In view of t h e emphasis on a h i g h e r l e v e l o f p r o d u c t d i f f e r e n t i a t i o n i t i s not s u r p r i s i n g t h a t t h e move i n t o t h i s i n d u s t r y makes an i n - h o u s e d e s i g n c a p a b i l i t y more c r u c i a l . i i . M ethod and L o c a t i o n The v a r i e t y of p r o d u c t s i n v o l v e d means t h a t t h e d e s i g n p r o c e s s must d e a l w i t h a w i d e r v a r i e t y o f t e c h n i c a l c o n s i d e r a t i o n s r e f l e c t i n g t h e d i f f e r e n c e s i n p r o d u c t i o n p r o c e s s e s and i n end-use of t h e p r o d u c t s . At t h e same t i m e , i t opens up t h e p o s s i b i l i t y , and p e r h a p s t h e c o m p e t i t i v e n e c e s s i t y , t o a p p l y a s i n g l e b a s i c d e s i g n a e s t h e t i c o v e r a w i d e r r a n g e o f c o o r d i n a t e d p r o d u c t s . Thus, t h e d e s i g n p r o c e s s t e n d s 7 9 Though t h e y do o p e r a t e a c o o p e r a t i v e "showroom" i n Tsubame C i t y . 1 25 to be more complex but a l s o more i n t e g r a t e d a c r o s s pro d u c t s . There i s some f e e l i n g t h a t , as regards the more f a s h i o n a b l e housewares, an urban design l o c a t i o n i s d e s i r e a b l e i n order to keep i n c l o s e r touch with the market. 1 26 6.2 O t h e r New B u s i n e s s e s Many f i r m s i n v o l v e d i n t h e f l a t w a r e i n d u s t r y have l e f t t h a t b u s i n e s s and not moved i n t o t h e housewares i n d u s t r y . Of t h e s e , some w i l l have gone b a n k r u p t , some w i l l have s i m p l y c l o s e d up shop and o t h e r s w i l l have a t t e m p t e d t o move i n t o new l i n e s of b u s i n e s s i n t h e m a n u f a c t u r i n g or s e r v i c e s e c t o r s . T h e r e i s , however, no o b l i g a t i o n f o r f i r m s t o r e p o r t t h e s e c h a n g e s t o a c e n t r a l a u t h o r i t y nor i s t h e r e any s i n g l e a u t h o r i t y c h a r g e d w i t h t h e r e p o n s i b i l i t y of m o n i t o r i n g s u c h c h a n g e s . T h e r e i s t h e r e f o r e , a d e a r t h of r e l e v a n t i n f o r m a t i o n . As a r e s u l t , we must r e l y l a r g e l y on i n d u s t r y a s s o c i a t i o n d a t a r e g a r d i n g p r e s e n t o r f o r m e r member f i r m s , and s u c h f i r m s t e n d t o be l a r g e r t h a n a v e r a g e . Even w i t h t h e s e l i m i t a t i o n s , t h i s d a t a i s of u n c e r t a i n c o m p r e h e n s i v i t y and, m o r e o v e r , does n o t i n c l u d e m i g r a t i o n i n t o t h e s e r v i c e i n d u s t r y s e c t o r . The i n d u s t r y a s s o c i a t i o n d a t a f o r 1974-1978 i n d i c a t e a t o t a l o f 47 f i r m s l e f t t h e i n d u s t r y , of w h i c h ; 53% wi t h d r e w from m a n u f a c t u r i n g e n t i r e l y , 28% e n t e r e d o t h e r m i s c e l l a n e o u s m e t a l f a b r i c a t i o n b u s i n e s s e s , 6% e n t e r e d n o n - f l a t w a r e r e l a t e d i n t e r m e d i a t e p r o d u c t i o n a s s p e c i a l i z e d s u b c o n t r a c t o r s ( m e t a l p l a t i n g , h e a t t r e a t i n g , e t c . ) and t h e r e m a i n i n g 13% e n t e r e d v a r i o u s m i s c e l l a n e o u s b u s i n e s s e s . 8 0 As t h e s e f i g u r e s i n d i c a t e , many o f t h e f i r m s l e a v i n g t h e i n d u s t r y may not be m i g r a t i n g t o a new b u s i n e s s but be s i m p l y s l i p p i n g i n t o e x t i n c t i o n . 0 J a p a n M e t a l F l a t w a r e I n d u s t r y A s s o c i a t i o n d a t a , c i t e d i n I k e d a (ed.) , op. c i t . p. 60. 1 27 Of t h e f i r m s w h i c h can be s a i d t o have m i g r a t e d t o a new b u s i n e s s , t h e r e i s some a d d i t i o n a l i n d u s t r y a s s o c i a t i o n d a t a on t h o s e moving i n t o o t h e r m a n u f a c t u r i n g b u s i n e s s e s . T h e r e i s a l s o o f f i c i a l government d a t a r e g a r d i n g f i r m s whose change of b u s i n e s s has been a i d e d by government a s s i s t a n c e programmes. T a b l e 10 o u t l i n e s t h e t i m i n g and t y p e of new b u s i n e s s e s e n t e r e d f o r 31 c a s e s between 1968 and 1978. As t h e t a b l e i n d i c a t e s , t h e r e was c o n s i d e r a b l e m i g r a t i o n t o new b u s i n e s s b e f o r e t h e i n t r o d u c t i o n o f government a s s i s t a n c e programmes. On t h e b a s i s o f t h e t a b l e we c a n make some s p e c u l a t i v e o b s e r v a t i o n s as t o t h e n a t u r e o f t h e new b u s i n e s s e s e n t e r e d . A few of them a p p e a r t o i n v o l v e a c o n t i n u a t i o n of a p r e v i o u s s p e c i a l i z e d a c t i v i t y , s u c h as h e a t t r e a t i n g o r m e t a l p l a t i n g , but r e - f o c u s s e d on a d i f f e r e n t c u s t o m e r b a s e . A s u b s t a n t i a l number i n v o l v e a change t o p a r t s p r o d u c t i o n f o r a n o t h e r , more p r o s p e r o u s , i n d u s t r y s u c h as e l e c t r o n i c s or a u t o m o b i l e s . The l a r g e s t number, however, r e p r e s e n t a move t o t h e p r o d u c t i o n of a d i s t i n c t new f i n i s h e d good. Today, i f not a t t h e t i m e o f m i g r a t i o n , a r o u n d o n e - q u a r t e r of t h i s l a t t e r g r o u p o f f i n i s h e d goods now f a c e c o m p e t i t i o n from LDCs s i m i l a r t o t h a t f o u n d i n s t a i n l e s s s t e e l f l a t w a r e ( e . g . , e y e g l a s s f r a m e s , watch b a n d s ) . W i t h one, l o n e , e x c e p t i o n ( g o l f b a l l s ) , a l l o f t h e s e new p r o d u c t l i n e s have an e v i d e n t l i n k w i t h t h e p r e - e x i s t i n g m e t a l f a b r i c a t i o n s k i l l s o f t h e f i r m s . In most c a s e s , t h e e n t r y i n t o t h e new b u s i n e s s seems t o i n v o l v e t h e l o c a t i o n of a n i c h e i n an e x p a n d i n g , but p r e - e x i s t i n g , d o m e s t i c i n d u s t r y s u c h as h o u s i n g or l e i s u r e equipment (window s a s h e s , 1 28 Ta b l e 10 - M i g r a t i o n s Out of the F l a t w a r e I n d u s t r y i n t o New M a n u f a c t u r i n g B u s i n e s s e s ^ \ I t e m Independent P r e f e c t u r a l Support F e d e r a l Support No. New Business No. New Business No. New Business Petal L968 5 S c i s s o r s Machinery P a r t s S t a i n l e s s S t e e l R o l l i n g Sewing Machine P a r t s S t a i n l e s s Bath- tubs 5 L969 1 Metal Tempering 1 1.970 1 Valves 1 1971 2 • Auto P a r t s E y e g l a s s Frames 2 L972 3 Curve M i r r o r s Kendo Facemasks Window Sashes 1 Curve M i r r o r s 4 1973 2 G o l f B a l l s Watchbands 3 E l e c t r i c a l E q u i j P a r t s C o n s t r u c t i o n Equip. P a r t s B i c y c l e P a r t s 5 L974 2 Auto P a r t s Window Sashes 1 Auto P a r t s 3 L975 2 P r i c e Marker Wooden Products 1 House F i x t u r e s 3 L976 L977 2 Metal Tempering Home E x e r c i s e Equip. 4 F r e e z e r P a r t s L i g h t i n g F i x t u r e s Aluminum Handled C u t l e r y Sprayer 2 4 1978 1 Pump P a r t s & L i g h t i n g F i x - t u r e s 1 T o t a l 20 6 5 31 Source: Japan Metal F l a t w a r e I n d u s t r y A s s o c i a t i o n 1 29 housing f i x t u r e s , e x e r c i s e equipment). In only a few cases i s there c l e a r evidence of i n n o v a t i v e product development. There are two p a r t i c u l a r l y i n t e r e s t i n g examples of t h i s type; s p o r t s s t e e r i n g wheels and "curve m i r r o r s " . In the f i r s t case, the new product was i n respoonse to a growing demand among young d r i v e r s f o r custom automobile a c c e s s o r i e s . A s u b s t a n t i a l market had developed f o r replacement " s p o r t s " s t e e r i n g wheels, most of which were imported from I t a l y . One Tsubame f i r m which had experience i n producing wooden handled s t a i n l e s s s t e e l f l a t w a r e was a b l e to d i r e c t that experience i n t o the development of a s t a i n l e s s s t e e l and r e i n f o r c e d wood s p o r t s s t e e r i n g wheel which i t s u c c e s s f u l l y marketed d o m e s t i c a l l y through s p e c i a l t y auto a c c e s s o r y s t o r e s . In the second case, the new product was a l s o l i n k e d to the d i f f u s i o n of the automobile i n the domestic market. While the number of p r i v a t e automobiles on the road i n Japan i n c r e a s e d by a f a c t o r of more than ten between 1965 and 1978, the amount of roads only i n c r e a s e d by about 15%. 8 1 Moreover, Japanese roads u s u a l l y do not separate p e d e s t r i a n and automotive t r a f f i c very e f f e c t i v e l y (there are few sidewalks) and are extremely narrow and t w i s t i n g compared to those i n , say, North America. Thus, one of the most u b i q u i t o u s of t r a f f i c s a f e t y d evices i s the "curve m i r r o r " , which c o n s i s t s of a l a r g e ( about one-half metre) convex m i r r o r mounted on a p e d e s t a l at sharp bends in the road. T h i s a f f o r d s people a preview of the oncoming automobile 1 K e i z a i Tokei Nenran, 1980 (Toyo K e i z a i Shinposha, Tokyo, 1980) p 304. 1 30 and p e d e s t r i a n t r a f f i c t h a t a w a i t s them a r o u n d t h e c o r n e r . These m i r r o r s were made out of p l a t e g l a s s , i n much t h e same manner a s h o u s e h o l d m i r r o r s . One of t h e f i r m s i n t h e Tsubame f l a t w a r e i n d u s t r y saw t h e o p p o r t u n i t y t o a p p l y t h e i r m e t a l p o l i s h i n g e x p e r t i s e and d e v e l o p an a l t e r n a t i v e t y p e of c u r v e m i r r o r made out o f h i g h l y p o l i s h e d s t a i n l e s s s t e e l . They s u c c e s s f u l l y d i d so and t h e a d v a n t a g e of much s u p e r i o r d u r a b i l i t y i n h a n d l i n g and i n use has won them c o n s i d e r a b l e s u c c e s s i n t h i s l a r g e d o m e s t i c m a r k e t . As we i n d i c a t e d a t t h e o u t s e t of t h i s s e c t i o n , t h e r e i s a v e r y l i m i t e d amount of i n f o r m a t i o n a v a i l a b l e r e g a r d i n g m i g r a t i o n t o new b u s i n e s s e s . Thus, any c o n c l u s i o n s must be v i e w e d as h i g h l y s p e c u l a t i v e . W i t h t h a t p r o v i s o , t h e p r e c e d i n g d i s c u s s i o n , b a s e d on t h e e x p e r i e n c e of 47 f l a t w a r e i n d u s t r y a s s o c i a t i o n members, s u g g e s t s t h a t movement- out of t h e f l a t w a r e i n d u s t r y ( a s i d e from movement i n t o t h e h o usewares i n d u s t r y ) has had t h e f o l l o w i n g o v e r a l l p a t t e r n ; W i t h d r a w a l f r o m b u s i n e s s [53%] a) B a n k r u p t c y , c l o s u r e 8 2 (21%) b) O t h e r 8 3 (32%) M i g r a t i o n t o New B u s i n e s s [47%] a) Same a c t i v i t y , new c u s t o m e r s (5%) b) Dependent s u b c o n t r a c t i n g of p a r t s (16%) c) F i n i s h e d goods p r o d u c t i o n (26%) 2 I n c l u d e s one m e r g e r . 3 T h i s may i n c l u d e movement i n t o s e r v i c e i n d u s t r i e s . 131 7. MIXED STRATEGIES Some s t r a t e g i e s appear to combine two or more of the major types d i s c u s s e d above. We w i l l d i s c u s s one example. A company c a l l e d T s u i n Baado ("Twin B i r d " ) Kogyo has implemented a s t r a t e g y which combines movement i n t o new businesses, a focus on the domestic market, and the p r o d u c t i o n of h i g h e r - p r i c e d l i n e s of f l a t w a r e . 8 4 T h i s company had been a subcontractor of chromeplating f o r auto p a r t s but moved to the f l a t w a r e i n d u s t r y i n the mid-1960's as a means of escaping the dependency of s u b c o n t r a c t o r s t a t u s . The product which best e x e m p l i f i e s t h i s s t r a t e g y i s t h e i r " P r i e r e " l i n e of c o o r d i n a t e d f l a t w a r e , hollow-ware ( c o f f e e pots, s e r v i n g d i s h e s , e t c . ) , and chinaware. The Japanese custom of g i f t - g i v i n g supports a l a r g e g i f t market in which Tsuin Baado Kogyo f e l t i t might f i n d some o p p o r t u n i t i e s . I n v e s t i g a t i o n by the company r e v e a l e d t h a t ceramics products h e l d about 50% of the g i f t market while v a r i o u s metalwares ( i n c l u d i n g f l a t w a r e ) accounted fo r only 10%. T h i s gave r i s e to the idea of g a i n i n g more acceptance f o r the f i r m ' s f l a t w a r e i n t h i s market by l i n k i n g i t to ceramics which, as a generic type, enjoyed a much l a r g e r demand in the g i f t market. The company decided to do so by o f f e r i n g a c o o r d i n a t e d " t a b l e s e t t i n g " . Chinaware pr o d u c t i o n methods are q u i t e d i s t i n c t from those of s t a i n l e s s s t e e l f l a t w a r e and many of the t r a d i t i o n a l Japanese " T h i s d i s c u s s i o n of Tsuin Baado Kogyo i s based on a p u b l i s h e d i n t e r v i e w given by the company's managing d i r e c t o r . See, " J i b a Sangyo Rida no Okina Chie" i n Shoko J i a n a r u August, 1980 pp 5-7. 1 3 2 ceramics sanchi have e s t a b l i s h e d r e p u t a t i o n s . For t h i s reason, the company decided to look f o r o u t s i d e c o l l a b o r a t i o n . I t chose to u t i l i z e f i r m s i n the T a j i m i ceramics s a n c h i . T h i s s a n c h i , besides being well-known in the domestic market, has a f i n e d i v i s i o n of labour among numerous s p e c i a l i s t f i r m s ; much l i k e Tsubame. T h i s enabled the company to n e g o t i a t e from a p o s i t i o n of r e l a t i v e s t r e n g t h and o b t a i n lower-cost p r o d u c t i o n of the chinaware component than would have been p o s s i b l e had the f i r m approached l a r g e r firms i n some of the other ceramics s a n c h i . The new combined product l i n e has been h i g h l y s u c c e s s f u l and made a major c o n t r i b u t i o n to an annual growth r a t e i n s a l e s between 1977 and 1980 of over 40%. There has now, moreover, proven to be a s u b s t a n t i a l export market for the " P r i e r e " l i n e . In my view, t h i s i s b a s i c a l l y a s t r a t e g y of moving to h i g h e r - p r i c e d l i n e s of f l a t w a r e p r o d u c t i o n . The i n i t i a l emphasis on the domestic g i f t market and the t i e - u p with a l i n e of c o o r d i n a t e d chinaware are, then, merely t a c t i c s i n support of that s t r a t e g y . There i s , however, room for argument. T h i s can a l s o be seen as an example of how a number of s t r a t e g i e s which are (at l e a s t i n theory) independently v i a b l e need not n e c e s s a r i l y be incompatible with each other. In that case, given the necessary resources, a number of d i s t i n c t s t r a t e g i e s can be j o i n t l y , and perhaps s y n e r g i s t i c a l l y , implemented. 1 33 8. ADJUSTMENT EFFECTIVENESS AND PROSPECTS Any conclusions regarding the fate of the Tsubame stainless steel flatware industry and i t s participants must be speculative as the adjustment process i s by no means complete. It i s , nevertheless, possible to make a tentative assessment. 8.1 Apparent Effectiveness Of Adjustment Strategies While Tsubame cannot be said to have completed an adjustment process and arrived at a new period of growth, or even s t a b i l i t y , the adjustment strategies that have been adopted have already had an impact. Overall, the unit volume of production had, by the end of the decade, recovered to approximately the peak l e v e l reached in 1970. P r o f i t a b i l i t y , too, had returned to more normal levels following a steep decline that lasted through most of the decade. While we have l i t t l e d i r e c t information on the effectiveness of cost-reduction e f f o r t s , the industry was able to reduce the yen price (in real terms) of low-grade flatware exported to the Mid East and A f r i c a region; the one market in which low-cost, price-competitive l i n e s continue to account for almost a l l sales. So, too, e f f o r t s to move production into new markets less exposed to Korean competition had some e f f e c t . The share of the Mid East and A f r i c a region in Japanese exports rose from 10% to 23.4%, by volume, and from 6.4% to 15.3%, by value, between 1970 and 1979. S i m i l a r l y , the share of the domestic market in t o t a l production rose from 11.5% to 18.6%, by volume, and from 15% to 1 34 30.5% by value over the same p e r i o d . The r e l a t i v e l y g r e a t e r i n c r e a s e by value r e f l e c t s the move towards h i g h e r - p r i c e d l i n e s of f l a t w a r e . As a g a i n s t t h i s , however, the r e v i v a l i n Japanese production i n 1979-1980 was undoubtedly helped by Korean i n f l a t i o n and exchange r a t e c o n t r o l s that supported the exchange value of the Korean Won. Japanese p r o d u c t i o n , j u s t as s u r e l y , c o u l d be expected to be a d v e r s e l y a f f e c t e d by the subsequent d e v a l u a t i o n s of the Korean Won. Moreover, whatever the trends in Japanese p r o d u c t i o n l e v e l s , producers i n Korea and Taiwan continued to g a i n , and the Japanese to l o s e , i n o v e r a l l export market share. Korean producers were a l s o making s u b s t a n t i a l inroads i n t o the Mid East and A f r i c a markets by the l a t t e r h a l f of the 1970's. They were, moreover, beginning to move i n t o h i g h e r - p r i c e d l i n e s of f l a t w a r e by s e l l i n g m o d e r a t e l y - p r i c e d i m i t a t i o n s of t r a d i t i o n a l S h e f f i e l d f l a t w a r e p a t t e r n s . The v a r i e t y of examples precludes any simple g e n e r a l i z a t i o n s r e g a r d i n g m i g r a t i o n i n t o new b u s i n e s s e s . I t i s f a i r to say, however, that some of the migrants appear to be now l o c a t e d i n i n d u s t r i e s which face s u b s t a n t i a l l y l e s s t h r e a t from LDC producers, both now and f o r some years to come. In other cases, the movement i n t o a new business has not so c l e a r l y removed the t h r e a t of LDC c o m p e t i t i o n ; whether from LDC producers of f l a t w a r e or of other products. Housewares i s p u t a t i v e l y the "new b u s i n e s s " to which the l a r g e s t amount of m i g r a t i o n has o c c u r r e d and a l r e a d y by the end of the 1970's t h i s i n d u s t r y , too, was beginning to face c o m p e t i t i o n from LDC 1 35 producers. N e v e r t h e l e s s , i n 1980, i t remained a more a t t r a c t i v e i n d u s t r y than s t a i n l e s s s t e e l f l a t w a r e i n t h i s respect and continued to enjoy higher average l e v e l s of p r o f i t (a 5.9% r e t u r n on investment versus the f l a t w a r e i n d u s t r y ' s 0.5%). Firms seeking a major manufacturing r o l e i n the housewares i n d u s t r y , however, face not only the need for s u b s t a n t i a l product development e f f o r t s but a l s o , along with even the minor subcontactors moving out of the f l a t w a r e i n d u s t r y , severe competition from e x i s t i n g f i r ms and from f e l l o w would-be migrants. 8.2 Prospects 8.2.1 Tsubame Region As the h i s t o r i c a l i n t r o d u c t i o n p o i n t e d out, the Tsubame region has s u r v i v e d a number of e a r l i e r p e r i o d s of t r a n s i t i o n i n i t s i n d u s t r i a l base and gone on to g r e a t e r p r o s p e r i t y . I t s s u r v i v a l , t h i s time, i s not i n q u e s t i o n . I t i s , r a t h e r , a matter of the degree of medium-term d e c l i n e that the problems of the f l a t w a r e i n d u s t r y might i n f l i c t on the r e g i o n . T h i s c o u l d w e l l be minimal, p r o v i d e d only that the Japanese n a t i o n a l economy does not founder. Good, and improving, t r a n s p o r t a t i o n and communications l i n k s with Japan's major urban c e n t r e s and e s t a b l i s h e d s t a t u s as a lower-cost i n d u s t r i a l c e n t r e make Tsubame an a t t r a c t i v e l o c a t i o n f o r Japanese i n d u s t r y . Much of i t s e x i s t i n g labour f o r c e and f i r m s o f f e r s u b c o n t r a c t i n g c a p a b i l i t i e s , such as metal f o r g i n g , metal f i n i s h i n g , and d i e and mold p r o d u c t i o n , of broad 1 36 u t i l i t y . Many of t h e s e , m oreover, a r e o r g a n i z e d i n t o s e p a r a t e , s p e c i a l i s t f i r m s w h i c h may have more i n t e r - i n d u s t r y m o b i l i t y t h e r e b y . A s i d e f r o m p o t e n t i a l new i n d u s t r i e s , Tsubame has a l r e a d y a number of o t h e r i n d u s t r i e s on w h i c h t o base f u t u r e g r o w t h . These i n c l u d e , i n a d d i t i o n t o t h e b u s i n e s s e s m e n t i o n e d i n p r i o r d i s c u s s i o n , t h e p r o d u c t i o n o f f a r m m a c h i n e r y as w e l l as e quipment and m a c h i n e r y u s e d by t h e f l a t w a r e and h o usewares i n d u s t r i e s t h e m s e l v e s . In t h e l a t t e r c a s e , t h e equipment and t h e f i r m s p r o d u c i n g i t , have c a p a b i l i t i e s t h a t do not l i m i t t h e i r u t i l i t y t o t h e f l a t w a r e and h o u s e w a r e s i n d u s t r i e s . Of c o u r s e , t h e s e f i r m s , l i k e t h e s p e c i a l i s t s u b c o n t r a c t o r s and o t h e r s p r e s e n t l y l i n k e d t o t h e f l a t w a r e i n d u s t r y , a r e u n l i k e l y t o c a s u a l l y abandon t h a t i n d u s t r y . However g r e a t t h e i r i n h e r e n t m o b i l i t y , c h a n g i n g t h e i r a l l e g i a n c e t o a new i n d u s t r y w i l l pose many u n f a m i l i a r u n c e r t a i n t i e s . The r e c e n t c o u r s e of t h e f l a t w a r e i n d u s t r y has p r o b a b l y been s u f f i c i e n t l y ambiguous t o i n h i b i t somewhat t h e s e a r c h f o r g r e e n e r p a s t u r e s by some of t h e s e f i r m s . Thus, g i v e n t h e p o t e n t i a l i n t e r - i n d u s t r y m o b i l i t y o f many of i t s f i r m s , t h e g r e a t e s t harm t o t h e r e g i o n a l economy mi g h t come no t from t h e d e c l i n e , p e r s e , of t h e f l a t w a r e i n d u s t r y but from a slow and i r r e g u l a r d e c l i n e w h i c h had t h e e f f e c t o f u n n e c e s s a r i l y d e l a y i n g what would p r o b a b l y be, from t h e r e g i o n a l p e r s p e c t i v e , a r a p i d and s u c c e s s f u l a d j u s t m e n t . 1 37 8.2.2 The F l a t w a r e I n d u s t r y The e x p r e s s e d g o a l of t h e f l a t w a r e i n d u s t r y a s s o c i a t i o n i s , a t a minimum, t o m a i n t a i n p r e s e n t e x p o r t volume w h i l e r e d u c i n g i t s p r e s e n t s h a r e of t o t a l o u t p u t ( a b o u t 75%) by 10% t o 15% as th e d o m e s t i c market i s d e v e l o p e d . The hope, m o r e o v e r , i s t o m a i n t a i n t h e p r e s e n t e m p h a s i s (65% of e x p o r t s ) on a h i g h volume of l o w - p r i c e d l i n e s of f l a t w a r e , w h i l e s w i t c h i n g some of t h e b a l a n c e of e x p o r t c a p a c i t y o u t of m e d i u m - p r i c e and i n t o h i g h e r - p r i c e l i n e s . 8 5 In my vie w , however, f a i l i n g some s p e c t a c u l a r , and e x c l u s i v e , i n n o v a t i o n i n p r o d u c t i o n t e c h n o l o g y , t h e Tsubame f l a t w a r e i n d u s t r y i s u n l i k e l y t o m a i n t a i n i t s e x i s t e n c e as an i n d u s t r y of a n y t h i n g l i k e i t s p r e s e n t s i z e and s t r u c t u r e . Of t h e i n d i v i d u a l a d j u s t m e n t s t r a t e g i e s d i s c u s s e d , o n l y t h e move t o h i g h e r q u a l i t y l i n e s and t h e p o t e n t i a l d o m e s t i c market a p p e a r t o o f f e r l o n g - t e r m p r o s p e c t s ; and even t h e s e o f f e r , a t b e s t , much r e d u c e d u n i t v o l u m e s . The h i g h e r - p r i c e l i n e s of f l a t w a r e a r e d o m i n a t e d by t h e famous w e s t e r n m a n u f a c t u r e r s and t h e i r p o s i t i o n c a n n o t be s e r i o u s l y e r o d e d m e r e l y by a J a p a n e s e c o s t a d v a n t a g e . The e x p a n s i o n of t h e d o m e s t i c m a r k e t , as w e l l , i s l i k e l y t o i n v o l v e r e l a t i v e l y s m a l l v o l u m e s o f h i g h e r q u a l i t y f l a t w a r e and, t h u s , c o n s i d e r a b l e c o m p e t i t i o n from e s t a b l i s h e d w e s t e r n m a n u f a c t u r e r s . The b e s t l o n g - t e r m p r o s p e c t s f o r J a p a n e s e f l a t w a r e p r o d u c t i o n a r e l i k e l y t o be as a p a r t of a w i d e r r a n g e o f j o i n t l y m a r k e t e d , c o o r d i n a t e d c o m p l e m e n t a r y 5 P u b l i s h e d i n t e r v i e w w i t h t h e d i r e c t o r o f t h e i n d u s t r y a s s o c i a t i o n . See, K a i g a i S h i j o 9/80 p 58. 1 38 p r o d u c t s . Of t h e p o s s i b l e " p a r t n e r - p r o d u c t s " , t h a t w h i c h i s most l i k e l y t o f a c i l i t a t e J a p a n e s e p r o d u c t i o n of h i g h e r - p r i c e d f l a t w a r e i s p r o b a b l y c h i n a w a r e ; a c o m p l e m e n t a r y p r o d u c t i n w h i c h J a p a n has an e s t a b l i s h e d r e p u t a t i o n b o t h d o m e s t i c a l l y and i n t e r n a t i o n a l l y . Even i f t h i s i s t o be t h e f u t u r e of J a p a n e s e f l a t w a r e p r o d u c t i o n , i t i s n o t c l e a r t h a t t h e e x i s t i n g f l a t w a r e p r o d u c e r s w i l l t h e m s e l v e s be t h e d o m i n a n t f i g u r e s . T h e r e a r e a l r e a d y a number of J a p a n e s e c e r a m i c s p r o d u c e r s w i t h e s t a b l i s h e d r e p u t a t i o n s and i n t e r n a t i o n a l s a l e s c a p a b i l i t i e s i n q u a l i t y c h i n a w a r e . They would a p p e a r t o be t h e most l i k e l y c a n d i d a t e s t o d o m i n a t e any s u c h i n t e r - i n d u s t r y c o l l a b o r a t i o n , w h a t e v e r o r g a n i z a t i o n a l form ( a c q u i s i t i o n , s u b c o n t r a c t i n g , e t c . ) i t m i g h t t a k e . They would a l s o , m o r e o v e r , be most f r e e t o s w i t c h t o i n t e r n a t i o n a l s u b c o n t r a c t i n g o f 'the f l a t w a r e component o f a c o m b i n e d p r o d u c t l i n e i n t h e LDCs. In any c a s e , t h e p r o s p e c t w o u l d a p p e a r t o be f o r a f l a t w a r e i n d u s t r y o f g r e a t l y r e d u c e d s i z e , p e r h a p s as l i t t l e a s o n e - f i f t h of i t s p r e s e n t volume of p r o d u c t i o n w i t h i n t e n y e a r s t i m e . As e a r l i e r d i s c u s s i o n i n d i c a t e d , however, t h e a c t u a l p a c e and form o f change w i l l be d e t e r m i n e d n o t s o l e l y by t h e s t r a t e g i e s and t a c t i c s a d o p t e d w i t h i n t h e Tsubame f l a t w a r e i n d u s t r y b u t , a l s o , by d e v e l o p m e n t s i n t h e e x t e r n a l e n v i r o n m e n t ; r e g i o n a l l y , d o m e s t i c a l l y , and i n t e r n a t i o n a l l y . 1 39 8.2.3 I n d u s t r y P a r t i c i p a n t s A d j u s t m e n t means d i f f e r e n t t h i n g s t o t h e v a r i o u s t y p e s o f p a r t i c i p a n t s i n t h e i n d u s t r y . M o r e o v e r , f o r any one t y p e o f p a r t i c i p a n t , t h e n e c e s s i t y and p r o s p e c t s f o r a d j u s t m e n t depend on t h e n a t u r e of t h e s u r r o u n d i n g p a t t e r n of a d j u s t m e n t i n t h e i n d u s t r y and r e g i o n . However, a d o p t i n g t h e p r e c e d i n g p r o g n o s e s f o r t h e r e g i o n and t h e i n d u s t r y a s a b a s i s f o r d i s c u s s i o n , one can c o n s i d e r t h e i m p l i c a t i o n s f o r t h e major m a n u f a c t u r e r s o f f l a t w a r e . I f t h e i n d u s t r y i s t o come t o f o c u s on t h e p r o d u c t i o n o f s m a l l e r volumes of h i g h e r - p r i c e and h i g h e r - q u a l i t y l i n e s o f f l a t w a r e , t h e n t h e a d j u s t m e n t p r o c e s s w i l l f a v o u r t h o s e c o m p a n i e s w h i c h have t h e g r e a t e s t i n - h o u s e c a p a b i l i t i e s f o r i n t e g r a t e d p r o d u c t i o n and q u a l i t y c o n t r o l . On t h e f a c e of i t , i t m i g h t seem t h a t t h i s w i l l c l e a r l y f a v o u r t h o s e f i r m s w h i c h a l s o have a s u b s t a n t i a l i n - h o u s e d e s i g n and m a r k e t i n g c a p a b i l i t y . I f we p o s i t , however, t h a t h i g h e r - p r i c e d l i n e s o f f l a t w a r e c an b e s t be m a r k e t e d a s a p a r t of a b r o a d e r l i n e o f c o m p l e m e n t a r y p r o d u c t s , t h e n i t i s l e s s e v i d e n t t h a t t h o s e f l a t w a r e p r o d u c e r s w i t h e x i s t i n g d e s i g n and m a r k e t i n g s k i l l s w i l l f a c e t h e s m o o t h e s t a d j u s t m e n t . To e l a b o r a t e on t h i s p o i n t , we can t a k e s t a i n l e s s s t e e l h o usewares and c h i n a w a r e as t h e most p r o m i s i n g c o m p l e m e n t a r y p r o d u c t s . In e i t h e r c a s e , t h e r e a r e a l t e r n a t i v e o r g a n i z a t i o n a l modes of c o m b i n i n g them w i t h f l a t w a r e i n a l i n e of c o m p l e m e n t a r y 1 40 p r o d u c t s . F o r example; 1 . F l a t w a r e p r o d u c e r i n c o r p o r a t i n g complement 2. Complement p r o d u c e r i n c o r p o r a t i n g f l a t w a r e 3. F l a t w a r e - c o m p l e m e n t a l l i a n c e ( F l a t w a r e p r o d u c e r d o m i n a n t ) 4. C o m p l e m e n t - f l a t w a r e a l l i a n c e (Complement p r o d u c e r d o m i n a n t ) The f l a t w a r e p r o d u c e r w i t h s u b s t a n t i a l e x i s t i n g i n - h o u s e d e s i g n and m a r k e t i n g c a p a b i l i t i e s i s l i k e l y t o seek c o m b i n a t i o n 1. o r 3.; b o t h b e c a u s e t h o s e c a p a b i l i t i e s make them more f e a s i b l e and b e c a u s e of t h e d e s i r e f o r a r e t u r n on t h e sunk i n v e s t m e n t i n them. The p r o d u c e r w i t h o u t s u c h i n - h o u s e c a p a b i l i t i e s w i l l , on t h e o t h e r hand, be more amenable t o c o m b i n a t i o n s 2. or 4. Thus, w h i c h o f them p r o v e s t o have t h e s m o o t h e s t and most s u c c e s s f u l a d j u s t m e n t depends c r u c i a l l y upon w h e t h e r t h e e x i s t i n g f l a t w a r e p r o d u c e r s o r t h e e x i s t i n g complement p r o d u c e r s a r e b e s t p o s i t i o n e d t o e x p l o i t a b r o a d e n e d p r o d u c t l i n e . T h e r e i s , however, t h e p r i o r and c r u c i a l q u e s t i o n of w h i c h c o m p l e m e n t a r y p r o d u c t , s t a i n l e s s s t e e l h o u sewares or c h i n a w a r e , w i l l p r o v e t h e most e f f e c t i v e . T hese two have d i f f e r e n t i m p l i c a t i o n s f o r t h e f o u r modes o f o r g a n i z a t i o n a l c o m b i n a t i o n . In p a r t i c u l a r , t h e h o usewares complement w o u l d seem t o f a c i l i t a t e i n c o r p o r a t i o n o f t h e p r o d u c t s w i t h i n one f i r m (modes 1. and 2 . ) , b e c a u s e of t h e b a s i c s i m i l a r i t i e s i n p r o d u c t i o n p r o c e s s e s and t h e s u i t a b i l i t y of t h e l o c a l i n f r a s t r u c t u r e ( i n c l u d i n g r e l a t e d i n d u s t r i e s ) f o r c e n t r a l i z e d p r o d u c t i o n i n 141 Tsubame. The d i s t i n c t l y d i f f e r e n t p r o d u c t i o n p r o c e s s e s f o r c h i n a w a r e and f l a t w a r e , and t h e l i k e l i h o o d of d i f f e r e n t i n f r a s t r u c t u r a l s u p p o r t r e q u i r e m e n t s , would, on t h e o t h e r hand, be l i k e l y t o f a v o u r some form of a l l i a n c e ( i n c l u d i n g a c q u i s i t i o n ) between g e o g r a p h i c a l l y s e p a r a t e p r o d u c e r s i n t h e two i n d u s t r i e s (modes 3. and 4 . ) . In my own v i e w , t h e most e f f e c t i v e complement p r o d u c t f o r h i g h e r - p r i c e d f l a t w a r e i s l i k e l y t o be c h i n a w a r e . In t h a t e v e n t , d e s i g n and m a r k e t i n g c a p a b i l i t i e s ( i n c l u d i n g e x i s t i n g b r a n d r e c o g n i t i o n ) a r e l i k e l y t o f a v o u r t h e emergence of p r o d u c e r s i n t h e c h i n a w a r e i n d u s t r y as t h e dominant p a r t n e r s ( o r p a r e n t c o m p a n i e s ) t o t h e f l a t w a r e p r o d u c e r s , a t l e a s t as r e g a r d s p r o d u c t i o n f o r e x p o r t m a r k e t s . W i t h r e s p e c t t o t h e d o m e s t i c m a r k e t , t h e r e i s s c o p e f o r an a l l i a n c e between f l a t w a r e and t h e weaker c h i n a w a r e p r o d u c e r s i n w h i c h t h e t h e f l a t w a r e p r o d u c e r s a r e e i t h e r d ominant (as i n t h e c a s e of T s u i n Bado K o g y o ) , or c o e q u a l . F i g u r e 11 i n d i c a t e s some of t h e v a r i o u s f e a s i b l e c o a l i t i o n s between f l a t w a r e and c o m p l e m e n t a r y p r o d u c t s , i n what I t a k e t o be t h e i r d e s c e n d i n g o r d e r o f f e a s i b i l i t y and l i k e l y e f f e c t i v e n e s s . W h i c h e v e r of t h e s e u l t i m a t e l y p r o v e s t o be t h e most e f f e c t i v e , i t seems l i k e l y t h a t , i n t h e medium-term, a number of them w i l l c o n t e n d , a l o n g w i t h f o r e i g n c o m p e t i t o r s , f o r market s h a r e . T h u s , f o r i n t e g r a t e d m a n u f a c t u r e r s who c h o o s e t o r e m a i n i n t h e f l a t w a r e b u s i n e s s , t h e r e i s t h e p r o s p e c t o f a t u m u l t u o u s d e c a d e a h e a d and t h e l i k e l i h o o d t h a t o n l y a few w i l l be a b l e t o F i g u r e 1 1 - 142 A l t e r n a t i v e Forms of C o a l i t i o n Between F l a t w a r e and Complementary P r o d u c t s Housewares F l a t w a r e Chinaware S ^ * s Notes: 1. P « ^ S s i g n i f i e s a P a r e n t / S u b s i d i a r y - t y p e r e l a t i o n s h i p w i t h the p a r e n t (P) h a v i n g m a n a g e r i a l c o n t r o l . 2 . D «^^S s i g n i f i e s an a l l i a n c e between f i r m s i n which one f i r m i s dominant (D) and the o t h e r i s s u b o r d i n a t e (S) i n the a l l i a n c e . 3. The o r d e r i n g o f the h y p o t h e t i c a l c o a l i t i o n s i s i n what I p e r c e i v e t o the t h e i r d e c l i n i n g o r d e r o f f e a s i b i l i t y and e f f e c t i v e n e s s . 1 43 s u c c e e d . 1 44 V. EVIDENCE FROM SOME OTHER INDUSTRIES 1. OUTLINE The c a s e s t u d y of t h e Tsubame s t a i n l e s s s t e e l c u t l e r y i n d u s t r y b e n e f i t t e d from a v i s i t t o Tsubame and d i s c u s s i o n s w i t h t h e l o c a l i n d u s t r y r e p r e s e n t a t i v e s , b a n k e r s , m u n i c i p a l government spokesmen, m a n u f a c t u r e r s and w h o l e s a l e r s and from i n t e r v i e w s i n N i i g a t a c i t y w i t h p r e f e c t u r a l government spokesmen. I t would be d e s i r e a b l e t o have c a r r i e d o u t a number of c o m p a r a t i v e c a s e s t u d i e s o f o t h e r i n d u s t r i e s a t t h e same l e v e l of d e t a i l . Because o f t h e c o n s t r a i n t s under w h i c h t h e f i e l d r e s e a r c h was c o n d u c t e d , t h i s was n o t p o s s i b l e . I t was p o s s i b l e , however, t o d e v e l o p b r i e f e r c a s e s t u d i e s of t h r e e o t h e r r e l e v a n t i n d u s t r i e s on t h e b a s i s of i n t e r v i e w s , i n T o kyo, w i t h c o n c e r n e d i n d u s t r y and government o f f i c i a l s and a s u r v e y o f t h e l i t e r a t u r e , i n c l u d i n g government r e p o r t s , r e g a r d i n g t h e s e i n d u s t r i e s . T h i s p r e s e n t c h a p t e r p r e s e n t s t h e s e t h r e e a d d i t i o n a l c a s e s t u d i e s . They p r o v i d e a u s e f u l b a s i s f o r c o m p a r i s o n s o f t h e b r o a d f e a t u r e s of a d j u s t m e n t between e a c h o t h e r and w i t h Tsubame. M i g r a t i o n i n t o new l i n e s of b u s i n e s s i s a mode of a d j u s t m e n t r e g a r d i n g w h i c h t h e r e i s r e l a t i v e l y l i t t l e e m p i r i c a l e v i d e n c e a v a i l a b l e . The c h a p t e r c o n c l u d e s , t h e r e f o r e , w i t h a d i s c u s s i o n of f u r t h e r e v i d e n c e r e g a r d i n g i n t e r - i n d u s t r y v a r i a t i o n i n t h e p a t t e r n o f m i g r a t i o n i n t o new l i n e s o f b u s i n e s s . 1 45 2. NON-LEATHER FOOTWEAR 2. 1 I n t r o d u c t i o n The J a p a n e s e a r t i f i c i a l l e a t h e r f o o t w e a r i n d u s t r y 8 6 i s c e n t r e d i n Kobe and, i n t h e e a r l y 1970's, was h i g h l y e x p o r t - o r i e n t e d , i n 1970, t h e Kobe s a n c h i e x p o r t e d 40% by volume and 51% by v a l u e o f i t s t o t a l p r o d u c t i o n . A l m o s t a l l o f t h e s e e x p o r t s (95%) were t o t h e U n i t e d S t a t e s . As a r e s u l t of c o m p e t i t i o n from p r o d u c e r s i n K o r e a and T a i w a n , t o t a l i n d u s t r y e x p o r t s t o t h e U.S.A. f e l l f rom a b o u t 38 m i l l i o n p a i r s i n 1971 t o l e s s t h a n o n e - h a l f m i l l i o n p a i r s i n 1977. The t o t a l volume of a n n u a l p r o d u c t i o n i n Kobe f e l l t o 46% of t h e 1971 f i g u r e o v e r t h e same p e r i o d . D e s p i t e t h i s a l m o s t t o t a l l o s s o f t h e t r a d i t i o n a l e x p o r t market and a h a l v i n g of t h e volume of p r o d u c t i o n , t h e i n d u s t r y s u r v i v e d t h e p e r i o d w i t h o u t any major b a n k r u p t c i e s or r e d u c t i o n i n t h e number of m a n u f a c t u r e r s . A l l t h e more r e m a r k a b l y , t h e J a p a n e s e i n d u s t r y managed t o i n c r e a s e t h e v a l u e of i t s p r o d u c t i o n by 39% i n n o m i n a l t e r ms and by 11% i n r e a l terms o v e r t h e p e r i o d . T h i s r e c o r d o f a c c o m p l i s h m e n t makes t h e i n d u s t r y one of t h e most s t r i k i n g e x a m p l e s , t o d a t e , of s u c c e s s f u l a d j u s t m e n t t o LDC 6 The d i s c u s s i o n h e r e i s b a s e d on an i n t e r v i e w w i t h r e p r e s e n t a t i v e s of t h e S m a l l and Medium E n t e r p r i s e P r o m o t i o n Agency r e g a r d i n g t h e i r i n t e r n a l s t u d i e s of t h e i n d u s t r y and on t h e f o l l o w i n g s o u r c e s : " S e n s h i n k u n i g a t a Sangyo e no M i c h i -Kobe K e m i k a r u Shuzu S a n c h i " i n , Chosa Geppo A u g u s t 1979; "Kobe K e m i k a r u Shuzu Sangyo n i M i r u Y u s h u t s u Sangyo no N a i j u Sangyo e no T e n k a n " i n , op. c i t . S e p t . 1979; S a n c h i Chusho K i g y o S h i n k o B i j i o n ( K awasei Hakimono S e i z o g y o ) ( T o k y o t o , Shokobu, Tokyo, u n d a t e d [ 1 9 7 9 ? ] ) 1 46 c o m p e t i t i o n by J a p a n e s e i n d u s t r y . 2.2 B a c k g r o u n d The w i d e s p r e a d d i f f u s i o n of w e s t e r n - s t y l e f o o t w e a r i n J a p a n i s l a r g e l y a p o s t w a r phenomenon. D o m e s t i c demand a c c o u n t e d f o r a l m o s t a l l of J a p a n e s e p r o d u c t i o n i n t h e e a r l y p o s t w a r p e r i o d . S u b s t a n t i a l volumes of e x p o r t s t o t h e N o r t h A m e r i c a n market began a r o u n d 1961 and by t h e end o f t h e decade a c c o u n t e d f o r 40% of t h e volume of n a t i o n a l p r o d u c t i o n . The h i g h p r i o r i t y w h i c h t h e J a p a n e s e government p l a c e d on t h e d e v e l o p m e n t of a modern c h e m i c a l i n d u s t r y l e d t o t h e r a p i d d e v e l o p m e n t o f a d o m e s t i c s u p p l y of a wide v a r i e t y o f l o w - c o s t s u b s t i t u t e s f o r n a t u r a l l e a t h e r i n f o o t w e a r p r o d u c t i o n . A r t i f i c i a l l e a t h e r f o o t w e a r soon came t o d o m i n a t e J a p a n e s e f o o t w e a r p r o d u c t i o n and a c c o u n t e d f o r n e a r l y 70% by v a l u e of t o t a l p r o d u c t i o n i n 1970. The J a p a n e s e w e s t e r n - s t y l e f o o t w e a r i n d u s t r y i s c e n t r e d i n s a n c h i l o c a t e d i n Tokyo, S h i z u o k a , and Kobe. T h e s e s a n c h i s p e c i a l i z e d , r e s p e c t i v e l y , i n n a t u r a l l e a t h e r f o o t w e a r , l a d i e s s a n d a l s , and c a s u a l f o o t w e a r made of a r t i f i c i a l l e a t h e r . In r e f l e c t i o n of t h e dominance of a r t i f i c i a l l e a t h e r f o o t w e a r i n J a p a n e s e p r o d u c t i o n , Kobe has been and r e m a i n s t h e l a r g e s t o f t h e t h r e e s a n c h i . The d e v e l o p m e n t o f t h e i n d u s t r y i n Kobe was u n d o u b t e d l y a i d e d by i t s e s t a b l i s h e d s t a t u s as a c e n t r e f o r t h e p r o d u c t i o n 1 47 of rubber goods, i n c l u d i n g rubber b o o t s . 8 7 A d d i t i o n a l f a c t o r s were the ready a c c e s s t o raw m a t e r i a l s by reason of i t s p o r t f a c i l i t i e s and p r o p i n q u i t y t o the p e t r o c h e m i c a l f a c i l i t i e s of the the Tokyo-Hiroshima i n d u s t r i a l b e l t , as w e l l as the presence i n the immediate v i c i n i t y (Osaka-Kobe) of a l a r g e p r o p o r t i o n of the Japanese consumer market. 2.3 I n d u s t r y S t r u c t u r e The Kobe footwear i n d u s t r y i s c h a r a c t e r i z e d by a f i n e d i v i s i o n of l a b o u r among a l a r g e number of f i r m s . In 1978, the i n d u s t r y c e n t r e d around the 298 m a n u f a c t u r i n g f i r m s (down from 304 f i r m s i n 1971) which comprise the membership of the Japan Chemical ( s i c ) Shoes I n d u s t r y A s s o c i a t i o n . These f i r m s employed 6,860 workers (an i n c r e a s e of 3% over 1971) and a r e i n v o l v e d i n the f i n a l assembly, f i n i s h i n g and p a c k a g i n g of f o o t w e a r . An a d d i t i o n a l 8,600 workers are employed i n about 80 s m a l l e r m a n u f a c t u r i n g f i r m s which a r e not members of the a s s o c i a t i o n and i n n e a r l y 1,000 o t h e r f i r m s engaged i n s u b c o n t r a c t e d i n t e r m e d i a t e s t a g e s of p r o d u c t i o n or i n p a r t s p r o d u c t i o n f o r the m a n u f a c t u r e r s . The i n d u s t r y a l s o u t i l i z e s around 5,000 urban c o t t a g e workers who c a r r y out piecework i n t h e i r own homes. Thus, i n t o t a l , the i n d u s t r y c o n s i s t s of more than 1300 f i r m s e m p l o y ing, d i r e c t l y or i n d i r e c t l y , over 20,000 p e o p l e ; about 15% of the Kobe i n d u s t r i a l w o r k f o r c e . 8 8 7 The modern i n d u s t r y began as e a r l y as 1908-1909 when the f i r s t f o r e i g n d i r e c t i nvestment i n the i n d u s t r y was l o c a t e d i n the Kobe area by Ingraham and Dunlop, of the U. K. 8 E s t i m a t e d from i n d u s t r i a l w o r k f o r c e d a t a g i v e n i n , 1979 C h i i k i K e i z a i Soran (Toyo K e i z a i S h i n posha, Tokyo, 1979). 1 48 The labour f o r c e i s rather e l d e r l y (average age i s around 40), 70% female, and h i g h l y mobile (an annual r a t e of labour turnover of about 25%). O v e r a l l , wage l e v e l s are around the norm f o r l a r g e c i t i e s but they are higher f o r s k i l l e d female pieceworkers, who are i n r e l a t i v e l y short supply, than they are for design s t a f f . Wages are higher i n smaller firms (which u t i l i z e a higher p r o p o r t i o n of pieceworkers) but f r i n g e b e n e f i t s , such as insurance and pension plans, are s u b s t a n t i a l l y worse i n those f i r m s . While the s t r u c t u r e of p r o d u c t i o n in the Kobe footwear i n d u s t r y resembled that i n other sanchi-based l i g h t i n d u s t r y , the s t r u c t u r e of d i s t r i b u t i o n and s a l e s was somewhat d i f f e r e n t . Perhaps because the a r t i f i c i a l l e a t h e r footwear i n d u s t r y i s of postwar o r i g i n , i t d i d not have a strong and e s t a b l i s h e d set of dominant w h o l e s a l e r s . Many of the e a r l y e n t r a n t s to the i n d u s t r y were migrants from the p r e - e x i s t i n g rubber -boots i n d u s t r y and r e l i e d on wholesalers t i e d to that i n d u s t r y f o r the d i s t r i b u t i o n of t h e i r output. These wholesalers handled a r t i f i c i a l l e a t h e r dress and c a s u a l shoes as an adjunct to t h e i r main l i n e s and d i d not t y p i c a l l y have or seek access to s p e c i a l i s t shoes r e t a i l e r s . On the export s i d e as w e l l , except f o r the l a t e 1960's when exports rose to a peak, the t r a d i n g companies i n v o l v e d i n s e l l i n g to f o r e i g n markets were g e n e r a l l y small t r a d i n g houses d e a l i n g i n a wide v a r i e t y of mi s c e l l a n e o u s rubber goods. There was, a p p a r e n t l y , no s u b s t a n t i a l wholesale or t r a d i n g f i r m involvement i n the a c t u a l manufacturing o p e r a t i o n s of the 1 49 i n d u s t r y . The l a c k o f s p e c i a l i z e d w h o l e s a l e r s had a d v e r s e i m p l i c a t i o n s f o r t h e d o m e s t i c e f f e c t i v e n e s s of t h e d i s t r i b u t i o n s y s t e m . C o n c e r n t h a t t h e i n d u s t r y needed t o d e v e l o p i t s own " d e d i c a t e d " d i s t r i b u t i o n c a p a b i l i t i e s f i r s t a r o s e , t h e r e f o r e , i n t h e e a r l y 1960's, l o n g b e f o r e LDC c o m p e t i t o n p o s e d a p r o b l e m f o r t h e i n d u s t r y . T h i s e a r l y a w a r e n e s s and e f f o r t t o d e v e l o p s u c h c a p a b i l i t i e s u n d o u b t e d l y f a c i l i t a t e d t h e more u r g e n t e f f o r t s t o do so f o l l o w i n g t h e a d v e n t of LDC c o m p e t i t o n and t h e r a p i d d e c l i n e o f t h e e x p o r t m a r k e t . 2.4 A d j u s t m e n t S t r a t e g i e s T h e r e a p p e a r t o be two major s t r a t e g i e s t h a t have c o n t r i b u t e d t o t h e Kobe f o o t w e a r i n d u s t r y ' s r e m a r k a b l e a d j u s t m e n t t o A s i a n NIC c o m p e t i t i o n ; one i n t h e e x p o r t market and t h e o t h e r , by f a r t h e more i m p o r t a n t , i n t h e d o m e s t i c m a r k e t . 2.4.1 E x p o r t M a r k e t s As m e n t i o n e d e a r l i e r , t h e e x p o r t market a c c o u n t e d f o r a l m o s t o n e - h a l f of p r o d u c t i o n i n 1970 and a b o u t 95% o f t h o s e e x p o r t s were t o t h e U.S.A. .market. C o m p e t i t i o n from K o r e a and T a i w a n r e d u c e d Kobe's e x p o r t s t o t h e U.S.A. t o l e s s t h a n 2% of 1971 l e v e l s by 1978. T o t a l e x p o r t s from t h e Kobe s a n c h i d e c l i n e d , however, t o o n l y a b o u t 56% of t h e e a r l i e r f i g u r e . T h i s p r e s e r v a t i o n ( i n n o m i n a l t e r m s ) of t h e m a j o r p a r t o f e x p o r t v a l u e was due t o a r a p i d i n c r e a s e i n e x p o r t s t o t h e U.S.S.R., a market l a r g e l y u n a v a i l a b l e t o T a i w a n and S o u t h K o r e a b e c a u s e of a n t a g o n i s t i c f o r e i g n r e l a t i o n s . E x p o r t s t o t h e U.S.S.R. 1 50 i n c r e a s e d by over 3,000 percent between 1971 and 1978 and, in the l a t t e r year, accounted f o r 98.6% of t o t a l e x ports. ,2.4.2 Domestic Market Ameyoko i s l o c a t e d between the Akihabara e l e c t r i c a l goods d i s t r i c t and Ueno Park i n Tokyo and i s a bazaar of c o n t r a s t s . Strung out along and under the e l e v a t e d railway l i n e that e n c i r c l e s c e n t r a l Tokyo i s a warren of shops and outdoor s t a l l s . The narrow passageways r i n g with the shouts of hawkers t r y i n g to b u l l y , humour, or otherwise persuade the p a s s i n g throng of browsers to buy the mackerel or mushrooms, seaweed or soya sauce, t h a t , they i n s i s t , they are " p r a c t i c a l l y g i v i n g away". In t e r s p e r s e d with these t r a d i t i o n a l Japanese f o o d s t u f f s are merchants p e d d l i n g more e x o t i c f a r e ; bananas and kiwi f r u i t , Rolex and T i s s o t watches, U.S.A. army s u r p l u s b a t t l e f a t i g u e s and C a l i f o r n i a Highway P a t r o l o f f i c e r ' s badges; and an endless v a r i e t y of imported c l o t h i n g , handbags, and footwear. I t was here, i n 1973, that the p r e s i d e n t of a Kobe footwear f i r m saw shoes that h i s f i r m had produced and exported to the U.S.A. marked "Made in U.S.A." and being s o l d at u n b e l i e v a b l y high p r i c e s to trendy young a d u l t s . T h i s , at a time when h i s company was r a p i d l y l o s i n g export orders to Taiwan and Korea and was being r e b u f f e d by the t r a d i t i o n a l domestic r e t a i l shoe s t o r e s to which i t was d e s p e r a t e l y t r y i n g to gain e n t r y . The 1970's saw the emergence i n t o young adulthood of a new and a f f l u e n t g e n e r a t i o n of Japanese and of new businesses to serve them. Among the more s t r i k i n g of the l a t t e r were two new genres of popular magazines; one, s p e c i a l i z i n g i n weekly 151 l i s t i n g s of part-time jobs, to help them earn pocket money (e.g.,"Torabaiyu", "Arubeito Nuzu") and another, s p e c i a l i z i n g i n up-to-date inf o r m a t i o n on the l a t e s t fads i n C a l i f o r n i a and elsewhere (e.g., "Popeye","City Boy"), to h e l p them spend i t . The emergence of c a s u a l footwear as an item of p e r s o n a l adornment f o r a l a r g e p o p u l a t i o n of trendy and a f f l u e n t young people was a f o r t u i t o u s development for the Kobe footwear i n d u s t r y . As the i n d u s t r y was d r i v e n out of the major export markets, adjustment p r i m a r i l y had to take p l a c e w i t h i n the c o n f i n e s of the domestic market. The i n d u s t r y managed to do so by means of a change to higher q u a l i t y and more f a s h i o n a b l e l i n e s of footwear s e l l i n g at much higher p r i c e s per p a i r and, o f t e n , by bypassing t r a d i t i o n a l shoe s t o r e s f o r small f a s h i o n boutiques c a t e r i n g to the young a d u l t . F i g u r e 12 i l l u s t r a t e s the main featu'res of the r e s u l t i n g adjustment. The volume of p r o d u c t i o n and the p r o p o r t i o n of p r o d u c t i o n exported both d e c l i n e d r a p i d l y . The u n i t p r i c e of the footwear produced showed an even more r a p i d i n c r e a s e , however, so that the average p r i c e i n 1978 was, i n r e a l terms, more than three times that i n 1970. As a r e s u l t , the value of p r o d u c t i o n showed an a c t u a l i n c r e a s e d u r i n g the 1970-1978 p e r i o d . i . Product and Design Firms r e l y l a r g e l y on i n t e r n a l d e s i g n e r s or e x t e r n a l design s p e c i a l i s t s and do p r a c t i c a l l y no p r o d u c t i o n to customer s p e c i f i c a t i o n s . Most of the i n f o r m a t i o n f o r new designs i s 1 52 F i g u r e 12 - Trends i n A r t i f i c i a l . L e a t h e r Footwear P r o d u c t i o n , E x p o r t s , and U n i t P r i c e s 350 r in \0 r-» co 0"\ o r—1 <"") -~r i*** 00 3̂ \0 vO r̂j r̂N P** r*  r*» r-*' Source Industry Association data 1 53 gathered from f o r e i g n f a s h i o n magazines and from wh o l e s a l e r s , except f o r a very few firms which have e s t a b l i s h e d r e t a i l s a l e s o u t l e t s , and thus have d i r e c t feedback from the consumer. In l i g h t of the importance of design to t h e i r o p e r a t i o n s today, the firms do not appear to i n v e s t much in t h e i r design o p e r a t i o n s (around $35,000 per year i n c l u d i n g s a l a r i e s and fees f o r d e s i g n e r s , i n one survey) and t h i s i s not yet an area of e s t a b l i s h e d s t r e n g t h i n the i n d u s t r y . Some firms have obtained l i c e n s e s f o r s p e c i f i c product l i n e s from f o r e i g n manufacturers or d e s i g n e r s . Most do not have the f i n a n c i a l resources to adopt t h i s approach. A notable example of c o o p e r a t i o n i s the Ramigo Group which operates as a consortium of s i x separate companies that j o i n t l y design and market footwear ( o f t e n , i n c o n j u n c t i o n with apparel manufacturers), d i v i d i n g p r o d u c t i o n among the group members. The move towards more expensive and f a s h i o n a b l e l i n e s of footwear has a l s o i n v o l v e d an i n c r e a s e d use of l e a t h e r and other m a t e r i a l s ( t e x t i l e s , n a t u r a l f i b r e s ) i n shoe designs and the p r o p o r t i o n of purely a r t i f i c i a l l e a t h e r footwear i n the i n d u s t r y ' s p r o d u c t i o n has f a l l e n from 98% to 53.5% between 1971 and 1978. In r e f l e c t i o n of demographic trends, there has been a l a r g e decrease i n the p r o p o r t i o n of p r o d u c t i o n devoted to i n f a n t ' s and c h i l d r e n s ' s shoes (down from 36.4% to 24.4%) and a l a r g e r i n c r e a s e i n the p r o d u c t i o n of Lady's and Men's shoes (up from 48.9% to 72.4%). 1 54 i i . P r o d u c t i o n The i n d u s t r y has been and s t i l l l a r g e l y i s c h a r a c t e r i z e d by a h i g h d e g r e e of dependence upon s u b c o n t r a c t o r s who a r e h i g h l y m o b i l e between c l i e n t m a n u f a c t u r e r s . The l a b o u r f o r c e , as w e l l , has t e n d e d t o be h i g h l y m o b i l e . These c h a r a c t e r i s t i c s may have been u s e f u l when l a r g e and i r r e g u l a r e x p o r t o r d e r s were a major f e a t u r e i n t h e i n d u s t r y but "they have not s u i t e d t h e needs o f t h e new m a r k e t s b e i n g s e r v e d . The d o m e s t i c market f o r f a s h i o n a b l e s h o e s r e q u i r e s t h e m a i n t e n a n c e o f a d e g r e e o f q u a l i t y m e e t i n g t h e h i g h s t a n d a r d s o f t h e J a p a n e s e consumer. A t t h e same t i m e , an e x t r a o r d i n a r y v a r i e t y of f o o t w e a r must be p r o v i d e d . The l a r g e r m a n u f a c t u r e r s may p r o d u c e more t h a n 1,000 d i s t i n c t i t e m s - i n a y e a r ( i n c l u d i n g v a r i a t i o n s i n c o l o u r and s i z e ) and t h e a v e r a g e r e t a i l shoe s t o r e i n J a p a n , a c c o r d i n g t o i n d u s t r y s o u r c e s , c a r r i e s two o r t h r e e t i m e s more i t e m s i n s t o c k t h a n would a c o m p a r a b l e N o r t h A m e r i c a n s t o r e . F u r t h e r m o r e , b e c a u s e of t h e e m p h a s i s on f a s h i o n a b i l i t y and t h e u n p r e d i c t a b i l i t y of demand f o r any g i v e n i t e m , an a b i l i t y t o r a p i d l y f i l l o r d e r s v i a new p r o d u c t i o n i s e s s e n t i a l . A l l o f t h i s has c a l l e d f o r a much h i g h e r d e g r e e o f c o o r d i n a t i o n between t h e o p e r a t i o n s o f s u b c o n t r a c t o r s an m a n u f a c t u r e r s i n o r d e r t o meet d e l i v e r y s c h e d u l e s and m a i n t a i n q u a l i t y s t a n d a r d s . Some m a n u f a c t u r e r s a r e d e a l i n g w i t h t h e p r o b l e m by r e d u c i n g t h e i r r e l i a n c e on s u b c o n t r a c t o r s , so f a r a s t h i s i s p o s s i b l e , o r by f o r m i n g c l u s t e r s o f r e l a t e d f i r m s under t h e i r c o n t r o l . O t h e r s , l e s s a b l e t o a d o p t t h e s e a p p r o a c h e s , a r e 1 55 making e f f o r t s t o m a i n t a i n a more s t e a d y f l o w of work t o s e l e c t e d s u b c o n t r a c t o r s (even a t some c o s t t o t h e r a t e of u t i l i z a t i o n of t h e i r own i n - h o u s e c a p a c i t y ) and t o i n c l u d e s u b c o n t r a c t i n g f i r m s and t h e i r e m ployees i n company c e l e b r a t i o n s and r e c r e a t i o n a c t i v i t i e s . O v e r a l l , t h e e f f o r t i s t o make more i n t e n s i v e use of a s m a l l e r number o f more i n t i m a t e l y i n t e g r a t e d s u b c o n t r a c t o r s . The i n c r e a s e d use o f m a t e r i a l s o t h e r t h a n a r t i f i c i a l l e a t h e r has i n c r e a s e d t h e need f o r l a b o u r - i n t e n s i v e p r o d u c t i o n s t a g e s somewhat and t h i s h as s u p p o r t e d a g r e a t e r e m p h a s i s on c o t t a g e i n d u s t r y t y p e s o f a c t i v i t i e s , e s p e c i a l l y t h o s e i n v o l v i n g s e w i n g and o t h e r d e c o r a t i v e o p e r a t i o n s . The r e c e n t l y d e p r e s s e d s t a t e of t h e s h i p b u i l d i n g i n d u s t r y i n Kobe has a l s o a p p a r e n t l y s e r v e d t o i n c r e a s e t h e s u p p l y o f s u c h w o r k e r s and t o m o d e r a t e i n c r e a s e s i n t h e r a t e s of pay f o r c o t t a g e - b a s e d p i e c e w o r k . Thus, t h e s e w o r k e r s a r e l i k e l y t o c o n t i n u e t o be an i m p o r t a n t p a r t o f t h e i n d u s t r y f o r t h e f o r e s e e a b l e f u t u r e . Some of t h e l a r g e r f i r m s have i m p o r t e d new equipment from Germany and I t a l y , but t h e r e i s some e v i d e n c e t h a t i t i s not b e i n g e f f i c i e n t l y u t i l i z e d and w i l l not be u n l e s s and u n t i l i t i s i n t e g r a t e d i n t o a much more h e a v i l y m e c h a n i z e d (and c a p i t a l - i n t e n s i v e ) o v e r a l l p r o d u c t i o n p r o c e s s . i i i . S a l e s The r e l a t i v e l y r e c e n t f o r m a t i o n o f t h i s i n d u s t r y meant t h a t t h e r e was no s p e c i a l i z e d s e t o f w h o l e s a l e r s t o e f f e c t i v e l y 1 56 handle the d i s t r i b u t i o n of i t s o u t p u t . 8 9 In r e f l e c t i o n of t h i s , the i n d u s t r y began e f f o r t s to develop i t s own d i s t r i b u t i o n networks as e a r l y as the mid-1960's and had the b e n e f i t of government a s s i s t a n c e (under the SME Modernization and Advancement Programme) for those e f f o r t s . The e f f o r t s of i n d i v i d u a l , l a r g e r companies were more e f f e c t i v e and some, such as Kobe Leather C l o t h , even e s t a b l i s h e d r e t a i l s a l e s o u t l e t s i n the mid-1960's. The problem of d e v e l o p i n g domestic d i s t r i b u t i o n channels took on i t s g r e a t e s t urgency, however, with the l o s s of export markets i n the 1970's. Kobe Leather C l o t h , f o r example, expanded i t s r e t a i l s a l e s network to a t o t a l of 43 s t o r e s by 1979. Other, smaller firms have adopted other approaches, such as c o o p e r a t i v e marketing and t i e - i n s with apparel producers. The change to a focus upon the p r o d u c t i o n of f a s h i o n a b l e shoes f o r the domestic market has meant a change ( r e l a t i v e - to e a r l i e r p r o d u c t i o n f o r export) to s m a l l - l o t p r o d u c t i o n of a wide v a r i e t y of s t y l e s . T h i s too, has complicated the d i s t r i b u t i o n problem and has c r e a t e d a complex invent o r y c o n t r o l problem f o r manufacturers. The switch from export to domestic markets has a l s o meant a change in the o p e r a t i n g c a p i t a l requirements of f i r m s . While almost a l l exports were p a i d f o r i n cash at the time of shipment, firms must now wait, on average, f o r more than 130 days to r e c e i v e payment from wholesalers and 30 to 45 days to r e c e i v e payment from r e t a i l e r s . 9 The manufacturer, mentioned at the outset of t h i s s e c t i o n , who was t r y i n g to break i n t o the domestic market had to begin by l i t e r a l l y p u t t i n g h i s product i n t o a bag and going from door to door i n the r e t a i l shopping d i s t r i c t s . 1 5 7 A l m o s t a l l (96.9%) of p r o d u c t i o n i s under t h e b r a n d name of t h e m a n u f a c t u r e r b u t , i n p r a c t i c e , company b r a n d names do not have any wide r e c o g n i t i o n among c o n s u m e r s . Thus, s u c c e s s i s l a r g e l y d e p e n d e n t on c a t c h i n g t h e s e c u l a r s w i n g of f a s h i o n (not c r e a t i n g i t ) and g e t t i n g t h e r i g h t p r o d u c t o u t t o t h e r e t a i l l e v e l more q u i c k l y t h a n c o m p e t i t o r s . The p e r c e p t i o n of i m p o r t s o f c o m p e t i t i v e s h o e s from S o u t h K o r e a and Taiwan i s r a t h e r f a v o u r a b l e , i n terms of t h e i r q u a l i t y , among r e t a i l s t o r e managers. Thus f a r , however, t h e y have a p o o r image i n t h e mind o f t h e consumer and do n o t p r e s e n t l y pose an i m p o r t a n t t h r e a t t o J a p a n e s e p r o d u c e r s i n t h e d o m e s t i c m a r k e t . The l a c k of e s t a b l i s h e d b r a n d names and t h e d e r i v a t i v e n a t u r e of t h e d e s i g n p r o c e s s i n t h e J a p a n e s e i n d u s t r y t o d a y s u g g e s t t h a t t h e u n f a v o u r a b l e image o f A s i a n "NIC consumer goods i n t h e mind of t h e J a p a n e s e consumer may be a l l t h a t i s h o l d i n g back c o n s i d e r a b l y g r e a t e r c o m p e t i t i o n f r o m p r o d u c e r s i n T aiwan and S o u t h K o r e a . T h i s may s u f f i c e f o r some t i m e but i t i s a s l i m hope t o b u i l d on. The s t r o n g e r f i r m s , i f n o t t h e i n d u s t r y as a whole, seem aware o f t h i s and c o n t i n u e t o a t t e m p t a s t r e n g t h e n i n g o f s a l e s c a p a b i l i t i e s and a more o v e r t s h i f t of t h e c o r p o r a t e f o c u s away from " p r o d u c t i o n " and o n t o " d e s i g n " . I t i s p o s s i b l e t h a t some of t h e s e f i r m s w i l l e v e n t u a l l y , on t h e b a s i s of a s t r o n g d o m e s t i c p o s i t i o n , be c a p a b l e o f e x p o r t i n g some l i n e s a b r o a d . I n d e e d , i n one of t h e f a c t o r i e s v i s i t e d , t h e c u r r e n t p r o d u c t i o n run of l a d i e s s h o e s was d e s t i n e d , o f a l l p l a c e s , f o r S o u t h e a s t A s i a , where t h e y e n j o y s o m e t h i n g o f a r e p u t a t i o n as " h i g h - s t y l e i m p o r t e d l u x u r y g o o d s " , a t a p r i c e t h e 1 58 l o c a l s can a f f o r d . 2.5 Summary In summary, t h e i n d u s t r y has a d j u s t e d by means of a change t o t h e p r o d u c t i o n of s m a l l l o t - s i z e , h i g h v a r i e t y l i n e s o f shoes f o r t h e d o m e s t i c m a r k e t . I t has been a i d e d by an i n c r e a s e i n the d o m e s t i c demand f o r s u c h s h o e s . In l i n e w i t h t h e move t o more f a s h i o n a b l e and h i g h e r - p r i c e d s h o e s , t h e i n d u s t r y has moved away from t h e e x c l u s i v e use o f a r t i f i c i a l l e a t h e r and now u s e s a more v a r i e d r a n g e of m a t e r i a l s , i n c l u d i n g n a t u r a l l e a t h e r . The change has not s i m p l y r e q u i r e d t h e i n t r o d u c t i o n of a .• s t r e a m of new d e s i g n s . I t a l s o has i m p l i c a t i o n s f o r t h e o r g a n i z a t i o n of p r o d u c t i o n and d i s t r i b u t i o n and f o r t h e f i n a n c i a l and m a n a g e r i a l o p e r a t i o n s o f t h e f i r m s i n v o l v e d . W h i l e i t has been a n o t a b l y s u c c e s s f u l a d j u s t m e n t t o d a t e , i t seems c l e a r t h a t much r e m a i n s t o be done b e f o r e t h e i n d u s t r y has been t r u l y t r a n s f o r m e d i n t o a s t a b l e " f a s h i o n " - b a s e d i n d u s t r y . M a t e r i a l s c o s t s a s a p e r c e n t a g e o f t o t a l c o s t s have not d e c r e a s e d , c o n t r a r y t o what one m i g h t e x p e c t i n an i n d u s t r y s e e k i n g t o i n c r e a s e v a l u e - a d d e d . M o r e o v e r , a t p r e s e n t , d e s p i t e t h e u n i v e r s a l use of b r a n d names, t h e m a n u f a c t u r e r s t h e m s e l v e s do n o t have a h i g h d e g r e e o f r e c o g n i t i o n among c u s t o m e r s . Thus, t o a c o n s i d e r a b l e e x t e n t , t h e J a p a n e s e i n d u s t r y i s p r o t e c t e d f r o m LDC c o m p e t i t i o n i n i t s home market p r i m a r i l y by market c h a r a c t e r i s t i c s s u c h as s m a l l l o t - s i z e , v o l a t i l e demand, and complex d i s t r i b u t i o n c h a n n e l s ; as w e l l a s by t h e p r e s e n t l y p o or image o f A s i a n NIC p r o d u c t s among J a p a n e s e c o n s u m e r s . These p r o v i d e f o r m i d a b l e p r o t e c t i o n t o J a p a n e s e p r o d u c e r s b ut 1 59 much l e s s t h a n t h e y would e n j o y i f t h e y a l s o had more s u b s t a n t i a l i n - h o u s e d e s i g n c a p a b i l i t i e s and s t r o n g b r a n d - r e c o g n i t i o n among c o n s u m e r s . 1 60 3. UMBRELLAS 3.1 I n t r o d u c t i o n In 1970, Japan was the world's l a r g e s t producer and l a r g e s t exporter of u m b r e l l a s . 9 0 The Japanese i n d u s t r y enjoyed one of the world's l a r g e s t domestic markets and, moreover, had exported a r e c o r d 15 m i l l i o n u n i t s , a f i g u r e that was almost matched i n the f o l l o w i n g year. E i g h t years l a t e r , i n February of 1979, the Japan Umbrella Industry Export A s s o c i a t i o n c l o s e d i t s doors f o r lack of b u s i n e s s . The i n d u s t r y had been d r i v e n out of i t s t r a d i t i o n a l export markets by competitors in the Asian NICs. In the U.S.A., for example, Japanese exports f e l l from 8 m i l l i o n u n i t s i n 1971 to 441,000 u n i t s in 1978. The i n d u s t r y , moreover, was r a p i d l y l o s i n g i t s domestic market to these same competitors who, by 1977, were e x p o r t i n g almost as many u n i t s to the Japanese market, alone, as the Japanese i n d u s t r y had exported to the e n t i r e world in i t s peak year of 1970. There must be few i n d u s t r i e s which have faced a more r a p i d d e c l i n e i n the face of LDC competiton, or a more desperate need to a d j u s t . 9 0 The d i s c u s s i o n here i s based on i n t e r v i e w s with r e p r e s e n t a t i v e s of the Small and Medium E n t e r p r i s e Promotion Agency reg a r d i n g t h e i r i n t e r n a l s t u d i e s of the i n d u s t r y and with r e p r e s e n t a t i v e s of the MITI S e i k a t s u Sangyokyoku and r e p r e s e n t a t i v e s of the Osaka P r e f e c t u r e Economic Research I n s t i t u t e of Commerce and Industry and on the f o l l o w i n g sources: F u s h i t a no Chushokogyo no Kokusaikan Kyoso no Shomondai to J i t t a i , V 2 (Osaka P r e f e c t u r e Economic Research I n s t i t u t e of Commerce and I n d u s t r y , Osaka, 1971) pp 69-91.; "Yogasa" i n , K a i g a i S h i j o J u l y , 1979. 1 6 1 3.2 Background Western-style umbrellas were f i r s t manufactured i n Japan i n the e a r l y 1890's and, very e a r l y on, producers escaped the c o n f i n e s of the domestic market by means of e x p o r t s . In the e a r l y 1900's most exports were to Korea and Manchuria but grew to i n c l u d e more d i s t a n t markets i n Hong Kong, I n d i a , and A f r i c a . Pre-Second World War p r o d u c t i o n peaked in 1937 with a t o t a l output of 1,350,000. umbrellas, of which around 40% were exported. In the postwar p e r i o d there was a r a p i d growth i n the s i z e of the domestic market as w e s t e r n - s t y l e umbrellas gained i n p o p u l a r i t y at the expense of the t r a d i t i o n a l J a p a n e s e - s t y l e umbrellas made of bamboo and o i l e d paper. By 1955 the two i n d u s t r i e s employed about the same number of workers but by 1963 the w e s t e r n - s t y l e umbrella i n d u s t r y employed n e a r l y ten times as many people as the t r a d i t i o n a l i n d u s t r y . There were a l s o major changes on the export s i d e . While s a l e s of f i n i s h e d umbrellas to former export markets in A s i a d e c l i n e d , they were r e p l a c e d by a r a p i d growth in s a l e s of umbrella frames (the metal s k e l e t o n of the umbrella) to these same markets. At the same time, exports to North America commenced and by the end of the 1950's accounted f o r as much as 50% of t o t a l i n d u s t r y exports. By 1961, Japan accounted f o r about 88% of t o t a l U.S.A. umbrella imports. Japanese producers were a l s o c a p t u r i n g market share from domestic U.S.A. producers who l o b b i e d f o r government p r o t e c t i o n from Japanese c o m p e t i t i o n . In response, Japan, i n 1959, formed 1 62 the Japan Umbrella Industry Export A s s o c i a t i o n which was charged, among other t h i n g s , with the r e s p o n s i b i l i t y of r e g u l a t i n g " v o l u n t a r y " export r e s t r a i n t s v i s - a - v i s the U.S.A. market. With these r e s t r a i n t s on growth i n the U.S.A. market, the i n d u s t r y d i r e c t e d i n c r e a s e d a t t e n t i o n to markets in Europe and by the the mid-1960's h e l d a dominant share of umbrella imports i n a number of European c o u n t r i e s . Here, too, they encountered p r o t e c t i o n i s m and the need to impose r e s t r a i n t s on the ra t e of growth of t h e i r exports to those markets. In 1964, however, the U.S.A. government r e j e c t e d , for the second time, domestic producers' demands f o r p r o t e c t i o n and t h i s f r e e d the i n d u s t r y f o r a more vigorous e f f o r t to s e l l to the U.S.A. market. In Europe too, the l o c a l producers had accepted the i n e v i t a b l e and began to source semi- f i n i s h e d umbrellas i n Japan. By the l a t e 1960's, Europe accounted f o r 32% of Japanese exports of umbrellas and f o r 49% of i t s exports of umbrella frames. The Japanese i n d u s t r y has accounted f o r numerous i n v e n t i o n s and i n n o v a t i o n s i n umbrella design, r e s u l t i n g i n over 200 patents and " u t i l i t y p a t e n t s " . 9 1 Most of these are of minor value and not e n f o r c e a b l e i n t e r n a t i o n a l l y . Moreover, even i n the domestic market, many of them w i l l e x p i r e i n the next few y e a r s . The most important i n n o v a t i o n , i n terms of subsequent p o p u l a r i t y , was the i n t r o d u c t i o n of the one-touch "automatic" 9 1 Japanese u t i l i t y patents ("Jitsuyo Shin'an") are a p r o p r i e t a r y r i g h t granted f o r ten years f o r minor i n n o v a t i o n s and on the b a s i s of c r i t e r i a l e s s r i g o r o u s than those r e q u i r e d f o r pat e n t s . 1 63 umbrella. T h i s o r i g i n a t e d , o u t s i d e of the i n d u s t r y , i n a promotional idea of the Toyota automobile s a l e s s u b s i d i a r y ; i t was dev i s e d as a convenience for people when g e t t i n g out of ca r s in the r a i n . The i n d u s t r y has a l s o a p p a r e n t l y developed some p a r t i c u l a r l y e f f e c t i v e ways of waterproofing nylon f a b r i c , to the extent that the technique i s now being a p p l i e d to mountaineering t e n t s . 3.3 S t r u c t u r e Of The Industry Tokyo and Osaka are the two l a r g e s t c e n t r e s f o r umbrella pr o d u c t i o n but Osaka has t r a d i t i o n a l l y been the more dominant and accounts f o r around 90% of Japanese exports and 50% of t o t a l p r o d u c t i o n . Thus, while both c e n t r e s have been s t r o n g l y a f f e c t e d by LDC c o m p e t i t i o n , i t i s the Osaka sanchi that has been h i t f i r s t and h a r d e s t . Moreover, as the Osaka re g i o n has long been more dependent on l i g h t i n d u s t r y than Tokyo, a l a r g e r p r o p o r t i o n of the t o t a l i n d u s t r i a l base has been a d v e r s e l y a f f e c t e d by LDC c o m p e t i t i o n . T h i s makes adjustment i n any s i n g l e i n d u s t r y , such as umbrellas, a more acute problem. In e i t h e r case, however, the s t r u c t u r e of the i n d u s t r y i s such that the i m p l i c a t i o n s of LDC com p e t i t i o n and the p o t e n t i a l f o r firms to a d j u s t to i t , vary c o n s i d e r a b l y among the i n d u s t r y p a r t i c i p a n t s . T h i s i n d u s t r y , l i k e much of Japanese l i g h t i n d u s t r y , u t i l i z e s a f i n e d i v i s i o n of labour; i n which v a r i o u s stages of pro d u c t i o n are c a r r i e d out by d i s t i n c t s u b - i n d u s t r i e s under the c o o r d i n a t i o n of a smal l e r number of wholesalers or wholesaler/manufacturers. The i n d u s t r y r e l i e s h e a v i l y on urban 1 64 " c o t t a g e " w o r k e r s who o p e r a t e o u t of t h e i r own homes i n l o w e r - income n e i g h b o u r h o o d s ( e s p e c i a l l y f o r much of t h e a s s e m b l y and s u b - a s s e m b l y o p e r a t i o n s ) . T h e s e w o r k e r s a r e not u s u a l l y d e t e c t e d i n o f f i c i a l s t a t i s t i c s . In 1977, f o r example, t h e n a t i o n a l i n d u s t r i a l c e n s u s i n d i c a t e s a t o t a l of a b o u t 6,000 employees i n t h e i n d u s t r y , whereas i n d u s t r y a s s o c i a t i o n d a t a shows a t o t a l of a b o u t 50,000 p e o p l e were o c c u p i e d i n t h e i n d u s t r y a s a w h o l e . About 75% o f t h e s e w o r k e r s were p r i v a t e l y engaged i n at-home p i e c e w o r k p r o d u c t i o n . Many, i f not most, of them were p r o b a b l y i n v o l v e d i n t h e i n d u s t r y on a p a r t - t i m e b a s i s o n l y . T h i s t r a d i t i o n a l p a t t e r n o f p r o d u c t i o n r e m a i n s t h e most i m p o r t a n t t o t h e i n d u s t r y b u t , w i t h t h e r a p i d g r o w t h of p r o d u c t i o n v o l u m e s i n t h e l a t e 1950's, some of t h e l a r g e r w h o l e s a l e r / m a n u f a c t u r e r s e s t a b l i s h e d f i n a l a s s e m b l y p l a n t s i n s u r r o u n d i n g r u r a l a r e a s f o r t h e p r o d u c t i o n of h i g h - v o l u m e , l a r g e l o t - s i z e l i n e s o f u m b r e l l a s . T a b l e 11 i n d i c a t e s t h e d i s t r i b u t i o n o f c o m p a n i e s and w o r k e r s a c r o s s t h e v a r i o u s s t a g e s of p r o d u c t i o n , c i r c a 1977. F i g u r e 13 i l l u s t r a t e s t h e o v e r a l l p a t t e r n s of p r o d u c t i o n i n t h e i n d u s t r y . A number of f e a t u r e s d e s e r v e s p e c i a l m e n t i o n . Most w h o l e s a l e r s , t o one d e g r e e o r a n o t h e r , a c t as w h o l e s a l e r / m a n u f a c t u r e r s i n t h e s e n s e t h a t t h e y a r e i n v o l v e d i n c o o r d i n a t i n g t h e p r o d u c t i o n p r o c e s s . The d i s t r i b u t i o n network from t h e s e f i r m s t o t h e r e t a i l l e v e l i s q u i t e d i r e c t and i n many r e s p e c t s i s s i m i l a r t o t h e p a t t e r n i n some a p p a r e l i n d u s t r i e s . Most s a l e s a r e d i r e c t l y t o i n d i v i d u a l s t o r e s a t t h e r e t a i l l e v e l T a b l e 11 - D i s t r i b u t i o n of Firms and Workers i n the Umbrella I n d u s t r y , c i r c a 1977 Industry Participants No. No. j Workers of of ! per Firms Workers Firm Umbrella Manufacturing 1,100 20,100 i / Manufacturers 450 6,600 . 14.7 Subcontractors 650 1,500 2.3 Cottage workers / 12,000 / Umbrella Frames Manufacturing 340 30,051 / Manufacturers 92 2,081 22.6 Subcontractors 248 1,970 7.9 Cottage Workers / 26,000 / Umbrella Handles and other parts 99 820 / Manufacturers 39 • 220 5.6 Subcontractors 60 160 2.7 Cottage workers / 440 . / Totals 1.5391 50,971 8.11 NOTE 1. Manufacturers and Subcontractors only Source: 1977 Industry Association survey 1 66 F i g u r e 13 - P a t t e r n of P r o d u c t i o n and D i s t r i b u t i o n i n the Umbrella I n d u s t r y ( ( F o r e i g n B u y e r s ) ) T r a d i n g Companies U m b r e l l a - f r a m e Makers A- Urban W h o l e s a l e r s and R e c a l l e r s Company-owned Assembly P l a n e s W h o l e s a l e / M a n u f a c t u r e r s U m b r e l l a h a n d l e Makers and W h o l e s a l e r s M i s c e 1 l a n e o u s P a r t s M a n u f a c t u r e r s A- CoCtage Workers S o u r c e : I n d u s t r y A s s o c i a t i o n d a t a D i s t r i b u t i o n and S a l e s Umbre1 l a M a n u f a c t u r e r s (Assembly) S u b c o n t r a c t o r s ; . P a r t s M a n u f a c t u r e r s Assembly S u b c o n t r a c t o r s Cot t a ^ e Worke r s 1 67 ( f o r t h e d o m e s t i c market) o r t o e x p o r t t r a d i n g c o m p a n i e s ( f o r f o r e i g n m a r k e t s ) . P r a c t i c a l l y a l l r e t a i l o u t l e t s and most o f t h e w h o l e s a l e r / m a n u f a c t u r e r s a r e not s p e c i a l i z e d i n u m b r e l l a s a l e s . They g e n e r a l l y d e a l i n a number of o t h e r p e r s o n a l a c c e s s o r i e s s u c h as s c a r v e s , m u f f l e r s , s h a w l s , e t c . The u m b r e l l a frame m a n u f a c t u r e r s have a d i s t i n c t s e n s e of i n d e p e n d e n c e from t h e u m b r e l l a m a n u f a c t u r e r s . They a r e , i n f a c t , c a t e g o r i z e d as a s e p a r a t e i n d u s t r y i n n a t i o n a l i n d u s t r i a l s t a t i s t i c s . Many of t h e f i r m s a r e as l a r g e as o r l a r g e r t h a n f i n i s h e d u m b r e l l a m a n u f a c t u r e r s and t h e y have, as