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 3^ \0 vO r^j r^N 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 an i n d u s t r y , much more o f a " p r o d u c t i o n - " t h a n a " s a l e s - " o r "demand-" o r i e n t a t i o n . However, a s a l m o s t a l l o f t h e i r p r o d u c t i o n i s s o l d t o 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 t h e y a r e , d e s p i t e a n o m i n a l i n d e p e n d e n c e , s t r u c t u r a l l y d e p e n d e n t on them. O n l y a few of t h e frame p r o d u c e r s a r e engaged i n t h e p r o d u c t i o n of o t h e r p r o d u c t s , s u c h as l i g h t p i p e f o r a g r i c u l t u r a l use and r a c k s f o r d r y i n g c l o t h e s . The p r o d u c e r s of p a r t s and a c c e s s o r i e s s u c h as h a n d l e s , c l i p s , and l o c k i n g mechanisms g e n e r a l l y employ equipment and s k i l l s w h i c h a r e p a r t i c u l a r t o t h e i n d u s t r y and not r e a d i l y t r a n s f e r a b l e t o o t h e r u s e s . The a v e r a g e age i n t h i s segment o f t h e i n d u s t r y , m o r e o v e r , i s a r o u n d 50 and t h e p e o p l e i n v o l v e d have l i t t l e o p p o r t u n i t y t o e n t e r new l i n e s of work. The a p p r o x i m a t e l y 75% o t t h e w o r k f o r c e w h i c h f a l l s i n t o t h e c o t t a g e w orker c a t e g o r y l a r g e l y works o u t of p r i v a t e homes i n t h e p o o r e r u r b a n r e s i d e n t i a l a r e a s u t i l i z i n g m i n i m a l equipment (a c o u p l e o f s e w i n g m a c h i n e s , f o r e x a m p l e ) . T h e i r r o l e i s 168 s i m i l a r to that of piecework cottage workers in the apparel i n d u s t r y . 3.4 Advent Of Asian NIC Competition In p a r t because of the export r e s t r a i n t s under which they were o p e r a t i n g , the Japanese producers began to l o s e share to Asian NIC manufacturers in the f i r s t h a l f of the 1960's. Thus, Japan (as the l a r g e s t s u p p l i e r ) was f o r c e d to agree to " v o l u n t a r y " export r e s t r a i n t , while other s m a l l e r s u p p l i e r c o u n t r i e s faced no, or fewer, such r e s t r i c t i o n s on t h e i r e x p o r t s . The i n i t i a l c o m p e t i t i o n came from Hong Kong but South Korea and, e s p e c i a l l y , Taiwan soon came to be of f a r g r e a t e r importance. None of these c o u n t r i e s , i n i t i a l l y , face the " v o l u n t a r y " export r e s t r a i n t s imposed upon Japanese producers. While Japan's share of the U.S.A. import market d e c l i n e d from 88% to 50% d u r i n g the 1960's, the a b s o l u t e volume of exports to that and other f o r e i g n markets continued to i n c r e a s e throughout the 1960's. I t was not u n t i l the e a r l y 1970's that exchange rate changes, the i n t r o d u c t i o n of p r e f e r e n t i a l t a r i f f s f o r LDC manufactures, and a surge i n Japanese labour c o s t s l e d to a r a p i d d e t e r i o r a t i o n i n the Japanese c o m p e t i t i v e p o s i t i o n . F i g u r e 14 t r a c e s the changes i n Japanese exports and imports f o r the p e r i o d from 1962 to 1977. As can be seen i n the f i g u r e , Japanese exports r a p i d l y d e c l i n e d and imports i n c r e a s e d from 1972 onwards. By 1977, imports n e a r l y e q u a l l e d t o t a l Japanese exports i n 1971 and exports had f a l l e n to o n e - t h i r d of the e a r l i e r l e v e l . Asian NIC imports had captured about 40% of the t o t a l Japanese market (by volume) in 1978. About 60% of these 169 Figure 14 - Trends in Japanese Exports and Imports of Umbrellas; 1962-1977 Source: Industry Association data. 1 70 imports were from Korea and 35% from Taiwan. 3.5 Adjustment S t r a t e g i e s We w i l l d i s c u s s s e p a r a t e l y adjustment s t r a t e g i e s which have gen e r a l relevance f o r the i n d u s t r y as a whole and those which have a more d i f f e r e n t i a l impact on the v a r i o u s p a r t i c i p a n t s in the i n d u s t r y . 3.5.1 Larger Wholesaler/Manufacturers There i s c o n s i d e r a b l e d i v i s i o n in the i n d u s t r y with respect to the impact of Asian NIC p r o d u c t i o n . At the root of t h i s d i v i s i o n i s the f a c t that wholesaler/manufacturers have much l e s s of a d i r e c t stake i n domestic p r o d u c t i o n f a c i l i t i e s than do other p a r t i c i p a n t s i n the i n d u s t r y . Thus, many of them have been able to maintain t h e i r s a l e s volumes ( i n the domestic market) by means of imports from the Asian NICs, which they market through t h e i r e x i s t i n g d i r e c t network of c o n t a c t s at the r e t a i l l e v e l . In f a c t , about 70% of Japanese imports from Taiwan and South Korea are c a r r i e d out by major wholesaler/manufacturers w i t h i n the Japanese i n d u s t r y . T h i s r e f l e c t s , at l e a s t i n p a r t , the f a c t that eleven Japanese firms e s t a b l i s h e d overseas manufacturing f a c i l i t i e s (7 i n Taiwan and 4 i n South Korea) between 1970 and 1974. While d e t a i l s are u n c l e a r , i t appears that almost a l l of t h i s overseas p r o d u c t i o n i s f o r export to Japan. In 1977, about 60% of Japanese imports were from Korea and 35% from Taiwan. Conversely, exports to Japan accounted f o r about 62% of t o t a l Korean exports but only a few percentage p o i n t s of the much l a r g e r Taiwanese i n d u s t r y . 1 7 1 T h i s means of " 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 has o n l y been p o s s i b l e f o r 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 b e c a u s e t h e i r i n v o l v e m e n t i n d o m e s t i c p r o d u c t i o n , w h i l e c e n t r a l , was l a r g e l y b a s e d n o t on e q u i t y b u t on c o n t r o l a n d c o o r d i n a t i o n . The b u l k o f t h e i n v e s t m e n t o f t h e major w h o l e s a l e r / m a n u f a c t u r e r s was i n f a c i l i t i e s and s k i l l s r e l e v a n t t o d i s t r i b u t i o n and s a l e s and t h e s e c a n be s u p p o r t e d as w e l l by i m p o r t s a s by d o m e s t i c a l l y p r o d u c e d u m b r e l l a s . 3.5.2 The I n d u s t r y As A Whole F o r t h e i n d u s t r y , p e r s e , t h e r e a p p e a r t o be f o u r major a d j u s t m e n t s t r a t e g i e s t h a t have any p r o s p e c t of l o n g - t e r m v i a b i l i t y ; one f o r t h e e x p o r t m a r k e t and t h e o t h e r s f o r t h e d o m e s t i c m a r k e t . i . E x p o r t M a r k e t s As s a l e s t o t h e major t r a d i t i o n a l e x p o r t m a r k e t s went i n t o a s t e e p d e c l i n e i n t h e e a r l y 1970's, t h e i n d u s t r y r e f o c u s s e d i t s e x p o r t e f f o r t s on t h e e a s t e r n b l o c n a t i o n s , e s p e c i a l l y t h e U.S.S.R. The t i m i n g and amount o f s a l e s t o t h e U.S.S.R. have been a major c o u n t e r b a l a n c e t o t h e d e c l i n e i n e x p o r t s t o t h e U.S.A. B e c a u s e of t h e 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 between t h e U.S.S.R. and b o t h T a i w a n and S o u t h K o r e a , J a p a n has f a c e d no c o m p e t i t i o n from them i n t h i s m a r k e t . 9 2 T h i s a n t a g o n i s m i s 9 2 Though i t i s w o r t h n o t i n g t h a t some s m a l l p r o p o r t i o n of e x p o r t s t o t h e s e c o u n t r i e s a p p a r e n t l y c o n s i s t s o f T a i w a n e s e o r S o u t h K o r e a n p r o d u c t i o n t h a t h as been " l a u n d e r e d " by p a s s i n g t h r o u g h t h e hands of a J a p a n e s e w h o l e s a l e r / m a n u f a c t u r e r . 172 l i a b l e t o c o n t i n u e f o r t h e f o r s e e a b l e f u t u r e and, t o t h e e x t e n t i t d o e s , t h i s r e p r e s e n t s a v i a b l e s t r a t e g y f o r t h e medium-term. Of c o u r s e , s h o u l d t h e a d v a n t a g e of l o w e r c o s t p r o d u c t i o n p a s s t o o t h e r LDCs w i t h w h i c h t h e e a s t b l o c c o u n t r i e s have b e t t e r r e l a t i o n s , J a p a n e s e e x p o r t s t o t h e s e m a r k e t s would r a p i d l y e v a p o r a t e . i i . D o m e s t i c M a r k e t The d o m e s t i c J a p a n e s e market i s l a r g e ( i n e x c e s s of 3 m i l l i o n dozen p e r y e a r ) and c o n t a i n s a s u b s t a n t i a l s t a b l e c o r e of demand f o r more f a s h i o n a b l e o r h i g h e r q u a l i t y u m b r e l l a s s e l l i n g a t h i g h e r p r i c e s . P r o d u c t i o n t o meet t h i s market i n v o l v e s l a r g e v a r i e t y , s m a l l l o t s i z e s , and prompt d e l i v e r y t o r e t a i l o u t l e t s . In a d d i t i o n , t h e major d e p a r t m e n t s t o r e s , w h i c h a r e i m p o r t a n t r e t a i l o u t l e t s f o r t h i s t y p e o f p r o d u c t , u s u a l l y s e l l on a c o n s i g n m e n t b a s i s w i t h no r e s t r i c t i o n s on t h e r e t u r n of u n s o l d goods t o t h e m a n u f a c t u r e r . T h e s e f a c t o r s w i l l c o n t i n u e t o f a v o u r t h e c o n t i n u e d e x i s t e n c e o f some volume of d o m e s t i c p r o d u c t i o n ; t h o u g h c o n s i d e r a b l y l e s s t h a n c u r r e n t c a p a c i t y . Thus, a p e r v a s i v e p r o b l e m u n d e r l y i n g t h e whole i s s u e of a d j u s t m e n t i s t h e need t o r e d u c e c a p a c i t y down t o l e v e l s commensurate w i t h t h e s i z e of t h i s s m a l l e r m a r k e t . A g a i n s t t h i s b a c k g r o u n d , t h e r e a p p e a r s t o be a l i m i t e d r e p e r t o i r e of s t r a t e g i e s ; a l l o f w h i c h u l t i m a t e l y h i n g e on a s u i t a b l e r e d u c t i o n i n o v e r a l l i n d u s t r y c a p a c i t y . 1 73 • B r a n d D i f f e r e n t i a t i o n and R e c o u r s e t o P a t e n t P r o t e c t i o n The b u l k o f p a t e n t s and u t i l i t y p a t e n t s i n t h e i n d u s t r y were d e v e l o p e d by u m b r e l l a frame and p a r t s m a n u f a c t u r e r s and t h e y have, r e s p e c t i v e l y , p o o l e d t h e i r r i g h t s i n t o two c o o p e r a t i v e s . E a c h of t h e s e c o o p e r a t i v e s a t t e m p t s t o d i f f e r e n t i a t e t h e p r o d u c t i o n of member f i r m s f r o m t h e g e n e r a l r u n o f p r o d u c t i o n by means o f a c o o p e r a t i v e a s s o c i a t i o n s e a l , t h e use of w h i c h i s a d m i n i s t e r e d by t h e c o o p e r a t i v e . Beyond t h a t , t h e c o o p e r a t i v e s a c t t o i n h i b i t t h e i m p o r t a t i o n of u m b r e l l a s i n c o r p o r a t i n g , w i t h o u t a p p r o v a l , any of t h e f e a t u r e s on w h i c h p r o p r i e t a r y r i g h t s a r e h e l d . I t i s not c l e a r whether t h i s has been more e f f e c t i v e i n t e r m s of c r e a t i n g p r o d u c t d i f f e r e n t i a t i o n f o r d o m e s t i c p r o d u c t i o n or l e g a l b a r r i e r s t o i m p o r t s o r , i n d e e d , i f i t has been v e r y e f f e c t i v e a t a l l . In any c a s e , many o f t h e p r o p r i e t a r y r i g h t s i n v o l v e d a r e due t o e x p i r e i n t h e n e x t few y e a r s and, d e s p i t e v a r i o u s e f f o r t s , no major new i n n o v a t i o n s have a r i s e n i n r e c e n t y e a r s . • Change o f B u s i n e s s A c t i v i t y Most of 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 have l o n g been i n v o l v e d i n t h e d i s t r i b u t i o n o f " r e l a t e d " p r o d u c t s s u c h a s s c a r v e s , m u f f l e r s , e t c . The c h a l l e n g e o f A s i a n NIC u m b r e l l a i m p o r t s i s n o t so g r e a t f o r t h e s e f i r m s , i n s o f a r a s t h e y c o - o p t t h e c h a l l e n g e by i m p o r t i n g and d i s t r i b u t i n g A s i a n NIC o u t p u t . 1 74 N e v e r t h e l e s s , f i r m s w i t h d i r e c t i n v e s t m e n t i n t h o s e c o u n t r i e s a r e b e t t e r e q u i p p e d t h a n o t h e r s t o a d o p t t h i s a p p r o a c h 9 3 Thus, some 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 have been l e d t o expand t h e i r l i n e s of r e l a t e d p r o d u c t s o r , a t l e a s t , t o p l a c e g r e a t e r e m p h a s i s on t h e i r e x i s t i n g o n e s . Some of t h o s e who had e a r l i e r been e x p o r t s p e c i a l i s t s , and d i d n o t have e x t e n s i v e 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 , have w i t h d r a w n e n t i r e l y from t h e b u s i n e s s . T h i s s t r a t e g y has been more f u n d a m e n t a l l y l i n k e d t o t h e i s s u e of i n d u s t r i a l a d j u s t m e n t , however, i n t h e c a s e o f frame p r o d u c e r s and s m a l l e r s u b c o n t r a c t o r s ; some of whom have moved "downstream" i n t o t h e p r o d u c t i o n and d i s t r i b u t i o n of f i n i s h e d u m b r e l l a s . T h i s has been a means o f s u p p o r t i n g t h e i r i n v e s t m e n t i n p r o d u c t i o n f a c i l i t i e s w h i c h have e x p e r i e n c e d a d e c l i n e i n o r d e r s from t h e l a r g e w h o l e s a l e r / m a n u f a c t u r e r s ; who a r e r e l y i n g on i m p o r t s or on a p r o p o r t i o n a t e l y g r e a t e r use o f t h e i r own i n -house f a c i l i t i e s . • M a i n t e n a n c e o f P r i c e - c o m p e t i t i v e n e s s W h i l e t h e a b i l i t y t o compete i n t h e l o w e s t - p r i c e d l i n e s o f u m b r e l l a s i s p r o b a b l y l o s t f o r e v e r , t h e r e i s some e x p e c t a t i o n t h a t p r i c e - c o m p e t i t i v e n e s s i s s t i l l an i m p o r t a n t f a c t o r i n some p o r t i o n of t h e v a s t m e d i u m - p r i c e d r a n g e of u m b r e l l a s and t h a t i t ca n be m a i n t a i n e d by means o f c o s t r e d u c t i o n s and p r o d u c t i v i t y 9 3 Though even t h e y f a c e t h e t h r e a t o f b e i n g b y p a s s e d t h r o u g h d i r e c t i m p o r t s by l a r g e r e t a i l c h a i n s . W h i l e t h i s has a l r e a d y o c c u r r e d , t h e volume s i n v o l v e d a r e s t i l l t r i v i a l l y s m a l l . 1 75 i n c r e a s e s . The major p r o d u c e r s of b o t h frames and u m b r e l l a s have a p p a r e n t l y n o t i n c r e a s e d t h e u n i t f e e s p a i d t o s u b c o n t r a c t o r s and p a r t s p r o d u c e r s f o r e i g h t y e a r s o r more. T h i s has meant a c o n s i d e r a b l e r e d u c t i o n i n t h e r e a l income of t h e s e f i r m s . Many of them have, i n c o n s e q u e n c e , been u n a b l e t o h o l d o n t o t h e i r e m p l o y e e s and have been r e v e r t i n g t o s m a l l e r - s c a l e , f a m i l y - b a s e d o p e r a t i o n s u t i l i z i n g a h i g h e r p r o p o r t i o n o f f a m i l y members i n t h e i r w o r k f o r c e . In a d d i t i o n , t h e r e have been e f f o r t s by t h e major p r o d u c e r s o f b o t h f r a m e s and u m b r e l l a s t o lo w e r c o s t s and improve p r o d u c t i v i t y by s h i f t i n g t h e l o c a t i o n of p r o d u c t i o n , d o m e s t i c a l l y . T h i s has g e n e r a l l y t a k e n t h e p a t t e r n of moving t h e b u l k of l o w e r - p r i c e d u m b r e l l a p r o d u c t i o n i n t o n e a r b y r u r a l a r e a s and, a t t h e same t i m e , moving t h e 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 away from s u b c o n t r a c t o r s and i n t o i n t e r n a l , u r b a n p r o d u c t i o n f a c i l i t i e s . T h i s has c o n t r i b u t e d t o t h e d e v e l o p m e n t of a p o p u l a t i o n of d i s p l a c e d s m a l l e r f i r m s and e x - s u b c o n t r a c t o r s i n u r b a n a r e a s w h i c h , f o r t h e moment a t l e a s t , engage i n t h e p r o d u c t i o n o f t h e l o w e s t - p r i c e d l i n e s of u m b r e l l a s i n d i r e c t c o m p e t i t i o n w i t h A s i a n NIC p r o d u c e r s . The c o t t a g e w o r k e r s have, of c o u r s e , a l s o been s t r o n g l y a f f e c t e d by a d j u s t m e n t t a k i n g p l a c e i n t h e i n d u s t r y . The u t i l i z a t i o n o f s u c h w o r k e r s has a p p a r e n t l y been d e c l i n i n g f a i r l y r a p i d l y . D a t a r e g a r d i n g t h i s g r o u p o f w o r k e r s a r e s p a r s e b u t i t a p p e a r s t h a t most of them have a h i g h d e g r e e o f i n t e r - i n d u s t r y m o b i l i t y . T h o s e i n v o l v e d i n t h e p r o d u c t i o n and i n s t a l l a t i o n o f 1 76 u m b r e l l a f a b r i c a r e e s p e c i a l l y m o b i l e , as t h e y c a n r e a d i l y s w i t c h t o t h e a p p a r e l i n d u s t r y . In r e f l e c t i o n of t h e i r f a v o u r a b l e a l t e r n a t i v e o p p o r t u n i t i e s , t h e p i e c e w o r k r a t e s p a i d t o t h o s e of them who have r e m a i n e d i n t h e i n d u s t r y have s t e a d i l y i n c r e a s e d , even when t h e y were w o r k i n g f o r s u b c o n t r a c t o r s who had not r e c e i v e d an i n c r e a s e i n t h e i r f e e s . 1 77 4. CERAMIC TILE 4.1 I n t r o d u c t i o n The Japanese ceramic t i l e i n d u s t r y 9 " has had remarkable success i n i n t e r n a t i o n a l markets. During the 1960's, the Japanese i n d u s t r y came c l o s e to monopolizing exports to a number of major f o r e i g n markets. In 1969, f o r example, Japan's share of the mosaic t i l e import markets i n the U.S.A., Canada, and West Germany were, r e s p e c t i v e l y , 98.5%, 94.2%, and 97.5%. Japan was a l s o the dominant f o r e i g n s u p p l i e r to the f a r smaller markets i n surrounding developing c o u n t r i e s such as Korea and Taiwan; where the " i n f a n t " l o c a l i n d u s t r i e s c o u l d not meet the needs of the domestic c o n s t r u c t i o n i n d u s t r i e s . In the e a r l y 1970's, however, the Korean i n d u s t r y came of age and began to export mosaic t i l e . Korean gains of mark'et share were r a p i d and were almost e x a c t l y matched i n major markets by a corresponding Japanese l o s s of market share. As a r e s u l t , Japan's share i n the import markets of the U.S.A., Canada, and West Germany had by 1979 f a l l e n , r e s p e c t i v e l y , to 44%, 25%, and 22%. The a b s o l u t e volume of Japanese exports " 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 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 i n Tokyo (August, 1980) and on d i s c u s s i o n s with r e p r e s e n t a t i v e s of JETRO and of the Small and Medium E n t e r p r i s e Promotion Agency regarding t h e i r i n t e r n a l s t u d i e s of the Japanese and Korean i n d u s t r i e s and on the f o l l o w i n g sources: 1. "Nagoya no Yushutsu T o j i k i " i n , Shoko A i c h i May, 1979 ( ( A i c h i k e n Shokobu), 2. "Endakashita no T o j i k i Sangyo" i n , Joho Chosa Repoto No. 394, 1979 (Chushokigyo Joho Senta), 3. " T o j i k i Kogyo no Kyoteki Shomondai" i n , Seramikusu No. 5, 1979, 4. I t a k u r a , K. (ed.), J i b a Sangyo no Machi (Furuima Shoin, Tokyo, 1978), pp174-l86, 5. MITI, Showa Gojunendo no S e i k a t s u y o h i n Sangyo (MITI, Tokyo, 1976) pp374-386. 1 78 continued to i n c r e a s e u n t i l 1973 but by 1979 had been reduced by one-half, as had t o t a l Japanese p r o d u c t i o n . Over the same p e r i o d , around 20% of the firms i n the Japanese i n d u s t r y disappeared through bankruptcy or c l o s u r e and employment f e l l to about 40% of the l e v e l at the beginning of the decade. Despite t h i s , the i n d u s t r y was reckoned in 1979 to s t i l l have excess c a p a c i t y of the order of 40% to 50%. In r e f l e c t i o n of t h i s , the e n t i r e i n d u s t r y was o p e r a t i n g at marginal p r o f i t a b i l i t y and was expected to continue to do so u n t i l such time as the number of a c t i v e f i r m s was s u b s t a n t i a l l y reduced or the c h a l l e n g e of LDC competition had been s u c c e s s f u l l y met. 4.2 Background 4.2.1 The Tokai Ceramics Region Japanese p o r c e l a i n has been i n t e r n a t i o n a l l y renowned for c e n t u r i e s and has even had an i n f l u e n c e on the designs of European producers. Indeed, even some i n d i v i d u a l sanchi w i t h i n Japan, such as Kutani, have become well-known o u t s i d e of J a p a n . 9 5 There are a f a r l a r g e r number of i n d i v i d u a l sanchi which have e s t a b l i s h e d r e p u t a t i o n s , w i t h i n Japan, f o r the p r o d u c t i o n of d i s t i n c t i v e s t y l e s of p o t t e r y . The Japanese word "setomono", meaning " p o t t e r y " , i s i n f a c t d e r i v e d from the name of one such sanchi which i s c e n t r e d on the town of Seto, l o c a t e d 20 k i l o m e t r e s i n l a n d from the p o r t of Nagoya. I t i s a f i t t i n g c h o i c e of synonym as Seto i s one of the most prominent p o t t e r y 9 5 The Royal Doulton company in the U n i t e d Kingdom, f o r example, has a "Kutani" l i n e of p o r c e l a i n i n i t s product l i n e . 1 79 p r o d u c i n g towns i n t h e T o k a i r e g i o n , where t h e b u l k of J a p a n e s e c e r a m i c s p r o d u c t s a r e m a n u f a c t u r e d . The T o k a i c e r a m i c s r e g i o n s t r a d d l e s t h e b o r d e r of G i f u and A i c h i p r e f e c t u r e s n e a r t h e l a r g e p o r t c i t y o f Nagoya on t h e I n l a n d S e a . The r e g i o n h a s , h i s t o r i c a l l y , b e n e f i t t e d f r o m a l o c a t i o n a l o n g t h e T o k a i d o r o u t e l i n k i n g t h e major c i t i e s of J a p a n and from p l e n t i f u l s u p p l i e s o f f r e s h w a t e r , c l a y , and r e d p i n e f o r e s t s f o r f i r e w o o d . W i t h t h e o p e n i n g of J a p a n t o i n t e r n a t i o n a l commerce f o l l o w i n g t h e M e i j i r e s t o r a t i o n , t h e p o r t of Nagoya f a c i l i t a t e d t h e e s t a b l i s h m e n t of t h e r e g i o n as a p r o d u c e r o f p o t t e r y and c h i n a w a r e f o r e x p o r t . I t was n o t , however, u n t i l W o r l d War I t e m p o r a r i l y c u t t h e d ominant E u r o p e a n p r o d u c e r s o u t o f t h e w o r l d market t h a t t h e i n d u s t r y was f u l l y e s t a b l i s h e d as a major i n t e r n a t i o n a l s u p p l i e r . The n a t u r e of f o r e i g n demand was v a r i e d and l e d t h e T o k a i m a n u f a c t u r e r s i n t o a much w i d e r v a r i e t y of p r o d u c t i o n , i n c l u d i n g c o p i e s o f t h e p o t t e r y and c h i n a w a r e s t y l e s a s s o c i a t e d w i t h o t h e r r e g i o n s o f J a p a n . T h i s r e q u i r e d t h e d e v e l o p m e n t o f p r o f i c i e n c y i n a wide v a r i e t y of d i s t i n c t p r o d u c t i o n t e c h n i q u e s . E v e n t u a l l y , t h e t e c h n i c a l competence o f t h e r e g i o n came t o i n c l u d e a l m o s t a l l o f t h e t r a d i t i o n a l p r o d u c t i o n t e c h n i q u e s o f t h e v a r i o u s , g e o g r a p h i c a l l y d i s p e r s e d , p o t t e r y - p r o d u c i n g r e g i o n s of J a p a n . 180 4.2.2 The C e r a m i c T i l e I n d u s t r y In t h e a f t e r m a t h of t h e Second W o r l d War t h e T o k a i c e r a m i c s i n d u s t r y underwent a r a p i d r e v i v a l and f u r t h e r d i v e r s i f i c a t i o n b eyond t h e t r a d i t i o n a l p o t t e r y , c e r a m i c n o v e l t y i t e m s , and r o o f i n g t i l e s . P r o d u c t i o n of c e r a m i c s f o r t h e g r o w i n g d o m e s t i c e l e c t r i c a l goods i n d u s t r y and of s u c h i t e m s as c e r a m i c d r a i n p i p e , s a n i t a r y f i x t u r e s , and t i l e t o s u p p o r t t h e r e c o n s t r u c t i o n and m o d e r n i z a t i o n of b u i l d i n g s and h o u s i n g a l l - c o n t r i b u t e d t o g r o w t h . The c e r a m i c t i l e i n d u s t r y showed p a r t i c u l a r l y r a p i d g r o w t h w i t h t h e commencement o f s u b s t a n t i a l e x p o r t s i n t h e e a r l y 1960's. By 1969, Japan h e l d 69% of t h e t o t a l U.S.A. i m p o r t m a rket f o r c e r a m i c t i l e of a l l t y p e s . 4.3 I n d u s t r y S t r u c t u r e The J a p a n e s e t i l e i n d u s t r y can be b r o a d l y d i v i d e d i n t o t h r e e main p r o d u c t t y p e s ; m o s a i c t i l e , i n t e r i o r w a l l t i l e , and e x t e r i o r and f l o o r i n g t i l e . T h e s e c o r r e s p o n d , r o u g h l y , t o t h r e e d i s t i n c t s e t s of m a n u f a c t u r e r s , t h o u g h some f i r m s do p r o d u c e some q u a n t i t i e s o f o t h e r t y p e s as a s u p p l e m e n t t o p r o d u c t i o n o f t h e i r s p e c i a l i t y . T a b l e 12 i n d i c a t e s t h e r e l a t i v e volume o f p r o d u c t i o n , c i r c a 1968, f o r e a c h t y p e of t i l e by m a r k e t . 4.3.1 T i l e T y p e s And The R o l e Of E x p o r t s In t h e p o s t w a r p e r i o d t h e J a p a n e s e have d i s p l a y e d a p a r t i c u l a r a f f i n i t y f o r t h e use of t i l e on t h e e x t e r i o r o f new b u i l d i n g s and h o u s e s . I t i s not u n u s u a l t o see t h e e x t e r i o r w a l l s o f e n t i r e b u i l d i n g s , and even p r i v a t e homes, c o m p l e t e l y s u r f a c e d i n t i l e . T h i s has s u p p o r t e d t h e d e v e l o p m e n t o f a l a r g e Table 12 - Volume of Ceramic T i l e Production by Type and Market, c i r c a 1968 Market Mosaic (Market %) Indoor Wall (Market %) 1 Exterior A l l Ti l e (Market %) { (Market %) Domestic Type % , - i (22) 3743.5 15.8 (47) 7550.3 31.9 (96) 124065 237000 52.3 100 i l Export Type % (78) 135873 60.4 (53) 8378.6 37.2 (4) 5273 12.4 224932 100 Overall Type % (100)173308 37.5 (100)159289 34.5 (100)129338 28.0 461935 100 Data Source: Chushokigyo Shinko Jigyodan, internal export, 1976. 182 d o m e s t i c market f o r e x t e r i o r t i l e . I n t e r i o r w a l l t i l e has e n j o y e d a more l i m i t e d , but s t i l l s u b s t a n t i a l , d o m e s t i c m a r k e t , p r i m a r i l y f o r a p p l i c a t i o n i n bathrooms and k i t c h e n s . In c o n t r a s t t o t h e o t h e r two t y p e s o f t i l e , m o s a i c t i l e has had a r e l a t i v e l y s m a l l d o m e s t i c m a r k e t . In terms of e x p o r t m a r k e t s , however, t h e s i t u a t i o n was r e v e r s e d ; w i t h m o s a i c t i l e h a v i n g t h e l a r g e s t e x p o r t m a r k e t , f o l l o w e d by i n t e r i o r w a l l t i l e . E x t e r i o r and f l o o r t i l e e x p o r t s were s m a l l b o t h i n a b s o l u t e t e r m s and r e l a t i v e t o t o t a l p r o d u c t i o n . 4.3.2 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 And F i r m C h a r a c t e r i s t i c s The t h r e e t y p e s of t i l e i n v o l v e somewhat 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 . I n t e r i o r w a l l t i l e r e q u i r e s two f i r i n g s a t d i f f e r e n t t e m p e r a t u r e s and, t h u s , two d i s t i n c t s e t s of t u n n e l k i l n s a r e u s e d . I t s p r o d u c t i o n p r o c e s s i s t h e most c a p i t a l -i n t e n s i v e o f t h e t h r e e t y p e s and f i r m s i n t h i s s e c t o r a r e much l a r g e r t h a n t h o s e p r o d u c i n g t h e o t h e r two t y p e s . P r a c t i c a l l y a l l of t h e i n t e r i o r w a l l t i l e p r o d u c e r s engage i n c o n t i n u o u s l i n e p r o d u c t i o n . The p r o d u c t i o n o f e x t e r i o r and f l o o r t i l e r e q u i r e s o n l y one f i r i n g and u t i l i z e s p r e s s e s and, o c c a s i o n a l l y , i n j e c t i o n m o l d i n g equipment ( t o p r o d u c e s p e c i a l s u r f a c e e f f e c t s ) t o form t h e t i l e . The m a j o r i t y of t h e f i r m s i n t h i s p a r t o f t h e i n d u s t r y a l s o engage i n l i n e p r o d u c t i o n and t e n d t o be i n t e g r a t e d a c r o s s a l l p r o d u c t i o n s t a g e s f r o m c l a y p r e p a r a t i o n t o f i n i s h e d p r o d u c t . A v e r a g e f i r m s i z e i s s m a l l e r t h a n f o r w a l l t i l e b u t l a r g e r t h a n t h a t o f m o s a i c t i l e m a n u f a c t u r e r s . 1 83 The p r o d u c t i o n of m o s a i c t i l e d o e s not u t i l i z e i n j e c t i o n m o l d i n g e q u i p m e n t b u t , a s i d e from t h i s , t h e p r o d u c t i o n p r o c e s s f o r t h e i n d i v i d u a l t i l e s i s e s s e n t i a l l y t h e same as f o r e x t e r i o r t i l e . The m a j o r d i f f e r e n c e i s t h a t t h e f i n i s h e d p r o d u c t , i n t h e c a s e of m o s a i c t i l e , i s not t h e i n d i v i d u a l t i l e , i t s e l f , b u t an a r r a y o f s u c h t i l e s a t t a c h e d t o a p a p e r or net b a c k i n g f o r e a s e of i n s t a l l a t i o n . T h i s means t h a t once t h e i n d i v i d u a l t i l e s have been p r o d u c e d t h e y need t o be a r r a n g e d i n t o t h e d e s i r e d p a t t e r n and g l u e d t o t h e b a c k i n g m a t e r i a l . T h i s i s a h i g h l y l a b o u r -i n t e n s i v e s t a g e o f p r o d u c t i o n and a c c o u n t s 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 t o t a l p r o d u c t i o n c o s t s . In t h e p r o d u c t i o n of m o s a i c t i l e t h e r e i s a d i v i s i o n of l a b o u r among f i r m s of t h r e e t y p e s ; c l a y p r o d u c t i o n and p r e p a r a t i o n s p e c i a l i s t s , k i l n o p e r a t o r s p r o d u c i n g t h e i n d i v i d u a l t i l e s , and f i r m s s p e c i a l i z i n g i n a g g r e g a t i n g t h e i n d i v i d u a l t i l e s i n t o a f i n i s h e d p r o d u c t . T h e r e a r e some k i l n o p e r a t o r s who a l s o engage i n t h e a s s e m b l y o f t h e f i n i s h e d p r o d u c t . The most p r o m i n e n t p a r t i c i p a n t s i n t h i s f i n a l s t a g e of p r o d u c t i o n a r e , however, l o c a l w h o l e s a l e r / m a n u f a c t u r e r s who r e l y e x t e n s i v e l y on l o c a l l a b o u r and s u b c o n t r a c t o r s f o r t h e p r o d u c t i o n o f m o s a i c t i l e s e t s . In r e f l e c t i o n of t h i s d i v i s i o n of l a b o u r and r e l a t i v e l y h i g h l a b o u r - i n t e n s i t y , t h e a v e r a g e s i z e of m o s a i c t i l e p r o d u c e r s i s s m a l l e r t h a n f o r p r o d u c e r s o f t h e o t h e r two t y p e s and p r o d u c t i v i t y i s b o t h l o w e r and has grown more s l o w l y . P r o d u c t i v i t y ( i n t o n s of a n n u a l o u t p u t p e r e m p l o y e e ) , among m o s a i c t i l e m a n u f a c t u r e r s i n 1965 was o n l y one-h a l f t h a t o f i n t e r i o r w a l l t i l e m a n u f a c t u r e r s and t h i s f e l l t o 1 84 o n e - t h i r d of that standard by 1975. 4.3.3 Sales And D i s t r i b u t i o n There are a l s o s u b s t a n t i a l d i f f e r e n c e s among manufacturers of t i l e i n terms of the s a l e s and d i s t r i b u t i o n channels used. These d i f f e r e n c e s , however, do not correspond e x a c t l y to the three d i f f e r e n t t i l e types. D o m e s t i c a l l y , the manufacturers of i n t e r i o r w a l l t i l e and the l a r g e r firms among the manufacturers of e x t e r i o r t i l e g e n e r a l l y s e l l t h e i r output e i t h e r d i r e c t l y to c o n s t r u c t i o n c o n t r a c t o r s or to urban w h o l e s a l e r s . In c o n t r a s t to t h i s , the mosaic t i l e manufacturers and the smaller e x t e r i o r t i l e producers s e l l the bulk of t h e i r output (say, 70%) to l o c a l , sanchi-based w h o l e s a l e r s , some of whom are a l s o i n v o l v e d i n producing f i n i s h e d mosaic sets out of i n d i v i d u a l t i l e . These l o c a l w holesalers then market the t i l e to c o n s t r u c t i o n c o n t r a c t o r s or to urban wholesalers s e r v i n g the c o n s t r u c t i o n i n d u s t r y . With respect to exports, manufacturers of a l l types of t i l e are h i g h l y dependent upon t r a d i n g companies but only the producers of i n t e r i o r w a l l t i l e and mosaic t i l e have had any major dependence on export markets. Of these two, the producers of w a l l t i l e a r e , by f a r , the l e a s t dependent on t r a d i n g companies and appear to s e l l as much as 40% of t h e i r t o t a l exports d i r e c t l y to importers i n f o r e i g n markets. Mosaic t i l e producers, on the other hand, are almost t o t a l l y dependent on t r a d i n g companies and i t appears that a s u b s t a n t i a l p r o p o r t i o n of the output d e s t i n e d f o r export i n v o l v e s a f u r t h e r , 185 int e r m e d i a t e , dependence on sanchi-based w h o l e s a l e r s . 4.4 The Advent Of LDC Competition The major competitors of the Japanese ceramic t i l e i n d u s t r y in i n t e r n a t i o n a l markets (aside from l o c a l , domestic s u p p l i e r s i n f o r e i g n markets) are producers based i n Korea. The Korean i n d u s t r y enjoys, i n a d d i t i o n to a low-cost, h i g h l y educated labour f o r c e , a p l e n t i f u l supply of the necessary c l a y m a t e r i a l s and an even longer ceramics t r a d i t i o n than that of Japan. Indeed, the d i r e c t antecedents of Japanese f i n e ceramics lay i n the t r a d i t i o n a l Korean i n d u s t r y , from which they d e r i v e . 9 6 Korean production of ceramic t i l e , however, i s of r e l a t i v e l y recent o r i g i n and began i t s major growth i n the 1960's i n response to the expanding domestic c o n s t r u c t i o n market. I t was p r o t e c t e d as an " i n f a n t " i n d u s t r y and imports, l a r g e l y from Japan, were permitted only i n order to meet the s h o r t f a l l between domestic demand and p r o d u c t i o n . Expansion of the i n d u s t r y apparently i n v o l v e d the importation of s u b s t a n t i a l amounts of p l a n t and equipment from Japan. These l a t t e r imports b e n e f i t t e d from low-cost f i n a n c i n g p rovided, among o t h e r s , by the Asian Development Bank and by the Japan Export-Import Bank. Production of mosaic t i l e i n the Korean i n d u s t r y , compared to that i n Japan, i s c a r r i e d out by fewer, and much l a r g e r , f i r m s ; as Table 13 i n d i c a t e s . The four l a r g e s t f i r ms account 9 6 See, f o r example, the d i s c u s s i o n of the connection between the i n t r o d u c t i o n of Korean p o t t e r y and other a r t i s a n a l techniques and the d i s s e m i n a t i o n of Buddhism to Japan from Korea; i n W. T. de Bary (ed.), Sources of Japanese T r a d i t i o n , Volume 1 (New York, Columbia U n i v e r s i t y Press, 1958) pp 92-93. 186 for somewhat l e s s than 50% of t o t a l p r o d u c t i o n . The balance of prod u c t i o n i s c a r r i e d out by seven other firms which, while s m a l l e r , are l a r g e r than the norm i n the Japanese i n d u s t r y . By the l a t e 1960's, the Korean i n d u s t r y had supplanted most imports and had begun to export mosaic t i l e to the U.S.A. market. The volume of exports was f i f t e e n times the 1971 l e v e l by 1975 and the export share of t o t a l mosaic t i l e p r o d u c t i o n rose from about 8% to over 54% over the same p e r i o d . Mosaic t i l e c o n tinued to dominate Korean exports and accounted f o r 89% of t o t a l exports by volume in 1975. As in Japan, mosaic t i l e was produced p r i m a r i l y f o r export markets and about 90% of t o t a l p r o d u c t i o n was exported. As Table 14 i n d i c a t e s , the growth of Korean t i l e exports r a p i d l y eroded Japanese market share i n f o r e i g n markets. Indeed, by some estimates, the Korean producers of mosaic t i l e had overtaken t h e i r Japanese c o u n t e r p a r t s i n export markets by 1979. What i s more c e r t a i n i s that the development of the Korean i n d u s t r y was the most immediate cause of the r a p i d d e c l i n e of the Japanese i n d u s t r y d u r i n g the 1970's. 4.5 Adjustment 4.5.1 The Impact Of LDC Competition The impact of f o r e i g n competitors on the Japanese ceramic t i l e i n d u s t r y has been almost wholly l i m i t e d to export markets. It has, moreover, d i f f e r e d c o n s i d e r a b l y among the three types of t i l e . The volume of e x t e r i o r and f l o o r t i l e exports- a c t u a l l y T a b l e 13 - A Comparison of F i r m S i z e i n the Korean and Japanese I n d u s t r i e s Firm Korea Japan Size A l l T i l e Mosaic Mosaic (No. of Employees) No. % No. % No. % 50 or l e s s 4 17 2 17 172 76 51 to 200 13 54 5 46 41 18 201 or more 7 29 4 36 14 6 T o t a l Firms 24 100 11 100 227 100 Sources: Korea; JETRO i n t e r n a l report Japan; Industry A s s o c i a t i o n data 1 88 T a b l e 14 - Trends i n Japanese and Korean Market Share i n Some Major Markets U. 4 Country S.A. Canada W. Germany A u s t r a l i a T o t a l J K J K J K J K J K A 0 A 0 A 0 A 0 A 0 P R P R P R P R P R A E A E A E A E A E N A N A N A N A N A 1969 98.5 .3 94.2 .2 97.5 .6 93.9 3.5 97.2 .7 1970 98.4 .0 93.1 .0 97.7 .0 93.6 3.3 96.7 .6 1971 98.0 .0 90.2 .0 98.8 .0 95.9 1.2 97.2 .2 1972 94.1 4.4 87.3 .0 89.3 6.9 95.1 .2 92.1 3.7 1973 89.8 10.0 83.0 2.4 60.0 30.3 98.7 .0 84.0 11.1 1974 78.8 17.8 68.8 5.5 38.4 46.7 98.0 .5 77.5 14.3 1975 71.4 22.4 56.1 6.0 26.3 61.0 95.5 1.5 64.4 23.2 1976 64.1 28.2 53.4 18.1 20.2 54.0 87.9 7.9 63.4 23.7 1977 58.6 34.7 47.8 26.4 18.0 47.6 87.0 8.9 60.6 26.6 1978 59.1 36.7 34.6 17.8 15.9 30.0 82.9 10.1 55.3 24.7 1979 43.9 52.7 25.5 23.6 22.2 16.7 81.2 12.2 49.6 33.5 Source : I ndu s t r y A s s o c i a t i o n da ta 189 i n c r e a s e d between 1965 and 1975 by 35%, though t h e p r o p o r t i o n o f o u t p u t e x p o r t e d f e l l from a mere 6% t o o n l y 3% o v e r t h e same p e r i o d . I n t e r i o r w a l l t i l e m a n u f a c t u r e r s , on t h e o t h e r hand, f a c e d c o m p e t i t i o n , b e g i n n i n g i n t h e mid-1960's, from p r o d u c e r s i n B r a z i l , M e x i c o , and t h e P h i l i p p i n e s . As a r e s u l t , t h e y e x p e r i e n c e d a 45% d r o p i n t h e volume e x p o r t e d between 1965 and 1975. T h i s was more t h a n c o u n t e r b a l a n c e d , however, by an i n c r e a s e i n d o m e s t i c demand and t o t a l p r o d u c t i o n grew by an a v e r a g e a n n u a l r a t e o f 10% f o r t h e p e r i o d . A c c o r d i n g l y , t h e volume of p r o d u c t i o n i n 1975 was more than two and o n e - h a l f t i m e s t h a t of 1965.. M o s a i c t i l e m a n u f a c t u r e r s a l s o e x p e r i e n c e d a s u b s t a n t i a l d e c l i n e i n e x p o r t volume but i t s t i m i n g was much l a t e r and c o r r e s p o n d s c l o s e l y t o t h e e n t r y of K o r e a n p r o d u c e r s i n t o e x p o r t m a r k e t s i n t h e e a r l y 1970's. In f a c t , t h e volume o f J a p a n e s e m o s a i c t i l e e x p o r t s c o n t i n u e d t o r e g i s t e r i n c r e a s e s u n t i l 1973 and e x p o r t s i n 1975 were o n l y down by 15% from t h e l e v e l i n 1965. Between 1973 and 1975 a l o n e , however, e x p o r t volume f e l l by 44% and by 1979 was o n l y 49% of t h e 1973 l e v e l . Thus, t h e a d j u s t m e n t p r o b l e m p o s e d by K o r e a n p r o d u c e r s i s p r i m a r i l y t h e p r o b l e m o f t h e m o s a i c t i l e m a n u f a c t u r i n g s e c t o r . 4.5.2 A d j u s t m e n t S t r a t e g i e s A d j u s t m e n t a c t i v i t i e s i n t h e m o s a i c t i l e i n d u s t r y can be c o n v e n i e n t l y g r o u p e d i n t o t h r e e c a t e g o r i e s r e l a t e d , r e s p e c t i v e l y , t o t h e a r e a s o f s a l e s , p r o d u c t , and p r o d u c t i o n . E a c h o f t h e s e c o r r e s p o n d s t o t h e m a j o r d i m e n s i o n o f change f o r a t l e a s t one a d j u s t m e n t s t r a t e g y . 1 90 i . Change of Market (Sales) .. • Export Markets The p a t t e r n of Japanese exports by d e s t i n a t i o n has shown c o n s i d e r a b l e change s i n c e 1965. In p a r t i c u l a r , there was a d e c l i n e i n the p r o p o r t i o n of exports d e s t i n e d f o r North America and an i n c r e a s e in the corresponding f i g u r e s f o r Europe and A u s t r a l i a . Most of t h i s s h i f t in the d e s t i n a t i o n of exports by market o c c u r r e d p r i o r to the advent of Korean c o m p e t i t i o n . Most probably, i t r e f l e c t s a gradual expansion i n t o , f o r example, European markets that were i n i t i a l l y l e s s a c c e s s i b l e to Japanese producers and a l s o the impact of v a r i o u s " v o l u n t a r y " export r e s t r a i n t s implemented i n response to p r o t e c t i o n i s m i n d i f f e r e n t export markets. More s p e c u l a t i v e l y , i t may have been an e f f o r t to stay a step ahead of the oncoming wave of competition from Korean producers in the t r a d i t i o n a l export markets. There was some f u r t h e r change of t h i s type f o l l o w i n g the advent of Korean competition but, among the major export markets at l e a s t , t h i s was not due to any expansion of exports but, r a t h e r , to d i f f e r e n t r a t e s of d e c l i n e i n exports by market. Thus, i t i s not evident that a purposive change of markets has been a s u c c e s s f u l adjustment s t r a t e g y , with r e s p e c t to e x p o r t s , f o r the i n d u s t r y as a whole. • Domestic Market As i n d i c a t e d e a r l i e r , i n t e r i o r w a l l t i l e manufacturers faced severe competition i n export markets from LDC competitors 191 but were a b l e t o a d j u s t b e c a u s e of a r a p i d l y e x p a n d i n g d o m e s t i c m a r k e t . M o s a i c t i l e p r o d u c e r s a l s o i n c r e a s e d t h e p r o p o r t i o n of t h e i r o u t p u t s o l d on t h e d o m e s t i c market f o l l o w i n g t h e e n t r y of K o r e a n c o m p e t i t o r s i n t o i n t e r n a t i o n a l m a r k e t s . To a l a r g e e x t e n t , however, t h i s change r e f l e c t e d t h e d e c l i n e i n e x p o r t s r a t h e r t h a n any major i n c r e a s e i n d o m e s t i c s a l e s . D o m e s t i c s a l e s volume d i d i n c r e a s e by 41% ( f r o m a r e l a t i v e l y s m a l l b ase) between 1972 and 1979 i n r e s p o n s e t o i n c r e a s e s i n d o m e s t i c c o n s t r u c t i o n . D e s p i t e an i n c r e a s e i n a b s o l u t e volume, however, m o s a i c t i l e p r o d u c e r s , i n c o n t r a s t t o i n t e r i o r w a l l t i l e p r o d u c e r s , f a c e d a d e t e r i o r a t i n g d o m e s t i c m a r k e t . The r a t e of u t i l i z a t i o n of m o s a i c t i l e ( i n k i l o g r a m s p e r c o n s t r u c t i o n s t a r t ) had, by 1975, f a l l e n t o o n l y o n e - q u a r t e r o f t h e l e v e l i n 1965. Growth i n o v e r a l l d o m e s t i c c o n s t r u c t i o n a c t i v i t y overcame t h e r e l a t i v e d e c l i n e i n t h e p o p u l a r i t y o f m o s a i c t i l e but t h e i n c r e a s e i n a b s o l u t e d o m e s t i c s a l e s volume c o u n t e r b a l a n c e d o n l y a b o u t 25% of t h e d e c l i n e i n e x p o r t volume between 1965 and 1975 and 42% of t h e d e c l i n e between 1973 and 1979. I t i s l i k e l y , m o r e o v e r , t h a t a s u b s t a n t i a l p o r t i o n o f t h e s e d o m e s t i c s a l e s were t h e r e s u l t of e x t r e m e l y low p r i c e s due t o o v e r - c a p a c i t y i n t h e m o s a i c t i l e s e c t o r i n t h e l a t t e r h a l f of the- 1970's. When t h e p r i c e o f m o s a i c t i l e f a l l s low enough, i t c a n t a k e s a l e s away from i n t e r i o r w a l l t i l e (and, p r e s u m a b l y , from o t h e r f i n i s h i n g m a t e r i a l s a s w e l l ) . T h i s seems t o a c c o u n t f o r some of t h e i n c r e a s e d s a l e s volume on t h e d o m e s t i c m a r k e t . P r o f i t a b i l i t y f i g u r e s f o r t h e c e r a m i c t i l e i n d u s t r y a l s o s u p p o r t 1 92 t h i s i n t e r p r e t a t i o n . P r o f i t as a percentage of s a l e s f e l l f o r a l l three types of t i l e between 1970 and 1976, but the drop was g r e a t e s t f o r mosaic t i l e producers, followed by i n t e r i o r w a l l t i l e producers. In comparison, the manufacturers of e x t e r i o r t i l e experienced a more moderate d e c l i n e i n p r o f i t a b i l i t y , i i . Change of Product • Change to H i g h e r - p r i c e d L i n e s of Mosaic T i l e A l l mosaic t i l e i s not c r e a t e d equal and the v a r i e t y ranges from unpatterned, unglazed t i l e of standard s i z e and shape to t i l e i n c o r p o r a t i n g more or l e s s novel p a t t e r n s , g l a z e s , s i z e s and shapes. The l a t t e r are g e n e r a l l y more d i f f i c u l t to produce and command c o n s i d e r a b l y higher p r i c e s . They a l s o p r o v i d e more o p p o r t u n i t y f o r the i n d i v i d u a l manufacturer to d i f f e r e n t i a t e h i s output from that of o t h e r s . The most r e a d i l y measurable d i s t i n c t i o n i s between g l a z e d and unglazed t i l e . The Japanese i n d u s t r y has, s i n c e 1965, moved s t e a d i l y out of the p r o d u c t i o n of unglazed t i l e and i n t o the p r o d u c t i o n of the h i g h e r - p r i c e d and l e s s commodity-like g l a z e d t i l e s . Here too, the b a s i c p a t t e r n of change predates the advent of Korean c o m p e t i t i o n . Moreover, in the face of Korean c o m p e t i t i o n , exports of both types d e c l i n e d . N e v e r t h e l e s s , exports of g l a z e d t i l e d e c l i n e d more slowly and even showed some i n c r e a s e s i n markets i n Southeast A s i a , such as Singapore and 193 Hong Kong. 9 7 • Change of Product Type While the three types of t i l e correspond roughly to d i s t i n c t s e t s of manufacturers, there has always been some ov e r l a p among the three groups in terms of t h e i r p r o d u c t i o n . Because of the s i m i l a r i t y i n pro d u c t i o n processes, the g r e a t e s t degree of o v e r l a p has been between the producers of mosaic t i l e and producers of e x t e r i o r and f l o o r t i l e . The movement of the l a r g e r mosaic t i l e manufacturers i n t o the pr o d u c t i o n of e x t e r i o r t i l e d u r i n g the 1970's has been s u b s t a n t i a l and has had the e f f e c t of t r a n s m i t t i n g the impact of LDC com p e t i t i o n onto that s e c t o r , even though i t i s not d i r e c t l y exposed to LDC co m p e t i t i o n . The a v a i l a b l e f i g u r e s i n d i c a t e t h a t , by 1976, at l e a s t 46% of the mosaic t i l e manufacturers were a l s o producing e x t e r i o r t i l e . Aside from t h i s major t r e n d , there was ap p a r e n t l y a l s o some e f f o r t on the part of smal l e r producers to u t i l i z e mosaic t i l e i n the pro d u c t i o n of consumer goods such as c l o c k s , lampstands, and other items of i n t e r i o r d e c o r a t i o n . i i i . Changes i n Prod u c t i o n • Change of L o c a t i o n (Foreign D i r e c t Investment) 9 7 Though i n Singapore, but not i n Hong Kong, Japan continued to lo s e market share to Korea. 194 It i s not c l e a r what r o l e , i f any, f o r e i g n d i r e c t investment i n LDCs has played i n the adjustment a c t i v i t i e s of p a r t i c i p a n t s i n the Japanese mosaic t i l e i n d u s t r y . However, of the 24 Korean producers of ceramic t i l e i n 1976, one was a wholly owned s u b s i d i a r y and another a j o i n t venture of a Japanese company. These two f i r m s both s p e c i a l i z e d in the p r o d u c t i o n of mosaic t i l e and accounted f o r around 28% of t o t a l Korean mosaic t i l e p r o d u c t i o n i n 1975. Both firms are q u i t e l a r g e (360 and 336 employees, r e s p e c t i v e l y ) but there are at l e a s t two Korean-owned mosaic t i l e producers of e q u i v a l e n t s i z e and i t does not appear that Japanese FDI dominates the Korean i n d u s t r y or i s the b a s i s of i t s success. D i r e c t evidence f o r the years s i n c e 1976 was u n a v a i l a b l e but one source i n d i c a t e d that such Japanese FDI had i n c r e a s e d . Whatever the l e v e l and t r e n d of Japanese FDI, there i s c o n s i d e r a b l e doubt as to whether i t represents adjustment t o , or merely a m a n i f e s t a t i o n of, the problem of LDC c o m p e t i t i o n . The nature of the Japanese p a r t i c i p a n t s i n the Korean i n d u s t r y c i r c a 1976 i s u n c e r t a i n but they appear, by t h e i r names, to be Japanese t r a d i n g companies or w h o l e s a l e r s based, r e s p e c t i v e l y , in Tokyo and Nagoya. They are known to have exported at l e a s t some of t h e i r Korean output to Japan. Given the excess p r o d u c t i o n c a p a c i t y i n the Japanese i n d u s t r y , i t i s c o n c e i v a b l e that i n d i v i d u a l Japanese manufacturers might t r y to s o l v e the managerial problem by means of a t r a n s f e r of production and p r o d u c t i o n equipment to Korea. There was, however, no d i r e c t evidence of t h i s s o r t of a c t i v i t y . 1 95 I t seems more l i k e l y , t h e r e f o r e , t h a t J a p a n e s e FDI i n t h i s i n d u s t r y i s b e i n g c a r r i e d out n o t by t i l e p r o d u c e r s but by t i l e w h o l e s a l e r s or t r a d i n g c ompanies w i t h e s t a b l i s h e d s a l e s n e t w o r k s but w i t h o u t any m a j o r s t a k e i n d o m e s t i c p r o d u c t i o n f a c i l i t i e s . • Change o f P r o d u c t i o n P r o c e s s a) A u t o m a t i o n The a d v a n t a g e o f t h e K o r e a n i n d u s t r y o v e r t h e J a p a n e s e i n d u s t r y l a y s p r i m a r i l y i n i t s much low e r l a b o u r c o s t s . 9 8 The J a p a n e s e i n d u s t r y has a t t e m p t e d t o d e v e l o p ways t o overcome t h e K o r e a n a d v a n t a g e by means of c h a n g e s i n t h e p r o d u c t i o n p r o c e s s . The most l a b o u r - i n t e n s i v e o p e r a t i o n i n m o s a i c t i l e p r o d u c t i o n i s t h e a r r a n g e m e n t and a t t a c h m e n t of t h e i n d i v i d u a l t i l e s i n t o p a t t e r n e d m o s a i c p a n e l s . T h i s , t h e n , has been t h e f o c u s o f t h e most c o n c e r t e d e f f o r t t o d e v e l o p new t e c h n o l o g y . By 1979, a j o i n t government and i n d u s t r y a s s o c i a t i o n p r o j e c t had s u c c e e d e d i n d e v e l o p i n g a u t o m a t e d equipment c a p a b l e of c a r r y i n g o u t t h i s s t a g e of p r o d u c t i o n . T h i s was e x p e c t e d t o r e s u l t i n a d r a m a t i c r e d u c t i o n i n i n d u s t r y p r o d u c t i o n c o s t s , i f i t were w i d e l y a d o p t e d . The r i g h t s t o t h e t e c h n o l o g y were a p p a r e n t l y h e l d by t h e i n d u s t r y a s s o c i a t i o n and, t h u s , t h e r e was some p r o s p e c t , t h o u g h no c e r t a i n t y , o f p r e v e n t i n g i t s a d o p t i o n by K o r e a n p r o d u c e r s . T h i s m i g h t , t h e n , e n a b l e t h e J a p a n e s e The l a r g e r a v e r a g e f i r m s i z e and a more r e c e n t v i n t a g e of p l a n t and e q uipment may a l s o y i e l d some a d v a n t a g e t o t h e K o r e a n i n d u s t r y . 1 96 i n d u s t r y to r e t r i e v e some of i t s l o s t c o m petitiveness i n export markets. The task of d i f f u s i n g t h i s technology w i t h i n the i n d u s t r y was complicated, however, by the presence of massive o v e r c a p a c i t y , low p r i c e s , and low l e v e l s of p r o f i t s . Only the l a r g e s t and s t r o n g e s t firms were l i k e l y to be able to adopt t h i s equipment i n the best of circumstances. Even they found i t d i f f i c u l t to j u s t i f y , and f i n a n c e , i t s u t i l i z a t i o n ; given the e x i s t i n g p r o l i f e r a t i o n of small firms and excess c a p a c i t y i n the i n d u s t r y . b) The " T r i v i a l i z a t i o n " of Production and O v e r c a p a c i t y The p e r s i s t e n c e of a l a r g e number of small f i r m s in the i n d u s t r y a p p a r e n t l y r e f l e c t s a r e l a t i v e l a c k of o p p o r t u n i t i e s i n other product l i n e s f o r such firms and a c o n s i d e r a b l e c a p a c i t y fo r s m a l l , f a m i l y - c e n t r e d f i r m s to endure depressed business c o n d i t i o n s . The a v a i l a b l e adjustment a l t e r n a t i v e s in the i n d u s t r y , to the extent that they were e f f e c t i v e , had the g r e a t e s t relevance f o r the l a r g e r and more s o p h i s t i c a t e d f i r m s . The smaller firms g e n e r a l l y have l e s s s p e c i a l i z e d equipment and t h i s should a f f o r d them a g r e a t e r a b i l i t y to migrate i n t o other ceramic products, such as dinnerware and ceramic n o v e l t y items. In f a c t , however, these most n a t u r a l a l t e r n a t i v e i n d u s t r i e s were a l s o f a c i n g severe LDC c o m p e t i t i o n and r e s u l t i n g o v e r c a p a c i t y . Indeed, some of the s m a l l e r mosaic t i l e manufacturers were app a r e n t l y f i r m s that had e a r l i e r migrated from these i n d u s t r i e s i n t o the mosaic t i l e i n d u s t r y . 1 97 The v i c i s s i t u d e s of the 1970's have, in f a c t , had the most evident adverse impact on the m i d d l e - s i z e d companies. They are b e l i e v e d to account fo r the l a r g e s t p a r t of an approximately 20% r e d u c t i o n i n the number of firms i n the i n d u s t r y as a r e s u l t of bankruptcies and c l o s u r e s between 1970 and 1975." A c o n s i d e r a b l e number of other m i d d l e - s i z e d firms remained i n the i n d u s t r y but were reduced d r a s t i c a l l y i n s i z e . Thus, between 1972 and 1979, the p r o p o r t i o n of f i r m s employing more than 200 employees was reduced by only 1% from 6% to 5% of the t o t a l but the p r o p o r t i o n of m i d d l e - s i z e d firms (51 to 200 employees) f e l l from 26% to 1 8 % . 1 0 0 In c o n t r a s t , the p r o p o r t i o n of firms employing 50 or fewer employees rose from 68% to 77% of the t o t a l . c) C a p a c i t y Reduction and Automation The mosaic t i l e i n d u s t r y a s s o c i a t i o n has adopted a novel approach to the r e l a t e d problems of o v e r c a p a c i t y and the need to introduce l a b o u r - s a v i n g equipment. The a s s o c i a t i o n has purchased automated equipment which i t l e a s e s out to manufacturers wishing to employ i t . These are, a p p a r e n t l y , the l a r g e r f i r m s . At the same time, the l e a s e payments are d e p o s i t e d i n t o a s p e c i a l fund to buy up excess c a p a c i t y from firms wishing to reduce or e l i m i n a t e t h e i r involvement i n mosaic t i l e p r o d u c t i o n . These are, t y p i c a l l y , 9 9 "Endakashita no T o j i k i Sangyo", op. c i t . p 9. 1 0 0 Industry A s s o c i a t i o n data. 1 98 the smaller and weaker f i r m s i n the i n d u s t r y . At the time of the f i e l d r e s e a r c h i t was unclear as to the e f f e c t i v e n e s s of t h i s programme. I t i s n o t a b l e , however, in that i t r e p r e s e n t s a c r e a t i v e attempt to d i r e c t l y address the problem of r e c o n c i l i n g the d i v e r g e n t i n t e r e s t s and o p p o r t u n i t i e s of the v a r i o u s p a r t i c i p a n t s i n an i n d u s t r y faced with LDC c o m p e t i t i o n . A l s o of i n t e r e s t i s the f a c t that the programme i s a p p a r e n t l y operated by i n d u s t r y p a r t i c i p a n t s themselves (through t h e i r i n d u s t r y a s s o c i a t i o n ) , r a t h e r than by a government agency. 199 5. THE MIGRATION MODE OF ADJUSTMENT 5.1 The S c a r c i t y Of C o m p a r a t i v e D a t a The mode of a d j u s t m e n t f o r w h i c h i n f o r m a t i o n i s most d i f f i c u l t t o o b t a i n i s a d j u s t m e n t by means of a change t o a new l i n e of b u s i n e s s , o r " m i g r a t i o n " . T h i s r e f l e c t s t h e f a c t t h a t t h e m a j o r i t y of s o u r c e s and i n f o r m a n t s r e l e v a n t t o a g i v e n i n d u s t r y f a c i n g t h e p r o b l e m of a d j u s t m e n t a r e o r i e n t e d t o t h e i n d u s t r y , p e r s e . Thus, t o t h e e x t e n t t h a t a d j u s t m e n t by means o f m i g r a t i o n t a k e s p l a c e ; t o t h a t e x t e n t , t h e f i r m s i n v o l v e d a r e removed from t h e p u r v i e w and aw a r e n e s s of t h o s e s o u r c e s and i n f o r m a n t s . F o r t h i s r e a s o n , o b t a i n i n g i n f o r m a t i o n on t h i s mode of a d j u s t m e n t r e q u i r e s a r e l a t i v e l y i n t e n s i v e e x a m i n a t i o n of t h e i n d i v i d u a l i n d u s t r y and i t s p a r t i c i p a n t s . T h i s i s a l l t h e more t r u e when t h e r e l e v a n t e x amples, as i n t h e p r e s e n t r e s e a r c h , a r e s m a l l , p r i v a t e l y - o w n e d f i r m s f o r w h i c h t h e r e i s a l i m i t e d amount of p u b l i c l y a v a i l a b l e d e t a i l r e g a r d i n g b u s i n e s s o p e r a t i o n s . The c i r c u m s t a n c e s under w h i c h t h e p r e s e n t r e s e a r c h was c a r r i e d o ut p r e c l u d e d t h e d e t a i l e d e x a m i n a t i o n of a l a r g e number of i n d u s t r i e s . A t t h e same t i m e , i t seemed i m p o r t a n t n o t t o r e s t r i c t t h e i n v e s t i g a t i o n t o a s i n g l e , p e r h a p s i d i o s y n c r a t i c , i n d u s t r y . In t h e e v e n t , i t was d e c i d e d t o examine one i n d u s t r y ( s t a i n l e s s s t e e l c u t l e r y ) r e l a t i v e l y i n t e n s i v e l y and t o c a r r y out a number o f l e s s d e t a i l e d e x a m i n a t i o n s of some o t h e r i n d u s t r i e s . I n r e f l e c t i o n o f t h i s , t h e c a s e s t u d y o f t h e 200 Tsubame stainl e s s steel cutlery industry was able to provide some information on the migration mode of adjustment. The studies of the other industries, in contrast, provide r e l a t i v e l y l i t t l e evidence regarding t h i s mode of adjustment. This does not mean that t h i s mode of adjustment is less important in those industries. That may or may not be the case. It does r e f l e c t the fact that d i r e c t evidence regarding this mode of adjustment requires a more intensive and intimate exposure to the individual industry and i t s participants than was possible for these less detailed case studies. It i s espe c i a l l y important therefore, to consider any alternative sources of comparative information that might be available regarding this p a r t i c u l a r mode of adjustment. Fortunately, the introduction of the SME Change of Business Programme in 1976 has established t h i s mode of adjustment as a matter of some o f f i c i a l concern. This, in turn, has given r i s e to a small, but growing body of government records regarding concrete instances of change of business adjustment in a wide variety of industries. 5.2 Government Data On Adjustment Assistance 5.2.1 Aggregate Patterns The 1980 survey of SME p o l i c y 1 0 1 presents a summary of a c t i v i t y under the SME Change of Business Programme. This source indicates that, of a l l the manufacturing firms receiving Chusho Kigyo Shisaku no Aramashi op. c i t . , p 126. 2 0 1 a s s i s t a n c e up to December of 1 9 7 9 , only 4 7 % were m i g r a t i n g to a new manufacturing business while 53% were moving out of the manufacturing sector and i n t o the trade and s e r v i c e s s e c t o r . In view of the rather narrow, p r o d u c t i o n - o r i e n t e d , s k i l l s of most fi r m s i n the i n d u s t r i e s examined i n the case s t u d i e s , the high l e v e l of m i g r a t i o n i n t o trades and s e r v i c e s i s somewhat s u r p r i s i n g . In any case, i t would be h e l p f u l to know not merely what broad economic s e c t o r the firms migrate to but a l s o what i s the degree and type of l i n k a g e with the o l d bu s i n e s s . 5 . 2 . 2 Linkages By Broad Economic Sector In an e f f o r t to shed some f u r t h e r l i g h t on these i s s u e s , a copy of the SMEA case-by-case i n t e r n a l r e p o r t on approvals was obtained. T h i s report p r o v i d e s i n f o r m a t i o n only as to the date of a p p r o v a l , the p r e f e c t u r e i n which the subject f i r m i s l o c a t e d , and b r i e f d e s c r i p t i o n s of the o l d and new bus i n e s s e s . The r e p o r t makes no attempt to provide any commentary on the u n d e r l y i n g r a t i o n a l e of the change of b u s i n e s s . T h i s i s an admitte d l y shallow data base f o r examination of p a t t e r n s i n t h i s mode of adjustment. I t does, however, provide the only a v a i l a b l e comparative data with c o n s i d e r a b l e breadth of coverage acr o s s i n d u s t r i e s . As such, i t a f f o r d s some b a s i s f o r a s p e c u l a t i v e a n a l y s i s of m i g r a t i o n adjustment p a t t e r n s . Table 15 summarizes change of business adjustment f o r 107 manufacturing firms which migrated from i n d u s t r i e s i n which there i s arguably some degree of LDC c o m p e t i t i o n . The cases are c r o s s - c l a s s i f i e d between the economic s e c t o r of the new business (Manufacturing or Trade and S e r v i c e s ) and four c a t e g o r i e s of 202 Table 15 - Linkage Patterns in Change of Business Assistance Approvals up to A p r i l , 1980 [no. of cases, (%)] Linkage with 0 1 d New \ . „ \J5usiness Business Know-how/Technology Land or Buildings Other Totals Product s p e c i f i c ( r e l a t e d to p r i o r product) S k i l l s p e c i f i c (unrelated to p r i o r product) Manufacturing • Trade and Services a ) 1 4 (13) e ) 3 (3) 5 )25 (23) g ) 2 9 (27) d ) 1 4 (13) h ) 2 2 (21) 53 (49) 54 (51) T o t a l s 17 (16) 25 (23) 29 (27) 36 (34) 107(100) Notes: 1. Examples of C l a s s i f i c a t i o n s a) Weaving •* Woolen Garments; Lumber Wood f u r n i t u r e ; Cotton T e x t i l e s •+ Outerwear; Ladies and Children's Wear. b) Matches •+ parts f o r musical instruments. S t a i n l e s s S t e e l C u t l e r y L i g h t i n g F i x t u r e s . d) Cotton Spinning -*• E l e c t r o n i c P a r t s; Cotton T e x t i l e s •*• Ceramic P l a n t e r s ; T e x t i l e s •* Candymaking; O i l f o r Marine use -*• Sushi Shop Counters. e) Wholesaling of Previous Product (e.g. socks); S h i p b u i l d i n g Subcontractor •* Shipwrecking and Repair. g) T e x t i l e s ->• Tennis Courts; Swimming Pool; Hotel; B u i l d i n g Rental Lumber -+ Taxi Company. h) T e x t i l e s -*• R e t a i l Grocery; Coffee Shop; Noodle Shop. 2. The linkage c a t e g o r i z a t i o n s are based on b r i e f d e s c r i p t i o n s of the p r i o r and new business f o r each case and are h i g h l y s p e c u l a t i v e . 3. This tabl e covers only the subset of cases which o r i g i n a t e d i n IDC-competitive i n d u s t r i e s . Source: Summary reports on the Change of Business Assistance Programme (S.M.E.A., A p r i l 1980). [ i n t e r n a l r e p o r t ] . 203 l i n k a g e w i t h t h e o r i g i n a l b u s i n e s s . Where a p r i o r b u s i n e s s was p e r c e i v e d t o i n c o r p o r a t e some knowledge o r s k i l l s r e l e v a n t t o t h e new b u s i n e s s , t h e l i n k a g e was c l a s s i f i e d a s "Know-How/Technology". A f u r t h e r d i s t i n c t i o n was t h e n made between c a s e s where t h e new b u s i n e s s , i t s e l f , was a p p a r e n t l y l i n k e d t o t h e p r e v i o u s b u s i n e s s ( " P r o d u c t - s p e c i f i c " ) and t h o s e where i t was n o t ( " S k i l l - s p e c i f i c " ) . In t h e a b s e n c e of a p e r c e i v e d " K n o w - H o w / T e c h n o l o g y " - l i n k a g e , we c o n s i d e r e d t h e p o s s i b i l i t y o f a l i n k a g e on t h e b a s i s o f l a n d o r b u i l d i n g s . Where t h i s d i d n o t seem t o be an i m p o r t a n t p o i n t o f l i n k a g e , we c l a s s i f i e d t h e c a s e i n t h e " O t h e r " c a t e g o r y . The n o t e s t o t h e t a b l e p r o v i d e some i l l u s t r a t i v e e xamples of t h e r e s u l t i n g c l a s s i f i c a t i o n s . Not s u r p r i s i n g l y , t h e v a s t m a j o r i t y (74%) o f m i g r a t i o n s i n t o o t h e r f i e l d s of m a n u f a c t u r i n g was a c c o m p a n i e d by a h i g h d e g r e e of Know-How/Technology l i n k a g e t o t h e c h a r a c t e r i s t i c s o f t h e p r e v i o u s b u s i n e s s . F o r c a s e s where m i g r a t i o n was i n t o t h e t r a d e and s e r v i c e s s e c t o r , t h e p r e d o m i n a n c e (94% o f a l l c a s e s ) of l i n k a g e o t h e r t h a n Know-How/Technology i s a l s o not s u r p r i s i n g . One would n o t e x p e c t , f o r example, t h a t t h e m a j o r i t y of f i r m s i n t h e i n d u s t r i e s f o r w h i c h c a s e s t u d i e s were c a r r i e d o u t would have many ( p r e v i o u s ) b u s i n e s s - l i n k e d s k i l l s r e l e v a n t t o t h e t r a d e and s e r v i c e s s e c t o r , g i v e n t h e i r r e l a t i v e l a c k o f 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 i e s . F o r t h e same r e a s o n , however, i t i s s u r p r i s i n g t o f i n d t h a t , a g a i n , a m a j o r i t y o f f i r m s (51%) m i g r a t e i n t o t h e t r a d e and s e r v i c e s s e c t o r . 204 5.2.3 D i f f e r e n c e s By I n d u s t r y Of O r i g i n I t i s p o s s i b l e t o s u b d i v i d e t h e c a s e s f u r t h e r on t h e b a s i s o f t h e i r p r e v i o u s i n d u s t r y . D o i n g so r e v e a l s some d i s t i n c t i n t e r - i n d u s t r y d i f f e r e n c e s i n t h e n a t u r e of t h e a p p a r e n t l i n k a g e between p r e v i o u s and new b u s i n e s s e s and i n t h e d e s t i n a t i o n o f m i g r a t i o n as between t h e m a n u f a c t u r i n g and t h e t r a d e and s e r v i c e s s e c t o r s . T a b l e 16 p r e s e n t s t h e d a t a o r g a n i z e d i n t o t h r e e g r o u p s of i n d u s t r i e s . As t h e t a b l e i n d i c a t e s , t h e r e i s a d i f f e r e n c e between i n d u s t r i e s even when we r e s t r i c t c o m p a r i s o n s t o c a s e s where m i g r a t i o n i s t o o t h e r m a n u f a c t u r i n g i n d u s t r i e s . H e r e , t h e most i m p o r t a n t l i n k a g e i s , o f c o u r s e , t o Know-How/Technology a t t r i b u t a b l e t o t h e p r e v i o u s b u s i n e s s a c t i v i t y . F o r t h e T e x t i l e s - F o o t w e a r g r o u p o f i n d u s t r i e s , however, t h e l i n k a g e i s a s s o c i a t e d w i t h movement i n t o t h e m a n u f a c t u r e of a r e l a t e d (downstream) p r o d u c t (11 o u t o f 13 c a s e s ) . F o r t h e M e t a l w o r k i n g and M a c h i n e r y i n d u s t r i e s , however, t h e m a j o r i t y of m i g r a t i o n s (16 out of 22 c a s e s ) were i n t o t h e m a n u f a c t u r e o f l e s s o b v i o u s l y r e l a t e d p r o d u c t s . T h i s r e f l e c t s t h e f a c t t h a t t h e T e x t i l e s , T e x t i l e P r o d u c t s , and F o o t w e a r s e c t o r has a l a r g e r p r o p o r t i o n of i n t e r m e d i a t e goods t h a n t h e M e t a l w o r k i n g and M a c h i n e r y s e c t o r . F o r an i n t e r m e d i a t e good, s u c h a s T e x t i l e s , t h e r e a r e l i k e l y t o be a r e l a t i v e l y l a r g e r number of r e l a t e d (downstream) p r o d u c t s i n t o w h i c h t h e f i r m c a n m i g r a t e . T h e r e i s a major d i f f e r e n c e , as w e l l , i n t h e p r o p e n s i t y o f f i r m s from v a r i o u s i n d u s t r i e s t o m i g r a t e i n t o t h e m a n u f a c t u r i n g 205 Table 16 - Linkage Patterns by Industry of O r i g i n [no. of cases, (%)] APPARENT LINKAGE Industry Know-How/Technology Land or Buildings Other T 0. T A L Proportion(%) OLD N E W Vertical Horizontal Sector Overall Textiles; Textile Products; and Footwear M S T 7 (11) 2 (3) 9 (14) 1 (2) 0 (0) 1 (2) 0 (0) 24 (39) 24 (39) 8 (13) 19 (31) 27 (44) ' 16 45 61 26 15 74 42 100 57 Metal Manu-factures; Machinery & Equipment M S T 6 (20) 0 (0) 6 (20) 16 (53) 0 (0) 16 (53) 0 1(0) 2 (7) 2 (7) 4 (13) 2 (7) 6 (20) 26 4 30 87 24 13 4 100 28 Miscellaneous Other Manufactures M S T 1 (6) 1 (6) 2 (12) 8 (50) 0 (0) 8 (50) 0 3 (19) 3 (19) 2 (13) 1 (6) 3 (19) 11 5 16 69 10 31 5 100 15 Totals M S 14 (13) 3 (3) 25 (23) 0 (0) 0 (4) 29 (27) 14 (13) 22 (21) 53 54 49 49 51 51 Grand Total T 17 (16) 25 (23) 29 (27) 36 (34) 107 100 100 Note: The "New" industry is indicated as "M" (Manufacturing) or "S" (trade or Services). Their sum by sector and linkage is given as "T". The indicated linkages are speculative and based only on an examination of brief descriptions of prior and new business. Source: Summary reports on the Change of Business Assistance Programme (S.M.E.A., April, 1980). [internal report]. 206 s e c t o r as o p p o s e d t o t h e t r a d e s and s e r v i c e s s e c t o r . T h u s , w h i l e t h e o v e r a l l f i g u r e s show an a p p r o x i m a t e l y even d i v i s i o n of m i g r a t i o n s between t h e two s e c t o r s , 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 and housewares i n d u s t r y , f o r example, 91% of t h e f i r m s were m i g r a t i n g t o o t h e r m a n u f a c t u r i n g i n d u s t r i e s . The p a t t e r n i n t h a t i n d u s t r y i s r e p e a t e d i n t h e o t h e r m e t a l w o r k i n g i n d u s t r i e s and i n t h e m a c h i n e r y and equipment i n d u s t r i e s . In c o n t r a s t , t h e p a t t e r n i n t h e T e x t i l e s , T e x t i l e P r o d u c t s ( l a c e , a p p a r e l ) , and Foo t w e a r i n d u s t r i e s i s a l m o s t r e v e r s e d , w i t h a s t r o n g m a j o r i t y o f t h e m i g r a t i o n s (74%) b e i n g i n t o t h e t r a d e and s e r v i c e s s e c t o r . The p a t t e r n i n a m i s c e l l a n y of o t h e r i n d u s t r i e s l i e s between t h e o t h e r two, t h o u g h i t i s most s i m i l a r t o t h e p a t t e r n i n t h e M e t a l w o r k i n g and M a c h i n e r y i n d u s t r i e s . T h i s may r e f l e c t a more p e r v a s i v e i n f i l t r a t i o n o f LDC c o m p e t i t i o n i n t o some b r o a d s e c t o r s o f m a n u f a c t u r i n g , s u c h as t e x t i l e s . On t h e o t h e r hand, t h e p r o d u c t i o n s k i l l s i m p l i c i t t o some i n d u s t r i e s , s u c h as s t a i n l e s s s t e e l c u t l e r y , may have an i n h e r e n t l y w i d e r range of i n d u s t r i a l a p p l i c a t i o n w i t h i n d e v e l o p e d c o u n t r i e s . 5.2.4 I m p l i c a t i o n s Of A d j u s t m e n t A s s i s t a n c e D a t a In some c a s e s , a s when a t e x t i l e m a n u f a c t u r e r becomes t h e o p e r a t o r o f a n o o d l e or c o f f e e shop, t h e new s e r v i c e b u s i n e s s may a p p e a r t r i v i a l i n r e l a t i o n t o t h e p r e v i o u s m a n u f a c t u r i n g b u s i n e s s . One i s te m p t e d t o term s u c h change n o t " a d j u s t m e n t " but d e c l i n e ( o r even q u a s i - e x t i n c t i o n ) . I t i s p o s s i b l e t h a t t h e p r o p o r t i o n of m i g r a t i o n s i n t o t h e t r a d e s and s e r v i c e s s e c t o r w h i c h i n v o l v e a s u b s t a n t i a l r e d u c t i o n 207 i n t h e s i z e of o p e r a t i o n s i s g r e a t e r t h a n i s t h e c a s e f o r m i g r a t i o n s w i t h i n t h e m a n u f a c t u r i n g s e c t o r . To t h e e x t e n t t h a t t h i s i s so, t h e u n e x p e c t i e d l y h i g h l e v e l o f m i g r a t i o n i n t o t h e t r a d e and s e r v i c e s s e c t o r i s more u n d e r s t a n d a b l e ; i t i n c l u d e s b o t h c a s e s o f s u c c e s s f u l a d j u s t m e n t and c a s e s w h i c h a r e c l o s e r t o r e p r e s e n t i n g b u s i n e s s f a i l u r e t h a n s u c c e s s f u l a d j u s t m e n t . W i t h o u t more d e t a i l e d i n f o r m a t i o n r e g a r d i n g , f o r example, t h e r e l a t i v e s c a l e of t h e p r i o r and new b u s i n e s s e s , i t i s n o t r e a l l y p o s s i b l e t o a s s e s s t h e i r c o m m e n s u r a b i l i t y and, t h u s , t h e e x t e n t t o w h i c h t h e change r e p r e s e n t s a d j u s t m e n t r a t h e r t h a n b u s i n e s s f a i l u r e . I f t h e r e i s one c l e a r i n d i c a t i o n t o emerge from t h i s d a t a , however, i t i s t h a t f i r m s i n d i f f e r e n t i n d u s t r i e s c an f a c e d i s t i n c t l y d i f f e r e n t m i g r a t i o n o p p o r t u n i t i e s . An i m p l i c a t i o n of t h i s - i s t h a t one s h o u l d be c a u t i o u s i n g e n e r a l i z i n g from t h e e x p e r i e n c e w i t h t h i s mode of a d j u s t m e n t i n 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 . In p a r t i c u l a r , i t seems l i k e l y t h a t f i r m s i n many i n d u s t r i e s w i l l f a c e f a r fewer o p p o r t u n i t i e s t o m i g r a t e 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 and t h o s e o p p o r t u n i t i e s w h i c h a r e a v a i l a b l e t o them w i l l o f t e n be more c l o s e l y r e l a t e d t o t h e p r e v i o u s p r o d u c t t h a n a p p e a r s t o have been t h e c a s e i n Tsubame. 208 V I . LESS-DEVELOPED COUNTRY COMPETITION AND FOREIGN DIRECT INVESTMENT 1. THE NATURE OF THE LDC COMPETITIVE CHALLENGE 1.1 The R o l e Of Exogenous Change The emergence o f A s i a n NIC p r o d u c e r s as a s e r i o u s t h r e a t t o th e J a p a n e s e i n d u s t r i e s examined was, o b v i o u s l y , i m p o r t a n t l y r e l a t e d t o t h e r e s p e c t i v e c o m p a r a t i v e a d v a n t a g e s and n a t i o n a l d e v e l o p m e n t p o l i c i e s of t h o s e c o u n t r i e s . What i s more s t r i k i n g i s t h e a p p a r e n t r o l e o f exogenous change i n t h e i n t e r n a t i o n a l p o l i t i c a l economy. In e a c h o f t h e i n d u s t r i e s examined i n t h i s s t u d y t h e c o m p e t i t i v e t h r e a t o f A s i a n NIC p r o d u c e r s d r a m a t i c a l l y i n c r e a s e d i n t h e e a r l y 1970's. T h i s was i m p o r t a n t l y r e l a t e d t o two d i s t i n c t c h a n g e s i n t h e i n t e r n a t i o n a l economy; t h e end o f a reg i m e o f f i x e d e xchange r a t e s 1 0 2 and t h e i n t r o d u c t i o n o f p r e f e r e n t i a l t a r i f f f o r LDC m a n u f a c t u r e s . B o t h o f t h e s e c h a n g e s s e r v e d t o improve t h e c o m p e t i t i v e p o s i t i o n of t h e LDCs. A t h i r d c h ange, t h e e n e r g y c r i s e s of t h e 1970's, had a more mixed impact but t o t h e e x t e n t t h a t LDC p r o d u c t i o n i s n o t o n l y more l a b o u r -i n t e n s i v e but a l s o l e s s e n e r g y - i n t e n s i v e i t may have f a v o u r e d LDC p r o d u c e r s o f some go o d s . W h i l e e a c h of t h e s e c h a n g e s had economic a n t e c e d e n t s and i m p l i c a t i o n s t h e - c h a n g e s , t h e m s e l v e s , were more p o l i t i c a l t h a n 2 The c u r r e n c i e s o f t h e A s i a n NICs t h e r e a f t e r t e n d e d t o d e p r e c i a t e r e l a t i v e t o t h e J a p a n e s e Yen. 209 e c onomic i n n a t u r e . E a c h was t h e r e s u l t of p o l i t i c a l d e c i s i o n s and a c t i o n s t a k e n i n t h e c o n t e x t of 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 . On b a l a n c e , t h e s e c h a n g e s d r a m a t i c a l l y a l t e r e d t h e r e l a t i v e c o m p e t i t i v e s t r e n g t h of J a p a n e s e and A s i a n NIC p r o d u c e r s i n many i n d u s t r i e s ; y e t t h e y were not t r i g g e r e d by c o n d i t i o n s i n t h o s e s p e c i f i c i n d u s t r i e s and c o u n t r i e s . W h i l e t h e s p e c i f i c e v e n t was q u i t e d i f f e r e n t f r o m t h o s e w h i c h b e n e f i t t e d t h e A s i a n NICs i n t h e 1970's, a s i m i l a r s o r t of phenomenon was e v i d e n t i n t h e prewar d e v e l o p m e n t of many J a p a n e s e i n d u s t r i e s . The F i r s t W o r l d War t e m p o r a r i l y c u t t h e t r a d i t i o n a l E u r o p e a n s u p p l i e r s o u t o f i n t e r n a t i o n a l m a r k e t s f o r many go o d s . T h i s p r o v i d e d t h e o p p o r t u n i t y f o r many J a p a n e s e l i g h t i n d u s t r i e s t o d r a m a t i c a l l y i m prove t h e i r p o s i t i o n i n w o r l d m a r k e t s . Most of them were s u b s e q u e n t l y a b l e t o m a i n t a i n o r e x t e n d t h i s i m p r o v e d c o m p e t i t i v e p o s i t i o n f o l l o w i n g t h e c e s s a t i o n of h o s t i l i t i e s . J u s t a s i n t h e 1970's, t h e e v e n t s and t h e i r c a u s e s l a y o u t s i d e of t h e a f f e c t e d i n d u s t r i e s y e t t h e y had p r o f o u n d i m p l i c a t i o n s f o r t h e i r i n t e r n a t i o n a l c o m p e t i t i v e p o s i t i o n . The s t r i k i n g r a p i d i t y w i t h w h i c h A s i a n NIC p r o d u c e r s i m p r o v e d t h e i r c o m p e t i t i v e p o s i t i o n i n t h e 1970's i s due, i n l a r g e p a r t , t o t h e d i s c o n t i n u o u s n a t u r e of t h e exogenous c h a n g e s t h a t t o o k p l a c e . The more g e n e r a l i m p l i c a t i o n , however, i s t h a t s u c h e x o g e n o u s c h a n g e s i n t h e i n t e r n a t i o n a l p o l i t i c a l economy, whether d i s c o n t i n u o u s o r g r a d u a l , have had and w i l l c o n t i n u e t o have p r o f o u n d i m p l i c a t i o n s f o r t h e r e l a t i v e c o m p e t i t i v e p o s i t i o n s o f LDC p r o d u c e r s . The c u r r e n t d r i f t t o w a r d s 210 p r o t e c t i o n i s m i n t h e DCs i s but t h e most o b v i o u s c u r r e n t example. M a j o r change i n i n t e r n a t i o n a l t r a d i n g a r r a n g e m e n t s ( a r i s i n g , s a y , as a r e s u l t o f endemic d e f a u l t s on i n t e r n a t i o n a l d e b t ) o r a s h i f t i n r e l a t i o n s between C h i n a and t h e O.E.C.D. c o u n t r i e s o r i n C h i n e s e p o l i c y on i n w a r d f o r e i g n i n v e s t m e n t a r e o t h e r , h y p o t h e t i c a l , examples of p o s s i b l e exogenous change t h a t w o u l d a f f e c t r e l a t i v e c o m p e t i t i v e p o s i t i o n s . Exogenous c h a n g e s s u c h a s t h e s e w i l l i n e v i t a b l y have i m p o r t a n t impact on t h e f u t u r e c o m p e t i t i v e p o s i t i o n o f t h e A s i a n NICs and of t h o s e o t h e r LDCs w h i c h w o u l d f o l l o w i n t h e i r f o o t s t e p s . 1.2 J a p a n e s e C o m p l i c i t y In A s i a n NIC C o m p e t i t i v e Development T h e r e has been some c o n c e r n i n J a p a n t h a t J a p a n e s e FDI i n t h e A s i a n NICs would, t h r o u g h s u b s e q u e n t e x p o r t s t o J a p a n and t o t h i r d - c o u n t r y m a r k e t s , be a p r i m a r y c a u s e of d e c l i n e i n t h e c o r r e s p o n d i n g J a p a n e s e d o m e s t i c i n d u s t r i e s . E m p i r i c a l s t u d i e s a t t h e macro-economic and a t t h e b r o a d l y d e f i n e d i n d u s t r y s e c t o r a l l e v e l s i n d i c a t e t h a t t h i s , s o - c a l l e d "boomerang", e f f e c t o f FDI i s n o t an i m p o r t a n t f e a t u r e o f J a p a n - A s i a n NIC e conomic r e l a t i o n s . 1 0 3 I t a p p e a r s t o be r e l a t i v e l y u n i m p o r t a n t i n t h e more 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 examined i n t h e p r e s e n t s t u d y as w e l l . O n l y i n t h e u m b r e l l a and i n t h e m o s a i c t i l e i n d u s t r i e s was t h e r e c l e a r e v i d e n c e o f J a p a n e s e FDI. Even s o , t h e t i m i n g of t h e i n v e s t m e n t and t h e a p p a r e n t volume o f t h e r e s u l t i n g e x p o r t s , 1 0 3 See, f o r example; N. S u z u k i (ed.) , op. c i t . and T. Watanabe , op. c i t . 21 1 r e l a t i v e t o t h e d e c l i n e i n J a p a n e s e p r o d u c t i o n , i n d i c a t e t h a t t h i s was of m a r g i n a l i m p o r t a n c e as a c a u s e of t h a t d e c l i n e ( t h e b r o a d e r i s s u e of FDI as an a d j u s t m e n t s t r a t e g y i s d i s c u s s e d l a t e r i n t h i s c h a p t e r ) . In t h e m o s a i c t i l e i n d u s t r y t h e r e was, however, e v i d e n c e of more i n d i r e c t J a p a n e s e c o m p l i c i t y i n A s i a n NIC c o m p e t i t i v e d e v e l o p m e n t , i n t h e form of e x p o r t s of p l a n t and equipment by t h e J a p a n e s e c a p i t a l goods s e c t o r . T h e s e e x p o r t s , m o r e o v e r , b e n e f i t t e d f r o m l o w - c o s t f i n a n c e p r o v i d e d by t h e J a p a n E x p o r t -Import Bank. T h i s s o r t o f a c t i v i t y i s p r o b a b l y q u i t e w i d e s p r e a d , g i v e n t h e c l o s e economic t i e s between J a p a n and t h e A s i a n NICs and t h e e x p e r i e n c e and c o m p e t i t i v e s t r e n g t h of t h e J a p a n e s e p l a n t and e q uipment m a n u f a c t u r e r s i n s u p p l y i n g t h e n eeds o f t h e r e l e v a n t l i g h t i n d u s t r i e s . B o t h w i t h r e s p e c t t o FDI and t o p l a n t and equipment- e x p o r t s ( whether o r n o t c o n c e s s i o n a l f i n a n c i n g i s i n v o l v e d ) , t h e r e were, however, n o n - J a p a n e s e s o u r c e s among t h e o t h e r d e v e l o p e d i n d u s t r i a l c o u n t r i e s t h a t were a l s o a v a i l a b l e t o t h e A s i a n N I C s . Thus, w h a t e v e r impetus was t h e r e b y p r o v i d e d t o A s i a n NIC c o m p e t i t i v e d e v e l o p m e n t , i t was n o t u l t i m a t e l y d e p e n d e n t upon s p e c i f i c a l l y J a p a n e s e a c t i v i t y . A more i m p o r t a n t and u n i q u e l y J a p a n e s e f a c t o r r e l e v a n t t o t h e A s i a n NICs' c o m p e t i t i v e p o s i t i o n s i s t h e impact o f e a r l i e r J a p a n e s e c o m p e t i t i v e s t r e n g t h on d e v e l o p e d c o u n t r y m a r k e t s . A l l o f t h e J a p a n e s e i n d u s t r i e s examined i n t h i s p r e s e n t s t u d y made t h e i r most s u b s t a n t i a l i n c r e a s e s i n p r o d u c t i o n o v e r t h e p o s t w a r p e r i o d by means o f an e x p a n s i o n of e x p o r t s t o v a r i o u s O.E.C.D. 212 c o u n t r i e s . As the prevalance of " v o l u n t a r y " export quotas in the examined i n d u s t r i e s i n d i c a t e s , the capture of market share that accompanied t h i s Japanese expansion was not only at the expense of t h i r d - c o u n t r y e x p o r t e r s but, s u b s t a n t i a l l y , at the expense of domestic producers i n those markets. Over the course of the postwar p e r i o d , t h i s appears to have caused s i g n i f i c a n t change i n the c o n d i t i o n s of supply and demand in those.markets. Many of the competing domestic i n d u s t r i e s were reduced i n terms of the number of firms and employees i n v o l v e d and i n t h e i r a b s o l u t e p r o d u c t i o n c a p a c i t y . T h i s not only i n c r e a s e d the a b s o l u t e amount and p r o p o r t i o n of the n a t i o n a l market which the domestic i n d u s t r i e s had, de f a c t o , conceded to imports; i t a l s o reduced the a b i l i t y of those (now, smaller) i n d u s t r i e s to lobby a g a i n s t f u r t h e r e r o s i o n of t h e i r c o m p e t i t i v e p o s i t i o n . Moreover, i n some i n d u s t r i e s , such as 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 i e s i n West Germany and the U.K., the domestic i n d u s t r y had implemented an adjustment process that had l a r g e l y removed i t from d i r e c t c o m petition with low-priced imports. At the same time, the consumers and the i n s t i t u t i o n a l arrangements f o r d i s t r i b u t i o n had become f a r more "import-o r i e n t e d " . Thus, to a l a r g e e x t e n t , the Asian NIC producers i n the 1970's, r e l a t i v e to t h e i r Japanese predecessors (indeed, because of them), faced a more r e c e p t i v e market i n the O.E.C.D. c o u n t r i e s . The r e c e p t i v i t y of d i s t r i b u t o r s and consumers to 213 i m p o r t s 1 0 * and t h e a b s o l u t e s i z e o f t h e im p o r t market were much g r e a t e r . M o r e o v e r , t o t h e e x t e n t t h a t A s i a n NIC g a i n s i n market s h a r e were a t t h e exp e n s e of t h e J a p a n e s e , and n o t t h e d o m e s t i c O.E.C.D. p r o d u c e r s , t h e y were l e s s l i k e l y t o p r o v o k e a p r o t e c t i o n i s t r e a c t i o n . I t i s t h i s J a p a n e s e " c o n t r i b u t i o n " , more t h a n any o t h e r , w h i c h l i k e l y a c c o u n t s f o r t h e r a p i d i t y w i t h w h i c h A s i a n NIC p r o d u c e r s i n t h e examined i n d u s t r i e s were a b l e t o expand t h e i r e x p o r t s t o O.E.C.D. m a r k e t s f o l l o w i n g t h e exogenous c h a n g e s i n t h e i n t e r n a t i o n a l e n v i r o n m e n t i n t h e 1970's. 1.3 The C o u r s e Of LDC C o m p e t i t i v e Development 1.3.1 P r o d u c t s And P r o d u c t i o n T e c h n o l o g y C o m p a r a t i v e a d v a n t a g e t h e o r i e s of t r a d e s u g g e s t t h a t LDC c o m p e t i t i v e s t r e n g t h w i l l b e g i n i n p r o d u c t i o n a c t i v i t i e s -which r e q u i r e t h e i n t e n s i v e use of r e l a t i v e l y u n s k i l l e d l a b o u r and p r o c e e d , w i t h d e v e l o p m e n t , t o w a r d s more c a p i t a l - and s k i l l -i n t e n s i v e p r o d u c t i o n a c t i v i t i e s . P r o d u c t l i f e - c y c l e t h e o r i e s e m p h a s i z e , on t h e o t h e r hand, LDC p r o g r e s s i o n from s t a n d a r d i z e d p r o d u c t s and p r o d u c t i o n p r o c e s s e s t o w a r d s t h o s e w h i c h a r e more d i f f e r e n t i a t e d . The two p r o p o s i t i o n s a r e n o t a n t a g o n i s t i c . R a t h e r , t h e y e m p h a s i z e two d i f f e r e n t d i m e n s i o n s a l o n g w h i c h LDC c o m p e t i t i v e d e v e l o p m e n t p r o c e e d s . " The g e o g r a p h i c a l p r o p i n q u i t y of K o r e a and Tai w a n t o J a p a n may a l s o be r e l e v a n t . Once a d i s t r i b u t o r , or brand-name m a n u f a c t u r e r , from an O.E.C.D. c o u n t r y has a c c e p t e d t h e i d e a o f s o u r c i n g p r o d u c t i o n i n J a p a n i t t a k e s no g r e a t l e a p of i m a g i n a t i o n , o r o f a i r f a r e , t o c o n s i d e r t h e a l t e r n a t i v e s o f f e r e d by p r o d u c e r s i n K o r e a o r T a i w a n . 214 I t was not t h e p u r p o s e o f t h i s s t u d y t o a s s e s s e i t h e r of t h e s e p r o p o s i t i o n s r e g a r d i n g LDC c o m p e t i t i v e d e v e l o p m e n t b u t , on t h e b a s i s of t h e e v i d e n c e e n c o u n t e r e d , t h e i n d u s t r i e s examined a r e b r o a d l y c o n s i s t e n t w i t h them. They have, r e l a t i v e t o DC c o u n t r y norms, low l e v e l s of c a p i t a l - and s k i l l - i n t e n s i t y and u t i l i z e f a i r l y s t a n d a r d i z e d p r o d u c t i o n methods t o p r o d u c e s t a n d a r d i z e d p r o d u c t s . M o r e o v e r , t h e p a t t e r n of d e c l i n e i n , f o r example, t h e J a p a n e s e t i l e i n d u s t r y ( f i r s t , u n g l a z e d and, t h e n , g l a z e d t i l e ) i s a l s o c o n s i s t e n t w i t h th e p r o g r e s s i o n o f t h e A s i a n NIC p r o d u c e r s from s i m p l e t o more complex p r o d u c t i o n p r o c e s s e s and from s t a n d a r d i z e d t o more v a r i e d p r o d u c t s . I t was r a t h e r u n e x p e c t e d t o f i n d i n t h e c u t l e r y and c e r a m i c t i l e i n d u s t r i e s , f o r example, t h a t K o r e a n p r o d u c e r s were much l a r g e r and had a more i n t e g r a t e d o r g a n i z a t i o n of p r o d u c t i o n t h a n t h a t f o u n d i n t h e i r J a p a n e s e c o u n t e r p a r t s . In t h e a b s e n c e of c o m p a r a t i v e d a t a on t h e s c a l e and o r g a n i z a t i o n of p r o d u c t i o n i n t h e s e same i n d u s t r i e s i n , s a y , E u r o p e or N o r t h A m e r i c a , i t i s not c l e a r whether i t i s t h e J a p a n e s e or t h e K o r e a n p a t t e r n t h a t i s u n u s u a l . I t d o e s seem l i k e l y , however, t h a t t h e h i g h l y d i r e c t i v e n a t u r e o f i n d u s t r i a l p o l i c y i n K o r e a (and i n o t h e r LDCs, as w e l l ) m i g h t f a v o u r t h e e s t a b l i s h m e n t of a l i m i t e d number of l a r g e i n t e g r a t e d f i r m s , i f o n l y as a m a t t e r o f a d m i n i s t r a t i v e c o n v e n i e n c e . I t may be, as w e l l , t h a t b a s i c m a n a g e r i a l s k i l l s a r e i n r e l a t i v e l y s h o r t e r s u p p l y i n LDCs and t h a t a more i n t e g r a t e d o r g a n i z a t i o n of p r o d u c t i o n s e r v e s t o e c o n o m i z e on t h e use o f t h e s e s k i l l s . More c e r t a i n l y , any e f f o r t t o q u i c k l y 215 e s t a b l i s h a m a n u f a c t u r i n g c a p a b i l i t y i n a n o v e l e x p o r t good, even on e n t i r e l y p r i v a t e i n i t i a t i v e , i s l i k e l y t o r e q u i r e a more i n t e g r a t e d form of o r g a n i z a t i o n t h a n t h a t w h i c h grew out of t h e l o n g i n d u s t r i a l t r a d i t i o n s o f , f o r example, Tsubame i n J a p a n . 1.3.2 O t h e r D i m e n s i o n s Of C o m p e t i t i v e Development E v i d e n c e from t h e i n d u s t r i e s examined i n t h e p r e s e n t s t u d y i n d i r e c t l y s u g g e s t s t h a t , i n a d d i t i o n t o f a c t o r - i n t e n s i t y and t h e s t a b i l i t y of p r o d u c t and p r o c e s s c h a r a c t e r i s t i c s , t h e r e a r e two o t h e r d i m e n s i o n s a l o n g w h i c h LDC c o m p e t i t i v e s t r e n g t h may d e v e l o p . T h e s e a r e , f u n c t i o n a l competence and m a r k e t s . i v . F u n c t i o n a l Competence. The i n d u s t r i e s examined i n t h i s s t u d y were s e l e c t e d b e c a u s e t h e y 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 and a r e l a t e d a d j u s t m e n t p r o b l e m . I t i s s i g n i f i c a n t t h a t we f o u n d , i n e a c h o f t h e s e i n d u s t r i e s , t h a t J a p a n e s e p r o d u c e r s c h a r a c t e r i s t i c a l l y had o n l y modest i n t e r n a l d e s i g n and d i s t r i b u t i o n s k i l l s and t h a t even t h e s e l i m i t e d s k i l l s were r e c e n t l y a c q u i r e d . The b u l k of d e s i g n and d i s t r i b u t i o n a c t i v i t y i n t h e s e i n d u s t r i e s , e s p e c i a l l y i n t h e e a r l y d e v e l o p m e n t of J a p a n e s e e x p o r t s , was c a r r i e d o u t by f i r m s o t h e r t h a n t h e m a n u f a c t u r e r s . T h e s e were, i n o t h e r words, i n d u s t r i e s i n w h i c h a t l e a s t f o r some p o r t i o n o f t h e p r o d u c t range t h e d e s i g n and d i s t r i b u t i o n f u n c t i o n s c o u l d be p r o v i d e d by s o u r c e s e x t e r n a l t o t h e m a n u f a c t u r e r . T h i s s u g g e s t s t h e p o s s i b i l i t y t h a t t h e r e i s an h e i r a r c h y of b u s i n e s s a c t i v i t i e s t h r o u g h w h i c h LDC competence 216 d e v e l o p s and t h a t t h e e a s i e s t , and f i r s t t o d e v e l o p , of t h e s e i s p r o d u c t i o n , p e r s e . Thus, t h e f a c t t h a t LDC c o m p e t i t i o n a r o s e i n t h e s e i n d u s t r i e s may be i n p a r t e x p l a i n e d by t h e i r a c c e s s i b i l i t y t o f i r m s w h i c h a r e n a r r o w l y b a s e d on a, r e l a t i v e l y e a s i l y a c q u i r e d , competence i n p r o d u c t i o n and l a c k i n g i n t h e n e c e s s a r y , but more d i f f i c u l t t o d e v e l o p , d e s i g n and d i s t r i b u t i o n c o m p e t e n c e . T h i s would, of c o u r s e , be p a r t i c u l a r l y t r u e i f t h e LDC d o m e s t i c market i s s m a l l or n o n - e x i s t e n t or i f i t demands a m a r k e d l y d i f f e r e n t p r o d u c t v a r i a n t f r o m t h a t a p p r o p r i a t e i n e x p o r t m a r k e t s . " F u n c t i o n a l Competence", t h e n , c o u l d be a n o t h e r d i m e n s i o n a l o n g w h i c h LDC c o m p e t i t i v e s t r e n g t h d e v e l o p s . I f t h i s i s so, one would h y p o t h e s i z e t h a t , i n t h e e a r l i e r s t a g e s of i n d u s t r i a l i z a t i o n , an LDC w i l l d e v e l o p c o m p e t i t i v e s t r e n g t h s i n i n d u s t r i e s w h i c h f a c i l i t a t e t h e i r narrow s p e c i a l i z a t i o n i n p r o d u c t i o n . In i n d u s t r i e s , t h a t i s , where t h e d i s t r i b u t i o n f u n c t i o n , f o r example, can be p r o v i d e d by e x t e r n a l o r g a n i z a t i o n s and t h e d e s i g n f u n c t i o n c a n be s i m i l a r l y e x t e r n a l i z e d ; e i t h e r t h r o u g h r e l i a n c e on t h i r d p a r t i e s , s u c h as d e s i g n c o n s u l t a n t s , d i s t r i b u t o r s and f o r e i g n m a n u f a c t u r e r s ( i . e . , s u b c o n t r a c t e d p r o d u c t i o n ) , o r by r e l i a n c e on " t h e m a r k e t " ( m a d e - t o - o r d e r o r 217 s t a n d a r d i z e d p r o d u c t s ) . 1 0 5 One would a l s o e x p e c t a s i m i l a r phenomenon t o t a k e p l a c e w i t h i n any g i v e n i n d u s t r y ; . , w i t h LDC p r o d u c e r s d e v e l o p i n g from p r o d u c t v a r i a n t s where d i s t r i b u t i o n and d e s i g n f u n c t i o n s a r e a v a i l a b l e e x t e r n a l l y ( o r a r e u n i m p o r t a n t ) t o w a r d s t h o s e where r e l i a n c e on t h e e x t e r n a l p r o v i s i o n of t h e s e f u n c t i o n s i s l e s s f e a s i b l e o r l e s s e f f e c t i v e . Many of t h e l a r g e J a p a n e s e consumer goods m a n u f a c t u r e r s r e l i e d on e x t e r n a l d i s t r i b u t i o n and s a l e s s p e c i a l i s t s t o s e r v e f o r e i g n m a r k e t s u n t i l t h e 1960's. S i m i l a r l y , some Kor e a n and T a i w a n e s e f i r m s a r e now e x t e n d i n g t h e i r i n t e r n a l f u n c t i o n a l c o m p e t e n c e s : downstream i n t o d i s t r i b u t i o n and s a l e s . v. N a t i o n a l E x p o r t M a r k e t s The c a s e s t u d i e s s u g g e s t t h a t t h e p a t t e r n of g r o w t h i n J a p a n e s e e x p o r t s t o v a r i o u s n a t i o n a l e x p o r t m a r k e t s was n o t u n i f o r m . Growth o c c u r e d e a r l i e r , o r p r o c e e d e d more r a p i d l y , i n some m a r k e t s t h a n i t d i d i n o t h e r s . The g e n e r a l s e q u e n c e of e x p o r t market p e n e t r a t i o n was f r o m N o r t h A m e r i c a t o W e s t e r n E u r o p e and, t h e n , t o E a s t e r n E u r o p e . 1 0 5 The p r o d u c t l i f e c y c l e a p p r o a c h a l s o r e l a t e s p r o d u c t s t a n d a r d i z a t i o n t o LDC p r o d u c t i o n , but i n a q u i t e d i f f e r e n t way. T h e r e , t h e argument i s t h a t as p r o d u c t c h a r a c t e r i s t i c s become s t a n d a r d i z e d , p r i c e - c o m p e t i t i v e n e s s becomes a d o m i n a n t c o n s i d e r a t i o n and f a v o u r s t h e t r a n s f e r o f p r o d u c t i o n t o l o c a t i o n s a f f o r d i n g t h e l o w e s t p r o d u c t i o n c o s t s , o f t e n t h e s e w i l l be i n t h e LDCs. The f o c u s i s , t h e r e f o r e , on t h e c o n d i t i o n s o f demand i n c o n s u m i n g n a t i o n s . H e r e , we a r e e m p h a s i z i n g , i n s t e a d , a p r o g r e s s i v e change i n c o n d i t i o n s of s u p p l y among LDC p r o d u c e r s ( f u n c t i o n a l competence d e v e l o p m e n t ) . In r e a l i t y , b o t h (DC) demand and (LDC) s u p p l y c o n d i t i o n s a r e r e l e v a n t . 218 S i m i l a r l y , t h e p a t t e r n of d e c l i n e i n J a p a n e s e e x p o r t s t o t h e s e v a r i o u s m a r k e t s was n o t u n i f o r m . I f we i n f e r t h e d e v e l o p m e n t p a t h of LDC c o m p e t i t i o n from t h e g e n e r a l p a t t e r n of J a p a n e s e d e c l i n e , t h e y a l s o seem t o have p e n e t r a t e d d i f f e r e n t m a r k e t s a t d i f f e r e n t t i m e s and w i t h d i f f e r e n t d e g r e e s of r a p i d i t y . M o r e o v e r , t h e s e q u e n c i n g of A s i a n NIC p e n e t r a t i o n of DC m a r k e t s seems t o have been b r o a d l y s i m i l a r t o t h a t e x p e r i e n c e d e a r l i e r by J a p a n e s e p r o d u c e r s . In g e n e r a l , s u c h d i f f e r e n c e s among n a t i o n a l m a r k e t s i n t h e r e l a t i v e d e g r e e of e x p o s u r e or r e c e p t i v i t y t o LDC c o m p e t i t i o n , or i n t h e r a t e a t w h i c h t h i s i n c r e a s e s o v e r t i m e , can u n d o u b t e d l y be e x p l a i n e d i n p a r t i n terms of t h e d i m e n s i o n s of c o m p e t i t i v e d e v e l o p m e n t a l r e a d y d i s c u s s e d . I t may be t h a t , s a y , t h e F r e n c h m arket r e l a t i v e t o t h e U.S.A. market h a s , f o r example, u n i q u e d e s i g n r e q u i r e m e n t s ( r e g a r d i n g w h i c h t h e r e a r e no i n d e p e n d e n t c o n s u l t a n t s ) o r l a c k s d i s t r i b u t i o n s p e c i a l i s t s ( e . g . , w h o l e s a l e r s ) t o h a n d l e t h e p r o d u c t and t h u s r e q u i r e s t h a t t h i s f u n c t i o n be c a r r i e d o u t by 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 . T h e s e c o n d i t i o n s would not f a v o u r p r o d u c e r s i n t h e LDCs whose competence was n a r r o w l y c e n t r e d on p r o d u c t i o n a l o n e . I t seems l i k e l y , however, t h a t even where t h e e x p o r t m a r k e t s f o r t h e s p e c i f i c p r o d u c t a r e e s s e n t i a l l y i d e n t i c a l , p r o d u c e r s i n any g i v e n LDC w i l l have q u i t e d i f f e r e n t e a s e of a c c e s s t o them due t o t h e p a r t i c u l a r p a t t e r n o f t h e c o u n t y ' s o v e r a l l t i e s w i t h v a r i o u s f o r e i g n c o u n t r i e s . Even i f we assume, f o r example, t h a t t h e p r o d u c t - s p e c i f i c market and i n s t i t u t i o n a l f e a t u r e s of F r a n c e and t h e U.S.A. a r e i d e n t i c a l , we would 2 1 9 e x p e c t LDC p r o d u c e r s i n , say, A l g e r i a and t h e P h i l i p p i n e s t o have q u i t e d i f f e r e n t p a t t e r n s of e x p o r t e x p a n s i o n i n t o t h e s e two m a r k e t s b e c a u s e of d i f f e r e n c e s i n t h e c u l t u r a l , e c o n o m i c , p o l i t i c a l , and h i s t o r i c a l l i n k s between t h e c o u n t r i e s . 1 0 6 T h i s may be m a n i f e s t q u i t e d i r e c t l y i n terms of d i f f e r e n c e s , p e r h a p s even p r o d u c t - s p e c i f i c d i f f e r e n c e s , i n market a c c e s s r e s u l t i n g from b i l a t e r a l a g r e e m e n t s between t h e c o u n t r i e s c o n c e r n e d . More c e r t a i n l y , t h e r e a r e l i k e l y t o be major d i f f e r e n c e s among LDCs i n t h e l o c a l a v a i l a b i l i t y o f market i n f o r m a t i o n and g e n e r a l c u l t u r a l and l i n g u i s t i c "know-how", and of f i n a n c i a l , c o m m e r c i a l , and o t h e r t r a d e - r e l a t e d i n s t i t u t i o n s r e l e v a n t t o t h e d i f f e r e n t d e v e l o p e d c o u n t r y m a r k e t s . The s i m i l a r i t y i n t h e a p p a r e n t p a t t e r n s of market p e n e t r a t i o n f o r J a p a n e s e and, l a t e r , A s i a n NIC p r o d u c e r s s u g g e s t s , however, a g e n e r a l l y s i m i l a r h i e r a r c h y of a c c e s s i b i l i t y among t h e v a r i o u s DC m a r k e t s . The b r o a d s i m i l a r i t y i n t h e sequence of e x p o r t market p e n e t r a t i o n by J a p a n e s e and A s i a n NIC p r o d u c e r s i s , however, p e r h a p s b e s t seen n o t a s i n d i c a t i n g a u n i v e r s a l market p e n e t r a t i o n sequence f o r a l l LDCs but r a t h e r , as an i n d i c a t i o n of t h e s i m i l a r i t y o f J a p a n e s e and A s i a n NIC t i e s w i t h t h e v a r i o u s DC c o u n t r i e s . Of p a r t i c u l a r i m p o r t a n c e i s t h e p o s t w a r U.S.A. p r e s e n c e i n A s i a . W h i l e m o t i v a t e d by a complex of b r o a d p o l i t i c a l and 1 0 6 In t h i s example, t h e r e i s of c o u r s e t h e e l e m e n t o f g e o g r a p h i c p r o x i m i t y ; t h o u g h t r a n s p o r t c o s t s a p p e a r t o be r e l a t i v e l y u n i m p o r t a n t f o r many of t h e r e l e v a n t p r o d u c t s . P o s t w a r a d v a n c e s i n c o m m u n i c a t i o n s , i n c l u d i n g t r a n s p o r t a t i o n , have a l s o been r e d u c i n g t h e a b s o l u t e i m p o r t a n c e o f g e o g r a p h i c p r o x i m i t y . 220 e conomic f a c t o r s , u n r e l a t e d t o t h e s p e c i f i c i n d u s t r i e s e x amined i n t h i s s t u d y , t h e p o s t w a r dominance of t h e U.S.A.'s p r e s e n c e i n A s i a has p r o b a b l y , a s a b y - p r o d u c t , made t h e N o r t h A m e r i c a n m a r k e t , r e l a t i v e t o o t h e r m a r k e t s , more a c c e s s i b l e t o A s i a n p r o d u c e r s i n t h o s e i n d u s t r i e s . Thus, t h e p a t t e r n s of e x p o r t market e x p a n s i o n p r o c e e d e d from N o r t h A m e r i c a t o W e s t e r n E u r o p e and, w i t h i n W e s t e r n E u r o p e , f r o m Germany t o o t h e r E u r o p e a n c o u n t r i e s . Were t h e s e same i n d u s t r i e s t o become i n t e r n a t i o n a l l y c o m p e t i t i v e i n M a l a y s i a , A f r i c a , o r t h e M e d i t e r r a n e a n ; where t h e r e a r e r e l a t i v e l y s t r o n g e r l i n k s w i t h E u r o p e a n c o u n t r i e s , t h e p a t t e r n of p r o g r e s s i o n i n t o t h e v a r i o u s DC m a r k e t s would l i k e l y d i f f e r from t h o s e d i s p l a y e d i n t h e c a s e s of J a p a n and t h e A s i a n N I C s . The g e n e r a l p o i n t i s , t h e n , n o t t h a t p r o d u c e r s i n a l l LDCs w i l l f o l l o w t h e same sequence i n DC e x p o r t m arket p e n e t r a t i o n . I t i s , r a t h e r , t h a t t h e r e i s l i k e l y t o be some s u c h s e q u e n c e f o r any g i v e n LDC and t h a t i t w i l l be s t r o n g l y i n f l u e n c e d by t h e p r e - e x i s t i n g p a t t e r n o f o v e r a l l c u l t u r a l , l i n g u i s t i c , p o l i t i c a l , and economic t i e s o f t h e LDC w i t h t h e v a r i o u s DCs. T h i s t h e n i s a n o t h e r , "market", d i m e n s i o n a l o n g w h i c h LDC c o m p e t i t i v e s t r e n g t h c a n be e x p e c t e d t o d e v e l o p . 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 The f a c t t h a t an i n t e r n a t i o n a l l y c o m p e t i t i v e i n d u s t r y h as been e s t a b l i s h e d i m p l i e s t h a t , a t a minimum, a c e r t a i n amount of r e l e v a n t p r o d u c t i o n s k i l l s have a l s o been e s t a b l i s h e d . The c a s e s e xamined i n t h i s s t u d y i n d i c a t e s u c h s k i l l s a r e o f t e n r e l e v a n t w i t h r e s p e c t t o o t h e r , q u i t e d i s t i n c t , 2 2 1 p r o d u c t / i n d u s t r i e s as w e l l . Thus, c u t l e r y p r o d u c e r s i n b o t h J a p a n and K o r e a , on t h e s t r e n g t h of t h e i r g e n e r a l m e t a l w o r k i n g s k i l l s , have moved r e a d i l y i n t o t h e p r o d u c t i o n of a v a r i e t y of m e t a l h o u s e w a r e s . S i m i l a r l y , t h e p r o b l e m o f LDC c o m p e t i t i o n i n t h e J a p a n e s e m o s a i c t i l e i n d u s t r y a p p e a r s t o be but one m a n i f e s t a t i o n of LDC a c q u i s i t i o n of s k i l l s r e l e v a n t t o t h e p r o d u c t i o n of c e r a m i c s p r o d u c t s i n g e n e r a l . The d a t a on J a p a n e s e new b u s i n e s s a d j u s t m e n t a s s i s t a n c e a l s o s u g g e s t s t h a t i n d u s t r i e s 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 e x t e n t t o w h i c h t h e p r o d u c t i o n s k i l l s w h i c h t h e y i m p l i c i t l y r e q u i r e a r e a l s o r e l e v a n t t o o t h e r p r o d u c t s and i n d u s t r i e s . The c u t l e r y i n d u s t r y i n Tsubame, i n p a r t i c u l a r , and t h e m e t a l w o r k i n g and m a c h i n e r y i n d u s t r i e s , i n g e n e r a l , a p p e a r t o i n c o r p o r a t e p r o d u c t i o n s k i l l s of q u i t e g e n e r a l r e l e v a n c e w i t h i n t h e m a n u f a c t u r i n g s e c t o r as a whole. F i r m s w i t h i n t h e s e i n d u s t r i e s w h i c h r e c e i v e d a d j u s t m e n t a s s i s t a n c e m i g r a t e d i n t o a wide v a r i e t y of new b u s i n e s s e s w i t h i n t h e m a n u f a c t u r i n g s e c t o r . The s k i l l s p o s s e s s e d by f i r m s i n t h e t e x t i l e and f o o t w e a r i n d u s t r i e s , i n c o n t r a s t , seemed t o a f f o r d them a much more l i m i t e d amount and r a n g e of m i g r a t i o n o p p o r t u n i t i e s w i t h i n t h e m a n u f a c t u r i n g s e c t o r . The m a j o r i t y of t h e s e f i r m s moved out of m a n u f a c t u r i n g e n t i r e l y and i n t o t h e t r a d e s and s e r v i c e s s e c t o r . T h i s s u g g e s t s t h e i m p o r t a n c e of c o n s i d e r i n g LDC c o m p e t i t i v e n e s s , and t h e d i r e c t i o n and pace o f i t s d e v e l o p m e n t , no t o n l y i n terms o f t h e p r o d u c t l i f e - c y c l e s , f u n c t i o n a l c o m p e t e n c e s , and m a r k e t s i n w h i c h i t becomes e s t a b l i s h e d , but 222 a l s o i n terms of the u n d e r l y i n g p r o d u c t i o n s k i l l s i t i m p l i e s . A n a l y s i s which focuses on the r e l a t i v e i n t e r - i n d u s t r y (or product) t r a n s f e r a b i l i t y of these s k i l l s can serve to f u r t h e r c l a r i f y both the d i r e c t i o n and pace of development of LDC c o m p e t i t i v e s t r e n g t h . 2. THE ROLE OF FOREIGN DIRECT INVESTMENT 2.1 I n t r o d u c t ion Data on Japanese f o r e i g n d i r e c t investment a c t i v i t y i n d i c a t e s that the p r o p o r t i o n of t o t a l FDI a t t r i b u t a b l e to SME has been i n c r e a s i n g i n recent years and, by 1978, accounted f o r f u l l y one-half of a l l c a s e s . 1 0 7 Moreover, much of the f i n a n c i n g for t h i s FDI by SME i s p r o v i d e d by f i n a n c i a l i n s t i t u t i o n s operated by the Japanese government. 1 0 8 T h i s suggests that many firms -and ( i n view of the government f i n a n c i n g involved) the Japanese government, i t s e l f , f e e l that FDI i s responsive to the needs and o p p o r t u n i t i e s not only of l a r g e c o r p o r a t i o n s but a l s o to those of some SME. T h i s does not n e c e s s a r i l y mean, however, that FDI i s respo n s i v e to the needs and o p p o r t u n i t i e s of f i r m s i n i n d u s t r i e s which face the need to a d j u s t to competition from producers i n the LDCs. Indeed, i n the i n d u s t r i e s examined i n the present study, FDI ( s p e c i f i c a l l y , the equity-based establishment of p r o d u c t i o n f a c i l i t i e s i n s i d e the competing LDCs) does not appear 7 SMEA, Chushokigyo no K a i g a i Toshi no Genjo, I g i , Oyobi Mondaiten (Chushokigyocho, Tokyo, 1980) p21 See, Shokokumiai Chuo Kinko, Kokusaibu, Chushokigyo no K a i g a i Toshi J i t t a i Chosa (Shokokumiai Chuo Kinko, Tokyo, 1979) p11. 223 to have been an important aspect of adjustment. Moreover, such FDI as d i d occur was dominated by firms which were, d o m e s t i c a l l y , e i t h e r t o t a l l y s p e c i a l i z e d i n design and d i s t r i b u t i o n a c t i v i t i e s or which had a r e l a t i v e l y strong involvement i n those a c t i v i t i e s , as opposed to p r o d u c t i o n , per se. These were p r e c i s e l y the f i r m s , i n other words, i n which e x i s t i n g business a c t i v i t i e s were, fo r the moment, l e a s t exposed to d i r e c t c o m p e t i t i o n from (narrowly p r o d u c t i o n - o r i e n t e d ) LDC manufacturers and which faced the l e a s t immediate need to a d j u s t . The o v e r a l l impact of FDI by such firms was to act as a conduit f o r the e x i s t i n g adjustment problem, not as i t s s o l u t i o n . The i n d u s t r i e s examined pose two d i s t i n c t q u e s t i o n s ; why d i d r e l a t i v e l y l i t t l e manufacturing FDI take place? and why was that which d i d occur dominated by firms p r i m a r i l y i n v o l v e d i n d i s t r i b u t i o n r a t h e r than production? The e x i s t i n g Japanese l i t e r a t u r e does not appear to d i r e c t l y address e i t h e r q u e s t i o n ; p a r t l y because i t dea l s with aggregate data and p a r t l y because, in any case, i t t r e a t s FDI i n i s o l a t i o n and not i n r e l a t i o n to the o v e r a l l a c t i v i t i e s of the f i r m or i n d u s t r y . 1 0 9 We encountered no l i t e r a t u r e which c o n c r e t e l y r e l a t e s FDI to the 1 0 9 See Chushokigyocho, 1980, (, op. c i t . , p21) and Shokokumiai Chuo Kinko, 1979 (, op. c i t . , plTT and, f o r example: Sakamoto Yasuhiro, "Kokusaika no Shinten to Shitauke Chushokigyo no K a i g a i S h i n s h i t s u " i n , Chushokigyo to Kumiai No. 4, 1980, pp4-9; K u r i i T a k a s h i , "Chushokigyo no K a i g a i t o s h i no Doko to Tokucho" i n , Kinyu Z a i s e i J i j o June, 1979, pp40-44; Kanayama Norio, "Chushokigyo no Kokusai Tekioryoku" i n Shoko J i a n a r u J u l y , 1978; Kitamura Murahiro and Mori Ken (eds.), Wagakuni no K a i g a i Toshi to Kokusai Bungyo o Meguru Shomondai ( A j i a K e i z a i Kenkyusho, Tokyo, 1979), pp175-200; 224 problem of adjustment i n firms and 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 . We can, however, o f f e r some hypotheses regarding the two q u e s t i o n s . 2.1.1 The Dearth Of FDI Current t h e o r i z i n g about FDI suggests that i t w i l l occur only when the i n v e s t i n g f i r m b e l i e v e s c e r t a i n c o n d i t i o n s are p r e s e n t . 1 1 0 These are: i . That the f i r m has e x c l u s i v e p o s s e s s i o n of (or s u p e r i o r access to) i n t e r n a t i o n a l l y t r a n s f e r a b l e a s s e t s (such as c a p i t a l , equipment, patents or know-how) that p rovide i t with an advantage over l o c a l , LDC, entrepreneurs. These are termed, "ownership advantages". i i . That i t i s i n the best i n t e r e s t s of the f i r m to i n t e r n a l i z e the use of these ownership advantages (whether by d i r e c t u t i l i z a t i o n or by " r e n t a l " of them) rat h e r than dispose of them on the open market. These are termed " i n t e r n a l i z a t i o n advantages". i i i . That the f o r e i g n country (e.g., LDC) a f f o r d s s u p e r i o r immobile, or l o c a t i o n - s p e c i f i c , endowments (e.g., the markets f o r i n p u t s , i n c l u d i n g labour, or the l o c a l 1 1 0 See, f o r example; Rugman, A. M., " I n t e r n a l i z a t i o n as a General Theory of Fo r e i g n D i r e c t Investment: A R e a p p r a i s a l of the L i t e r a t u r e " 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 V 116, 1980, pp365~379 and Dunning, J . H., " E x p l a i n i n g the I n t e r n a t i o n a l D i r e c t Investment P o s i t i o n of C o u n t r i e s : Towards a Dynamic or Developmental Approach" i n , op. c i t . , v 117, 1981, pp30-64. 225 t a x / i n c e n t i v e r e g i m e ) . T h e s e a r e t e r m e d , " l o c a t i o n a l a d v a n t a g e s " . The l a s t of t h e s e c o n d i t i o n s , LDC l o c a t i o n a l a d v a n t a g e s , i s c l e a r l y p r e s e n t i n t h e i n d u s t r i e s o f r e l e v a n c e t o t h i s s t u d y . The r e l a t i v e d e a r t h of FDI i n t h e i n d u s t r i e s examined m i g h t be e x p l a i n e d , however, by t h e a b s e n c e of one or t h e o t h e r of t h e o t h e r two c o n d i t i o n s . Of t h e s e , t h e f i r s t , o w n e r s h i p - s p e c i f i c a d v a n t a g e s , i s a p r e c o n d i t i o n o f t h e s e c o n d and, i n any c a s e , seems t h e most p e r t i n e n t . I f LDCs a r e n o t m e r e l y t h e p a s s i v e r e c i p i e n t s of a s s e t s w h i c h DC f i r m s d e c i d e t o t r a n s f e r t o them, i f t h e y a r e , i n o t h e r words, a c t i v e l y i n v o l v e d i n d e v e l o p i n g t h e i r i n d u s t r i a l c a p a c i t y (as t h e y c l e a r l y a r e ) ; t h e n o w n e r s h i p - s p e c i f i c a d v a n t a g e s a r e a w a s t i n g a s s e t and t h e e l e m e n t o f t i m e i s c r u c i a l . P r i o r t o LDC a c q u i s i t i o n (by p u r c h a s e o r FDI from t h i r d - p a r t i e s , by i n d u s t r i a l e s p i o n a g e , by " r e - i n v e n t i o n " , e t c . ) of t h e r e q u i s i t e s k i l l s and e q u i p m e n t , o w n e r s h i p - s p e c i f i c a d v a n t a g e s may e x i s t and FDI may be v i a b l e . However, a s t h e s e ( o r , more e x a c t l y , t h e i r e q u i v a l e n t s ) a r e a c q u i r e d by t h e LDC t h r o u g h o t h e r means, t h e o w n e r s h i p - s p e c i f i c a d v a n t a g e s v a n i s h and t h e v i a b i l i t y of FDI i s l o s t . The p r e s e n t s t u d y i s c o n c e r n e d w i t h i n d u s t r i e s w h i c h f a c e t h e p r o b l e m of a d j u s t i n g t o e x i s t i n g c o m p e t i t i o n f r o m LDCs. Such i n d u s t r i e s a r e , by d e f i n i t i o n , ones i n w h i c h t h e LDC p r o d u c e r s have a l r e a d y a c q u i r e d much of t h e r e l e v a n t s k i l l s and e q u i p m e n t . To t h e e x t e n t t h a t t h i s i s s o , t h e J a p a n e s e 226 producers w i l l possess a sm a l l e r , and perhaps no, advantage i n LDC p r o d u c t i o n over the e x i s t i n g LDC producers. T h i s e x p l a n a t i o n , however, begs the q u e s t i o n of why the Japanese producers d i d not engage i n FDI p r i o r to LDC a c q u i s i t i o n of the r e q u i s i t e s k i l l s and equipment. Such FDI would have to be made in a n t i c i p a t i o n of LDC compe t i t i v e n e s s and would r e q u i r e some a b i l i t y to fi n a n c e the FDI u n t i l such time as the comp e t i t i v e n e s s of LDC pr o d u c t i o n i s r e a l i z e d and the c o s t s of the FDI are recovered. The aggregate data on FDI by Japanese SME show f a i r l y r a p i d p r o f i t a b i l i t y , with 61% of a l l SME r e c o v e r i n g t h e i r investment w i t h i n f i v e y e a r s . 1 1 1 N e v e r t h e l e s s , the i m p l i e d f i n a n c i a l burden probably exceeds the c a p a b i l i t y of many SME 1 1 2 and c e r t a i n l y exceeds that of most of the firms i n the i n d u s t r i e s examined i n the present study. The r a p i d i t y with which LDC com p e t i t i v e n e s s r e v e a l e d i t s e l f probably made such p r o s p e c t i v e FDI l e s s l i k e l y . In most of the i n d u s t r i e s examined, Japanese FDI was probably most f e a s i b l e i n the mid- to late-1960's; but t h i s was g e n e r a l l y a p e r i o d when domestic p r o d u c t i o n was expanding and LDC competition seemed a r e l a t i v e l y remote t h r e a t . Moreover, the f a c t that LDC producers i n these i n d u s t r i e s 1 1 1 See Shoko Kumiai Chuo Kinko, (1979, , op. c i t . ). Such performance, of course, may not have been p o s s i b l e , even under the best of circumstances, i n the i n d u s t r i e s examined in t h i s present study. 1 1 2 The combination, i n at l e a s t some SME, of a p o t e n t i a l f o r p r o f i t a b l e FDI and a l i m i t e d c a p a c i t y to f i n a n c e i t presumably accounts f o r the ex t e n s i v e government involvement i n the f i n a n c i n g of FDI by Japanese SME. 227 a p p e a r t o a d o p t an i n t e g r a t e d mode of p r o d u c t i o n , s u g g e s t s t h a t t h i s i s t h e most e f f i c i e n t form of p r o d u c t i o n f o r t h e s e c o u n t r i e s . I f t h i s i s so, t h e n t h e f r a g m e n t e d n a t u r e , o f t h e J a p a n e s e i n d u s t r i e s , due t o t h e i n t r a - i n d u s t r y ( " s o c i a l " ) d i v i s i o n of l a b o u r employed, may have a l s o l i m i t e d t h e p o t e n t i a l f o r F D I . F o r , i n any o f t h e s e i n d u s t r i e s , w h i l e t h e i n d u s t r y as a whole may have i n c o r p o r a t e d " o w n e r s h i p - s p e c i f i c a d v a n t a g e s " w h i c h , a t some t i m e , c o n s t i t u t e d t h e n e c e s s a r y amalgam of s k i l l s and r e s o u r c e s t o engage i n FDI,' t h e r e were few i n d i v i d u a l f i r m s w h i c h i n c o r p o r a t e d them a l l and had t h e r e l e v a n t e x p e r t i s e r e g a r d i n g i n t e g r a t e d p r o d u c t i o n management. M o r e o v e r , as t h e m o s a i c t i l e i n d u s t r y c a s e s t u d y i n d i c a t e d , t h e c a p i t a l equipment r e q u i r e d may be a v a i l a b l e from o u t s i d e of t h e i n d u s t r y i t s e l f , and on t e r m s w h i c h a r e , due t o J a p a n e s e government e x p o r t a s s i s t a n c e t o m a c h i n e r y p r o d u c e r s , p e r h a p s even b e t t e r t h a n t h o s e a v a i l a b l e t o f i r m s w i t h i n t h e J a p a n e s e i n d u s t r y . F i n a l l y , i t i s not enough t h a t a f i r m p o s s e s s o w n e r s h i p -s p e c i f i c a d v a n t a g e s a t a s i n g l e p o i n t i n t i m e , i t must m a i n t a i n them. The s k i l l s p o s s e s s e d by t h e J a p a n e s e f i r m s i n t h e s e i n d u s t r i e s c o u l d be and were e v e n t u a l l y a c q u i r e d by LDC p r o d u c e r s w i t h o r w i t h o u t J a p a n e s e FDI. T h u s , t o m a i n t a i n o w n e r s h i p s p e c i f i c a d v a n t a g e s t h e J a p a n e s e f i r m s would have t o be a b l e t o r e g e n e r a t e them by, f o r example, d e v e l o p i n g new p r o d u c t or p r o c e s s d e s i g n s . T h i s i s p r e c i s e l y t h e i r a r e a o f g r e a t e s t weakness. F o r t h e s e r e a s o n s , i t i s n o t s u r p r i s i n g t h a t t h e r e was r e l a t i v e l y l i t t l e FDI i n t h e i n d u s t r i e s e x a m i n e d . I t s h o u l d be 228 noted, however, that even i f there had been a great deal of FDI i t would only be of d i r e c t relevance to those of the i n d u s t r y ' s (or the f i r m ' s ) a s s e t s that were i n t e r n a t i o n a l l y mobile, and met the other c r i t e r i a f o r FDI. I t would appear that many, and perhaps most, of the a s s e t s of these i n d u s t r i e s d i d not f a l l i n t o t h i s c a t egory. 2 . 1 . 2 FDI By Wholesaler/Manufacturers In the i n d u s t r i e s examined, the FDI which d i d occur was dominated by d i s t r i b u t i o n s p e c i a l i s t s . T h i s FDI c l e a r l y aggravated the LDC c o m p e t i t i v e c h a l l e n g e faced by the Japanese producers. I t i s l e s s c l e a r how such FDI b e n e f i t t e d the d i s t r i b u t i o n s p e c i a l i s t s that conducted i t . 1 1 3 I t i s not evident why these f i r m s , u n l i k e other s i m i l a r f i r m s , d i d not simply switch t h e i r source of supply to e x i s t i n g LDC firms operated by l o c a l (LDC) entrepreneurs. What seems to be the most l i k e l y e x p l a n a t i o n i s that these f i r m s p e r c e i v e d an o p p o r t u n i t y to u t i l i z e o w n e r s h i p - s p e c i f i c advantages re g a r d i n g design and d i s t r i b u t i o n f o r the Japanese domestic market as a means of a c q u i r i n g a s s e t s i n the LDCs on favourable terms. One s u r v e y 1 1 " i n d i c a t e s t h a t , o v e r a l l , about 17% of Japanese SME manufacturing FDI i s conducted by commercial ( i . e . , non-manufacturing) f i r m s . 1 1 3 I t may be, of course, that i t d i d not b e n e f i t them. There appears to have been a "bandwagon" e f f e c t i n Japanese FDI i n the early'1970's with c o n s i d e r a b l e FDI being undertaken on the b a s i s of only s u p e r f i c i a l a n a l y s e s of i t s m e r i t s . In the absence of d e t a i l e d i n f o r m a t i o n on FDI i n the i n d u s t r i e s examined i n the present study, one cannot t e l l whether i t was misguided; but that i s a d i s t i n c t p o s s i b i l i t y . 1 1 " See, Shoko Kumiai Chuo Kinko, (1979, , orn c i t . ) p23. 229 One s h o u l d p r o b a b l y i n c l u d e a l l f i r m s w h i c h a r e p r i m a r i l y d i s t r i b u t o r s , i n c l u d i n g t h o s e w h i c h a r e o n l y n o m i n a l l y m a n u f a c t u r e r s ( i . e . , 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 ) , i n t h e same c a t e g o r y . I f t h e s e w h o l e s a l e r s / m a n u f a c t u r e r s were i n c l u d e d t h e f i g u r e m i g h t be much h i g h e r . U n f o r t u n a t e l y , no e x p l i c i t e x a m i n a t i o n , by i n d u s t r y , of t h e r e l a t i v e p r o p o r t i o n s of m a n u f a c t u r i n g FDI c a r r i e d o ut by d i s t r i b u t i o n and p r o d u c t i o n s p e c i a l i s t s was u n c o v e r e d . The i s s u e would seem worthy o f i n v e s t i g a t i o n . I t would be i n t e r e s t i n g , f o r example, t o know how much o f J a p a n e s e government f i n a n c i a l a s s i s t a n c e t o FDI by SME goes t o d i s t r i b u t i o n - b a s e d f i r m s and, i n e f f e c t , t h e r e b y e x a c e r b a t e s t h e a d j u s t m e n t p r o b l e m of t h e a c t u a l p r o d u c e r s i n t h e i n d u s t r y . 2.1.3 FDI And LDC F u n c t i o n a l Competence Development The p r e c e d i n g e x p l a n a t i o n s of t h e FDI p a t t e r n s e n c o u n t e r e d i n t h e examined i n d u s t r i e s i s c o n s i s t e n t w i t h t h e c o n c e p t of LDC f u n c t i o n a l competence d e v e l o p m e n t i n t r o d u c e d a t t h e b e g i n n i n g o f t h i s c h a p t e r . A t some p o i n t , say i n t h e l a t e 1950's, e n t r e p r e n e u r s i n t h e A s i a n NICs may have p o s s e s s e d , o r had a c c e s s t o , e s s e n t i a l l y none o f t h e r e q u i s i t e p r o d u c t i o n s k i l l s and equipment and may have even been unaware o f t h e e x i s t e n c e o f t h e p r o d u c t and i t s e x p o r t m a r k e t s . A t t h a t p o i n t , J a p a n e s e p r o d u c e r s u n d o u b t e d l y had g r e a t e r o w n e r s h i p - s p e c i f i c a d v a n t a g e s , t h o u g h l o c a t i o n a l a d v a n t a g e s p r o b a b l y f a v o u r e d J a p a n e s e p r o d u c t i o n . Over t h e y e a r s , t h e b a l a n c e o f l o c a t i o n a l a d v a n t a g e between J a p a n and, s a y , K o r e a c h a n g e d b u t , a t t h e same t i m e , t h e a c c e s s of K o r e a n 230 e n t r e p r e n e u r s t o t h e r e l e v a n t i n f o r m a t i o n , s k i l l s , and equipment a l s o i m p r o v e d . As t h e s e p a r a l l e l c h a n g e s t a k e p l a c e t h e y may have c r e a t e d a "window of o p p o r t u n i t y " f o r FDI by J a p a n e s e p r o d u c e r s b u t , once K o r e a n competence i n p r o d u c t i o n had been e s t a b l i s h e d , t h i s o p p o r t u n i t y was f o r e c l o s e d . 1 1 5 At t h a t p o i n t , FDI may s t i l l be p o s s i b l e f o r J a p a n e s e f i r m s ; b u t o n l y f o r t h o s e p o s s e s s i n g h i g h e r - o r d e r c o m p e t e n c e s not y e t e s t a b l i s h e d i n K o r e a , s u c h as f u n c t i o n a l c o m p e t e n c e s i n d e s i g n and i n f o r e i g n d i s t r i b u t i o n . T h e s e l a t t e r J a p a n e s e f i r m s , i t s h o u l d be n o t e d , a r e a b l e t o d e l a y t h e i r FDI t o a l a t e r t i m e p e r i o d and, t h e r e f o r e , c a n base i t on more c e r t a i n e v i d e n c e of LDC c o m p e t i t i v e n e s s i n p r o d u c t i o n . 1 1 5 W h i l e , i n t h e example g i v e n , t h e o p p o r t u n i t y f o r FDI i n K o r e a i s f o r e c l o s e d , FDI may s t i l l be p o s s i b l e e l s e w h e r e . FDI w h i c h " l e a p f r o g s " t h e A s i a n NICs and i s aimed a t l e s s i n d u s t r i a l i z e d LDCs, s u c h a s M a l a y s i a and t h e P h i l i p p i n e s , was n o t , however, o b s e r v e d . 231 V I I . ADJUSTMENT ALTERNATIVES 1. ADJUSTMENT AND VALUE-ADDED The c a s e s t u d i e s r e v e a l e d a v a r i e t y of c o n c r e t e a d j u s t m e n t a c t i v i t i e s . In t h e c o n t e x t of a p a r t i c u l a r i n d u s t r y o r f i r m , t h e s e c o n c r e t e a c t i v i t i e s c a n be seen t o be c l u s t e r e d i n t o more or l e s s c o h e r e n t s e t s of a c t i v i t i e s w h i c h d e f i n e d i s t i n c t a d j u s t m e n t s t r a t e g i e s . In t h e c a s e s t u d y of t h e Tsubame f l a t w a r e i n d u s t r y t h e s e were c h a r a c t e r i z e d a s ; i . R e v i v a l o f P r i c e C o m p e t i t i v e n e s s i i . S h i f t t o New M a r k e t s i i i . S h i f t t o H i g h e r - g r a d e L i n e s i v . Move t o a New B u s i n e s s T h e s e a d j u s t m e n t s t r a t e g i e s do a p p e a r t o have a r e l e v a n c e t h a t goes beyond t h a t p a r t i c u l a r c a s e s t u d y . A n a l o g o u s s t r a t e g i e s c a n , f o r example, be seen i n t h e i n d u s t r i e s f o r w h i c h b r i e f e r c a s e s t u d i e s were c o n d u c t e d . N e v e r t h e l e s s , i n a g e n e r a l d i s c u s s i o n o f a d j u s t m e n t a l t e r n a t i v e s i t would be i m p r u d e n t t o a s s e r t t h a t what was o b s e r v e d i n t h e s e c a s e s t u d i e s e x h a u s t s t h e e n t i r e r a n g e o f p o s s i b l e a d j u s t m e n t s t r a t e g i e s , much l e s s o f c o n c r e t e a c t i v i t i e s 232 r e l e v a n t to adjustment. What i s needed f o r a general d i s c u s s i o n of adjustment a l t e r n a t i v e s i s , t h e r e f o r e , a conceptual b a s i s f o r r e l a t i n g s t r a t e g i e s and concrete a c t i v i t i e s such as those observed; to adjustment, to each other, and to other adjustment a c t i v i t i e s and s t r a t e g i e s that d i d not happen to be observed i n the p a r t i c u l a r cases examined. The concept of value-added p r o v i d e s t h i s . Value-added i s the d i f f e r e n c e between the p r i c e of an output (product) and the c o s t s of the inputs used i n generating i t . I t i s a measure of the value c r e a t e d by a set of one or more economic a c t i v i t i e s . A sidewalk a r t i s t , f o r example, may use n i n e t y f i v e cents worth of paper and f i v e cents worth of c h a r c o a l to produce a p o r t r a i t which he s e l l s f o r ten d o l l a r s . The value-added of t h i s economic a c t i v i t y i s , then, nine d o l l a r s [$10.00 - ($.95 + $.05) = $9.00]. The value-added of any given a c t i v i t y can change over time with changes i n the c o s t s of inputs and the p r i c e of outputs. The number and complexity of the . economic a c t i v i t i e s i n v o l v e d i s o b v i o u s l y f a r g r e a t e r when we c o n s i d e r not a sidewalk a r t i s t but a manufacturing f i r m , an i n d u s t r y , or an e n t i r e country but the b a s i c p r i n c i p l e i s the same. In a company or i n d u s t r y , value-added can be d i v i d e d i n t o two components; p r o f i t s and w a g e s . 1 1 6 The former p r o v i d e s a r e t u r n to the c a p i t a l i n v e s t e d and the l a t t e r a r e t u r n to the labour. 6 Rent and i n t e r e s t are a l s o e x p l i c i t l y i n c l u d e d i n the economist's d e f i n i t i o n of value-added but we omit them here f o r s i m p l i c i t y ' s sake. T h e i r i n c l u s i o n would not importantly change the a n a l y s i s . 233 F o r an ec o n o m i c o r g a n i z a t i o n , seen as some p a r t i c u l a r c o m b i n a t i o n o f l a b o u r and c a p i t a l , i t i s n e c e s s a r y t h a t t h e r e t u r n s t o e a c h of them match t h o s e t h e y c o u l d o b t a i n e l s e w h e r e . I f t h e y do n o t , one or t h e o t h e r w i l l become u n a v a i l a b l e t o t h a t o r g a n i z a t i o n and i t w i l l c e a s e t o be. Even w i t h c o n s t a n t m a t e r i a l i n p u t c o s t s and o u t p u t p r i c e s a r i s e i n t h e wage r a t e w i l l i n c r e a s e t h e wage s h a r e of v a l u e - a d d e d a t t h e expense o f t h e r e t u r n t o c a p i t a l u n l e s s t h e r e i s a c o r r e s p o n d i n g i n c r e a s e i n t o t a l v a l u e - a d d e d . The a d j u s t m e n t p r o b l e m , t h e r e f o r e , c an be seen as t h e p r o b l e m o f r e - e s t a b l i s h i n g a s i t u a t i o n whereby t h e o r g a n i z a t i o n c an p r o v i d e a d e q u a t e r e t u r n s t o b o t h t h e l a b o u r and t h e c a p i t a l i t em p l o y s . We c a n c a t e g o r i z e a d j u s t m e n t a c t i v i t i e s , t h e n , i n terms of t h e way i n w h i c h t h e y a f f e c t v a l u e - a d d e d , w h i c h i s s i m p l y t h e sum of t h e r e t u r n s t o t h e s e two f a c t o r s . A d j u s t m e n t a c t i v i t i e s c a n i n c r e a s e or r e s t o r e t h e l e v e l o f v a l u e - a d d e d by i . I m p r o v i n g ( i n c r e a s i n g ) p r i c e s o r i i . I m p r o v i n g ( l o w e r i n g ) c o s t s or by some c o m b i n a t i o n o f t h e two. The d e f i n i t i o n o f a d j u s t m e n t , however, i n c l u d e s t h e p o s s i b i l i t y o f a change t o a d i f f e r e n t b u s i n e s s a c t i v i t y ( f u n c t i o n ) or t o a d i f f e r e n t p r o d u c t and t h e s e , t o o , can improve v a l u e - a d d e d . 234 In t h e c a s e o f a move t o a new p r o d u c t o r f u n c t i o n a l a c t i v i t y , however, i t i s not m e a n i n g f u l t o make a d i s t i n c t i o n between improvements i n c o s t s and p r i c e s as t h e r e i s no l o g i c a l b a s i s f o r c o m p a r i n g t h e c o s t s or t h e p r i c e s r e l e v a n t t o t h e two d i f f e r e n t p r o d u c t s or f u n c t i o n s . H e r e , o n l y a c o m p a r i s o n of t h e d i f f e r e n c e i n v a l u e - a d d e d i s p o s s i b l e . To d i s t i n g u i s h t h e t e r m i n o l o g y f o r improvements i n v a l u e - a d d e d due t o a change of p r o d u c t o r f u n c t i o n from t h o s e due t o improvement i n p r i c e s o r c o s t s ( f o r a g i v e n p r o d u c t and f u n c t i o n ) , t h e f o r m e r can be termed, " m a r g i n - i m p r o v e m e n t " ; where t h e "m a r g i n " r e f e r r e d t o i s but a n o t h e r t e r m f o r v a l u e - a d d e d , b u t i s r e s e r v e d f o r t h e c a s e of p r o d u c t o r f u n c t i o n c h a n g e . Thus one can c o n s i d e r a c t i v i t i e s r e l e v a n t t o a d j u s t m e n t under t h e t h r e e d i s t i n c t 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 M a r g i n - i m p r o v i n g . A s t r a t e g y , i n t u r n , c o n s i s t s o f a c o h e r e n t s e t ( p e r h a p s a s e t of one) of s u c h a c t i v i t i e s . The c o n c r e t e a c t i v i t i e s a s s o c i a t e d w i t h a g i v e n s t r a t e g y need not a l l f a l l i n t o t h e same c a t e g o r y b u t t h e y must, c o l l e c t i v e l y , make a c o h e r e n t c o n t r i b u t i o n t o i m p r o v i n g v a l u e - a d d e d . The f o l l o w i n g s e c t i o n s d i s c u s s , u n d e r e a c h c a t e g o r y , t h e major f i n d i n g s of t h e c a s e s t u d i e s r e g a r d i n g a d j u s t m e n t a c t i v i t i e s . 2. ' COST-IMPROVING ADJUSTMENT The c a s e s t u d i e s r e v e a l two major t y p e s of a c t i v i t y i n t h i s c a t e g o r y ; change o f p r o d u c t i o n t e c h n o l o g y and t h e ( d o m e s t i c ) t r a n s f e r o f p r o d u c t i o n . 235 2.1 Change Of P r o d u c t i o n T e c h n o l o g y 2.1.1 The "Deus Ex M a c h i n a " Syndrome In t h e c a s e s t u d i e s , b o t h t h e c e r a m i c t i l e and t h e f l a t w a r e i n d u s t r y r e v e a l e d c o n c e r t e d e f f o r t s t o d e v e l o p and i n t r o d u c e i n n o v a t i v e p r o d u c t i o n t e c h n o l o g y as a means of a d j u s t m e n t . The f i e l d r e s e a r c h , however, d e a l t w i t h many more t h a n t h e f o u r i n d u s t r i e s f o r w h i c h c a s e s t u d i e s a r e p r e s e n t e d and s u g g e s t e d a q u i t e g e n e r a l i n s t i n c t t o l o o k f o r a s o l u t i o n t o t h e a d j u s t m e n t p r o b l e m i n a change o f p r o d u c t i o n t e c h n o l o g y . The i n s t i n c t t o l o o k f o r s u c h s o l u t i o n s i s u n d e r s t a n d a b l e i f o n l y b e c a u s e a c e n t r a l l e s s o n of t h e p a s t 200 y e a r s i s t h a t p r o d u c t i v i t y ( t h e r a t i o of o u t p u t s t o i n p u t s ) and, t h u s , v a l u e - a d d e d can be i n c r e a s e d by a change o f p r o d u c t i o n t e c h n o l o g y . Beyond t h a t i n s t i n c t , however, t h e r e seems t o be a w i d e l y h e l d p e r c e p t i o n t h a t t h i s s o r t of s o l u t i o n i s l i k e l y t o be t h e l e a s t t r a u m a t i c . 1 1 7 New and i m p r o v e d m a c h i n e r y i s w h e e l e d i n t o t h e f a c t o r i e s and, i n one f e l l swoop, t h e t h r e a t o f LDC c o m p e t i t i o n i s v a n q u i s h e d , v a l u e - a d d e d i s r e s t o r e d t o r e q u i s i t e l e v e l s , and t h e i n d u s t r y or f i r m , a s i d e f r o m t h e change i n p r o d u c t i o n t e c h n o l o g y , r e v e r t s t o " b u s i n e s s as u s u a l " . W h i l e few would p e r c e i v e m a t t e r s q u i t e so s i m p l i s t i c a l l y , t h e b a s i c a p p e a l of a d i s c r e t e , t e c h n i c a l s o l u t i o n t o t h e a d j u s t m e n t 7 T h e r e i s a l s o t h e f a c t t h a t , l a r g e l y due t o 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 , t h e p o s s i b i l i t y and p o t e n t i a l s o f h i g h l y a u t o m a t e d p r o d u c t i o n s y s t e m s a r e i n c r e a s i n g l y e v i d e n t . Thus, t h e a p p a r e n t t e c h n i c a l c r e d i b i l i t y o f t h e a p p r o a c h has i n c r e a s e d . 236 problem r e s t s i n part on some v a r i a t i o n of t h i s "Deus ex Machina" s c e n a r i o . Despite widespread evidence of the appeal of t h i s approach to the adjustment problem, and of e f f o r t s to implement i t , we encountered no s t r i k i n g examples of i t s s u c c e s s . 1 1 8 In many cases, t h i s i s undoubtedly because the adjustment process began f a i r l y r e c e n t l y and the e f f o r t s to implement a t e c h n i c a l s o l u t i o n are incomplete and t h e i r r e s u l t s , as yet, i n c o n c l u s i v e ; as i n the mosaic t i l e and f l a t w a r e i n d u s t r i e s . We d i d however, encounter anecdotal evidence of apparent f a i l u r e s . 2.1.2 F a i l u r e s The most s t r i k i n g of these i s in the men's s h i r t i n d u s t r y . 1 1 9 There, the i n d u s t r y began to f e e l c o m p e t i t i o n from LDCs "in export markets as e a r l y as the mid-1960's and in the domestic market towards the end of the 1960's. The domestic market, i n one r e s p e c t , was more v u l n e r a b l e than many export markets because of the nature of demand. Japanese businessmen were, q u i t e l i t e r a l l y , "white c o l l a r " workers as Japanese men almost i n v a r i a b l y favoured p l a i n white dress s h i r t s both away from work and i n the o f f i c e . T h i s u n i f o r m i t y of s t y l e and the r e l a t i v e t e c h n i c a l s i m p l i c i t y of c o n s t r u c t i n g s h i r t s from unpatterned s h i r t i n g 1 1 8 However, i t should be noted, the s e l e c t i o n procedures were not o r i e n t e d towards f i n d i n g i n d u s t r i e s which had s u c c e s s f u l l y completed adjustment (by whatever means) but, r a t h e r , those which were f a c i n g an adjustment problem. 1 1 9 The account here i s based on d i s c u s s i o n s with a r e p r e s e n t a t i v e of the Japan S h i r t s A s s o c i a t i o n and with spokesmen f o r MITI'.s Seikatsukyoku i n June and August of 1980. 237 m a t e r i a l both served to make the Japanese market, at l e a s t on the b a s i s of demand c h a r a c t e r i s t i c s , more exposed to LDC competition than that of any other developed country. Between 1969 and 1972, a s u b s t a n t i a l e f f o r t was made to overcome t h i s t h r e a t by the i n t r o d u c t i o n of s p e c i a l i z e d high speed s h i r t -making equipment (produced, a p p a r e n t l y , in West Germany). T h i s "modernization" of production equipment was f a c i l i t a t e d by the p r o v i s i o n of low-cost f i n a n c i n g through Japanese government agenc i e s . In f a c t , the 1970's saw a dramatic change in Japanese men's fas h i o n s and a r a p i d d i f f u s i o n of p a t t e r n e d s h i r t s i n t o the wardrobe of most men. As a consequence, the men's s h i r t i n d u s t r y ( l i k e much of the Japanese a p p a r e l i n d u s t r y ) was i n a r e l a t i v e l y h e a l t h y s t a t e by the end of the 1970's. Adjustment had been based, however, on promoting and adapting to an i n c r e a s e d f a s h i o n a b i l i t y in men's c l o t h i n g , not on u n d e r c u t t i n g LDC p r i c e s on standard white s h i r t s by means of more c a p i t a l -i n t e n s i v e p r o d u c t i o n technology. Thus, by 1975-1976, most of the newly a c q u i r e d s p e c i a l i z e d p r o d u c t i o n equipment was i d l e d and a w a i t i n g d i s p o s a l . A somewhat d i f f e r e n t , but r e l a t e d , problem i s e x e m p l i f i e d by the i n t r o d u c t i o n of automated s h a r p e n i n g / p o l i s h i n g equipment i n t o a sanchi s p e c i a l i z e d i n the p r o d u c t i o n of s c i s s o r s . 1 2 0 There, there were apparently a r e l a t i v e l y small number of f i r m s 0 T h i s example i s based on a d i s c u s s i o n with a f a c t o r y c o o p e r a t i v e manager in Sanjo, a hand t o o l sanchi near Tsubame, in August, 1980. 238 engaged i n p o l i s h i n g and s h a r p e n i n g . Here t o o , t h e i n t r o d u c t i o n of more e f f i c i e n t e quipment was p e r c e i v e d t o be t h e most e f f e c t i v e means of r e s p o n d i n g t o LDC c o m p e t i t i o n . As a r e s u l t ( a g a i n , w i t h t h e b e n e f i t of government f i n a n c i a l a s s i s t a n c e ) , a l l f i r m s a c q u i r e d a u t o m a t e d equipment and t h e i n d u s t r y ended up w i t h an enormous o v e r c a p a c i t y i n t h i s s t a g e o f p r o d u c t i o n . In t h i s c a s e , u n l i k e t h e men's s h i r t i n d u s t r y , i t i s n o t ( a t l e a s t , n ot y e t ) e v i d e n t t h a t equipment m o d e r n i z a t i o n i s an i n a p p r o p r i a t e r e s p o n s e t o LDC c o m p e t i t i o n . What i s e v i d e n t , however, i s t h a t t h e r e c a n be c o n s i d e r a b l e r i s k of c o m p e t i t i v e c a p a c i t y e x p a n s i o n and r e s u l t i n g o v e r c a p a c i t y when i m p r o v e d t e c h n o l o g y i s b e i n g i n t r o d u c e d . The examples c i t e d a l s o p r o v i d e some a n e c d o t a l e v i d e n c e t h a t government i n t e r v e n t i o n c an s t i m u l a t e uneconomic equipment i n v e s t m e n t . T h i s may a r i s e b e c a u s e government f i n a n c i a l a s s i s t a n c e o b s c u r e s t h e u n d e r l y i n g e c o n o m i c s of t h e s i t u a t i o n . In a d d i t i o n , i t i s p o s s i b l e t h a t s u c h a s s i s t a n c e a l s o t r i g g e r s a c o m p e t i t i v e n e c e s s i t y t o make o t h e r w i s e uneconomic i n v e s t m e n t . T hus, w h i l e a f i r m may be worse o f f a f t e r t h e i n v e s t m e n t has been made, i t may be l e s s worse o f f t h a n i f i t had r e f r a i n e d f r o m t h e i n v e s t m e n t w h i l e i t s c o m p e t i t o r s went ahead w i t h t h e i r new ( g o v e r n m e n t - a s s i s t e d ) equipment i n v e s t m e n t . 2.1.3 D e v e l o p i n g And D i f f u s i n g New P r o d u c t i o n T e c h n o l o g y The men's s h i r t and t h e s c i s s o r s i n d u s t r i e s i n v o l v e d t h e i n t r o d u c t i o n o f e x i s t i n g e q u i p m e n t . Thus, t h e g e n e r a l t e c h n i c a l p e r f o r m a n c e c h a r a c t e r i s t i c s o f t h e eq u i p m e n t , i t s c o s t , and t h e f a c t t h a t i t had p r e v i o u s l y p r o v e n e c o n o m i c a l l y v i a b l e e l s e w h e r e 239 were a l l known b e f o r e h a n d . D e s p i t e t h i s r e d u c t i o n of u n c e r t a i n t y , t h e s e e f f o r t s t o i n t r o d u c e a t e c h n i c a l s o l u t i o n t o t h e a d j u s t m e n t p r o b l e m were not s u c c e s s f u l . The o v e r a l l l e v e l o f u n c e r t a i n t y r e g a r d i n g t e c h n i c a l and economic f e a s i b i l i t y i n t h e m o s a i c t i l e and f l a t w a r e i n d u s t r i e s was p r e s u m a b l y much h i g h e r as b o t h c a s e s i n v o l v e d e f f o r t s t o newly d e v i s e p r o d u c t i o n t e c h n o l o g y . A s i d e f r o m u n c e r t a i n t y r e g a r d i n g t e c h n i c a l and economic f e a s i b i l i t y , however, t h e c a s e s a l s o i n d i c a t e u n c e r t a i n t i e s r e l a t i n g t o t h e d i f f u s i o n of t h e new t e c h n o l o g y i n t o t h e i n d u s t r y . T h e r e i s , f i r s t , t h e f a c t t h a t no m a t t e r how a t t r a c t i v e t h e new t e c h n o l o g y i s i n t h e t e c h n i c a l and economic s e n s e , i t c o u n t s f o r nought u n l e s s t h e f i r m o r i n d u s t r y ( i n whole or i n p a r t ) c a n f i n a n c e i t s a c q u i s i t i o n . In a l l f o u r c a s e s , i f we c a n j u d g e by t h e p r o v i s i o n o f government f i n a n c i a l a s s i s t a n c e , t h i s was seen as a p r o b l e m . S e c o n d l y , t h e r e i s t h e p r o b l e m of how t h e v a r i o u s 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 w i l l r e a c t t o t h e i n t r o d u c t i o n o f new t e c h n o l o g y . In t h e f o o t w e a r c a s e s t u d y , t h e r e was some e v i d e n c e t h a t modern equipment i n t r o d u c e d a t one s t a g e o f p r o d u c t i o n c o u l d n ot o p e r a t e e f f i c i e n t l y u n l e s s and u n t i l o t h e r s t a g e s ( p r e s e n t l y i n t h e hands of d i f f e r e n t p a r t i c i p a n t s ) were s u i t a b l y m o d e r n i z e d as w e l l . In t h e s c i s s o r s i n d u s t r y , a l l c o m p e t i t o r s a d o p t e d t h e t e c h n o l o g y and t h i s l e d t o s u b s t a n t i a l o v e r c a p a c i t y ; none c o u l d o p e r a t e p r o f i t a b l y . Even when n o t a l l f i r m s a d o p t t h e new t e c h n o l o g y t h e im p a c t on t h o s e who do n o t , and t h e i r r e a c t i o n , c a n a f f e c t t h e p r o f i t a b i l i t y o f t h o s e who 240 do. I f , f o r example, t h e y a c c e p t l o w e r p r o f i t s and c o n t i n u e t o p r o d u c e , r e t u r n s t o t h e e n t i r e i n d u s t r y , i n c l u d i n g t h o s e f i r m s t h a t have a d o p t e d t h e im p r o v e d t e c h n o l o g y , w i l l be r e d u c e d . M o r e o v e r , when t h e d e v e l o p m e n t and d i f f u s i o n o f t h e t e c h n o l o g y i s b e i n g c a r r i e d out on a c o o p e r a t i v e b a s i s , or w i t h government a s s i s t a n c e , d i f f e r e n c e s among f i r m s i n t h e n e t b e n e f i t s , of i t s i n t r o d u c t i o n n eed t o be r e c o n c i l e d . In t h e m o s a i c t i l e i n d u s t r y , t h i s p r o b l e m r e c e i v e d e x p l i c i t a t t e n t i o n . T h e r e , a c c e s s t o t h e new t e c h n o l o g y r e q u i r e d , i n e f f e c t , a c o n t r i b u t i o n o f f u n d s t o a s s i s t t h e a d j u s t m e n t of t h o s e f i r m s w h i c h d i d n o t a d o p t t h e t e c h n o l o g y . Thus, t h e c a s e s s u g g e s t f o u r , i n t e r r e l a t e d , t y p e s of u n c e r t a i n t y i n v o l v e d i n t h e d e v e l o p m e n t and d i f f u s i o n of new p r o d u c t i o n t e c h n o l o g y . T h e s e a r e ; i . T e c h n i c a l F e a s i b i l i t y I s t h e c o n t e m p l a t e d s y s t e m o f p r o d u c t i o n t e c h n o l o g i c a l l y f e a s i b l e ? i i . E c o n o m i c F e a s i b i l i t y G i v e n t h e p r e s e n t and a n t i c i p a t e d ( e . g . , J a p a n e s e ) e c o n o m i c e n v i r o n m e n t , would t h e i m p l i e d new i n v e s t m e n t , i n t h e a b s e n c e of t h e e x i s t i n g i n d u s t r y , be a t t r a c t i v e r e l a t i v e t o a l t e r n a t i v e i n v e s t m e n t s ? i i i . F i n a n c i a l F e a s i b i l i t y Can t h e f i r m o r t h e i n d u s t r y ( i n whole o r i n p a r t ) 241 f i n a n c e the" a c q u i s i t i o n o f t h e new p r o d u c t i o n system? and, i v . I n t r a - i n d u s t r y F e a s i b i l i t y Would t h e n e t b e n e f i t s of i n t r o d u c i n g t h e new p r o d u c t i o n s y s t e m v a r y among i n d u s t r y p a r t i c i p a n t s and, i f so, can t h e s e d i f f e r e n c e s be ( e q u i t a b l y ) r e s o l v e d w h i l e p r e s e r v i n g o v e r a l l f e a s i b i l i t y ? The c o n c e r n f o r e q u i t y , i n t h e l a s t of t h e s e , i s of p r a c t i c a l r e l e v a n c e o n l y where t h e new t e c h n o l o g y i s b e i n g d e v e l o p e d and d i f f u s e d by means o f c o o p e r a t i v e ( o r government)-a c t i o n and n o t by a s i n g l e f i r m . Even an i n d i v i d u a l f i r m , however, would need t o be c o n c e r n e d w i t h t h e e f f e c t on o t h e r i n d u s t r y p a r t i c i p a n t s and t h e i r l i k e l y r e a c t i o n s t o i t s i n t r o d u c t i o n o f new p r o d u c t i o n t e c h n o l o g y , b e c a u s e of t h e i r p o t e n t i a l i m p a c t on o v e r a l l f e a s i b i l i t y . 2.2 D o m e s t i c T r a n s f e r s Of L o c a t i o n Of P r o d u c t i o n The c o s t s o f p r o d u c t i o n w i t h i n J a p a n a r e n o t u n i f o r m between r e g i o n s or between f i r m s . Thus, one way o f a d j u s t i n g t o LDC c o m p e t i t i o n i s t o t r y t o s h i f t t h e l o c a t i o n o f p r o d u c t i o n i n t o l o w e r - c o s t r e g i o n s . The u m b r e l l a i n d u s t r y p r o v i d e s t h e c l e a r e s t example of c o s t - r e d u c i n g a d j u s t m e n t by means of t h e g e o g r a p h i c t r a n s f e r of p r o d u c t i o n t o l o w e r - c o s t r e g i o n s o f t h e c o u n t r y . C o s t d i f f e r e n t i a l s among r e g i o n s c a n be due t o d i f f e r e n c e s n ot o n l y 242 in the p r e v a i l i n g i n d u s t r i a l wage r a t e s but a l s o i n the c o s t s of land, c o n s t r u c t i o n , p o l l u t i o n abatement, s e r v i c e s , e t c . The o v e r a l l c o s t d i f f e r e n t i a l s can be s u b s t a n t i a l . C o n s i d e r i n g only r e g i o n a l d i f f e r e n c e s i n income l e v e l s , the index of per c a p i t a income in 1977 ranged from below 60 in southern Kyushu and Okinawa to, r e s p e c t i v e l y , 100, 112, and 140 in Shizuoka, Osaka, and Tokyo. Some of the more r u r a l regions in southern Kyushu have i n d i c e s below 40. What i s even more s t r i k i n g are the d i f f e r e n c e s between even g e o g r a p h i c a l l y c l o s e r e g i o n s . The more r u r a l regions of Chiba p r e f e c t u r e near Tokyo, to which umbrella p r o d u c t i o n was t r a n s f e r r e d , have i n d i c e s i n the 70's and low 80's; not much more than one-half of the average i n the u r b a n - i n d u s t r i a l Tokyo r e g i o n . 1 2 1 3. PRICE-IMPROVING ADJUSTMENT The cases suggest two major types of p r i c e - i m p r o v i n g adjustment, product d i f f e r e n t i a t i o n and a s h i f t of markets. 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 ) As an a l t e r n a t i v e to p r i c e c o m p e t i t i o n , product d i f f e r e n t i a t i o n i s a standard c o m p e t i t i v e t a c t i c . By s u b s t a n t i a l l y d i s t i n g u i s h i n g the f i r m ' s product from that of i t s competitors the f i r m may be able to command a premium p r i c e f o r i t . A change i n the customer's p e r c e p t i o n of the product w i l l t y p i c a l l y i n v o l v e the use of a brand name, unique s t y l e or packaging, and a d v e r t i s i n g . 1 2 1 A l l i n d i c e s c i t e d are from, C h i i k i K e i z a i Soran, 1979 (Toyo K e i z a i Shinposha, Tokyo, 1979) pp 462-499. 243 T h i s s o r t of p r o d u c t d i f f e r e n t i a t i o n i s l i k e l y t o be d i f f i c u l t or i m p o s s i b l e f o r some p r o d u c t s i n w h i c h LDCs d e v e l o p c o m p e t i t i v e s t r e n g t h . In consumer go o d s , s u c h as f o o t w e a r , u m b r e l l a s , and f l a t w a r e , however, i t i s one p o s s i b l e avenue f o r a d j u s t m e n t . Thus f a r , i n t h e s e i n d u s t r i e s , t h e a p p r o a c h o n l y a p p e a r s t o have met w i t h some s u c c e s s f o r a few of t h e f i r m s i n t h e f l a t w a r e i n d u s t r y ; and, even t h e r e , o n l y i n a few m a r k e t s . W h i l e i t s e f f e c t i v e n e s s i s u n c l e a r , t h e r e was an e f f o r t i n t h e u m b r e l l a i n d u s t r y t o l e g a l l y d i f f e r e n t i a t e p r o d u c t i o n by e n f o r c i n g , i n t h e d o m e s t i c m a r k e t , p a t e n t s g r a n t e d f o r v a r i o u s c o n s t r u c t i o n f e a t u r e s of u m b r e l l a s . A somewhat s i m i l a r s i t u a t i o n a p p a r e n t l y e x i s t s i n t h e w i r e r o p e i n d u s t r y . F o r t h i s p r o d u c t , t h e r e a r e numerous a d m i n i s t r a t i v e r e q u i r e m e n t s r e l a t i n g t o i n d u s t r i a l s a f e t y f o r w i r e r o p e t h a t i s t o be s o l d t o t h e c o n s t r u c t i o n o r f o r e s t i n d u s t r i e s . The r e d t a p e i n v o l v e d i n o b t a i n i n g c e r t i f i c a t i o n f o r s a l e t o t h e s e i n d u s t r i e s has a p p a r e n t l y s e r v e d t o d e f l e c t most LDC c o m p e t i t i o n i n t o i n d u s t r i e s , s u c h as t h e f i s h i n g i n d u s t r y , where t h e r e a r e fewer s u c h a d m i n i s t r a t i v e r e q u i r e m e n t s . T h e s e l a t t e r , l e g a l / a d m i n i s t r a t i v e f orms of p r o d u c t d i f f e r e n t i a t i o n can be e x p l o i t e d b u t , u n l i k e demand-based d i f f e r e n t i a t i o n c a n n o t , i n g e n e r a l , be g e n e r a t e d by an i n d u s t r y i n o r d e r t o r e d u c e LDC c o m p e t i t i o n and improve p r i c e s . 1 2 2 In any c a s e , t h e y w i l l have t h e i r g r e a t e s t r e l e v a n c e f o r d o m e s t i c as ! 2 Where t h i s i s done, i t i s more p r o p e r l y seen as t h e e r e c t i o n o f a n o n - t a r i f f b a r r i e r t h a n as p r o d u c t d i f f e r e n t i a t i o n . 244 o p p o s e d t o e x p o r t m a r k e t s . As t h i s l a s t example s u g g e s t s , whether t h e p r o d u c t d i f f e r e n t i a t i o n i s b a s e d on demand or on l e g a l and a d m i n i s t r a t i v e f a c t o r s , i t i s not a l w a y s n e c e s s a r y t h a t t h e f i r m newly 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 . The e f f e c t i s t h e same i f th e f i r m , or i n d u s t r y , s i m p l y p l a c e s i n c r e a s e d w e i g h t on e x i s t i n g p r o d u c t v a r i a n t s t h a t e n j o y a h i g h e r d e g r e e of d i f f e r e n t i a t i o n f r o m LDC p r o d u c t i o n . 3.2 S h i f t Of M a r k e t s The e a r l i e r d i s c u s s i o n of LDC market p e n e t r a t i o n s e q u e n c e s i m p l i e d t h a t t h e e x t e n t of LDC c o m p e t i t i o n w i l l , a t any p o i n t i n t i m e , d i f f e r among t h e v a r i o u s n a t i o n a l m a r k e t s . T h i s a l s o i m p l i e s t h a t t h e d e p r e s s i n g e f f e c t of t h a t c o m p e t i t i o n on p r i c e s w i l l v a r y among n a t i o n a l m a r k e t s . A s h i f t of e x p o r t s i n t o m a r k e t s f a c i n g r e l a t i v e l y l e s s LDC c o m p e t i t i o n was o b s e r v e d i n t h e i n d u s t r i e s e x amined. 3.2.1 T e m p o r a l l y P r o t e c t e d M a r k e t s I t i s p o s s i b l e t o make a b r o a d d i s t i n c t i o n between market s h i f t s o f two t y p e s . The f i r s t of t h e s e i n v o l v e s a s h i f t i n t o m a r k e t s i n w h i c h LDC p r o d u c e r s c a n be e x p e c t e d t o improve t h e i r c o m p e t i t i v e p o s i t i o n o v e r t i m e b u t have n o t y e t s e r i o u s l y p e n e t r a t e d . A s i m p l e s h i f t of m a r k e t i n g e m p h a s i s from s a y , N o r t h A m e r i c a t o E u r o p e o r t o t h e d o m e s t i c ( J a p a n e s e ) market would f a l l i n t h i s c a t e g o r y . In t h e s e c a s e s , t h e r e i s no i n h e r e n t r e a s o n why t h e LDC p r o d u c e r s c a n n o t , e v e n t u a l l y , p e n e t r a t e t h e s e m a r k e t s b u t , g i v e n t h e i r p r e s e n t c a p a c i t y and 245 r e l a t i v e l i n g u i s t i c , c u l t u r a l , and i n s t i t u t i o n a l a c c e s s t o t h e v a r i o u s n a t i o n a l m a r k e t s , t h e i r b e s t o p p o r t u n i t i e s p r e s e n t l y l i e e l s e w h e r e . A p a t t e r n c o n s i s t e n t w i t h t h i s t y p e of a d j u s t m e n t seemed t o u n d e r l y c h a n g e s i n t h e c o u n t r y d i s t r i b u t i o n o f e x p o r t s i n a l l of the i n d u s t r i e s e x amined. I t i s d e b a t a b l e , however, as t o t h e e x t e n t t o w h i c h t h i s p a t t e r n was, i n any g i v e n i n d u s t r y , m e r e l y t h e r e s u l t of s e q u e n t i a l e x p o r t market p e n e t r a t i o n by LDC p r o d u c e r s ; r a t h e r t h a n an a d a p t i v e r e s p o n s e t o i t . C l e a r l y , however, a f i r m w h i c h d i d s h i f t i t s s a l e s e f f o r t so as t o s t a y a s t e p ahead o f t h e LDC market p e n e t r a t i o n s e q u e n c e would e n j o y s u p e r i o r p r i c e s and p r o f i t a b i l i t y . 3.2.2 S t r u c t u r a l l y P r o t e c t e d M a r k e t s The s e c o n d t y p e o f market s h i f t i n v o l v e s a s h i f t t o m a r k e t s w h i c h a r e i n h e r e n t l y l e s s s u s c e p t i b l e t o t h e LDC c o m p e t i t o r s . In t h e s e c a s e s , J a p a n w i l l o f f e r some l o c a t i o n a l a d v a n t a g e o v e r LDC p r o d u c t i o n . The e f f o r t s i n t h e u m b r e l l a and f o o t w e a r i n d u s t r i e s t o expand e x p o r t s t o E a s t e r n E u r o p e a n m a r k e t s w h i c h were n o t open t o S o u t h Korean and T a i w a n e s e p r o d u c e r s would f a l l i n t h i s c a t e g o r y . In g e n e r a l , however, s u c h s t r u c t u r a l l y p r o t e c t e d m a r k e t s w i l l be f o u n d w i t h i n t h e d o m e s t i c market and t h e l o c a t i o n a l a d v a n t a g e w i l l n o t be a m a t t e r of w o r l d p o l i t i c s b u t o f c o m m u n i c a t i o n s . The r e s p o n s e t i m e t o o r d e r s f o r new p r o d u c t i o n f o r t h e d o m e s t i c J a p a n e s e market d i f f e r s c o n s i d e r a b l y between J a p a n e s e and K o r e a n p r o d u c e r s ; d e s p i t e r e l a t i v e l y f a v o u r a b l e c o m m u n i c a t i o n s l i n k s between J a p a n and K o r e a . The d i f f e r e n c e of 246 three or four weeks in the l e a d time r e q u i r e d f o r such orders w i l l not always be of major importance to the customer. Where, however, f a s h i o n a b i l i t y i s important and u n p r e d i c t a b l e or where there i s a strong s e a s o n a l i t y to demand or, i n g e n e r a l , where there i s a n e c e s s i t y f o r prompt adjustment to a customer's changing requirements, a three or four week d i f f e r e n c e in response time can provide domestic producers with an insurmountable advantage over LDC c o m p e t i t o r s . Adjustment of t h i s type appears to account almost e n t i r e l y f o r the s u c c e s s f u l adjustment of the footwear i n d u s t r y . I t has a p p a r e n t l y a l s o been important i n many of the apparel i n d u s t r i e s , as w e l l . 4. MARGIN-IMPROVING ADJUSTMENT E i t h e r a change of f u n c t i o n or a change of product, or both, can improve value-added. However, apportionment of the source of t h i s improvement between c o s t s and p r i c e s i s not meaningful as one i s not comparing l i k e with l i k e . Here, t o t a l improvement r e s u l t i n g from a change of f u n c t i o n or of product i s termed "margin-improving" adjustment. 4.1 F u n c t i o n a l Change A change i n business f u n c t i o n can i n v o l v e e i t h e r divestment of e x i s t i n g f u n c t i o n s or entry i n t o new f u n c t i o n s . Both types were observed i n the case s t u d i e s . 1 2 3 1 2 3 T h i s t o p i c has a l s o r e c e i v e d some a t t e n t i o n in the s t r a t e g i c management l i t e r a t u r e . See, Kreiken, Jan, " E f f e c t i v e V e r t i c a l I n t e g r a t i o n and D i s i n t e g r a t i o n S t r a t e g i e s " i n Glueck, Wm. F., Business P o l i c y and S t r a t e g i c Management (McGraw-Hill, New York, 1980) pp 256-263. 247 4.1.1 D i v e s t m e n t Of E x i s t i n g F u n c t i o n s A s i d e f r o m r e g i o n a l d i s p a r i t y i n c o s t s of p r o d u c t i o n , t h e r e were a p p a r e n t l y s u b s t a n t i a l i n t r a - i n d u s t r y d i s p a r i t i e s i n t h e i n d u s t r i e s e x a m i n e d . T h e r e was an e l a b o r a t e s o c i a l d i v i s i o n of l a b o u r and e x t e n s i v e use o f s u b c o n t r a c t i n g o b s e r v e d i n Tsubame and, a t l e s s d e t a i l , i n t h e o t h e r c a s e s as w e l l . In t h e i n d u s t r i e s e xamined, the s u b c o n t r a c t o r s were, i n g e n e r a l , b o t h a b l e and w i l l i n g t o c a r r y out a d d i t i o n a l p r o d u c t i o n a c t i v i t i e s a t l e s s c o s t t h a n t h e downstream m a n u f a c t u r e r s . T h i s a p p e a r s t o be due l e s s t o any d i f f e r e n c e s i n t h e i r m a t e r i a l i n p u t c o s t s t h a n t o a w i l l i n g n e s s t o a c c e p t l o w e r r e t u r n s t o c a p i t a l a n d / o r l a b o u r by t h e owners and e m p l o y e e s o f t h e s e s u b c o n t r a c t o r s . In any c a s e , LDC c o m p e t i t i o n a p p e a r s t o have t r i g g e r e d a s h i f t of some p r o d u c t i o n a c t i v i t i e s from m a n u f a c t u r e r s t o s u b c o n t r a c t o r s . In t h e c a s e of Tsubame, t h i s p r o c e s s had a l r e a d y been c a r r i e d n e a r t o a • l i m i t and many of t h e major " m a n u f a c t u r e r s " were l i t t l e more t h a n c o o r d i n a t o r s of p r o d u c t i o n c a r r i e d out i n o t h e r , s u b o r d i n a t e , o r g a n i z a t i o n s . Thus, t h i s form of a d j u s t m e n t can a l s o be seen a s , i n e f f e c t , a s t r a t e g i c r e t r e a t t o a h i g h e r - o r d e r f u n c t i o n a l c ompetence ( i . e . , p r o d u c t i o n c o o r d i n a t i o n , d e s i g n , p r i m a r y d i s t r i b u t i o n ) by t h e f i r m s " s h e d d i n g " p r o d u c t i o n , i t s e l f , t o s u b c o n t r a c t o r s . I t i s , t h e n , i n c o n t r a s t t o t h e g e o g r a p h i c a l t r a n s f e r of p r o d u c t i o n d i s c u s s e d e a r l i e r , an o r g a n i z a t i o n a l t r a n s f e r of p r o d u c t i o n t o l o w e r - c o s t ( o r g a n i z a t i o n a l ) l o c a t i o n s . 248 4.1.2 E n t r y I n t o New F u n c t i o n s E n t r y of a p u r e m a n u f a c t u r e r i n t o a new f u n c t i o n , s u c h as d e s i g n or s a l e s , can be n e c e s s a r y i n o r d e r t o c r e a t e or d e v e l o p new m a r k e t s (Market Change) or t o d i s t i n g u i s h t h e f i r m ' s p r o d u c t f r o m t h a t of o t h e r s ( P r o d u c t D i f f e r e n t i a t i o n ) . I t can a l s o , however, be a r e s p o n s e t o t h e p e r c e p t i o n t h a t h i g h e r r e t u r n s a r e a v a i l a b l e i n t h a t end o f t h e i n d u s t r y . To some e x t e n t , t h e a t t e m p t s o f m a n u f a c t u r e r s i n t h e examined i n d u s t r i e s t o move downstream i n t o t h e d i s t r i b u t i o n f u n c t i o n may have had t h i s mot i v a t i o n . W h i l e -the p r o b l e m s of d i v e s t m e n t of an o l d f u n c t i o n and e n t r y i n t o a new f u n c t i o n a r e d i f f e r e n t a t t h e l e v e l of i m p l e m e n t a t i o n , t h e y c a n have t h e same m o t i v a t i o n ; t o s h i f t t h e f i r m ' s a c t i v i t i e s i n t o a r e a s where v a l u e - a d d e d i s h i g h e r . 4.2 P r o d u c t Change As w i t h a change i n f u n c t i o n a l a c t i v i t y , m a r g i n - i m p r o v i n g a d j u s t m e n t may be p o s s i b l e t h r o u g h a change of p r o d u c t . The d a t a on t h e Change of B u s i n e s s A s s i s t a n c e Programme s u g g e s t s a u s e f u l d i s t i n c t i o n c a n be made between change of p r o d u c t a d j u s t m e n t s i n terms of t h e r e l a t e d n e s s t o e a r l i e r p r o d u c t i o n . 4.2.1 V e r t i c a l P r o d u c t Change H e r e , t h e s t r o n g e s t l i n k w i t h p r e v i o u s p r o d u c t i o n a p p e a r s t o be w i t h t h e s p e c i f i c p r o d u c t , r a t h e r t h a n t h e p r o d u c t i o n s k i l l s . T h i s c o u l d c o n c e i v a b l y i n v o l v e movement i n t o , s a y , t h e p r o d u c t i o n of m a c h i n e r y and equipment f o r t h e p r i o r i n d u s t r y . The Change o f B u s i n e s s A s s i s t a n c e Programme d a t a do n o t r e v e a l 249 t h a t p a r t i c u l a r t y p e of change but do i n d i c a t e s u b s t a n t i a l movement of t e x t i l e p r o d u c e r s i n t o downstream a c t i v i t i e s t h a t a r e more a p p a r e n t l y l i n k e d t o t h e p r i o r p r o d u c t t h a n t o t h e p r i o r s e t of p r o d u c t i o n s k i l l s , p e r s e . Examples i n c l u d e movement from t e x t i l e s m a n u f a c t u r e i n t o a p p a r e l , s u n d r y t e x t i l e p r o d u c t s , l i n e n s u p p l y , and d r y c l e a n i n g . 4.2.2 H o r i z o n t a l P r o d u c t Change H e r e , t h e s t r o n g e s t l i n k w i t h t h e p r i o r b u s i n e s s a c t i v i t y a p p e a r s t o be w i t h t h e s k i l l s i t embodied r a t h e r t h a n w i t h t h e s p e c i f i c p r o d u c t . The Change of B u s i n e s s d a t a i n d i c a t e t h a t t h i s s o r t of p r o d u c t change was p a r t i c u l a r l y common i n t h e m a c h i n e r y and m e t a l w o r k i n g i n d u s t r i e s but q u i t e r a r e i n t h e t e x t i l e s and some o t h e r i n d u s t r i e s . 250 V I I I . THE ADJUSTMENT PROCESS 1. INTRA-INDUSTRY VARIATION AND ADJUSTMENT 1 .1 I n t r a - i n d u s t r y V a r i e t y D i f f e r e n c e s among firms i n terms of t h e i r p a r t i c u l a r s t r e n g t h s and weaknesses have important i m p l i c a t i o n s f o r t h e i r s t r a t e g i c p o s i t i o n , behaviour, and performance i n the presence of environmental change a f f e c t i n g an i n d u s t r y . The v a r i e t y - among fi r m s w i t h i n an i n d u s t r y depends, i n the f i r s t i n s t a n c e , upon how one d e f i n e s the i n d u s t r y and i t i s by no means obvious how t h i s should be done. Adopting the p e r s p e c t i v e of some s p e c i f i c i n d i v i d u a l f i r m f a c i l i t a t e s the i d e n t i f i c a t i o n of a r e l e v a n t set of "competitors". The p a r t i c i p a n t s i n an i n d u s t r y are not, however, simply a set of incumbent c o m p e t i t o r s . 1 2 " There are a l s o upstream ( s u p p l i e r ) and downstream (customer) o r g a n i z a t i o n s with which firms have c o l l a b o r a t i v e r e l a t i o n s ; as w e l l as p o t e n t i a l new e n t r a n t s to the i n d u s t r y and producers of s u b s t i t u t e products with which they have 1 2 4 The importance to the f i r m of i n t e r a c t i o n s with s u p p l i e r s , customers, p o t e n t i a l new e n t r a n t s and producers of s u b s t i t u t e products or s e r v i c e s i s a commonplace of the l i t e r a t u r e on s t r a t e g i c management. They are, however, o f t e n t r e a t e d as being environmental, or e x t e r n a l to the i n d u s t r y , per se. The view, here, on the other hand, i s c l o s e r to that of M. E. P o r t e r [ Competitive Str a t e g y , The Free Press, New York, 1980), pp32-33] who s t r e s s e s the a r b i t r a r y nature of such d i s t i n c t i o n s . See a l s o ; on the r o l e of p o t e n t i a l competition (as opposed to incumbents), Baumol, Wm. J . , "Contestable Markets: An U p r i s i n g in the Theory of Industry S t r u c t u r e " i n , American Economic Review V 72 No 1 March, 1982; and, on upstream/downstream i n t e r a c t i o n s , Williamson, 0. E., Markets and H i e r a r c h i e s : A n a l y s i s and I m p l i c a t i o n s f o r A n t i t r u s t (The Free Press, New York, 1975). 251 c o m p e t i t i v e r e l a t i o n s . A s h i f t o f p e r s p e c t i v e f r o m one f i r m t o a n o t h e r l o c a t e d , s a y , u p s t r e a m , would a t t h e t h e v e r y l e a s t change t h e c l a s s i f i c a t i o n o f o t h e r f i r m s as between c o m p e t i t o r , c u s t o m e r , e t c . I t m i g h t even change t h e a c t u a l r o s t e r of i n d u s t r y p a r t i c i p a n t s c o n s i d e r a b l y . T h u s , i f one i s n o t , or not o n l y , i n t e r e s t e d i n a s p e c i f i c i n d i v i d u a l f i r m or c a t e g o r y of f i r m s , t h e n t h e c l a s s i f i c a t i o n o f " i n d u s t r y " and of " i n d u s t r y p a r t i c i p a n t s " become v e r y s l i p p e r y t a s k s i n d e e d . The c a s e s t u d i e s p r e s e n t e d i n t h i s r e s e a r c h a l l d e a l w i t h a f i n a l good and t h e u n d e r l y i n g f o c u s has been b i a s e d t o w a r d s t h e f i r m s w h i c h c a r r y o ut t h e f i n a l s t a g e of p r o d u c t i o n f o r t h o s e g o o d s . T h i s b i a s was not m o t i v a t e d by a d e s i r e t o l i m i t t h e e x a m i n a t i o n o f a d j u s t m e n t t o t h o s e f i r m s b u t , r a t h e r , by t h e p r a g m a t i c n e c e s s i t y t o a d o p t some p e r s p e c t i v e from w h i c h t o d e f i n e t h e i n d u s t r y . C o n c e r n f o r a d j u s t m e n t , i n c o n t r a s t , encompasses t h e whole of t h e i n d u s t r i e s t h u s i d e n t i f i e d . In t h e e v e n t , t h e s e i n d u s t r i e s , and o u r c o n c e r n f o r a d j u s t m e n t , g e n e r a l l y e x t e n d from a p o i n t s l i g h t l y u p s t r e a m from t h e f i n a l good " m a n u f a c t u r e r " downstream t o t h e l e v e l o f d i s t r i b u t i o n . T h i s p r e s e n t s e c t i o n c o n s i d e r s some o f t h e more i m p o r t a n t d i m e n s i o n s o f d i f f e r e n c e among t h i s s e t of c o l l a b o r a t i v e and c o m p e t i t i v e p a r t i c i p a n t s , o r " s t a k e h o l d e r s " , i n t h e i n d u s t r i e s e x a mined. 252 1.2 I n d u s t r y S u b s t r u c t u r e D i f f e r e n c e s among p a r t i c i p a n t s i n an i n d u s t r y c an be i d e n t i f i e d a t a number of l e v e l s and a l l of t h e s e d i f f e r e n c e s can a f f e c t t h e p o s i t i o n , b e h a v i o u r , and p e r f o r m a n c e of t h e f i r m w i t h r e s p e c t t o t h e a d j u s t m e n t p r o b l e m . 1.2.1 D i f f e r e n c e s Among C o m p e t i t o r s F i r m s t h a t c a r r y o ut t h e same f u n c t i o n a l a c t i v i t y w i t h r e s p e c t t o a g i v e n p r o d u c t a r e c o m p e t i t o r s . W h i l e t h e y c a r r y out t h e same b a s i c f u n c t i o n a l a c t i v i t y , however, t h e y can d i f f e r i n many ways. In t h e i n d u s t r i e s examined i n t h e p r e s e n t s t u d y , however, t h e r e were two d i m e n s i o n s of d i f f e r e n c e t h a t seemed t o be p a r t i c u l a r l y i m p o r t a n t ; i n d u s t r y e x p o s u r e and o r g a n i z a t i o n a l m o t i v a t i o n . i . I n d u s t r y E x p o s u r e C l e a r l y one f a c t o r i n f l u e n c i n g a d j u s t m e n t b e h a v i o u r i s t h e e x t e n t t o w h i c h a f i r m i s e x p o s e d t o t h e a f f e c t e d i n d u s t r y . In t h e Tsubame f l a t w a r e i n d u s t r y , f o r example, some m a n u f a c t u r e r s p r o d u c e d o n l y f l a t w a r e w h i l e o t h e r s p r o d u c e d h o u s e w a r e s as w e l l . In t h e m o s a i c t i l e i n d u s t r y some p r o d u c e r s a l s o p r o d u c e d o u t d o o r t i l e , w h i l e o t h e r s d i d not and, i n t h e u m b r e l l a i n d u s t r y , w h o l e s a l e r s v a r i e d i n t h e p r o p o r t i o n of t h e i r s a l e s a c c o u n t e d f o r by u m b r e l l a s r e l a t i v e t o o t h e r goods t h e y d i s t r i b u t e d . T h o s e f i r m s w i t h p r o p o r t i o n a t e l y more d i r e c t and e x t e n s i v e e x p o s u r e t o t h e a f f e c t e d i n d u s t r y have a g r e a t e r m o t i v a t i o n t o a d j u s t . 253 i i . O r g a n i z a t i o n a l M o t i v a t i o n A l l of t h e i n d u s t r i e s examined were d o m i n a t e d by p r i v a t e l y -owned f i r m s and most of t h e s e a r e a p p a r e n t l y owned by t h e f o u n d e r and h i s f a m i l y . Beyond t h i s , however, t h e r e was a s u b s t a n t i a l number of f a m i l y - c e n t r e d , s m a l l e r f i r m s , i n which a f a m i l y ( o r k i n s h i p g r o up) p r o v i d e s not j u s t t h e c a p i t a l and management but a l s o a s i g n i f i c a n t p r o p o r t i o n of t h e l a b o u r employed as w e l l . T hese l a t t e r f i r m s a p p e a r t o be common i n t h e s m a l l e r and more s u b o r d i n a t e r a n k s , where monetary r e t u r n s a r e g e n e r a l l y l o w e s t . In t h e m o s a i c t i l e i n d u s t r y t h e r e was, m o r e o v e r , a c l e a r s h i f t t o t h i s f o r m as t h e i n d u s t r y c o n d i t i o n s w o r s e n e d . In a f a m i l y - o w n e d f i r m , t h e owner/manager i s n o t l i k e l y t o have a p u r e l y d i s p a s s i o n a t e a t t i t u d e t o w a r d s t h e f i r m and t h i s may p a r t l y e x p l a i n t h e p r e s e n c e and p e r s i s t e n c e o f some s u c h f i r m s i n t h e f a c e o f o b j e c t i v e l y a d v e r s e c o n d i t i o n s . M o r e o v e r , i n t h e f a m i l y - c e n t r e d f i r m s , t h e f a m i l y w o r k e r s may d e r i v e more t h a n j u s t m o n e t a r y r e t u r n s from t h e i r l a b o u r . The o b v i o u s p a r a l l e l i s w i t h t h e g e s e l l s c h a f t - g e m e i n s c h a f t d i c h o t o m y . The f a m i l y - c e n t r e d f i r m s , i n t h e s e t e r m s , w o u l d l i e c l o s e r t o t h e g e m e i n s c h a f t end of t h e s p e c t r u m and would be c h a r a c t e r i z e d by t h e p r e d o m i n a n c e o f p r i m a r y , n o n - c o n t r a c t u a l r e l a t i o n s h i p s and k i n s h i p t i e s . Such f i r m s may be a b l e t o e n d u r e l o w e r economic r e t u r n s b e c a u s e t h e y a l s o p r o v i d e p a r t i c i p a n t s w i t h s u b s t a n t i a l s o c i a l and p s y c h o l o g i c a l r e t u r n s . 254 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 G r o u p s As t h e c a s e s t u d i e s i n d i c a t e , t h e r e i s c o n s i d e r a b l e v a r i e t y i n t h e f u n c t i o n a l a c t i v i t i e s embodied i n a p r o d u c t . The i n d u s t r i e s e x amined h i g h l i g h t e d t h e f a c t t h a t , even w i t h i n t h e g e n e r a l f u n c t i o n a l c a t e g o r y of " p r o d u c t i o n " , t h e r e can be e x t e n s i v e f u r t h e r d i f f e r e n c e s i n a c t i v i t y . Whatever t h e r e l e v a n t s e t o f 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 i n a p a r t i c u l a r i n d u s t r y , f i r m s can be g r o u p e d on t h e b a s i s of t h e i r f u n c t i o n a l a f f i l i a t i o n . Some f i r m s may i n t e g r a t e more t h a n one f u n c t i o n a l a c t i v i t y and have m u l t i p l e f u n c t i o n a l a f f i l i a t i o n s . T h e r e c a n , of c o u r s e , be s y s t e m a t i c d i f f e r e n c e s among f u n c t i o n a l g r o u p s i n terms of t h e f a c t o r s a l r e a d y m e n t i o n e d . In t h e Tsubame f l a t w a r e i n d u s t r y , f o r example, f i r m s s p e c i a l i z e d i n p o l i s h i n g o p e r a t i o n s were t y p i c a l l y much more f a m i l y - c e n t r e d t h a n t h o s e c a r r y i n g out o t h e r f u n c t i o n s . S i m i l a r l y , t h e d e g r e e of e x p o s u r e t o t h e u m b r e l l a i n d u s t r y was t y p i c a l l y l e s s among w h o l e s a l e r s t h a n among u m b r e l l a frame m a n u f a c t u r e r s . D i s t i n c t from t h i s however, d i f f e r e n t f u n c t i o n a l a c t i v i t i e s , p e r s e , can d i f f e r i n t e r m s of t h e s i g n i f i c a n c e of LDC c o m p e t i t i o n . The most d r a m a t i c example o f t h i s was p r o v i d e d by t h e u m b r e l l a i n d u s t r y , where J a p a n e s e w h o l e s a l e r s c o u l d t a k e t h e LDC p r o d u c e r s as a new, and l o w e r - c o s t , s o u r c e of s u p p l y w h i l e t h e J a p a n e s e p r o d u c e r s f a c e d them as d i r e c t c o m p e t i t o r s . M o r e o v e r , even w i t h i n t h e g e n e r a l f u n c t i o n a l a r e a of p r o d u c t i o n , t h e u m b r e l l a frame makers a p p e a r t o have f a c e d a more d i r e c t c o m p e t i t i v e t h r e a t from LDC p r o d u c t i o n t h a n d i d t h e f i r m s e ngaged i n i n s t a l l i n g u m b r e l l a f a b r i c t o p r o d u c e t h e f i n i s h e d 255 p r o d u c t . T h e s e l a t t e r f i r m s had t h e o p t i o n of s o u r c i n g u m b r e l l a f r a m e s i n t h e LDCs. The c o n c e p t , i n t r o d u c e d e a r l i e r , of a f u n c t i o n a l competence d e v e l o p m e n t p a t h s u g g e s t s t h a t t h e d e g r e e of e x p o s u r e t o LDC c o m p e t i t i o n w i l l d i f f e r among f u n c t i o n a l a c t i v i t i e s a t any p o i n t i n t i m e 1 2 5 and t h a t i t w i l l i n c r e a s e , o v e r t i m e , i n a more or l e s s d e t e r m i n a t e way. T h i s means t h a t , w i t h i n an i n d u s t r y , a f i r m ' s d e g r e e of e x p o s u r e t o LDC c o m p e t i t i o n w i l l depend i n p a r t on i t s p a t t e r n of f u n c t i o n a l a c t i v i t i e s i n r e l a t i o n t o LDC f u n c t i o n a l competence d e v e l o p m e n t a t any g i v e n p o i n t i n t i m e . Those DC f i r m s - whose f u n c t i o n a l s p e c i a l i z a t i o n e n a b l e s them t o r e a c t t o LDC f i r m s as p o t e n t i a l c o l l a b o r a t o r s w i l l be l e a s t a d v e r s e l y a f f e c t e d by t h e i r c o m p e t i t i o n . 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 i . 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 B e c a u s e t h e v a r i o u s f u n c t i o n a l a c t i v i t i e s n e c e s s a r y t o an i n d u s t r y may be c a r r i e d o ut w i t h i n s e p a r a t e f i r m s , an i n d u s t r y c a n be c h a r a c t e r i z e d by one or more forms of c o a l i t i o n among f u n c t i o n a l l y c o m p l e m e n t a r y f i r m s . T a b l e 17 shows s e v e n d i f f e r e n t h y p o t h e t i c a l t y p e s of 5 In t h i s r e s p e c t , t h e n , a s h i f t o f t h e b u r d e n o f a d j u s t m e n t f r o m , f o r example, w h o l e s a l e r / m a n u f a c t u r e r s o n t o s m a l l e r , and more l a b o u r - i n t e n s i v e s u b o r d i n a t e f i r m s s h o u l d n ot be seen m e r e l y a s t h e e x p l o i t a t i o n o f s u p e r i o r b a r g a i n i n g power by 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 . I t may a l s o r e f l e c t ( and be j u s t i f i e d by) t h e h i g h e r d e g r e e o f d i r e c t f u n c t i o n a l 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 among t h e l a t t e r f i r m s . 256 p a r t i c i p a n t i n an i n d u s t r y , d i s t i n g u i s h e d from each other i n terms of t h e i r f u n c t i o n a l i n t e r n a l i z a t i o n . An i n d u s t r y might c o n t a i n any or a l l of these types. Thus, the anatomy of a p a r t i c u l a r i n d u s t r y may be c h a r a c t e r i z e d by many s u b - c o n t r a c t o r s producing f o r Design-s p e c i a l i s t f i r ms which market t h e i r end products through independent Wholesale and D i s t r i b u t i o n f i r m s . A l t e r n a t i v e l y , the i n d u s t r y might be c h a r a c t e r i z e d by Designer-Producers r e l y i n g on independent Wholesale or D i s t r i b u t i o n firms f o r s a l e s of a product which they design and produce i n t e r n a l l y . More g e n e r a l l y , one might expect to f i n d that a given i n d u s t r y c o n t a i n s p a r t i c i p a n t s which, r e s p e c t i v e l y , have d i f f e r e n t s t r a t e g i c r o l e s with respect to the business and that r e l a t i o n s between two p a r t i c i p a n t s may be c o l l a b o r a t i v e or c o m p e t i t i v e i n nature. i i . N a t u r a l C o a l i t i o n s Among Firms R e l a t i o n s h i p s between firms of complementary types ( i . e . , no f u n c t i o n a l o v e r l a p ) , i f they e x i s t , w i l l be c o l l a b o r a t i v e . R e l a t i o n s h i p s between firms or the same or of r i v a l types ( i . e . , with f u n c t i o n a l overlap) w i l l be c o m p e t i t i v e . At a more aggregate l e v e l , one can i d e n t i f y c e r t a i n " n a t u r a l c o a l i t i o n s " among f i r m types. Thus, i n the pre v i o u s t a b l e , while a f i r m of type 3. (DP) i s not v i a b l e i n i s o l a t i o n , i t can e x i s t i n a c o l l a b o r a t i v e p a i r i n g with a f i r m or fi r m s of type 7. ( S ) . Table 18 l i s t s the f i v e n a t u r a l c o a l i t i o n s that combine the necessary set of f u n c t i o n a l a c t i v i t i e s . Firm type 257 Table 17 - Hypothetical Internal Functional V a r i e t y Among Industry P a r t i c i p a n t s D = Design, P = Production, S = Sales ( m a r k e t i n g / d i s t r i b u t i o n ) Type 1. P 2. PS 3. DP 4. DPS 5. DS 6. D 7. S D e s c r i p t i o n Subcontractors Design-dependent producers Designer-Producers F u l l - f u n c t i o n Producers Designer-Marketers Designers M a r k e t i n g - D i s t r i b u t i o n S p e c i a l i s t s Source: Compiled by author Table 18 - Natural C o a l i t i o n s in an Industry 258 D = Design, P = Production, S = Sales ( m a r k e t i n g / d i s t r i b u t i o n ) General Case Standardized/Custom-Ordered Product I U ( P ) , 5(DS)} II U ( P ) , 6(D), 7(S)} l i b ) U ( P ) , 7(S)} I I I (2(PS), 6(D)} I l l b ) (2(PS)} IV (3(DP), 7(S)} V {4(DPS)> Source: Compiled by author 2 5 9 IV (DPS) i s an i n t e r n a l c o a l i t i o n . The v a r i a n t s l i b and I l l b are f e a s i b l e when the product i s e i t h e r s t a n d a r d i z e d or custom-ordered and the Design f u n c t i o n i s t h e r e f o r e i r r e l e v a n t or, one might say, "provided by the market". A p a r t i c u l a r i n d u s t r y may be c h a r a c t e r i z e d by one or more of these n a t u r a l c o a l i t i o n s among f i r m s . Where there i s more than one type of c o a l i t i o n , i n a d d i t i o n to the i n t e r - f i r m r i v a l r y p r e v i o u s l y d i s c u s s e d , there w i l l be a s t r u c t u r a l form of r i v a l r y between the c o a l i t i o n s . i i i . I m p l i c a t i o n s i n Adjustment When the i n d u s t r y environment i s r e l a t i v e l y s t a b l e , one would expect an i n d u s t r y to c o n t a i n those c o a l i t i o n s that are most e f f i c i e n t - i n that environment and that the p a t t e r n of c o a l i t i o n s would be f a i r l y s t a b l e . 1 2 6 With environmental change, such as the advent of LDC c o m p e t i t i o n , the v i a b i l i t y of v a r i o u s c o a l i t i o n s may d i f f e r . 1 2 7 Adjustment may, f o r example, c a l l f o r a higher degree of c o o r d i n a t i o n among f u n c t i o n s and, i n that case, e x i s t i n g c o a l i t i o n s which group the f u n c t i o n s i n t o a smaller number of firms or i n t o a s i n g l e f i r m (e.g., IV and V) may be more v i a b l e than those which do not (e.g., I I ) . In that case, two otherwise i d e n t i c a l p r o d u c t i o n s p e c i a l i s t s may face 1 2 6 See Wil l i a m s o n , 0. E., Markets and H i e r a r c h i e s .... , op. c i t . . Williamson suggests that a dominant p a t t e r n w i l l be found i n any given i n d u s t r y when the environment i s s t a b l e . 1 2 7 See, Kr e i k e n , Jan, " E f f e c t i v e V e r t i c a l I n t e g r a t i o n and D i s i n t e g r a t i o n S t r a t e g i e s " i n Glueck, Wm. F. , op. c i t . pp 256-263. Kreiken has c o n s i d e r e d the impact of environmental change on i n t e r - f u n c t i o n a l i n t e g r a t i o n and " d i s - i n t e g r a t i o n " . 260 d i f f e r e n t a d j u s t m e n t p r o s p e c t s on t h e b a s i s of t h e i r e x i s t i n g c o a l i t i o n m e mberships. A f i r m t h a t i s a l r e a d y a f f i l i a t e d w i t h a s e m i - i n t e g r a t e d c o a l i t i o n would be more f a v o u r a b l y p o s i t i o n e d t h a n one w h i c h i s n o t . 1 .3 I n t e r a c t i o n In A d j u s t m e n t 1.3.1 U n d e r l y i n g P r i n c i p l e s The p r e c e d i n g s e c t i o n o u t l i n e d some ways i n w h i c h f i r m s can d i f f e r b o t h w i t h i n f u n c t i o n a l g r o u p s and between f u n c t i o n a l g r o u p s as w e l l as i n t e r m s o f t h e f u n c t i o n a l c o a l i t i o n s w i t h i n w h i c h t h e y o p e r a t e . D i f f e r e n c e s a t a l l of t h e s e l e v e l s can be r e l e v a n t i n t h e a d j u s t m e n t p r o c e s s . S p e c i f i c a l l y , t h e y w i l l d e t e r m i n e d i f f e r e n c e s among f i r m s i n : t h e d e g r e e o f c o n g r u e n c e w i t h t h e c h a r a c t e r i s t i c s of LDC p r o d u c e r s (and t h u s t h e i m p l i c i t d e g r e e of e x p o s u r e t o c o m p e t i t i o n from them) and t h e nature, and r a n g e o f a l t e r n a t i v e a d j u s t m e n t o p p o r t u n i t i e s a v a i l a b l e t o t h e f i r m . T h e s e d i f f e r e n c e s w i l l a f f e c t t h e n a t u r e of c o l l a b o r a t i v e and c o m p e t i t i v e i n t e r a c t i o n s w i t h i n t h e i n d u s t r y i n a d j u s t i n g t o LDC c o m p e t i t i o n . 1.3.2 I n t e r a c t i o n W i t h C o l l a b o r a t o r s I f , f o r example, t h e most a t t r a c t i v e s t r a t e g i c o p t i o n f o r t h e n o n - i n t e g r a t e d m a n u f a c t u r e r s i n Tsubame i n v o l v e d s t a y i n g i n t h e f l a t w a r e b u s i n e s s and t h e c o n t i n u e d u t i l i z a t i o n of sub-c o n t r a c t o r s , i t would be n e c e s s a r y t o s e c u r e t h e c o n t i n u e d c o l l a b o r a t i o n o f t h o s e s u b - c o n t r a c t o r s . They, however, m i g h t f a c e a d i s t i n c t l y d i f f e r e n t s e t o f s t r a t e g y o p t i o n s and, even i f t h e m a n u f a c t u r e r s ' p r o p o s a l o f f e r s them t h e i r b e s t p r o s p e c t s 261 w i t h i n t h e f l a t w a r e i n d u s t r y (and i t m ight n o t ) , t h e y may have more a t t r a c t i v e o p t i o n s o u t s i d e of t h e i n d u s t r y . S o m e t h i n g l i k e t h i s seems t o be e v i d e n t i n Tsubame. Thus, i t seems p r o b a b l e t h a t many of t h e f i r m s t h a t have moved i n t o t h e s u b c o n t r a c t i n g of p a r t s f o r o t h e r ( d i f f e r e n t ) i n d u s t r i e s were not " r e j e c t e d " by t h e f l a t w a r e i n d u s t r y b u t , r a t h e r , saw b e t t e r o p p o r t u n i t i e s e l s e w h e r e and d e c i d e d t o p u r s u e them. In Tsubame, a t l e a s t , many of t h e s u b c o n t r a c t o r s , however dependent t h e y a r e w i t h i n t h e i n d u s t r y , a r e l e s s d e p e n d e n t on t h e i n d u s t r y ( f a c e l o w e r e x i t b a r r i e r s ) and have a m o b i l i t y t h a t a f f o r d s them a b r o a d e r r a n g e of o p t i o n s t h a n t h o s e o f t h e m a n u f a c t u r e r s . Of p a r t i c u l a r i m p o r t a n c e a r e t h e downstream c o l l a b o r a t o r s i n v o l v e d i n d i s t r i b u t i o n . The l o c a l w h o l e s a l e r / c o o r d i n a t o r s , i n Tsubame, would a p p e a r t o be h i g h l y v u l n e r a b l e t o t h e c h a n g e s t a k i n g p l a c e . On t h e one hand,-many of t h e s m a l l e r f i r m s a r e moving i n t o t h e s u b c o n t r a c t e d p r o d u c t i o n of p a r t s f o r l a r g e r f i r m s i n d i f f e r e n t m a n u f a c t u r i n g i n d u s t r i e s . On t h e o t h e r , t h e l a r g e r f i r m s r e m a i n i n g i n t h e f l a t w a r e i n d u s t r y a p p e a r t o be moving t o w a r d s a more i n t e g r a t e d form of o p e r a t i o n w h i c h i n c l u d e s an e x t e n s i o n of t h e i r own 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 i e s . In e i t h e r c a s e , t h e u t i l i t y o f t h e l o c a l w h o l e s a l e r / c o o r d i n a t o r s i s d e c l i n i n g . F u r t h e r downstream, t h e 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 b a s e d i n u r b a n a r e a s , w h i l e t h e y a r e e x p o s e d t o t h e same c h a n g e s , a r e l e s s d e p e n d e n t on t h e f l a t w a r e b u s i n e s s and b e c a u s e o f t h e i r l o c a t i o n and r e l a t e d e x p e r t i s e have, i n any c a s e , more a d j u s t m e n t o p t i o n s w i t h r e s p e c t t o t h e f l a t w a r e b u s i n e s s i t s e l f . 262 In p a r t i c u l a r , 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 y have t h e o p t i o n of s w i t c h i n g t h e i r a l l e g i a n c e t o l o w e r - c o s t f l a t w a r e p r o d u c e r s i n Korea and e l s e w h e r e . Thus, t h e y c an r e a d i l y change f r o m a c o l l a b o r a t i v e t o a c o m p e t i t i v e r e l a t i o n s h i p ( i n c o a l i t i o n w i t h K o r e a n p r o d u c e r s ) w i t h t h e Tsubame i n d u s t r y . 1.3.3 I n t e r a c t i o n W i t h C o m p e t i t o r s T h e r e a r e , o f c o u r s e , a l s o c o m p e t i t i v e i n t e r a c t i o n s among f i r m s o f t h e same t y p e ( m a n u f a c t u r e r s , w h o l e s a l e r s , s p e c i f i c s u b - i n d u s t r i e s , e t c . ) . I t i s i m p o r t a n t t o n o t e , however, t h a t i n t h e a d j u s t m e n t p r o c e s s t h e scop e of t h e i r c o m p e t i t i o n e x p a n d s . They compete, t h a t i s , not o n l y f o r b u s i n e s s w i t h i n t h e e x i s t i n g s t r u c t u r e but a l s o i n t h e i m p l e m e n t a t i o n of a d j u s t m e n t s t r a t e g i e s . T h u s , f o r example', t h e r e may be room f o r a c e r t a i n number of f i r m s t o s u r v i v e and p r o s p e r i n t h 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 b u t n o t room f o r a l l o f t h e p o t e n t i a l c a n d i d a t e s f o r t h a t form o f a d j u s t m e n t . S i m i l a r l y , t h i s means t h a t t h e o p t i o n t o move o u t o f , f o r example, t h e f l a t w a r e i n d u s t r y and i n t o a s p e c i f i c new b u s i n e s s c a n i n v o l v e c o m p e t i t i o n not o n l y w i t h t h e i n c u m b e n t s i n t h a t b u s i n e s s b u t a l s o w i t h one's c o h o r t s i n t h e f l a t w a r e i n d u s t r y ; t o whom t h a t p a r t i c u l a r a d j u s t m e n t o p t i o n m i g h t be e q u a l l y a t t r a c t i v e . T h i s means t h a t , f o r p a r t i c i p a n t s i n a t y p e of i n d u s t r y ( s u c h a s s m a l l f o u n d r y o p e r a t i o n s ) w h i c h i s composed o f many n e a r - i d e n t i c a l c o h o r t s , u n l e s s t h e number of a d j u s t m e n t o p p o r t u n i t i e s i s p r o p o r t i o n a l t o t h e number o f p o t e n t i a l c a n d i d a t e s ( e . g . , m i g r a n t s ) t h e r e w i l l be c o n s i d e r a b l e " c r o w d i n g " and c o m p e t i t i o n f o r v i a b l e a d j u s t m e n t 263 n i c h e s w i l l r e d u c e t h e r e t u r n s f r o m them. I t would seem l i k e l y t h a t t h e movement from t h e f l a t w a r e and i n t o t h e h o usewares i n d u s t r i e s has a p p r o x i m a t e d t h i s p a t t e r n w i t h t h e number of m i g r a n t s b e i n g g r e a t r e l a t i v e t o t h e number of o p p o r t u n i t i e s and t h e r e s u l t i n g b e n e f i t s o f making t h e change a c c o r d i n g l y r e d u c e d . 2. DIFFUSION AND DURABILITY IN THE ADJUSTMENT PROCESS 2.1 D i f f u s i o n Of The A d j u s t m e n t P r o b l e m The c o m p e t i t i o n among f i r m s f o r a d j u s t m e n t " n i c h e s " depends on t h e d e g r e e o f c o n g r u e n c e between them i n t e r m s o f : 1. t h e i r r e s o u r c e s ( e . g . , s k i l l endowments) and 2. t h e i r p e r c e i v e d o p p o r t u n i t i e s . T h i s c o m p e t i t i o n c a n o c c u r w i t h i n t h e i n d u s t r y i t s e l f as f i r m s seek t o implement s i m i l a r a d j u s t m e n t s t r a t e g i e s aimed a t r e p o s i t i o n i n g w i t h i n a g i v e n i n d u s t r y . I t can a l s o o c c u r i n d i f f e r e n t i n d u s t r i e s as f i r m s f r o m an a d j u s t i n g i n d u s t r y a t t e m p t t o m i g r a t e t o n i c h e s w i t h i n d i f f e r e n t i n d u s t r i e s . As was n o t e d , t h i s c o m p e t i t i o n r e d u c e s t h e b e n e f i t a c c r u i n g t o any one a d j u s t i n g f i r m . In t h e c a s e of c o m p e t i t i v e m i g r a t i o n t o a d i f f e r e n t i n d u s t r y , however, i t c a n a l s o r e d u c e th e r e t u r n s t o t h e i n c u m b e n t s w i t h i n t h a t i n d u s t r y . T h u s , t h e r e c a n be d i f f u s i o n o r " l e a k a g e " of t h e a d j u s t m e n t p r o b l e m i n t o i n d u s t r i e s w h i c h do n o t ( o r , n o t y e t ) f a c e d i r e c t c o m p e t i t i o n from LDCs. T h i s l e a k a g e of t h e a d j u s t m e n t p r o b l e m i n t o o t h e r i n d u s t r i e s was e v i d e n t i n b o t h t h e f l a t w a r e ( m i g r a t i o n i n t o h o u s e w a r e s ) and m o s a i c t i l e ( m i g r a t i o n i n t o o u t d o o r t i l e ) i n d u s t r i e s . I n t h e l a t t e r c a s e t h e r e was some e v i d e n c e t h a t , i n 264 a d d i t i o n , there had been some p r i o r d i f f u s i o n of an adjustment problem from elsewhere in the ceramics i n d u s t r y (ceramic dinnerware) i n t o the mosaic t i l e i n d u s t r y . In these cases the d i f f u s i o n of the adjustment problem between i n d u s t r i e s r e f l e c t e d a h i g h c r o s s - e l a s t i c i t y of supply between the i n d u s t r i e s . Producers i n one of the i n d u s t r i e s , i n response to r e l a t i v e l y higher r e t u r n s i n the other i n d u s t r y , c o u l d f a i r l y r e a d i l y switch p r o d u c t i o n . The mosaic t i l e case a l s o p o i n t s out, however, how a high c r o s s - e l a s t i c i t y of demand can have a s i m i l a r e f f e c t . Thus, while mosaic t i l e producers c o u l d not r e a d i l y move i n t o the production of i n t e r i o r w a l l t i l e , the o v e r c a p a c i t y and subsequent p r i c e r e d u c t i o n s in mosaic t i l e , which were the symptoms of the adjustment problem in the mosaic t i l e i n d u s t r y , a p p a r e n t l y reduced s a l e s volume and p r o f i t a b i l i t y f o r the i n t e r i o r w a l l t i l e i n d u s t r y . 2.2 The D u r a b i l i t y Of Adjustment Niches Because the adjustment problem can be t r a n s m i t t e d over time to p o t e n t i a l adjustment n i c h e s , w i t h i n or o u t s i d e of the o r i g i n a l i n d u s t r y , adjustment s t r a t e g i e s can d i f f e r i n t h e i r d u r a b i l i t y . Among the DC i n d u s t r y p a r t i c i p a n t s , an adjustment niche f o r a f i r m can be eroded due to i n f i l t r a t i o n of t hat niche by i t s c o h o r t s w i t h i n the DC i n d u s t r y . The p e r i o d of time f o r which the adjustment niche i s v i a b l e w i l l depend imp o r t a n t l y on the degree of o v e r l a p between the s k i l l s and p e r c e i v e d o p p o r t u n i t i e s of the f i r m and those of i t s c o h o r t s . For the DC i n d u s t r y as a whole, the e q u i v a l e n t i s s u e e x i s t s with r e s p e c t to i t s LDC c o m p e t i t o r s . The i n d u s t r i e s examined i n 265 t h i s s t u d y i n d i c a t e t h a t a d j u s t m e n t n i c h e s d i f f e r c o n s i d e r a b l y i n t e r m s of t h e d u r a t i o n of t h e p e r i o d of r e l i e f t h e y a r e l i k e l y t o p r o v i d e f r o m A s i a n NIC c o m p e t i t o r s . W i t h i n t h e f l a t w a r e i n d u s t r y , t h e s t r a t e g y of s e e k i n g new e x p o r t m a r k e t s was seen t o p r o v i d e o n l y b r i e f r e s p i t e f r o m s u c h c o m p e t i t i o n . In t h e housewares i n d u s t r y , t o w h i c h many f l a t w a r e i n d u s t r y f i r m s have m i g r a t e d , K o r e a n p r o d u c e r s (many from t h e f l a t w a r e i n d u s t r y ) a l r e a d y pose a g e n e r a l c o m p e t i t i v e t h r e a t i n e x p o r t m a r k e t s as w e l l a s i n t h e J a p a n e s e market f o r l e s s b u l k y i t e m s ( s u c h a s m i x i n g b o w l s , w h i c h can be n e s t e d f o r s h i p m e n t ) . Even i n t h e a p p a r e n t l y more remote i n d u s t r i e s t o which some of Tsubame's f i r m s have m i g r a t e d ( s u c h as e y e g l a s s frames and w a t c h b a n d s ) , c o m p e t i t i o n from l o w e r - c o s t LDC p r o d u c e r s has q u i c k l y r e a s s e r t e d i t s e l f a s a p r o b l e m . At t h e r o o t o f t h i s r a p i d e r o s i o n of t h e e f f e c t i v e n e s s of many a d j u s t m e n t s t r a t e g i e s i s a major o v e r l a p i n t h e c a p a b i l i t i e s of t h e J a p a n e s e f i r m s and t h e i r A s i a n NIC c o m p e t i t o r s . In s e l e c t i n g an a d j u s t m e n t s t r a t e g y any f i r m must b u i l d on i t s e x i s t i n g r e s o u r c e s and c a p a b i l i t i e s . At t h e same t i m e , however, t h e v e r y f a c t t h a t t h e i r A s i a n NIC c o m p e t i t o r s have been so s u c c e s s f u l i n d i c a t e s t h a t , i n many i m p o r t a n t r e s p e c t s , t h e y have a s i m i l a r s e t o f r e s o u r c e s and c a p a b i l i t i e s . T h u s , many o f t h e most o b v i o u s and e a s i l y i m p l e m e n t e d a d j u s t m e n t s t r a t e g i e s a r e l i k e l y t o a l s o p r o v i d e some of t h e most o b v i o u s and e a s y a v e n u e s o f d e v e l o p m e n t f o r A s i a n NIC c o m p e t i t o r s . To t h e e x t e n t t h a t t h i s i s s o , t h e y may not p r o v i d e v e r y d u r a b l e r e l i e f f r o m t h a t c o m p e t i t i v e t h r e a t . 266 2.3 S u c c e s s f u l A d j u s t m e n t S t r a t e g i e s 2.3.1 S u c c e s s f u l A d j u s t m e n t One would not e x p e c t any a d j u s t m e n t s t r a t e g y t o p r o v i d e a " f i n a l s o l u t i o n " t o a l l of a f i r m ' s p r o b l e m s . I t would be hoped, however, t h a t s u c c e s s f u l a d j u s t m e n t would l e a v e a f i r m i n a p o s i t i o n where, f o r some p e r i o d of t i m e , s u c c e s s would depend upon a s t a n d a r d s e t of o p e r a t i n g and m a n a g e r i a l e f f i c i e n c i e s and on s t r a t e g i c i n t e r a c t i o n s w i t h a r e l a t i v e l y s t a b l e s e t o f c o m p e t i t o r s and c o l l a b o r a t o r s f a c i n g a p p r o x i m a t e l y e q u i v a l e n t e n v i r o n m e n t s . At a minimum, s u c c e s s f u l a d j u s t m e n t t o t h e c h a l l e n g e of A s i a n NIC c o m p e t i t i o n s h o u l d p r o v i d e r e l i e f from t h a t p a r t i c u l a r e n v i r o n m e n t a l t h r e a t . 2.3.2 The D i s t a n c e - D u r a b i l i t y Dilemma The f a c t t h a t a d j u s t m e n t n i c h e s c a n d i f f e r i n t h e d u r a t i o n of r e l i e f p r o v i d e d a f f e c t s t h e r e l a t i v e o p p o r t u n i t i e s t h e y p r e s e n t . T h a t i s t o s a y , t h e r e l a t i v e a t t r a c t i v e n e s s of two a d j u s t m e n t n i c h e s must be d i s c o u n t e d t o t a k e a c c o u n t of su c h d i f f e r e n c e s . A l l e l s e b e i n g e q u a l , t h e a d j u s t m e n t n i c h e t h a t p r o v i d e s t h e l o n g e s t d u r a t i o n o f r e l i e f , and t h u s t h e g r e a t e s t a t t r a c t i o n , w i l l be p r e c i s e l y t h a t w h i c h s e r v e s t o p l a c e t h e g r e a t e s t d i s t a n c e between a f i r m and b o t h i t s DC c o h o r t s and i t s LDC c o m p e t i t o r s . T h i s , however, may be t h e most d i f f i c u l t and e x p e n s i v e n i c h e t o move t o . 267 2.3.3 D e t e r m i n a n t s Of S u c c e s s f u l A d j u s t m e n t Some f i r m s , p e r h a p s f o r t u i t o u s l y , w i l l be b e t t e r p o s i t i o n e d t h a n o t h e r s t o move t o an a t t r a c t i v e n i c h e . I f we assume, however, t h a t a f i r m and i t s c o h o r t s have e q u a l endowments and f a c e an o b j e c t i v e l y i d e n t i c a l e n v i r o n m e n t , t h e n r e l a t i v e a d j u s t m e n t p e r f o r m a n c e w i l l depend upon d i f f e r e n c e s i n t h e a b i l i t y t o p e r c e i v e o p p o r t u n i t i e s i n t h e e n v i r o n m e n t and on t h e i m p l e m e n t a t i o n of t h e r e s u l t i n g a d j u s t m e n t s t r a t e g i e s . In t h e c a s e of t h e DC i n d u s t r y as a w hole, a d j u s t m e n t t o LDC c o m p e t i t i o n w i l l s i m i l a r l y depend on e f f e c t i v e use of any d i f f e r e n c e s i n endowments between DC and LDC f i r m s . H e r e, however, even i f we assume i d e n t i c a l f i r m - s p e c i f i c endowments, t h e o v e r a l l l o c a t i o n a l and e n v i r o n m e n t a l endowments and o p p o r t u n i t i e s w i l l n e c e s s a r i l y d i f f e r c o n s i d e r a b l y between "DC and LDC f i r m s . The c o n s i d e r a b l e d i f f e r e n c e s between t h e o v e r a l l DC and LDC s o c i o - e c o n o m i c e n v i r o n m e n t s a r e , t h u s , t h e g r e a t e s t s o u r c e of d u r a b l e a d j u s t m e n t o p p o r t u n i t i e s f o r DC f i r m s . In some i n s t a n c e s t h e DC e n v i r o n m e n t w i l l p r o v i d e o p p o r t u n i t i e s t h a t a r e s i m p l y n o t a v a i l a b l e t o LDC p r o d u c e r s . The t r a d e and s e r v i c e s s e c t o r i s t h e p r i m e example, but a n a l o g o u s e x a m p l e s can e x i s t w i t h i n t h e m a n u f a c t u r i n g s e c t o r . The o v e r a l l a d j u s t m e n t p r o c e s s i n t h e f o o t w e a r i n d u s t r y , and i n much of t h e a p p a r e l i n d u s t r y as w e l l , r e l i e d on e n t r y i n t o p r o d u c t / m a r k e t s where t h e v o l a t i l i t y o f f a s h i o n r e q u i r e s l o c a l (DC) p r o d u c t i o n . In o t h e r c a s e s , t h e DC e n v i r o n m e n t w i l l s u p p o r t more a d v a n c e d i n d u s t r i e s t h a t do n o t e x i s t , o r a r e n o t as 268 c o m p e t i t i v e , i n t h e LDCs. Such i n d u s t r i e s may i n c l u d e some a c t i v i t i e s i n v o l v i n g l o w e r s k i l l s o r more 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 t e c h n i q u e s o r may be p r e p a r e d t o t a k e s u b c o n t r a c t o r s i n t o an " a p p r e n t i c e " s y s t e m whereby t h e i r s k i l l s c a n be u p g r a d e d . Thus an a d j u s t i n g f i r m may be a b l e t o f o r g e a s y m b i o t i c t i e w i t h t h e more a d v a n c e d s e c t o r and e n j o y some of th e i n v u l n e r a b i l i t y t o LDC c o m p e t i t i o n p o s s e s s e d by t h e more a d v a n c e d i n d u s t r y . F o r example, i n t h e Tsubame f l a t w a r e i n d u s t r y , f i r m s w h i c h moved i n t o t h e p r o d u c t i o n o f p a r t s f o r m a c h i n e r y or a u t o m o b i l e s a p p e a r t o have e n j o y e d a more d u r a b l e a d j u s t m e n t t h a n have f i r m s w h i c h moved i n t o t h e p r o d u c t i o n of e y e g l a s s f r a m e s o r h o u s e w a r e s . The e s s e n c e o f e f f e c t i v e a d j u s t m e n t , t h e r e f o r e , a p p e a r s t o l i e i n c r e a t i n g a d i v e r g e n c e between t h e f i r m and b o t h i t s DC c o h o r t s and i t s LDC c o m p e t i t o r s i n terms of t h e f i r m ' s r e s o u r c e s and b u s i n e s s a c t i v i t i e s . T h i s c l e a r l y r e q u i r e s a c o n s i d e r a b l e d e g r e e o f a d a p t a b i l i t y b o t h t o p r o v i d e t h e e n t r e p r e n e u r i a l i n s i g h t needed t o p e r c e i v e f a v o u r a b l e a d j u s t m e n t o p p o r t u n i t i e s and t o manage t h e e f f e c t i v e i m p l e m e n t a t i o n of t h e a d j u s t m e n t i t s e l f . 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 T h e r e i s r e a s o n t o b e l i e v e t h a t a d a p t a b i l i t y w i l l o f t e n be r e l a t i v e l y low i n i n d u s t r i e s t h a t f a c e LDC c o m p e t i t i o n . As an i n d u s t r y m a t u r e s , t h e most e f f i c i e n t f i r m s a r e l i k e l y t o be t h e most s u c c e s s f u l , a t l e a s t i n s o f a r as t h e i n d u s t r y ' s p r o d u c t i s 269 not d i f f e r e n t i a b l e . W i l l i a m s 1 2 8 has argued, however, that there i s an inherent t r a d e - o f f between e f f i c i e n c y and a d a p t a b i l i t y . Thus, as an i n d u s t r y matures i t i s l i k e l y to be i n c r e a s i n g l y dominated by firms which have chosen e f f i c i e n c y over a d a p t a b i l i t y . T h i s can exacerbate the adjustment problem when environmental change n e c e s s i t a t e s a fundamental adjustment. A c o r o l l a r y of t h i s i s t h a t , w i t h i n an i n d u s t r y , the firms with the g r e a t e s t resources to f i n a n c e adjustment (the s u c c e s s f u l , e f f i c i e n t f i r m s ) may w e l l be the l e a s t able to p e r c e i v e new o p p o r t u n i t i e s and move towards them. We might expect, t h e r e f o r e , that the most e f f e c t i v e adjustment p a t t e r n s w i l l be d i s p l a y e d by f i r m s which, for one reason or another, happen to have a r e l a t i v e l y "adaptive", as opposed to " e f f i c i e n t " c o n f i g u r a t i o n , i n a d d i t i o n to the resources r e q u i r e d to f i n a n c e adjustment. Fo'r example, a l l e l s e being equal, firms which are r e l a t i v e l y r ecent, but f i n a n c i a l l y s u c c e s s f u l , p a r t i c i p a n t s i n an i n d u s t r y might be expected to outperform o l d e r , more e s t a b l i s h e d f i r m s . T h i s i s p r e c i s e l y the p a t t e r n demonstrated by Tsuin Bado Kogyo in the Tsubame f l a t w a r e i n d u s t r y . T h i s f i r m has implemented one of the most f u l l y e l a b o r a t e d and, a p p a r e n t l y , e f f e c t i v e adjustment s t r a t e g i e s w i t h i n the i n d u s t r y . I t i s not, however, one of the o l d , e s t a b l i s h e d f i r m s and i s a r e l a t i v e l y 8 See, W i l l i a m s , J e f f r e y R., S t r a t e g i c E q u i l i b r i u m i n the M u l t i - product Firm (Working Paper, Carnegie-Mellon U n i v e r s i t y , Graduate School of I n d u s t r i a l Management, P i t t s b u r g h , 1 9 8 0 ) . W i l l i a m s makes the argument for an environment of changing technology but i t can p l a u s i b l y be extended to cover other environmental change. 270 r e c e n t (mid-1960's) m i g r a n t from t h e a u t o m o b i l e p a r t s i n d u s t r y , where i t had s p e c i a l i z e d i n s u b c o n t r a c t e d chrome p l a t i n g f o r a l a r g e a u t o m o b i l e m a n u f a c t u r e r . 1 2 9 The move t o t h e f l a t w a r e i n d u s t r y was m o t i v a t e d , m o r e o v e r , by t h e owner's d e s i r e t o e s t a b l i s h a more i n d e p e n d e n t c o r p o r a t i o n ; a g a i n , an i n d i c a t i o n of t h e e n t r e p r e n e u r i a l s p i r i t t h a t t h e a d j u s t m e n t p r o c e s s seems t o demand. 2.4 T r a n s n a t i o n a l D e c o u p l i n g Of F u n c t i o n a l Competences The p o s t w a r e r a has seen enormous p r o g r e s s i n c o m m u n i c a t i o n s and t r a n s p o r t a t i o n . T h i s has v a s t l y expanded t h e h o r i z o n s o f i n d u s t r i a l e n t e r p r i s e and has, f o r example, been an i m p o r t a n t p i l l a r i n t h e e x p a n s i o n o f m u l t i n a t i o n a l m a n u f a c t u r e r s o v e r t h e p e r i o d . The i mpact has, however, not been l i m i t e d t o m u l t i n a t i o n a l m a n u f a c t u r e r s . The same d e v e l o p m e n t s have a l s o f a c i l i t a t e d t h e o p e r a t i o n s of n o n - m a n u f a c t u r i n g o r g a n i z a t i o n s . T hus, t r a d i n g c o m p a n i e s , l a r g e r e t a i l e r s , c o n s u l t i n g f i r m s , and g o v e r n m e n t a l c o m m e r c i a l i n t e l l i g e n c e o r g a n i z a t i o n s have a l l e n j o y e d a g r o w i n g c a p a c i t y t o o p e r a t e e f f e c t i v e l y i n t h e g l o b a l e n v i r o n m e n t . To a v e r y g r e a t e x t e n t , t h e s k i l l s and f u n c t i o n a l a c t i v i t i e s o f s u c h o r g a n i z a t i o n s complement t h e narrow, p r o d u c t i o n - c e n t r e d s k i l l s and a c t i v i t i e s of LDC m a n u f a c t u r e r s . T h e r e has been, t h e r e f o r e , e x t e n s i v e o p p o r t u n i t y f o r s y m b i o t i c t i e s between LDC p r o d u c e r s and i n t e r n a t i o n a l f i r m s i n t h e t r a d e 9 T h i s i s somewhat i r o n i c f o r , as was n o t e d i n t h e Tsubame c a s e s t u d y , some f i r m s i n t h e f l a t w a r e i n d u s t r y s o u g h t t o a d j u s t by moving i n t o s u b c o n t r a c t e d p r o d u c t i o n f o r t h e a u t o m o t i v e i n d u s t r y . 271 and s e r v i c e s s e c t o r s t h r o u g h 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 , p r o d u c t i o n t o o r d e r , and j o i n t v e n t u r e s . Such i n t e r n a t i o n a l c o a l i t i o n s s e r v e t o s p e e d up t h e e f f e c t i v e c o m p e t i t i v e p r o g r e s s of LDC p r o d u c e r s by making h i g h e r - o r d e r s k i l l s o r i n f o r m a t i o n ( r e g a r d i n g , f o r example, b u s i n e s s f u n c t i o n s or m a r k e t s ) a v a i l a b l e t o them t h r o u g h t h e market l o n g b e f o r e t h e y a r e a b l e t o d e v e l o p t h i s competence i n t e r n a l l y . W i t h i n t h e m a n u f a c t u r i n g s e c t o r , i t s e l f , a s i m i l a r phenomenon i s e v i d e n t . H e r e , l e s s t e c h n o l o g i c a l l y demanding and more l a b o u r - i n t e n s i v e s t a g e s o f p r o d u c t i o n c an now more r e a d i l y be c e d e d t o LDC p r o d u c e r s , whether t h r o u g h t h e i n t e r m e d i a t i o n of t r a d e and s e r v i c e s s p e c i a l i s t s or d i r e c t l y , by t h e m a n u f a c t u r i n g f i r m s . In e i t h e r c a s e , t h e e f f e c t i v e " d e c o u p l i n g " of f u n c t i o n a l a c t i v i t i e s o r of s t a g e s o f p r o d u c t i o n a c t i v i t y c a n s e r v e t o ex p o s e a w i d e r r a n g e of DC f i r m s t o c o m p e t i t i o n from LDC p r o d u c e r s . T h u s , w h i l e t h e 'Korean or T a i w a n e s e f i n i s h e d a u t o m o b i l e i n d u s t r y i s u n l i k e l y t o e v e r p ose a s e r i o u s c h a l l e n g e t o t h e J a p a n e s e i n d u s t r y , a u t o m o t i v e p a r t s p r o d u c e r s o r s u b c o n t r a c t o r s c a r r y i n g o u t 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 p r o c e s s e s f a c e a much h i g h e r l i k e l i h o o d of e v e n t u a l LDC c o m p e t i t i o n t h a n would o t h e r w i s e be t h e c a s e . In many i n s t a n c e s t h e market may n o t p r o v i d e t h e r e l e v a n t e x p e r t i s e , o r may not p r o v i d e i t on terms a c c e p t a b l e t o t h e LDC f i r m o r government. Even h e r e , however, t h e p o t e n t i a l c a n be e x p l o i t e d by t h e d e v e l o p m e n t , w i t h i n t h e LDC, o f s p e c i a l i s t o r g a n i z a t i o n s t o p r o v i d e t h e n e c e s s a r y s k i l l s t o complement 272 i n d i g e n o u s p r o d u c e r s . The J a p a n e s e g e n e r a l t r a d i n g c o m p a n i e s (sogo s h o s h a ) have, h i s t o r i c a l l y , f i l l e d t h a t r o l e f o r many J a p a n e s e m a n u f a c t u r e r s and s i m i l a r o r g a n i z a t i o n s have been f o s t e r e d , f o r example, by t h e K o r e a n government as a p a r t o f t h e n a t i o n a l i n d u s t r i a l d e v e l o p m e n t p o l i c y . 3. INDUSTRIAL RETROGRESSION 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 A d j u s t m e n t 3.1.1 The P e r s p e c t i v e Of The F i r m The e m p h a s i s t h u s f a r has been on a d j u s t m e n t whereby t h e f i r m r e s t o r e s t h e l e v e l of v a l u e - a d d e d t o t h a t w h i c h p r e v a i l e d p r i o r t o LDC c o m p e t i t i o n , o r i m p r o v e s upon i t . T h i s w i l l not a l w a y s be p o s s i b l e o r n e c e s s a r y . The m o s a i c t i l e i n d u s t r y p r o v i d e s t h e c l e a r e s t example. T h e r e , t h e r a n k s of t h e m i d d l e - s i z e d f i r m s were d e p l e t e d w h i l e t h e l a r g e (and most e c o n o m i c a l l y e f f i c i e n t ? ) f i r m s and t h e s m a l l f i r m s s u r v i v e d . The number of s m a l l f i r m s , i n f a c t , grew r a p i d l y , as m e d i u m - s i z e d f i r m s t h a t had made e x t e n s i v e use of w a g e - l a b o u r c o l l a p s e d a r o u n d a much s m a l l e r c o r e of managers and w o r k e r s w i t h i n w h i c h t i e s o f k i n s h i p were i m p o r t a n t . I t was s u g g e s t e d t h a t t h e c o n t i n u e d v i a b i l i t y o f s u c h s m a l l , f a m i l y - c e n t r e d o r g a n i z a t i o n s was due i n l a r g e measure t o t h e s o c i a l r e t u r n s t h a t were p r o v i d e d t o members. The f a m i l y members t h a t formed t h e c o r e of t h e m i d d l e - s i z e d f i r m s were, p r o b a b l y , e n j o y i n g s u r p l u s r e t u r n s w i t h i n t h e m e d i u m - s i z e d o r g a n i z a t i o n ; s u b s t a n t i a l s o c i a l r e t u r n s as w e l l as s u p e r i o r e conomic r e t u r n s , p r i o r t o LDC c o m p e t i t i o n . T h u s , t h e r e d u c t i o n 273 t o a s m a l l e r , f a m i l y - c e n t r e d f i r m p r o b a b l y e n t a i l s a n e t l o s s i n t h e i r t o t a l ( s o c i a l p l u s e c o n o m i c ) r e t u r n s , b u t , i m p l i c i t l y , i s s t i l l p e r c e i v e d t o l e a v e them w i t h t o t a l r e t u r n s i n e x c e s s of t h o s e t h e y c o u l d o b t a i n e l s e w h e r e . Such " r e t r o g r e s s i v e " a d j u s t m e n t does not remove t h e s e f i r m s from t h e p a t h of LDC c o m p e t i t i v e d e v e l o p m e n t and t h e y a r e l i k e l y t o f a c e c o n t i n u e d e r o s i o n of t h e i r e c onomic r e t u r n s . At some p o i n t , t h e s e t o t a l r e t u r n s may be r e d u c e d ( o r t h e i r a l t e r n a t i v e o p p o r t u n i t i e s expanded) t o t h e p o i n t where m i g r a t i o n o u t o f t h e i n d u s t r y o c c u r s . I t i s i m p o r t a n t t o n o t e however t h a t , a l l e l s e b e i n g e q u a l , t h e m i g r a t i o n w i l l most l i k e l y be t o an a c t i v i t y w h i c h ( j u s t a s d i d t h e i r i n i t i a l " r e t r o g r e s s i v e " a d j u s t m e n t ) p r o v i d e s l o w e r economic r e t u r n s t h a n t h e y e n j o y e d p r i o r t o LDC c o m p e t i t i o n . 3.1.2 The P e r s p e c t i v e Of The I n d u s t r y The d i s c u s s i o n t o t h i s p o i n t has c e n t r e d on t h e p e r s p e c t i v e o f t h e f i r m s w i t h i n an i n d u s t r y f a c i n g LDC c o m p e t i t i o n r a t h e r t h a n on t h e i n d u s t r y , i t s e l f . The d i s t i n c t i o n i s n o t a l w a y s i m p o r t a n t . When, f o r example, t h e f i r m s i n an i n d u s t r y a d j u s t by r e m a i n i n g i n i t but e m p l o y i n g more p r o d u c t i v e t e c h n o l o g y , t h e a d j u s t m e n t of t h e f i r m s and o f t h e i n d u s t r y , a s s u c h , a r e i n s e p a r a b l e . As has been n o t e d , however, f i r m s c a n a d j u s t by l e a v i n g an i n d u s t r y and, i n t h a t c a s e , what happens t o t h e f i r m s and what happens t o t h e i n d u s t r y a r e s e p a r a t e m a t t e r s . M o r e o v e r , as t h e p r e c e d i n g s e c t i o n p o i n t e d o u t , some f i r m s t h a t r e m a i n i n t h e 274 i n d u s t r y may u n d ergo r e t r o g r e s s i v e a d j u s t m e n t t h a t , w h a t e v e r i t s a t t r a c t i o n s f o r t h e i n d i v i d u a l f i r m s , a p p e a r s t o bode i l l f o r t h e u l t i m a t e v i a b i l i t y o f t h e i n d u s t r y , i t s e l f . 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 The e a r l i e r n o t e d p a t t e r n i n t h e m o s a i c t i l e i n d u s t r y i n v o l v e d a t r a n s f o r m a t i o n of f i r m s from m e d i u m - s i z e , w a g e - l a b o u r o r g a n i z a t i o n s t o s m a l l , f a m i l y - c e n t r e d o r g a n i z a t i o n s . From the p e r s p e c t i v e o f t h e i n d u s t r y , however, i t i s u n i m p o r t a n t whether t h e a d d i t i o n s t o t h e r a n k s of t h e s m a l l , f a m i l y - c e n t r e d f i r m s come from among t h e p a r t i c i p a n t s i n t h e p r e - e x i s t i n g i n d u s t r y or n o t . The i m p o r t a n t p o i n t i s s i m p l y t h a t t h e i n d u s t r y ' s s u r v i v a l has been b a s e d i n p a r t on a s h i f t t o a s t r u c t u r e more h e a v i l y d e p e n d e n t on s m a l l , f a m i l y - c e n t r e d f i r m s . The i n d u s t r y p e r s p e c t i v e can be a p p l i e d , more g e n e r a l l y , t o t h e phenomenon of g e o g r a p h i c a l and o r g a n i z a t i o n a l t r a n s f e r of p r o d u c t i o n a c t i v i t i e s , d i s c u s s e d e a r l i e r i n t h e c o n t e x t o f a d j u s t m e n t a l t e r n a t i v e s f o r t h e f i r m . A d j u s t m e n t i n some i n s t a n c e s i n v o l v e s t h e t r a n s f e r of p r o d u c t i o n t o more g e o g r a p h i c a l l y remote, r u r a l r e g i o n s w h i c h a f f o r d l o w e r c o s t s , i n c l u d i n g l a b o u r c o s t s . T h i s was o b s e r v e d d i r e c t l y i n t h e u m b r e l l a i n d u s t r y c a s e s t u d y but was a l s o e v i d e n t i n t h e Tsubame f l a t w a r e i n d u s t r y where t h e p r e - e x i s t i n g s t r u c t u r e o f p r o d u c t i o n was b a s e d on t h e u t i l i z a t i o n of remote p o c k e t s of r u r a l i n d u s t r y i n t h e s u r r o u n d i n g r e g i o n . S i m i l a r l y , p a r t o f t h e c h a l l e n g e t o Tsubame's f l a t w a r e i n d u s t r y was c o m p e t i t i o n i n t h e l o c a l l a b o u r m a r k e t from o t h e r i n d u s t r i e s moving i n t o t h e r e g i o n i n an e f f o r t 275 to reduce t h e i r p r o d u c t i o n c o s t s . As was noted i n the d i s c u s s i o n of Tsubame, the d i f f u s i o n of i n d u s t r y from the i n d u s t r i a l " c e n t r e " to the r u r a l " p e r i p h e r y " was, i n f a c t , a general f e a t u r e of Japanese postwar development. The o r g a n i z a t i o n a l t r a n s f e r of p r o d u c t i o n to su b c o n t r a c t o r s , cottage-workers, and to sma l l e r firms in g e n e r a l , was a l s o observed i n the case s t u d i e s ; most notably i n the f l a t w a r e and umbrella i n d u s t r i e s . Here, the t r a n s f e r i s not (or not only) between geographic regions but between types of economic o r g a n i z a t i o n . In Japan, at l e a s t , a movement from l a r g e r to smaller o r g a n i z a t i o n s i s o f t e n e q u i v a l e n t to a s h i f t to a lower-wage, l e s s e l i t e , labour f o r c e . Here, the movement i s not from a geographic, but from a socio-economic " c e n t r e " to the " p e r i p h e r y " . T h i s movement of an i n d u s t r y from the c e n t r e to the pe r i p h e r y (whether geographic, socio-economic, or some mixture of the two) can be termed " i n d u s t r i a l r e t r o g r e s s i o n " . 3.2.1 R e t r o g r e s s i o n And Development In The P e r i p h e r y There i s no reason to suppose that the general phenomenon of i n d u s t r i a l r e t r o g r e s s i o n i s p e c u l i a r to Japan. One imagines, f o r example, that the firms and workers in the t e x t i l e i n d u s t r y of 19th Century New England were much c l o s e r to the s t a t u s of a contemporary i n d u s t r i a l e l i t e than are those i n North and South C a r o l i n a , today. The same c o u l d be s a i d i n a comparison of the U.S.A. or Canadian automobile i n d u s t r i e s of 1920 and 1980. S i m i l a r l y , i n the context of today's LDCs, the t e x t i l e , footwear, and mass consumer e l e c t r o n i c s i n d u s t r i e s today command 276 a r e l a t i v e l y h i g h p r o p o r t i o n of t h e i n d u s t r i a l e l i t e , and a r e more p r o m i n e n t i n t h e i n d u s t r i a l h e a r t l a n d of t h o s e c o u n t r i e s , t h a n w i l l l i k e l y b e - t h e c a s e one h u n d r e d , o r even twenty, y e a r s h e n c e . D e s p i t e t h e n e g a t i v e c o n n o t a t i o n s of t h e t e r m , i n d u s t r i a l r e t r o g r e s s i o n i s not a n e g a t i v e phenomenon i n i t s e l f . F o r , w h i l e t h e p r o c e s s a f f o r d s t h e i n d u s t r y l o w e r p r o d u c t i o n c o s t s i t a l s o must p r o v i d e t h e f i r m s and l a b o u r f o r c e of t h e p e r i p h e r y w i t h an improvement i n t h e i r e a r n i n g s s u f f i c i e n t t o draw them away from t h e i r p r e - e x i s t i n g a c t i v i t i e s . I t i s , t h e r e f o r e , t h e h e a r t of a p r o c e s s whereby t h e b e n e f i t s of i n d u s t r i a l i z a t i o n a r e d i f f u s e d f r o m t h e e l i t e and t h e c e n t r e t o t h e l e s s p r i v i l e g e d a r e a s and p e o p l e a t t h e p e r i p h e r y o f t h e economy. 3.2.2 C h a r a c t e r i s t i c s Of Movement Towards The P e r i p h e r y As i n d u s t r i e s a d j u s t by moving t o w a r d s t h e g e o g r a p h i c and s o c i o - e c o n o m i c p e r i p h e r i e s t h e y c a n , and u s u a l l y w i l l , come t o be composed o f a d i f f e r e n t s e t o f f i r m s and a d i f f e r e n t l a b o u r f o r c e . Such i n d u s t r i a l r e t r o g r e s s i o n w i l l l i k e l y o c c u r where t h e i n d u s t r y p r o d u c e s p r i c e - c o m p e t i t i v e goods and t o t h e e x t e n t t h a t movement t o w a r d s t h e p e r i p h e r y can c o n t i n u e t o y i e l d s a v i n g s s u f f i c i e n t t o m a i n t a i n p r i c e - c o m p e t i t i v e n e s s . As movement t o w a r d s t h e p e r i p h e r y i s m o t i v a t e d by t h e need t o meet lo w e r p r i c e s i t must be a c c o m p a n i e d by e i t h e r a r e d u c t i o n i n ( n o n - l a b o u r ) i n p u t c o s t s o r by a r e d u c t i o n i n t h e r e t u r n s t o l a b o u r o r c a p i t a l . I n p u t c o s t s need n o t , and o f t e n w i l l n o t , be l o w e r i n t h e p e r i p h e r y . I t i s r e l e v a n t , t h e r e f o r e , t o c o n s i d e r why f i r m s or employees i n t h e p e r i p h e r y might a c c e p t 277 l o w e r r e t u r n s . The g e n e r a l answer must be t h a t t h e y have l o w e r o p p o r t u n i t y c o s t s ; more a t t r a c t i v e o p p o r t u n i t i e s a r e n o t a v a i l a b l e t o them. Put t h e o t h e r way, t h e y have v e r y low m o b i l i t y t o w a r d s t h e more a t t r a c t i v e o p p o r t u n i t i e s t h a t e x i s t c l o s e r t o w a r d s t h e c e n t r e . I f t h e y d i d n o t , t h e y would move t o w a r d s them. At t h e l i m i t , i n d u s t r i e s o p e r a t i n g a t t h e p e r i p h e r y w i l l t e n d t o be l o c a t e d i n t h e most remote and u n d i v e r s i f i e d r u r a l h i n t e r l a n d s and t o employ t h o s e ( s u c h a s t h e u n s k i l l e d , t h e u n e d u c a t e d , m a r r i e d women, d i s a d v a n t a g e d m i n o r i t y g r o u p s ) who a r e l e a s t m o b i l e . I t i s t h i s r e l a t i v e l y low m o b i l i t y w h i c h u n d e r l i e s t h e i r low o p p o r t u n i t y c o s t s and c r e a t e s t h e c o n d i t i o n s w h i c h a t t r a c t t h e r e t r o g r e s s i n g i n d u s t r y . The economic a d v a n c e of t h e s e r e g i o n s and p e o p l e i s , t o a l a r g e e x t e n t , p a s s i v e l y d e p e n d e n t upon t h e c o n t i n u e d t r a n s f e r o f new, and m a r g i n a l l y more p r o d u c t i v e , i n d u s t r i e s t o them. To t h e e x t e n t t h a t t h e i r i n d u s t r i a l base i s t h e r e b y c o n t i n u a l l y r e f r e s h e d and m a i n t a i n s , o r i m p r o v e s , t h e i r s t a n d a r d of l i v i n g r e l a t i v e t o t h e economy as a whole, t h e i r l a c k o f m o b i l i t y d o e s n o t pose a p r o b l e m . 3.3 LDC C o m p e t i t i o n And The Immobile P e r i p h e r y As i n d u s t r i e s o p e r a t i n g i n t h e p e r i p h e r y t e n d t o be t h o s e w h i c h p r o d u c e p r i c e - c o m p e t i t i v e and l a b o u r - i n t e n s i v e goods, t h e y a r e i n e v i t a b l y e x p o s e d t o c o m p e t i t i o n as LDCs i n d u s t r i a l i z e . When t h e d e v e l o p m e n t of LDCs ( s u c h a s t h e A s i a n NICs) i s n o t a b l y f a s t e r t h a n t h a t o c c u r r i n g i n t h e DCs, t h e pace a t w h i c h t h e i n d u s t r i a l b ase i n t h e DC p e r i p h e r y i s r e f r e s h e d f a l l s b e h i n d 278 t h a t n e c e s s a r y t o r e p l a c e i n d u s t r i e s i n w h i c h c o m p e t i t i v e s t r e n g t h i s l o s t t o LDCs. At t h a t p o i n t , i t i s no l o n g e r enough t o r e l y on t h e t r a n s f e r of i n d u s t r i e s t o t h e p e r i p h e r y ; t h e p e r i p h e r y must be moved t o w a r d s t h e c e n t r e . I t i s t h e n t h a t t h e v e r y i m m o b i l i t i e s (and a t t e n d a n t low o p p o r t u n i t y c o s t s ) t h a t a t t r a c t e d t h e b e s i e g e d i n d u s t r i e s t o t h e p e r i p h e r y i n t h e f i r s t p l a c e , become p r o b l e m a t i c . The e c o n o m i s t ' s view of LDC i n d u s t r i a l i z a t i o n and DC a d j u s t m e n t t o i t , i s t h a t t h e r e i s o n l y an a d j u s t m e n t p r o b l e m i f f a c t o r s o f p r o d u c t i o n f a c e i m m o b i l i t i e s w h i c h i n h i b i t t h e i r a d j u s t m e n t . T h i s i s t r u e as f a r as i t g oes. I t c a n , however, be e a s i l y i n t e r p r e t e d t o mean t h a t change and d e v e l o p m e n t i n t h e DCs and LDCs have no n e c e s s a r y c o n n e c t i o n w i t h f a c t o r i m m o b i l i t i e s and, t h u s , t h e r e i s no a p r i o r i r e a s o n t o p r e d i c t an a d j u s t m e n t p r o b l e m . T h i s i n t e r p r e t a t i o n t a k e s f a c t o r i m m o b i l i t i e s as an e s s e n t i a l l y random phenomenon t h a t may, but need n o t , be p r e s e n t . The argument p r e s e n t e d h e r e , i n c o n t r a s t , s u g g e s t s t h a t r e l a t i v e l y h i g h DC f a c t o r i m m o b i l i t y i s n o t a random b u t a s t r u c t u r a l l y c h a r a c t e r i s t i c f e a t u r e o f i n d u s t r i e s c o m p e t i n g w i t h LDC p r o d u c e r s . Thus, i t i s i n t h e n a t u r e of i n d u s t r i e s t h a t c a n n o t keep pace w i t h o v e r a l l DC e n v i r o n m e n t a l change ( e s p e c i a l l y , c h a n g e s i n a v e r a g e p r o d u c t i v i t y l e v e l s ) t o r e t r o g r e s s i n t o t h e DC p e r i p h e r y t o t a k e a d v a n t a g e of t h e l o w e r c o s t s ( b e c a u s e o f l o w e r m o b i l i t y o f f a c t o r s ) a v a i l a b l e t h e r e . T h i s i n d u s t r i a l " r e a r g u a r d " i s p r e c i s e l y t h a t w h i c h i s most 279 e x p o s e d t o c o m p e t i t i o n from i n d u s t r i a l i z i n g LDCs and, a t t h e same t i m e , c o m p r i s e d o f the r e l a t i v e l y l e a s t m o b i l e f a c t o r s of p r o d u c t i o n . 280 IX. CONCLUSIONS I t i s not t h e p u r p o s e of e x p l o r a t o r y r e s e a r c h t o e s t a b l i s h t h e g e n e r a l i t y of t h e p r o p o s i t i o n s w h i c h i t d e r i v e s . The f i n d i n g s of t h i s s t u d y , t h e r e f o r e , s h o u l d be v i e w e d w i t h c o n s i d e r a b l e c a u t i o n r e g a r d i n g t h e i r g e n e r a l i t y and t h e i r p r a c t i c a l i m p l i c a t i o n s . N e v e r t h e l e s s , u l t i m a t e i n t e r e s t i s not i n t h e p a r t i c u l a r i n d u s t r i e s examined but i n t h e i s s u e of DC a d j u s t m e n t i n g e n e r a l . Thus, i t i s a p p r o p r i a t e t o o f f e r some comment on the l i k e l y g e n e r a l i t y o f t h e f i n d i n g s and t h e i r p o s s i b l e i m p l i c a t i o n s . 1. GENERALITY OF THE FINDINGS The s t u d y has g e n e r a t e d f i n d i n g s a t a number o f d i f f e r e n t l e v e l s . The c a s e s t u d i e s ( c h a p t e r s 4 and 5) v a r i o u s l y p r e s e n t f i n d i n g s a t t h e l e v e l of some s p e c i f i c i n d u s t r i e s . S u b s e q u e n t c h a p t e r s ( c h a p t e r s 6 and 7) p r e s e n t , a t a more a b s t r a c t l e v e l , some i n d u c t i v e l y i d e n t i f i e d f e a t u r e s o f a d j u s t m e n t t h a t t h e examined i n d u s t r i e s a p p e a r t o have i n common. An e f f o r t was a l s o made t o i n t e g r a t e t h e s e common f e a t u r e s i n t o a c o m p r e h e n s i v e a d j u s t m e n t p r o c e s s framework ( c h a p t e r 8 ) . The d e s c r i p t i v e v a l i d i t y o f t h e f i n d i n g s i s u n d o u b t e d l y g r e a t e s t a t t h e l e v e l of t h e i n d i v i d u a l c a s e s t u d i e s . We a r e , however, c o n f i d e n t t h a t t h e f i n d i n g s a t t h e more a b s t r a c t l e v e l s , a l s o , a r e b r o a d l y v a l i d w i t h r e s p e c t t o t h e i n d u s t r i e s e x a m i n e d . These i n d u s t r i e s a r e c l e a r l y n o t t y p i c a l o f i n d u s t r y i n t h e d e v e l o p e d i n d u s t r i a l c o u n t r i e s . What i s more i m p o r t a n t , however, i s whether t h e y a r e t y p i c a l of i n d u s t r i e s f a c i n g LDC 281 competition i n those c o u n t r i e s . We do b e l i e v e they are h i g h l y r e p r e s e n t a t i v e Japanese i n d u s t r i e s p r e s e n t l y f a c i n g the problem of adjustment to LDC c o m p e t i t i o n . Whether they are a l s o r e p r e s e n t a t i v e of ( i . e . , s i m i l a r to) analogous i n d u s t r i e s i n other developed i n d u s t r i a l i z e d c o u n t r i e s i s a q u e s t i o n of more general i n t e r e s t . The case s t u d i e s focussed on i n d u s t r i e s s e l e c t e d from a set of Japanese i n d u s t r i e s which were i d e n t i f i e d by informants as f a c i n g the problem of adjustment to LDC c o m p e t i t i o n . Studies of LDC competition i n other O.E.C.D. c o u n t r i e s have i d e n t i f i e d as "LDC-competing" such products as l e a t h e r goods, t e x t i l e s , k n i t t e d goods, c l o t h i n g , footwear, some types of e l e c t r i c a l and e l e c t r o n i c a p p l i a n c e s , and wood p r o d u c t s . 1 3 0 These are a l l among the set of i n d u s t r i e s i d e n t i f i e d f o r Japan. The examined i n d u s t r i e s are, r e l a t i v e l y speaking, c h a r a c t e r i z e d by the i n t e n s i v e use of low-wage labour i n the p r o d u c t i o n of u n d i f f e r e n t i a t e d products. These o v e r a l l c h a r a c t e r i s t i c s have been i d e n t i f i e d f o r c o m p e t i t i v e LDC exports to other O.E.C.D. c o u n t r i e s as w e l l . 1 3 1 There i s a l s o some evidence that LDCs are most s u c c e s s f u l i n competing a g a i n s t DC i n d u s t r i e s where average f i r m s i z e i s s m a l l . 1 3 2 Thus, i n terms 1 3 0 See, f o r example; Matthews (1980) op c i t , O.E.C.D. (1979) op c i t , and United Nations Conference on Trade and Development [UNCTAD] Dynamic Products i n the Exports of Manufactured Goods From Developing C o u n t r i e s to Developed Market Economy C o u n t r i e s , 1970 to 1976 [UNCTAD/ST/MD/18] (UNCTAD, Geneva, 1978). 1 3 1 See, f o r example, H e l l e i n e r , G. K., "Industry C h a r a c t e r i s t i c s and the Competitiveness of Manufactures from Less-developed C o u n t r i e s " 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 V 112, 1976 pp 507-523. 1 3 2 i b i d . 282 of p r o d u c t c a t e g o r i e s , o v e r a l l p r o d u c t c h a r a c t e r i s t i c s , and f i r m s i z e , t h e r e i s some b a s i s f o r a s s u m i n g t h a t t h e r e p r e s e n t a t i v e n e s s of t h e examined i n d u s t r i e s e x t e n d s beyond Ja p a n t o o t h e r O.E.C.D. c o u n t r i e s a s w e l l . In two i m p o r t a n t r e s p e c t s , however, t h e b r o a d g e n e r a l i t y of th e f i n d i n g s i s c l e a r l y open t o some q u e s t i o n . F i r s t , t h e s e l e c t i o n p r o c e d u r e seems l i k e l y t o have f a v o u r e d t h e n o m i n a t i o n by i n f o r m a n t s of p r o d u c t / i n d u s t r i e s w h i c h a r e c u r r e n t l y f a c i n g t h e most v i s i b l e p r o b l e m s i n a d j u s t i n g t o LDC c o m p e t i t i o n . T h i s would have b i a s e d t h e s e t of i d e n t i f i e d i n d u s t r i e s t o w a r d s w o r s t - c a s e examples and towa r d s i n d u s t r i e s w h i c h a r e 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 ( t h u s p o s i n g a n o t i c e a b l e r e g i o n a l e c o nomic p r o b l e m ) , n a r r o w l y s p e c i a l i z e d i n an LDC-competing p r o d u c t c a t e g o r y , and i n w h i c h t h e m a j o r ( o r o n l y ) s o u r c e of r e c e n t e n v i r o n m e n t a l change i s t h e a d v e n t of LDC c o m p e t i t i o n . T h i s may have s y s t e m a t i c a l l y e x c l u d e d some r e l e v a n t and y e t d i s t i n c t l y d i f f e r e n t e xamples of DC a d j u s t m e n t . S e c o n d , t h e i n t r a - i n d u s t r y s t r u c t u r e o f t h e i n d u s t r i e s e xamined may not be t y p i c a l of a d j u s t i n g i n d u s t r i e s i n g e n e r a l . The f i n e d i v i s i o n of l a b o u r among v a r i o u s s p e c i a l i z e d f u n c t i o n a l g r o u p s had i m p o r t a n t i m p l i c a t i o n s f o r t h e p r o c e s s of a d j u s t m e n t i n t h e examined i n d u s t r i e s . C a s u a l i n q u i r y s u g g e s t s t h a t t h e c u t l e r y i n d u s t r i e s i n S h e f f i e l d , E n g l a n d and i n S o l i n g e n , West Germany a l s o had t h i s p a t t e r n b u t t h e y , t o o , may be a t y p i c a l . I f an a d j u s t i n g i n d u s t r y were t o d i s p l a y a h i g h e r d e g r e e o f v e r t i c a l i n t e g r a t i o n w i t h i n i t s c o n s t i t u e n t f i r m s , t h e n t h e a d j u s t m e n t p r o c e s s m i g h t d i f f e r s i g n i f i c a n t l y f r o m t h a t o b s e r v e d 283 in t h i s study. 2. IMPLICATIONS FOR BUSINESS The nature of the adverse environmental change which c o n f r o n t s an i n d u s t r y appears to have major i m p l i c a t i o n s f o r the s e v e r i t y of the adjustment problem. M i l e s ' 1 3 3 study of adjustment to d e c l i n i n g demand in the U.S.A. c i g a r e t t e i n d u s t r y due to the "smoking and h e a l t h " c o n t r o v e r s y , i d e n t i f i e d three major c a t e g o r i e s of s t r a t e g i c r e a c t i o n ; domain defence, domain o f f e n c e , and domain c r e a t i o n . In b r i e f , he found the f o l l o w i n g a c t i v i t i e s i n these c a t e g o r i e s : i . Domain defence ( c o o p e r a t i v e a c t i o n ) • Industry pro-smoking ( a n t i - " a n t i - s m o k i n g " ) lobbying and a d v e r t i s i n g • Industry support f o r "smoking and h e a l t h " r e s e a r c h i i . Domain offence (competitive a c t i o n ) • I n t r o d u c t i o n of low-tar c i g a r e t t e s • Brand p r o l i f e r a t i o n i i i . Domain c r e a t i o n (independent a c t i o n ) • I n t e r n a t i o n a l i z a t i o n of c i g a r e t t e business • Entry i n t o somewhat r e l a t e d businesses • Entry i n t o u n r e l a t e d businesses While M i l e s deals with a l l three c a t e g o r i e s of s t r a t e g i c behaviour h i s emphasis i s on domain defence and, e s p e c i a l l y , on domain c r e a t i o n (entry i n t o new business or, i n our terms, 1 3 3 M i l e s (1982) op. c i t . 284 " m i g r a t i o n " ) . As i t happens, t h e c i g a r e t t e i n d u s t r y r e m a i n e d h i g h l y p r o f i t a b l e d u r i n g t h e p e r i o d c o v e r e d by M i l e s ' s t u d y . F o r t h a t r e a s o n , domain c r e a t i o n a c t i v i t i e s i n h i s s t u d y f a c e d r e l a t i v e l y few f i n a n c i a l c o n s t r a i n t s and were no t s e r i o u s l y i n h i b i t e d by t h e p r o b l e m of c o n v e r t i n g e x i s t i n g a s s e t s and s k i l l s t o new u s e s . 1 3 " In some i n s t a n c e s , i n f a c t , domain c r e a t i o n a c t i v i t i e s d i f f e r e d l i t t l e from t h o s e of a c o n g l o m e r a t e i n v e s t o r . H a r r i g a n 1 3 5 a l s o e xamines s t r a t e g i c a d j u s t m e n t t o d e c l i n i n g demand and, w h i l e she does g i v e e x p l i c i t a t t e n t i o n t o t h e narrow i s s u e o f t h e t i m i n g of w i t h d r a w a l from t h e a d v e r s e l y a f f e c t e d i n d u s t r y , i n M i l e s ' t e r m s , she examines o n l y t h e domain o f f e n c e c a t e g o r y of s t r a t e g i c r e a c t i o n . T h a t i s t o s a y , she f o c u s e s on c o m p e t i t i o n w i t h i n t h e a d v e r s e l y a f f e c t e d i n d u s t r y ; and by i m p l i c a t i o n v i e w s t h e p r o b l e m o f domain c r e a t i o n (as does M i l e s ) as a c o n c e p t u a l l y o r e m p i r i c a l l y s e p a r a t e i s s u e . In t h e i n d u s t r i e s examined i n t h i s p r e s e n t s t u d y , however, t h e a d v e r s e e n v i r o n m e n t a l change was not d e c l i n i n g demand but t h e a d v e n t of LDC c o m p e t i t i o n ; and t h e a c t u a l p r o c e s s of t r a n s i t i o n f r o m an a d v e r s e l y a f f e c t e d b u s i n e s s t o a new b u s i n e s s was a c e n t r a l p r o b l e m . Thus, t h e p r o b l e m o f c o n v e r t i n g e x i s t i n g s k i l l s , a s s e t s , and know-how t o new u s e s was o f major s t r a t e g i c i m p o r t a n c e . Of c o u r s e , i n t h e a b s e n c e of p r o f i t a b i l i t y i n t h e e x i s t i n g b u s i n e s s , t h e r e i s no i n h e r e n t r e a s o n why t h e same 1 3 " M i l e s d o e s , however, f i n d t h e i s s u e o f a p p l y i n g e x i s t i n g m a n a g e r i a l s k i l l s and e x p e r i e n c e t o t h e new b u s i n e s s e s t o be of i m p o r t a n c e . 1 3 5 H a r r i g a n (1980) op. c i t . . 285 p r o b l e m c o u l d n ot be of major i m p o r t a n c e i n a s i t u a t i o n of d e c l i n i n g demand as w e l l . Thus, w h i l e t h i s f e a t u r e d i s t i n g u i s h e s t h e p a r t i c u l a r s of t h e c a s e s examined i n t h e p r e s e n t r e s e a r c h f r o m t h o s e i n M i l e s ' and i n H a r r i g a n ' s r e s e a r c h , i t does n o t r e p r e s e n t a p o i n t o f f u n d a m e n t a l d i f f e r e n c e between t h e a d j u s t m e n t p r o b l e m s p r e s e n t e d by d e c l i n i n g demand and LDC c o m p e t i t i o n . 1 3 6 T h e r e i s , however, a p o i n t of p r o f o u n d d i f f e r e n c e between t h e two s i t u a t i o n s w h i c h i s r e l a t e d t o t h i s i s s u e o f c o n v e r t i n g e x i s t i n g s k i l l s and a s s e t s t o new u s e s . Where a f i r m , moves from one b u s i n e s s i n t o a n o t h e r as a s t r a t e g i c a d j u s t m e n t t o t h e p r o b l e m of d e c l i n i n g demand i n t h e o r i g i n a l b u s i n e s s , t h e p r o b l e m of c o n v e r t i n g e x i s t i n g s k i l l s and a s s e t s t o new ends i s o f major i m p o r t a n c e . T h e r e i s , i n o t h e r words, n e c e s s a r i l y a h i g h d e g r e e of l i n k a g e between • t h e comp e t e n c e s i m p l i c i t t o t h e o r i g i n a l and t h e new b u s i n e s s e s . T h e r e i s , however, no n e c e s s a r y l i n k a g e between t h e o r i g i n a l p r o b l e m ( d e c l i n i n g demand) and t h e p r o s p e c t s of t h e new b u s i n e s s . Thus, t h e s t r a t e g i c r e a c t i o n t o d e c l i n i n g demand f o r , s a y , s t a i n l e s s s t e e l c u t l e r y , m i g h t be t o move i n t o t h e p r o d u c t i o n o f s t a i n l e s s s t e e l l i g h t i n g f i x t u r e s and t h i s would 1 3 6 Note t h a t , i n any c a s e , i t i s n o t j u s t t h e o c c u r e n c e of r a p i d , a d v e r s e e n v i r o n m e n t a l change ( e . g . , d e c l i n i n g demand o r LDC c o m p e t i t i o n ) t h a t o c c a s i o n s s t r a t e g i c a d j u s t m e n t . In t h e c a s e o f t h e c i g a r e t t e i n d u s t r y s t u d i e d by M i l e s , f o r example, a c t u a l c i g a r e t t e c o n s u m p t i o n d i d n o t r a p i d l y d e c l i n e ( i n some p a r t , p e r h a p s , b e c a u s e o f t h e i n d u s t r y ' s a d j u s t m e n t a c t i v i t y , e .g., t h e i n t r o d u c t i o n o f l o w - t a r c i g a r e t t e s ) . A d j u s t m e n t , i n t h a t c a s e , was t r i g g e r e d more by t h e t h r e a t o f d e c l i n e t h a n by i t s a c t u a l i t y . 286 r e f l e c t a s t r o n g l i n k a g e between t h e c ompetences i m p l i c i t i n t h e o r i g i n a l and new b u s i n e s s e s . T h e r e would be no r e a s o n , however, t o e x p e c t t h e o r i g i n a l p r o b l e m of d e c l i n i n g demand ( f o r s t a i n l e s s s t e e l c u t l e r y ) t o i m p l y a d e c l i n e i n t h e demand f o r s t a i n l e s s s t e e l l i g h t i n g f i x t u r e s a s w e l l . The need f o r l i n k a g e t o t h e c o m p e t e n c e s i m p l i c i t i n t h e p r i o r b u s i n e s s i s a l s o p r e s e n t i n t h e c a s e of a d j u s t m e n t t o LDC c o m p e t i t i o n . Here however, t h e o r i g i n a l p r o b l e m i s , i t s e l f , a r e s u l t of an o v e r l a p i n DC and LDC p r o d u c e r s ' c o m p e t e n c e s . Thus, the n e c e s s a r y l i n k a g e s w i t h t h e f i r m ' s p r i o r c o m p e t e n c e s r e p r e s e n t , a t t h e same t i m e , a l i n k a g e t o t h e p r o b l e m (LDC c o m p e t i t i o n ) of t h e o r i g i n a l b u s i n e s s . T h e r e i n l i e s a p r o f o u n d d i f f e r e n c e between t h e p r o b l e m o f a d j u s t i n g t o LDC c o m p e t i t i o n and t h a t of a d j u s t i n g t o d e c l i n i n g demand; i n t h e c a s e o f t h e f o r m e r , t h e p r o b l e m (LDC c o m p e t i t i o n ) i s h i g h l y l i k e l y t o c h a s e a f t e r i t s own s o l u t i o n s ( e . g . , m i g r a t i o n t o a new b u s i n e s s ) . The p r e s e n c e of s u b s t a n t i a l o v e r l a p ( c o n g r u e n c e ) between t h e u n d e r l y i n g c o m p e t e n c e s of a DC f i r m and i t s LDC c o m p e t i t o r s i s a c e n t r a l p r o b l e m i n s t r a t e g i c a d j u s t m e n t t o LDC c o m p e t i t i o n . F o r t h i s r e a s o n , a f u n d a m e n t a l p r e - r e q u i s i t e t o e f f e c t i v e a d j u s t m e n t i s a d e t a i l e d and a c c u r a t e a s s e s s m e n t of t h e p r e s e n t and p r o s p e c t i v e s t r e n g t h s of LDC c o m p e t i t o r s . The DC f i r m must examine a d j u s t m e n t " o p p o r t u n i t i e s " n o t j u s t from t h e i r own p e r s p e c t i v e but a l s o from t h e p e r s p e c t i v e o f t h e i r c o m p e t i t o r s . T h i s i s a commonplace o f s t r a t e g y f o r m u l a t i o n b u t , where t h e c o m p e t i t o r s i n c l u d e LDC p r o d u c e r s , t h e t a s k o f a s s e s s i n g c o m p e t i t o r s s t r e n g t h s v i s - a - v i s a g i v e n o p p o r t u n i t y w i l l be much 287 more d i f f i c u l t . A s i d e from l i n g u i s t i c and l o g i s t i c a l b a r r i e r s t o o b t a i n i n g t h e r e l e v a n t i n f o r m a t i o n , t h e r e w i l l be t h e f u r t h e r and more n o v e l p r o b l e m s o f p r o s p e c t i v e l y a s s e s s i n g t h e r o l e of p o t e n t i a l t h i r d - p a r t i e s ( s u c h as i n t e r n a t i o n a l d i s t r i b u t i o n s p e c i a l i s t s ) w i t h whom LDC c o m p e t i t o r s m i g h t c o l l a b o r a t e and t h e l i k e l y d i r e c t i o n and pace of d e v e l o p m e n t o f t h e o v e r a l l e n v i r o n m e n t i n t h e LDC i t s e l f ( i n c l u d i n g t h e im p a c t of t h a t d e v e l o p m e n t on LDC wage l e v e l s and exchange r a t e s ) . Such a n a l y s e s of LDC c o m p e t i t i o n would r e v e a l a r e a s o f p r e s e n t and p r o s p e c t i v e c o n g r u e n c e and d i v e r g e n c e between DC and LDC p r o d u c e r s . T h i s would n o t o n l y s u g g e s t a r e a s of p o t e n t i a l DC p r o d u c e r v u l n e r a b i l i t y , b u t a l s o a r e a s f o r p o t e n t i a l d u r a b l e a d j u s t m e n t by DC p r o d u c e r s . W h i l e t h e b a s i s o f s u c h a d j u s t m e n t would, i n i t s p a r t i c u l a r s , d i f f e r c o n s i d e r a b l y f r o m c a s e t o c a s e , i t i s i n g e n e r a l l i k e l y t o be l i n k e d t o d i v e r g e n c e i n t h e DC and LDC e n v i r o n m e n t s . T h i s would i n c l u d e , f o r example, s t r u c t u r a l l y p r o t e c t e d m a r k e t s and p r o d u c t s (where l o c a t i o n a l a d v a n t a g e s f a v o u r m a n u f a c t u r e w i t h i n t h e DC) and s e r v i c e i n d u s t r i e s , i n g e n e r a l . I t i s , o f c o u r s e , a l s o p o s s i b l e f o r a f i r m t o r e a c t t h r o u g h a c o n t i n u o u s p r o c e s s of i n c r e m e n t a l a d j u s t m e n t s t h a t do n o t remove i t from t h e p a t h of LDC c o m p e t i t i v e d e v e l o p m e n t b ut w h i c h do keep i t e f f e c t i v e l y , and p r o f i t a b l y , f u r t h e r down t h a t p a t h t h a n i t s LDC c o m p e t i t o r s . Here t o o , however, a d e t a i l e d and a c c u r a t e a s s e s s m e n t of p r e s e n t and p r o s p e c t i v e LDC c o m p e t i t i v e d e v e l o p m e n t i s n e c e s s a r y . 288 3. IMPLICATIONS FOR GOVERNMENT The s t u d y has i m p l i c a t i o n s f o r i n s t a n c e s where government deems i t a d v i s a b l e , f o r economic o r p o l i t i c a l r e a s o n s , t o a s s i s t t h e a d j u s t m e n t p r o c e s s i n a f f e c t e d i n d u s t r i e s . T h e r e would a p p e a r t o be, f i r s t , a p o t e n t i a l r o l e f o r government i n r a i s i n g t h e a w a r e n e s s l e v e l i n a f f e c t e d DC i n d u s t r i e s of t h e n a t u r e , p a c e , and o v e r a l l d i r e c t i o n of t h e p r e s e n t and p r o s p e c t i v e p r o b l e m p o s e d by LDC c o m p e t i t i o n . T h i s w ould a p p e a r a l l t h e more n e c e s s a r y t o t h e e x t e n t t h a t t h e DC i n d u s t r y i s d o m e s t i c a l l y o r i e n t e d and i n s u l a t e d from c u r r e n t c o m p e t i t i o n b e c a u s e of p r o t e c t i v e t a r i f f s o r q u o t a s . Such government a c t i v i t y s h o u l d i n c l u d e , f o r example, t h e s p o n s o r s h i p o f r e s e a r c h aimed a t a s s e s s i n g , i n some d e t a i l , p r e s e n t and p r o s p e c t i v e deveopment o f p a r t i c i p a n t s i n r e l e v a n t LDC i n d u s t r i e s ( i n c l u d i n g d e v e l o p m e n t o u t s i d e of t h e i r p r e s e n t i n d u s t r y ) and d i s s e m i n a t i o n of r e s e a r c h f i n d i n g s among p a r t i c i p a n t s i n t h e c o r r e s p o n d i n g DC i n d u s t r i e s . S e c ond, where a d j u s t m e n t i n v o l v e s c a p a c i t y r e d u c t i o n , r a t i o n a l i z a t i o n of i n d u s t r y s t r u c t u r e , o r j o i n t d e v e l o p m e n t o f new p r o d u c t s or p r o d u c t i o n t e c h n o l o g i e s , government may be a b l e t o s e r v e as an h o n e s t b r o k e r o r m e d i a t o r t o m o n i t o r o r g u a r a n t e e i n t r a - i n d u s t r y e q u i t y . At t h e v e r y l e a s t , t h e r e may be t h e need f o r government t o p r o v i d e (and m o n i t o r ) t e m p o r a r y r e l i e f f r o m a n t i - t r u s t r e g u l a t i o n s i n o r d e r t o f a c i l i t a t e j o i n t i n t r a -i n d u s t r y a d j u s t m e n t a c t i v i t y . T h i r d , more d i r e c t government i n v o l v e m e n t i n t h e a d j u s t m e n t p r o c e s s need not mean t h a t government must f o r m u l a t e " s o l u t i o n s " 289 t o the adjustment problem. In the Japanese c a s e , t h e r e was c o n s i d e r a b l e and a p p a r e n t l y e f f e c t i v e use of j o i n t b u s i n e s s -government i n s t i t u t i o n s and of p r o c e d u r e s which p l a c e d (or l e f t ) the g e n e r a t i o n of s p e c i f i c ( g o v e r n m e n t - a s s i s t e d ) adjustment s t r a t e g i e s w i t h the a f f e c t e d f i r m s t h e m s e l v e s . These were then r e v i e w e d f o r f e a s i b i l i t y and a p p r o p r i a t e n e s s by j o i n t g o v e r n m e n t / ( t h i r d - p a r t y ) b u s i n e s s a d m i n i s t r a t i v e committees. T h i s p a t t e r n seems p a r t i c u l a r l y a p p r o p r i a t e , g i v e n the apparent importance of e n t r e p r e n e u r i a l m o t i v a t i o n s and i n s i g h t i n the adjustment p r o c e s s . F o u r t h , the study p o i n t s out the p o t e n t i a l l y h i g h degree of v a r i a t i o n w i t h i n an i n d u s t r y i n terms of the impact of LDC c o m p e t i t i o n , r e l a t i v e o p p o r t u n i t i e s f o r ad j u s t m e n t , and s p e c i f i c a djustment a s s i s t a n c e needs ( e . g . , i n f o r m a t i o n , a d v i c e , t r a i n i n g , f i n a n c e ) ; T h i s i m p l i e s t h a t government a s s i s t a n c e p o l i c y s h o u l d be e x p l i c i t l y f o r m u l a t e d t o accommodate the v a r i e t y t h a t e x i s t s among p a r t i c i p a n t s i n the a f f e c t e d i n d u s t r y . 1 3 7 F i n a l l y , we s h o u l d note t h a t the a b i l i t y and w i l l i n g n e s s of the Japanese government t o be r e s p o n s i v e t o the p r e c e d i n g i s s u e s was r a t h e r h i g h and t h a t t h i s i s due, i n p a r t , t o the p r e -e x i s t e n c e of a complex network of i n s t i t u t i o n a l i z e d government-b u s i n e s s i n t e r a c t i o n and c o n s u l t a t i o n . There may be some doubt i n o t h e r O.E.C.D. c o u n t r i e s as t o the f e a s i b i l i t y and 1 3 7 T h i s , of c o u r s e , i s t o t a l l y l a c k i n g i n what i s , i n many O.E.C.D. c o u n t r i e s , the most common form of adjustment " a s s i s t a n c e " , p r o t e c t i v e t a r i f f s and quotas on i m p o r t s from LDCs. 290 a d v i s a b i l i t y of c r e a t i n g s i m i l a r i n s t i t u t i o n s and p a t t e r n s of i n t e r a c t i o n . T h i s issue would seem, however, to be i n e x t r i c a b l y t i e d up with the p r i o r q u e s t i o n of government i n t e r v e n t i o n . If government i s to interve n e i n the adjustment process, i t had best be informed i n t e r v e n t i o n . T h i s i s only p o s s i b l e with e x t e n s i v e and e f f e c t i v e input from p a r t i c i p a n t s i n the a f f e c t e d i n d u s t r i e s . 4. AREAS FOR FURTHER RESEARCH T h i s e x p l o r a t o r y study of adjustment to LDC competition suggests some p r i o r i t i e s f o r f u r t h e r r e s e a r c h . F i r s t , the problem would c l e a r l y b e n e f i t from f u r t h e r and more focussed s t u d i e s of DC adjustment i n Japan and elsewhere. Studies which focussed on the l e v e l of the i n d i v i d u a l f i r m , on the m i g r a t i o n mode of adjustment, and on the presence and i m p l i c a t i o n s of i n t r a - i n d u s t r y p a r t i c i p a n t v a r i e t y would be e s p e c i a l l y v a l u a b l e . Second, l o n g i t u d i n a l s t u d i e s of the e v o l u t i o n a r y development of LDC co m p e t i t i v e s t r e n g t h would provide a fi r m e r b a s i s f o r a s s e s s i n g the r e l e v a n t d i r e c t i o n and d i m e n s i o n a l i t y of LDC c o m p e t i t i v e development over time. T h i s would f a c i l i t a t e the f o r m u l a t i o n of e f f e c t i v e adjustment s t r a t e g i e s f o r DC f i r m s . F i n a l l y , there appears to be c o n s i d e r a b l e scope f o r the conce p t u a l i n t e g r a t i o n of s t u d i e s of the DC adjustment problem with r e s e a r c h , such as that of M i l e s 1 3 8 and H a r r i g a n , 1 3 9 which, i n the a b s t r a c t , d e a l with an i d e n t i c a l i s s u e ; "adjustment to 1 3 8 M i l e s (1982) op. c i t . . 1 3 9 H a r r i g a n (1980) op. c i t . a d v e r s e e n v i r o n m e n t a l change 292 APPENDIX A - GOVERNMENT POLICY ON SME ADJUSTMENT: INSTITUTIONS AND PROGRAMMES 5. THE INSTITUTIONAL FRAMEWORK 5.1 S t r u c t u r e Of The Bureaucracy About 0.6% of the Japanese n a t i o n a l budget i s e x p l i c i t l y devoted to SME programmes and t h i s f i g u r e r i s e s to about 1.0% i f we i n c l u d e the budget f o r the SMEA, i t s e l f . The percentage would be c o n s i d e r a b l y higher i f we were able to in c l u d e the p r o p o r t i o n of the i n t e r n a l MITI budget expended on SME-related work. About 77% of the n a t i o n a l budget a l l o c a t i o n f o r SME programmes i s administered by MITI and i t s subordinate agency, the SMEA, with the balance being a d m i n i s t e r e d by the M i n i s t r y of Finance and the M i n i s t r y of Labour. Taking MITI and i t s subordinate agencies as a whole, around 16% of the m i n i s t e r i a l employees are i n v o l v e d i n some r e g u l a r and d i r e c t f a s h i o n with SME p o l i c y and programmes although only a small p r o p o r t i o n of those employees (say, 7%) are members of the SMEA. 1" 0 The SMEA a c t s as the e x t e r n a l agent of the MITI f o r SME p o l i c y and a d m i n i s t r a t i v e guidance. Despite i t s r e l a t i v e l y small s i z e , t h e r e f o r e , the SMEA pl a y s a p i v o t a l r o l e w i t h i n the matrix of governmental and non-governmental o r g a n i z a t i o n s concerned with SME problems. There are a number of other o r g a n i z a t i o n s devoted to SME 0 These f i g u r e s are suggestive only and were estimated from data in Chushokigyo Seisaku no Gaiyo (SMEA, 1980) and i n Table of O r g a n i z a t i o n of the Government ofJapan (Prime M i n i s t e r ' s O f f i c e , 1974), pp. 18-19. 293 p o l i c y f o r m u l a t i o n a n d d e v e l o p m e n t and t h e y c a n be g r o s s l y d i v i d e d i n t o t h e t h r e e c a t e g o r i e s ; " f i n a n c i a l " , " o r g a n i z a t i o n a l " , a n d " d e l i b e r a t i v e " . We w i l l b r i e f l y o u t l i n e t h e c o m p o s i t i o n o f t h e s e t h r e e g r o u p s . 5.2 F i n a n c i a l I n s t i t u t i o n s 5.2.1 " T h e B i g T h r e e " (San K i k a n ) i v . SME F i n a n c i a l C o r p o r a t i o n ( C h u s h o K i g y o K i n y u K o k o ) T h i s c o r p o r a t i o n was f o u n d e d i n 1953 w i t h 100% f e d e r a l g o v e r n m e n t c a p i t a l i z a t i o n b u t now a l s o u t i l i z e s p r i v a t e c a p i t a l v i a t h e i s s u a n c e o f b o n d s . I t p r o v i d e s a s o u r c e o f l o n g - t e r m c a p i t a l f u n d s f o r e q u i p m e n t a n d o p e r a t i n g c a p i t a l f o r SME, w h i c h h a v e d i f f i c u l t y o b t a i n i n g s u c h f i n a n c i n g f r o m t h e m a i n s t r e a m f i n a n c i a l i n s t i t u t i o n s . I t s l e n d i n g s o u t s t a n d i n g a s o f M a r c h , 1980 t o t a l e d 3 , 8 60 b i l l i o n Yen a n d i t m a i n t a i n s a r o u n d 900 o f f i c e s n a t i o n w i d e . v . C i t i z e n ' s F i n a n c i a l C o r p o r a t i o n ( K o k u m i n K i n y u K o k o ) T h i s c o r p o r a t i o n was e s t a b l i s h e d i n 1949 w i t h 100% f e d e r a l g o v e r n m e n t c a p i t a l i z a t i o n . I t p r o v i d e s s t a r t - u p a n d o p e r a t i n g c a p i t a l f o r i n d i v i d u a l s w i s h i n g t o o p e r a t e i n d e p e n d e n t b u s i n e s s e s a n d f o r whom t h e m a i n s t r e a m f i n a n c i a l i n s t i t u t i o n s a r e n o t r e a d i l y a c c e s s i b l e . A s o f M a r c h , 1980 i t h ad a r o u n d 3,461 b i l l i o n Yen i n l o a n s o u t s t a n d i n g a n d m a i n t a i n e d a b o u t 800 o f f i c e s n a t i o n w i d e . v i . C o m m e r c i a l a n d 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 294 F i n a n c i a l C o r p o r a t i o n (Shokokumiai Chuo Kinko) T h i s c o r p o r a t i o n , was e s t a b l i s h e d i n 1936 and i s a j o i n t venture between the f e d e r a l government and p r i v a t e c a p i t a l . The p r i v a t e c a p i t a l ownership i s in the hands of p a r t i c i p a t i n g i n d u s t r i a l and commercial Cooperative A s s o c i a t i o n s , whose c o n s t i t u e n t membership must be predominantly composed of SME. In a d d i t i o n to the c o n t r i b u t i o n s of government and of the p a r t i c i p a t i n g c o o p e r a t i v e a s s o c i a t i o n s , the c o r p o r a t i o n takes d e p o s i t s and i s s u e s bonds as a means of a c q u i r i n g funds. I t s mandate i s to p rovide f i n a n c e f o r the p a r t i c i p a t i n g a s s o c i a t i o n s and t h e i r membership. As of March,1983 i t had a t o t a l of 5,001 b i l l i o n yen i n o u t s t a n d i n g loans and a to-tal c a p i t a l i z a t i o n of 1,097 b i l l i o n yen. Both of these f i g u r e s are roughly comparable to, or somewhat i n excess of, those of the l a r g e r commercial banks in Japan. 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 i . C r e d i t Guarantee A s s o c i a t i o n (Shinyohosho Kyokai) i i . SME C r e d i t Insurance F i n a n c i a l C o r p o r a t i o n (Chushokigyo Shinyohoken Kinko) The f i r s t of these two o r g a n i z a t i o n s i s not a s i n g l e e n t i t y but, in f a c t , a g e n e r i c type of r e g i o n a l a s s o c i a t i o n of which there were i n March, 1980 a t o t a l of 52 examples, 295 p l u s a n a t i o n a l umbrella o r g a n i z a t i o n to which the r e g i o n a l a s s o c i a t i o n s belong. These a s s o c i a t i o n s provide f i n a n c i a l c o n s u l t a t i o n f o r SME i n t h e i r regions and serve as guarantors of t h e i r loans from the mainstream f i n a n c i a l i n s t i t u t i o n s . The second of the above two o r g a n i z a t i o n s underwrites the c r e d i t insurance f o r the guarantees made by the r e g i o n a l a s s o c i a t i o n s and serves as t h e i r source of o p e r a t i n g c a p i t a l . In 1979, t h i s l a t t e r o r g a n i z a t i o n i n s u r e d 4,206 b i l l i o n Yen of loans and pro v i d e d 175 b i l l i o n Yen to the r e g i o n a l c r e d i t guarantee a s s o c i a t i o n s , i i i . SME Investment Development C o r p o r a t i o n (Chushokigyo T o s h i i k u s e i Kabushikikaisha) T h i s c o r p o r a t i o n makes e q u i t y investments i n SME and pr o v i d e s managerial and t e c h n i c a l c o n s u l t i n g s e r v i c e s with the aim of f a c i l i t a t i n g the development' of the concerned f i r m s to the p o i n t where they can s u c c e s s f u l l y make a p u b l i c stock o f f e r i n g . 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 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 (Chushokigyo Dantai Chuokai) T h i s o r g a n i z a t i o n . i s p r i m a r i l y concerned with p r o v i d i n g guidance and t r a i n i n g f o r the establishment and o p e r a t i o n of SME c o o p e r a t i v e a s s o c i a t i o n s . 296 5.3.2 Commerce And Industry Conference H a l l (Shokokaigisho) 5.3.3 Conference On Commerce And Industry (Shokokai) These are generic types of r e g i o n a l o r g a n i z a t i o n with each of the former (475, i n a l l ) being l o c a t e d i n independent premises in one of the major a d m i n i s t r a t i v e d i s t r i c t s of Japan and the l a t t e r being s i m i l a r o r g a n i z a t i o n s (2,852, i n a l l ) e s t a b l i s h e d at the mu n i c i p a l or v i l l a g e l e v e l and g e n e r a l l y o p e r a t i n g out of the l o c a l government's o f f i c e f a c i l i t i e s . The a c t i v i t i e s of the two are s i m i l a r and focus on p r o v i d i n g f o r the l o c a l business community; e d u c a t i o n a l t r a i n i n g workshops, in f o r m a t i o n and survey r e s e a r c h , promotional e x h i b i t i o n s , mediation s e r v i c e s f o r business d i s p u t e s , and c o n s u l t a t i v e s e r v i c e s with r e s p e c t to f i n a n c e , tax, i n d u s t r i a l r e l a t i o n s , and -gene r a l management. SME are the dominant c l i e n t e l e with respect to t h i s l a s t , c o n s u l t a t i v e , s e r v i c e . 5.3.4 SME Promotion O r g a n i z a t i o n (Chushokigyo Shinko Jigyodan) T h i s c o r p o r a t i o n p r o v i d e s f i n a n c e and o r g a n i z a t i o n a l a s s i s t a n c e f o r the development of i n d u s t r i a l parks, c o o p e r a t i v e or condominium f a c t o r i e s , and jointly-owned p h y s i c a l a s s e t s f o r groups of SME. I t a l s o a d m i n i s t e r s the SME mutual a i d , or benevolent, a s s o c i a t i o n system and the T e x t i l e Industry S t r u c t u r a l Renovation Program and p r o v i d e s a wide range of c o n s u l t a t i v e s e r v i c e s aimed at upgrading SME. 297 5.3.5 N a t i o n a l A s s o c i a t i o n F o r The Advancement Of S u b c o n t r a c t i n g F i r m s (Zenkoku S h i t a u k e k i g y o S h i n k o K y o k a i ) T h i s n a t i o n a l u m b r e l l a o r g a n i z a t i o n f o r 47 r e g i o n a l a s s o c i a t i o n s was o n l y j u s t e s t a b l i s h e d i n 1979. I t aims t o p romote t h e m o d e r n i z a t i o n o f t h e s u b c o n t r a c t i n g s y s t e m and t o e s t a b l i s h n a t i o n a l s t a n d a r d s f o r s u b c o n t r a c t i n g on an i n d u s t r y -b y - i n d u s t r y b a s i s . 5.4 D e l i b e r a t i v e C o u n c i l s 5.4.1 C o u n c i l On SME P o l i c y ( C h u s h o k i g y o S e i s a k u S h i n g i k a i ) T h i s c o u n c i l of 21 p e r s o n s drawn from b u s i n e s s , a c a d e m i a , and government i s h e a d q u a r t e r e d i n t h e P r i m e M i n i s t e r ' s O f f i c e and i s c o n c e r n e d w i t h t h e b r o a d r a n g e o f SME p o l i c y . 5.4.2 C o u n c i l On SME M o d e r n i z a t i o n ( C h u s h o k i g y o K i n d a i k a S h i n g i k a i ) The c o m p o s i t i o n of t h i s c o u n c i l i s s i m i l a r t o t h e p r e c e d i n g b u t t o t a l s 34 p e r s o n s and i s h e a d q u a r t e r e d i n M I T I . I t has r e s p o n s i b i l i t i e s w i t h r e s p e c t t o a number of laws d e a l i n g w i t h m o d e r n i z a t i o n , s t r u c t u r a l r e f o r m , and change o f l i n e s o f b u s i n e s s i n SME-dominated r e g i o n s and i n d u s t r i e s . I t i s t h i s c o u n c i l w h i c h , f o r example, s p e c i f i e s w h i c h i n d u s t r i e s and r e g i o n s a r e t o be deemed e l i g i b l e f o r t h e s p e c i a l t r e a t m e n t a c c o r d e d by t h e s e l a w s . 298 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 ( C h u s h o k i g y o A n t e i S h i n g i k a i ) T h i s c o u n c i l , composed of 31 p e r s o n s , i s c o n c e r n e d w i t h g e n e r a l c o n d i t i o n s w i t h i n SME c o o p e r a t i v e a s s o c i a t i o n s and t h e i r c o n s t i t u e n t f i r m s . I t s u r v e y s t h e s e c o n d i t i o n s and makes g e n e r a l r e c o m m e n d a t i o n s . I t , t o o , i s l o d g e d w i t h i n M I T I . 5.4.4 C o u n c i l On SME B u s i n e s s F i e l d R e g u l a t i o n ( C h u s h o k i g y o Bunya C h o s e i S h i n g i k a i ) T h i s c o u n c i l of 21 p e r s o n s i s c o n c e r n e d w i t h r e g u l a t i n g t h e a c t i v i t i e s o f l a r g e c ompanies w i t h r e s p e c t t o f i e l d s of b u s i n e s s a c t i v i t y w h i c h have been l e g i s l a t i v e l y i d e n t i f i e d a s r e q u i r i n g a d m i n i s t r a t i v e p r o t e c t i o n f o r t h e incumbent SMEs. 299 6. AN OUTLINE OF SME POLICY 6.1 P o l i c y O v e r v i e w T a b l e 19 p r o v i d e s a g e n e r a l o v e r v i e w o f J a p a n e s e SME p o l i c y . T h e r e i s a v a r i e t y of p o l i c y i n s t r u m e n t s employed t o implement t h e v a r i o u s p o l i c i e s ? r a n g i n g from t h e r e l a t i v e l y p a s s i v e d e v i c e of p r o v i d i n g i n f o r m a t i o n and c o n s u l t a t i v e s e r v i c e s t o SME, t h r o u g h t o a c t i v e e q u i t y p a r t i c i p a t i o n i n SME. Of t h e range of SME p o l i c i e s shown i n t h e t a b l e , t h r e e programmes a p p e a r t o be, i n p r a c t i c e , most c l o s e l y l i n k e d t o i n d u s t r i e s w h i c h have f a c e d LDC c o m p e t i t i o n . T h e s e a r e ; 1. SME M o d e r n i z a t i o n and Advancement P o l i c y , . 2. SME Change of B u s i n e s s P o l i c y and, 3. D e p r e s s e d R e g i o n a l I n d u s t r y P o l i c y . The i m p l e m e n t a t i o n of a l l t h r e e o f t h e s e programmes u t i l i z e s a l a r g e l y common s e t of p o l i c y i n s t r u m e n t s c o m p r i s e d of l o a n s , l o a n g u a r a n t e e s , t a x p r o v i s i o n s , g r a n t s , e t c . T a b l e 20 o u t l i n e s some of t h e m a j o r i n s t r u m e n t s employed under e a c h o f t h e t h r e e programmes. The programmes d i s p l a y some d i f f e r e n c e s i n t h e mix o f p o l i c y i n s t r u m e n t s employed and i n t h e s p e c i f i c ( f a v o u r a b l e ) t e r m s o f f e r e d w i t h r e s p e c t t o i n d i v i d u a l i n s t r u m e n t s . The major a r e a s o f d i f f e r e n c e i n t h e programmes, however, i s i n t h e i r g o a l s and e l i g i b i l i t y c r i t e r i a . Our d i s c u s s i o n o f t h e t h r e e programmes w i l l , t h e r e f o r e , f o c u s on t h e s e a s p e c t s o f e a c h o f them. 300 Table 19 - An Overview of Japanese SME P o l i c y Measures P u b l i c Law f o r SME _ _ _ _ _ SME M o d e r n i z a t i o n and A d v a n c e m e n t P o l i c y - SME M o d e r n i z a t i o n P r o m o t i o n Law - SME P r o m o t i o n O r g a n i z a t i o n - Management T r a i n i n g and C o n s u l t a t i o n - T e c h n o l o g i c a l D e v e l o p m e n t S u p p o r t and T r a i n i n g - S u p p o r t and P r o m o t i o n o f P r o d u c e r ' s C o o p e r a t i v e s - S u p p o r t f o r C h a n g e t o New L i n e o f B u s i n e s s — — R e g i o n a l SME P o l i c y - S p e c i a l P r o g r a m s f o r R e g i o n a l l y C o n c e n t r a t e d SME I n d u s t r i e s - S p e c i a l P r o g r a m s f o r SME i n D e p r e s s e d R e g i o n s I SME B u s i n e s s S t a b i l i z a t i o n P o l i c y - A c c e s s t o L o a n C a p i t a l - B i g T h r e e SME F i n a n c i a l I n s t i t u t i o n s - J o i n t P r o g r a m m e s w i t h P r e f e c t u a l G o v e r n m e n t s - L o a n G u a r a n t e e P r o g r a m - A c c e s s t o E q u i t y C a p i t a l - SME I n v e s t m e n t D e v e l o p m e n t C o r p . F i s c a l P o l i c y r e : E q u i t y I n v e s t m e n t i n SME - B a n k r u p t c y A v o i d a n c e P r o g r a m - E m e r g e n c y F i n a n c e P r o g r a m - L o a n G u a r a n t e e P r o g r a m C o n s u l t a t i o n • P r o t e c t i o n o f B u s i n e s s O p p o r t u n i t i e s - R e g u l a t i o n o f L a r g e C o . A c t i v i t i e s i n S M E - d o m i n a t e d I n d u s t r y - P r e f e r e n t i a l A t t e n t i o n i n P l a n n i n g G o v e r n m e n t O r d e r s - P r o t e c t i o n and P r o m o t i o n o f Terms a n d C o n d i t i o n s o f S u b c o n t r a c t i n g _ _ _ _ _ _ A i d t o V e r y S m a l l - s c a l e E n t e r p r i s e - Management C o n s u l t i n g - A c c e s s t o P r e f e r e n t i a l F i n a n c i n g - S m a l l - s c a l e E n t e r p r i s e M u t u a l A i d S y s t e m ( R e t i r e m e n t and U n e m p l o y m e n t ) - P r e f e r e n t i a l F i n a n c e f o r E q u i p m e n t M o d e r n i z a t i o n S o u r c e : C h u s h o k i g y o s h i s a k u no A r a m a s h i - G o j u n e n d o ( S . M . E . A . , T o k y o , 1 9 8 0 , p . 5) 301 Table 20 - A Comparison of P o l i c y Measures Employed in Three,Adjustment Programmes P o l i c y M e a s u r e s MODERNIZATION Programme CHANGE D I S T R E S S E D OF REGIONAL BUSINESS INDUSTRY Programme Programme C o n s u l t a t i v e X r e : G o v e r n m e n t B u r e a u c r a c y o f P o l i c y X r e : P l a n D e v e l o p m e n t & I m p l e -m e n t a t i o n X r e : I n f o r m a t i o n S e r v i c e s X F i n a n c i a l X L o a n s on P r e f e r e n t i a l T e r m s SME F i n a n c i a l C o r p o r a t i o n X C i t i z e n ' s F i n a n c i a l C o r p o r a t i o n . X SME P r o m o t i o n O r g a n i z a t i o n X L o a n G u a r a n t e e s X H i g h e r P r o p o r t i o n o f t o t a l -l o a n L o w e r I n s u r a n c e f e e X F i s c a l F a v o r a b l e T r e a t m e n t o f R & D E x p e n s e X W a i v e r o f M e r g e r - r e l a t e d R e g i s t r a t i o n f e e s X W a i v e r / R e d u c t i o n o f P r o p e r t y a n d B u s i n e s s T a x e s X A c c e l e r a t e d D e p r e c i a t i o n X O t h e r G r a n t s D e v e l o p m e n t P l a n n i n g D e v e l o p m e n t P l a n I m p l e m e n t a t i o n P e r s o n n e l D e v e l o p m e n t I n t e r n a l P r o m o t i o n a l A c t i v i t y New M a r k e t D e v e l o p m e n t A p p r o v a l s X C o o p e r a t i v e R e d u c t i o n o f E x c e s s C a p a c i t y X P r o d u c t i o n S h a r i n g X E m p l o y m e n t S t a b i l i z a t i o n f u n d s S o u r c e : C h u s h o K i g y o S h i s a k u no A r a m a s h i - G o i u n e n d o ( S . M . E . A . , T o k y o , 1980) 302 6.2 SME Modernization P o l i c y T h i s programme i s based on the SME Modernization Promotion Law of 1963 and i t s 1975 r e v i s i o n . The p o l i c y c o n s i s t s of three programmes d e a l i n g with; i . M odernization i i . E ntry i n t o new l i n e s of business i i i . Reform of i n d u s t r i a l s t r u c t u r e These programmes take, r e s p e c t i v e l y , as t h e i r base u n i t ; i . The i n d i v i d u a l SME i i . Small groups of SME w i t h i n an i n d u s t r y i i i . Industry-wide SME groups In a l l cases, the SME i n d i v i d u a l or group must be p r e s e n t l y o p e r a t i n g w i t h i n an e l i g i b l e i n d u s t r y as designated by the C o u n c i l on SME M o d e r n i z a t i o n . The fundamental goals of the programme are to promote modernization of products and p r o d u c t i o n processes, reform of the i n d u s t r i a l s t r u c t u r e , and improvement of the i n t e r n a t i o n a l c o mpetitiveness of the d e s i g n a t e d i n d u s t r i e s . 6.2.1 Modernization As of 1980, there were -57 d e s i g n a t e d i n d u s t r i e s (more f i n e l y s u b d i v i d e d i n t o 69 i n d u s t r i e s f o r p o l i c y implementation), most of which were i n the manufacturing s e c t o r . Table 21 l i s t s some r e p r e s e n t a t i v e designated i n d u s t r i e s i n the manufacturing s e c t o r . The c e n t r a l a d m i n i s t r a t i o n of the programme i s c a r r i e d 303 o u t by M o d e r n i z a t i o n C o u n c i l s e s t a b l i s h e d a t t h e n a t i o n a l ( i . e . , i n d u s t r y - w i d e ) , r e g i o n a l , and m u n i c i p a l l e v e l s as r e q u i r e d by t h e n a t u r e o f t h e p a r t i c u l a r i n d u s t r y . T h e s e c o u n c i l s e s t a b l i s h t h e g e n e r a l g u i d e l i n e s f o r m o d e r n i z a t i o n p l a n s , c o n s u l t i n t h e p r e p a r a t i o n of p l a n s f o r s u b m i s s i o n t o t h e c o u n c i l , and r e v i e w and a p p r o v e s p e c i f i c p r o p o s a l s s u b m i t t e d by i n d i v i d u a l SMEs. The c o n t e n t of g u i d e l i n e s and s p e c i f i c p r o p o s a l s v a r i e s c o n s i d e r a b l y f r o m i n d u s t r y t o i n d u s t r y and from e n t e r p r i s e t o e n t e r p r i s e b u t c o u l d i n c l u d e s u c h m a t t e r s a s ; new p r o d u c t s , new t e c h n o l o g y , equipment m o d e r n i z a t i o n , change i n t h e s c a l e of o p e r a t i o n s , and p r o p o s a l s t o a l t e r t h e n a t u r e of r e l a t i o n s w i t h c o m p e t i t o r s o r w i t h s u p p l i e r s o r c u s t o m e r s . 6.2.2 E n t r y I n t o New L i n e s Of B u s i n e s s T h i s programme a p p l i e s t o SME i n i n d u s t r i e s w h i c h have been d e s i g n a t e d a t t h e m i n i s t e r i a l l e v e l t o be e l i g i b l e . The i n d u s t r i e s d e s i g n a t e d need n o t be d o m i n a t e d by SMEs but t h e SMEs w i t h i n t h e i n d u s t r y must have s u f f e r e d s e v e r e a d v e r s e impact f r o m ; i . C h a n g i n g consumer demand; i i . The a d v e n t of c o m p e t i t i v e p r o d u c t s o r , i i i . C hanges i n t h e s u p p l y o f b a s i c raw m a t e r i a l s The programme i s a v a i l a b l e t o g r o u p s o f SME w i t h i n t h e i n d u s t r y 304 Table 21 - Mo d e r n i z a t i o n P o l i c y : Some R e p r e s e n t a t i v e Designated I n d u s t r i e s MODERNIZATION POLICY: SOME REPRESENTATIVE DESIGNATED INDUSTRIES MODERNIZATION PROGRAMME STRUCTURAL REFORM PROGRAMME (i n t o t a l 57 i n d u s t r i e s ) ( i n t o t a l 40 i n d u s t r i e s ) Plywood ( i n c l u d i n g Laminated Lumber) X N a i l s Gears and Sprockets S t e e l C a s t i n g s Small S p r i n g s P r i n t e d C i r c u i t Boards X D i e c a s t i n g s M e t a l l i c Thermometers Leather Tanning and Dyeing Matches X Wooden F u r n i t u r e X Ceramic T i l e Book B i n d i n g Paper Manufactures Shoes o f Manmade m a t e r i a l s X Bags, B r i e f c a s e s , S u i t c a s e s Wooden Boats X Small and Medium-Sized S t e e l Boats X Cabinets f o r E l e c t r o n i c Products X Hand T o o l s X X X X Source: Chushokigyo Shisaku no Aramashi: Goju Go Nendo, op c i t . , pp 8, 9, and 12. (S.M.E.A., Tokyo, 1980) 305 but groups need not c o n s i s t of the bulk of SME w i t h i n the i n d u s t r y ; though a l l SME i n the i n d u s t r y must be e l i g i b l e to j o i n the group i f they wish to do so. The programme assumes that a p a t t e r n of fragmented, s m a l l , firms i s a prime cause of SME problems i n these i n d u s t r i e s and, fo r t h i s reason, r e q u i r e s that p r o p o s a l s to enter new l i n e s of business i n v o l v e a c o n s i d e r a b l e element of co o p e r a t i o n or c o n s o l i d a t i o n among the firms w i t h i n a group. The emphasis i s on development and entry i n t o new ( a l t e r n a t i v e ) product l i n e s . 6.2.3 Reform Of I n d u s t r i a l S t r u c t u r e T h i s programme was e s t a b l i s h e d i n 1969 and r e v i s e d i n 1973 and 1975. I t a p p l i e s to a subset of the i n d u s t r i e s e l i g i b l e f o r the Modernization Programme, d i s c u s s e d above. These are i n d u s t r i e s in which i t has been deemed that the extent or pace of change r e q u i r e d to meet the modernization o b j e c t i v e i s such as to demand industry-wide c o o p e r a t i v e e f f o r t s aimed at s t r u c t u r a l reform. As of 1980, t h i s group c o n s i s t e d of 40 of the 57 i n d u s t r i e s i n the Modernization Programme. Some of these are i n d i c a t e d i n the immediately preceding t a b l e . The programme r e q u i r e s formation of an industry-wide plan f o r reform developed by an i n d u s t r y o r g a n i z a t i o n which; c o n s i s t s of 50% or more of the incumbent SME, i s a capable of overseeing implementation, and p l a u s i b l y r e f l e c t s the views of SME w i t h i n the i n d u s t r y . The content of pr o p o s a l s made under t h i s programme, again, vary a great deal from case to case but might i n c l u d e the 306 f o l l o w i n g f e a t u r e s ; new product and technology development; adjustment of average s c a l e and e f f i c i e n c y v i a merger, c o o p e r a t i v e p r o d u c t i o n , i n t r a - i n d u s t r y s p e c i a l i z a t i o n , and c o o p e r a t i v e d i s p o s a l of excess p r o d u c t i o n c a p a c i t y ; reform of d i s t r i b u t i o n , and s a l e s networks; and adoption and promotion of a common brandname or trademark. The 1975 r e v i s i o n of t h i s programme expanded i t s coverage to SME i n r e l a t e d (upstream or downstream) i n d u s t r i e s not s p e c i f i c a l l y d esignated i n the Modernization programme. 6.3 SME Change Of Business P o l i c y 6.3.1 O u t l i n e In recent years there have been r a p i d changes i n the i n d u s t r i a l environment; many of which have had adverse impact on SMEs. Some SME have s u c c e s s f u l l y responded to such environmental change by sw i t c h i n g to a new l i n e of b u s i n e s s . Given Japan's r e l a t i v e l y slower rate of economic growth nowadays, the task of sw i t c h i n g to a new l i n e of business has become c o n s i d e r a b l y more d i f f i c u l t f o r SME. The Japanese SME Change of Business P o l i c y i s aimed at a s s i s t i n g SME which, on t h e i r own i n i t i a t i v e , seek to make the t r a n s i t i o n to a new l i n e of b u s i n e s s . The p o l i c y i s a p p l i c a b l e to i n d i v i d u a l SME i n designated depressed i n d u s t r i e s i n which e x t e r n a l s t r u c t u r a l change has had adverse impact on SME w i t h i n the i n d u s t r y . Four types of s t r u c t u r a l change are c o n s i d e r e d i n d e s i g n a t i n g e l i g i b l e i n d u s t r i e s . These a r e : 307 i . Change i n i n t e r n a t i o n a l p a t t e r n s o f t r a d e l e a d i n g t o d e c r e a s e d e x p o r t s or i n c r e a s e d i m p o r t s i i . T e c h n o l o g i c a l change c r e a t i n g an a d v a n t a g e f o r c o m p e t i t i v e p r o d u c t s whether on t h e b a s i s of p r o d u c t i v i t y , q u a l i t y , p r o d u c t c h a r a c t e r i s t i c s , or pr i c e i i i . Changes i n i n t e r n a t i o n a l m a r k e t s s u c h t h a t i t becomes d i f f i c u l t t o a c q u i r e n e c e s s a r y raw m a t e r i a l s i v . Changes i n s a f e t y and e n v i r o n m e n t a l p r o t e c t i o n l e g i s l a t i o n s u c h t h a t i t i s p h y s i c a l l y or f i n a n c i a l l y i m p o s s i b l e t o comply w i t h r e g u l a t i o n s As of 1980, 101 i n d u s t r i e s have been d e s i g n a t e d on a n a t i o n a l b a s i s and 9 i n d u s t r i e s on a r e g i o n a l b a s i s . In t h e c a s e of t h e 9 r e g i o n a l l y e l i g i b l e i n d u s t r i e s , o n l y r e l e v a n t SME l o c a t e d w i t h i n t h e d e s i g n a t e d r e g i o n s a r e e l i g i b l e . A l a r g e number of t h e d e s i g n a t e d i n d u s t r i e s a p p e a r t o be ones i n w h i c h LDC c o m p e t i t i o n has had an a d v e r s e impact on J a p a n e s e p r o d u c e r s . T a b l e 22 l i s t s some of t h e s e . I n d i v i d u a l f i r m s i n t h e s e i n d u s t r i e s , or o t h e r f i r m s w h i c h c a n d e m o n s t r a t e t h a t t h e y f a c e t h e same c i r c u m s t a n c e s as t h o s e f i r m s , c a n a p p l y t o t h e i r r e g i o n a l government f o r a p p r o v a l of t h e i r e l i g i b i l i t y f o r a s s i s t a n c e under t h e programme. A l l a p p l i c a n t s must d e m o n s t r a t e a d r o p o f 5% o r more i n t h e i r l e v e l o f s a l e s d u r i n g t h e p a s t t h r e e y e a r t i m e p e r i o d and p r o v i d e c o m p l e t e f i n a n c i a l s t a t e m e n t s f o r t h e p e r i o d as w e l l a s a d e t a i l e d p l a n f o r c h a n g i n g t h e i r l i n e of b u s i n e s s . T a b l e 22 - Change of B u s i n e s s P o l i c y : Some R e p r e s e n t a t i v e D e s i g n a t e d I n d u s t r i e s Lumber Plywood (Decorative & c o n s t r u c t i o n goods) Wire and Cable Products E l e c t r o p l a t i n g P l a s t i c F i l m Sheet A r t i f i c i a l L e a t h er Christmas Dec o r a t i o n s & A c c e s s o r i e s P l a s t i c Shoes, Sandals & A c c e s s o r i e s f o r same Rubber Footwear & A c c e s s o r i e s Leather Gloves Wooden Boxes and C o n t a i n e r s S t a i n l e s s S t e e l C u t l e r y P l a s t i c Housewares and C o n t a i n e r s Ceramic N o v e l t i e s & Knick Knacks Ceramic T i l e s Matches N a t u r a l & A r t i f i c a l Bamboo Window Shades B r i c k s & Paving T i l e Boats, Equipment & A c c e s s o r i e s Wooden K i t c h e n and Diningware E l e c t r i c a l wire & Cable T e x t i l e Machinery Scarves & M u f f l e r s Ceramic P l a n t e r s Metal Housewares A r t i f i c i a l P e a r l s S k i s Buttons Western S t y l e Umbrellas S p i n n i n g I n d u s t r i e s Cotton Yarn and Thread Wool Yarn and Thread Other Yarn and Thread Weaving I n d u s t r i e s Cotton and Wool Woven F a b r i c s K n i t t e d F a b r i c s Woven F a b r i c s of A r t i f i c i a l or N a t u r a l . S i l k Underwear (except Japanese S t y l e ) Innerwear (except Japanese S t y l e ) Outerwear (except Japanese S t y l e ) S t o c k i n g s Cotton Gloves Hats and Caps Handkerchieves Jade S t e e l C a s t i n g s Products of S t e e l Wire or Rod Source: S.M.E.A., 1979 [ i n t e r n a l r e p o r t ] 309 6 . 3 . 2 E l i g i b i l i t y C r i t e r i a In approving the e l i g i b i l i t y of an a p p l i c a n t , the r e g i o n a l government must be s a t i s f i e d t h a t ; i . The a p p l i c a n t ' s proposal w i l l r e s u l t i n the e l i m i n a t i o n of most of the c u r r e n t l i n e of business and that the new l i n e w i l l account fo r a s u b s t a n t i a l p r o p o r t i o n of the f i r m ' s t o t a l business when the plan i s implemented i i . The p r o p o s a l i s a p p r o p r i a t e to the c a p a b i l i t i e s of the a p p l i c a n t i i i > The new l i n e of business i s o b j e c t i v e l y q u i t e d i s t i n c t from the present l i n e of business; e s p e c i a l l y where the Japan 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 w i l l remain the same and, i v . I t i s i n the p u b l i c i n t e r e s t to a s s i s t the a p p l i c a n t i n t o the p a r t i c u l a r new l i n e of business proposed. I t should not, f o r example be a business l i a b l e to a f f e c t p u b l i c m o r a l i t y nor should i t be another o f f i c i a l l y d e signated depressed i n d u s t r y . 6.4 D i s t r e s s e d Regional Industry ("Sanchi") P o l i c y The d i f f i c u l t i e s posed by sanchi i n d i s t r e s s e d i n d u s t r i e s o f t e n have a dramatic impact on t h e i r l o c a l communities. Changes i n i n t e r n a t i o n a l exchange r a t e s and i n c r e a s e d c o m p e t i t i o n from developing c o u n t r i e s d u r i n g the 1970's pushed a l a r g e number of sanchi i n t o c r i s i s . In response to t h i s s i t u a t i o n , s p e c i a l l e g i s l a t i o n was passed i n 1979 and expanded 310 in 1980 to provide a s s i s t a n c e to d e s i g n a t e d s a n c h i . As of 1979, there were a t o t a l of 77 designated sanchi e l i g i b l e f o r a s s i s t a n c e under t h i s programme. In a d d i t i o n to the types of a s s i s t a n c e i n d i c a t e d f o r the programmes d i s c u s s e d e a r l i e r , the f e d e r a l government shares with the r e l e v a n t p r e f e c t u r a l governments the c o s t s of developing long-range adjustment plans and a l s o underwrites the c o s t s of d e v e l o p i n g and implementing programmes to upgrade the s k i l l s of managerial, t e c h n i c a l , and s h o p - f l o o r p e r s o n n e l . The programme i s formulated and implemented in c o n j u n c t i o n with sanchi producer's c o o p e r a t i v e s but some of the a s s i s t a n c e p r o v i s i o n s are a v a i l a b l e to i n d i v i d u a l SME which are members of the c o o p e r a t i v e s . The general t h r u s t of the p o l i c y does not d i f f e r s u b s t a n t i a l l y from that of the preceding two p o l i c i e s d i s c u s s e d but i t i s aimed at g i v i n g an e s p e c i a l l y high degree of a t t e n t i o n and support with r e s p e c t to the severe problems found i n some s a n c h i . 6.5 Trade P o l i c y And SMEI While i t i s l e s s a matter of adjustment a s s i s t a n c e than p r o t e c t i o n i s m , i t i s r e l e v a n t to c o n s i d e r whether the Japanese government has, under the r u b r i c of trade p o l i c y , attempted to i n t e r v e n e on behalf of SME which face c o m p e t i t i o n form the Asian NICs. Under the General Agreement on T a r i f f s and Trade (G.A.T.T.), there i s a commitment to f r e e trade and removal or 31 1 r e d u c t i o n of trade b a r r i e r s . Moreover, in recent years, the formal commitment to an e s p e c i a l l y favourable treatment of exports from LDCs has been strengthened. N e v e r t h e l e s s , r e s t r i c t i o n s and l i m i t a t i o n s on imports of LDC manufactures which compete with domestic producers are, i n p r a c t i c e , a common fe a t u r e of DC trade p r a c t i c e s . The G.A.T.T. does prov i d e , under A r t i c l e XIX, f o r the a l t e r a t i o n of t a r i f f s and the i m p o s i t i o n of quotas in cases of "market d i s r u p t i o n " i n which domestic i n d u s t r y has been or threatens to be s e r i o u s l y i n j u r e d . If waivers under A r t i c l e XIX were the p r e f e r r e d means of i n h i b i t i n g imports from LDCs, then the r e c o r d of waivers would p r o v i d e a reasonably o b j e c t i v e means of a s s e s s i n g the r e l a t i v e degree of Japanese p r o t e c t i o n i s m with respect to our s e l e c t e d set of SMEI. In f a c t , " C o u n t r i e s have i n c r e a s i n g l y tended to abjure invoking A r t i c l e XIX when e s t a b l i s h i n g import r e s t r a i n t s . . . ( a n d ) . . . A common t a c t i c has been to n e g o t i a t e o f t e n - s e c r e t 'voluntary export r e s t r a i n t s ' , which are undoubtedly more common than i n v o c a t i o n s of A r t i c l e XIX." 1' 1 Thus, there i s no ready means of o b j e c t i v e l y a s s e s s i n g the r e l a t i v e degree of p r o t e c t i o n i s m as between products and c o u n t r i e s . There are, however, a number of f a c t o r s which, i n the case of Japan and with respect to the i d e n t i f i e d set of SMEI, suggest that such p r o t e c t i o n i s m has not been an important f e a t u r e . 1 , 1 J . A. F i n l a y s o n and M. W. Zacher, "The G.A.T.T. and the r e g u l a t i o n of trade b a r r i e r s : regime dynamics and f u n c t i o n s " 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 , Autumn 1981, pp. 561-602. 312 F i r s t , J a p a n e s e i n d u s t r y h a s , i t s e l f , been a p r o t e s t i n g t a r g e t of p r e s s u r e s from w e s t e r n i n d u s t r i a l i z e d c o u n t r i e s f o r " v o l u n t a r y " q u o t a s and e x p o r t r e s t r a i n t s and t h e economy, as a whole, has a s u b s t a n t i a l i n t e r e s t i n l i m i t i n g t h e o c c u r r e n c e of s u c h p r a c t i c e s . P e r h a p s i n r e f l e c t i o n of t h a t , J a p a n a l i g n e d i t s e l f w i t h t h e LDCs d u r i n g t h e Tokyo Round o f G.A.T.T. n e g o t i a t i o n s i n p r e s s i n g f o r e f f o r t s t o c u r b s u c h a r b i t r a r y r e s t r a i n t s on t r a d e . M o r e o v e r , my i n f o r m a n t s i n a f f e c t e d i n d u s t r i e s i n v a r i a b l y m i n i m i z e d t h e p r o s p e c t s f o r s u c h government p r o t e c t i o n e i t h e r b e c a u s e t h e y d i d n o t f e e l t h e government would c o n s i d e r i t t o be i n t h e n a t i o n a l i n t e r e s t or b e c a u s e t h e y t h e m s e l v e s , f a c i n g s i m i l a r t h r e a t s of imposed r e s t r a i n t i n t h e i r e x p o r t m a r k e t s , d i d n o t c o n s i d e r i t t o be i n t h e i r i n d u s t r y ' s b e s t i n t e r e s t . I n d e e d , t h e most p e r s u a s i v e r e a s o n f o r d i s c o u n t i n g t h e r o l e of g o v e r n m e n t - i m p o s e d i m p o r t r e s t r a i n t s i n t h e a d j u s t m e n t of our s e t o f SMEI i s p r e c i s e l y t h a t so many of them a r e h i g h l y e x p o r t -o r i e n t e d and f a c e t h e i r most c r u c i a l c o m p e t i t i o n i n f o r e i g n , n o t d o m e s t i c , m a r k e t s . 313 BIBLIOGRAPHY ENGLISH-LANGUAGE MATERIAL 1. Adelman, Irma, "Some T h o u g h t s on t h e R e s t r u c t u r i n g o f N o r t h - S o u t h 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. 2. A l t m a n , Edward, C o r p o r a t e B a n k r u p t c y i n A m e r i c a ( L e x i n g t o n Books, L e x i n g t o n , Mass., 1971). 3. A n s o f f , H. I g o r , "The C h a n g i n g Shape of t h e S t r a t e g i c P r o b l e m " i n S c h e n d e l and H o f e r ( e d s . ) , ( 1 9 7 9 ) . 4. A r g e n t i , J o h n , C o r p o r a t e C o l l a p s e : The C a u s e s and Symptoms ( W i l e y , New York, 1976). 5. 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 [ A . G . P . S . ] , S t u d y G roup on S t r u c t u r a l A d j u s t m e n t , R e p o r t March, 1979 Volume I_ (A.G.P.S., C a n b e r r a , 1979). 6. B a l a s s a , B., " P r o s p e c t s f o r T r a d e i n M a n u f a c t u r e d Goods Between I n d u s t r i a l and D e v e l o p i n g 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. 7. B a l a s s a , B e l a , "The 'New P r o t e c t i o n i s m ' and t h e I n t e r n a t i o n a l Economy" i n , J o u r n a l of W o r l d T r a d e Law V12 No5 S e p t / O c t 1978. 8. Baumol, Wm. J . , " C o n t e s t a b l e M a r k e t s : An U p r i s i n g i n t h e T h e o r y o f I n d u s t r y S t r u c t u r e " i n , A m e r i c a n Economic Review V 72 No 1 March, 1982. 9. B l a c k h u r s t , R i c h a r d e t a l , T r a d e 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 I n t e r d e p e n d e n c e ( G e n e r a l Agreement on T a r i f f s and T r a d e l G . A . T . T . J , Geneva, 1977). 10. Cohen, S t e p h e n D., "Changes i n t h e I n t e r n a t i o n a l Economy: O l d R e a l i t i e s and New Myths" J o u r n a l of W o r l d T r a d e Law V12 No4 J u l y / A u g u s t 1978. 11. De B a r y , W. T. ( e d . ) , S o u r c e s o f J a p a n e s e T r a d i t i o n , Volume 1 (New Y o r k , C o l u m b i a U n i v e r s i t y P r e s s , 1958). 12. Development C e n t r e , O r g a n i z a t i o n f o r Economic C o o p e r a t i o n and Development [O.E.C.D.] I n t e r d e p e n d e n c e and Development (O.E.C.D., P a r i s , 1979). 13. Donges, J . B., "A C o m p a r a t i v e S u r v e y o f 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. 14. D u n n i n g , J . H., " E x p l a i n i n g t h e I n t e r n a t i o n a l D i r e c t I n v e s t m e n t P o s i t i o n o f C o u n t r i e s : Towards a Dynamic o r 314 D e v e l o p m e n t a l A p p r o a c h " 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 V 117, 1981. 15. F i n l a y s o n , J . A. and Z a c h e r , M. W., "The G.A.T.T. and t h e r e g u l a t i o n of t r a d e b a r r i e r s : r egime d y n a m i c s and f u n c t i o n s " 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 , Autumn 1981. 16. Fox, H a r o l d , "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. 17. G e n e r a l Agreement on T a r i f f s and T r a d e [G.A.T.T.] I n t e r n a t i o n a l T r a d e 1979/80 (G.A.T.T., Geneva, 1980). 18. G i e r s c h , H e r b e r t ( e d . ) , The 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 : P r o b l e m s and P e r s p e c t i v e s ( J . C . B . Mohr, T u b i n g e n , •1974) . 19. Ginman, P e t e r J . and M u r r a y , 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 S a u v a n t , K. P. and H a s e n p f l u g , H. ( e d s . ) , The New I n t e r n a t i o n a l Economic O r d e r ( W i l t o n House, London, 1977). 20. G l a s e r , B. G., The D i s c o v e r y o f G r o u n d e d T h e o r y : S t r a t e g i e s f o r Q u a l i t a t i v e R e s e a r c h ( A l d i n e , A t h e r t o n , C h i c a g o , 1967). 21. 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 : A d v a n c e s i n t h e M e t h o d o l o g y of Grounded T h e o r y (The S o c i o l o g y P r e s s , M i l l V a l l e y , 1978). 22. G l u e c k , Wm. F., B u s i n e s s 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 Y o r k , 1980). 23. 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 B u s i n e s s e s ( L e x i n g t o n Books, L e x i n g t o n , Mass., 1980). 24. H a r r i g a n , K. R., " E x i t D e c i s i o n s i n M a t u r e I n d u s t r i e s " i n , Academy of Management J o u r n a l V2 No4, 1982. 25. H e l m s t a d t e r , G. C , R e s e a r c h C o n c e p t s i n Human B e h a v i o u r ( M e r e d i t h , New Y o r k , 1970). 26. Herman, B., The O p t i m a l 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 n t e r n a t i o n a l L a b o u r O r g a n i z a t i o n , Geneva, 1975). • 27. H o f e r , C. W. e t a l , S t r a t e g i c Management: A Casebook i n B u s i n e s s P o l i c y and P l a n n i n g (West, New Y o r k , 1980). 28. H o f e r , C. W., "Towards a C o n t i n g e n c y T h e o r y o f B u s i n e s s S t r a t e g y " i n , Academy o f Management J o u r n a l December, 1975. 29. J a c k s o n , John H., "The C r u m b l i n g I n s t i t u t i o n s of t h e L i b e r a l T r a d e System" i n , J o u r n a l of W o r l d T r a d e Law V12 315 No2 ,March/April 1978. 30. K r e i k e n , Jan, " E f f e c t i v e V e r t i c a l I n t e g r a t i o n and D i s i n t e g r a t i o n S t r a t e g i e s i n Glueck, Wm. F. (1980). 31. 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. 32. 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) . 33. 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 V117, 1981. 34. 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) . 35. Matthews, R. A., D i s c u s s i o n Paper No 172, Canadian Industry and the ChiTllenqe of Low-Cost Imports (Economic C o u n c i l of Canada, Ottawa, 1980). 36. Matthews, R. A., " I n d u s t r i a l V i a b i l i t y in a Free Trade Ecbnomy" 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). 37. 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, No. 4, 1979. 38. M i l e s , M. B., " 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 " i n , 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. 39. 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). 40. 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. 41. 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). 42. 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 I n d u s t r y " in'., 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. 43. O r g a n i z a t i o n f o r Economic Cooperation and Development 316 [O.E.C.D.] 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). 44. O r g a n i z a t i o n f o r Economic Cooperation and Development [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). 45. P o r t e r , M. E. , Competitive S t r a t e g y , The Free Press, New York, 1980). 46. Prime M i n i s t e r ' s O f f i c e , Japan Table of O r g a n i z a t i o n of the Government of Japan ( S o r i f u ^ Tokyo, 1974). 47. Ross, J o e l E. and Kami, M. J . , Corporate Management in 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). 48. Rugman, A. M., " I n t e r n a l i z a t i o n as a General Theory of For e i g n D i r e c t Investment: A R e a p p r a i s a l of the L i t e r a t u r e " 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 V 116, 1980. 49. 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). 50. Schendel, Dan E. and Hofer, C. W. (eds.), 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). 51. 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. 52. Shinohara, M., The Japanese Economy and Southeast A s i a , I.D.E. O c c a s i o n a l Papers No. 15, ( I n s t i t u t e of Developing Economies, Tokyo, 1977). 53. Spender, J . C , "Commentary" in Schendel and Hofer (eds.), (1979). 54. S t e i n e r , George A., "Contingency T h e o r i e s of S t r a t e g y and S t r a t e g i c Management" in Schendel and Hofer (eds.) (1979). 55. Strange, Susan , "The management of s u 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, 1 979T 56. 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). 57. United Nations Conference on Trade and Development [UNCTAD], Adjustment A s s i s t a n c e Measures [TD/121 and 317 s u p p l e m e n t s ] (UNCTAD, Geneva, 1972). 58. U n i t e d N a t i o n s C o n f e r e n c e on T r a d e and Development [UNCTAD], A d j u s t m e n t A s s i s t a n c e M e a s u r e s [TD/B/C.2/171] (UNCTAD. Geneva, 197777 59. U n i t e d N a t i o n s 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 T r a d e w i t h D e v e l o p i n g C o u n t r i e s on Employment i n D e v e l o p e d C o u n t r i e s : E m p i r i c a l E v i d e n c e From R e c e n t R e s e a r c h " i n , W o r k i n g P a p e r s on S t r u c t u r a l Change , No. 3 (UNIDO, V i e n n a , 1978). [ 60. U n i t e d N a t i o n s , R e s t r u c t u r i n g of W o r l d I n d u s t r y (U.N., New Y o r k , 1978) 61. U n i t e d N a t i o n s , S t r u c t u r e and Change i n E u r o p e a n I n d u s t r y (U.N., New Y o r k , 1977). 62. U n i t e d N a t i o n s , U^ NL_ Y e a r b o o k of I n t e r n a t i o n a l T r a d e S t a t i s t i c s ( U n i t e d Nat i o n s , New Y o r k ) . 63. Van Maanen, John ( e d . ) , A d m i n i s t r a t i v e S c i e n c e Q u a r t e r l y V 24 No 4, December, 1979 [ s p e c i a l i s s u e on q u a l i t a t i v e r e s e a r c h m e t h o d o l o g y ] . 64. Warnecke, S. J . , 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 i a l P o l i c i e s (Holmes and M e i e r , New Y o r k , 1978). 65. W i l c o x , J a r r o d W., "The G a m b l e r ' s R u i n A p p r o a c h t o B u s i n e s s R i s k " i n S l o a n Management Review F a l l , 1976. 66. W i l l i a m s , J e f f r e y R., S t r a t e g i c E q u i l i b r i u m i n t h e M u l t i - p r o d u c t F i r m ( Working P a p e r , C a r n e g i e - M e l l o n U n i v e r s i t y , G r a d u a t e S c h o o l of I n d u s t r i a l Management, P i t t s b u r g h , 1980). 67. W i l l i a m s o n , O. E., M a r k e t s and H i e r a r c h i e s : A n a l y s i s and I m p l i c a t i o n s f o r A n t i t r u s t (The F r e e P r e s s , New Y o r k , 1975). 68. W o l t e r , F r a n k , " R e s t r u c t u r i n g f o r Import C o m p e t i t i o n from D e v e l o p i n g C o u n t r i e s , I I : The Case of t h e F e d e r a l R e p u b l i c of Germany" i n , J o u r n a l o f P o l i c y M o d e l l i n g V2 No2 1980. 69. Y a m a z a k i , M i t s u r u , J a p a n ' s Community-based I n d u s t r i e s : A Case S t u d y o f Small""!Industry [ E n g l i s h - l a n g u a g e v e r s i o n o f Yamazaki ( 1 9 7 7 ) ; see J a p a n e s e - l a n g u a g e m a t e r i a l ] ( A s i a n P r o d u c t i v i t y O r g a n i z a t i o n , T okyo, 1979). 318 JAPANESE-LANGUAGE MATERIAL 70. Chushokigyo K e i e i Kenkyusho, Osaka K e i z a i Daigaku Chusho Kigyo Kenyu [ B i b l i o g r a p h y on s m a l l - and medium-sized e n t e r p r i s e research] ( N i c h i g a i A s o s h i e t s u , Tokyo, 1978). 71. Department of Commerce and Industry, Tokyo Sanchi Chusho Kigyo Shinko B i j i o n (Kawasei Hakimono Seizogyo) (Tokyoto, Shokobu, Tokyo, undated [1979?]). 72. Department of Industry, A i c h i P r e f e c t u r e "Nagoya no Yushutsu T o j i k i " i n , Shoko A i c h i May, 1979 ( A i c h i k e n , Shokobu, Nagoya). 73. Hayashi, Y u j i r o (ed.), Sekai n i Kakeru Nihon no G i j u t s u (Kogakusha, Tokyo, 1972~5~ 74. Ikeda, S, (ed.) N i i g a t a - k e n no Kinzoku Kako Sangyo [ l i m i t e d d i s 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). 75. I t a k u r a , K. (ed.), J i b a Sangyo no Machi (Furuima Shoin, Tokyo, 1978). 76. Japan Economic Research I n s t i t u t e of Commerce and Industry " J i b a Sangyo Rida no Okina Chie" i n Shoko J i a n a r u August, 1980 (Nihon Shoko K e i z a i Kenkyusho, Tokyo). 77. Japan Export-Import Bank K a i g a i Toshi Kenkyu Shoho V 7 No 9, 1981 (Nihon Yushutsunyu Ginko, 1981). 78. Japan E x t e r n a l Trade O r g a n i z a t i o n [JETRO] 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 ] (Nihon Boeki S h i n k o k a i , Tokyo, 1979). 79. Japan E x t e r n a l Trade O r g a n i z a t i o n [JETRO] "Sekai no J i b a Sanchi" i n , K a i g a i S h i j o September, 1980. 80. Japan E x t e r n a l Trade O r g a n i z a t i o n [JETRO] "Eikoku S h e f f i e l d no Kanamono/Kinzoku Yoshokki Sanchi" i n , K a i g a i S h i j o Sept. 1980 (Nihon Boeki Shinkokai, Tokyo). 81. Japan Metal Flatware Industry A s s o c i a t i o n Kinzoku Yoshokki no Enkaku [mimeo] (Nihon Kinzoku Yoshokki Sangyokai,Tsubame, undated). 82. Kanamori, H., Kanamori Hisao no Nihon K e i z a i Kogi (Nihon K e i z a i Shinbunsha, Tokyo, 1979). 83. Kanayama, No r i o , "Chushokigyo no Kokusai Tekioryoku" i n Shoko J i a n a r u J u l y , 1978 (Nihon Shoko K e i z a i Kenkyusho, Tokyo). 84. Kitamura Murahiro and Mori Ken (eds.), Wagakuni no K a i g a i 319 Toshi to Kokusai Bungyo o Meguru Shomondai ( A j i a K e i z a i Kenkyusho, Tokyo, 1979). 85. K u r i i , T a k a s h i , "Chushokigyo no K a i g a i t o s h i no Doko to Tokucho" i n , Kinyu Z a i s e i J i j o June, 1979. 86. M i n i s t r y of Finance (Kanto O f f i c e ) Chiho J i s e i Geppo (Okurasho, Kantokyoku, Tokyo, August^ 1978) . 87. 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 [M.I.T.I.] Waga Kuni Kigyo no K a i g a i J i g y o Tenkai (Tsushosangyosho, Tokyo, 1974). 88. 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 [M.I.T.I.] Tsusho Rokuho (Tsushosangyosho, Tokyo). 89. 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 [M.I.T.I.] Sangyo Tokei Kenkyu Hokoku: Sengo Wagakuni Kogyo Choki Doko Bunseki (Tsusho Tokei Kyokai, Tokyo. 1978). 90. 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 [M.I.T.I.], Shohin Bunrui-hyo (Tsushosangyosho, Tokyo, 1979). 91. 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 [M.I.T.I.] Showa 49 Nenpan Waga Kuni Kigyo no K a i g a i J i g y o Katsudo (Tsushosangyosho, Tokyo, 197 4). 92. 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 [M.I.T.I.], Showa Gojunendo no S e i k a t s u y o h i n Sangyo (M.I.T.I., Tokyo, 1976). 93. 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 [M.I.T.I.] Nihon Kigyo no K o k u s a i t e k i Tenkai (Tsushosangyosho, Tokyo, 1 973) . 94. M i t s u i , Kozo et a l " T o j i k i Kogyo no Kyoteki Shomondai" i n , Seramikusu No. 5, 1979. 95. Nabeta, Mitsuo, Seni Gyokai (Kyoikusha, Tokyo, 1978). 96. Nakamura, S h u i c h i r o "Kobe Kemikaru Shuzu Sangyo n i Miru Yushutsu Sangyo no N a i j u Sangyo e no Tenkan" i n , Chosa Geppo Sept. 1979. 97. 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 F u s h i t a no Chushokogyo no Kokusaikan Kyoso no Shomondai to J i t t a i , V 2 (Osaka F u r i t s u Shoko Kenkyusho, Osaka, 1971). 98. Osono, Hideo et a l (e d s . ) , Chiho no J i d a i to Kogyo S a i h a i c h i (Toyo K e i z a i Shinposha, Tokyo, 1980) . 99. Research Department, C i t i z e n ' s F i n a n c i a l C o r p o r a t i o n "Senshinkunigata Sangyo e no Mich i -Kobe Kemikaru Shuzu 3 2 0 Sanchi" i n , Chosa Geppo August 1979 (Kokumin Kinyu Koko, Kenkyuka, Tokyo). 100. Sakamoto, Yasuhiro, "Kokusaika no Shinten to Shitauke Chushokigyo no K a i g a i S h i n s h i t s u " i n , Chushokigyo to Kumiai No. 4, 1980. 101. Shokokumiai Chuo Kinko, Kokusaibu, Chushokigyo no K a i g a i Toshi J i t t a i Chosa (Shokokumiai Chuo Kinko, Tokyo, 1979). 102. Small- and Medium-sized E n t e r p r i s e Agency [S.M.E.A.], Chushokigyo Seisaku no Gaiyo (Chushokigyocho, June, 1980). 103. Small- and Medium-sized E n t e r p r i s e Agency [S.M.E.A.] Chusho Kigyo Shisaku no Aramashi, 1980 (Chushokigyocho, Tokyo, 1980). 104. Small- and Medium-sized E n t e r p r i s e F i n a n c i a l C o r p o r a t i o n "Kankoku no Oiage to Tsubame Sanchi no T a i o " i n , Chushokigyo Kinyu Koko Geppo 1979, 1-6 (Chushokigyo Kinyu Koko, J i g y o Chosaka,Tokyo). 105. Small- and Medium-sized E n t e r p r i s e Agency [S.M.E.A.] Chushokigyo Seisaku no Gaiyo (Chushokigyocho, 1980). 106. Small- and Medium-sized E n t e r p r i s e Information Centre "Endakashita no T o j i k i Sangyo" i n , Joho Chosa Repoto No. 394, 1979 (Chushokigyo Shinko Jigyodan, Tokyo). 107. Small- and Medium-sized E n t e r p r i s e Agency [S.M.E.A.], Chusho Kigyo Hakusho (Okurasho, Insatsukyoku, Tokyo). 108. Small- and Medium-sized E n t e r p r i s e Agency [S.M.E.A.] Chushokigyo no K a i g a i Toshi no Genjo, I g i , Oyobi Mondaiten (Chushokigyocho, Tokyo, 1980). 109. 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 Waga Kuni no Taio (Sogo Kenkyu Ka i h a t s u Kiko, Tokyo, 1980) . 110. Suzuki, N. (ed.) NIRA OUTPUT NRC-78-22 : A j i a Shokoku no Kyusokuna Kogyoka "to Waga Kuni no Tai~o (Sogo Kenkyu Ka i h a t s u Kiko, Tokyo, 1980). 111. Tadara, Toru "Yogasa" i n , K a i g a i S h i j o J u l y , 1979 (Nihon Boeki S h i n k o k a i , Tokyo). 112. The Nihon K e i z a i (ed.), Asu no Raibaru (Nihon K e i z a i Shinposha, Tokyo, 1978). 113. Tokyo Chamber of Commerce and Industry, Nihon Shoko K e i z a i Dantai Meiran (Tokyo Shoko K a i g i s h o , Tokyo, 1978). 321 114. Toyo K e i z a i S h i n p o s h a K e i z a i T o k e i Nenran, 1980 (Toyo K e i z a i S h i n p o s h a , Tokyo^ 1 9 8 0 ) . 115. Toyo K e i z a i S h i n p o s h a 1979 C h i i k i K e i z a i S o r a n (Toyo .. K e i z a i S h i n p o s h a , Tokyo^ 1979). 116. Watanabe, T o s h i o ( e d . ) , A j i a Kogyoka no S h i n j i d a i ( N i h o n B o e k i S h i n k o k a i , Tokyo, 1 979) . 117. Watanabe, T o s h i o , 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). 118. Y a m a z a k i , M i t s u r u , N i h o n no J i b a Sangyo (Daiyamondosha, Tokyo, 1977).