Shanghai Morimatsu:
Roots in Japan, Technology in China
Miles Dodd
Doshisha Business Case 05-08
December 2005

Shanghai Morimatsu: Roots in Japan, Technology in China
Miles Dodd
Research Associate, Institute for Technology, Enterprise and Competitiveness (ITEC)
Doshisha University

Copyright © 2005 by Miles Dodd, Research Associate, Institute for Technology, Enterprise andCompetitiveness (ITEC), Doshisha University.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by
any means – electronic, mechanical, photocopying, recording, or otherwise – without written permission
from the author. The case was prepared by Miles Dodd with the support of ITEC, Doshisha University. It
is intended to be used as a basis for class discussion rather than to illustrate a correct or incorrect way ofhandling a business situation.

Shanghai Morimatsu Pressure Vessel Co Ltd.
http//:www.morimatsu.com.cn - http//:www.morimatsu.co.jp

In 1972 Nobuo Matsuhisa was 32 years old. He had joined the management of
the privately owned family business, Morimatsu Industry, in 1959 when his father had
fallen ill and he himself was only 19 years old. The company, located in the Japanesecity of Gifu, was engaged in precision engineering, and manufactured water, oil, andother tanks for buildings and municipal storage. Matsuhisa had not attended university
but had continued to train as an engineering and welding technician. The levels of
expertise he achieved were subsequently to earn him many awards for innovation
excellence, culminating in 1997 in the award of a medal by the Emperor of Japan. He
had also found time to reach the highest ranks of amateur golf in Japan, and had taken
part in a number of pro-am tournaments.
1972 was a memorable year for China. The American President Nixon had held
his historic meeting with Mao Tse Tung and Chou En Lai in February of that year, andthe Japanese Prime Minister Tanaka had followed him to Beijing in September.
Domestically, the year marked the acknowledgment by the Chinese leadership that the
Cultural Revolution had spun out of control and had caused immense damage to thecountry. The psychological scars were still raw, and the debilitating effects on
education, production, business, infrastructure, and the people's well-being wereeverywhere to be seen.
In the same year of 1972, Matsuhisa had participated in a visit to China by aJapanese business group interested in learning more about the situation there. They
were curious to see what was happening in Japan's huge neighbour as it began to

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Shanghai Morimatsu: Roots in Japan, Technology in China
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emerge from its internal turmoil. Matsuhisa was impressed by the people and theirsense of independence and pride despite the general deprivation. The Japanese group
had taken cigarette lighters and ladies' stockings to hand out to their hosts, but these
gifts were politely refused. Matsuhisa returned with a deep sense of admiration despite
the evident impoverishment. "I could see that after 50 to 100 years these people would
be achieving great things, but I did not believe it would happen in my lifetime", he said.
On his return to Japan Matsuhisa decided to sponsor Chinese students to study at
Japanese universities. Between his first visit in 1972 and 2004 he had supported morethan 15 such students.
Morimatsu Industry had grown progressively and was proud of its establishedposition in the production of stainless steel and other tanks for water and various liquids.
It had pioneered new designs and materials, and by the end of the 1980s had become theleader in its field in Japan, with Nobuo Matsuhisa personally leading innovation andresearch. However the way ahead was not clear. As Japan had grown during the 1980s
and 1990s, young people had come to avoid work in what were termed "3 K"
manufacturing industries, which were seen to be Kiken (dangerous) Kitsui (tough) andKitanai (dirty). So it was not easy to recruit labour, which had also become increasingly
expensive. Further, it had become difficult to procure some raw materials andcomponents at reasonable prices in Japan.
Meanwhile, across the South China Sea, China was already beginning to emerge
from its long slumber. Earlier than he had anticipated, Matsuhisa therefore began toconsider how China might play a part in his company's fortunes.
Many small and medium sized Japanese companies sought the help of the large
trading companies (sogo shosha) when seeking to develop overseas contacts. However,Matsuhisa felt that to do so would be to surrender control over what might become an
important part of the company's business, so he determined to rely on his own resources.
He knew that many large Japanese companies had extended their manufacturing
activities across several countries in Southeast Asia, but he recognised that, as arelatively small company, Morimatsu would do better to concentrate all its efforts in
one country. It was natural, given his continuing interest, that his attention should focus
on China. In 1990 he moved to establish a factory in Shanghai, Shanghai Morimatsu
Pressure Vessel Co.Ltd.

***********************************************************
Kyoko Nishimura was to play a critical role as a key manager liaising between
the Chinese and Japanese interests of Morimatsu, overseeing the company's
international business, and becoming involved in all aspects of the development ofDoshisha Business Case 05-08

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Shanghai Morimatsu: Roots in Japan, Technology in China
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Shanghai Morimatsu apart from strictly technical matters. She had graduated from
Nagoya University in March 1986 with a degree in Japanese history. She had
nevertheless been fascinated by China and what was happening there, so had enrolled at
Zhong Shang University in Guangdong, to learn the language. On graduating, she hadheard that the Morimatsu company was interested in China, and had arranged to be
introduced to the company by an acquaintance. Later, president Matsuhisa was to say,
"I was not interested in what Nishimura had studied in university. What really attracted
me to her was her determination and strength of character".
As Japanese sourcing had become more problematic, Matsuhisa had been
considering procurement of some components and materials in China and elsewhere. He
had established a company called AMT Co. Ltd. in February 1987 in order to start
trading with China. Kyoko Nishimura had been put in charge of this activity. Initiallythe company had imported a variety of items from China such as fans, leather goods,
cashmere, and other products which had nothing to do with Morimatsu's main activities.
Matsuhisa had not been concerned about that, and had simply instructed Nishimura tofamiliarise herself with the ways of Chinese business. Gradually, however, AMT had
established possibilities for the procurement of parts and materials for Morimatsu's corebusiness in China.
One supplier was based in Nanning in Guangxi province in Southern China, andin November 1988 Nishimura was visiting it with the president to discuss a quality
problem when news reached them of the death of Matsuhisa's father. He had to return
immediately to Japan, but that was far from easy since Nanning is well off the main
travel routes in China, and it was necessary to travel to Hong Kong by train to catch aflight to Japan. However, the company had no contacts in Hong Kong. Nishimura
therefore contacted the relative of a person the president had sponsored to study inJapan, who was able to put them in touch with a friend in Hong Kong. The friend
arranged to meet them at the Hong Kong rail terminus in Kowloon and had meanwhile
tried to book flights from Hong Kong to Japan. It was a very busy time in Hong Kong
because the very popular Guangzhou trade fair was in progress, and no flight was
immediately available, so they had to stay overnight. That evening the two dined with
the Chinese woman who was helping them. Matsuhisa was fascinated to see that she
had entries in several foreign currencies listed in her bank book. This opened his eyesto the significance of Hong Kong's international role and he thereupon decided toestablish a Hong Kong company, which he called Tap Mate, as a base for Chinese
business. The lady who had been so helpful was appointed manager.
The construction industry in China had started to grow as the economic reforms
promoted by Deng Xiaoping began to take effect, and demand grew in China for
Morimatsu's water tanks. Nishimura succeeded in obtaining a number of orders;

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Shanghai Morimatsu: Roots in Japan, Technology in China
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however there were constant 'problems' with the testing and certification of the Japanese
made tanks for installation in China.
By 1988/89 the Japanese economy had reached the height of the 'bubble' years
and there was a shortage of labour in Morimatsu's factories. In order to take advantageof plentiful cheap labour in China, and also sensing the impending growth of theChinese domestic market, Matsuhisa took the decision to establish a factory in the
newly developing Pudong area east of the Huang Pu River in Shanghai. Establishing a
production base in China would also enable the company to comply more easily with
the Chinese tank certification requirements, facilitating Chinese domestic sales. It was
the first foreign-invested factory in the Pudong development area, so the Shanghai
Morimatsu factory was dubbed "Pudong #1". Nishimura moved from Hong Kong to
Shanghai and was to play a vital part in launching the factory's business.
Regulations then required foreign companies to make a joint venture with
Chinese partners. Morimatsu's partner was a group of farmers who knew little of thebusiness and yet were very demanding. President Matsuhisa commented: "Our initial
joint venture gave us a majority, but in China even a 1% share held by the Chinese
partner seemed to result in a 50%/50% attitude. We went into China with the normal
business attitude of 'give and take', but soon realised that there it is a matter of 'take andtake'."The Shanghai factory started slowly, and after three years still accounted for
only about 1% of head office sales. But the workload was not light. Nishimura recalls,"At the beginning, in 1990, I was doing almost everything: translating, interpreting,sales, government relations, negotiations with the joint venture partners, and many otherthings". The technical and manufacturing operations were run by Japanese managers
sent from head office. Kyoko Nishimura was the only Japanese executive who spoke
Chinese. The relationship with the joint venture partner was particularly fractious.
There were many arguments and Morimatsu received very little assistance of value fromthem. The situation deteriorated progressively, and finally came to a head in 1993. The
company had decided to recruit staff, and a number of candidates had applied. The joint
venture partner did its best to prevent this, even posting notices at the factory gate
warning interested candidates not to join the company, and locking in Nishimura andher colleagues to exclude them from the process. However, president Matsuhisa had
not been mistaken in his judgment of Nishimura's character: together with a colleague,
she climbed over the locked factory gates and took a taxi to the Shanghai municipal
offices to make an official complaint. This was followed later by a formal letter to the
Mayor of Shanghai.
Following Deng Xiaoping's pivotal tour of Southern China in 1992, during
which he had accused the 'leftists' of causing 'terrible harm' to China and argued
strongly for the development of a market economy, Shanghai had already embarked

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upon a major campaign to attract foreign investment to the city, and to Pudong inparticular. However, the legal and practical measures to support this were still
rudimentary and there was much bureaucratic confusion and uncertainty. At themunicipal office, Nishimura pointed out that unless foreign investors were given proper
protection, the city's ambitions for Pudong and other development zones would come tonothing. The city's response was to appoint a mediator, and this culminated in thetermination of the joint venture partnership and the creation of a new arrangement
known as a he zuo（合作） in Chinese, or gassaku （がっさく)n Japanese. Under thisarrangement, a silent Chinese partner held a 4% share and received a certain guaranteed
income but had no practical involvement, while Morimatsu held the remaining 96% andwas entirely responsible for the management. In practice this meant that, from 1994,
Morimatsu was entirely free to manage the company in its own way.
However, in 1996 the manager of Tap Mate was suddenly taken ill, and diedsoon after. Nishimura was transferred to Hong Kong in the middle of October that year
to take her place, while remaining closely involved with the business in Shanghai which
she visited regularly. A new local Hong Kong manager was appointed in due course,
and Tap Mate continued to assist with procurement. However, its importance declined
steadily as the Shanghai factory grew, and by 2003 its turnover had fallen to one eighthof its 1996 peak.

***********************************************************

Koei Nishimatsu (as he was to become) was born Chinese in Shanghai and waslater to take Japanese nationality. His father had been a university professor and his
mother a factory manager. Both had suffered considerably during the Cultural
Revolution. Like many who had been through the trauma of those times, they were
fearful for their future. Nishimatsu himself had trained as an engineer at university andthen joined the government inspection office in Shanghai responsible for thecertification of tanks and pressure vessels. It was in this capacity that he had met
president Matsuhisa who was visiting Shanghai regularly, working on the certificationof Morimatsu products for installation in China. The two found that they were speaking
a common language. Matsuhisa invited Nishimatsu to join the company and offered tosponsor him to study Japanese and then technology at Gifu University in Japan.
From 1990 until early 1998 the Shanghai factory was run by Japanese managers
sent over from Gifu. Naturally they had Japanese ideas and management principles andinstinctively sought to impose them on the Shanghai organisation. As one Japanesemanager, still in Shanghai in 2004 said, "Rather than Chinese staff being able to work intheir own way, the company was run for the first eight years by Japanese staff with

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Shanghai Morimatsu: Roots in Japan, Technology in China
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Japanese ideas". Nishimatsu would later comment, "The perception of the original
managers was that Shanghai Morimatsu was simply an extension of the Japanese
operation. They did not consider it to be a separate entity". However, as Chinese
industry started to grow, demand rapidly developed for much more sophisticatedproducts than the excellent but relatively simple structures produced in Japan. It wastrue that the Gifu factory had once produced more sophisticated products, but that
activity had ceased over twenty years previously and there was limited residual
knowledge or experience. However, two veterans from the early days had since moved
to Shanghai as technical advisers, providing liaison with Japan and a channel fortechnical communication if required. The other Japanese staff, apart from Nishimura
and Nishimatsu, were responsible for liaison with Japanese customers.
After 1998, the company expanded quickly (See Fig. 1), recruiting numerous
new staff members. With many mature experienced staff joining from otherorganisations, it was especially difficult to create a sense of corporate togetherness andloyalty. For the Japanese managers from Gifu it would have been extremely difficult tomanage this problem because of their absence of language ability and fundamental lackof experience of local culture and social behaviour. It was through his understanding of
this situation, and in order to remedy it, that in 1998 president Matsuhisa decided toappoint Koei Nishimatsu to take over responsibility for the Shanghai operation. When
Nishimatsu became General Manager in 1998 he faced a number of immediateproblems. He explained, "From 1990 to 1998 the company had not been making money.
Our costs were high, and we were very short of staff with real technical expertise. The
management team consisted entirely of Japanese expatriates, which was expensive andalso complicated communications. Both Chinese and Japanese staff were very capable,
but there were many problems in communication even though we had interpreters
working constantly with the two groups".
Nishimatsu commented on his promotion, "At the time of my appointment, I
asked the president to let me do things in my own way, and he agreed. I am not God,and I knew I would experience both successes and failures. I told the president I could
only be effective if he let me take decisions myself. I knew I could not do the job
without his understanding and acceptance of this, which he immediately gave to me."Doshisha Business Case 05-08

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The Growth of Sophisticated Production in Shanghai
From 1993 onwards, several Japanese and later Western companies establishingfacilities in China had approached Shanghai Morimatsu, asking them to build pressure
vessels, mixing tanks, and other complex products that called for a much greater degreeof sophistication than was required at Morimatsu Japan. President Matsuhisa recalled,"If we had only relied upon Japanese management in Shanghai I am sure that our people
would simply have said that they were unable to meet the demands of those customers
for 'difficult' products. The reaction of our Chinese staff, on the contrary, was 'OK, we
don't know, but let's try', and while they were not always successful, they succeeded in
80% to 90% of the cases. They had the spirit to accept the challenge". The staff from
Gifu, and particularly Kyoko Nishimura, certainly played a vital role in liaising with theJapanese customers in China, and at the very beginning some of the relevant technicalexperience had come from Gifu. But by far the most significant technical contribution
came from the Chinese staff in Shanghai, who continued to grow and expand their rangeof products and technical skill.
It was of course not enough for the Chinese staff to have 'spirit'. President
Matsuhisa said again, "When it came to these new products we found the technology inChina itself. There are many very skilled Chinese technicians. We gathered people
from all over China who had the necessary skills and knowledge". As early as 1991, theGifu factory had benefited from Chinese know-how. Tong Haihua, who was later tobecome Assistant Manager of the Production department in Shanghai, had visited theGifu factory initially to study welding techniques. However, Matsuhisa soon noticed
that he was exceptionally talented. He was so skilled that he was chosen to represent
Morimatsu in the Japanese national welding contest. He won the prefecturalcompetition and thus represented Gifu in the national finals, placing 8th in the overall
competition. It was 34 years since Morimatsu had sent a representative to thecompetition, and the competitor then had been Nobuo Matsuhisa himself. From then on,
Tong spent his stay in Gifu imparting his welding expertise to the Japanese workers.
The Morimatsu name was well known in Japan. The Gifu factory had perfected
the manufacture of pressure vessels, tanks for water and other liquids, and other items,
always aiming for technological innovation, exploring new, lighter, and more efficientmaterials. It represented the best Japanese standards in its field for reliability andquality. In the Japanese Boiler Makers Association rankings, the Morimatsu Japan salesin Japan in 2004 were double that of the second ranking company and more than threetimes greater when the entire Morimatsu group sales were taken into account. However,the products made in Japan were not in themselves very complex structures. The qualityof workmanship, particularly welding, was very high, but provided the tanks were able
to withstand the problems of corrosion, and earthquake shock, and could be produced atreasonable prices, they would generally meet the customer's requirements. Morimatsu's

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Japanese R&D had been concentrated in these areas. Around 80% of the customer basecomprised local government authorities who would only order from Japanesemanufacturers, and there was therefore only a limited risk of foreign competition.
While Morimatsu could have met this demand with tanks produced in Shanghai,transportation costs made it uneconomical to do so.
The very fact that the Shanghai factory was Japanese owned attracted the ordersof Japanese companies for their factories in Japan, China, and elsewhere. In 1993 Kao
Corporation ordered a mixing vessel and special tank for their factory in Shanghai, andthis was followed later by orders from Sony, Yamanouchi, Takeda, Murata and others.
Nishimatsu commented, "At the time of the first order from Kao it was difficult, but it
was very simple compared with what we are doing today". A number of products werealso exported: a steam generator for a Kikkoman factory in the Philippines, and a tankfor a Toray factory in Indonesia fabricated to ASME (the American Society of
Mechanical Engineers) specifications. Certification to construct to ASME standards
was a major step towards recognition of the quality and reliability of Shanghai
Morimatsu products, and something which the Gifu head office had not obtained.
Meanwhile Western companies in China were also expanding, and in 1995 Shanghai
Morimatsu produced a vessel for Johnson & Johnson and in 1996 a tank and a column
for Dupont, followed by many orders from Western companies for increasingly
complex products which were successfully fulfilled. Shanghai Morimatsu engineers
benefited from the technical know-how of clients placing the orders. One engineer
commented that many Western companies had educated their Chinese technical staff
very thoroughly and the Morimatsu experts had picked up a lot of information andexpertise. President Matsuhisa commented, "We learned a lot from our customers,
particularly the Western companies who had trained Chinese engineers with whom wefound it easy to communicate and from whom we learned a great deal". The company
went on to manufacture, amongst many complex items; nuclear power plant equipment
built to extremely exacting specifications for export to several atomic power stations inJapan; a Hastelloy alloy process tank for Procter & Gamble, USA; a pressure vessel forexport to Bayer in Germany; equipment for medical purposes in the USA requiring ahigh degree of precision; sulphur treatment towers for Shin Nihon Steel's Oita factory inJapan, etc. The Shanghai Morimatsu client list soon came to include a number ofglobally recognised names (See Fig. 2).
In 1998 simple water tanks had still accounted for 80% of the production at the
Shanghai factory, mirroring the production in the Japanese parent. This had been
welcome business at the time, and had enabled the company to survive through thedepression caused by the 1997/8 Asian crisis with orders from government departments
and foreign hotels.
The company's production manager had just resigned andestablished a competing company making water tanks; he had taken quite a number ofDoshisha Business Case 05-08

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Shanghai Morimatsu: Roots in Japan, Technology in China
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Morimatsu's clients with him. Nishimatsu commented, "This convinced us that it was
really simple for competitors to imitate our basic products and that we should pursue
more complex, higher value-added work. Other companies would find it more difficult
to compete".
The demonstrated ability of the Shanghai team, and in particular the design andtechnical skills of the Chinese staff, therefore offered an opportunity just at the time thatdemand for sophisticated plant installations was exploding. The three key executives,
Matsuhisa, Nishimatsu, and Nishimura, determined to seize their chance and to focus all
their efforts into improving and expanding the high value added end of the business.
One of Nishimatsu's first moves was to recruit into the design department eight young
graduates from the Xian Jiaotong University, one of the best in China, where they had
graduated in chemical plant engineering. All eight have remained with the company
and were contributing in many areas, Nishimatsu said, "They are now dispersed
throughout the company, in development, sales, and the commercial side; only one
remains in design".
The products the Shanghai factory manufactured from the mid 1990s were not
only more sophisticated, but were seldom standard. Each customer had particular needs,
requiring differing tolerances, dimensions and capacities and precisely specified
performance criteria. This called for a very intense sales and marketing approach. It
was necessary to recruit and train engineers and designers who could discuss andunderstand the customer's requirements and manufacture each product accordingly.
In order to sharpen the focus of expertise within the Shanghai organisation,
separate companies were established for each important product group. The main
company remained the Shanghai Morimatsu Pressure Vessel, while the others created
were Shanghai Morimatsu Pharmaceutical Equipment; Shanghai Morimatsu
Environment Technology Engineering; and Shanghai Morimatsu Fine Chemical
Equipment.
As the company grew, the original factory facilities became inadequate, and in
May 2003 a second factory started production in Pudong. An arrangement was also
made with a nearby shipyard, enabling Morimatsu to build very large products on the
shipyard's site. Later, plans were drawn up to build a third factory, also in Pudong, tobe completed in 2005. The equipment for this factory was being sourced internationally,
not only from Japan. Matsuhisa commented that a steel coil leveller of excellent quality
had been ordered from Taiwan at about one fifth of the price of the Japanese equivalent.

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Organisational Challenges: Japanese and Chinese Contrasts
The Shanghai organisation had thus embarked upon a road to sophistication
which was taking it on a quite different development path from its Japanese parent, andwhich posed a number of serious organisational challenges. As the orders increased, so
did staff numbers - from 60 in 1994 they had increased to 140 by the end of 1998 andby 2003 there were over 600 employees, while the sales volume had increased rapidly(See Fig.3). At the same time, productivity per employee also rose as efficiency
improved (See Fig.4) and the Shanghai contribution to group sales had started to rise
(See Fig. 5). After-tax profitability at the Shanghai operations was around 8% in 2004,
compared with around 2.5% in Japan, where the tax burden was heavier.
In Japan, employees commonly felt a close sense of identity with the corporate
family, and this was often taken for granted; loyalty to the company was traditionallyinstinctive. In China it was different. Matsuhisa observed, "While in Japan it is still
today considered degrading to change companies, in China it is seen as a mark of ability.
Therefore no shame is attached in moving to a different company. There is also nosense of obligation towards the original company, no feeling of commitment for having
been educated there. I see no sign of change. In fact, the Chinese have become very
'dry'. This is despite the fact that we promote Chinese staff and Nishimatsu is there as amodel; it is more a question of money. Actually the Chinese staff receive more salarythan our seconded Japanese staff. In many Japanese offices in China, Japanese staff areappointed managers despite their lack of ability, and of course this greatly discourages
local staff, but we do not follow that practice".
Nishimura emphasised the need for strong leadership in China. In Japan, theemphasis was on family and the corporate group and the leader may or may not be a
dynamic leader. In China the leader needed to have real ability and show real results inorder to gain the loyalty of the staff. A weak leader would quickly become ineffective;on the other hand, staff would accept a strong capable leader, whether male or female,young or old, Chinese or foreign.
The deputy chief of the production division in Shanghai emphasised the value
and importance of the company's staff evaluation and training policy, "We regularly
evaluate staff performance. We might identify that a person has a special need - forexample for management skills. We have internal study groups in which I quite often
give instruction, and the company sets aside time for this. The company also funds
outside training, and I myself was sent on a course. We are really busy and have nospare time, so perhaps we would not go if the company did not encourage us and makethe time for us to attend".
For some years Chinese staff had visited the Morimatsu organisation in Japan
both to supply some additional labour and to receive training. However, the nature of

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the work in Shanghai had become so much more sophisticated that Morimatsu Japan
had been sending Japanese commercial and technical design staff to Shanghai fortraining and familiarisation with working practices there. President Matsuhisa
commented that this interchange had stimulated the Japanese staff considerably; they
returned mightily impressed and proud of the size and technical versatility of theircompany's Shanghai plants and returned motivated to renew their efforts in Japan. On
the other hand, some Chinese technicians had said that they did not want to spend too
long in Japan, fearing that their technical skills might suffer from the lack of technicalchallenge. From 2003, the Japanese parent had also started to send factory floor
workers to Shanghai.
While the growth of the Shanghai factory owed little to the Japanese parent
company organisationally, the personal contribution of president Matsuhisa was highly
significant. He made frequent visits to Shanghai, often once a month or more. He was akeen advocate of 'managing by walking around' and, in the process, he would
photograph both good and bad examples of fabrication and manufacturing practice.
Video systems were established to enable constant monitoring of factory floor activity
from both Gifu and within the Shanghai office. The resultant record of activities
formed the basis for regular discussion groups, often led by the president, in which goodand bad examples would be shown and then tabled for analysis and discussion so thatlessons could be learned and shared.
Under the former central planning system in China, unlike in Japan, technicalresearch had a distinctly academic emphasis. Technicians and scientists with academic
training attached little importance to the commercial development of ideas, an attitude
described as 'the problem of the three pins 1 - yangpin 样品 (samples), zhanpin 展品(exhibits), or lipin 礼品(gifts), because there was rarely any progress to the fourth stage
shangpin 商品(products). One senior manager in Shanghai Morimatsu commented that
there remained some prejudice amongst academically qualified engineers in Shanghai
who felt that their place was in the design office or research laboratory, and that thefactory floor was somehow beneath their dignity, so they rarely ventured there. Top
management was working to overcome this attitude.
There was also a different view of teamwork and cooperation between China
and Japan. Kyoko Nishimura illustrated this with a parable: "In China three individuals
are like three dragons, all with their own sense of individuality and independence; put
them together and they become an insect. Japanese individuals on the other hand arelike insects, but if you collect three together they become a dragon" (See Fig. 6). She
further remarked that Hōrensō ("spinach" in Japanese) was a catchword in Japanese

1

Lu, Qiwen. "China's Leap Into the Information Age: Innovation and Organization in the Computer

Industry". Oxford University Press, 2000

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companies signifying cooperation and teamwork - it stood for Hōkoku (reporting);
Renraku (information and contact); and Sōdan (consultation) - but this did not transfer
easily to China. In Japan it was always assumed that workers would co-operate andcover for each other's mistakes, working together with other teams or departments.
While this concept came naturally to Japanese and was fundamental for thedevelopment of "team spirit", Nishimura discovered that, for the more individualistic
Chinese disposition, it was difficult to implement.
While the Chinese team had made the major technical contribution that enabled
the Shanghai factory to progress into new areas of sophistication, Nishimatsu
emphasised the value of the Japanese example when it came to general management:"In managing Shanghai Morimatsu we apply the "5S" rules:- Seiri (Order), Seiton(Arrangement), Seisō (Cleanliness), Seiketsu (Neatness), and Shitsuke (Discipline), but
we have also added a further two "Ss" - Safety, and Sekinin (Responsibility). We havealso adopted the idea of fukuri kōsei (welfare in the workplace). On the other hand wepractice neither shushin kōyō (lifetime employment) nor nenkō jōretsu (promotion byseniority)". Promotion at Shanghai Morimatsu took place on merit. There was also an
evaluation system in place, linking part of the wages to performance.
While in Japan, Nishimatsu had come to appreciate the "three essential andequal elements of management emphasised by president Matsuhisa: Seizō (production),
Eigyō (business), and Zaimu (Finance)". He was glad himself to have had theopportunity to experience all aspects of Morimatsu's business, but that had alsopresented him with a problem. Many times he would see something being done
inappropriately in Shanghai, and would be tempted to interfere and take over the task
himself. But he believed it would be wrong to do that, and that he should allow the staff
to learn for themselves, so he always tried to restrain himself. He constantly passed on
the same message to his senior managers: "If there is a problem, they tend to push thesubordinate aside and to do the job themselves. I tell them that if they do this, thejuniors will never get a chance to develop their own confidence and grow".
As is common in China, women play an important role in the management of thecompany. President Matsuhisa commented, "There are many female executives inShanghai Morimatsu - all three business department executives are female, and all ofthem are engineers. We have thirty sales people in Shanghai, and ten of them are
women. The top performers are all women - in terms of both number and value oforders gained. They are all good at English and entirely computer literate. They arealso great problem solvers - if difficulties arise with their customers they are very goodat solving them. Women tend to stay longer in the company". This was an environment
in which, as a woman, Kyoko Nishimura's important role would not be unusual,
something which could not be said about Japan. She was particularly appreciative of thecontribution of women in Shanghai Morimatsu: "The work rate of the women is very

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Shanghai Morimatsu: Roots in Japan, Technology in China
Miles Dodd

high. Almost all women continue to work, even after marriage. They have a verystrong sense of responsibility. In general, women in China are commonly involved inmanagement from the president down through middle management. Both our Sales
manager and our Accounts manager are women".
A Japanese sales person, who had twice been based in Shanghai, commented on
the different understanding of customer relations between Gifu and Shanghai: "Here in
Shanghai, it is not that they don't see customers as being important, it is just that they
don't place such emphasis on long term relationships as we do in Japan. Each order istreated on a 'one-off' basis. In Japan, if we do not handle a claim properly we will losethat customer's business; in China I think they are more pragmatic". By contrast,
Nishimura mentioned that the Chinese staff might visit a customer's home and meetthem out of office hours to a much greater extent than in Japan.
Nishimura emphasised the importance of trust in Japanese customer
relationships. Payment on a kakeuri (credit) basis was common, whereas in China
payment was invariably based upon a down payment followed by full cash payment on
final delivery. In fact, many foreign companies in China had found it very difficult torecover payment. Shanghai Morimatsu had instituted a rigorous credit ranking of its
own for customers from "A" to "E". "A" grade customers were not required to makeany advance payment, while those ranked "E" had to make full payment in advance. Asa further means of ensuring that bad debts were kept to a minimum, customer payments
were linked to sales staff's remuneration. If a payment should fall into arrears, the sales
person concerned had to pay 50% of the overdue interest; conversely, sales staff would
be rewarded if credits were redeemed earlier than scheduled, or if an advance down
payment of more than the standard 30% had been obtained.
A Chinese technical manager observed different attitudes to the concept ofquality. Japanese customers seemed to examine the outward appearance of the final
product, whereas Western customers were concerned about the inner workings, and thatit should function properly (he thought this might be due to the Morimatsu reputation
for quality and reliability, which was taken for granted by Japanese customers). To theJapanese manager it was of the utmost importance that the quality should be 100% ("ormore"!), but he felt that in China the staff tended to be satisfied with 90%, especially if
the 'final 10%' would be difficult and time-consuming to achieve.
As the development paths of the Gifu and Shanghai operations diverged, theneed for day to day communication between the two locations rapidly diminished. In
Shanghai the Japanese language was barely used, except in dealings with Japanesecustomers, and even then specifications would be developed in English. Many more
Chinese staff at Shanghai Morimatsu spoke English than Japanese. However, there was
frequent communication in Japanese between Matsuhisa, Nishimatsu and Nishimura,the three acting in effect as the top management team. (Of the three, only Nishimura

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Shanghai Morimatsu: Roots in Japan, Technology in China
Miles Dodd

was confident in English, and the president spoke no Chinese.) At the working level, theexchange training programmes were steadily building personal contacts, providing abasis for deeper cooperation in future if circumstances should call for it.
Nishimatsu felt that president Matsuhisa had been particularly astute in placing
his trust in Chinese management. He commented, "I feel that Japanese companies ingeneral are quite far behind Western companies in their use of Chinese people and theirdegree of localisation. Many Japanese companies do not do well in China because
their marketing strategies for China are controlled by their head offices in Japan. If only
manufacturing for export then it may well be OK, but it is difficult for the Japanese to
manage staff and domestic sales issues without Chinese help".

***********************************************************

President Matsuhisa faced a difficult dilemma. He himself continued to play theparamount role in both Gifu and in Shanghai but was already 64 years old. The
company remained privately owned, apart from the 4% silent partner in the Shanghai
company. With the Shanghai factory taking the lead both in sales growth and technicalsophistication, he felt that China would become increasingly important while the Gifu
head office would find it difficult to develop Shanghai's technical sophistication, notleast because of a lack of technical expertise in Japan. There were many challenges
ahead. In Japan the company had established factories in strategic locations in order tobe close to customers. In future, a need could develop to build facilities in otherindustrial areas in China, which would require further recruitment of critical expertiseand call for further investment. It would also require a continuation of the strong
control and leadership currently exercised by the president himself. He asked himself
whether Japan would continue to lead, or whether management in Shanghai would
assume the dominant position. He knew that a decision regarding leadership for the
next generation could not be postponed for much longer.

Note: Illustrations of a small selection of the products of Morimatsu Shanghai andMorimatsu Japan are to be found in Figs. 7 and 8 respectively.
©Miles Dodd: January 2005

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Shanghai Morimatsu: Roots in Japan, Technology in China
Miles Dodd

Figure 1

Shanghai Morimatsu Staff Numbers
1992/2003
Staff
Number
700
600
500
400
300
200
100
0

92 93 94 95 96

97 98

99 00 01

02 03

Figure 2
Some Clients of Shanghai Morimatsu
AjinomotoGlaxo SmithKline
Nestlé
Asahi Kasei
JGC
Nippon Paint
Bayer
Johnson&Johnson
Procter&Gamble
BASF
Hitachi Zosen
Shell
BechtelHuntsmanShiseidoBP
Kao
Suntory
ChiyodaKikkoman
Sumitomo
Ciba Specialty Chemical
Kodak
Technip
ColgateKose
TeijinDaikinKurarayToray
Dow Chemical
Kvaerner
Toshiba
DupontMitsubishi Heavy
Toyo Engineering
Fluor
Mitsubishi Rayon
UnileverGE
Mitsui Engineering
Yamanouchi
Zimmer

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Shanghai Morimatsu: Roots in Japan, Technology in China
Miles Dodd

Figure 3

Shanghai Morimatsu Sales US$'000 1992/2004
US$ ‘000

50000
45000
40000
35000
30000
25000
20000
15000
10000
5000
0

*

1992 93 94

95

96

97

98 99 2000 01

02

03 04

*

*Estimate

md:jan05

Figure 4

Shanghai Morimatsu US$ Sales Per Employee 1993/2004
80,000*70,00060,00050,00040,00030,00020,00010,0001993 94 95

96 97 98

99 2000

01

02

*

03 04

*Estimate

md:jan05

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Shanghai Morimatsu: Roots in Japan, Technology in China
Miles Dodd

Figure 5

Figure 6

Chinese Individuals: Japanese Groups
A Parable+=+

CHINA: 3 dragons together make an insect

+
+
+

=

JAPAN: 3 insects together make a dragon
md:nov04

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Shanghai Morimatsu: Roots in Japan, Technology in China
Miles Dodd

Figure 7

Some products of Shanghai Morimatsu

Fermentation piping system

Sanitary equipment

Oxidiser for a refinery

Small filter

Large filter

md:dec04

Figure 8

Cylindrical Tank

Water Storage Tank

Tower Tanks

Some Products of Morimatsu Industries Japan
md:dec04

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