JAPAN MNE Insights
Volume 3, Issue 1
July, 2016

Academy of Multinational Enterprises (Japan)

TABLE OF CONTENTS

1 Special Essay:
Caught in Inaction?!?
How do Companies
Respond (or not) to theBusiness Implications of
Demographic Change:
Insights from the World’s
Most Mature Market
Japan.
2 Special Essay:
Toward Sustainable
Growth of Japanese
MNCs : On Explorative
Activity and Dual
Embeddedness in their
Foreign Subsidiaries.

www.mne-jp.org

Special Essay:
Caught in Inaction?!?
How do Companies Respond (or not) to theBusiness Implications of Demographic
Change: Insights from the World’s Most
Mature Market Japan
Dr. Florian Kohlbacher
Director, Economist Corporate Network, North Asia
Adjunct Professor, Temple University, Japan Campus

It is now more than a decade since I became interested in thebusiness implications of demographic change and subsequently thesilver market phenomenon. After an initial interest in the HR andknowledge management implications of demographic change, myco-editor Professor Cornelius Herstatt from Hamburg University ofTechnology and I started a joint research project on the silvermarket phenomenon in 2007 and as a result of that, the first editionof ‘The Silver Market Phenomenon’ was published in the fall of 2008
(Kohlbacher and Herstatt 2008). Thanks to the many positive
reactions to the book and its successful development on the market,
we soon started working on a more focused second edition that was
eventually published in 2011 (Kohlbacher and Herstatt 2011). The
Chinese language edition of the book should be available at aroundthe same time as this newsletter, and Cornelius and I are currently
working on the 3rd edition of ‘The Silver Market Phenomenon’.
In my research – even though global in nature – I had initially
focused on Japan, the country most severely affected bydemographic change, with a rapidly aging as well as shrinking
population. Japan is the world’s most ‘mature’ market and can beconsidered a ‘lead market’ for products for older people and there1Vol.3 Issue 1

JAPAN MNE Insights
are many lessons to be learned (Kohlbacher 2011; Kohlbacher, Gudorf, andHerstatt 2011; Kohlbacher and Rabe 2015; Prieler and Kohlbacher 2016).
Are we going to see a new ‘Japan as number one’ with Japan being thenumber one country in terms of population ageing – but possibly also interms of innovative responses to the demographic challenge?

" Population ageing is a
global trend and China
is now also on its way to
become a global leadmarket for the silver
industry."

But population ageing is a global trend and China is now also on its
way to become a global lead market for the silver industry. According to
the China Report on the Development of the Silver Hair Industry 2014
(Zheng 2014), the domestic market for providing essential services andproducts for the aging population is estimated to be worth 4 trillion yuan($651 billion) in 2014, or 8 percent of GDP, but it will climb to 33 percent
of GDP in 2050. China will become the largest market for businesses serving
senior citizens by 2050, when its aging population will account for about
one-fourth of the global total and its consumption is expected to reach 106
trillion yuan (Zheng 2014).
On 29 March, 2015, the Financial Times ran a piece on its website
entitled “Ageing population in China creates business opportunities” . The
print edition of 30 March, 2015 featured the same article but with the title“China’s ageing society sets minds ticking” (Bradshaw 30 March, 2015). This
article suggested that China “presents a fascinating case for thoseinterested in the social and economic challenges of ageing populations,
not to mention the business opportunities” and that “For just this reason
Florian Kohlbacher moved to China in August after 11 years studying
demographic change in Japan” (ibid). It is true that after more than adecade in Japan, I had moved to China in 2014 to join the International
Business School Suzhou (IBSS) at Xi’an Jiaotong-Liverpool University(XJTLU). Apart from my appointment as Associate Professor of Marketingand Innovation in the business school (IBSS), I had also become theFounding Director of the XJTLU Research Institute on Ageing and Society(RIAS), an interdisciplinary research institute at the university level. And justvery recently, I have returned to Japan as the North Asia Director of the
Economist Corporate Network, the networking and private briefing serviceof the Economist Intelligence Unit. In this new role as well, I keep working
on ageing and business, as can be seen from an event I organized in earlyJuly on “Ageing Means Business: Managing the Business Opportunities andChallenges of Demographic Change”.
Let me take this opportunity to reflect upon a decade of research on
the silver market phenomenon. I first got interested in the issue of
demographic change in the form of population aging while I was a visiting
researcher at Hitotsubashi University in Tokyo from 2005-2007. Looking at2

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the data, there was no doubt: This is huge! And it’s gonna be a nobrainer for businesses to do something to respond to this trend. At thevery least to fend off the challenges, but more importantly to leverage
new business opportunities. But when I set out to talk to executives andmanagers from companies in all kinds of industries, I was surprised. I
seemed to get the same answer all the time: “Yes, this is a very important
topic. And yes, there is a business opportunity here.”. Great! I thought
and continued to ask: So, what does your company do about it? And thisis where it started to get really interesting – and disappointing. “Oh, us,
we haven’t started looking into this in detail yet.” Or: “Oh, us, no we arein the B-to-B business and so this is not really relevant to us; but theconsumer goods industry has plenty of opportunities there.” Or: “We’re
currently working on this big business restructuring project, but I am
sure that once we’re done, we can have a go at this.”, etc. etc.
At first, I was a little puzzled. Almost every executive I talked to
was knowledgeable about the demographic trends and the business
opportunities. But when I asked about their own companies, they all ofa sudden presented me with all kinds of excuses why they are just not
ready yet or why this does not really matter to them. I call this thedifference between a first-person opportunity and a third-person
opportunity (Kohlbacher, Herstatt, and Levsen 2015). I.e. the potential
opportunities for anyone – or possibly even everyone – are third-person
opportunities, while those potential opportunities for a specific actor –i.e. a specific entrepreneur or company - are first-person opportunities.
Obviously, most executives do recognize the general potential of aging
as a business opportunity; but only for someone else out there and notnecessarily for their own businesses. In other words, it seems that many
companies fail to be able to translate the third-person opportunity intoa first-person opportunity. How is this possible? I decided to start a
research project to find out what is going on.

" Obviously, most
executives do recognize thegeneral potential of aging
as a business opportunity;
but only for someone elseout there and notnecessarily for their own
businesses. "Together with Professor Ken Matsuno from Babson College, we
conducted field work involving qualitative interviews as well as a large
sample survey with 545 marketing managers in Japan. As usual, we
chose Japan for our research, because it is the country that is most
severely affected by population aging in the whole world and frequently
identified as a lead market in terms of ‘silver’ products (see also above).
What we found was that most companies are:
1)
2)
3)

Aware of/sure about the state of demographic change
Not so sure about/ convinced of the effect (for their business)
Not really prepared in terms of responses (with exceptions)3Vol.3 Issue 1

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So far, this seemed to confirm the anecdotal evidence from myprevious discussions with managers. But what is the reason for the gap
between 1) and 2) and thus subsequently 3)? Our survey provided theanswer.
"Obviously, most
executives do recognize
the general potential of
aging as a business
opportunity; but only forsomeone else out there
and not necessarily for
their own businesses"

There is something that negatively affects the impact of anunderstanding of the situation (i.e. demographic change) and the
response to it (i.e. marketing strategy and tactics). It is called
ambivalence. This occurs when one’s evaluation of a phenomenon’s
potential implication is not fully captured on a bipolar continuum frompositive to negative, but rather is expressed as both positive andnegative. In our case this means that managers have both a positive anda negative evaluation of what demographic change means for their own
business. It could be good, but it could also be bad. Or it could be thatthey are just not really sure about it and this means that they areambivalent about it and thus are also ambivalent about how to respond.
In the absence of ambivalence, there is a strong direct relationshipbetween an understanding of demographic change and the business
response to it, i.e. the better the manager understands the phenomenon(= the implications of demographic change), the more likely he/she isto respond (and the better he/she can respond in terms of marketing
solutions). But if there is ambivalence, the direct effect is weakened andin the case of very high ambivalence, it can be completely turned off,
thus leading to a non-response. When this happens, the company iscaught in inaction. It goes without saying that this is a highly dangerous
situation .
So, why do managers become ambivalent in the first place? Webelieve that there are several reasons for this. First of all, there is a lackof in-depth knowledge and understanding about demographic change
in terms of its marketing implications. While we have legions ofmarketing studies about younger or even middle-aged consumers,
older cohorts remain widely neglected by both academic andprofessional marketing research i.e. we don’t really know who the older
consumer is and how he/she makes purchasing decisions. Second, thelevel and time line of the information are not suitable to make specific,
tactical marketing decisions. Macro data about demographic change
are valuable to understand the bigger picture, but what is needed tomake decisions on the response is detailed, micro-level data. And
oftentimes the data presented in reports and presentations show future
trends up to the year 2050 or even 2100 (I must know because I am

4

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doing this all the time myself). But where is the executive who isplanning ahead for decades or even centuries into the future?
No wonder that many decide to put the decision about silvermarketing off until later and focus on – seemingly – more urgent andimmediately pressing issues first. And finally, there are still many
preconceptions and misunderstandings about age and aging and often
even outright ageism. Again the only remedy to this situation is to do
proper, in-depth marketing research. I.e. we need to do our homework
first. Here are 4 tips about the most common mistakes when dealing
with demographic marketing challenges and how to avoid them:
Mistake
Segmenting exclusively
according to age

Measuring all “seniors”
by the same yardstick

Underestimating and/or
patronizing seniors

Fear of age and “seniors”(no, seriously!!)"No wonder that many
decide to put the decision
about silver marketing off
until later and focus on –seemingly – more urgent
and immediately pressing
issues first."

Reason and tip for manager
Very tempting due to demographic development; but
modern marketing left the simplistic segmentation
based on age behind a long time ago. Individual
lifestyle, financial, professional and health situation,etc., significantly influence the needs and wants ofconsumers.
50+, 55+, 65+ may sound handy and may generalize
the silver market. But it may not make sense to work
this way. With today’s high life expectancy, 50+ canalmost refer to half of the human life-cycle.
Nowadays, it is more and more important to know
exactly what consumers want and to cater to theirindividual needs. End-users are more and more tied
into the development process providing ideas or evenstart an innovative process. Instead of asking seniors
or incorporating them into development, many
companies active in the silver market seem to believethat they know what customers want much better
than they do. As is the case for segmentation: do nottake a step backwards but be innovative andapproach consumers.
Many companies fear that their image among otherage groups will be damaged if they appeal to thesilver market. Parallel success among young andsenior people is indeed a big challenge and notcompletely without risk. The key to success refers to“universal design” or “trans-generational design” aswell as to “ageless” or “age-neutral” marketing. As
usual: exceptions confirm the rule and depending on
the product, an age-emphasizing strategy can also
lead to success (e.g., Dove pro-age). However, ingeneral it is true: beware of ageism, think transgenerationally!

I hope you haven’t become too depressed by now by all the badnews about what is going wrong with the business (non-) response to5Vol.3 Issue 1" While executives
generally seem toacknowledge theimportance of
demographic trends,
relatively few companies
take concrete action to
try to develop the older
market segment. But
there are a few notable
exceptions."

JAPAN MNE Insights
demographic change. Fortunately, there is some good news as well. As
explained above, while executives generally seem to acknowledge theimportance of demographic trends, relatively few companies takeconcrete action to try to develop the older market segment. But there
are a few notable exceptions. Yes, there are some pioneering firms out
there that got it right (Kohlbacher 2011; Kohlbacher, Gudorf, andHerstatt 2011; Kohlbacher, Herstatt, and Levsen 2015). The mostimpressive one is probably Fujitsu’s Raku-Raku Phone that hasdeveloped into a long-seller over more than 15 years already. Having
started as a just simple-to-use mobile phone with a reduced set offunctions it has quickly turned into a high-tech device that remains
easy-to-use but offers a full range of functions and technologicalinnovations that ensure a great customer experience (Kohlbacher and
Hideg 2011). In China, the consumer electronics company Xiaomi
Technology Co., Ltd – famous for its smartphones and other mobile
devices – successfully developed a special version of its popular
Hongmi (Redmi) smartphone series targeted at older people.
The research by Ken and I showed that there can be various
types of responses:
1) moving up That is the most straight forward solution as itmeans embracing the silver segment as an addition to current activity.
In most cases, it means developing this segment in addition to thecurrent customer base rather than exclusively moving into the older
segment. The Raku-Raku Phone is an example of adding a product line
to the portfolio in order to ‘move up’. In a similar vein, Pearson
Publishing introduced English language books/seminars for those
affluent silver consumers who enjoy traveling abroad but with limited
language proficiency. This is definitely a big move for a company thathas traditionally focused on college and high school educational
publications.

 ACTION IDEA : reconsider existing products and look at how
to re-message, re-package with little new development. We saw thiswith the move diaper makers have made in adapting existing
technologies to adult sizes. Many other products are now adapting
such as the move from Seven-11 and other CVS chains to develop
single serve ready to eat meal packaging for increasing single older
people homes2) moving down This one is kind of counterintuitive as it means
to develop (even) younger segments. We encountered this case with aJapanese education company whose core business is to help Japanese6Vol.3 Issue 1

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senior high school students prepare for the university entry exams.
Rather than deciding to go into the market for educational products forolder people – a segment where they do not have any experience – theydecided to start targeting younger, junior high school students and start
the preparation support even earlier.

 ACTION IDEA : push the products available to younger groups
is a short time strategy that will work for a while. More importantly target
the affluent retiring grandparents to support grandchildren with higher
end products. The move by many toys and game manufacturers todevelop more hi-tech toys for younger children and then appeal tograndparents to purchase.
3) moving deep This strategy involves improving quality/service
and/or adding additional features or services to create value-added forwhich higher prices can be charged. That means that even when sellingless in terms of units (due to the shrinking of the younger age groups),
revenue can remain stable or even grow due to higher margins per unit.
The children’s education and toy industry is a case in point, especially in
Asia where e.g. the Chinese ‘little emperors’ that get spoiled by theirparents and grandparents have already become famous. In Japan,
supermarket chains (e.g., Aeon, Itohyokado) are offering smaller
packaged prepared food but with higher quality raw materials (e.g.,organic vegetable, domestic beef/pork, free-range chicken) for healthconscious, educated, and affluent older people, and convenience store
chains now offer special home delivery services for older people whohave difficulties carrying their shopping bags back home.

 ACTION IDEA we are seeing more higher end entertainment
aimed at seniors such as “revival tours” and “ nostalgia visits”. A few
years ago Tokyo Disneyland realized that there was an uptick in older
visitors taking their grandchildren to their parks. They then found somewere visiting as couple to celebrate anniversaries etc. So campaigns weresuccessfully launched to encourage older couples to “relive” young
memories with higher end packages
Finally, 4) moving out i.e. going international/global. Companies
that have been focusing overly on the domestic market have to consider
going international and explore foreign markets to compensate fordecreasing business volume on their home turfs. Indeed, this is one of
the reasons for an increase in international activities by more and more
small and medium sized companies from Japan that traditionally were
only offering on the Japanese market. One obvious industry is

7Vol.3 Issue 1"Rather than passively
waiting for something tohappen, managers need
to become moreproactive in dealing withdemographic change andthis will involve theproactive shaping of theconditions that make it
feasible to exploit theopportunity in question."JAPAN MNE Insights
babies/infants/children apparel where manufacturers are shifting theiremphasis to Southeast Asia (e.g., Singapore, Thailand). Other examples
including education company Benesse expanding its Asia business orreal estate business Mitsui Fudosan trying to utilize their accumulated
know-how in developing cities in Japan during the growth era to thestill-growing Asian cities (e.g., suburban development collaboratingwith railway companies, shopping centers).

 ACTION IDEA the growth of and export aging care expertiseto China and other markets both for the building of Japanese older
people wanting to live cheaper in SE Asia etc and also catering to theaging populations of other countries.
Let me close by coming back to the perception of business
opportunities. Identifying or recognizing a business opportunity is ofcourse a necessary condition for doing business, but it is not a sufficientone. Once identified, measures need to be taken in order to exploit that
opportunity. As explained above, many companies currently fail tomake that transition from recognition to exploitation of opportunities
arising from demographic change. Rather than passively waiting forsomething to happen, managers need to become more proactive indealing with demographic change and this will involve the proactive
shaping of the conditions that make it feasible to exploit theopportunity in question. It’s time now to seize the golden opportunityof silver marketing and I hope this short article will serve as a call toarms for academics to conduct more research and for practitioners to
become more active in this segment.

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References
Bradshaw, Della (30 March, 2015), “China’s ageing society sets minds ticking,” Financial Times,
15.
Kohlbacher, Florian (2011), “Business Implications of Demographic Change in Japan. Chances andChallenges for Human Resource and Marketing Management,” in Imploding populations inJapan and Germany. A comparison. International comparative social studies, Vol. 25, Florian
Coulmas and Ralph Lützeler, eds. Leiden: Brill, 269–294.
Kohlbacher, Florian, Pascal Gudorf, and Cornelius Herstatt (2011), “Japan's growing silver market- An attractive business opportunity for foreign companies?,” in From Grey to Silver: Managing
the Demographic Change Successfully, Michael Boppel, Stephan Boehm and Sven Kunisch, eds.
Heidelberg: Springer, 189–205.
Kohlbacher, Florian and Cornelius Herstatt (2008), The silver market phenomenon. Business
opportunities in an era of demographic change. Berlin: Springer.
Kohlbacher, Florian and Cornelius Herstatt, eds. (2011), The Silver Market Phenomenon.
Marketing and innovation in the aging society. Berlin: Springer.
Kohlbacher, Florian, Cornelius Herstatt, and Nils Levsen (2015), “Golden opportunities for silver
innovation: How demographic changes give rise to entrepreneurial opportunities to meet theneeds of older people,” Technovation, 39-40, 73–82.
Kohlbacher, Florian and Andrea Hideg (2011), “The Raku-Raku Phone: Simple Communication
That Is Simply Successful,” Marketing Management, 20 (1), 38–43.
Kohlbacher, Florian and Benjamin Rabe (2015), “Leading the way into the future: the developmentof a (lead) market for care robotics in Japan,” International Journal of Technology, Policy andManagement, 15 (1), 21–44.
Prieler, Michael and Florian Kohlbacher (2016), Advertising in the aging society. Understanding
representations, practitioners, and consumers in Japan. Basingstoke: Palgrave Macmillan.
Zheng, Zhi (2014),中国老龄事业发展报告2014 [China Report on the Development of the Silver
Hair Industry 2014], Social Sciences Academic Press (China).

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Special Essay:
Toward Sustainable Growth of Japanese
MNCs : On Explorative Activity and Dual
Embeddedness in their Foreign
Subsidiaries1)
Yoshiharu Kuwana
Professor of International Business & Corporate Strategy,
Graduate School of J.F. Oberlin University, Tokyo

In recent year, a large number of MNCs have been operating in emerging
countries and competing fiercely each other there. In order to achieve sustainablegrowth in emerging countries, it is very important for MNCs to undertake
explorative activity, which is activity to search for and develop new business or
products, as well as exploitive activity, which entails improvement in the efficiency
of production system and so on. This can be called the management of
ambidexterity in MNCs.
Japanese MNCs in the manufacturing industry have, however, put a highvalue on exploitative activity rather than explorative activity in foreign countries.
It seems that such Japanese behavior will face certain limits to growth even in
emerging markets in the near future. It will be of importance that they collaborate
with local actors, such as alliance partners, customers, suppliers, research
institutes, in order to undertake the explorative activity of developing new
business or products even in emerging markets. A foreign subsidiary. however, isan embedded entities in a global network of MNCs. In other words, there are two
types of embeddedness in MNCs : (1) intra-corporate embeddedness (between
headquarters and foreign subsidiaries) and (2)local embeddedness( between
foreign subsidiaries and local actors). On the one hand, embeddedness might beuseful, but on the other hand, it might be a hindrance to the sustainable growthof Japanese MNCs. Therefore, while Japanese MNCs need to reduce the level of
intra-corporate “ over ”-embeddedness, they need to increase the level of local
embeddedness.
In addition, it is also extremely important for Japanese MNCs to develop
a new type of international talented staff to facilitate such activity. To dateJapanese expatriates have been people who only carry out faithfully the strategy
formulated by the headquarters in the home country. This kind of talented staff
will not be able to develop new business or product for sustainable growth inemerging countries. The following paragraphs discuss this issue.

"Japanese MNCs in the
manufacturing industry
have, however, put ahigh value on
exploitative activity
rather than explorative
activity in foreigncountries. It seems thatsuch Japanese behavior
will face certain limits togrowth even in emerging
markets in the near
future"Many MNCs from all over the world have been forced to engage in a hardfought struggle in emerging markets because there are great difference in thebusiness environment between advanced countries and emerging countries. This10

Vol.3 Issue 1" It is extremely importantfor Japanese MNCs tofacilitate the explorative
activity of foreignsubsidiaries, but the role ofmanagers in foreignsubsidiaries is also very
important. To facilitate such
explorative activity, a newrole or competence will be
required for managers of
foreign subsidiaries.”

JAPAN MNE Insights
is especially true of Japanese MNCs. As the manufacture of high quality
products has become a competitive advantage for Japanese MNCs, they havetransferred manufacturing techniques and production systems from theirparent company to foreign subsidiaries. In transferring those techniques orsystems to foreign subsidiaries, tight control over foreign subsidiaries by theparent companies becomes a necessary condition. Accordingly, many
Japanese MNCs have built a centralized and hierarchical organization (Bartlett& Ghoshal, 1989). This type of foreign subsidiary cannot develop a new
business or product in foreign countries because autonomy orentrepreneurship in a foreign subsidiary is required to do such activity. In
other words, this means that a foreign subsidiary must take initiative in theircorporate group (Birkinshaw,2000), and at the same time must innovate so as
to create new business or products which will spread around the world as wellas in the host country.
In order to develop new business or products in an emerging country,
foreign subsidiaries of MNCs needs to attach importance to explorative
activity rather than exploitative activity. A foreign subsidiary must sense andacquire knowledge or information for new business or products that fits tothe needs of local customers through this explorative activity (Doz, Santos &Williamson, 2001). It is, however, not so easy for these companies to engage
in explorative activity. As many studies have suggested, the management of
ambidexterity is vital for MNCs, although these activities entail paradoxical
challenges (Benner & Tushman, 2003; March, 1991). Based on embeddedness
perspective, it matters for MNCs how to manage multiple embeddedness withregards to institutional and cultural aspect (Meyer,Mudambi & Narula, 2011).
Regarding MNC embeddedness, there are two types : (1) intra-corporate
embeddedness, and (2) local embeddedness.
Some research has shown the importance of external embedded
network of foreign subsidiaries in terms of subsidiary innovation, because
foreign subsidiaries cannot access to and acquire local-specific knowledge
from local actors without embeddedness with local actors (Andersson,
Forsgren & Holm, 2002). On the other hand, there is an unfavorable side to
MNC embeddedness. If the level of embeddedness is too high (i.e. overembeddedness), the negative effects of embeddedness will emerge, such asa reduced possibility of finding new business opportunities (Hagedoorn &Frankort, 2008). In order to develop a new business or product in foreigncountries, it is of vital that MNCs reduce the level of intra-corporate “over”embeddedness and increase the level of local embeddedness.
It is extremely important for Japanese MNCs to facilitate theexplorative activity of foreign subsidiaries, but the role of managers in foreignsubsidiaries is also very important. To facilitate such explorative activity, a newrole or competence will be required for managers of foreign subsidiaries. Up
to now the main role of Japanese expatriates has been to implement faithfully
the strategy formulated by the headquarters in the home country. To put it
concretely, their main roles have mainly been as follows (Shiraki, 2006): (1) thetransfer of management philosophy, management policy, production
techniques and systems from the parent company to foreign subsidiaries; (2)11Vol.3 Issue 1

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the coordination of activities between headquarters and foreign subsidiaries;and (3) the management of foreign subsidiaries. There is no doubt that suchroles of expatriates are important in the management of foreign subsidiaries,
but the roles expected of them seem to differ when it comes to facilitating the
explorative activity of foreign subsidiaries.

There are not a great number of Japanese MNCs that have undertaken
explorative activity in foreign countries, but a few MNCs that have addressedsuch activities will now be introduced2).
The first is the case of Gamma. This company is a leading general
trading company ( so-called Sogo Shosha ) in Japan. The company formulated
a new corporate strategy entitled “New Strategic Direction” in 2013. In orderto carry out this strategy, the company has accelerated its global businessdevelopment by leveraging its shift toward the Asian market. To establish a
local presence within the Asian market, the company aims to develop a
strategy for multi-localization in the retail and automotive businesses incollaboration with some prominent regional companies, such as Thai andIndonesian companies. Needless to say, such a strategy entails explorative
activities. Thus, the company has undertaken explorative activities mainly in the
Asian market to underpin its sustainable growth toward 2020.
It was essential for the company to reconsider the relationship between
headquarters and foreign subsidiaries or branches in order to undertake
explorative activity. The company has shifted the relationship from a vertical
relationship to a horizontal one. Foreign subsidiaries have begun to be given
autonomy to run their business and to be encouraged to develop a new
business or propose a new business idea. There is a typical case which
illustrates such organizational reform in the company. Gamma made a radical
decision to relocate its entire headquarters in the metal business from Tokyo
to Singapore in 2013 (Enomoto, 2014). It goes without saying that this reforms
in Gamma has led to a reduction of intra-corporate over-embeddedness andthe increase of collaboration with local actors, namely local embeddedness.
As it is also indispensable to develop talented people who havecompetence to promote such business activities, the company has laid greatstress on the development of international human resources in recent years.
The company has been especially committed to strengthening the global
competitiveness of young employees. It began to dispatch young employees
to countries all over the world, in particular emerging countries including China
and India. Moreover, the company has begun to transfer quite a lot of
personnel to headquarters from regional offices around the world. In
particular, Gamma expects that young Japanese employees will develop intotalented people with entrepreneurship who will be able to develop new
business in emerging countries.
The next is the case of Omega, which is also a leading general trading
company in Japan. Omega introduced a new corporate concept of “360°innovation” within its medium-term corporate plan called “2020 Vision” in2014. This means collaborating across business divisions, connecting" There are not a great
number of Japanese
MNCs that haveundertaken explorative
activity in foreigncountries, but a few
MNCs that haveaddressed such activities
will now be introduced."12Vol.3 Issue 1" It is extremely importantfor Japanese MNCs todevelop new business or
product for theirsustainable growth inemerging countries."

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information, ideas, businesses, generations, nations, and experience on a 360
horizon in order to create new value and thereby drive innovation. In recent
years, the company has laid stress on undertaking explorative activities in new
business in collaboration with local companies. For example, the company
established a medical healthcare business division, which consolidated various
medical or healthcare businesses throughout many different divisions. As thelack of medical infrastructure becomes a matter of much concern in Asian
region, the company made a decision to enter the core medical business inAsian region by foreign direct investment in a company that is Asia’s largest
private hospital group.
Omega has also made particular efforts to develop international
talented people which will be able to promote such activity in foreigncountries, especially emerging countries. The company has started a variety of
new human resource practices or development program to foster mobility
across business units. For instance, the company introduced a required
oversees transfer program for every young employee for about one year. Also,in order to develop “area specialists” and “language specialists”, 30-40 young
staff from headquarters are transferred to several countries to gain local
experience every years. Thus, the company expects Japanese employees togain entrepreneurship as well as ability to collaborate which is necessary todevelop new business and products in foreign countries.
To sum up, Omega has been able to foster explorative activities
through several measures, including headquarters’ emphasis on explorationin mid-term strategy , building an external embedded relationship with local
alliance partners, and human resource management practices which are aimed
at developing future entrepreneur or collaborative talent with local entities.
The third case is Beta, which is a diversified MNC in manufacturingindustry in Japan. In recent years the company has shifted its main businessfrom electro-optics to a life care business that is expected to grow bothadvanced countries and developing countries. In order to do such business,the company has made an effort to reform management and organization ina global perspective. With regard to organizational reform, the company has
not only downsized its headquarters, but also shifted some of the functions of
headquarters to Singapore. Moreover, the company has given muchautonomy to foreign subsidiaries so as to operate in a way that is adapted to
local business environment.
As for management reform, the company has tried to make a shift to
global management from traditional Japanese management since a new CEO
took office several years ago. To give a few example, the company has
removed barriers between Japanese employees and foreign employees, andat the same time appointed some talented foreign people to the post of
executive or divisional manager in headquarters. In addition, the company has
tried to appoint a great number of talented local staff to top management
position in foreign subsidiaries dramatically. In such case, Japanese expatiates
are simply advisers or an assistants to talented local staff. It can be said that
this is a rare case in Japanese MNCs. Thus, the company has undertaken to13Vol.3 Issue 1

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reduce the level of an intra-corporate embeddedness as part of theimplementation of global management.

As mentioned above, it is extremely important for Japanese MNCs todevelop new business or product for their sustainable growth in emerging
countries. In order to attain this end, Japanese MNCs need to undertake
explorative activity. However, most of them, especially MNCs in manufacturingindustry, have laid more stress on exploitative activity rather than explorative
activity even in international operations.
Japanese MNCs have to make attempt to resolve many problems when
undertaking explorative activity in emerging countries. One of them is toreconsider the tight
relationship between headquarters and foreignsubsidiaries. It is essential for Japanese MNCs to give autonomy to their someforeign subsidiaries, and at the same time to facilitate their collaboration withlocal actors for developing new business or products. In other words, it is ,inparticular, essential for Japanese MNCs to reduce the level of intra-corporate
over embeddedness and increase the level of local embeddedness. If Japanese
MNCs try to increase the level of local embeddedness, they might acquire
local-specific or tacit knowledge on the development of new business or
products from local actors. Here, it matters Japanese MNCs how to implement
the management of ambidexterity.
There are, however, a limited number of Japanese MNCs that haveaddressed such innovative activity in foreign country, especially in emerging
country. As seen in this essay, it is highly likely that Japanese MNCs in theservice industry rather than in manufacturing industry will engage in such
explorative activity, because they must conduct business in a way that matches
the needs of local customer in foreign countries. Although Japanesemanufacturers have attached a great deal of importance to transferring theirsuperior production system or manufacturing technique to their foreignsubsidiaries since they started local production, it is conceivable that they mustalso tackle to the development of new business or products even in emerging
markets in the near future.
Furthermore, it is indispensable for Japanese MNCs to reconsider therole of managers in foreign subsidiaries, especially Japanese expatriate, and todevelop a new type of international talented personnel for undertaking
explorative activity in emerging countries. As mentioned earlier, Japanese
expatriate have in past been no more than staff who faithfully implement thestrategy formulated by headquarters in the home country. However,regardless whether the staff are Japanese expatiate or talented local people,
there is undoubtedly a requirement for a new role or competence formanagers of a foreign subsidiary. It can be said that international talented
people who have such competence or mindsets as creativity,
entrepreneurship, and the ability of cross-cultural communication andnegotiation will be required for Japanese MNCs. In other words, it is requisite
for Japanese MNCs to develop such talented staff as explorative innovators as" Japanese MNCs
have to make attempt
to resolve many
problems when
undertaking
explorative activity inemerging countries."

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well as boundary spanners. In recent year the development of talented global
personnel has attracted much attention in various fields including universities,business and government in our country. However, the definition of talented
global personnel remains obscure and their specific competences have notbeen well defined.
In any case, only Japanese MNCs that continue to make efforts toundertake explorative activity, while at the same time to developing a new
type of talented personnel, are likely to achieve sustainable growth even in
emerging countries.

Notes
1) This essay is mainly based on a paper ( Takao Yamamoto & Yoshiharu
Kuwana, “The Explorative Activities and Dual Embeddedness in a Foreign
Subsidiary : On a Case Study of Japanese General Trading Companies”)
presented to an 29th Annual Conference of the Association of JapaneseBusiness Studies held in New Orleans on June 25 and 26. Therefore, it ispart of a joint research project with Takao Yamamoto, who is an associate
professor at Kanagawa University. However, if there are any mistakes or
misunderstandings in this essay, the author takes full responsibility.
2) The company names introduced here have been changed to preserveanonymity.

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References
Andersson, U., Forsgren, M. & Holm. U. (2002) “The strategic impact of external network: subsidiary
performance and competence development in the multinational corporation,” Strategic Management Journal,
23, 979-96.
Bartlett, C. & Ghoshal, S. (1989) Managing across borders: The transnational solution, Harvard Business School
Press.
Benner, M.J. & Tushman, M.L. (2003) “Exploitation, Exploration, and Process Management: The Productivity
Dilemma Revisited,” Academy of Management Review, 28(2), 238-256.
Birkinshaw, J. (2000) Entrepreneurship in the global firm, Sage.
Birkinshaw, J. & Ridderstrale, J. (1999) “Fighting the corporate immune system: a process study of subsidiary
initiatives in multinational corporations,” International Business Review, 8, 149-180.
Doz, Y.L., Santos, J. & Williamson, P. (2001) From Global to Metanational : How companies win in theknowledge economy, Harvard Business School Press.
Enomoto, S. (2014) “Is general trading company MNC?”(in Japanese) , presented at Kanto session of Japan
Academy of International Business Studies, September 27, 2014.
Forsgren,M., Holm, U. & Johanson, J. (2005) Managing the Embedded Multinational: Business Network View,
Edward Elgar Publishing.
Hagedoorn, J. & Frankort, H. T. W. (2008) “The gloomy side of embeddedness: the effects of overembeddedness
on inter-firm partnership formation,” Advances in Strategic Management, 25, 503-530, Emerald Group
Publishing Limited.
Kuwana, Y. & Yamamoto, T. (2013) "Some issues on collaborative innovation for new growth of Japanese
MNCs: on organizational transformation and human resource development," in J. D. Daniels, T.M. Lin, R.
Loveridge & A. M. Rugman (eds.), Multinational Enterprises and the Changing World Economy, 185-214,
Academy of Performance Measurement.
March, J.G. (1991) “Exploration and exploitation in organizational learning,” Organization Science, 2(1), 71-87.
Meyer, K.E., Mudambi, R. & Narula, R. (2011) “Multinational Enterprises and Local Contexts: The
Opportunities and Challenges of Multiple Embeddedness,” Journal of Management Studies, 48(2), 235-252.
O’Reilly, C., & Tushman, M. L. (2004). The ambidexterous organization. Harvard Business Review, 82(4), 1–9.
Shiraki, M.,(2006) Comparative Analysis of International Human Resource Management (in Japanese),
Yuhikaku.

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Academy of Multinational Enterprises (Japan)
2015-2017 Executive Board
President
Kazuhiro Asakawa (Keio University)
Vice President
Masahiro Ida (Hannan University)
Tetsuya Usui (Nihon University)
General Affairs
Shigeto Morokami (Meiji University )Yoshiharu Kuwana (J.F. Oberlin University)
General Planning Commitee
Masayuki Furusawa (Osaka University of Commerce)
Masahiro Ida (Hannan University)
Emiko Magoshi (J.F. Oberlin University)
Hiroshi Hoshino (Kyusyu University)
Best Book and Paper Award Commitee
Takeshi Fujisawa (Kwansei Gakuin University)
Emiko Magoshi (J.F. Oberlin University)
Masayuki Furusawa (Osaka University of Commerce)
Takahide Yamaguchi (University of Hyogo)
International Relations
Chie Iguchi (Keio University)
Hiroshi Hoshino (Kyusyu University)
Akio Tokuda (Ritumeikan University)
Tetsuya Usui (Nihon University)
Program Commitee (2016)
Naotoshi Umeno (University of Hyogo)
Yoshiharu Kuwana (J.F. Oberlin University)
Takeshi Ohtowa (Hiroshima City University)
Hironori Uchibori (Hakuoh University)
MNE Academy Journal, Editorial Team Editor-in-Cheif
Akio Tokuda (Ritumeikan University)
Editors
Yasuro Uchida (Toyama University)
Tomokazu Seki (Rikkyo University)
Takahide Yamaguchi (University of Hyogo)17Vol.3 Issue 1

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Public Relations and Publications
Syohei Tabata (Kindai University)
Yoshihiro Oishi (Meiji University)
Yukiko Shinomiya (Kindai University)
Yoshinori Yasuda (Soka University)
Newsletter committee
Toshiaki Sugita (Konan University)
Chie Iguchi (Keio University)
Hironori Uchibori (Hakuoh University)
Tetsuya Usui (Nihon University)
Eastern Chapter
Yasuro Uchida (Toyama University)
Yoshiharu Kuwana (J.F. Oberlin University)
Chie Iguchi (Keio University)
Hironori Uchibori (Hakuoh University)
Western Chapter
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Executive Secretariat and Directors
Head Office
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Eastern Chapter
Tomokazu Seki (Rikkyo University)
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AuditorTakuya Fukazawa (Tokyo Fuji University)
Shingo Nishii (University of Hyogo)18

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Japan MNE Insights will be published twice a year on the AMNE official website(www.mne-jp.org). Please feel free to contact with the editorial team if you have any question
or request.

Japan MNE Insights Editorial TeamThe chairperson of the Newsletter committee
Toshiaki Sugita, Konan University

Editor-in-Cheif

Chie Iguchi, Keio University

EditorMasashi Arai, Asia University
Tamiko Kasahara, University of Shizuoka
Hironori Uchibori, Hakuoh University
Tetsuya Usui, Nihon University

Japan MNE Insights Editorial Team is currently located at
Office of Dr. Tamiko Kasahara,
University of Shizuoka, School of Management and Information
52-1 Yada, Suruga-ku, Shizuoka, 422-8526, Japan
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Contact e-mail address: kasahara@u-shizuoka-ken.ac.jp
Copyright @ Academy of Multinational Enterprises (Japan)

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