From Local To Global
─ The Transformation of Japanese Companies ─

Naoto Iwasaki
Gerry Gannon

1．Challenging Exchange Rate
On October 20, 2022, the yen fell sharply on the foreign exchange markets,
falling below the milestone of 150 yen to the dollar for the first time in 32 years1).
One month after the government and the Bank of Japan (BOJ) launched a largescale intervention to buy the yen, the yen has weakened further by about 10 yen
from its post-intervention high, and the limits of the intervention’s effectivenesswere visible. The yen has weakened over the past six months mainly because the

Figure-1

Exchange rate of yen in 2022
150.48148.82

145.9

136.8
130.68139.18139138.11131.34124.31116.24115.79䠦䠽䡊䡑䠽䡎䡕 䠢䡁䠾䡎䡑䠽䡎䡕 䠩䠽䡎䠿䡄 䠝䡌䡎䡅䡈 䠩䠽䡕 䠦䡑䡊䡁 䠦䡑䡈䡕 䠝䡑䡃䡑䡏䡐 September October November December

Source: Bank of Japan (Tokyo Market)

─ 1 ─

成城・経済研究第 241 号（2023 年 7 月）

BOJ, led by Governor Haruhiko Kuroda, has been unwilling to address theJapanese economy’s inability to break free from its dependence on low interest
rates. By January 2023, the yen fell as low as 129 yen, but this did not mean thatthe yen’s depreciation trend had been improving. In fact, the exchange rate wasstill hovering around 130 yen after February 20232).
Looking back some 30 years ago, in 1990, just before the collapse of the
bubble economy, the domestic market was reveling in the bubble economy, many
Japanese manufacturers were expanding their business to markets around theworld with high quality products and low prices. The momentum of this expansion
was so strong that it even surpassed that of global companies from advanced
Western countries that had once dominated world markets. At that time, Japanesemanufacturers accounted for almost half of the world’s automobile production in
the automotive industry, and in the semiconductor industry indeed, most of theworld’s top 10 manufacturers were Japanese with a market share of over 50%. It is
undeniable that the strength of Japanese companies was due to the relative
Figure-2

Exchange rate trends (1971 / 1990)

350

300

250

200

150

1990

1990

1989

1989

1988

1988

1987

1987

1986

1986

1985

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1984

1984

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1982

1982

1981

1981

1980

1980

1979

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1977

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1976

1975

1975

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1974

1973

1973

100

Source: Bank of Japan (Tokyo Market)

─ 2 ─From Local To Global

depreciation of the yen against the dollar. After World War II, the yen started at a
fixed exchange rate of 360 yen to the dollar, but gradually appreciated when afloating exchange rate system was introduced with the Nixon Shock in 1971. Morethan 10 years later, in the fall of 1985, the Plaza Accord was reached at the G5 (G5Finance Ministers’ Meeting), which led to a rapid appreciation of the yen.

Domestic demand and exports have supported the growth of Japanesecompanies through the period of rapid economic growth and into the 1970s. The
growth of Japanese companies was ensured by the export of excess production,
resulting from the realization of productivity gains. Although the yen appreciatedas high as 250 yen to the dollar in the 1980s, the relative depreciation of the yen
continued,

andJapanesemanufacturers

maintained

theirinternational

competitiveness. The Plaza Accord (1985) was a manifestation of the sense of crisisand opposition of the Western industrialized countries to Japan’s potential “solovictory”. After the Plaza Accord, the yen dropped from 235 yen to the dollar by
about 20 yen, and a year later it was trading at the 150 yen to the dollar. This rapid
appreciation of the yen caused a significant “recession” in the Japanese economy,
but in 1987, the economy turned around from its recession and so began a rapid
expansion of domestic demand. The so-called “bubble economy” then plunged theJapanese economy into the era of its final banquet.
As is well known, the yen’s depreciation acted as a positive contributing factor,
discouraging imports (as they became more expensive) whilst encouraging exports
which had the impact of making Japanese produced goods cheaper in world
markets. The continued sharp appreciation of the yen, which had driven Japanesemanufacturers, who throughout the postwar period had been pursuing efficiency intheir production systems at domestic bases, into a corner yen appreciated worked
against imports. As a result, many Japanese manufacturers were forced to makemajor changes in their strategies. In just five years, Japanese companies had─ 3 ─

成城・経済研究第 241 号（2023 年 7 月）

dramatically transformed their overseas operations, with the overseas sales ratio
and overseas production ratio on the rise, export ratios on the decline, and the ratioof foreign employees and local procurement of funds on the rise.
In the 30+ years that has passed, the internationalization of Japanesecompanies has been affected by exchange rates that have swung widely from 70
yen to 250 yen to the dollar. The exchange rate, which had been relatively stable ataround 100-110 yen over the past several years, has now suddenly weakened
significantly. Although it is expected that the yen will eventually return back to ahigher level, the pandemic, which is now in its third year, as well as Russia’s
invasion of Ukraine, have caused prices of oil, LG, and other resources andfoodstuffs to soar, adding another layer to the uncertainty of the global economic
outlook. Then, the double punch of the U.S., UK, EU and Canada raising interest
rates to counter inflation and the yen’s depreciation has had a major impact on
Japanese society. How will the Japanese economy, Japanese companies, andJapanese society escape from this slump? It is becoming increasingly difficult togive a precise answer. The simultaneous and unpredictable events around the
Figure-3

Exchange rates from 1992 to 2020 (yen, dollar, and euro)

150
140
130
120
110

100
90
80
70
60

Euro area

Japan

2022

2022

2021

2020

2020

2019

2019

2018

2017

2017

2016

2016

2015

2015

2014

2013

2013

2012

2012

2011

2010

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2003

2003

2002

2002

2001

2001

2000

1999

1999

1998

1998

1997

1996

1996

1995

1995

1994

1994

50

United States

Source: BIS effective exchange rate─ 4 ─

From Local To Global

world are becoming more and more intertwined and complex. What is certain andunquestionable is that they are closely related to the high degree of globalization.
In this paper, we would like to explore the essence of the evolution ofinternationalization and globalization of economic society and corporate activities,
which we have seen, heard, and experienced firsthand, and attempt to gain useful
insights for the future. First, let us examine the evolution of globalization andconsider the changes in the international community from the Showa period to the
Heisei period, with respect to Japanese companies, how Japanese and global
companies have developed their internationalization and globalization in thiscontext, and what the situation is now.

2．Globalization 1.0, 2.0 and 3.0
American journalist and three-time Pulitzer prize winner, Thomas L. Friedmanin his book “The world is flat,” classifies the past globalization into three majoreras: “Globalization 1.0,” “Globalization 2.0,” and “Globalization 3.03). In thisFigure-4

Three eras of globalization

䜾䝻Globalization䞊䝞䝸䝊䞊䝅䝵1.0
䞁 1.0
1492 – 1850ᅜᐙ䛸 ⭎ຊ䛾muscles᫬௦Countryand䜾䝻䞊䝞䝸䝊䞊䝅䝵2.0
䞁 2.0
Globalization
1800 – 1999⏘
ᴗ䛸௻ᴗ䛻and䜘䜛䜾䝻䞊䝞䝹໬Industries
companies

䜾䝻Globalization䞊䝞䝸䝊䞊䝅䝵3.0
䞁 3.0
2001 –

ୡ⏺䛾䝣䝷䝑䝖໬䛾㐍ᒎ
individuals
Networks䠄ಶே䛸䝛䝑䝖䝽䞊䜽䛻䜘䜛䜾䝻䞊䝞䝹໬䠅

─ 5 ─

成城・経済研究第 241 号（2023 年 7 月）

section, we will examine the development process of globalization according tothese categories.

(1) Globalization 1.0 and Globalization 2.0
According to Friedman, the first phase of globalization, Globalization 1.0,
lasted about 300 years from 1492 to roughly 1800, when the Italian adventurer
Columbus (Christopher Columbus) set out on his voyage and trade between the Old
World and the New World began4).
Throughout this period, the development of navigation technology made it
possible to operate ships between Europe and the New Continent, which
contributed to reducing the size of the world. As European nations of the time
expanded their territories by acquiring colonies, they were the suzerain states of
those colonies, and used the excuse of “in the name of trade” to expropriate them.
Then, in the 19th century, states began to extend their reach not only into
international trade but also into the financial arena. During this period, the state
took the lead in the era and promoted globalization of “physical power”; arm
power, horsepower, wind power, and steam power.
Representative economic theories that explained economic activities at thedawn of such this globalization were Adam Smith’s “Absolute Dominance
Theory”5) and David Ricardo’s “Comparative Dominance Theory”6). Free trade
theory, based on those ideas, primarily sought to elucidate why international tradetakes place, with an emphasis on nation-centered globalization. Globalization
explained by these classical theories evolved to a new stage with the rapid
technological progress brought about by the Industrial Revolution that commenced
in England in the late 18th and early 19th centuries.
This is the start of the era of “Globalization 2.0.” That period has lasted fromapproximately 1800 to 2000. This period included the Great Depression, two─ 6 ─

From Local To Global

world wars, and the Cold War era and its fall. Friedman notes that the power basefor promoting globalization during this period was the industrial societies or
corporate activities of certain economically dominant and advanced countries andregions. The economic power of a few advanced regions has dominated the last
200 years. The first was the “Pax Britannica” centered on the United Kingdom,
followed by the “Pax Americana” centered on the United States, and then the“Trilateral Era” centered on the major advanced nations of Japan, Europe, and theUnited States.
During the period of “Pax Britannica” from the mid-19th century to the early
20th century, the United Kingdom grew into a hegemonic nation throughcolonization under the banner of free trade, backed by the economic and military
power it had acquired through the Industrial Revolution. However, the two worldwars in the first half of the 20th century destroyed that system. The United States
replaced Great Britain at the center of the world economy. It gained economic
superiority through the expansion of exports to the allied forces and the full-scale
development of motorization, and greatly expanded both its economic and politicalas well.
The first half of the “Pax Americana” era was a difficult period consisting of
the global financial depression that began with “Black Thursday” on Wall Street
on October 24, 1929, the resulting World War II and the subsequent Cold War7).
The U.S., as the victorious leader and hegemonic power, accounted for nearly 50%of the world’s GDP immediately after World War II and still exceeded 30% in thelate 1960s. The war spending demands of the Vietnam War beginning in 1965
forced a slowdown in the U. S. economy, followed by the Nixon Shock, thecollapse of the Smithsonian Institute, and the first oil crisis of 1973. On the other
hand, Japan and Western Europe experienced an economic revival around 1980.
The relative decline of the U.S. economy and the position of U.S. companies led to─ 7 ─

成城・経済研究第 241 号（2023 年 7 月）

the collapse of the hierarchical structure of the world economy with the U.S. at the
top. As a result, the world shifted from a unipolar world of “Pax Americana” to an
era of “Trilateral world” consisting of Japan, the U.S., and Europe.
From the late 1980s to the early 1990s, the opening door of China to the West,the collapse of the Berlin Wall, and the dissolution of the Soviet Union eliminatedthe Cold War structure that had impeded trade and capital movement for nearly 50
years since World War II. In addition to the development of technology, theestablishment of the World Trade Organization (WTO) led to a further expansion ofinternational trade and foreign direct investment, which brought about majorchanges in market and competitive structures. This is a transition in the economic
environment on a global scale not seen before.
Rapid

technologicalinnovation

in

the

field

of

informationandtelecommunications has led to a quantitative and qualitative increase in the returnof information on a global scale, as well as an increase in the speed of that
information flow, thereby advancing the information society on a global scale.
This has not only increased the information sensitivity of the market, but has also
made it possible for companies to conduct business beyond the constraints of timeand space. The homogenization of the world has been promoted through the global
mass media, and new business opportunities have been created across time zones.
Thus, as the internationalization and globalization of corporate activities
progressed, deregulation also progressed in developing countries in Asia and Latin
America, and resistance to accepting direct investment from developed countries
began to wane. Changes in the economic environment, due to information
technology and deregulation on an international scale, have spurred the“borderless economy,” and companies from around the world have developed theirbusinesses on a global scale, greatly advancing the unification and homogenizationof the world market.

─ 8 ─

From Local To Global

On the other hand, in the 1990s, economic integration was promoted on aregional basis, including EU integration, the free trade agreement (NAFTA) among
the U.S., Mexico, and Canada, and the “growth triangle” concept among Southeast
Asian countries. Such moves toward regional market integration (regionalism) andthe introduction of market economies in former socialist countries have led to the
expansion of regional markets and stimulated regional economies. At the sametime, the trend toward “border-full,” which is the elevation of boundaries between
specific regions and specific countries, began to surface among developed
countries, as seen in the filing of anti-dumping bills against Japanese firms and thepassage of local contest bills. These two developments were opposing vectors andresulted in the diversification and heterogenization of the global market.
In short, looking at the international market from a macro perspective, it hasbrought about a complex situation, that is fraught with contradictions: “market
unification and homogenization” is progressing due to “borderless,” while at thesame time “market diversification and heterogeneity” are progressing due to thecompletely opposing forces imposing full border barriers of protectionism. This
Figure-5

Change in total international trade and foreign investment (1990-2000)

70,000international
trade
ᅜ㝿㈠᫆
60,000༢఩䠖൨䝗䝹

50,00040,00030,00020,000external direct investmentᑐእ┤᥋ᢞ㈨10,0000$ bilion

1990

1991

1992

1993

1994

1995

─ 9 ─

1996

1997

1998

1999

2000

成城・経済研究第 241 号（2023 年 7 月）

significantly affected the business development of all companies acting in the
global marketplace.

(2) Ten factors driving “Globalization 3.0”
The “Globalization 3.0” era came after “Globalization 2.0”. Friedman pointed
out that the era of “Globalization 3.0” would arrive after dramatic changes brought
about by the world’s social and economic conditions commencing in the early
1990s, as well as by technological innovation, namely globalization and ICT,
which have laid the groundwork for a “flat world”. In other words, the following
10 factors have brought about dramatic changes.
The first was “the fall of the Berlin Wall on November 9, 1989.” This brought
an end to the battle between the two major economic systems, capitalism andcommunism. At that point, governance seemed to have become dominated by afree-market orientation, that valued democracy and consensus. The second was“the advent of the Internet.” Anyone with access to the Internet could receive
digital content on anything located anywhere on the Internet, giving rise to the“virtual world”. The third was “the birth of software that enabled collaboration.”
This has thought to have led to the evolution of workflows, which in turn gave riseto the other six factors.
The fourth factor is “uploading.” This allows individuals or self-generating
communities to upload files and disseminate content without going through ahierarchy of organizations and institutions. The fifth, is “outsourcing.” This
created new possibilities for collaboration and horizontal value creation in various
businesses. The sixth factor, “offshoring,” has benefited China, which has become
the “factory for the world,” but has also led to the current struggle for supremacy
between the U.S. and China.
Three of the remaining factors are “supply chain,” “insourcing,” and “in-

─ 10 ─

From Local To Global

forming,” which can be referred to as products of informational progress. And thelast factor, which Friedman calls “on steroids,” refers to the potential for new
technologies to emerge in the midst of this technological progress. At the sametime all of these factors taken together result in constant innovation, which in turncreates further change.
Friedman’s argument is that these 10 factors have shrunk the size of the world
map and promoted the “flattening” of the world, ushering in the era of
Globalization 3.0. However, Friedman’s view of Globalization 3.0 is based on
economic and social changes up to around 2007 and does not take into account thefactors that have transformed the international community since then. We will
discuss these aspects later, and look at how Japanese companies have acted andglobalized in the evolutionary process of Globalization 2.0.

3．Globalization 2.0
If we project the three phases of globalization onto the history of the Japanese
economy and the internationalization of Japanese companies, the relationshipbetween Japanese society and the international community generally overlaps,
particularly for the period after Globalization 2.0. Let us now examine the processof internationalization of Japanese companies in the period of Globalization 2.0.

(1) The dawn of internationalization
The corporate behavior that forms the first phase in the developmental stage ofinternationalization of Japanese firms is imports. The Globalization 2.0 era inJapan, which began in the Meiji Era, started with imports for the procurement of
raw materials. For Japan, where the supply of resources was difficult domestically,
importswereanessential

part

of

internationalizationinpromotingindustrialization. Product imports were also essential in terms of technology

─ 11 ─

成城・経済研究第 241 号（2023 年 7 月）

introduction. As Japan was left behind in the world’s technological development
due to its isolation from other nations, inviting engineers and imitating imported
products were the means of introducing technology in a wide range of fields, inorder to acquire technological information from overseas. This has not changed,
and internationalization is still extremely important for the introduction of designs
and exchange of ideas.
The phase of internationalization that follows imports is exports. Exports to
expand sales markets have played an important role in strengthening theinternational competitiveness of Japanese companies. Under the national policy of
promoting exports, general trading companies played a leading role, and during thesame period, indirect exports were the mainstay of these companies. The
advantage of this was that manufacturers did not need to invest directly in the local
market and could use their sales networks of general trading companies to expand
sales channels. In particular, indirect exports were sufficient for products such as
raw silk, cotton cloth, steel, and chemical fertilizers that did not require branddifferentiation or advanced technical explanation.
However, as Japanese manufacturers gained economic strength and became
able to invest in their own sales, the benefits of indirect exports began to diminish.
This is because indirect exporting, which involves an intermediary between the
manufacturer and the market, makes it difficult to respond to customer needs andmay even impede product differentiation. Although general trading companies
have a broad sales network, it is difficult for them to provide sufficient support,such as after-sales service and technical service at the point of sale. In other words,
indirect exports are effective when the value of product exports as a percentage of
total sales is small, but as the market expands and sales increase, the disadvantages
become greater.
However, this does not mean that the role of general trading companies has─ 12 ─

From Local To Global

diminished even in the current era. In fact, the power of general trading companies
with their global network and significant information-gathering capabilities, may
be said to be even greater than ever before.

(2) Period of internationalization and its development
In the 1960s, automakers and home appliance manufacturers aggressively
established sales subsidiaries in developed countries. By establishing their own
sales networks, they were able to increase their sales volume and link to domestic
demand in Japan, thereby establishing a system that ensured economies of scale.
Equipped with innovative production technology and production facilities capableof mass production, Japanese manufacturers entered international markets withsurplus products that were surplus to the domestic market could not be handled in
the domestic market.
At the same time, in order to secure future trading areas and brand status, thecompany developed its business by establishing production subsidiaries throughmergers with local companies in developing countries. At the same time that they
expanded overseas by establishing sales companies, mainly in developed
countries, they also promoted passive overseas expansion in accordance with local
government policies, mainly in developing countries. For example, Nissan Motorestablished a sales subsidiary, NMC-USA (Nissan Manufacturing Company-USA), in
the U.S. in 1963 and switched some of its indirect exports to direct exports. At thesame time, for in Taiwan, Nissan established a joint venture with a local company
and started production using so-called knockdown (KD) production system or pureassembly method, in which parts are exported and assembled locally8).
Some of the companies that began local production in developing countries
were more strategic, aiming to build competitive advantage through cost
reductions through reduced transport costs of raw materials and products, tax

─ 13 ─

成城・経済研究第 241 号（2023 年 7 月）

benefits, and lower wages costs. Mabuchi-motor which had maintained a high 55%
share of the global small motor market, began production in Taiwan and Hong
Kong in the late 1960s, and by the mid-1980s its overseas production ratio hadreached 98%. Canon, which had been exporting cameras to the global market, alsobegan local production in Taiwan in 1970, taking advantage of the lower labourcosts. Indeed, a number of manufacturers that had been developing local
production in developing countries since the 1960s9).

(3) Expansion period of internationalization
Many commentators consider that the first oil crisis that hit the world in theearly 1970s propelled Japanese companies onto the global stage. And the belttightening management promoted by many Japanese companies in the latter half ofthe 1970s, was undoubtedly successful10), and the reputation of Japanesemanufacturers’ products such as home appliances and automobiles in theinternational market rapidly increased and the market expanded. However, Japan’s
export surpluses and accumulated surpluses became the target of significant
criticism in the U. S. and advanced European countries. This was by many
considered just “Japan bashing”. The business model of establishing sales
subsidiaries in Western countries and exporting high-quality, low-priced finishedproducts manufactured in Japan began to show its limitations, and companies wererequired to move to the next stage of internationalization. For example, Nissan
exported only 1,300 vehicles to the U.S. in 1959, but by 1977 the export ratio
exceeded 50%, reaching 61% in 198511).
Faced with such Japan-bashing, Nissan established a local subsidiary in
Smyrna, Tennessee in 1980, and commenced local production in 1983, reaching acumulative production volume of 100,000 units by the following year. By 1992,
the company had expanded its annual production capacity to 440,000 units.

─ 14 ─

From Local To Global

Similarly, Honda, which established a local subsidiary in Ohio in 1978, began
local production in 1982 and had an annual production capacity of 600,000 units
by the early 1990s12). Toyota, which started local production later than these two
automakers, established NUMMI (New United Mortar Manufacturing) as a joint
venture with GM in 1984 and began local production, but it was not until 1986 thatit established its own local production system in Kentucky with an annual
production capacity of 50,000, sits and by 1996, it had achieved an annual
production capacity of 850,000 units13).
Once overseas production reached high volume levels, it became very
challenging for export departments alone to handle overseas operations thus, it
became necessary to organize a department capable of managing overseas
operations in order to secure knowledge and management know-how and transfer
this related knowledge back to manufacturing. However, Japanese companies also
tried to transfer and establish production management methods and know-how, as
well as management style and culture, as they had implemented in Japan.
Therefore, most of the decision-making was done by the head office, andinternationalization was promoted under a system in which the head office took thelead in all aspects of raw material procurement and financing. However, as thebusiness grew and expanded, it became more difficult to control. Therefore, theinternational business department was established to provide support for exports
and integrate, overseas production, technology, and know-how effectively.
The international business divisions would be positioned the same as otherbusiness divisions, and the entire activities related to overseas operations would beconcentrated there. In addition, as overseas production became moregeographically dispersed and the number of subsidiaries increased, it was common
for the division to be reorganized from a function-based organization to a regionbased organization. However, as the dependence on other domestic divisions for─ 15 ─

成城・経済研究

R&D

information,

such

as

第 241 号（2023 年 7 月）

manufacturing

technology

andtechnology

development, increased, the success or failure of internal interdepartmental
communication became an important factor in the success of overseas operations.
The typical pattern of Japanese manufacturers during this period was a“tripolar international division of labor,” in which product development was
carried out in Japan, products developed in Japan were manufactured in Southeast
Asia where labor costs were much lower, and finished products manufactured
there were exported to developed markets in Europe and the U.S. In the mid1980s, Uniden, which had achieved rapid growth in the communications
equipment field, attracted attention. Uniden, which attracted attention in the mid1980s for its rapid growth in the telecommunications equipment field, is a typical
mid-sized

company

thatachievedsignificant

success

with

such

an

internationalization strategy. Hitachi, a major electronics manufacturer, also tried
to shift to an internationalization strategy by exporting parts for low value- added,
low-cost versions of white goods such as refrigerators, which were manufactured
in Southeast Asia and then imported to Japan. In the late 1980s, however, rapid
economic growth in the Asian NIES countries of South Korea, Taiwan, Hong
Kong, and Singapore caused labor costs to rise significantly, making it difficult tomaintain such a system, and there was a move to relocate main factories to China
and Vietnam, where labor costs were lower.
On the other hand, in the late 1980s, some companies actively established a“mutually complementary international division of labor” system, in which
production bases scattered around the world were organically linked tocomplement each other. Nippon Electric (NEC), the world’s largest semiconductor
manufacturer at the time, drastically reduced domestic production of 256MRAM,
which has low density, and expanded imports from the U.S., while switching to
production of 1MDRAM and 4MDRAM, which had high density in Japan.

─ 16 ─

From Local To Global

Similarly, Sony has established an international division of labor system whereby
1MSRAM silicon wafers are processed in the U.S., assembled in Thailand, andimported back to the U.S. as products. Hino Motors also started supplying bus
parts from its Indonesian plant to its Malaysian plant in earnest and began to makemultiple use of its overseas bases in Asia and Oceania. In this way, the division oflabor was gradually established on a global scale.

(4) From internationalization to globalization
However, the situation changed drastically when Japan’ s bubble economy
burst. Many Japanese companies that had been staking their claim on the global
market saw their power greatly diminished. Japanese manufacturers, which had
gained a competitive advantage through hardware and process technologies, began
to fall behind their Western counterparts, which had demonstrated their power bytaking on the challenge of innovation and creating new business models. The
collapse of the bubble economy in Japan coincided with a period of decline formany Japanese companies, as if the business rules of the past were no longer
applicable, and they were unable to find a way to revive their businesses to theirprevious level of success.
In the mid-1990s, the financial Big Bang wave swept through Japan’s financial
markets, throwing them into chaos. With the entry of foreign firms, global
competition suddenly became full-blown in the domestic financial market. Majorbanks and securities firms, which had enjoyed the bubble economy in a convoystyle structure centered on former zaibatsu groups, were eliminated one after
another. As a result, there are now only three megabanks in 202314). This shows
the strength of the blow that the Japanese economy suffered during the prolonged
recession that followed the collapse of the bubble economy more than 20 yearsago.

─ 17 ─

成城・経済研究第 241 号（2023 年 7 月）

The automobile industry, which had accounted for more than half of global
market production, also faced a difficult situation: in 1994, Mazda, Hiroshimabased automaker became an affiliated company under the umbrella of the Ford
Motor, and in 1996 it became a Ford-owned company. Nissan, which had
maintained the second largest market share in Japan, also fell into financial crisis
in 1998 with interest-bearing debt of 2 trillion yen due to sluggish sales in overseas
markets, and in 1999 it became an associated company under the effective controlof Renault.
Furthermore, the Japanese semiconductor industry, which had supplied morethan 50% of the world’s markets, was put under extreme pressure by resurgent
European and U.S. companies and the newcomer Asian companies from South
Korea and Taiwan. Even consumer electronics which had previously been a solid
plank in the Japanese economy, gradually lost its market.
One of the major factors that led to the collapse of the bubble economy and thedecline of many Japanese companies was their failure to develop their businesses
ahead of their competitors in the rapidly evolving markets, technologies andglobalization of competition. In this period, it was necessary to go beyond theconcept of “internationalization” in order to become a global company and to think“globally” by building competitive advantage on a global scale (i.e., developing
overseas business centered on the home country). Strategic actions to build competitive

advantage through business development on a global scale from a global
perspective were being demanded without being restricted by national borders or
nationalities. The decline of many Japanese companies can be attributed to theirinability to respond to such dramatic changes.
In the last decade of the 20th century, the final decade of the Globalization 2.0
era, many Japanese companies, exhausted by the never-ending battle against the
prolonged recession that followed the collapse of the bubble economy, could not─ 18 ─

From Local To Global

afford to stop expanding their overseas operations in order to overcome thesituation and to restore their former strength. However, they could not proceed in
the same manner as in the past, and even if they did, it would only hasten theirdecline and death. Then, in January 1995, the Great Hanshin-Awaji Earthquake hit
the Kansai region15). This catastrophe, which killed more than 7,000 people,
effectively cut the whole transportation network in the Kansai region. With the
future uncertain in the immediate aftermath of the collapse of the bubble economy,
economic activity throughout Japan suffered an even greater shock. Furthermore,in March of the same year, the Sarin gas attack on the subway was triggered by thecult Aum Shinrikyo16). The entire Japanese society, which had begun to feel the
implications of the collapse of the bubble economy, lost its brightness in one fell
swoop, which caused great anxiety.

4．The Global Company
As we have seen, in the last decade of the 20th century, the era of Globalization
3.0 was just around the corner, and many global companies, as well as Japanesecompanies, were searching for new directions. Many of the 10 factors of global
flattening discussed in the previous chapter can trace their origins back to thistime. Perhaps the most significant event was the birth of a new economic order andthe start of the Internet society coinciding with the end of the Cold War.
At that time, Christopher A. Bartlett and Sumantra Ghoshal proposed theconcept of the “transnational corporation,” a strategic perspective on the corporate
behavior of global companies. This corporate concept is a strategic management
theory derived from the analysis of international corporate behavior of advanced
countries; Japan, the U.S., and Europe in the 1980s. Let us now examine thisconcept.

─ 19 ─

成城・経済研究第 241 号（2023 年 7 月）

(1) Transnational company concept
The concept of the “transnational corporation” is one of the strategic behaviorsof global companies, classified based on a close examination of their businessdevelopment, organizational management systems, and environmental changes in
the 1980s. Bartlett and Ghoshal described it with two axes, that of adaptability v
efficiency, which led to the development of four corporate models:“Multinational,” “Global,” “International” and “Transnational” model17).
A multinational company, positioned in QIV in Figure-6, is a highly adaptive
organization that can respond sensitively to different environments, in different
countries and regions. It is a corporate model in which subsidiaries in different
countries around the world are given the ability to make strategic decisions basedon their organizational capabilities, and the headquarters combines them loosely asa single group. In this corporate model, information and organizational power are
dispersed, and the entities in each country have independent management systems,
making it a very flexible type of company that can respond swiftly to local

Figure-6

Transition to a transnational corporate model

Adaptability

QϨ

Qϫ

Multinational Companies
European companies

Transnational
Companies

International Companies

Globall Companies

US companies

Japanese companies
QϩQϪ

Efficiency

Source: Bartlett, C. A. and Ghoshal, S., “Managing Across Borders: The Transnational Solution” (1989)─ 20 ─

From Local To Global

markets18). This corporate model can be evidenced in Europe with such companies
as Philips from Netherlands and Unilever from France.
In contrast to multinational firms, firms that seek global efficiency andcentralize strategic and management decision-making authority, treating the entire
world market as an integrated market, with cost advantage built throughcentralized mass production as a competitive advantage, are the “global firms” of
QII. The organization of the “global firm” model is a centralized organization that
pursues efficiency of scale, and Japanese firms are classified as this type19).
The model depicted in QIII is the “International Company.” It is characterized
by a “coordinated federation” that transfers and adapts the knowledge andexpertise of the parent company for overseas markets. In this corporate model, thesubsidiaries in each country do not have much independence or autonomy, and theemphasis is on the ability to rely on and use the knowledge and information
provided by the headquarters and the transfer of knowledge to the subsidiaries20).
This corporate model is often seen in U.S. companies’ examples being GE andP&G.
Each of these three types of firms had built specific competitive advantages byleveraging their characteristics through the 1980s. In the 1990s, however, it
became increasingly difficult to secure a competitive advantage simply by meeting
the requirements of “efficiency,” “local adaptability” and “knowledge learning
capability” individually. In other words, as globalization progressed, it became
necessary to resolve issues such as achieving efficiency on a global scale,overcoming regional and cultural differences, and creating innovation without
contradictions. The corporate model presented is the “transnational company”
model positioned in QI21). The transnational corporate model, which successfully
achieves global business development by resolving the contradiction between“adaptability” and “efficiency” in an eloquent manner, has come to be accepted. It

─ 21 ─

成城・経済研究第 241 号（2023 年 7 月）

was indeed a timely corporate concept in the transitional period between the
Globalization 2.0 and 3.0 eras.
While the international community was advancing toward the era ofGobalization 3.0, and the trend toward homogenization was increasing, markets
were becoming more diverse and sophisticated. In order to develop business in
response to this trend, it was necessary to achieve “adaptation (diversification)” inaccordance with the diversity of markets, while at the same time achieving
efficiency in terms of economies of scale. Companies that develop businessglobally are required to overcome the contradiction between “adaptation andintegration” created by global business development, and to establish a system thatwill enable them to demonstrate their superiority in competition with theirinternational competitors.
In the midst of these changes, we will now consider how Japanese companies
that have opted for a transnational corporate model have developed theirglobalization.

(2) Emerging transnational companies
Many Japanese companies categorized under the “global company” model,
which have developed their businesses under a centralized management systememphasizing efficiency, exporting their whole production systems initiallyestablished in Japan to other countries to secure a competitive advantage of highquality and low prices, even as they have developed many overseas bases. In otherwords, each business is headed by a general manager, who is responsible for
products on a global scale, from R&D to production and sales, and the system wasan extension of the optimal division of production, while coordinating the plans ofgroup companies. Nevertheless, globalization became inevitable, and there weremany attempts to introduce matrix organizations and regional headquarters

─ 22 ─

From Local To Global

systems in order to cope with the diverse and rapidly changing international
business environment. Such attempts might be considered the precursors oftransnational corporations or their pseudo-organizational forms.
A matrix organization with dual equal authority between regional and productspecific management divisions supports regional business units, and in order tounify and streamline the common functions of multiple local offices, regional
headquarters have been established at overseas sites to take charge of some of theheadquarters’ functions. In reality, however, not many companies havesuccessfully managed to do this. This is because the overlapping scope of
responsibilities and dual communication channels make mutual coordination
among departments difficult, which tends to cause confusion and amplify
uncertainty. In this context, IBM and Canon in the 1990s can be said to be one of
the few successful examples of such organizations in operation.
Big Blue (IBM), the world’s largest computer manufacturer at the time, wassupported by a common organizational culture worldwide, with management
principles and goals fostered through years of global operations and shared acrossnational borders. Canon, which had accumulated relatively more experience inglobal management due to its large proportion of overseas business prior to the1990s, is also an exceptional case of success in adopting a matrix organization. In
order to achieve globalization in this new phase of internationalization, it wasnecessary to take on the challenge of building an organizational management
system with a logic different from that of the past.
On the other hand, an organizational management system introduced in theearly 1990s was the “regional headquarters system”. Originally, the regional
headquarters system was intended to transfer some of the functions of the head
office and to organize mutual cooperation among production and sales bases in theregion. This ensures speedy decision-making and efficient business activities of─ 23 ─

成城・経済研究第 241 号（2023 年 7 月）

the local bases and allows them to develop as local companies that are integrated
into the local community. The horizontal division of labor and complementary
systems were then coordinated and maintained on a global scale. The organizationof the regional headquarters was initially small in scale and had only partial
integration in some functional areas. In addition, decision-making was strongly
influenced by the business units of the headquarters. In many cases, there was areversal of power between the subsidiaries in each country and the regional
headquarters, and it can be said that they did not fulfill their functions. Later,
global companies, such as Honda, Sony, Panasonic (then Matsushita ElectricIndustrial Co., Ltd.), and Seiko Epson, shifted to a “world headquarters system” inwhich regional headquarters became more autonomous and the general
headquarters played the role of providing basic principles and coordination from a
global perspective.
Furthermore, the world headquarters system not only serves as a cost
containment measure by concentrating staff functions, but also allows directaccess to markets in each country to strengthen market adaptability and is oriented
toward organizational integration at the global level through control by theregional headquarters. Moreover, if the control by the headquarters is loose, anetwork effect may be fostered in the loose coordination among the regional
headquarters, and efficient global logistics may be established. Under such asystem, the combination of “market-adaptive” R&D and “technology-oriented”
R&D would be promoted, and the creation of more advanced knowledge and themore efficient utilization of the accumulated knowledge on a global scale would be
anticipated.

(3) The initial scene of Globalization 3.0
As previously mentioned, Friedman states that the era of Globalization 3.0

─ 24 ─

From Local To Global

started around the turn of the 21st century. Clearly, Friedman was unable to take
into account events that have occurred since its publication, such as the pandemic
caused by Covid-19 in 2020 and the Russian invasion of Ukraine in 2022, as wellas the global financial crisis, the Lehman Shock in 2008, geopolitical changes
between the US and China, the expansion of free trade areas, the energy
revolution, nuclear power plant issues, and global environmental issues, global
environmental issues, and the evolution of ICT technologies, such as innovativeadvances in AI, have not been taken accounted of. Let us now re-examine theworld of Globalization 3.0 to clarify the extent to which it is developing.
In the early days of the Globalization 3.0 era, a new leading role has emerged
and begun to exert great power in a world that had been flattening out. This was
led by China, with its population of 1.3 billion, India with over 1.2 billion, Brazil
with 200 million, and Russia with 150 million, the BRICS nations, blessed withhuge home markets and abundant natural resources, began to emerge on the stageof global economies.
Since the late 1990s, China has been described as the “factory of the world”
and has continued to achieve rapid economic growth of more than 10% per year.
Even after the Olympic Games (2008) and the World Exposition (2010) that wereregarded as the gateway to becoming a developed country, economic growth had
not stopped, and the economic foundation has remained solid.
Even after the collapse of Lehman Brothers in the fall of 2008, China quickly
regained its vitality and became the world’s second largest economy, maintaining
an economic growth rate of over 10% for more than 20 years until the pandemic in
2020. Although in recent years, rising wages have made China less attractive as a
production base, it’s huge market is still attractive, and many global companies
have developed and continue to develop strategies that focus on the Chinese
market. However, there are concerns that under President Xi Jinping, who─ 25 ─

成城・経済研究第 241 号（2023 年 7 月）

succeeded Hu Jintao in 2012, China is becoming more clearly Communist Partyled and is demonstrating a military hegemony that directly challenges that of theUnited States and NATO.
India, which took steady steps toward becoming an IT superpower in the wakeof the Y2K fiasco, has also grown to become the world’s fifth largest economy interms of gross domestic product (GDP). Compared to developed countries andChina, India has a high percentage of young population and is expected to continue
to grow further22). In addition to strong consumer demand and expanding trade, it
is a country with high growth expectations with potential due to opportunities for
direct investment.
On the other hand, ASEAN, which is in the midst of a rapid population
expansion, was also experiencing a period of prosperity, a “renaissance” withstable economic growth of around 6%23). Within the region, the elimination oftariffs and non-tariff measures have further facilitated trade and investment, andtrade and economic cooperation agreements with neighboring countries are

Figure-7$ bill.
༢఩㸸10൨ࢻࣝ

BRICS economic growth trends (2000-2022)

GDP GDP㸦ᕥ㍈㸧
Growing ᡂ㛗⋡㸦ྑ㍈㸧
rate

20000

%

Brazil

China

India

RussiaSouth Africa

Brazil

China

India

RussiaSouth Africa

༢఩㸸㸣

20.0

18000
15.0
16000

14000
10.0

12000

10000

5.0

8000
0.0
6000

4000
-5.0
2000

0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

-10.0

Source: IMF - World Economic Outlook Databases October 2022

─ 26 ─

From Local To Global

progressing and continuously strengthening economic power. Across the ASEAN
region, wages are comparatively low and the region’s advantage as a production
location is relatively high, with wage costs already rising significantly. Many
Figure-8

Comparison of the economic situation of the 10 ASEAN countries withthe rest of the world䠯y䡊䡊䡃 䠽䡌 䡋 䡎 䡁BruneiMalaysia
ThailandIndonesia
Philippine
Vietnam
Laos
Cambodia
Myanmar
Japan
China
India
USA

GDP per capita ($)

nominal GDP ($ bill.)

2006
33,76834,869
6,355
3,367
1,765
1,471
996
673
536
284

2006
1,486
127
1,705
2,216
3,963
1,277
843
39
73
136

2020
60,72826,46810,361
7,160
3,931
3,326
3,514
2,546
1,607
1,527
39,981
10,525
1,933
63,078Populations(10 thousand)

2020
3,453
120
3,376
4,998
10,622
3,616
3,429
185
252
813
50,316
148,626
26,677208,938

2006
440
37
2,683
6,581
22,456
8,679
8,462
584
1,356
4,789

2020
569
45
3,258
6,980
27,02010,877
9,758
728
1,568
5,320
12,585
141,212138,000
33,123

Source: IMF - World Economic Outlook Databases October 2022

Figure-9

Change in contribution of emerging and developing countries toworld economic growth
Advanced economies

Emerging market and developing economies

41.5%2010䡚2021

58.5%

51.1%

2000䡚2010

48.9%

1990䡚2000

81.6%

18.4%

1980䡚1990

80.0%

20.0%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Source: IMF - World Economic Outlook Databases October 2022

─ 27 ─

成城・経済研究第 241 号（2023 年 7 月）

companies are relocating production out of China. Besides, there is a strong
possibility of a consumption boom as national incomes rise.
According to IMF forecasts, the contribution of developed countries to global
economic growth, which had accounted for 80% until 2000, has dropped
significantly to 40%, and 60% is now accounted for by developing countries,
which in recent years have referred to as the “Global South”24). Developing
countries now account for 60%25). Thus, while the countries of the Global South,
which were previously considered lesser developed countries or developing
countries, have achieved substantial economic growth, the power of advanced
countries such as Japan, the U.S. and Europe, which until the end of the 20th
century boasted of their economic and political strength, is waning considerably.
In particular, the Lehman Shock and the subsequent worldwide financial crisis
caused a long economic recession, especially in developed countries. While thewounds were still healing, the Great East Japan Earthquake and the ensuing
nuclear power plant crisis occurred in Japan. In the fall of the same year, a debt
crisis began in Europe. These developments made the outlook for advanced
Figure-10

Economic Growth of Advanced Countries 2005-2013$ bill.

% ༢఩㸸㸣

GDP
Growing rate

30,000FranceGermanyJapan

United Kingdom

United States

FranceGermanyJapan

United Kingdom

United States

10.0

8.0

25,000
6.0

4.0
20,0002.0

0.0

15,000-2.0
10,000
-4.0

-6.0
5,000
-8.0

0

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

-10.0

Source: IMF - World Economic Outlook Databases October 2022

─ 28 ─

From Local To Global

economies even more uncertain. The international economic balance can therefore
be seen to be changing.
It is uncertain whether this trend is universal. However, it is undeniable that injust over a decade of the new millennium, the power of advanced Western nations
that had driven the world economy has diminished, and the global south has madesignificant economic progress and correspondingly increased its voice.
International conferences are being held more frequently, and ASEAN countries,
Middle Eastern countries, and countries in the global south such as Chile, Brazil,
and South Africa are also beginning to play important roles. With borderless andglobalization as keywords, the balance of power in the world has undergone amajor transformation.
The evolution toward the era of Globalization 3.0 with the emergence of newleading players is also a shift towards “multi-centered globalization,” in which not
only developed countries, but also various countries and regions can become thecenter of the world. A flattened world is also an “era of multi-centers,” in which
many places on the globe will become hubs. In this sense, “Globalization 3.0” ismoving to a newer stage, more so than before in the 21st century26).

5．Japanese Companies and Globalization 3.0
In the decade from the late 1990s to the collapse of Lehman Brothers, Japanesecompanies have taken a variety of measures under the banner of “global
standardization of management” in order to respond to the progress ofglobalization. For example, they have been responding to International Financial
Accounting Standards (IFAS) and mark-to-market accounting and strengthening
corporate governance with an emphasis on shareholder returns and corporate
value. In addition, ISO (International Standardization Organization) has promoted
global standards for production, logistics and environmental protection.

─ 29 ─

成城・経済研究第 241 号（2023 年 7 月）

Furthermore, as supply chains have become more sophisticated with theadvancement of ICT, closed trade practices have been reviewed, and rigid andinefficient distribution mechanisms have been replaced by flexible and speedy
international logistics networks.
However, this may not have had a positive impact on our economy. Japan,
which was once the second richest country in the world, in terms of GDP and thethird richest in terms of GDP per capita, was overtaken by China in 2010 as thethird largest economy in the world, and will be overtaken by India in the near
future. In terms of average annual income, it was overtaken by Singapore in 2007
and by South Korea in 2015 and is now lower than the OECD average27). In
particular, the decline of the Japanese economy after the 2008 financial crisis was
still being digested in Japan and beyond.
Faced with this situation, how is Japan trying to survive in the era of
Globalization 3.0? In this section, we will examine the state of Japan’s economy
and society in the early stages of the Globalization 3.0 era and consider the
corporate behavior of global companies attempting to overcome difficulties in thisera.

(1) Japanese companies on the eve of the Lehman ShockMore than five years after the turn of the new century, the Japanese economy
had begun to recover slightly from the damage sustained since the bursting of the
bubble economy, with the disposal of bad debts having been completed. Although
the growth rate was remarkably low, without any of the flamboyance of the higheconomic growth period or the bubble economy, the economy enjoyed a period ofmoderate expansion for 73 months leading up to the fall of 200828). However, thestorm of the global financial crisis and global recession that originated in the U.S.,
triggered by the bursting of the housing bubble in the second half of 2007,─ 30 ─

From Local To Global

significantly affected the global economy of the following year. In the U.S., it
drove the world’s largest automakers, the Big Three of GM and Chrysler and Ford,
towards bankruptcy, GM and Chrysler requiring a U.S. goverment “bail out”. The
financial crisis caused the value of the dollar to fall sharply, and the U.S. economy,
which should have been rock-solid, was severely affected. It did not stop with U.S.
companies but had a tremendous impact on the entire international economic
community, with the exception of China.
Indeed, most Japanese companies also experienced a rapid deterioration in
their business performance. The Nikkei Stock Average fell 42.1% to 7,045 yen(2009). In tandem with this, the exchange rate, which had been hovering around

110 yen to the dollar, suddenly appreciated to nearly 90 yen to the dollar. This was
the return of the era of yen volatility. As a result, exports by Japan fell sharply,
resulting in negative economic growth for two consecutive years.
The retail distribution industry, which is directly connected to consumers,
immediately reacted to this. This accelerated the industry restructuring that had
been underway after the prolonged economic stagnation following the bursting of
the bubble economy. The 2001 dismantling of the Saison Group, a distributiongroup that had dominated the industry with its innovative management and brandpower in Japan, marked the beginning of the restructuring of the distribution
industry. The Saison Group29), which had Seibu Department Stores and Parcounder its umbrella, supermarket Seiyu, convenience store Family Mart, andstationery specialty store Loft, was once again reorganized, and the Saison Groupwas dismantled. Similarly, the Daiei Group, the oldest supermarket and the largest
chain in Japan in the 1980s, disappeared completely when it was absorbed by the
Aeon Group in 2015 as a result of repeated restructuring. Furthermore, in 2010,
Mitsukoshi, a long-established department store that has been around since theEdo period, was forced to merge with Isetan, a long-lived department store, as it─ 31 ─

成城・経済研究第 241 号（2023 年 7 月）

became too difficult to continue business alone30). Such a breakaway set of
distribution companies was not limited to the Tokyo area, but was replicated allover Japan.
On the other hand, manufacturers that had been supplying the global market
with low-priced and high-quality products also faced a more difficult situation
around the time of the Lehman Brothers collapse: the major Japanesemanufacturers that had been the top runners in the global electronics market in the
1980s faced a significant downturn in their business performance as a result of therise of Korean and Taiwanese electronics manufacturers and EMS (Electronics
Manufacturing Service) in the 21st century31). After the burst of the IT bubble, they

faced a further deterioration in their business performance. A joint venture Elpida
co. ltd., established by the DRAM divisions of NEC and Hitachi in 1999, wentbankrupt in 2012. Since then, several Japanese manufacturers have disappeared
from the forefront of the industry for the next 10 years until the launch of Rapidus
co. ltd 32) in 2022. Sony, which had led the industry with brands such as Walkman,
Trinitron as TVs, Prestige video games and PCs as VAIO, and Panasonic which
had a similarly broad product lineup and changed its name from Matsushita
Electric Industrial Company to become a global brand, also suffered a downturn inperformance. 2011. In 2016, Sharp, a top runner in LCD devices with thecatchphrase “eye-catching,” fell into insolvency and became a subsidiary of
Taiwanese EMS company Hon Hai (Foxconn), a Taiwanese EMS company.
Turning to the automobile industry, while not as disastrous as the electronics
industry, it has suffered no small amount of hardship related to the shrinking
domestic market and the impact of globalization. As mentioned above, Nissan,
which had long maintained Japan’s second largest market share under the slogan“Nissan of Technology,” became a subsidiary of Renault in 1999 as a result of its
overseas sales strategy that resulted in massive interest-bearing debt. Although─ 32 ─

From Local To Global

Nissan later survived the Lehman Shock under President Carlos Ghosn, who wasnicknamed “Cost Cutter,” the relationship was not equal, and the company was
still an affiliate of the Renault Group33). Mazda, which was under the Fordumbrella, withdrew from Ford’s support after the Lehman Shock, but it is not in aposition to be considered very independent.
Only Toyota, even after the bursting of the bubble economy, has not
significantly deteriorated its business performance, and has steadily consolidated
its position as a global company in the early 21st century. In 2008, Toyota
overtook GM, the largest of the Big Three automakers in terms of new car sales, tobecome the world’s top automaker. However, in addition to its poor performancedue to the Lehman Shock, the company was embroiled in a recall issue stemmingfrom an abnormal acceleration problem in the U.S. market. On top of that, thecompany suffered unprecedented operating losses in the face of the natural
disasters of the Great East Japan Earthquake in 11th March in 2011 and the

Figure-11

Toyota’s production and sales volume trends

ᵏᵎᵎᵎᵎ

ᵗᵎᵎᵎ

ᵖᵎᵎᵎ

ᵕᵎᵎᵎ

ᵔᵎᵎᵎ
ᵴᶍᶊᶓᶋᶃᴾᵆᶒᶆᶍᶓᶑᵿᶌᶂᵇ

ᵓᵎᵎᵎ

ᵒᵎᵎᵎ

ᵑᵎᵎᵎ

ᵐᵎᵎᵎ

ᵏᵎᵎᵎ

ᵎ
ᵐᵎᵎᵎᵌᵑ

ᵐᵎᵎᵏᵌᵑ

ᵐᵎᵎᵐᵌᵑ

ᵐᵎᵎᵑᵌᵑᵐᵎᵎᵒᵌᵑ

ᵐᵎᵎᵓᵌᵑ

ᵐᵎᵎᵔᵌᵑ

ᵐᵎᵎᵕᵌᵑ

ᶎᶐᶍᶑᶓᶁᶒᶇᶍᶌᴾᶔᶍᶊᶓᶋᶃ

ᵐᵎᵎᵖᵌᵑ

ᵐᵎᵎᵗᵌᵑ

ᵐᵎᵏᵎᵌᵑ

ᵐᵎᵏᵏᵌᵑ

ᵐᵎᵏᵐᵌᵑ

ᵐᵎᵏᵑᵌᵑ

ᵐᵎᵏᵒᵌᵑ

ᶑᵿᶊᶃᶑᴾᶔᶍᶊᶓᶋᶃ

Source: Toyota Annual Report 2015─ 33 ─

成城・経済研究

Figure-12

第 241 号（2023 年 7 月）

Toyota’s sales and operating income trends
ᵐᵌᵓ

ᵑᵎ

ᵐᵌᵎ

ᵐᵓ

ᵟᶋᶍᶓᶌᶒᴾᶍᶄᴾᶑᵿᶊᶃᶑᴾᵆᵺᴾᶒᶐᶇᶊᶇᶍᶌᵇ

ᵏᵌᵎ
ᵏᵓ
ᵎᵌᵓ

ᵏᵎ

ᵠᶓᶑᶇᶌᶃᶑᶑᴾᶎᶐᶍᶄᶇᶒᴾᵆᵺᴾᶒᶐᶇᶊᶇᶍᶌᵇ

ᵏᵌᵓ
ᵐᵎ

ᵎᵌᵎ

ᵓ

ᵋᵎᵌᵓ

ᵎ

ᵋᵏᵌᵎ

ᵐᵎᵎᵕᵌᵑ

ᵐᵎᵎᵖᵌᵑ

ᵐᵎᵎᵗᵌᵑ

ᵐᵎᵏᵎᵌᵑ

ᵟᶋᶍᶓᶌᶒᴾᶍᶄᴾᶑᵿᶊᶃᶑᴾᵆᵺᴾᶋᶇᶊᶊᵌᵇᵐᵎᵏᵏᵌᵑ

ᵐᵎᵏᵐᵌᵑ

ᵐᵎᵏᵑᵌᵑ

ᵐᵎᵏᵒᵌᵑ

ᵠᶓᶑᶇᶌᶃᶑᶑᴾᶎᶐᶍᶄᶇᶒᴾᵆᵺᴾᶋᶇᶊᶊᵌᵇ

Source: Toyota Annual Report 2015

flooding in Bangkok, Thailand in the summer of the same year34) and the multiple
hardships caused by these disasters, including supply chain disruptions, power
shortages, and the rapid appreciation of the yen35).
In addition, Toyota faced a major challenge as a result of a number of “recalls”
in 2011 in the U.S., it’s most profitable market. Moreover, this was just when the
U.S. automakers GM and Chrysler, backed by the U.S. government, the European
automakers Renault-Nissan, and the low-priced Korean automaker Hyundai were
healing from the wounds of the Lehman Shock and trying to expand their market
share in the U.S.36). The firestorm that spread not only to the structural defects ofthe cars, but also to the attitude toward consumers and the corporate structure of
the company, pushed Toyota to advance its corporate evolution toward
Globalization 3.0 more forcefully than ever before.

─ 34 ─

From Local To Global(2) Toyota’s challenge
Under these circumstances, Akio Toyoda, Toyota’s president, who hails fromthe founding family of Toyota, has set forth a “global vision” for a new era.
“The vision is about what kind of company we should be and how we can growsustainably as a good corporate citizen in each region through the formulation of
the vision. The major difference from our previous visions is that as a global
company, this is a process that we have considered together with our members ineach region, using English. Based on a stable management foundation, we want tobecome a company that can reliably generate profits, pay taxes, and secure
employment even if something like the Lehman Shock occurs in a global situation
where anything can happen. 15-year sales volume is envisioned at the 9 millionunit sales for Toyota and Lexus.”
Under this global vision, Toyota started rebuilding its corporate governancesystem at first. The number of directors was reduced from 27 to 11, and directorlevel managers were appointed in six overseas regions to delegate decisionmaking authority over overseas operations to the local level. At the same time, thePublic Relations Department was placed under the direct control of the President,
and a system was put in place to ensure the timely dissemination of information
both internally and externally.
In 2013 and 2016, the company took a scalpel to its centralized function-basedorganization and implemented a significant reorganization of its headquarters. The
reorganization involved the introduction of a four-business unit system: “Toyota№ 1,” which is in charge of developed countries such as North America and Japan;“Toyota № 2,” which focuses on emerging countries; “Unit Center,” whichhandles engines and transmissions; and “Lexus International,” which handles
Lexus brand luxury vehicles. Lexus International was placed under the directcontrol of the President, and three vice presidents were responsible for the other─ 35 ─

成城・経済研究第 241 号（2023 年 7 月）

three business units. By consolidating resources that had been divided for theconvenience of the supply side on a market axis according to market
characteristics and objectives, and by promoting regional decentralization, thecompany aimed to revitalize the development and production sites that had shown
signs of breakdown due to the rapid expansion of production in the past. This wasa reform of Toyota’s organizational model, which had produced successful
performance in the past, and a challenge to the transnational corporate model.
In 2015, the company also undertook a major restructuring of the group’s parts
business. The three businesses of diesel engines, manual transmissions, and brakes
were gradually transferred and consolidated in the group’s parts companies37). The
purpose of this reorganization was to streamline development personnel in the faceof increasingly complex safety and environmental technologies, while Toyota
itself worked on advanced technologies to increase its global competitiveness38).

Figure-13

Toyota’s organizational structure (2016)

Source: Green Car Congress 02 March 2016

─ 36 ─

From Local To Global

Toyota also lifted the “freeze on new plant construction” that it had put in place aspart of its “departure from a simple expansion path” following the Lehman
Brothers collapse, and although the inauguration of President Trump in 2016
forced the company to scale back its original plans, it launched a Mexican plantwith an annual production capacity of 100,000 vehicles in 2020. These
management reforms by Toyota were one of the choices it made to survive in an
evolving global society.
The automotive industry was no exception to the pandemic of 2020.
Production was halted in almost all countries, and demand was said to havedisappeared to a degree exceeding that of the Lehman Brothers collapse. However,
the impact of the pandemic was unexpectedly small, and fortunately, by the fiscal
year ending March 2021, demand had returned to pre- pandemic levels. This isbecause the prolonged suspension of production in many countries reduced
inventories in circulation and tightened supply and demand, which, combined withthe spread of suburban lifestyles, led to a recovery in demand for automobiles.
Against this backdrop, the efforts made after the Lehman Shock were effective. In
other words, lowering the break-even point by about 2 million units was beneficial
in strengthening competitiveness.
Furthermore, Toyota’s image in the era of Globalization 3.0 was clearly
articulated in mid- 2022, when there was a growing awareness that the pandemic
was subsiding in many developed countries. While many automakers were leaning
toward EVs, Toyota was alone in articulating an all-encompassing powertrain
strategy. This is a step forward in the evolution of Toyota into a transnational
company that simultaneously achieves “efficiency and adaptability.

6．Diversity adaption
In this paper, we have reviewed the trends in the internationalization and─ 37 ─

成城・経済研究第 241 号（2023 年 7 月）

globalization of corporate behavior with a focus on Japanese companies. In
concluding this paper, we would like to consider the current situation and issues
facing Japanese companies.
As mentioned at the beginning of this paper, the trend of yen depreciation thatbegan during the pandemic shows no sign of ending. However, based on pastexperience, we do not believe that the yen will continue to depreciate endlessly.
Nevertheless, the ongoing invasion of Ukraine by Putin, the rogue state of Russia,
as well as developments in Xi Jinping’s China and Kim Jong-un’s North Korea
and Myanmar’s civil war are highly disturbing and economically unsettling for
global markets and Asian markets in particular. Combined with the fact thatelectricity and gas prices are more than 30% higher than before, this has only madelife more uncertain, even though fears of the pandemic have diminished. Since theoil crisis in the 1970s, in the authors views there has been no time in recent
memory when the simultaneous rise of resource prices and inflation has brought
about a positive outcome, for individuals, corporations or nations. Prior to the
bubble economy burst, Japan’s people and economy were strong. However, facedwith the continual assault since the bursting of the bubble economy, increased
competition, the emergence of China, an increasingly boisterous and troublesome
North Korea, the rise of South Korea as a legitimate competitor in the major
markets of cars, heavy engineering and electronic manufacturing, Japan does nothave the strength it once had to face further pressure from the impacts ofpandemics globalization, innovations and global conflicts. It is difficult toacknowledge that in fact Japan may not have the strength to decide its own destiny
in such a “turbulent” river and may have to “go with the flow” of the river ofchange, whilst learning to see if it can adapt and steer in these new turbulent times.
Examining the evolution process of Japanese companies toward Globalization
3.0, the collapse of the Berlin Wall and the Soviet Union, the end of the Cold War,─ 38 ─

From Local To Global

the spread of the Internet at the same time and the establishment of the WTO at
about the same time, have all contributed to the expansion of free economic
exchange around the world. Until the collapse of Lehman Brothers, global society
had been making linear progress toward a “flattening world,” or a “polycentricsociety”. While it is true that there were new issues such as disparities between
rich and poor, human rights issues, and global environmental problems, it seemed
and was expected that many countries would break away from the BOP (Base of
Pyramid) and establish the appearance of a democratic nation for the time being.

Contrary to speculation, however, chaos returned in the late 2010s. The world
was once again entering an era of hegemonic confrontation. When the Trumpadministration came to power in the United States with its “MAGA (Make America
Great Again)” policy, it implemented additional tariffs and embargoes against

China. In response, China, now an economic superpower, retaliated by enacting
export control laws and other measures, which worsened U.S.-China economic
relations. This struggle for supremacy has continued under the Biden
administration. The conflict did not stop with China and the U.S. but became a
reality of “division” involving countries around the world. This was fueled by the
COVID-19 pandemic that originated in China. The conflict between the twocountries began where the first cases occurred and continued over the effectivenessof the vaccine, lockdown, and other pandemic response measures.
Further distorting the linear evolution of Globalization 3.0 is Russia’s invasionof Ukraine. A strategist nated as following. “The war has not gone away, but it is
an asymmetric war between states and terrorist organizations, not a fierce all-out
war it is a proxy war. The war which huge armies engage in fierce battles ormobilize the entire population, may well be an event only in history textbooks39).”
The flattered world has suddenly turned into an illusion. The Globalization 3.0 era,
which was on the verge of building a new order as indicated by Friedman, went

─ 39 ─

成城・経済研究第 241 号（2023 年 7 月）

through a period of transition, with a change of characters, a twisting of the change
trajectory, and a higher rate of change. And it became impossible to imagine
predicting what the new world order even will look like.
In the latter half of the Globalization 2.0 period, which lasted nearly 200 years,
Japanese companies were able to compete with and sometimes beat global
companies because the trends of the times were generally set. The direction ofevolution was set because the future was clear, the focus was clear, and selection
and concentration were possible.
However, with the bursting of the bubble economy, the direction of evolution
became indefinite, and the successful experiences of the past were no longer
applicable. Many of the Japanese firms that fell during the same period, were stuckin management systems that were dragged down by the past and adopted limited
strategic actions that relied on the limited information and management resources
they had acquired up to that point. In short, they were unable to respond to thediversity created by the changing business environment.
Figure-14

Exchange rate trends from 2000 to 2022

150

140

130

120

110

100

90

80

2022

2022

2021

2021

2020

2019

2019

2018

2018

2017

2016

2016

2015

2015

2014

2014

2013

2012

2012

2011

2011

2010

2009

2009

2008

2008

2007

2007

2006

2005

2005

2004

2004

2003

2002

2002

2001

2001

2000

2000

70

Source: Bank of Japan─ 40 ─

From Local To Global

Many commentators consider that Japan which has struggled since the burstingof the bubble economy is unable to steer its own course and as it does not havenatural resources such as raw materials and fuel, furthermore that it must depend
on foreign countries for these resources, once the domestic market is saturated, itcannot be expected to expand its size further. The market had been expanding
along with population growth, but once the expansion stops, the size of the market
itself will become a limiting factor, forcing companies to seek overseas markets.
The greatest requirement for corporate behavior under these conditions is theexchange rate, which is difficult to control over the longer term. It is impossible todecide on “selection and concentration” when the market environment is unstable,
the technological trajectory is unclear, it is not known with whom and where tofight, and the rules are not set. This is where an all-around strategy capable ofadapting to all changes is needed. In the 30 years since the collapse of the bubble
economy, the exchange rate of the yen has fluctuated from a high of 70 yen to thedollar to a low of 150 yen to the dollar. It is obvious that the response to thissituation cannot be to passively respond with “selection and concentration”.
Paradoxically, the source of the strength of Japanese companies in the past was“selection and concentration”. Even if there were discrepancies in method anddirection, the fact that they selected something and concentrated their management
resources on it formed a strength in itself. This in turn created efficiency andenabled the creation of demand regardless of whether it was necessary or not. In
this sense, the strength of Japanese companies at that time was that they were
extremely strategic and pre-deterministic. However, the extreme fluctuations in theexchange rate over the next 30 years did not allow them to be strategic.
It is still unclear what kind of world the Globalization 3.0 era will be, nor how
Japan will prosper in this “strange new world”. It is extremely unfavorable forJapanese companies that are oriented toward strategic corporate behavior as their─ 41 ─

成城・経済研究第 241 号（2023 年 7 月）

success depends on them being able to accurately predict what the turbulent waters
will be like in the coming decades. Given that Japan Inc, Japanese government andcorporations have failed to successfully predict the last few decades since thebursting of the bubble economy. It would be an optimist indeed, who would
predict that Japan Inc. will be able to navigate the even more turbulent unknow
waters that that of the last few decades. If the past is a predictor of the future, it
may well be that Japan Inc. is about to face even more turbulent and uncertain
waters that it has hitherto faced since the ending of hostilities in world war 2nd.
The question is whether Japan Inc, the people, the corporations, and thegovernment are strong enough and importantly innovative enough resilient enoughto succeed the coming flood of change.
On final note, Toyota’s decision to launch an all-around powertrain strategy is
the result of dismissing its past strategic strengths and may be described as a shift
to new strategic corporate behavior of “responding to diversity with diversity”.
This is the wisdom of living in the age of multi-centers.

＜Notes＞
1) Nihon Keizai Shimbun, October 21, 2022, p. 1
2) Nihon Keizai Shimbun, March 9, 2023, p. 3, The yen was at the high \137 per dollar
level in the foreign exchange market on March 8.
3) Friedman T. L, (2005), “The World Is Flat: A Brief History of the Twenty-first
Century” Farrar Straus & Giroux , (translated by Fushimi, Takeba 2006)
4) ibid. p. 21
5) Smith Adam, (1776), “An Inquiry into the Nature and Causes of the Wealth of
Nations” W. Strahan & T. Cadell, (translated by Yoichi Yamaoka, Wealth of
Nations: A Study of the Nature and Causes of the Wealth of Nations, Nihon Keizai
Shimbun Shuppansha, March 2007). According to Smith, international trade isfurther promoted when Country A can produce Good X more cheaply than Country
B, and when Country B can produce Good Y more cheaply than Country A. In otherwords, it is beneficial for both countries to specialize in trade in goods that can beproduced most efficiently in each country, increasing the economic welfare of bothcountries.
6) Ricado David, (1817), “On the Principles of Political Economy, and Taxation,” John
Muray (translated by Takuya Hatori and Yoshiki Yoshizawa, Principles of─ 42 ─

From Local To Global

7)
8)
9)
10)
11)
12)
13)
14)
15)
16)

17)

18)
19)
20)
21)
22)
23)
24)

Economics and Taxation, Iwanami Shoten, May 1987). Ricard posits the“comparative cost of production theory” that “cheap grain and cheap manufactured
goods make wages, the price of labor, cheaper and increase the rate of profit, thedriving force of economic development,” and points out that “it would be mutually
beneficial if each country concentrated on producing goods in which it excels and, in
exchange, imported goods in which it does not excel so well. In addition, he points
out that “it is mutually beneficial if each country concentrates on the production of
goods in which it excels and imports goods in which it does not excel in exchange.
The United Nations, Statistical Yearbook, 1953 40
Iwasaki N., “Japanese Companies in the Global Era,” Contemporary Management,
1992, pp. 15-43
Iwasaki N., “Internationalization of Business Organization,” Contemporary
Management, 1992, pp. 87-103
When a company faced with a recession rebuilds its management by reducing internal
slack resources.
Iwasaki N., and Hosono H., “Global Strategy in the Era of Mega-Competition,” Seijo
Economic Research No. 142, 1998, p. 11
ibid p. 13
ibid p. 8
There are 3 Mega banks in Japan, they are Mitsubishi UFJ Bank, Mitsui-Sumitomo
Bank and Mizuho Bank.
The Great Hanshin-Awaji Earthquake was a magnitude 7.3 disaster January 17, 1995,
with its epicenter in the Akashi Strait in Awaji Hyogo prefecture.
Aum Shinrikyo is a cult group organized with Shoko Asahara (real name Chizuo
Matsumoto), who was executed in 2018, as its founder. The group has even gone so
far as to carry out plans to overthrow the state. The Sarin gas attack on the subway on
March 20, 1995 was an unprecedented incident in which a religious group targeted alarge city in peacetime and simultaneously attacked multiple locations with apowerful chemical weapon. It had a huge impact on the world, including the fact thatit occurred in postwar Japan, a country with a high level of security.
Bartlett, C. A. and Ghoshal, S. (1989), “Managing Across Borders: The
Transnational Solution”, Harvard Business School Press, Nihon Keizai Shimbun,
1990)
ibid. p. 68
ibid. p. 71
ibid. p. 70
ibid. p. 77
October 2022 Data based on SNS (Manual of National Accounts)
ASEAN Renaissance (1) “Japan’s ‘One-Shot Victory’ Now Long Ago: Major
Competition in a Market of 600 million People,” Nikkei, July 2, 2013, p. 1
The term “high south, low north” was coined to indicate that economic growth is highin developing countries (south) and low in developed countries (north). However, thesituation is not universal, as already noted. For example, the effects of monetaryeasing measures by the U.S. Fed since the Lehman shock in 2014 have resulted in
rapid dollar appreciation, which has caused dollars that had been flowing into

─ 43 ─

成城・経済研究

25)
26)

27)
28)

29)

30)

31)

32)
33)

34)

第 241 号（2023 年 7 月）

emerging economies to flow back into the U.S., resulting in nearly 10% inflation in
emerging economies and a fading of economic growth. This trend was particularly
strong in the “Fragile 5” currencies (referring to the Brazilian real, Indian rupee,
Indonesian rupiah, Turkish lira, and South African ran
Japan External Trade Organization (Jetro), “World Economy, Trade and Direct
Investment,” January 2013, Source: IMF Statistics
In my book, I once wrote that the era of Globalization 3.0 was already at its end andtha an era beyond it was advancing. Here, I would like to revise that statement. This isbecause that occurred at the number of players has greatly increased with the entry ofmany developing countries at the time, and the result has been an overemphasis on
the influence they exert. I would like to revise my previous comment, as I do not see
any fundamental change in technology in 2023, which I believe is still at thethreshold of the “Era of Globalization 3.0.
GDP per capita, Singapore overtakes Japan,” Nihon Keizai Shimbun, July 5, 2008,
evening edition, p. 1
The 73-month period of economic expansion surpassed that of the “Izanagi Boom” of
1965-1970 (57 months), which had been the longest postwar period. However,
because of the low growth rate, it was called “an expansionary phase without any
sense of reality.
The core group consists of four core groups: Seibu Department Stores, Seiyu, Asahi
Industries (Seibu Chemical Industry), and Seibu Environmental Development (Seibu
Urban Development), and through the “Integrated Living Industry” declaration,
Credit Saison (Seibu Credit), Western Food Systems (Restaurant Seibu, Yoshinoya
D&C, Dunkin Donuts, etc.) Asahi Koyo, and Saison Life Insurance (Seibu Allstate
Life Insurance) were selected as new core companies. As the bubble era came to aclose, Intercontinental Hotel, Osawa Shokai, Parco, and FamilyMart were added to
the list. At its peak, the company had 13 groups; it fell into a business crisis after the
bursting of the bubble economy in the 1990s and collapsed in 2001.
Isetan Mitsukoshi Ltd. was born in 2011 through the merger of Mitsukoshi Ltd. andIsetan ltd.. Both department stores are long-established businesses with their origins
in kimono stores of the Edo period.
EMS stands for “Electronics Manufacturing Service,” and refers to the contract
manufacturing of electronic equipment, or the manufacturer that undertakes thisservice.
Rapidus Corporation is a state-of-the-art semiconductor mass production company
The two parties have agreed to negotiate a reduction in the unbalanced equity stake in
Renault and Nissan, marking a turning point in the capital relationship between the
two that began in 1999 and will become equal after 20 years. Nikkei Shimbun,
January 31, 2023 morning edition, p. 1
This is a large-scale recall problem triggered by the fatal Lexus ES350 accident that
occurred in California in August 2009. The recalls involved 3.8 million vehicles due
to defective floor mats, 2.3 million vehicles due to defective gas pedal pedals, andapproximately 8 million vehicles in the U.S., including those related to the Prius. The
pedal and floor mat defects were confirmed and appropriate action was required, but
the fatal accident was put to rest in 2011 when the U.S. Department of Transportation

─ 44 ─

From Local To Global

35)

36)

37)
38)
39)

announced.
The Lehman Shock, a financial crisis triggered by the subprime loan problem thatbegan in the fall of 2008, drove the world’s automakers into the abyss. Chrysler,
which had terminated its partnerships with GM and Mercedes-Benz, went bankrupt.
In Europe, Porsche Motor Corp. fell into financial crisis, and Swedish automaker
Saab, which had been under the umbrella of GM, also went bankrupt.
Funding and restructuring through President Obama’s auto policy helped the U.S.
auto market recover more quickly than expected. In addition, European
manufacturers, led by VW and including the Renault-Nissan Group, also recovered
their performance, driven by the growth of the Chinese economy, which has a large
market share, and the depreciation of their own currencies. The recovery of European
manufacturers was remarkable, with VW’s global sales volume increasing 45% in2012 compared to 2007, and the Renault-Nissan Group achieving a 20% increase.
Nikkei Newspaper, November 29, 2014
Weekly Toyo Keizai, 2014.12.13, p. 206
Yu Koizumi, “The Ukrainian War”, 2022, p. 15,＜References＞
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─ 45 ─

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成城・経済研究第 241 号（2023 年 7 月）

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成城・経済研究第 241 号（2023 年 7 月）

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This article is the fifith of six articles by Dr Gannon and Professor Iwasaki and builds
on the original ideas by Professor Iwasaki in “Globalization and Japanese companies”, inSeijo Economics No. 240, March, 2023.

─ 48 ─