The J-Firm

Toyota, Panasonic, TOTO (yes, the toilet makers), Sony. These well-known Japanese companies seem to do so many things. Why?

David Oks, in Why Japanese Companies do so many different things:

Horizontal coordination requires that workers know each other’s jobs, since a worker who spots a problem in one area of the line can only act on it if he understands what that area is supposed to be doing. But in order to understand each other’s jobs, workers cannot be specialized: they have to rotate across different workplace functions to the point where they’re familiar with much of the plant’s operations. In order to rotate across different workplace functions, they need broad training; and it makes no sense to train them broadly if you don’t keep them for a very long time. And if you have generalist workers who are around for a long time, you can’t reward them based on how they do in one role, because then they’d have no desire to leave that role for another role where they might do worse. Instead you have to pay them based on company performance, and promote them based on seniority. And you also have to give them an ironclad commitment not to fire them if economic conditions worsen: if they can get laid off at any moment, why would they invest years of effort in learning all the idiosyncratic things that your firm does?

So now you have a firm that has lots of lifetime employees who can’t be fired, and whose skills are tailored to what your firm needs rather than to a particular occupational category transferable to any employer. That works very well for your company’s employees; but it makes no sense to outsiders. So the system only makes sense if the company is also insulated from outside pressure, whether from organized labor or from organized capital. Thus the other features of Japanese corporations: firm-level unions, insider-dominated boards, and broad hostility to outside capital.

[…]

The complete Japanese bundle, I should say, ends up producing something with entirely different objectives and interests than the American bundle. The H-firm exists to make money, or rather to return money to shareholders; but the J-firm, run by its employees and largely indifferent to the interests of shareholders, exists simply to continue existing. That’s why Japanese companies are so protean and willing to change what they do.

[…]

And that basic impulse toward survival is why Japanese companies are so insistent on diversification. If you’ve made a commitment to keep people employed for life, then you need to create jobs for them if their current jobs stop making sense: indeed, you might need to keep them employed even if you can’t find anything for them to do. If you’re not very worried about profitability, and have lots of well-trained generalist employees, then it makes perfect sense to reinvest your company’s earnings by expanding into new industries: doing so not only allows your company to survive longer—your company’s portfolio of bets is now more diversified and thus lower-risk—but also ensures that you’re able to keep your surplus workers busy in one way or another.

Answer: to stay alive.

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