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Chinese and Japanese Business Systems Comparison Case Study

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Updated: Jun 13th, 2020

Introduction

The economic development of Asian countries has been changed during the last several decades. The number of positive changes impressed the representatives of many countries around the whole world. Business systems of many Asian countries like China, Japan, India, and South Korea become the examples of how organizations may develop and control their production activities and promote the transactions with other companies in different markets. The exploration of such business systems has a long history; therefore, many researchers want to introduce their visions of systems’ peculiarities, importance, and abilities to accommodate with external and internal factors.

In addition to the intentions to expand the boundaries of knowledge about Asian business systems, there is a burning desire to compare different business systems of the same region and clarify if only globalization influences the development of Asian business, or if there are some cultural, historical, political, institutional, or economic peculiarities that should be considered. The current paper aims at the development of a comparative analysis of the Chinese and Japanese business systems with a focus on their similarities and divergences and the context of specific effects such as ownership and corporate governance, internal hierarchy, networking, employment relations, and skill formation.

Research Questions

The main research question that has to be answered in the project is connected with the conditions under which China and Japan succeeded in developing their business systems. It sounds as follows:

What are the main differences and similarities between Chinese and Japan business systems?

To succeed in answering this question, it is necessary several sub-questions that can be used as a plan of the work that should be developed. The supplementary research questions are:

  1. What is the essence of business system?
  2. What are the main changes in the Asian business system?
  3. What are the peculiarities of the Chinese and Japan business systems in terms of ownership, corporate governance, internal hierarchy, networking, employment relations, and skill formation?
  4. How does globalization influence the Chinese and Japanese business systems?

The answers to these questions, as well as the creation of the whole project, may become a significant contribution to the development of other Asian business systems and understanding of the successful factors by the representatives of other regions.

Importance of the Project

Asian business is unique indeed. Its leaders and developers have to follow a number of strict rules dictated by the Asian government. At the same time, they succeeded with the idea of social embedment and the necessity to be dependent on the social environments, political relations, and current technological achievements. Therefore, it is very important to identify the differences and similarities that exist between Chinese and Japanese business systems in the same context in order to understand how the spheres of politics, economics, culture, and management can influence the development of business by a country. This kind of analysis is also important due to the possibility to focus on the conditions under which two different countries are able to cope with the challenges and opportunities caused by the process of globalization that has already covered the whole globe.

Theoretical Framework

There are many theoretical frameworks that can be taken from the fields of economics, sociology, and even international relations to comprehend the essence of Asian business. Hasegawa and Noronha (2014) offer to use systems theory as the most suitable approach to examine the similarities and differences of Chinese and Japanese business systems, evaluate the factors of the Asian business system, and clarify the reasons of the countries’ competitiveness.

The systems approach helps to consider the contextual conditions like the political relations, history of the region, and cultural preferences alongside with the external factors such as material influences. Systems theory aims at shaping and defining the outcomes of the activities made within a system. Its initial goal was to investigate the peculiarities of various biological systems. With time, it was possible to analyze the relations between the components of various complex systems in the sphere of management, psychology, economic politics, etc. with the help of the systems approach (Hays, 2006).

Whitley (2000) defines business systems as “ distinctive patterns of economic organization that vary in their degree and mode of authoritative coordination of economic activities, and in the organization of, and interconnections between, owners, managers, experts, and other employees” (p. 33). It means that there should be a number of components in the system with their own distinctive features. Witt and Redding (2014) offer to analyze business systems according to their ownership and corporate governance, internal relations, employment relations, education, the formation of skills, and companies’ networking with other organizations.

Asian business systems are tied to a variety of capitalism traits. Besides, Yeung’s research (2000) shows that globalization has already helped to transform the nature of business systems and introduce new region-centric and ethnocentric traits that are different in every nation. Therefore, China and Japan may have some similar traits because of its geographical location and the attention to the cultural aspects and a number of differences that can be explained by different management and political approaches. Witt and Redding (2013) divide Asian business systems into five categories that are post-socialist, advanced Northeast Asian, Japanese, emerging Southeast Asian, and advanced city. This categorization proves that Japan has a unique approach to the creation of its business system in comparison to other forms of Asian capitalism.

The main method that should be used to analyze to Asian business systems should be of a qualitative nature because it should help to focus on the content, peculiarities, similarities, and differences between two countries. It is possible to use a content analysis as a technique to interpret the messages from different documents, understanding the variables of the texts, and analyze the data with its mistakes, repetitions, and strong arguments (Jha, 2014). At the same time, a mixed type of analysis can be used to rely on the statistics taken from both countries concerning their achievements, resources, and abilities.

Qualitative and quantitative types of analysis of the facts help to create a solid basis for the comparative analysis of Chinese and Japanese business systems and their abilities to resist the challenges of globalizations. In its turn, globalization promotes the development of structural changes that can help to reduce the important of national states in business (Homann, Koslowski, & Luetge, 2013). Due to the changes caused by globalization, Asian economies are characterized by various degrees of development and the abilities to meet the requirements set by their governments (Delios, Xu, & Singh, 2007).

Because of the necessity to focus on two countries only, there are certain limitations that should be mentioned. First, the period of research is limited. Therefore, there is no ability to cover much material and address as many sources as possible. Second, only several business organizations in China and Japan can be investigated. Finally, the study is focused on the differences and similarities between two types of business systems. There is a lack of information about the outcomes and the significance of these systems for the population. That is why it is expected to continue the study and develop it in the context of the importance and significance of Chinese and Japanese cultures in the world of business.

Analysis

Ownership and Corporate Governance

In Asian business, corporate governance aims at promoting an appropriate investment climate to support competitive companies and develop financial markets. The role of communism cannot be neglected in corporate government and ownership of China. This country demonstrates how one of the harsh forms of control (communism) may protect local interests and help the country succeed in firm ownership.

There are three forms of ownership (Chen, 2005): SOEs (State Owned Enterprises) aim at participating in global competitions, identifying the country as a meaningful world player, and getting long-term financing from banks; private enterprises are held by families to produce high-quality products and services at low costs and promote wealth among its owners; and hybrid organizations that may be considered as partially private due to their dependence on the government or foreign investors.

Japan rejects the idea of state ownership. There are several types of ownership in its business system created in different periods (Karan, 2010): zaibatsu was the oldest form of ownership controlled by families, shinko zaibatsu replaced the old form because of the necessity to separate ownership and control, kigyo shudan was another new type that consisted of several enterprise groups created as a result of economic democratization and the reduction of economic power, and, finally, keiretsu was created to minimize the power of ownership and underline the role of a lead firm in making decisions, controlling financial resources, etc.

Chinese and Japanese business was under the control of family clans. It is the main similarity between the countries. However, Japan seems to be more successful in its intention to create a system with a single type of ownership to develop its corporate governance, and China has to categorize its system in regards to the possibilities of its citizens. In other words, Japanese firms are usually owned by other firms and consider creditors and suppliers are the main stakeholders, and Chinese firms are owned by people (as a rule, a family business is developed) and consider a state as its main stakeholder.

As a result, a number of Chinese organizations have been already identified as the best global corporations with the ability of the current government to gain control over their incomes and growth in regards to the competitions that take place locally and globally. In terms of ownership and corporate governance, Japanese business systems aim at providing people with the abilities to overcome risks and promote mutual assistance that should not be based on interpersonal relations but can be based on the profitability each company may have.

Internal Hierarchies

Inter-corporate relations in Japan and China have more differences than similarities. Chinese inter-firm relations are based on interpersonal relations and the ways of how people can find common solutions. That is why much attention is paid to evaluations of interpersonal relations that are based on Guanxi. The researchers introduce a Chinese business system as a significant contribution in the era of network capitalism without hierarchies between firms but with properly developed hierarchical relations (Jansson, Johanson, & Ramström, 2007). Chinese try to focus on the development of the hierarchies that cannot prevent the development of the relations but make them stronger and trustful. Companies have to understand that the interpersonal relations define the quality of the organizational relations.

Therefore, many business companies support the idea of structural holes that can be used to hide the challenges of communication and discussions and underline the positive results that have been achieved. In their turn, Japanese organizations do not find it necessary to address other company with a number of outsourcing goals and develop interpersonal relations to their full extent but cooperate with specific trading partners and develop inter-industry relations. Such independence of organizations promotes the development of long-term relations without the necessity to analyze the final results. Japanese organizations support the idea of unconditional cooperation (Khanna, Song, & Lee, 2011) and the inabilities to make mistakes and get frustrated with the results achieved. Conglomerates are popular in Japan, and Chinese system has some conglomerate characteristics only in order to underline the importance of hierarchical relations.

Network with Organizations

Inter-organizational networks determine the abilities of a firm to stay competitive and perform on a high level (Ma, Yao, Xi, 2009). Chinese and Japanese business systems have the same goal in developing networking with other firms. Still, Chinese organizations focus on the developing of the relations between the employees and their leaders, and Japanese organizations consider a firm as one whole and consider the relations between two or more organizations like the relations between two or more people. Japanese business relations differ from Chinese business relations because of the absence of an ultimate owner that is caused by the impossibilities to develop trustful and fair business relations. Japanese are able to foster long-standing relations between organizations, and Chinese succeed in improving interpersonal ties.

Employment Relations

Employment relations in China and Japan are unique. Japanese divide these relations into lifetime employment (when employees are hired until their retirement), seniority system (there are the abilities to raise salary relating to age, experience, and knowledge), and enterprise unions (firms try to re-invest themselves and change their organizational boundaries) (Witt & Redding, 2014). However, even such categorization of employment systems, there is a wide spread of non-regular employment that provides Japanese business with cheap workers and good opportunities to develop a traditional business with its history and impact on the country.

The Chinese business system is complicated indeed and full of controversies and the attempts to improve it. For example, China compares itself with some European countries due to the intention to promote social democracy and protect employees’ rights. However, the existing capitalism features do not make this practice happen. The Chinese government does not allow the development of special organizations that can truly defend labor interests; therefore, employees have to follow the rules and meet the expectations at the expense of their personal interests. Therefore, the thing that unites these two systems is the desire to underline the role of people in business but the inability to achieve this goal due to the political and historical issues. China and Japan use different ways to develop good employment relations to succeed in business.

Skills Transformation

The peculiar feature of skills transformation in China is its dependence on a weak education system. Chinese education lacks knowledge of different nations (Zhao & Deng, 2015), and people are not always able to develop appropriate international relations. Many institutions ignore the importance of science and art but pay more attention to the technological achievements. Finally, Chinese education emphasized the role of intellectual skills without the abilities to develop personal skills, understanding and desire the way it is possible in the West (Teo & Rose, 2013).

Japanese education system has been considerably improved after World War II and focused on the development of public vocational training schemes (Witt & Redding, 2014). Japanese workers and their employers are eager to invest in such schemes because it promotes lifetime employment that is appreciated in Japan. In general, education and skills transformation is better developed in Japan regardless the fact that China tries to develop interpersonal relations better than Japan. It means that the goal to create a business system on the basis of inter-organizational relations requires more skills and training. From this point of view, the situation in Japan is better than the situation in China.

Cultural Differences

Discussing the differences and similarities of corporate governance, education, or inter-organizational relations of China and Japan, many references are made to the cultural aspect. In spite of the fact that China and Japan share a number of common features and depend on the impact of government, the differences of their business cultures can be explained by a variety of beliefs and cultural preferences.

For example, Japan is under the control of the Emperor, who does not hold real power, and China is under the power of the communist party that tries to impose its rules and obligations on every Chinese citizen. It is possible to believe that business systems, as well as business relations, depend on the philosophies spread in the countries. Chinese Confucianism and Japanese Buddhism are two powerful bases of human beliefs.

Management

Japanese and Chinese management systems have several characteristics in common. Both of them are successful and productive. Both of them focus on the development of employees’ skills and knowledge. Both of them are based on the idea of hierarchy. Still, among all these similarities, it is always possible to identify several significant differences that are based on the cultural and political aspects of the countries. For example, the Japanese way of management depends on the Japan collectivism and the seniority style of work.

Khanna, Song, and Lee (2011) admit that seniority-based promotion is one of the successful factors that contribute the majority of Asian business systems. A group of young specialists is usually directed by professional managers, who are controlled by the workers, who are more professional in their turn, etc. The horizontal level of management is a distinctive feature of Japan. The way of how Japanese business system works requires its employees paying more attention to the experience gained by seniors and the level and quality of education gained by their followers. There is no need just to gain control over the beginners and make sure they follow the rules that have been already set. It is important for Japanese organizations to be confident in the quality of knowledge used in work.

China has almost the same management style. The only difference is that all organizations should be obedient to the leading authorities such as party’s leaders. That is why the management decisions made by Chinese organizations are more centralized than the Japanese ones, and Japanese organizations show how trustful relations can be developed in the sphere of management and how crucial the level of knowledge can be. Chinese business systems are based on the traditions that cannot be neglected by people but overcome by organizations.

Conclusion

In general, China and Japan are two most powerful geographical neighbors, who demonstrate unbelievable abilities to develop strong political, economic, marketing, and even cultural relations. Though there are many differences in the styles of life, business goals, and even government, China and Japan respect each other and represent the best examples of business systems. In order to comprehend the differences and similarities between the business systems offered in China and Japan, it is very important to know how to consider the importance of cultural and social aspects.

China with its bureaucratic style of life contradicts the feudalism developed in Japan. Chinese desire to develop interpersonal relations and underline the importance of equality between people may be compared to the Japanese hierarchies and attention to the age and experience of employees. However, even the Chinese loyalty to family relations and the Japanese respect to power help to create two equal successful business systems that prove that the Asian approach to organize business and control it is one of the best options for all organizations around the whole world even if globalization creates the conditions that are not always understandable and convenient for governments. In fact, global economy depends a lot on the economies developed in such countries like China or Japan. Therefore, these countries do not have a right to fail or introduce poor approaches to the development of business systems.

References

Chen, Jian. (2005). Corporate governance in China. New York, NY: RoutledgeCurzon.

Delios, A., Xu, W.W., & Singh, K. (2007). Strategy research in Asia. In H.W.C. Yeung (Ed.) Handbook of research on Asian business (pp. 19-45). Northampton, MA: Edward Elgar Publishing.

Hasegawa, H. & Noronha, C. (2014). Asian business and management: Theory, practice and perspectives. New York, NY: Palgrave Macmillan.

Hays, R.T. (2006). The science of learning: A systems theory perspective. Boca Raton, FL: Brown Walker Press.

Homann, K., Koslowski, P., & Luetge, C. (2013). Globalization and business ethics. Burlington, VT: Ashgate Publishing.

Jansson, H., Johanson, M. & Ramström, J. (2007). Institutions and business networks: A comparative analysis of the Chinese, Russian, and West European markets. Industrial Marketing Management, 36(7), 955-967.

Jha, A.S. (2014). Social research methods. New York, NY: McGraw Hill Education.

Karan, P.P. (2010). Japan in the 21st century: Environment, economy, and society. Lexington, KY: University Press of Kentucky.

Khanna, T., Song, J., & Lee, K. (2011). The Paradox of Samsung’s Rise. Harvard Business Review, 89(7/8), 142-147

Ma, X., Yao, X. and Xi, Y. (2009). How do interorganizational and interpersonal networks affect a firm’s strategic adaptive capability in a transition economy? Journal of Business Research, 62(11), 1087-1095.

Teo, V. & Rose, C. (2013). The United States between China and Japan. Newcastle upon Tyne, UK: Cambridge Scholars Publishing.

Whitley, R. (2000). Divergent Capitalisms: The social structuring and change of business systems. New York, NY: Oxford University Press.

Witt, M.A. & Redding, G. (2013). Asian business systems: Institutional comparison, clusters and implications for varieties of capitalism and business systems theory. Socio-Economic Review, 11(2), 265-300.

Witt, M.A. & Redding, G. (2014). The oxford handbook of Asian business systems. New York, NY: Oxford University Press.

Yeung, H. (2000). The dynamics of Asian business systems in a globalizing era. Review of International Political Economy, 7(3), 399-433.

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