Asian Business is Regional, Not Global
Introduction
Despite a large literature extolling the global success of Asian firms, especially
the Japanese, evidence suggest that most Asian firms operate regionally. Of the world’s
500 largest firms, 122 are based in Asia. For the 75 Asian firms with data on regional
sales, only 3 are global whereas 66 have the majority of their sales in their home region.
Why is this? Why do the Asian-based firms lack globalization? As 66 of the 75 Asian
multinationals are Japanese, we focus on these Japanese firms in this study to answer
these questions.
Asian Business is Regional, not Global
Traditional literature has assumed that large Asian (in particular Japanese) firms
are global and follow global strategies. As we see, this is not the case. One reason for the
widespread perception of the global nature of Japanese firms within academic circles
comes from biases in the empirical analysis of Japanese firms. Large “global”
international Japanese firms dominate the research across all business and management
disciplines. Yet Toyota and Sony and Canon are not representative of Japanese or Asian
firms in general. Most ‘typical’ group of Asian firms whose sales are predominantly in
their home region.
We argue that there are no superior competitive advantages for a wide range of
Japanese firms in the global economy. To put much of the literature on Japanese firms
into perspective we will examine some selected case studies and compare global and bi-
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regional firms with home-region oriented firms from Japan. First we develop an
analytical framework to position these case studies.
The Regional Matrix
We adapt the basic model of the international business field (IB) which
distinguishes between country-effects (CSAs) and firm-level effects (FSAs). An FSA is
defined as a unique capability proprietary to the organization. It may be built upon
product or process technology, marketing, or distributional skills. The FSAs possessed by
a firm are based ultimately on its internalization of an asset, such as production,
knowledge, managerial, or marketing capabilities over which the firm has proprietary
control. The CSAs can include political, cultural, economic, and financial factors which
are parameters exogenous to the firm.
We modify the traditional two-by-two FSA/CSA matrix into a new matrix, as
shown in Figure 1.
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Figure 1
The Regional Matrix
Geographic Reach of
FSAs
Geographic
Scope of
FSAs
Regional
Global
1
3
2
4
Global
Regional
On the horizontal axis is shown the regional or global reach of the FSAs of a firm.
On the vertical axis is shown the regional or global scope of the locational advantages of
a firm’s FSAs.
This leads to the following key analytical classifications:Cell 3: Global firms—these have a global reach of their FSAs and a global scope for
FSAs; they are in all three regions of the triad; we find three amongst our 75 Asian firms.
Cell 4: Bi-regional firms—these have a global reach for their FSAs, but they are not
global in their geographic scope, as they only have a significant presence in two regions
of the triad; again there are just three in our list of 75 Asian firms; host region firms also
appear here, such as News Corp and Honda.
Cell 2: Home-region firms—they have FSAs with a reach only in their home region, and
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they also have home-region locational FSAs; 66 of the 75 Asian firms fit into this
category.
Cell 1: Firms with home-region FSAs but a global scope in FSAs —there are very few of
these in practice, although many firms think that they are global in scope; data show,
however, that they are actually home-region based, in cell 2. We call cell 1, the "myth" of
global scope.
Japanese Case Studies
We now apply the framework of Figure 1 to analyze some specific firms in each
of the major cells. The sample of our study is comprised of three home-region oriented
firms (Sumitomo Chemical, Nippon Steel and NEC), two bi-regional firms (Toyota and
Nissan Motor), one host-oriented (Honda), and one global (Canon). Yet, to save time and
space, this summary will just look into one firm in each category.
Sumitomo Chemical (Home region oriented)
Sumitomo Chemical is a home-region oriented firm. Just 16 percent of Sumitomo
Chemical’s overseas sales are in North America and 17 percent are in Europe. The
majority of its overseas operations are based in Asia.
The research shows many of Sumitomo Chemical’s FSAs have a limited
geographic scope. New product and process development expertise and organizational
practices have evolved to meet the incremental innovation needs of current (Japanese)
customers. Job-rotation and other strong cross-functional linkages underpin these
capabilities whilst weakening its ability to engage in more radical science-led innovation
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or switch to new products or customers.
Toyota (Bi-regional)
In 2002, two regional markets accounted for well over 80% of Toyota’s revenues:
Asia (with Japan at 45% of revenues) and North America, at 38.8% of revenues. North
America is Toyota’s second largest regional market in terms of revenues.
Toyota’s competitive positioning in the North American market comes from its
success in leveraging two particular sets of FSAs in the region: (1) customer-led new
product development, marketing and brand-building, and; (2) manufacturing productivity
and quality.
Despite Toyota’s success in the US market, many of their FSAs were limited to
their home-market. Toyota and Honda managed to transfer some elements of their
advantage to succeed in US and European markets; most other firms did not.
Honda (Host-Region Oriented)
In 2002 the Honda Accord was the best-selling passenger car in the United States
and Honda generated over half its revenues (55.6 %) in North America. However, this
high level of overseas sales is a relatively recent development, even in Honda.
The relative spread of revenues across the triad is not only influenced by the
ability of a company to penetrate a foreign market, but also by how much of the domestic
market it can attain. One of its key FSAs, the ability to develop and manufacture small,
fuel-efficient vehicles, evolved in Japan for the domestic market and arguably could only
be leveraged effectively in the North American market when fuel prices increased
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(particularly during the early-1970s oil crisis).
To develop its local responsiveness, the company has R&D facilities in each of
the triad markets. To increase value, the company relies on continued innovation and
modular production methods driven by local trial-and-error learning and adaptation
Pascale (1984). Another major attribute of Honda (and Canon) lies in the maintenance of
a degree of ‘slack’ to allow flexibility in both the allocation of human resources and
information exchange for new product initiatives to be created and developed. These and
other organizational capabilities which underpin Honda’s superiority in new product
development are strong FSAs and may well be amongst the characteristics that set Honda
and Canon apart from both their western and Japanese competitors, accounting for their
unusual level of success in the US market.
Canon Group (Global)
Canon Group is the few companies can claim to be truly global multinationals. In
2002, 71.5% of Canon’s revenues originated outside of Japan. The Americas accounted
for 33.8% of total revenues, Asia accounted for 28.5%, and Western Europe for 20.8%.
The remaining 16.9% of revenues were generated in other areas, including Eastern
Europe.
Canon is organized regionally. Canon U.S.A. oversees operations in the
Americas. Two companies oversee European operations. Region-wide activities for the
Asian market are overseen by the Canon Asia Marketing Group, but marketing
operations in this region are sub-fragmented into sub-regional or national markets.
Over the last few years, Canon has been re-organizing its production facilities to
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take advantage of its global scope, selecting suppliers and production facilities across the
world to minimize costs and decrease production time. As a result product design data
can now be sent to plants around the world via computer. Information is translated
through an automatic translation system allowing faster communication between
subsidiaries.
Conclusion
What we demonstrate here, in the case of the Japanese firms examined, is that
their major assets and capabilities have evolved in the specific selection environment of
Japan. This means large Japanese firms are (1) innately tied to the regional and countryspecific factors, the political, economic, social context and business infrastructures of
Japan, and; (2) they have evolved to compete in this environment. It may be more by
chance than design that a particular capability provides a competitive advantage in
another region of the triad. Honda’s excellence in developing small cars was developed
because it suited its immediate selection environment, the Japanese market. Honda’s
early success in the United States can be traced to rises in oil prices which US
manufacturers took time to adapt to.
It is highly unusual to find Asian firms like Toyota, Honda and Sony that have
managed to (1) de-couple from the home country (or home region) base of their FSAs or
to transfer some elements of them (organizational practices, keiretsu structures etc.) to
other markets of the triad, and; (2) adapt and customize to compete outside their home
region. Yet such unrepresentative “global” firms are the overwhelming focus of
traditional research into the alleged differentiating characteristics and superior
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competitive advantages of Japanese firms. The more insightful data of Rugman and
Verbeke (2004) demonstrate that the vast majority of Asian firms have evolved to suit the
regional Asian home market, remain dependent on this regional market and are unlikely
to break away from this legacy to substantially expand their sales into other regions of the
triad.
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