The following essay will compare and contrast business systems within Japan and China. To begin with a short theoretical description of a business system will be given as well as stating key elements in Japan and Chinas business systems. Relevant theories and use of comparative country and corporate examples will be used for support throughout the essay. One will use 3 areas for contrasting and comparing the different business systems, firstly the nature of the economic agents such as firm ownership, shareholder control and corporate governance will be analysed, secondly the way in which firms connect and develop relationships with each other within the same markets or industry’s and thirdly the coordination within the firm, how the activities are coordinated and controlled these areas clearly distinguish between business system.
To begin with one must understand the theoretical understanding of a business system, which according to Whitley, (2000) business systems are distinctive configuration of firms and markets, which have become established in particular institutional context as the dominant ways of structuring economic activities. Whitley describes the main theme of a business system as an approach that differences in societal institutions that encourage particular kinds of economic organization and discourage others.
The Japanese economy is one of the strongest in the world home to some of the most famous names in business such as Mitsubishi, Toyota, Nissan, Honda and many more. Throughout Japan there is no standard type of firm but the variance is much smaller to that of western countries. The major firm type in Japan is the Keiretsu, which literally means “a series of affiliations” which in fact resembles that of a super mega firm, excluding outsiders, allowing for no new completion and essentially creating a monopoly (Japanese123, 2010) A Keiretsu comes in two different forms vertical and horizontal, but this will focus more on the vertical as it is most popular. The Major characteristics of these Japanese firms are the large size and the specialized industries in which they operate. With a strong belief in hierarchy the majority of Japanese firms are owned by its stakeholders which consist of employees, trading partners, banks and the society, these stakeholders are more interested in the long term wellbeing of the firm rather than short term profits. There are many benefits of having many stakeholders involved in the firms activity for example, employees that own a stake of the business feel a sense of ownership, which leads to a positive attitude towards the firm resulting in higher production and an increase in potential profits. The firm also benefit with a strong level of employee stability saving rehiring and training costs. Trading partners such as suppliers profit as they gain long-term relationships leading to an increase in business, the two firms also become comfortable with each other and form a level of trust, which cannot be used elsewhere, this level of trust is highly valued in Japan. Japanese firms tend to hold a minor stake in its suppliers and occasionally place a manager on the supplier’s board to ensure complete on going attention and to feed information back to the lead firm. At the very core of the stakeholder structure are the banks shown in figure 1, generally these banks would not only examine the company finances for loan approval and other financial needs but also intervene strongly in business management. The vital role of the bank can clearly be seen when a firm is in jeopardy for example, if a firm is unable to fulfill its commitments, the bank is likely to intervene with a new management team, strategic direction and new means of finance. Even with high performing firms the banks tend to take more of a hands off approach but hold a close watch to ensure a bailout is never necessary (Bird, 2001). Once the firm ownership has been outlined one can look at the corporate...
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Figure 1 (Perner, 2010)
Figure 2 (Steers, 2010)
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