Does nationality continue to matter?

Our study of the evolution of Japanese and US production networks in theelectronics industry in East Asia in the 1990s has enabled us to identify how various forces that we associate with globalization—technological change, technology transfer, the shortening of product life cycles, trade liberalization, and the development of local centers of expertise—have shaped corporate decision-making. By focusing on change in one sector over a period of time, we were able to illustrate the dynamic process by which corporations of all nationalities have adapted to competitive forces.

Pressures arising from the forces of globalization produced convergence insome firm strategies. Corporations not only learned from their own experiences but also from those of their competitors. In some instances, they attempted to emulate what they perceived as being industry best practice. The areas in which convergence occurred include the mix of products that are now produced in Asia and the increasing variety of value-chain activities that both American and Japanese firms have relocated to the region. Whereas in the past Japanese production in other parts of the region consisted overwhelmingly of consumer electronics, by the mid-1990s Japanese firms had joined their US counterparts in moving a substantial portion of PC production to the region. Japanese firms have also jumped onto the bandwagon of OEM contracts. During the early 1980s, when the US dollar appreciated rapidly, cash-strapped American firms were the first to experiment with new forms of international production that did not necessarily involve equity control. These provided substantial competitive advantages to American computer companies. Similarly, American firms were the first to take advantage of the growing concentrations of expertise in various areas of electronics production in East Asia by transferring increasing responsibility for R&D to subsidiaries. Again, this has proved to be a cost-effective strategy that some Japanese firms are beginning to emulate. The new responsibilities devolved to Japanese subsidiaries have inevitably required changes in management practices that have brought them closer to their American counterparts. Japanese electronics networks have become more open—increasingly outsourcing components—and less centralized in their R&D and management practices. The vintage effect   appears to have been important in the opening up of networks—but so, in addition, have some of the forces of globalization. It is important to emphasize that the effects observed have been in plants that have been predominantly exportoriented. In other countries, where Japanese subsidiaries have produced primarily for the local market, aided by various tariff and non-tariff barriers, the vintage effect and an opening up of networks is far less evident.

Nationality of ownership continues to determine strategies in some areas. One example is in personnel management. Because of an unwillingness to promote local managers to top positions and because of the operation of a seniority system that inhibits rapid promotion, Japanese companies have found it difficult to recruit and retain quality managers and engineers in their Asian subsidiaries. Surveys have shown that most managers consider working conditions and promotion opportunities in US subsidiaries to be far more favorable, placing Japanese subsidiaries at a competitive disadvantage. The rapid expansion of the electronics industry in Southeast Asian has offered high-caliber personnel the opportunity for movement among employers. Extensive “job-hopping” is the

name of the game, a phenomenon that Japanese corporations have found alien. The strategy for the training of engineers that many Japanese firms have adopted addresses this problem. Most of these engineers are hired internally. Based on a careful selection process, each affiliate develops a pool of highly motivated “technicians,” which they then train over a period of five to seven years to become  engineers. In this manner, engineering skills are made firm-specific, reducing the likelihood of job-hopping behavior.