JAPANESE VERSUS AMERICAN CORPORATE

COMPETITIVE ADVANTAGES: DIFFERENCES

IN TURNAROUND STRATEGY ANTECEDENTS,

ACTIONS, AND RESULTS

Charles R. Gowen, III
Northern Illinois University

DeKalb, Illinois

The Japanese competitive advantage can be summarized by the dilemma stated by
Takeo Fujisawa, co-founder of the Honda Motor Company, that "Japanese and Amer-
ican management is ninety-five percent the same and differs in all important respects"
([48], p. 85). Strategic competitive differences have been exploited by Japanese corpo-
rations with respect to human resource management, finance, production, marketing,
environmental, and strategic factors. Competitive advantages have dictated corpo-
rate success for several key industries which the Japanese government has targeted
and supported as crucial to the long-range growth of the Japanese economy.

The electronics industry has recently been a key sector for government policy
and competition. The steep 1987 U.S. tariffs on Japanese electronic products have
forced Japanese corporations to design turnaround strategies to reverse declining
market share and profitability. There has been an increasing need for American
electronics firms to confront the Japanese challenge and for Japanese electronics firms
to overcome greater market entry barriers. Against that backdrop, this study focuses
on the application of the current turnaround strategy theories for understanding
competitive differences between American and Japanese approaches to turnaround
antecedents, strategic actions, and corporate performance results.

American vs. Japanese Human Resource Strategy

From a human resource management perspective, the American spirit of competi-
tiveindividualism within corporations contrasts sharply with the Japanese philosophy
of Wit (harmony). This pervades all aspects of Japanese corporate culture ([52], [59]),
even to the extent that it has been labeled by American scholars as a unique form of
management called Theory Z ([11], [45], [48], [64], [68]).

Prospective Japanese employees are ultimately selected on the basis of demonstrat-
ing an accommodating type of personality, given that they meet certain ability and
educational requirements ([52], [55]). Role-socialization by the Japanese corporate
culture continues during several months of initial job training. It actually continues
throughout employment in the form of worker cross-training ([47J, [52]) and transfers
of managers to all phases of corporate operations ([16], [55], [57]). The continual

Journal of Business Strategies, Volume 6, Number 2 (Fall 1989)

132



Fall 1989 Gowen: Corporate Competitive Advantages 133

process of training or transferring employees results in a highly skilled and flexible
workforce, establishment of personal contacts in all departments of the corporation,
and a clan-like sense of loyalty to the firm [52].

Major Japanese firms have justified the costs of cross-training and frequent trans-
fers as effective investments, considering that their employees are committed to a
lifetime of the job with the corporation ([1], [36], [53]), awarded to male employees
([52], [57]). The personal costs of lifetime job security involve extra unpaid hours de-
manded from those employees [41] and the layoffs of primarily female and temporary
employees during recessionary years [52]. The Japanese "lifetime" security system
does not guarantee the same employment stability as an American "no-layoff" system
[36]. Another consequence of the Japanese cross-training and transferring system has
been the exceptional effectiveness of communication and teamwork within the corpo-
ration ([52L [55]). Even the Japanese compensation system has been team-oriented.
For example, annual salary increases are based on corporate performance instead of
individual achievement ([3], [47], [52]).

Gain-sharing programs that provide monthly bonus checks for American employees
as a consequence of increasing individual worker productivity ([49], [63], [67]) contrast
sharply with the traditional Japanese bonasu system of semi-annual corporate profit-
sharing payment ([IJ, [12L [55]). The bonasu system was designed in the 1940s
to supplement low base wages so that workers would receive a semi-annual bonus
equivalent to six months' wages during the best years, but might receive no bonus
during unprofitable years ([42J, pp. 12-13). The bonus has averaged the equivalent
of two months' wages for each of the semi-annual payments in the past two years
[12]. Such non deferred profit-sharing plans have enhanced the ability of Japanese
corporations to weather recessions while honoring lifetime employment contracts.

Similarly, Japanese executives are compensated with salaries that amount to about
a seventh of the salary of comparable American executives [1, pp. 192-195J. Japanese
tax laws provide little means to shelter high income so that executives are compen-
sated with perquisites to a greater extent than their American counterparts [59J. The
overall effect of lower fixed personnel costs has granted Japanese firms a commanding
degree of flexibility in their cost structure.

The Japanese human resource system does reward individual performance in ways
other than direct compensation. Although promotions are based primarily on senior-
ity, small differential promotions based on annual individual performance appraisals
can result in significant differences over several years [52J. Managers who are pro-
moted to the executive level must demonstrate high team effort and high individual
ability.

Japanese human resource management has become world renowned for the con-
sultative decision-making process called nemawashi, the accommodation of employee
input in a middle-down-up collaborative style [47]. Although it has been charac-
terized as participative or concensual ([19J, [45L [48J, [55L [57]), the delegation of
decisions to middle managers can be accompanied by preferred solutions which may
be modified only somewhat by consultation with subordinates. Whether or not a real



134 Journal of Business Strategies Vol. 6, No.2

consensus emerges, as would be implied by the official ringi seido (signed decision
memo), the consultative process does demonstrate concern for employees ([6]' [52]).
The process also serves as an illustration of the Japanese concept of kaizen, constant
incremental improvement ([6], [47]) and as an outlet for employee creativity.} Greater
emphasis on employee creativity in the future [43J may enhance the shortcomings of
many traditional Japanese personnel practices [24J. This would compensate for the
current trend away from some traditional practices, such as lifetime job security and
seniority- based promotion. This trend is the result of greater life expectancy and
later employee retirement ([IJ, [4]). In essence l the radical differences between tra-
ditional American and Japanese human resource practices are beginning to decrease
with recent societal and corporate changes [2J.

American vs. Japanese Production,
Financial, and Marketing Strategy

The characteristics of the production, financial, and marketing subsystems differ
greatly between American and Japanese corporations. Recent American production
management techniques have emphasized computer-oriented methods, such as Mate-
rials Requirements Planning, as well as emulating the traditional people-oriented
Japanese techniques, such as kanban (just-in-time inventory control) [55], jidoka
(problem-seeking by consulting workers) [39], quality control circles ([45], [52]), and
shop-floor quality consciousness [39]. A recent empirical study has demonstrated great
disparity between quality levels for the best American firms and average Japanese
firms [19].

The contrast for American versus Japanese corporations appears to be greater
with less propensity of convergence in their financial characteristics. Although most
major American firms are capitalized by equity, Japanese firms are financed by about
sixty percent debt, twenty-five percent retained earnings, and only fifteen percent
equity ([37], p. 31). The higher debt-to-equity ratio may be somewhat inflated
by differences between American and Japanese accounting practices ([1], [39], [52]);
greater debt structure results from the very low interest rates offered by Japanese
financial institutions ([1], [39], [41]). The phenomenal abundance of capital is created
by the five-fold difference in personal savings rates; for example, the Japanese rate
was 19 percent as compared to the American rate of 4 percent in 1988. However, the
savings rate differential may decrease slightly in the future as Japanese people expand
their use of consumer credit and as the social security system evolves to become more
than just the historical minimal supplement to income generated by retirement and
savings plans. As a result, the cost of capital must increase for Japanese corporations,
as well as the marketing cost structure for their mature industries.

The marketing strategy of Japanese firms tends to follow an escalating five-stage
process. The process includes: (1) searching for opportunities provided by vacant
niches, (2) creating opportunities with innovative products, (3) developing markets

1 For example, at progressive firms such as Sony Corporation [62].



Fall 1989 Gowen: Corporate Competitive Advantages 135

by creative marketing, (4) adapting to and changing consumer preferences, and (5)
learning from competitors to create opportunities [37]. The success of Japanese cor-
porations in foreign markets has been enhanced by the provision of market intelligence
by a unique system of government-subsidized organizations, such as the Japan Ex-
ternal Trade Organization ([1], [39]). Although significant differences exist between
American and Japanese firms, successful American corporations need not imitate
Japanese firms ([11], [24]). Even Japanese corporations have experienced difficulty in
transferring their techniques to foreign subsidiaries as demonstrated by a study that
disclosed fourteen negative factors, such as poor technology transfer, and seventeen
positive factors, such as quality control circles [55].

American vs. Japanese Task Environment
Impacts on Corporations

Governmental and trade organization differences between Japan and the United
States have made a significant impact on their competitive advantages. American
firms have generally remained self-reliant for competitive purposes. Some exceptions
include the purchasing of environmental information primarily from private sources
such as consulting firms, and externally-oriented promotion such as lobbying gov-
ernment sectors by industry associations. 'In contrast, Japanese firms receive free
information about foreign markets from government agencies such as the Japan Ex-
ternal Trade Organization (JETRO), the Ministry of International Trade and Indus-
try (MITI), and the Industrial Structure Council (ISC) ([I], [37], [39]). Remunerative
provision of global marketing intelligence to a firm results from association with one
of the keiretsu or Sago Shasha. Most major Japanese firms belong to a keiretsu (busi-
ness group) which is dominated by a large bank that holds an equity position in and
guarantees loans for member corporations ([1], [39]). Foreign market information can
also be purchased from the unique Japanese Sago Shosha (General Trading Compa-
nies, or GTCs) that dominate world trade and trade development [37]. Overall, access
to global marketing intelligence at a moderate cost is greater for most Japanese firms
than for their American counterparts.

Differences between American and Japanese governmental policy have also resulted
in competitive advantages. The American Social Security system has encouraged
reliance on the federal government for a retirement and social service safety net.
By contrast, the minimal Japanese social security system has reinforced the highest
rate of personal savings in the world and reliance on the corporat.ion to provide a
wide array of social benefits from subsidized housing to retirement benefits ([I], [39],
[41]). The firms are supported by governmental subsidies and protective policies; for
example, tariffs and quotas for industries which are targeted by the government as
crucial to the growth of the Japanese economy. Corporations in targeted industries,
such as electronics, can develop successful products in a sheltered domestic market
before confronting foreign competitors in global markets ([37], [62]). However, many
environmental differences between Japan and the United States in the future may
prove to be less significant than corporate strategic planning [38].



136 Journal of Business Strategies Vol. 6, No.2

Corporate Turnaround Strategy: Antecedents, Actions, and Results

Turnaround strategies have accounted for an increasingly important role in the
revitalization of recently declining firms or industries. A popular example was the
dramatic turnaround of the Chrysler Corporation in the early 19805. When Lee Ia-
cocca arrived as the chief executive officer in 1979, Chrysler was producing vehicles
of increasingly inferior quality, had decreasing productivity and sales, and was facing
greater foreign competition. Chrysler adopted turnaround strategies that included
(1) the divestiture of Chrysler Defense, Inc. in 1982 for $348.5 million, (2) cutting
half of the managerial and work force costs to save $1.2 billion annually, (3) reducing
assets by closing or consolidating twenty plants to save about $2 billion annually, (4)
modernizing the remaining forty plants, (5) simplifying the production processes by
reducing one-third of the number of parts, thus eliminating $1 billion in inventory, (6)
implementing the latest statistical quality control techniques, (7) restructuring $1.3
billion of debt into preferred stock, and (8) refocusing products so that by 1985 ninety
percent of productive capacity was dedicated to technologically advanced front-wheel
drive vehicles [33].

Antecedents of Turnaround Strategy
A turnaround strategy is appropriate for a firm that exhibits antecedent charac-

teristics such as a declining internal or environmental business situation ([27], [29],
[30]). Those antecedents include decreasing profit margins, sales, market share, price
levels, plant capacity utilization, return on assets, managerial effectiveness, employee
morale, capital improvements; and increasing operating costs, debt/equity ratio, or
competitiveness of rival firms ([15], [20J, [22], [28], [32J, [40]. [56J. [58J, [60]).

Although a poorly managed company can become unsuccessful in any industry, cor-
porations in declining industries most often exhibit antecedents calling for turnaround
actions. Declining growth in product demand had characterized two-thirds of the in-
dustries such as the American electrical and electronics industry, the annual growth
rate of industry-wide sales fell below the annual real growth rate of the U.S. economy
for five of the past ten years [56J. Corporations that have been categorized as parts of
declining, mature, or stagnant industries are most often described as potential can·
didates for turnaround strategies ([10], [21J, [23J, [25], [26], [27J, [29J, [50], [51]). For
Japanese corporations, the recent antecedents of turnaround strategies have included
the doubled dollar/yen exchange rate since 1985 and the punitive U.S. import tariffs
on electronic products in 1987 ([4J, [12]).

Types of Turnaround Strategy Actions
The literature for turnaround strategy actions can be integrated into a four-

category action typology: revenue generation, product/market refocusing, asset re-
duction, and productivity improvement. This typology was proposed by Hofer [32J)
who expanded on the leading empirical research by Schendel, Patton, and Riggs [56].

Revenue generation turnaround actions have been described in other theoretical
models as "revenue push" by Hambrick [22], and market share "leadership" by Porter



Fall 1989 Gowen: Corporate Competitive Advantages 137

[50]. Specific revenue generation actions include raising product prices, increasing
cash discounts to customers, loosening customer credit criteria [60L and market share
domination [20]. Revenue generation strategies account for most profit turnarounds
[46J. Japanese revenue generation strategies have justified raising product prices by
improving the product design or features so that profitability can be increased without
sacrificing market share ([24L [44]).

Product/market refocusing turnaround actions described by Hofer [32J are related
to "selective product/market pruning" as described by Hambrick and Schecter ([22],
[23]), "shrinking cures" as described by Schendel, Patton, and Riggs [56]. Specific
product/market refocusing actions include the elimination of unprofitable products,
customers, channels of distribution, sales regions, or sales representatives ([20], [60]).

Asset reduction turnaround actions are described by Hofer [32], and referred to as
"asset surgery" by Hambrick and Schecter [23], as "immediate cash flow" by Sloma
[60], as "major retrenchment" by Hambrick [22], and as divestiture "strategic cures"
by Schendel, Patton, and Riggs [56]. Specific asset reduction actions include the liqui-
dation of inventory, equipment, or physical plant, and the divestiture of a subsidiary,
product line, or holdings ([20L [60]).

Productivity improvement turnaround actions are described as "cost cutting" by
Hofer [32J and Hambrick [22], as "operating cures" by Schendel, Patton, and Riggs
[56], and as "cost surgery" and "piecemeal productivity" by Hambrick and Schecter
[23]. Specific cost cutting action include several means for reducing administrative,
personnel, financial, product related, plant related, and production expenses ([14J,
[20], [35L [60]). Productivity improvement actions can also be implemented as proac-
tive strategies; for example, greater plant capacity utilization and employee gain-
sharing or profit-sharing plans ([8], [9], [29], [31L [35], [49], [63], [65], [67]). Equally
important would be effective timing of the stages of turnaround action implementa-
tion ([5L [18]).

Turnaround Strategy Results
The successful implementation of turnaround strategy actions produces results

that reverse declining corporate performance. Turnaround strategy results can be
measured in terms of sales and profits ([22L [32]), return on investment [23], or some
multidimensional approach ([20], [21], [25], [26], [27], [56]). Depending on the reasons
for the need to implement a turnaround strategy, the turnaround results can be
some combination of relative improvements in corporate cash flow, operating profit
margin, market share, return on investment, sales growth, employee morale, inventory
turnover, and unit labor costs ([20J, [60]). In general, American corporations tend to
emphasize short range results such as profitability, but Japanese firms tend to stress
long range results such as market share ([24], [35], [44]).

Survey Methodology

Turnaround strategy antecedents, actions and results were examined by survey-
ing the presidents of one hundred and thirty American electronics firms and one



138 Journal of Business Strategies Vol. 6, No.2

hundred and twenty Japanese electronics firms' subsidiaries in the United States.
The electronics industry was selected for the following reasons: (1) the large num-
ber of firms that could be surveyed in a fragmented industry [50], (2) the need for
tuniaround strategies for an industry with increasing costs and foreign competition,
(3) the greatly fluctuating foreign currency rates, and (4) the declining revenues for
five of the past ten years [56]. The electronics industry involves direct competition
between American and Japanese corporations in all four segments: electrical prod-
ucts (e.g., Westinghouse and Hitachi), electronics (e.g., GM Hughes Electronics and
Matsushita), instruments (e.g., Honeywell and Nissei Sangyo), and semiconductors
(e.g., Motorola and NEC). The Japanese electronics industry accounts for about one-
third of Japan's export revenues ([I], p. 278). As the largest export segment, it was
significantly affected by the punitive 1987 U.S. tariffs on Japanese electronic products.

The turnaround strategy survey was directed to the president of each corpora-
tion to capture information directly at the policy-making level of the firm. The
president would be the executive held most responsible for the formulation, imple-
mentation, and control of the corporate policy and strategic planning processes. For
each Japanese corporation, their American subsidiary was selected because if faced
market forces more comparable to those of American electronics firms. American
corporations and Japanese subsidiaries were randomly selected from among electron-
ics firms with Standard Industrial Codes in the 3600 and 3800 series. The size of
the selected corporations varied greatly, averaging about five thousand employees for
both samples ([71], [61], [66]). the respondents were promised anonymity and a copy
of the survey results at a later date. The research advantages of the survey included
obtaining information about strategic planning which is seldom accessible in public
documents. The subjective nature of the survey responses presents some limitations;
however, previous research demonstrates a high correlation between subjective and
objective measures of corporate strategy and performance [13].

Survey Measures and Procedures
The turnaround strategy consisted of a descriptive paragraph introducing each

of three sections which included a total of eighteen items. The six antecedent to
turnaround items were (1) decreasing product line profitability, (2) decreasing account
profitability, (3) fluctuating foreign currency rates, (4) increasing financial expenses,
(5) increasing production/operation costs, and (6) decreasing employee morale. The
six turnaround strategic action items were (1) expanding revenue by raising product
prices, (2) eliminating unprofitable products, (3) using gain-sharing or nondeferred
profit-sharing, (4) renegotiating credit lines and debt, (5) increasing capacity utiliza-
tion, and (6) reducing fixed personnel costs. The six turnaround results items were
(1) increasing return on investment, (2) increasing operating profit margin, (3) in-
creasing cash flow, (4) increasing employee morale, (5) increasing sales growth, and
(6) decreasing unit labor costs.

The eighteen survey items were designed based on the previously described liter-
ature about turnaround strategies ([5], [22]' [23], [25], [26], [27], [32], [56], [60]) and



Fall 1989 Gowen: Corporate Competitive Advantages 139

were selected based on the results of a prior 56-item exploratory survey of turnaround
strategies of forty-two American corporations [20]. The respondents to the survey
were asked to rate each action item according to its "degree of improvement" in the
past ten years as a result of turnaround actions. The Likert-type response scale in-
cluded: (1) was described as "none," (2) as "low," (3) as "medium," (4) as "high,"
and (5) as "great." Based on past research, a ten-year time frame included a potential
four-year downturn phase, a two-year action phase, and a four-year upturn phase for
significant turnaround results [56].

The survey questionnaire was translated into Japanese by a group of American and
Japanese management consultants at Strategic Global Enterprises, Ltd., in Chicago,
Illinois. The Japanese translation was translated back into English by an independent
group of American and Japanese consultants to assure accuracy of translation of the
terms used in the survey. The double translation process was necessary because many
English business concepts are difficult to express in Japanese terms. The English
version was also included with the Japanese questionnaire which was sent to the
Japanese version of the questionnaire. A cover letter described the purpose of the
survey; a self-addressed postage-paid envelope was also enclosed.

Fifty-nine fully-usable and six partially-completed questionnaires were received
from American firms. Japanese firms returned fifty-nine fully-usable responses and
three partially-completed responses. The overall response rates that amounted to fifty
percent for each of the American and the Japanese sample were achieved by several
follow-up mailings.

Data Analysis

Analysis of the survey data tested the differences of mean responses and regres-
sion models between the American and Japanese firms. Stepwise regression analy-
sis initially established significant relationships between turnaround antecedents and
turnaround strategy actions. Regression models were established separately for the
American and Japanese samples to determine whether they would differ for each
turnaround action. Dissimilar models would indicate that under certain conditions
American firms adopt different turnaround strategies than Japanese firms. Further
stepwise regression analysis tested whether the relationships of turnaround actions
regressed onto turnaround results were different between the American and Japanese
samples.

Survey Results
The statistical means and tests of differences between the American and Japanese

firms are represented in Table 1. First, for the turnaround antecedents, the aver-
age Japanese response was significantly greater than the average American response
for the following four items: (1) decreasing product line profitability, (2) decreasing
account profitability, (3) fluctuating foreign currency rates, and (4) increasing finan-
cial expense. Second, for turnaround strategy actions, the Japanese firms reported



140 Journal of Business Strategies Vol. 6, No.2

significantly greater implementation than the American firms for the following two
items: (1) expand revenue by raising product prices and (2) use gain-sharing or non-
deferred profit-sharing. However, the degree of implementation was similar between
American and Japanese firms for the highest reported action, increasing capacity uti-
lization. Finally, the American firms achieved significantly greater results than the
Japanese firms for the following two items: (1) increasing return on investment and
(2) increasing operating profit margin.

Table 1
American and Japanese Firms' Mean Responses and Significance Tests

for Turnaround Antecedents, Actions, and Results

Variable Category and American Japanese t-test
Specific Items Mean Mean value
Turnaround Antecedents:
Decreasing product line profitability 3.00 3.51 2.33**
Decreasing account profitability 2.76 3.56 4.07***
Fluctuating foreign currency rates 2.51 4.54 10.30***
Increasing financial expense 2.46 2.81 1.83*
Increasing production/operations cost 3.02 3.24 1.21

Turnaround Actions:
Expand revenue by raising product prices 2.61 3.22 3.72***
Eliminate unprofitable products 2.98 3.12 0.62
Use gain-sharing/nondeferred profit-sharing 1.69 2.36 3.44*"'*
Renegotiate credit lines and debt 2.41 2.53 0.54
Increase capacity utilization 3.34 3.54 1.10
Reduce fixed personnel costs 2.68 2.80 0.62

Turnaround Results:
Increasing return on investment 3.34 2.93 2.47"'''
Increasing operating profit margin 3.32 2.98 2.00"
Increasing cash flow 3.25 3.07 1.12
Increasing employee morale 3.08 3.15 0.39
Increasing sales growth 3.51 3.59 0.50
Decreasing unit labor costs 2.83 3.03 1.25
* Significant difference between the means at the .05 level.
** Significant difference between the means at the .01 level.
....'" Significant difference between the means at the .001 leveL

The results of regression analysis of the turnaround antecedents regressed onto the
turnaround strategy actions are reported in Table 2. The standardized regression
beta coefficients indicate the magnitude of each significant relationship between the
turnaround antecedents and the strategy action. The model for the American firms



Fall 1989 Gowen: Corporate Competitive Advantages 141

was completely different from the model for the Japanese firms for the following four
actions: (1) expanding revenue by raising product prices, (2) eliminating unprofitable
products, (3) using gain-sharing or non deferred profit-sharing, and (4) increasing
capacity utilization. For each of the two remaining strategy actions, the regression
results included somewhat different antecedents between the American and Japanese
models.

Table 2
American and Japanese Firms' Responses for Turnaround Antecedents

Regressed onto each Turnaround Action:
Standardized Regression Beta Coefficients

Decreasing employee morille
Decreasing product line profitability

Decreasing employee morale

Decreasing employee morale
Decreasing product line profitability

Increasing financial expenses
Increasing financial expense

Decreasing product line profitability
Decreasing employee morale

Increasing production/operation cost
Decreasing account profitability

.38**"

.43·.,·....

.24*

.31*"

.30'

-.33'·
Increasing Capacity Utilization:
American firms' model
Japanese firms' model
Reduce Fixed Personnel Costs:
America.n firms' model
Japanese firms' model

Action: Dependent Variable Beta Antecedents: Independent Variables
Expand Revenue by Raising Product Prices:
American firms' model .26' Increasing production/operations cost
Japanese firms' model .26' Fluctuating foreign currency rates
Eliminate Unprofitable Products:
American firms' model .29"
Japanese firms' model .30'
Use Gain-sharing/Nondeferred Profit-sharing:
American firms' model .36·... Increasing production/operations cost

.26* Increasing financial expense
-.32'" Fluctuating foreign currency rates

Japanese firms' model .31'· Decreasing product line profitability
Renegotiate Credit Lines and Debt:
American firms' model .43··..
Japanese firms' model .27'

.24'

" Significant at the .05 level for the F statistic .
.... Significant at the .01 level for the F statistic.
....* Significant at the .005 level for the F statistic.
...."" Significant at the .001 level for the F statistic.

Regression analysis revealed that several strategy actions were significantly related
to most of the turnaround results as demonstrated in Table 3. The only completely
different models between the American and Japanese firms occurred for increasing



142 J oumal of Business Strategies Vol. 6, No.2

profit margin. There were somewhat different strategy actions between the American
and Japanese models for the following four turnaround results: (1) increasing return
on investment, (2) increasing cash flow, (3) increasing employee morale, and (4)
decreasing unit labor costs. The only similar American and Japanese models resulted
for increasing sales growth. The frequency of each significant strategy action in Table
3 showed the following distribution: ten times for increasing capacity utilization,
unprofitable products, four times for reducing fixed personnel costs, and once for using
gain-sharing or nondeferred profit-sharing. Although the regression models differ
between American firms and Japanese firms, the results demonstrate predominant
patterns of strategy actions, especially for increasing capacity utilization.

Discussion and Conclusions

The turnaround survey findings support previous literature and suggest specific
strategic differences between American and Japanese electronics corporations. The
common belief that the ninety-five percent similar management practices are unim-
portant, but the five percent different management practices are all-important ([48],
p. 85) appears to be overstated in two respects. First, American and Japanese
turnaround strategies were reported as similar for most dimensions overall but dif-
fered for two-thirds of the antecedents, one-third of the actions, and one-third of the
turnaround result items. Second, the differences between American and Japanese
firms could have resulted from a common cause; for example, the 1987 U.S. im-
port tariffs on electronic products could have led to declining Japanese firms' line
profitability, account profitability, and financial competitiveness. The greater Amer-
ican turnaround results of profitability, such as increasing return on investment and
operating profit margin items, demonstrate the common Japanese practice of lower
expected profitability in capturing market share ([1]. [37], [52]).

However, the significantly different strategy actions confirm the previously reported
Japanese competitive advantages for marketing and human resource management.
The greater propensity of Japanese firms to expand revenue by raising product prices
from year to year has been most visible for consumer electronics [37]. Japanese cor-
porations have supported high pricing policies by appropriately increasing marketing
strategies; for example, Sony's massive promotional strategy and annual new product
features or designs ([37J, [62)). In addition to raising product prices, Japanese firms
have also excelled in another proactive turnaround strategy action of profit-sharing.
The Japanese semi-annual bonasu system has rewarded teamwork and productivity
([1], [12], [42], [55]). The Japanese competitive advantage could be reduced if Amer-
ican corporations continue the recent trend toward implementation of productivity
gain-sharing programs ([49], [63], [67]).

The regression results demonstrated that different strategies were usually imple-
mented by the American firms than by the Japanese firms for each turnaround an-
tecedent, as in Table 2. Fluctuating foreign currency rates affected only the Japanese
regression models, and the Japanese firms responded by raising product prices. For
American firms, increasing production/operation costs led to eliminating unprofitable



Fall 1989 Gowen: Corporate Competitive Advantages 143

Table 3
American and Japanese Firm.s' Responses for Turnaround Actions

Regressed onto each Turnaround Result:
Standardized Regression Beta Coefficients

Result: Dependent Variable Beta Actions: Independent Variables
Increasing Return on Investment:
American firms' model .36-**

.27*

.21 *
Japanese firms' model .38***

.21*

Increase capacity utilization
Renegotiate credit lines and debt

Eliminate unprofitable products
Increase capacity utilization

Renegotiate credit lines and debt

Increase capacity utilization
Reduce fixed personnel costs

Increase capacity utilization
Eliminate unprofitable products

Renegotiate credit lines and debt
Reduce fixed personnel costs

Renegotiate credit lines and debt
Increase capacity utilization

Increase capacity utilization
Increase capacity utilization

Renegotiate credit lines and debt
Reduce fixed personnel costs

Eliminate unprofitable products
Increase capacity utilization

Renegotiate credit lines and debt

Increase capacity utilization
Eliminate unprofitable products

Use gain-sharingjnondeferred profit-sharing
Increase capacity utilization

Reduce fixed personnel costs

.50****

.36***

.23*

.34***

.33*"*

.33***

.28**

.24*

.35**

.26*
-.23*

.31 **

.24*

.22*

Japanese firms' model

Increasing Sales Growth:
American firms' model
Japanese firms' model
Decreasing Unit Labor Costs:
American firms' model

Japanese firms' model

Japanese firms' model

Increasing Employee Morale:
American firms' model

.23-
-.22-

.24*

.23*
Increasing Operating Profit Margin:
American firms' model .46*"*
Japanese firms' model .34*"
Increasing Cash Flow:
American firms' model

* Significant at the .05 level for the F statistic.
*. Significant at the .01 level for the F statistic.
* •• Significant at the .005 level for the F statistic.
.•*. Significant at the .001 level for the F statistic.



144 Journal of Business Strategies Vol. 6, No.2

products, adopting gain-sharin~, and raising product prices. For Japanese firms, de-
creasing account profitability ~d product line profitability led to eliminating un-
profitable products, adopting p~ofit-sharing, renegotiating credit lines and debt, in-
creasing capacity utilization, and"reducing fixed personnel costs. American strategies
were similar to Japanese strategies for only two turnaround antecedents; for example,
increasing financial expense led to renegotiating credit lines and debt.

Several turnaround strategies yielded differential competitive advantages between
American and Japanese firms but some strategies, such as increasing capacity utiliza-
tion, led to similar results, as in Table 3. Only for the American firms, the elimination
of unprofitable products was related to increasing return on investment, increasing
cash flow, increasing employee morale, and decreasing unit labor costs. In contrast,
reducing fixed personnel costs led to increasing return on investment, increasing op-
erating profit margin, and increasing cash flow only for the Japanese firms.

The most frequent strategy action, increasing capacity utilization, was related to
similar results for American and Japanese firms. Greater capacity utilization led to
increasing return on investment, increasing cash flow, increasing sales growth, and
decreasing unit labor costs. The predominant effect of increasing capacity utilization
supports a previous cross-sectional study of corporate financial data [23]. Greater
capacity utilization would also be consistent with a more recent study of 301 American
executives concerning how their firms have confronted Japanese competition [35]. The
most frequent strategy was investment in more efficient plant and equipment, which
was elected by twenty-seven percent of the American firms.

The pragmatic implications of the present survey of turnaround situations focus
on successful proactive strategies for American and Japanese electronics firms. At
the risk of over-generalization, the traditional American competitive advantages have
included industry associations that lobby for government support, computer-oriented
production techniques, and superior marketing strategies for the North American
market. In contrast, the traditional Japanese competitive advantages have been gov-
ernment subsidized global marketing information, superior human resource practices
in terms of productivity and teamwork, low-cost debt financing, and high quality pro-
duction. However, the competitive equilibrium can shift rapidly due to unanticipated
environmental changes, for example, the doubled dollar/yen exchange rate from 1985
to 1987, as well as the punitive 1987 U.S. tariffs on Japanese electronic products.
As the present study revealed, the greater financial difficulties faced by Japanese
electronics firms led to the continuation of traditional practices such as the bonasu
profit-sharing system and recent strategies such as raising product prices. Although
these strategies seem to have yielded minimal profitability results, the Japanese firms
are renown for emphasizing long-range rather than short-range results.

This study indicates that American and Japanese firms have implemented proac-
tive production strategies such as increasing capacity utilization during a time of
rising costs. Given the significant effect of greater capacity utilization on all of the
turnaround result measures, investment in more efficient plant and equipment ap-
pears to command a preeminent consideration for the future. American and Japanese



Fall 1989 Gowen: Corporate Competitive Advantages 145

firms can be expected to continue to expand the implementation of proactive strate-
gies such as greater capacity utilization and productivity gain-sharing or non deferred
profit-sharing. However, present production and human resource competitive advan-
tages may diminish in favor of marketing and financial strategies as Japanese society
matures and the American market changes. To remain successful in a rapidly chang-
ing environment, an American or Japanese corporation must fully exploit its present
competitive advantages as well as aggressively seek new strategic opportunities and
plan for future threats.

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	Japanese versus American Corporate Competitive Advantages: Differences in Turnaround Strategy Antecedents, Actions, and Results