Tags: Toyota | Japan | Quality | Growth

Toyota's Woes Spotlight Dilemma of Quality, Growth

Friday, 05 Feb 2010 04:20 PM

Toyota Motor Corp.'s mass recall crisis may seem peculiarly its own, but the top carmaker's woes are a cautionary tale for other Japanese companies needing to expand abroad and drive earnings growth.

Critics say Toyota, hemorrhaging its reputation for reliability as it recalls millions of cars over a sometimes fatal accelerator defect, failed to balance a traditionally tight management style that ensured quality with the changing demands of globalization.

Stefan Lippert, a business professor at Temple University in Japan, calls it the "kaisha dilemma," using the Japanese word for "company."

"The incredible success of the Japanese economy is based on the 'kaisha'. It's based on this specific management model," he said, referring to Japan's rapid economic growth before stalling in the 1990s. "However, times have changed."

Panasonic Corp, Lippert says, is another company that has been unable to evolve enough from its traditional roots to fully exploit opportunities overseas. Despite dealing in global products, Panasonic still gets half its sales in Japan.

Spokesman Akira Kadota said Panasonic has four regional headquarters in New Jersey, Beijing, Singapore and near Frankfurt and they make as many decisions as they can for their respective regions.

If Japanese companies can't break the mold, they risk losing further ground to South Korean and Chinese rivals that are more proactive in grooming local talent who know their markets best and can play a key role in product innovation.

Korea's Samsung Electronics Co has pushed aside the Japanese to become the world's top maker of LCD TVs.

"Toyota is part and parcel of what's bothering Japan right now," said Darrel Whitten, managing director of consultancy Investor Networks Inc.

"They have to come to terms with globalization ... I don't think it's a situation any more where you can run everything from headquarters."

Also, losing veteran executive Jim Press -- the first non-Japanese elected to Toyota's board -- to Chrysler in 2007 was symptomatic of an inability, shared by many Japanese firms, to attract and keep top-notch local staff.

The challenge could be especially tough for Japan's service companies, now facing increasing pressure to look for growth beyond their deflation-plagued home markets.

Fast Retailing Co Ltd, whose popular Uniqlo chain of fast-fashion shops and heat-trapping underwear gets just 12 percent of revenues abroad, for example is expanding aggressively into Asian markets.

"Companies viewed as just domestic ... are creating an interesting buzz in Asia," Whitten said.

"The question is, can they have flexibility and an open enough management structure ... that can run a competitive global operation."

"At the very least, you have to have communications skills and its more than communication skills, it's the mindset."

In the 1980's Japan's tech, auto and machinery exporters were the envy of the business world. They charged into overseas markets with high quality but reasonably priced products, siphoning customers away from U.S. and European manufacturers.

Some are still among the top performers in their industries -- from Honda Motor in cars to Canon Inc in cameras and copiers to Fanuc in industrial robots.

But others, like once-mighty electronics conglomerate Sony Corp, have lost their competitive edge to more nimble overseas rivals.

"The auto sector and Toyota is our last hope to maintain a very strong brand image and market position for Japanese companies," said Tatsuya Mizuno, founder of credit ratings firm Mizuno Credit Advisory.

"But when we look at this situation at Toyota, we may lose that last hope."

(Editing by Ian Geoghegan)

© 2015 Thomson/Reuters. All rights reserved.

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