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Globalization, Convergence, and the Transformation of International Production Networks in Electronics in East Asia

Published online by Cambridge University Press:  20 January 2017

Dieter Ernst  and
John Ravenhill
Dieter Ernst
Affiliation:
Copenhagen Business School
John Ravenhill*
Affiliation:
Research School of Pacific and Asian Studies, ANU
*
Research School of Pacific and Asian Studies, ANU, Canberra, ACT 0200, Australia. Tel: +61 6 249 2166; Fax +61 6 279 8010; E-mail: raven@coombs.anu.edu.au
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Abstract

Globalization is often said to lead to convergence among firm strategies. Significant differences existed in the organization of the production networks of Japanese and US firms in electronics in East Asia at the beginning of the 1990s. The sources of these differences lie in part in the relative newness of the export-orientation of Japanese companies, in weaknesses in Japanese corporate governance, in the geographical proximity of East Asian plants to Japan, and in the product mix of Japanese firms. An opening of Japanese production networks occurred in the first half of the 1990s in part in response to pressures associated with various forces of globalization, including the diffusion of capabilities, changes in technology, and the internationalization of the Japanese economy. This opening of Japanese networks caused them to converge towards their American counterparts. Partial convergence, however, coexisted with persistent diversity relative to the behavior of US networks. While nationality continued to matter, other factors affecting firms have to be incorporated into the analysis to explain the persistent diversity of firm behaviors.

Type
Research Article
Information
Business and Politics , Volume 1 , Issue 1 , April 1999 , pp. 35 - 62
Copyright
Copyright © V.K. Aggarwal 1999 and published under exclusive license to Cambridge University Press 

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References

Notes

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57. We arc grateful to an anonymous referee for drawing our attention to this distinction.Google Scholar

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70. Mitac in turn is responsible for the design and development of new products, as well as for manufacturing, transport and after-sales services at its manufacturing facilities in Taiwan, China, Britain, Australia and the US. Compaq expects to save up to 15% in overall life-cycle costs. Mitac's greatest attraction for Compaq is its plants and sales subsidiaries that are located in most of the world's key computer markets. Information provided by MIC/III, 27 October 1995.Google Scholar

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72. Established in 1915, Yokogawa Electronic has a strong position in measurement equipment and control devices, and has also successfully diversified into PCs, medical systems, software, engineering and information services. Its consolidated group sales in 1996 were Yen 280 billion with 29,000 employees—which places it squarely in the important group of medium-sized Japanese corporations that arc often overlooked by foreign observers.Google Scholar

73. ‘[W]e are … able to learn … [from HP] many things like business strategy, American rationality and management style…. It is very valuable and profitable that we can learn business philosophy and management methodology from international top ranking companies. For example, our top management can meet and talk with Jack Welch, CEO of GE. Such an opportunity is very important and useful for considering our business strategy and management.’ Toshihiko Akaishizawa, director for strategic planning, Yogokawa Electronic, quoted in Yoshiya Teramoto, Naoto Iwasaki and Tohru Takai, Role of Inter-Organizational Networks: The Case of Japanese Corporate Groups (Maison Franco-Japonaise and Deutsches Institut fuer Japanstudien, 1997).Google Scholar

74. See, for instance, the discussion in Ernst, From Partial to Systemic Globalization: International Production Networks in the Electronics Industry, of HP's innovative approach to global chain management which, arguably, draws some of its inspirations from Japanese management approaches.Google Scholar

75. We need to emphasize however an important lacuna in existing research: to date little evidence is available of American subsidiaries in Asia mimicking the practices of Japanese companies. Our discussion of the case of Yogokawa Electronics has provided clear evidence of one instance of mutual convergence. To what degree American electronics firms have learned from some of the innovative Japanese human resource management practices like on-the-job-training (OJT), quality control circles and information sharing through frequent job rotation, has yet to be investigated. The same is true for other strengths of the Japanese management approach like inventory management and aggressive market penetration strategies in Asia's growth markets for electronics. American electronics firms, like Motorola, Compaq and Apple, for instance, have taken a keen interest in Japanese market penetration strategics in Asia (information provided by Dennis Tachiki, senior researcher at the Sakura Research Institute, Tokyo). It would also be of great interest to study whether SMEs in the American electronics industry have tried to learn from the internationalization strategics of Japanese SMEs.Google Scholar

76. We make no claims about how representative the East Asian production networks of Japanese and US electronics firms are of the behavior of US and Japanese companies’ foreign investments more generally. As noted above, the proximity of other East Asian countries to Japanese headquarters facilitates certain patterns of interaction between parent and subsidiary that are more difficult for US companies operating in the region, and which would be more difficult for Japanese companies in other parts of the world. We also note that certain characteristics of consumer electronics production enables the construction of networks of geographically dispersed plants that would not necessarily be cost-effective in other industrial sectors. The study of a single sector over time, however, has the advantage of controlling for some of the variables that may produce spurious correlations in aggregate analyses. One cost of our approach, however, is that some of the evidence, derived from case studies, that we offer is at best illustrative.Google Scholar

77. Kreinin, , ‘How Closed is Japan's Market? Additional Evidence’. The same is true for American firms when their primary focus is on domestic markets. For some evidence, see Encarnation, Investing in Asia: The Regional Operations of Japanese Multinationals. Google Scholar

78. Information provided by Dennis Tachiki.Google Scholar

79. While noting that globalization has ‘… already led to converging transitions, and pointed to prospective organizational trends’, Humes acknowledges that this process still leaves sufficient latitude for organizational diversity, Samuel Humes, Managing the Multinational: Confronting the Global-Local Dilemma (Prentice Hall, London, 1993), p. 24. Ghoshal, whose well-known text with Bartlett is often seen as providing strong evidence for increasing convergence amongst firm strategies, similarly argues in a co-authored paper with Nohria that matching organizational structure to environment and strategy does not preclude different approaches by individual companies. Christopher A. Bartlett and Sumantra Ghoshal, Managing Across Borders: The Transnational Solution (Harvard Business School Press, Boston, MA, 1989); Sumantra Ghoshal and N. Nohria, ‘Horses for Courses: Organizational Forms for Multinational Corporations’, Sloan Management Review, (winter 1993): this message is captured in their article's title.Google Scholar

80. Recent research shows that this is even true for the financial sector, arguably the most globalized of industries, where the once clear-cut distinction between Anglo-Saxon and continental European/Japanese governance approaches has lost much of its earlier vigor, J. L. Christensen and I. Drejer, Finance and Innovation. System of Chaos? (Copenhagen, 1997). Globalization has placed different systems of corporate governance and of regulations in open competition with one another. Undoubtedly, strong convergence trends are evident. Yet significant differences continue to exist. In some areas it is possible to detect increasing diversity, due to a continuous hybridization of existing national institutional trajectories.Google Scholar