More Plus Factors for Japan
There are a number of other features of Japanese management accounting practice
which merit attention, especially since they may have contributed much to the "Japanese
miracle". For instance:
- There is efficient order placing.
- The cost of carrying unnecessary parts is minimized.
- There are agreed delivery dates with suppliers, which are rigidly kept.
- The direct labor cost is the basis for overhead even in the case of automated
- For long-term improvement and increased competitiveness, the labor cost must be
- Japanese management accounting is thus market driven, the maximum allowable cost
being worked back from the known competitive selling price.
These benefits are largely the result of the specific Japanese approach to decision
making, which we can describe as "from bottom to top", whereas the more normal approach
is "from top to bottom". However, it should not be concluded that the Japanese approach
is ignored elsewhere. It seems that, for instance, the USA and Japan are learning
from one another. But major anomalies
- In the USA size and innovativity are inversely correlated.
- In Japan they are positively related, with the result that large companies are
more innovative than small ones.
What is more, compared with Japan, American and European manufacturers seem to
have fallen behind in the modernization of their process technology. The reasons for
this failure are many. Swamidas lists a number of reasons, thus:
- Lack of experience with modern technology.
- Inadequate understanding of new technology.
- Lack of skill in evaluating intangibles and the non- financial aspects of process
- Lack of top management support.
- Modernization decisions are treated as mere capital budgeting.
- The use of the present value criterion results in the installation of uncompetitive
It is of course only the last two reasons above that involve management accounting
directly: the other reasons involve not only accounting (though indirectly) but also
various aspects of management, or rather mismanagement. There is no doubt that the
Japanese approach to management accounting avoids the disinvestment spiral and so
wins world markets. Indeed, it seems that despite recent economic problems Japanese
companies continue to invest at a staggering rate, and this investment must provide
an additional competitive edge to their operations. The investment, it seems, is not
only in new production technology, but also in people. Indeed, economist K S Courtis
of Deutsche Bank Capital Markets Asia asserts that they are developing their human
resources as never before.
It seems that Japanese progress is further assisted by their unique capital structure.
As individuals, the Japanese hold less than 10 per cent of the stock in 97 per cent
of the companies listed in the first section of the Tokyo Stock Exchange, which covers
some 1000 companies trading there. The principal stockholders are other companies
or banks. This results in a complex system of interlocking directorships, to an extent
unknown elsewhere, which facilitates resource allocation decisions with vertically
integrated companies, by using the true cost of a resource rather than the market
price. Japanese factories also have a very high level of investment per worker. Since
the expected life of new equipment is perhaps eight years, only a quarter of the life
of a new worker (35 years) buying machinery is much safer than hiring workers-and
far cheaper, too.
In addition, we must not forget the Japanese national characteristics. For instance,
it is largely the saving instinct, at both individual and corporate level, that has
until now served Japan well. To put it simply, while Americans tend to consume today,
the Japanese save it for tomorrow. The result is that Japanese companies end up with
a huge trade surplus and money to plough back for the further growth of their business.
Whatever the Japanese don't spend today ends up as savings, making capital cheaper,
and thus increasing their competitiveness.
17. Azumi, K.
and Hull, F., Inventive payoff from R&D in Japanese industry - Convergence with
the West?, IEEE Transaction on Engineering, Vol. 37, February 1990, pp. 3-9.
18. Swamidas, P.M., Planning for manufacturing technology,
Long Range Planning, Vol. 20, October 1987, pp. 125-133.
19. Berger, M., Japan tidal wave, International Management,
June 1990, pp. 52ff (3 pp.).
20. Weiss, A., Simple truths of Japanese manufacturing, Harvard
Business Review, Vol. 62, July/August 1985, pp. 119-125.
21. Smith, L., Fear and loathing of Japan, Fortune, Vol. 121,
26 February 1990, pp. 24-30.