From daemon Tue Aug 24 17:46:56 1993 Received: from pucc.Princeton.EDU by hyphen.com; Tue, 24 Aug 93 17:46:47 EDT Received: from PUCC.PRINCETON.EDU by pucc.Princeton.EDU (IBM VM SMTP V2R2) with BSMTP id 6512; Tue, 24 Aug 93 17:45:34 EDT Received: from PUCC.PRINCETON.EDU (NJE origin VMMAIL@PUCC) by PUCC.PRINCETON.EDU (LMail V1.1d/1.7f) with BSMTP id 6403; Tue, 24 Aug 1993 17:45:33 -0400 Received: by PUCC (Mailer R2.10 ptf008) id 4379; Tue, 24 Aug 93 17:45:31 EDT Date: Tue, 24 Aug 1993 17:45:31 EDT From: Princeton BITNET FTP Server To: phil@hyphen.com Subject: japanyes, Part 1 of 3 Status: RO Japanyes; THE THIRD EDITION The following article, JAPANYES, (3rd edition) has gained a lot of interest and has circulated extensively among some of America's biggest corporations and universities. When you read it, you'll see why. JAPANYES comes from Internet FTP site monu6.cc.monash.edu.au. The most recent version is in directory: pub/nihongo. This paper was written by: Louis Leclerc; lleclerc@nyx.cs.du.edu His US mail address is at the end of the article. Please send him any corrections or additions to this paper. Information about the following paper or Mr. Leclerc can be obtained by writing to him. NOTE: This is a rather long but fascinating paper on how Japan Inc. functions. For a former free-trader like myself, it has shaken some of my beliefs to the very core. It will open your eyes a little, it will disturb you, and it will quite possibly lead you to ask some serious questions about the future of the United States of America as a world-leader. Reading this, IMHO, is well worth the effort. The level of detail and the overall gist is documented in many well-known, albeit difficult to read, books. The author's prime service to us is the distillation of this information into a (relatively) brief synopsis. Tom Mathes mathes@uicc.com ------------------------------------------------------------------------- * Please see appendix for information on citation references "[]" in text (ed072593) 3rd Edition/Short (orig.ed111292) D O E S A M E R I C A S A Y Y E S T O J A P A N ? (A M E R I C A W A N I H O N N I "H A I" T O I U K A) There are many misconceptions about Japan and its success in the post-war era. While staying in Japan in mid 1992, I tried to look at Japan's seemingly miraculous success with the hope to understand it so that maybe we could apply some of their plan in our own country. "What makes Japan so good?", "How did they get from a third world country to be the richest in the world so quickly?" [Yen! p306] are common questions asked today in America. Today, I will try to answer with examples, at least partially, these questions. Today, Japan is a major or dominant power in almost every world strategic industry including finance, communications, mass-transit, semi-conductors, motor vehicles, and popular-entertainment. The world's largest banks are all Japanese[Yen! p37]. The largest record company in America is Japanese (CBS records(SONY)). Two of the three biggest movie/entertainment companies in America (Universal/MCA(Matsushita)..makers of "Jurassic Park" and Columbia/Tri- star(SONY)) are Japanese[Wall Street Journal 03/26/93 R16]. Many big companies in the US like Loews Theatres, Firestone Tires and 7/11 stores are Japanese (see appendix below for listing). In fact, today 7 of the 10 largest companies in the world are Japanese [(sales)Business Week 07/12/93 p53]. Furthermore, Japan today is the world's biggest manufacturer of autos, having surpassed the United States in the mid 1980's [Information Please! World Almanac 1992 p144]. These all used to be American dominated industries 25 years ago. Going to Japan, I expected to see a very efficient country from which America could learn in order to regain her former prosperity. During my trip, the reality began to sink in that what is really happening was quite different from expectations and in some ways quite disturbing. The Japanese have a very different approach to doing business than we do. This paper will elaborate, justify and try to show what is happening and why it is important that this be understood here in America. Don't be afraid to question what you read here as I am confident that if you research the points yourself (hopefully by going to Japan to see for yourself or reading materials (see Appendix) on the topic), you will find the points made in this paper to be truthful. THE "JAPAN PROBLEM": Some claims echoed in America which are commonly dismissed as "Japan Bashing" statements, upon investigation are in fact truthful. The following statements may seem brash right now, but their meanings will become clearer in the explanations and examples that follow. Japan is in a kind of economic war against us [Yen! p31]. Their objective is for them to win and for us to lose. Through the use of cartels, price fixing, government-corporate "anti-foreigner" tactics as well as adversarial trade and predation strategies, Japan is greatly weakening much of America's strategic industries, standard of living and national security. These actions are also destroying the jobs of ordinary American people. While America is being complacent with its industries, the greatest transfer of wealth in the history of the world from one country to another is happening right now, from the United States, to Japan [PBS Frontline "Losing the War with Japan"]. Those who study these types of topics know that economic wars can be even more devastating to a country's long term future than conventional wars. Japan is organized to fight, employs a world economic strategy and has a fundamental plan. America's economic strategy is in disarray and there is no plan. As a result, America is losing the economic war by default. IN THE BEGINNING, THE TV CARTEL: A very famous example of Japanese national government and corporate coordination to take over a foreign industry is that of the Japanese TV cartel, first set up in the 1960's. This is how Japan took the free-world TV industry away from the United States. PBS TV's "Frontline" program did an excellent documentary on this called "Coming From Japan", (see Appendix for how to get transcript via Internet). In the 1960's, the Matsushita Industrial Electric Company, Sanyo, Toshiba and others formed a TV cartel in Japan. They got US TV technology from the giants in the industry (Zenith, RCA, Quasar) in the following way. The Japanese government prohibited US made TVs from being sold in Japan. Instead, they insisted that the technology be licensed to Japanese manufacturing companies rather than importing (still often the case today in Japan). The US companies thinking they could still make money this way, agreed to these terms which enabled the Japanese companies to acquire the technology on how to build TVs. The above Japanese companies, with tacit approval from the Japanese government, set up a cartel to inflate TV prices in Japan in order to turn around and use the money to sell below cost TVs in America. This was to drive US makers out of the American and world markets. US TV makers went bankrupt or left the industry as they could no longer fund research to continue making improved and high quality TVs. They could not compete with the artificially low Japanese TV prices in America and were forbidden to enter the Japanese market to take advantage of the high prices there. Hence, the US makers could not make money. Furthermore, secret deals to thwart US customs, illegal under US trade law, were set up by Japanese TV makers and US retailers such as Sears and Montgomery Ward to sell Japanese TVs under store brand names. Concurrently, the Japanese mounted an important lobbying effort in Washington to ensure that this scheme was not disrupted by the US government or customs services [Agents of Influence p77]. As a result, once famous brands such as Sylvania, Quasar, Admiral, Philco and RCA have vanished or are foreign/Japanese owned. Zenith is the only remaining US TV maker today. No US companies make VCRs although they were an American invention. In the 1980's the Japanese applied this same strategy to the computer flat panel display industry (also invented in the US) and now completely dominate that industry as well. Before that was motorcycles, machine tools and computer memory chips (the US tried to retaliate but failed as our companies couldn't organize with each other during the now famous "dram shortages" a few years ago). It will be happening again in the financial services industry [Yen! p32], telecommunications equipment, kitchen/washing appliances and aircraft manufacturing during the 1990s and beyond [Newsweek 1/18/93 p17]. DISPELLING SOME STATISTICS: Several misleading claims are made in the media about how the trade situation today with Japan is fine. These will now be dispelled. One claim states that Japan is opening its market because it has increased imports by 9% in 1986-87 and 18% in 1988. This is a half truth because Japanese exports during the same period increased by much more than that. In other words, the trade gap got bigger, not smaller between Japan and its trading partners. Furthermore, the trade deficit with Japan is actually worse than it appears to be. This is because Japanese goods manufactured by Japanese plants in other Asian countries and sold in the US do not appear in the US trade deficit figures with Japan [Wall Street Journal 03/22/93 A11]. Another false claim, most often made by Japanese trade representatives, states that it is naturally expected and ok that Japan has a trade surplus with America. This is because if every Japanese bought $100 of goods from America, and every American bought $100 worth of goods from Japan, an imbalance would occur in Japan's favor as there are twice as many Americans as Japanese in the world. In the real world though, this is not ok, and cannot happen for very long without serious consequences. To see more clearly this picture, imagine a world with 2 countries, one with 100 citizens, and another with 1 citizen, you. Each person has $200 to their name. Every year you buy $100 of goods from the other country, and each of their citizens buys $100 of goods from your country. If you work out this example, you will see that in a little over 2 years, you will have accumulated all of the money in the world and the other country will be penniless. This is the current state of affairs between Japan and its trading partners. Although things are actually occurring more slowly, this is the trend. POLITENESS AND CODED LANGUAGES, A BACKGROUND: Japanese communicate with each other and the outside world a bit differently than we do. This is often a cause for misunderstanding between our two peoples, so it will be clarified below. Because Japan was a communal society, a way of speaking in a way not to directly offend the other person (who they still had to live close to after a discussion had finished) has developed over time. There is even a Japanese word, called "Tatemae", which refers to this kind of phrase. These kinds of phrases are a type of "lie" in order to be polite. Often, when Japanese use words like "goal" or "difficult" in reference to a request you make, this is tatemae. A recent example from the evening news will make this point clear. Recently, George Bush went to Japan to open the Japanese market to US goods and to get the Japanese to use more US made car parts in the cars they sell to America. After he left, the Japanese Prime Minister said the agreement they reached was "a difficult goal". This is Tatemae code for "we won't meet your demand". But of course, the Japanese PM would not say this directly to George Bush, the president of America. This would be extremely impolite and Mr. Miyazawa could never say such a thing directly to an individual of such prestige. The Japanese PM is thus in a difficult position. This is an occasion for tatemae. Foreigners (especially Americans) who aren't used to Tatemae have extreme difficulty to understand its usage. Later, when the "promise" is broken, Americans often end up thinking they were lied to by the Japanese when this was never the case. Really, the Americans were supposed to pick up on the Japanese polite refusal, but failed to because they took what the Japanese said literally. If you know about Tatemae, it is much easier to know what the Japanese really plan on doing when faced with a politically difficult position as well as what they might be trying to say when they talk on television. Finally, a claim is often made by cornered Japanese officials that "Japan is at a crossroads" and the problems (described in this article) are being resolved today. "The Japanese market is opening, but it takes time and Americans must be patient for Japan to succeed at this difficult task." Japan has been saying this for the last 20 years. DISCRIMINATION AND RACISM: Although the Japanese are individually are very polite people, Japan is a very racist country, maybe even more so than America is. A common name Japanese use for the white European race is "gaijin". Although its literal translation is innocuous, it is a loaded word. "Gaijin" is a racial slur somewhat in the way "colored" used to refer to a black person in America. There is however a polite form of this word, "gaikokujin", which means literally "outsider country person". When you enter a rental agency to rent an apartment (the only way to get an apartment in Tokyo), some of the rental books say on the cover "no gaijin". If you are a gaijin, you cannot rent anything in these books. There are also a fair number of restaurants and bars in Japan that do not welcome/serve "gaijins" (a point made once you enter or try to get service at the establishment). Discrimination does not extend only to foreigners. Looking through any major newspaper, you will see ads which ask for Japanese only (no foreigners), men only, young women only, or people of a certain age. Discrimination doesn't seem to be illegal in Japan. A law does exist however stating that it is a Japanese "goal" not to have discrimination (hint:this is Tatemae). This "anti-discrimination" goal/law does not seem to be enforced in any way. Socially, races are ranked in a kind of status order in Japan, first are Japanese, then caucasians, other asians, then all other races besides black people, who are last. Such racism is sometimes reflected in disturbing comments directed towards America by high ranking Japanese officials: The Speaker of the Lower House of the Japanese Diet states that Americans are lazy, illiterate and that the U.S. is becoming Japan's subcontractor [Time 2/10/92 p17]. Ex-Prime minister Miyazawa states that American servicemen (protecting Japan) can't afford to take shore leave anymore (due to the high yen), so they'll have to stay aboard their ships and give each other Aids. Yasuhiro Nakasone, an ex-Japanese Prime Minister, states that "America's intellectual level is lower than Japan's because American society has too many blacks, Mexicans and Puerto Ricans" [Yen! p73]. A widely quoted study in Japan claims that the Japanese race is superior because Japanese brains develop differently than those of other races [Tadanobu Tsunoda, The Japanese Brain: Uniqueness and Universality, Tokyo Taishukan Publishing Co. 1985]. Such thoughts extend to immigration policy as well. As a result, the number of people accepted as Japanese citizens or as immigrants to Japan is very very small in number each year. It is claimed that Japan sees it as an advantage to maintain a racially pure society as it is less "disruptive" to social order [Yen! p74]. THE DISTRIBUTION SYSTEM, WHY FOREIGNERS ARE SET UP TO FAIL IN JAPAN: An extensive hierarchy of small distributers and shops exists in Japan which hinders the distribution of foreign goods. When Americans say the Japanese distribution system is "difficult", "byzantine" or "complex", this is what they are referring to. In reality, the Japanese distribution system is fixed [book: "The Enigma of Japanese power"]. This is why it is so difficult and complicated for the foreigner to succeed in the Japanese market. Japan, being a communal society, follows a strict code of loyalty. Shopkeepers have loyalty to their suppliers and customers. They also have loyalty to the nation, Japan. Undoing this arrangement that brought the country and its companies so much wealth and power via the entry of foreign goods would be disruptive to this system of loyalty. This is one reason it is so difficult for a foreigner to enter the Japanese market. There are higher forces at work too though: How important this was became very clear when I befriended a Japanese government worker I'll call Hiroshi. He explained to me how the system worked and why a foreigner cannot usually circumvent it. I suggested the following proposal as an example. The discussion went something like this: I can sell high quality made in USA GE refrigerators and Hoover vacuums at a much cheaper price in Japan that Toshiba and Sanyo can (this is in fact true). I want to start a business. I go to Japan, but no store will carry my products because I am a "gaijin" (foreigner), and my products are foreign. Doing so would anger the domestic suppliers of these distributers who may hold some of the shop's loans or offer them favorable payment plans. I decide then, I will set up my own company in Japan, open a shop and sell the appliances myself since no Japanese store will do so for me. Hiroshi said "You can't because you are a foreigner. Foreigners typically cannot own companies in Japan". This is in fact true. It is this government practice which keeps foreign business ventures in the control of the Japanese (and hence why they tend not to threaten Japanese industry seriously). It is also the reason there are so many "joint ventures" between a Japanese company and a foreign one to enter the Japanese market. Otherwise, the foreigner is prevented from entering, or is later set up to fail. So, anyway to get around this law, I told Hiroshi that I will open the business in my Japanese wife's name (I told Hiroshi to imagine I was married), so now a Japanese owns the company. Hiroshi said "you will still fail because as you find success in the market with your inexpensive American goods, the other vendors will get angry at you. They will politely ask you to raise your prices to that of the Japanese made goods so the system doesn't get disrupted". I, of course, replied that I would refuse to do this as its not in the interest of my customers. Hiroshi replied "then the vendors and the Japanese companies (such as Toshiba, Mitsubishi and other appliance makers) will complain to the government. The government will then prevent you (subtly though as free competition is "the law" in Japan) from operating your business successfully or profitably. New building permits for your stores will be delayed for months for no reason. Business license paperwork will get misfiled or lost without explanation causing you legal hardship. Goods will be delayed unloading off your ships for "too busy customs officials" or "lost somewhere on the pier for 6 weeks" making you miss delivery deadlines and angering your customers... Such "subtle" persuasion is how you are brought into line in Japan. The consequences of the above example (which is true) are seen in the US and Japan today: Hoover and GE make very few sales in Japan while Sanyo, Toshiba and others sell many vacuums and appliances here in America. Ultimately, this weakens US firms like Hoover and GE and may one day cause them to leave these industries entirely. Other true-life examples of this abound. Here are a few: A US lamp manufacturing company encountered exactly this problem [Time 2/10/92 p19]. It took them 9 months to get lamps off the ship sitting in the harbor and into retail stores in Japan after customs, and other government agencies stalled and stalled (which cost this particular company lots of money). Making foreign goods (ie. food, or apparel) which compete against domestic Japanese products wait on ships long enough to rot or not be desirable to the consumer is another practice. Many anti-foreign goods laws are often written in the form of "protection" to the consumer [Time 2/10/92 p19]. These are applied discretionarily and are really written to prevent or make it expensive/slow/impossible for foreign goods to enter the Japanese market. For example, one well known Japanese tactic is the intentional use of too few "inspectors" who are responsible for "inspecting" every single one of an importer's products entering Japan (ie. bicycles or cars). As every item must be individually "inspected" very carefully, this takes very long to do. This intentional bottleneck costs the importer lots of money as well as preventing timely delivery to the customer. Competing Japanese made goods are often exempted from these "consumer protection" laws as inspection is "done at the factory by the Japanese manufacturer". As an example of a consumer "protection" law really created to prevent foreign competition in Japan, one may look at the auto industry. All non Japanese cars which enter Japan today must be "safety-tested" by Japan for "safety to the consumer". The fee for this "safety-test" is several thousand dollars PER CAR imported and must be borne by the importer (and consequently the buyer) of the car. Cars made by Japanese companies (even if they originate from foreign Japanese plants such as the US Honda Accord plant) are exempted from the inspection and the fee as Japanese car companies are permitted to "safety" their cars themselves at their factories. The result of this practice is to make the prices of non-Japanese brand cars uncompetitive against Japanese brands sold within Japan. This law adds upwards of $5000 to the price of each US car for sale in Japan. [New York Times/CNN 12/25/92]. To further discourage non-Japanese car purchases in Japan, auto insurance rates for non Japanese brand cars in Japan have been rigged by auto producers (who own many of the insurance companies) to be three times higher than rates charged for equivalent Japanese brand cars [Agents of Influence p156]. It is these practices and laws (and not that the steering wheel is on the wrong side) that prevent US car companies from making headway in the Japanese market. Both GM and Ford ship cars to Japan with the steering wheel on the correct side for Japanese roads [Agents of Influence p156]. Of some other more famous "consumer protection" laws, one until recently banned US beef from Japan because "Japanese intestines were the wrong length and couldn't digest US beef which is too hard" (today, though US beef is allowed in Japan, in practice it must often come from a Japanese owned ranch in the US). Another law banned european skiis because the snow in Japan was "different". All foreign rice is banned for "national security"[Agents of Influence p11]. Rice in Japan as a consequence, is the most expensive in the world. Finally, as an example of the no-foreign ownership rule, the recent baseball team fiasco comes to mind: Nintendo recently bought the Seattle Mariners Pro Baseball team. Americans however, are not allowed to buy Japanese Pro baseball teams [ABC News Nightline]. THE BUSINESS CARTEL, KEIRETSU: Let us go now to a primer on Japanese business organization. Almost all the significant companies in Japan are aligned into one of about 6 keiretsu or business "groupings". These are loosely linked "super-corporations" for lack of a better term. Most of the Japanese companies whose brands we know and love here in North America are in these keiretsus. Several of these keiretsus have been around a very long time (before WWII) dating back to feudal-like family run trading houses. Mitsubishi and Mitsui are two of the more famous ones. Famous companies like Nissan, Toshiba, Sumitomo Bank are all in keiretsus. Here is why this is so important. Each of these keiretsus have under them, member companies who operate in each of the major critical business areas. These are: banking, distribution, steel making, heavy manufacturing and electronics/high technology/chemicals. Mitsubishi Bank, Mitsubishi Electric Corp, Mitsubishi Heavy Industries and a wide array of other Mitsubishi companies (several hundred) making all kinds of other things are in a keiretsu. (Mitsubishi is unusual as most of their operations have the same name). Each of the companies in the keiretsu are independent and very specialized in what they do in all senses of the word except for loyalty. Imagine a keiretsu is something like a college fraternity, but for companies. Their individual independence is what keeps things from getting too big and out of control, yet they can make a united front for issues important to the national or keiretsu effort. To make the point, a car company and electronics company in the same keiretsu have a long term relationship to help each other, for example to make a really fancy computer control system for cars, or to make special lift-loaders for the computer company's factory. If you walk into a Japanese transplant auto assembly plant in the United States, you will find that the equipment from the stamping presses, to the forklifts, to the parts used to assemble the cars are Japanese brands, even if it is more expensive (in the short run) to do this. Japanese companies located in America tend to overlook high quality low price U.S. suppliers and buy parts directly from Japan, or from Japanese suppliers located in America, again, even if it is more expensive, or troublesome to do so [PBS Frontline-Coming From Japan/PBS Frontline-Losing the War with Japan]. This is national and keiretsu loyalty at work. Every Keiretsu has a bank. This is the heart of the keiretsu and is like a national central bank, but for the keiretsu. The bank takes money and foreign cash from winning companies in the keiretsu and gives it to new ventures in the keiretsu for investment without the red tape that a bank would usually give before lending to a new start up venture. Having a bank who is in fact a part of your company means they will be fiercely loyal, understand your business and not call your loans for silly reasons like US banks do. The keiretsu banking system is what enables Japanese companies to make very long term investments which US firms cannot make (as US investors are usually more averse to risk and are not as patient for returns as Japanese keiretsu banks are). In upcoming high technologies like HDTV, or data-telecommunications, such long term (several years or decades) investment before any payoff is crucial. In such technologies, Japanese firms, due to keiretsu banking, have enormous financial advantage over western companies which are not allied with each other. As a result, keiretsu-grouped Japanese firms are much more likely than non-keiretsu grouped US firms to invest large sums of money in long term projects. This is because the collective risk to the keiretsu is lower than it is to any given independent company. Furthermore, short term stock performance is unimportant, and the keiretsu has the cash flows (from its profitable industries such as automobiles and consumer electronics) to finance investment in the new industries. This is much more efficient than the way America does banking and lets companies join forces to use their capital much more effectively than the US can. As a result, Japanese firms ultimately defeat foreign competitors and win in the market. Ironically, many US banks and investors, aware of what happens to industries targeted by the Japanese, act oppositely, avoiding to loan money to a US company in (or trying to enter) an industry targeted by the Japanese (ie. video, home electronics) [PBS Frontline-Losing the war with Japan]. US investors know that it is almost impossible for independent US companies to survive against organized Japanese keiretsus and cartels and hence, tend to abandon such US firms. This fact puts US companies at a severe disadvantage against Japan. This is also why you often see US firms "not trying" to enter or strongly compete in a given market today dominated by the Japanese such as consumer electronics. Using their keiretsu financial strategy, Japanese companies are able to out finance all other foreign competitors and ultimately take over almost any industry they choose (which is what they have been doing). The above reasons are why buying a Japanese product, even in an industry unrelated to the one a person works in, can cause that person to lose their job. This is much more likely than one may think. Many otherwise smart people do not understand this so it will be explained: Japanese keiretsus use the profits from a product such a person bought (ie. a car or stereo), then shift the money through the keiretsu bank to develop, invest in and dump products into the industry or market that person now works in (ie. telecommunications manufacturing, the latest Japanese targeted industry), and later puts that person out of a job. Federal, state and municipal governments in America which buy Japanese products, also accomplish the same thing, putting their own (or each other's) constituents (and tax base) out of jobs. COMMAND AND CONTROL: Japan's business effort is directed with the aid of the Ministry of International Technology and Industry (MITI). It decides national strategic industrial policy and determines with the corporations, which industries to target, enter, exit, take over...etc. This is one reason you often see several Japanese companies entering a particular market at the same time (ie. TVs, and more recently, luxury cars). By acting in unison, Japanese companies, banks and government can attack and overrun a foreign industry with a much bigger "punch" than had they done so separately. It also enables strategic moves which countries like America cannot do as American business efforts are not co-ordinated in any kind of way. In fact, such moves are illegal for US companies under antitrust laws from the 1930s. This puts us at an enormous disadvantage against US Japanese rivals as it is legal for example for Ford and Mazda to join forces, but not for Ford and GM to do so. The US antitrust laws were written at a time when US companies were the most powerful in the world. This is not true anymore and hurts America greatly as US firms struggle in the world marketplace against large foreign firms who are able to join their forces to defeat America's companies. THE PROTECTED HOME MARKET...JAPAN'S LAUNCH PAD TO THE WORLD: Japan has a protected home market which serves a very important purpose to the country and the national business effort. The home market is for trying out new products, copying and improving foreign designs, getting capital (through price gouging) without fear of foreign companies entering and ruining the game. An unwritten rule is that there is no real price competition in the Japanese home market between Japanese companies which are also strategic exporters. Real competition occurs in foreign markets outside Japan. The home market is a "safe" market where Japanese companies can experiment with their products, improve upon them, and fix problems with out fear of any real foreign competition capitalizing on their blunders (a luxury our own companies do not have in America). The scheme works as follows and is the critical reason why a Japanese company can enter almost any world market or industry from scratch and overrun it so quickly: Imagine Sony comes out with a new type cassette player which is very small. It breaks often because the small plastic gears inside are of low quality and wear out (this was true, actually). This machine though, is only sold within Japan. Only in the future when it is perfected will it be sold to the outside world. Now lets imagine GE is the dominant manufacturer in this market worldwide. They want to sell their player in Japan (which is better than SONY's) but can't because they are forbidden for all the reasons mentioned in this article. Sony fixes their gear problems, tests it in the home market (this is one reason why the latest Japanese products hit the Japanese market at least 6 months before anywhere else) and later exports it abroad. Sony maintains its good reputation in America as their player works well (the US customer never receives a machine with the defective gears). Sony sells this player at 3/4's the cost to make it in order to increase their market share and drive GE out of the cassette player business. Sony doesn't go bankrupt doing this because they can sell players in Japan at twice the cost to make them and hence cover their losses in America. Because GE is forbidden to sell in Japan, and can't make money at home in America because Japanese players sold there are too cheap, they surrender and lose market share. GE asks the US government for help but is refused. Later when this is exposed, GE is accused of "whining" and "not trying hard enough to enter the Japanese market" by the Japanese Prime Minister. Now, imagine the reverse situation. GE also makes a machine that is poor quality in its home market of America (this was also true for a time). The Japanese then enter unimpeded, dump their perfected goods here at below cost prices and drive GE out of the market. As you can see, whenever a US company makes a mistake in the home market, it suffers greatly, but when a Japanese company does in their home market, they don't suffer so much. Hence, even if the American company is more efficient and generally of higher quality, the Japanese companies will ultimately defeat the US competition. This is true even if the US companies make fewer and smaller mistakes over the same period of time because the US company gets hurt for a mistake in the home market, but the Japanese one does not. For example, Japanese car companies have also come out with disasters comparable to the "exploding Ford Pinto". But, by using their protected market for experimentation and improvement, they are able to resolve problems like this before they arrive on our shores. Our car companies have no such luxury and hence suffer the consequences each time they make a mistake. The non-competitive home market serves another important function to Japanese industry. Smaller/weaker Japanese companies (ie. Mazda) are allowed to survive because it is possible they may some day have a "winner" which would be good for Japan (this actually happened to Mazda with the Miata and other recent offerings in their foreign markets). If the company were bankrupt though, they could not come up with "winners" sometime in the future. It's better to let the weak competitors survive in Japanese market in the hopes they become strong someday. Because of laws restricting foreign ownership as well as "cross-holding" agreements between the Japanese companies, there is very little risk a non-Japanese company could take over these weaker players and enter the Japanese market. Unfortunately, the same protection is not bestowed among America's promising small companies who are easily taken over by major Japanese players who want their technology. The no-home-competition point is ironic, because some newspaper reporters who don't understand the Japanese economy write quotes like "there are 7 car companies in Japan (a country with 1/2 the population of America) therefore the car industry must be extremely competitive in Japan". The truth is that there are 7 car companies in Japan because there is almost *NO* price competition in the home market. This is why their market shares in Japan are stable. They are basically fixed. If there were competition, the strong players like Toyota and Nissan would have absorbed or bankrupted their less powerful rivals like Mazda and Daihatsu long ago. WHAT IS DUMPING AND WHY IS IT BAD: Many Americans think that Japanese companies are foolish because they practice "dumping" (selling their products here for a price lower than it costs to make them), and hope Japan continues as it benefits the American consumer. Such thinking is misguided and shows how it is very difficult to understand why Japanese business practices are so dangerous to America. Some Americans think buying dumped products is good. This happens because they don't see the real costs to themselves which are not on the low sticker price. These costs turn out to be higher to the buyer than the savings on the product price (otherwise the Japanese would not be dumping... ...there's no such thing as the deal that's too good to be true). The key is that this cost is indirect but very real nevertheless. It turns up somewhere else than at the checkout counter and is how Japan profits by "dumping". The cost to America (and the benefit to Japan) turns up in the long term. This is why it is not seen so easily. It turns up in America as unemployment, closed factories and reduced national strength as US companies cannot compete against this practice and hence go bankrupt. Japan's factories run, their people get jobs and later on Japan makes much more profit than it originally cost to do the dumping once the non Japanese competition has been wiped out by the practice. Japan can do dumping by raising prices in the protected home Japanese market to pay for dumping in America. US companies don't have this luxury as the US market is open to the outside world and prices cannot be artificially raised to pay for dumping elsewhere. ECONOMIC STRATEGY, WHAT IT ALL MEANS: Many people ask, what is a national industrial strategy. Some people claim