U.S. industry remains blind to East Asia

July 19, 1994|By Ronald E. Yates | Ronald E. Yates,Chicago Tribune

Ever since the late economist/futurist Herman Kahn wrote rather daringly in the early 1970s that Japan would overtake the United States by 2000 as the world's leading economy, Americans have kept a wary eye on the Far East.

It wasn't that many people really believed Kahn. Yet his astonishing prophecy, as we have all seen, is no longer astonishing. Japan's recent economic setback notwithstanding, there are many who still believe that by the year 2000 it will surpass the United States as the most important economic force in the world.

James C. Abegglen is one of those -- with certain reservations and amendments.

Unlike a lot of the instant aesthetes who spend a few months in Japan and Asia and depart with book contracts, Dr. Abegglen is one of the knowledgeable "old hands" of Japan whose experience is measured in decades, not days.

In certain industries, Japan has surpassed the United States, he writes -- and it may do so in others.

However, Japan's real relevance is not the size of its gross domestic product vis-a-vis the United States, but its role in moving East Asia from Western hegemony to economic autonomy, says Dr. Abegglen, a professor of international business at Tokyo's Sophia University.

That movement, he writes, represents a "sea change" in the world economy. It's a transition that already finds Japan, Taiwan and Korea -- the industrial axis of Northeast Asia -- providing one-third of the world's output of cars, trucks, buses and other motorized vehicles.

It also finds East Asia -- including Japan, Korea, Taiwan, Hong Kong and Singapore -- producing two-thirds of the world's consumer electronics and nearly half of all electronic components. In more sophisticated electronics, it supplies about one-third of the world's computers.

Yet despite the flourishing economies of Asia, the U.S. position in the region is a fast-diminishing one. One measure of this can be seen in the amount of investment and other funds flowing from the United States into Asia. They are little more than one-third of the flows from Japan.

This is despite the considerable and even increasing importance of the region to the United States, the author writes. The East Asian region is the largest and fastest-growing market in the world for U.S. goods, and U.S. trade across the Pacific has exceeded that across the Atlantic for more than a decade.

Yet, Dr. Abegglen says, "by near-unanimous judgment, the corporations of the United States are failing to make investments in production and marketing commensurate with the reality and potential of East Asia."

That equates into lost opportunities for American firms as markets from which they might otherwise have profited are captured by Asian competitors. But lost profits are only one immediate consequence of this shortsighted view of Asia.

It is also strategically disastrous. It allows competitors to take market share, increase production scale and move to industry leadership by exploiting the high growth left to them without competition from U.S. firms. Asian competitors, Dr. Abegglen says, are, by default, provided a base from which to build global competitive position.

The book does offer several steps that U.S. companies can take to benefit from the developments in East Asia.

First, Dr. Abegglen says, U.S. firms have to grasp and accept what is happening. That means redrawing the map of the world in the minds of many of America's top executives to deal with these new Asian realities.

Next, companies need to make sure they have a Japan strategy in place. If a company doesn't have a Japan strategy, then it doesn't have an East Asia strategy. Why? Japan represents three-fourths of the Asian economy and its companies are the overwhelming competitors in the area. It is also the primary source of capital and technology for the region.

Once a company has done that, it needs to establish a world-class facility in Asia with the best equipment possible. U.S. business is competing against the best, Dr. Abegglen says, so it should invest accordingly.

Other pieces in the strategic puzzle include reversing the brain drain by using fewer expatriate managers; managing for cash and not focusing so much on reported earnings, which are tied to stock and capital markets; using local partners to facilitate entry; and finally, holding the CEO and board of directors responsible for Asian strategy decisions.

"A major, long-term commitment, sustained over time, is needed and can be made only at the top of the company," Dr. Abegglen writes.

Unfortunately, "long-term" commitments in America are often measured in quarters, not years.

BOOK REVIEW

Title: "Sea Change: Pacific Asia as the New World Industrial Center"

Author: James C. Abegglen

Publisher: The Free Press

Length, price: 290 pages, $24.95

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