Task 7. Read the text “Why Japanese Firms Tend to Be So Competitive” and translate it.

Date: 2015-10-07; view: 448.

Task 8. Find answers to the following questions in the text and write them down:

1. What do firms such as Hitachi, Honda, Mitsubishi and Sony have in common except that they all are Japanese companies?

2. What are Japanese companies known for?

3. Do Japanese companies have a high fixed cost commitment?

4. Are the credits much more available in Japan than in the USA? Why?

5. What makes Japanese firms act very competitively?

6. What is a general rule of business?

WHY JAPANESE FIRMS TEND TO BE SO COMPETITIVE

What do firms such as Fijitsu, Hitachi, Honda, Mitsubishi and Sony have in common? Not only are they all Japanese companies, but they are highly leveraged, both from operational and financing perspectives.

Japanese companies are world leaders in bringing high technology into their firms to replace slower, more expensive, labour. They are known for automated factories, laser technology, memory chips, digital processing and other scientific endeavours. Furthermore, the country has government groups such as the Ministry of International Trade and Industry (MIYI) and the Science and Technology Agency encouraging further investment and growth of government grants and shared research.

To enjoy the benefits of this technology, Japanese firms have a high fixed cost commitment. Obviously high initial cost technology cannot easily be “laid off” if business slows down. Even the labour necessary to design and operate the technology has something of a fixed cost element associated with it. Unlike in the United States, workers are not normally laid off and many people in Japan consider their jobs to represent a lifetime commitment from their employers.

Not only does the Japanese economy have high operating leverage as described above, but Japanese companies also have high financial leverage. The typical Japanese company has a debt-to-equity ratio two to three times higher than its counterparts in the United States. The reason is that credits tend to be much more available in Japan because of the relationship between an industrial firm and its bank. They both may be part of the same cartel or trading company with interlocking directors (directors that serve on both boards). Under such an arrangement, a bank tends to make a larger loan commitment to an industrial firm and there's a shared humiliation if the credit arrangement goes badly. Contrast this to the United States, where a lending institution such as Citicorp or Bank of America has extensive provisions and covenants in its loan agreements and is prepared to move in immediately at the first sign of a borrower's weakness. None of these comments imply that Japanese firms never default on their loans. There were, in fact, a number of bad loans sitting on the books of Japanese banks in the mid-1990s.

The key point is that Japanese firms have high operating leverage as well as high financial leverage and that makes them act very competitively. If a firm has a combined leverage of 6 to 8 times, as many Japanese companies do, the loss of unit sales can be disastrous. Leverage not only magnifies returns as volume increases, but magnifies losses as volume decreases. As an example, a Japanese firm that is in danger of losing an order to a U.S. firm for computer chips is likely to drastically cut prices or take whatever action is necessary to maintain its sales volume. A general rule of business is that firms that are exposed to high leverage are likely to act aggressively to cover their large fixed costs and this rule certainly applies to leading Japanese firms. This, of course, may well be a virtue because it ensures that a firm will remain market oriented and progressive.