The Survival of the Fittest in the Age of the Cyber Economics.

Theme of the Essay:

How Can Japanese Companies Make Profits Models and Rectify Japanese Brand for Economic Growth: How You Can Make an Innovation with 21Century Conditions?

Contents

1. Preface
2. The age of the Cyber Economics
3. Reconstruction of Profits Models
4. Game Theory
5. Remedies for Rectification of Japanese Brand
6. Dealing with External Economy

Profile of the Author
Gentarou Kurosaki
Born in 1961
Research Institute of Gentarou Kurosaki(Japan)

Profile of the Translator
Yu Takioka
Born in 1988
Affiliated with University of Illinois at Urbana Champaign and Beckman Institute for Advanced Science and Technology

Abstract

In this essay, I analyze and describe the special conditions of the Japanese companies under the new age of the world economy. I argue this special conditions and possible suggestions for regrowth the Japanese economy from 4 different perspectives (1 ) Reconstruction of the profits models (2) Game Theory (3) Remedies for rectification of Japanese Brand (4) Dealing with the external economy under the special conditions.

 
1. Preface

The objective that I applied to this essay contest is to claim the topic of this essay contest itself. I felt discomfort of the distinction such as “Japanese-capital company” and of the direction of “growing policy”. In this global age, why do you have to distinguish “Japanese-capital company”　from　“foreign-capital company”? For instance, the CEO of SONY, one of the most famous Japanese companies, is Howard Stringer.
How about Nissan? How about Small and Medium Enterprises that there are more than half employees’ nationalities are foreign? How about the percentage of the foreign nationalities of the stake holders for the companies that is represented in Primary Tokyo Stock Exchange? How about the Japanese company but is located on foreign countries?

In these days, Japanese athletes were refused to use its institution of the company whose capital is in Japan during the Beijing Olympic. Emphasizing “Japan” and commonsense of this discourse can be one of the issues of the globalization age.
In my opinion, the essence of the globalization is not Neo-liberalism but technological innovations (Tokunaga 1991). As global broadcast broke down the wall of Berlin, pervasiveness of the Internet caused the world to be flatter than before (Freedman 2008). Moreover, development of mathematics caused financial engineering, and it is merged with the Internet technology, which produced the “Cyber Economics”.
To be analyzing this globalization, it is indispensable that the global economic environment is completely different form the 1980’s capitalism. There are some people those who call this environment financial-capitalism which is connoted sarcastic tone, although I would like to call it the Cyber Economics which is named by Kojima (2001).
I believe that this is political correct and it represents the real situations more precisely. Derivative minimizes the risk and it enables large amount of speculations. Gigantic capitals are immediately transferred into the other countries. Consequently, this mathematics can make it present even though it must be future profit, although it is inevitable that it contains uncertainty. For example, the fund established by the Myron Scholes, who was the novel laureate and found The Black-Scholes Equation, went bankrupt and the world economy faces with serious danger due to subprime issues. As, George Solos used the term the explosion of the Super-bubble to describe current situation, it is certain that economic environment can contain uncertainty.
However, if we claim anti-globalism because of paying attention to the negative influences, then it would not be logical or not be reasonable. (Even though you point out some of the issues of the globalization, it cannot refute the Globalism itself.)
I point out that the central issue for the Globalization is how we can adjust to the Cyber Economics. In these circumstances, there is nonsense if we distinguish Japanese-capital company and foreign-capital company. The most critical points are the Japanese economy and Japanese people. Excessively conservative attitude or strategy for holding their status quo is not for the profit for the Japanese economy and Japanese people. In this Cyber Economic age, it does not make sense that distinguishing the nationality and capital of the companies. In terms of the claim for the growing policy is arguing in the different chapter.

2. The age of the Cyber Economics.
The critical issue in the Cyber Economics is that the more profitable a company is the higher risk of being the target of buyouts. The differences between investment and speculation are not vague; however, I remark these differences.
Investment is an activity for utilizing the capital for expected productive factors which would produce profits in the future. For instance, an individual who expects dividends is an investor. While, a speculation is an activity that an individual who attempts to make a gain by changing the market value. An individual who makes a profit by changing the value of the stock is called a speculator.
People might preserve a little amount of stocks and make a little profit. The big capital and the funds attempt to purchase not the stocks of the companies but companies themselves. It is called an age of the big M&A: a large number of companies merge for protecting the company from antagonistic M&A, and some companies attempt to antagonistic M&A in these days.
Executives must be concern about the Tobin’s q— a ratio of total market value of firm divided by total asset value— and ROE. The noticeable significance which executives must consider is neither the amount of the sales nor the share of the markets. The executives must reconsider the common sense of the pre-Cyber Economics, and even they must be skeptic whether that common sense would not make any sense. Mass Media also notice that the pre-Cyber Economic common sense would not be applicable to this new economic environment.
Taking into consideration around the Japanese economy, Japan is not only the decreasing its competitive competency in the world economics but also it has become fewer competitors in the Asian Economy. Despite this paradigm shift has gone, a few executives recognized this change. It would be impossible for many companies to survive in this new economic paradigm unless the executives recognize this change and get out of the ghost of the common sense of the pre-Cyber Economics age.
Another aspects of the Cyber Economy are the increasing the gaps between the rich and the poor, and employment issues. In the United States, the family which their earnings are more than 1million has become double, and it reached 9,000,000 families through 1995 to 2004( Frank 2007). Considering the Japanese culture, it may not be possible to become the same country as the United States; however, it can be true that it is inevitable that the higher knowledge society can produce the considerable amount of gaps between the rich and poor.
The reason of causing this gaps and employment issues are dependent of two different types of employment. The first type of employment is the employment which is corresponded to the capabilities of individuals, whereas another type of the employment is the employment which is corresponded to the institutionalized wellbeing functions. The former seeks for the higher salary and can select the working environment. The latter, however, cannot seek for higher salary and the job is replaceable. Moreover, it is often determined by the employers.
It is undoubtedly true that the increasing the number of non-regular full time workers and the decreasing the number of regular full time workers can limit increasing the average wedges. This leads to the shrinkage of the domestic demands. According to the White paper on the labor economy in 2008, it stated that the limitation of the average wedge can cause to reduce the productivity. It is annoying issues. It is true that the technological development leads to decrease employments. There was a hot debate over the work-sharing several years ago. Who argues that issue now?
P.F. Drucker once stated that the meanings of the corporations are about bankrupt and being excluded from the market if they do not make a profit. It is, however, decreasing the number of employment. If you try to expand wellbeing employment, then you would need to build up the strong financial basis.
Considering this fact, it comes to be the “Turning Point” to think about the strategy for raising multiple new industries for Economic growth, but not for individual strategy for surviving. In my opinion, these can be tourism, agriculture, contents and design industries. It is not appropriate to think about the old age stereotype that Japan is the country which can make profits from the exporting and it is dependent on the second industry.

3. Reconstruction of the Profit Models.
The essences of the corporations are the distinctive technique, knowledge and the culture. It is no value as corporation if they do not provide special values. Some executives might say that they do not have distinctive products. It is, however, not exactly correct. In other words, they just do not notice their special values which would give competitive competency in the market. If every employee has detailed information for the faithful customers, it can be the distinctive values for the corporation.
Adrian Slywotzky (2002) argued this “customer-solution profit models” in the first chapter of his book named The Art of the Profitability. In this book, he also argues 23 profits models including time profit models and special production models. It does not necessary means that there are the only 23 models for making profits but the point is to establish the profit models based on special values for the corporations, and to challenge the new models and to be success by these new models.
I think that many corporations cannot make profits from their special values. The old-fashioned strategy based on the break-even point is no longer the strategy or the profits model. It is the fundamental steps. The issue is that how you can establish the quality of the strategy and the profit models. Moreover, I think that it might not be organized by the higher management level, although it might be shared as the part of the strategy in each section. This issue lights shed on the sense of the strategy making and the effectiveness of the strategy. In addition, that strategy must be dealing with the issues of the age of Cyber Economics. It is essential that executives and strategists must recognize the appropriate strategy to the Cyber Economic conditions.
Nonetheless, there are Japanese employment cultures which can be an obstacle for thinking about the appropriate strategy for survival in these new conditions. It is reasonable that paying higher salary whatever the age is if the one has the excellent capabilities. Despite, few corporations can do that. An excellent worker—at least workers those who believe that they are to be an excellent— is tend to work for the foreign capital companies, financial companies, and think-tank. David Ogrubi stated that peanuts are just enough to hire a monkey. It seems to be quite exaggerated, but I believe that it can be real. Many companies do not pay enough money to hire an excellent workers but the company pay much consulting fees by excellent workers. It is rare that the rewards are successful rewards. The company which would not reconsider these kinds of cultures cannot have competitive competency in the world market. I would reemphasize that the obstacle is Japanese employment cultures.
In these days, some people reevaluate the Japanese employment cultures, including permanent employment and the “Nenkojyoretsu payment system”, the Japanese cultural employment system that the wedge is dependent on the age and experiences but not on their competency. I suggest that they must adherence to the dream of the old-fashioned Japanese culture which used to guarantee the success. I strongly believe that these cultural issues are actually not to be dealt with by the corporations, but by the government as a wellbeing policy.

4. Game Theory
It is critical that understanding the position and environment around the company to make a vision statement of a company. The PEST analysis—it is a comprehensible macro analysis that accounts for the factor of politics, environment, society, and technique—provides a company with useful information to make an appropriate vision statement. Limitation and degree of the PEST analysis are dependent on the category, such as a global player, a regional player or a domestic player.
On the one hand, a company whose volume of sales is small might become a global player. If those small companies have a special advantage to produce precision equipment, then they could gain the higher amount of shares in that market. On the other hand, a company whose volume of business is large might not become a global player if they do not recognize their special values.
Advancing overseas in order to enlarge the volume of sales is not only nonsense, but also it is high risk. There were not a few companies which failed their business. These exemplified that it is not appropriate means to just enlarge the volume of sales to make a vision statement true. The enlargement of the volume of sales is nothing more than one of the indications of the vision statement. A vision statement is essential values and meanings of the company, and it embodies the existence of the company itself.
In the old capitalism, the pre-cyber economics, competition has always been encouraged and an oligopolistic market has been criticized as bad. The competition in the market has been considered to be a condition that produces fair trade. Current Game Theory, however, proved that the model of Complete competition would not guarantee the equal and free market. The Nash equilibrium –that is the converged point where it is resulted from the consequences of strategy for each player, although it is proven that this point does not guarantee the Pareto efficiency point— under the non-cooperative game indicates that situation. In other words, if two companies make a competition between them by discounting products, then both of them would go bankrupt. This is one of the examples that the non-cooperative game model can lead to social loss.
I understand that fair trade is significant and the law regulates the oligopoly. In addition, people’s interests in fair trade are extremely high and consultation before the bid is absolutely unacceptable because it violates the CSR. Despite, it is absolutely necessary that to reconsider the strategy for the market to beat the rival by Game Theory. The significant implication from this perspective is not that you should fight because you can win but you should select the strategy which can make the profits maximum. It is fact that ROE of Japanese companies is relatively lower than the average of foreign companies. It seemed to be the result of the old-fashioned mentality of the executives that they prioritize enlargement of the volume of the sales and the share in the market rather than raising ROE.
I argued that the core of the strategy for companies is dependent on the profit models in the previous chapter. In the marketing field, 3C –customer, company and competition—are considered to be significant; however, it is not enough to build an appropriate strategy. Moreover, it needs to the perspective from Game Theory to account for beating competitors. It is too complicated to be described in this essay, although cooperative models are better studied than the non-cooperative models. Executives must weigh the profit models which are resulted from the Game Theory.

5. Remedy for Rectification of Japanese Brand

It is no doubt that the manufacture industry spurred the miracle economic growth. Moreover, it is fair to say that this was the result of initiative by Ministry of International Trade and Industry. Nevertheless, Japanese Brand –as I discussed in the previous chapter— has already become cliché and it has been lost the actual values. The value of Japanese Brand resides only in cooperated brand, category brand and production brand.
I reconsider the definition of the brand. What is the definition of the brand? It is not only the symbols which can differentiate it from another, but it may also represent its credibility and it may even cause attachment to customers. The value of the brand can be defined as a power that can legitimate the value differences from another, and it can override the disadvantage of utility or quality of it. If it is not true, then it is unable to explain why luxury brands can be preferred to another. Thorstein Veblen, however, might claim that the power of the brand cannot cause attachment to customers but can represent the ones’ self-assertiveness.
I rejected the differentiation between Japanese and foreign company per se in the first chapter, although I did not discredit that the individuality of the nation, land and culture of Japan have a potential to contribute to reestablishing the new Japanese Brand. Rather, I point out that companies have to make profits by its specialty of Japanese Brand and it has to give its profits back to the companies and the Japanese people. In terms of the manufacture industry, the world is flattered. Technique and the ideas can easily trespass the borders between countries. As well as the manufacture industry, the labors in the service industry can trespass the borders through telephone lines. One of the call-center of the Japanese computer companies is located on China, and the Chinese labor can respond to the questions in fluent Japanese. Moreover, system engineers can create the software with colleagues live in the other countries in their home due to the borderless world.
It is understandable that the pride of the old-fashioned industry brand, although it is unreasonable to think about that the manufacture industry can lead the economics and can survive in the world again. It is indispensable that to develop new industries and new demands. Obviously, this does not advocate the advancing overseas without a vision statement.
Reconsidering Japanese strength, there are three potential candidates for rectifying Japanese Brand. First, it is true that there are plentiful tourist resources and attractions. It is worthwhile to promote the Tourism Nation in order to rectification of Japanese Brand. Additionally, this can be a remedy of depopulation of the rural areas. Therefore, the government has to ponder over these ideas seriously.
Second, Fishing and farming industries can also contribute to establishing new Japanese Brand. It was used to be said that the best fish in Hokkaido was transported to Tsukiji, a fishing market located in Tokyo, although it is transported to Hong Kong in these days. Thus, it is valuable that to build a reputation that the Japanese food is high quality and security. It can also enhance the self-sustenance rate of foods in Japan.
The last and not least, Manga, the Japanese cartoons, can be a significant candidate to rebuild Japanese Brand. In this year, “Slam Dunk” and “Death Note”—
a Japanese high quality Manga and a movie— were positively evaluated in the United States; however, the profits of these were not returned to Japan. This is the issue to be discussed to how to produce profits from these contents and how to promote these contents. I remark the fact that the flattered world presupposes the world where the common spoken language is English. Thus, it is extremely disadvantage if English competency is poor.

6.Dealing with External Economy.
Environmental issues were recognized to be one of the most critical concerns in the 21st century. This can be interpreted as a typical external economy problem: this is a problem that can produce losses for people who do not engage in a specific economic activity such as producing and consuming. Kojima (2006) disapproved to impose Pigovian tax—a tax for imposing a negative consequences as a result of economic activity such as environmental tax— for dealing with external economy. He argued that estimation of the negative effects of the specific economic activity is not calculable.
Despite, I think that it is reasonable to impose environmental tax if this is considered to be the problem which is calculated by Game Theory. The more the environment is devastated, the more people concerns with environmental problem, namely, with CSR for companies. Ecological images of companies are critical to establish the positive brand images. Although it is impossible to estimate its effects as figure, it is crystal-clear that it would not harm the environment. If these premises are true, then it is also true that the Pigovian tax cannot reduce the profits of companies.
Finally, I reemphasize that old-fashioned common sense was dead. Rather, it is inevitable to think about the new strategy and about reestablishing the new Japanese Brand, which enables to survive in the 21century economic conditions. This age is the literally “Turning Point” of the civilization, as P. F. Drucker altered, whether the Japanese companies, people, and Brand can establish the new models, strategy and the new Japanese Brand in order to regrowth of the Japanese economics and survive in the age of Cyber Economics or not. Although this seems to be difficult to overcome this unprecedented economic environment, I hope that the Japanese companies threw the old myth away and rebuild the new legacy for future economic success.

 
References
Kojima, H. (2001). The Cyber Economics. Shinchousha Publishing,Co.,Ltd.
(2006). Economics for Ecolgists. TOYO KEIZAI, INC.

Frank, R. (2007). Richistan: A Journey Through the American Wealth Boom and the
Lives of the New Rich. New York: Three Rivers Press, Inc.

Friedman, T. (2008).THE WORLD IS FLAT: THE GLOBALIZED WORLD IN THE
TWENTY-FIRST CENTURY. Translated in Japanese. NIKKEI, INC.

Slywotzky, A. (2002).The Art of Profitability. Translated in Japanese. Diamond, INC.

Tokunaga, I. (1991).Information Changes the World:The Age of Satellite and
Borderless. Maruzen Co., Ltd.