Profitability and Competitiveness: Lessons from Japanese and American Firms in the 1980s

Abegglen James Stalk George Jr. , Kaisha: The Japanese Corporation (New York, NY: Basic Books, Inc., 1985), p. 149.

See Ballon Robert Tomita Iwao , The Financial Behavior of Japanese Corporations (Tokyo and New York, NY: Kodansha International, 1988), Section 4; Choi Frederick Mueller Gerhard , International Accounting (Englewood Cliffs, NJ: Prentice-Hall Inc., 1984), Ch. 8.

Ballon Tomita , op. cit., Ch. 6.

For a review of these studies, see Kester Carl Luehrman Timothy , “The Myth of Japan's Low-Cost Capital.” Harvard Business Review (May/June 1992), pp. 130–138.

Abegglen Stalk , op. cit., p. 148.

See Min Sunshik , “The Appreciation of the Yen and Japanese Export Prices,” in Bird Allan , ed., Best Papers Proceedings: 1993 Annual Meeting of the Association of Japanese Business Studies, New York, NY, Columbia Business School, 1993; or Zengage Thomas Ratcliffe C. Tait , The Japanese Century: Challenge and Response (Hong Kong: Longman Group Far East Ltd., 1988), particularly Ch. 4.

Foster George , Financial Statement Analysis (Englewood Cliffs. NJ: Prentice-Hall Inc., 1978), Ch. 2.

For a discussion of the limitations of ratio analysis, see Johnson Glenn Gentry James Jr. , Finney and Miller's Principles of Accounting (Englewood Cliffs. NJ: Prentice-Hall, Inc. 1980), pp. 679–680.

Cohen Jerome Zinbarg Edward Zeikel Arthur , Investment Analysis and Portfolio Management (Homewood, IL: Richard Irwin. 1982), Ch. 9.

Al Hashim Dhia Arpan Jeffrey , International Dimensions of Accounting (Boston, MA: PWS-Kent Publishing Co., 1988), p. 102.

Center for International Financial Analysis and Research, International Accounting and Auditing Trends (Princeton, NJ: CIFAR. 1991).

An excellent overview of major international accounting issues appears in Fitzgerald R.D. Stickler A.D. Watts T.R. , eds., International Survey of Accounting Principles and Reporting Practices (Toronto: Price Waterhouse International, 1979). Additional references for this section include. Ballon Tomita , op. cit.; Center for International Financial Analysis and Research, op. cit.; Choi Frederick Mueller Gerhard , International Accounting (Englewood Cliffs NJ: Prentice-Hall Inc., 1984), particularly Ch. 8; and Holzer H. Peter , International Accounting (New York. NY: Harper & Row Publishers, Inc., 1984), particularly Ch. 9 and 16.

See Ballon Tomita , op. cit., Ch. 8.

See Choi Mueller , op. cit., Ch. 4.

The cost method is used when a parent company owns less than 20% of an affiliate's voting stock and requires the parent to record all dividends from the affiliate as income as they are received. On the other hand, the equity method is used when the parent's ownership is between 20–50% of the affiliate's voting stock and requires the parent to increase or decrease the value of its investment in the affiliate to reflect its share of the affiliate's profits or losses regardless of whether a dividend is received.

Ballon Tomita , op. cit., p. 210.

Georg Stefan , “The Institutional Framework of the Japanese Stock Market: Determinants of the Market's Development,” in Bird Allan , ed., Best Papers Proceedings: 1993 Annual Meeting of the Association of Japanese Business Studies. New York. NY, Columbia Business School. 1993, p. 103.

Disclosure/Worldscope, Industrial Company Profiles (Bridgeport, CT: Disclosure/ Worldscope. 1991).

Porter Michael , Competitive Strategy: Techniques for Analyzing Industries and Competitors (New York, NY: Free Press, 1980).

For example, the average ROE of the Japanese auto industry is not the arithmetic-average of the ROEs of the 22 firms in the database, it is the sum of the net income of those 22 firms divided by the sum of the shareholder's equity of those firms.

See “The Age of Consolidation.” Business Week, October 14, 1991, pp. 86–94, for a discussion of industry concentration in the U.S.; “Multinationals: Back in Fashion,” Economist, March 27, 1993, pp. 17–18, for a discussion of concentration on a global scale. Suffice it to say that it is not unusual for the top 5 companies in major industries to control between 50–70% of global sales.

This is consistent with Choi and Mueller's contention that adjusting for accounting differences between the U.S. and Japan does “have some effect on observed ratio differences … however, these effects explain only a minor portion of observed ratio differences.” Choi Mueller , op. cit., p. 309.

For example, see Abegglen Stalk , op. cit., Ch. 3; Doyle Peter Saunders John Wong Veronica , “Competition in Global Markets: A Case Study of American and Japanese Competition in the British Market,” Journal of International Business Studies (1992), pp. 419–442: Kagono T. Nonaka I. Sakakibara K. Okumura A. , Strategic vs. Evolutionary Management: A U.S.-Japan Comparison of Strategy and Organization (Amsterdam: North-Holland, 1985); Thurow Lester , “Who Owns the Twenty-First Century,” Sloan Management Review (Spring 1992), pp. 5–17.

For an overview of the competitiveness debate, see Ajami Riad , “U.S. Competitiveness: Resurgence or Decline?” Ohio State University Working Paper Series, WPS 89–59, 1989; Porter Michael , The Competitive Advantage of Nations (New York. NY: Free Press, 1990); Scott Bruce Lodge George , eds., U.S. Competitiveness in the World Economy (Boston, MA: Harvard Business School Press, 1985).

Porter Michael , “The Competitive Advantage of Nations.” Harvard Business Review (March/April 1990), p. 73.

Wilson Charles , Chairman of the Board of General Motors, from his testimony before the Senate Armed Forces Committee in 1952.

Reich Robert , “Who Is Us?” Harvard Business Review (January/February 1990), pp. 53–64; and “Who Is Them?” Harvard Business Review (March/April 1991), pp. 77–88.

See Scott Lodge , op. cit., Ch. 1.

Industrial Bank of Japan, “Japan-U.S. Relations from an Industrial Viewpoint.” Quarterly Survey: Japanese Finance and Industry, 93/1 (1993).

“1991 Global Industrial 500,” Fortune, July 27, 1992.

Industrial Bank of Japan, op. cit., Section 3.

Olson Laura Katz , “The Political Economy of Competition in the Global Economy,” in Goldman Steven , ed., Competitiveness and American Society (Bethlehem. PA: Lehigh University Press, 1993), p. 279.

According to Franko, between 1960 and 1986 the global position of U.S. firms declined significantly in the following industries: Electronics, pharmaceuticals, chemicals, autos, steel, non-ferrous metals, textiles, tires and rubber, non-electrical machinery, petroleum products, and banking. Franko Lawrence . “Global Competition: Who's Winning. Who's Losing, and the R&D Factor as One Reason Why,” Strategic Management Journal, 10 (1989): 449–474.

For an interesting contrast between Japanese and American corporate strategies see, William Egelhoff, “Great Strategy or Great Strategy Implementation—Two Ways of Competing in Global Markets,” Sloan Management Review (Winter 1993), pp. 37–50.

Olson , op. cit., p. 279.

Burstein Daniel , Turning the Tables: A Machiavellian Strategy for Dealing with Japan (New York, NY: Simon & Schuster, 1993), p. 99.

Porter , op. cit.

Reich (1990, 1991), op. cit.

FASB 8 provides an interesting example of the impact changes in accounting regulations can have on firm strategy. For an overview of this subject, see Evans Thomas Taylor Martin Holzmann Oscar . International Accounting and Reporting (New York, NY: Macmillan Publishing Co., 1985), pp. 173–180. A more recent example is SFAS 106 which requires U.S. firms to recognize their cumulative liability for retiree health benefits. For an analysis of the effect of this regulation on the profits of major U.S. companies, see Faltermayer Edward , “Poised for a Comeback,” Fortune, April 19. 1993, pp. 174–182.