Technology in Services Policies for Growth, Trade, and Employment (1988) / Chapter Skim
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International Trade in Financial Services: The Japanese Challenge
International Trade in Financial Services: The Japanese Challenge
Pages 187-210
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From page 187... ...
Those and other manufacturing industries in North America and Europe are still reeling from the Japanese onslaught, as the world seeks to better understand the scientific and managerial technologies with which Japanese firms catapulted so quickly to dominance. Today the Japanese are again on the move, and a second wave of Japanese competition is about to hit the western world.
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From page 188... ...
And unlike the OPEC countries, which recycled their excess funds through deposits at major foreign-owned banks throughout the world, the Japanese resolutely funnel their international financial flows almost exclusively through Japanese financial institutions, thus providing Japan's banks and securities companies with a massive reserve of resources for their global strategy in world financial markets. · Tokyo has become the world's leading financial center.
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From page 189... ...
In addition to seizing major chunks of American and European commercial lending, Japanese banks are expanding very rapidly into new activities abroad such as leasing, trust banking, and securities underwriting. · The four largest securities companies in the world are Japanese.
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From page 190... ...
Their profitability at home also allows them to expand into other lucrative activities abroad, as they embark on a path that will eventually make them truly global financial supermarkets. · Japanese services firms are poised to become major players in other industries as well.
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From page 191... ...
The Japanese financial services sector, however, has embarked on a strategy remarkably parallel to that which earlier placed Japan in the forefront of information technology and other key markets. Tracing their strategy for entering and penetrating the information technology market can provide useful insights into their current competitive challenge in financial services.
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From page 192... ...
These joint ventures enable Japanese firms to gain important expertise in their own market before competing head-on in foreign markets.
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From page 193... ...
4. After acquiring a leading market share, Japanese firms will be accused of "dumping." Political deals will "open" the Japanese financial markets, but these will be either saturated (e.g., banking)
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From page 194... ...
I Mitsui Real L I ~r ~ LEstate Dev. Paper & Pulp Oji Paper r Mining Mitsui Mining + Hokkaido Colliery & Steamships _ Onoda Cement Top 3 leaders Steel & Metals Mitsui Mining & Smelting Japan Steel Works | Parent Co.
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From page 195... ...
For their initial entry into the information technology market, Japanese firms were not interested in the software segment, where they had performed poorly in the past. Also, they were not in a position to undercut the leadership of cash-rich European and U.S.
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From page 196... ...
in other market segments, thus gaining valuable manufacturing expertise in related sectors (Table 1, step 21. Slowly but steadily Japanese firms began to penetrate not just the semiconductor market, but other related segments of the information technology market as well, such as microcomputers, peripherals, and mainframes.
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From page 197... ...
Governments were pressured to block Japanese firms from the semiconductor market and to levy extra taxes on their products. To avoid the embarrassment of a dumping charge, the Japanese deftly resorted to "political engineering" (Table 1, step 4)
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From page 198... ...
" If North American and European manufacturers had taken Japanese manufacturers seriously at that time, they could have prepared themselves better to meet the Japanese challenge in the information technology market. THE JAPANESE STRATEGY IN FINANCIAL SERVICES Japanese firms are now applying an incremental strategy to the financial services industry as well, and the path is remarkably parallel to that followed
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From page 199... ...
The scenario outlined below is already well under way. Targeting Governments Let us, for this discussion, simplify financial services into seven categories (refer again to Table 21: government lending, foreign exchange, underwriting, stock exchange operations, trust banking, swaps, and mergers and acquisitions.
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From page 200... ...
. Learning from Others With government lending well established for Japanese institutions, they have begun to join with foreign financial institutions in other segments of the financial services market, such as foreign exchange, stock exchange operations, and trust banking.
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From page 201... ...
. Japanese financial institutions have also embarked on a dramatic series of acquisitions abroad to obtain new expertise and to gain market share.
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From page 202... ...
A good example is the trade-off of two seats for British brokers on the Tokyo Stock Exchange, in return for a seat on the London Stock Exchange and a commercial banking license in London for Nomura Securities Company. It is interesting to observe Japan's Ministry of Finance working so diligently to promote activities of Japanese financial houses abroad which would be prohibited to those same firms (as well as to foreign firms)
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From page 203... ...
The expansion of Japanese global financial markets threatens North American and European financial institutions. As long as governments, the consumer, and the sector concerned know that they have to face up to the Termite Strategy, it is possible to design effective counterstrategies.
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From page 204... ...
Awareness and Complacency The worst enemy of the western economies is complacency. It is too easy to shrug off the Japanese financial challenge with the same platitudes used a decade ago as Japanese firms become increasingly important in manufacturing industries, from watches and cameras to cars and information technology: "It's a passing phenomenon"; "the Japanese can't really innovate"; "Japanese business is so culture-bound that it will quickly flounder outside of its homeland"; "U.S.
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From page 205... ...
One of the great strengths of Japanese managers is their ability to target their competitive energies, focusing on specific niches where their potential strengths are greatest or where their competition is weakest. There are many high-value-added financial activities in which western financial institutions still have a clear-cut edge over the Japanese: trust banking, portfolio management, venture capital, mergers and acquisitions, swap arrangements, and engineering complex financial packages, to name a few.
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From page 206... ...
Western firms cannot realistically hope to compete head-on with the Japanese giants in price competition: they lack access to the supplies of low-cost funds of the Japanese; and the demands of American shareholders and creditors for short-term profit performance preclude most financial houses from sustaining for substantial periods the low earnings that price-cutting usually implies. To compete with Japanese institutions, western financial firms will need to focus more on relationship services aimed at client loyalty, rather than on transactional services susceptible to price competition.
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From page 207... ...
Few individual western companies are yet equipped to provide such a broad range of services efficiently, regardless of size. One appropriate response is to form linkages with other home-based financial institutions offering complementary high-value services.
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From page 208... ...
. The latest move brings together some of the most massive players in the financial services industry: American Express is one of the world's largest international financial services conglomerates; Nippon Life is the largest of Japan's huge insurance companies; and Shearson is the third-largest Wall Street investment bank.
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From page 209... ...
This means, above all, continued relentless pressure on the Japanese government to allow foreign firms the same access to Japanese financial markets that Japanese houses enjoy abroad. Significant steps have been taken to open the Japanese market, but major differences of opinion remain as to what reciprocity actually means.
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From page 210... ...
and European institutions can better prepare themselves to shape appropriate competitive strategies for the future, not only with respect to the immediate financial threat, but also with respect to the broader emerging challenges of international trade in services. REFERENCES Business Week.
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