COVER

The challenge of Japan

Malcolm Gray March 8 1982
COVER

The challenge of Japan

Malcolm Gray March 8 1982

The challenge of Japan

COVER

Malcolm Gray

They arrive at Tokyo's Narita Airport holding briefcases filled with plans and projections that will change the lives and raise the living

standards of Canadians in the next 10 years. The briefcase carriers—Japanese field representatives returning to head office, Canadian businessmen and increasing numbers of federal and provincial trade delegates—already know something that is starting to seep into the Canadian consciousness. It is, simply, that trade with Japan (an billion affair between the two countries last year) is about to increase dramatically.

As more and more ships carrying cars and coal, television sets and lumber ply the crowded Pacific sealanes, the Japanese connection keeps getting stronger every year.

By 1985, one series of deals alone, involving coal projects in Alberta and northeasternBritishColumbia, will bring $1.5 billion yearly in revenues from Japan. In fact, one B.C. coal project, inspired by Japanese fuel needs, will require an investment of at least $2.5 billion to build the rail lines, a new port and an instant new town. All of that is being done to provide the Japanese with 7.7 million tonnes of coal a year for 15 years, starting in 1983— the biggest single export deal ever signed in Canada. Thanks to the Japanese, coal has become “one of the great engines of the B.C. economy,” according to western coal king Ron Basford. But the West is not alone in reaping benefits from the connection. The machinery for that engine will likely be built in Eastern Canada—a trickle-down

effect badly needed in the stagnating manufacturing sector.

Japan is already Canada’s most important trading partner after the United States. And with deals like those now taking place, the relationship is certain to expand swiftly. But other nations as well are turning their eyes toward Japan and insisting that it open its home market to outsiders. Consequently, Premier Zenko Suzuki, who attended the economic summit hosted by Prime Minister Pierre Trudeau in Montebello, Que., last July, has agreed to lower his nation’s trade barriers. Last week, as 250 Canadian businessmen met in Toronto to discuss ways to break into the Japanese market, it became clear

that the traditional relationship needs to undergo a change. Canada wants to be more than a supplier of rocks and logs to Japan’s industrial miracle. And unlike most of Japan’s trading partners, it can press for greater acceptance of manufactured goods while counting on a trade surplus that hit $1.06 billion in 1981.

Prominent Canadians regularly push Canadian manufactured goods when they visit Japan. No one, however, has gone quite as far as B.C. Premier Bill Bennett. On a trip to Japan last December the premier got a standing ovation from an audience of businessmen when

he suggested a marriage between the economy of his province (population 2.6 million) and that of Japan (population 117.6 million)—a union that would have joined an industrial gnat to an elephant. Still, all the Canadians make the same point: the country wants to expand trade beyond minerals and lumber.

Canada, in fact, has a long history of trade with the Japanese. It stretches back 120 years to a time when green tea was exchanged for ships’ masts. In the 1920s, as the balance of trade shifted in Canada’s favor, CP Rail’s famous “silk trains” had clearance over everything else on the tracks as they rushed from Vancouver carrying Japanese silks to

the East. The Japanese are still making lightweight goods, but as they move into high-technology industries that do not require large amounts of energy they hope Canada will play an important role in their national strategy. To the Japanese, it is a straightforward proposition. They are determined to dominate the world computer and electronics markets, but they still need Canadian resources for such basic industries as steelmaking and for power generation.

The prospect of future mega-deals creates a relentlessly .upbeat mood at the Canadian Embassy in central To-

kyo. The embassy’s location alone tends to create a mood of financial well-being since the small, whitewashed buildings stand on land rumored to be worth at least $100 million to Arab buyers who want to redevelop the site.

In the five months since Canadian Ambassador Barry Steers presented his credentials to Emperor Hirohito, he has been busy trying to convince politicians and businessmen from Eastern Canada that the old, protectionist Japan is changing. He wants to see more companies like Mitel and Gandalf—from Ottawa’s Silicon Valley—taking the Japanese at their word when they say that formerly closed markets (such as telecommunications) are now open to for-

eigners. Then too, as the United States and European countries demand more access to Japan, Steers is cheerfully certain that Canadian manufacturers will be able to hitch a ride into the Japanese market on their efforts. Says Steers: “We stand to benefit from the pressures these other countries are putting on, and it’s hard to be pessimistic about our trade with Japan over the short and long term.”

Katsuhisa Yamada says essentially the same thing from a Japanese perspective. Yamada was the Japanese consul in Toronto from 1965 to 1969 and recently worked as the editor-in-chief of an industrial master plan for Japan for the 1980s. The plan was produced by the powerful ministry of international trade and industry—known to everyone as MITI. It is one of the organizations that helped make believable the myth of Japan Inc.—Japan as a single economic entity, with government, business and labor working as one. That myth is out of date now as Japan comes under pressure to open its markets and reduce its trading partners’ huge deficits. For instance, MITI itself no longer has the power to decide which companies can trade abroad. But even with this loss of influence it is still a force in Japanese industrial planning.

Yamada, who was in Ottawa last November discussing the National Energy Program, admits that more Canadian manufactured goods have to be sold in Japan. And, as a first step, MITI will send an investment mission to Canada this month. That in itself is significant. While there have been well-organized scouting parties sent to Canada in the past by Japan’s huge trading companies, this will be the first trip by MITI.

In the years ahead, most new investments will likely be in the western provinces as the Japanese try to get longterm contracts that will make energy supplies more secure. Japanese representatives say they are concerned about the number of strikes that take place in Canada. But in some ways this reservation, as well as Japanese worries about the Foreign Investment Review Agency (FIRA), is a bargaining device. Canada gives every appearance of being an island of stability compared to Iran, where the Japanese invested heavily in projects near the Iran-Iraq border after the oil shocks of the early 1970s.

As a result, Japanese investment in Canada is expected to jump from its present low level of $800 million to at least $4 billion by 1990. In British Columbia alone, 10 Japanese companies are frantically trying to get provincial approval for natural gas projects worth $14 billion to produce everything from fertilizers and petrochemicals to liquefied natural gas (LNG) for Japan.

Even if the approvals were given,

however, there still would not be enough gas available in Alberta and British Columbia to meet the needs of all the projects. And that has heated up the competition among the companies involved to win a provincial go-ahead. Dome Petroleum of Calgary, for one, is offering to build the hulls of four LNG carriers in Canada as it faces competition from two other groups to ship gas to Japan. “One of these LNG projects alone would be worth $1 billion a year to Canada,” says Carl Kuhnke, the commercial officer who is in charge of mineral resources —the hottest post at the Tokyo embassy. Kuhnke also keeps track of the Japanese presence in the Beaufort Sea. With $400 million invested there already, the Japanese are hoping for a big oil strike. The federal government could then approve repayment of the loan in barrels of Arctic oil.

The love affair between Japan and Western Canada helps the tourist trade too. In 1980, the latest year for which figures are available, about 100,000 Japanese visited Canada, almost all of them travelling no farther east than Banff and Jasper. Dude ranches are popular with a people who enthusiastically tend to follow fads, or “moods,” as

the fashion of a moment is called in Japan.

Planeloads of Japanese heading home with the latest in winter fashions stuffed in the overhead coat bins make the fur industry happy—al-

though they also tend to reinforce the notion of Canada as a frontier country, basically a supplier of raw materials.

Rapeseed growers on the Prairies, however, don’t particularly mind that description, since

sales to Japan have increased by 51 per cent over the past five years. The growers have former American president Richard Nixon to thank. He gave the Japanese a mini-shock in 1971 when he cut off soybean exports, forcing them to look elsewhere for the base of their salad and cooking oils.

Even lumber companies do more than hew wood for Japan. The B.C. Council of Forest Industries has been one of the success stories in trade with Japan even though it took seven years to convince the Japanese government to change the building code to allow Canadian products to be used.

Traditionally, houses in Japan are put up by carpenters who can fit together an entire building without using a nail. With 23,000 small sawmills, Japan had the capacity to turn out exquisitely shaped pieces of wood. But production volume was low. The council

went to work on the Japanese ministry of construction in the late 1960s, trying to convince it to use precut wood from Canada and employ Canadian housebuilding techniques. In 1974, the ministry finally agreed that platform frame construction, common in North America, would produce cheaper, better-built houses. The 2-by-4 method, as it is

known in Japan, does not dominate the market, but in five years or so about 10 per cent of the 1.2 million new housing units built each year will use this system. Michael Galbraith, the council’s manager in Japan, is fed up with the hewer-ofwood stereotype. “What other use is there for a 2by-4 but in a house? It doesn’t grow in the wild; it’s a manufactured product.”

Still, in completely

manufactured products, Canada’s exports to Japan remain insignificantonly three per cent of all goods shipped. It is particularly apparent in the car industry, where only three Canadian companies have been successful. They supply a meagre $10 million worth of parts to Japanese firms that now have about 20 per cent of the Canadian market. “That’s peanuts,” says Douglas Sedgwick, chairman of the Canadian Automotive Parts Manufacturers’ Association. “There’s no reason we can’t sell both resources and manufactured goods, and if the Japanese want to continue sending their cars here they should have more Canadian parts in them.”

It is cold comfort to unemployed auto-workers in Windsor, but some of the 174,213 Japanese vehicles that will have entered Canada by the end of this month will have windshield-wiper blades made by Tridon Canada of Burlington, Ont. Sedgwick is Tridon’s president and, while he pushes for a larger Canadian share in Japanese automaking, he acknowledges his company was successful because it took the time to research the Japanese market.

Tridon is typical of the Canadian companies succeeding in Japan. They are often small, sell most of their goods abroad anyway, and are aware that the Japanese like to take time to get to know future partners as friends as well as business associates. Their representatives all have stories about people who come to Japan without much preparation, make the rounds of a few firms, then return home to wonder why the orders aren’t coming in. They talk about one food supplier who was convinced that his larger economy-sized products would be a success until he found out that Japanese housewives shop every day and have small refrigerators.

Despite the current complaints of protectionism against Japan, the Japanese home islands are finally being opened to foreign products. Tariffs and the infuriating practice of reinspecting imports are being reduced. Still, it will not be easy to sell in one of the toughest markets in the world. Even first-rate products don’t sell themselves in Japan, and the country’s maddening distribution system with its many layers and markups is enough to make some companies decide to look elsewhere.

Steve Kaufmann, president of the Canadian Chamber of Commerce in Japan, has seen such companies come and go. He is one of the few businessmen from Canada who is fluent in Japanese— thanks to one year of intensive study— and he sympathizes with representatives who have to work all day while trying to learn the language as well. “To sell successfully in Japan you somehow have to reach your end customers and

you have to be careful of the big companies that many people use for distribution,” he advises. Often a trading company will sign up a foreign customer simply to prevent him from going to another agency, for instance. Months or years later the unfortunate foreigner learns that sales are slow because the trading company is also the distributor for his Japanese competition and does not want to lose that contract by pushing foreign goods too vigorously.

Canadians, in one visible example, have failed miserably in their attempts to sell a Candu reactor. After a decade of promoting a reactor sale, a final decision is still more than a year away. But even now the inconclusive negotiations are a source of irritation to Canadians and an embarrassment to many Japa-

nese. Japan buys about $250 million worth of Northern Ontario uranium each year through the giant trading firm of Mitsui and Company. MITI wants Japan to buy a Candu for the political points this would make with Canadians, but the Japanese government is also supporting the development of its own heavy-water reactor to provide power until breeder reactors are fully operational around the turn of the century.

Ten years without a decision is long even by Japanese standards. But as Japan’s investment in Canada grows, more Canadians will be exposed to Japanese management techniques. That involves decision-making only after a lengthy period of discussion has led to consensus. It also involves a demand for greater company loyalty and identification than North American workers are accustomed to give (box). Yoshikazu (Ken) Kawana runs Nissan’s auto operations in Canada from a modest two-

storey brick building in New Westminster, B.C. Though the company now has 235 employees across he country, he still feels guilty about having laid off 50 people when car sales dropped in 1978. “People are a valuable resource, and it is better to try and keep them on during hard times than to train someone new,” he explains.

Both Canadians and Japanese are finding that relations between the two countries are more than a matter of account sheets. More Canadians face the prospect of being asked to do morning calisthenics and sing the company song, as were the workmen at an airfreight company when a new manager arrived from Japan. And as more Japanese work abroad, they find themselves being changed by the experience.

One of Kawana’s three children was born in Canada, and all are going to local schools. He worries that when the time comes to go back to Japan they might be behind in the intense competition to win places at a good university— a requirement for a job with a big company.

Like most Japanese, though, Kawana is careful to avoid saying anything controversial about Canadian work habits or labor problems. For good reason. Canadians are sensitive about criticism by outsiders, as a Japanese economic mission found out six years ago. Several members of a group led by Hisao Makita, then president of Nippon Kokan KK, the second-largest steelmaker in Japan, spoke out after touring Canada. They said they did not like the uncertain labor climate or the lack of initiative

shown by Canadian managers, coupled with the low productivity of their workers.

Makita himself, although known as a Canada booster, has taken heat for these remarks since he was the group leader. Six years after the initial uproar he is careful not to say anything that would stir up more trouble. He is chairman of Nippon Kokan now and sticks to noncontroversial topics.

Japan is a small, crowded country that, through co-operation, has developed an economy second only to that of the United States. And it has accomplished that after being conquered (for the first time in modern Japanese history) in the Second World War. It is not a society approaching perfection. The recent fatal fire in a large Tokyo hotel,

supposedly of international class, revealed more than anything else that Japanese efficiency has its limits. The future is not assured for anyone, including those Japanese forced into apartments too small to let aging parents live with their grown children. They have still to overcome the immediate problems of pollution, overcrowding and an aging work force.

But in spite of the frictions and irritations that these difficulties produce, the Japanese have demonstrated that it is possible to achieve well-defined national goals by working together. That challenge could be one of Japan’s most valuable exports to Canada. As Tatsuo Fujimura, not long returned from running the Japan Trade Centre in Toronto, puts it, “Japan is not the Far East; it is the Near West.”

With Suzanne Firth in Tokyo and Diane Luckow in Vancouver.