Industrial Buying Behavior: Japan Versus the U.S.

ABSTRACT - This paper presents a complex conceptual model of Japanese industrial buying behavior and contrasts that behavior with similar activities in the U.S. The most striking differences seem to be in the unique ways Japanese firms organize buying and selling centers and the interactions that take place between firms, often developing into networks.

Citation:

Wesley J. Johnston (1987) ,"Industrial Buying Behavior: Japan Versus the U.S.", in NA - Advances in Consumer Research Volume 14, eds. Melanie Wallendorf and Paul Anderson, Provo, UT : Association for Consumer Research, Pages: 326-330.

Advances in Consumer Research Volume 14, 1987      Pages 326-330

INDUSTRIAL BUYING BEHAVIOR: JAPAN VERSUS THE U.S.

Wesley J. Johnston, University of Southern California

ABSTRACT -

This paper presents a complex conceptual model of Japanese industrial buying behavior and contrasts that behavior with similar activities in the U.S. The most striking differences seem to be in the unique ways Japanese firms organize buying and selling centers and the interactions that take place between firms, often developing into networks.

INTRODUCTION

Since the end of World War II, the growth rate of the Japanese economy has been unusually rapid. During this time period, Japanese companies re-established themselves, modernized their physical plant, and basically closed the technological gap with advanced Western economies. This accomplishment involved the purchase of foreign technology, heavy investment in new facilities, continuous increases in productivity, and the shift of half of Japan's population from the agricultural sector to the industrial and services sectors (Vogel 1975).

Prior to World War II, Japanese products were considered to be cheaply mate and of inferior quality; now, much to the contrary, they are admired by their customers all over the world. In fact, Japan is now the second largest economic power in the world. Thus, Japan's economic growth as been accompanied by the expanding scale of its foreign trade. In 1981, Japan's share in the world trade of developed industrial countries was 12.4% for exports and 11.1% for imports (JETRO 1982). Today it is even greater.

This remarkable economic growth and industrialization has often been credited to an even more remarkable set of factors concerning the Japanese cultural, political business environments. From Theory Z (Ouchi and Jaeger 1978) to Theory F (Kotkin and Kishimoto 1986), a number of explanations have been developed to explain the success of Japanese corporations and their society overall. For instance:

. . . business has carefully developed management practices that fully exploit Japanese traditions of absolute loyalty to the emperor (translated in business terms to the superior and the company), compensation based on age and seniority, and a guarantee of lifetime support (translated from the feudal system of lord of the manor and his obligation to support his vassals) (Sethi 1975, p.4).

While most of these explanations contain elements of truth, they are limited in their overall explanatory power and usefulness. More recently, in contrast to single-factor or limited explanations, an attempt has been made to understand the Japanese success as the result of a complex interplay of factors (e.g. Kotler, Fahey, and Jatusripitak 1985). Still, very little of the research and writing on the Japanese industrial model is empirically based. More often, the basis for speculation and theory is individual experience and/or limited observations of the Japanese economy.

This paper presents a complex conceptual model capable of identifying and synthesizing the numerous variables believed to influence Japan's economic growth and industrial marketing success. Buyer/seller relationships are the central focus of this paper. The marketing and purchasing of industrial goods in Japan is studied using the interaction approach, developed by Bonoma and Johnston (1978) and extended in Johnston and McQuiston (1984). It is hypothesized that much of Japanese corporations' success is due to their unique approach to industrial buying and selling manifested in strong buyer/seller relationships. In addition to strengthening the conceptual model of Japanese industrial marketing behavior it is also an aim of this paper to contrast that behavior, where possible, with U.S. firms. Finally, it is hoped that this conceptual improvement will be the precursor of increased empirical efforts. Since hundreds of books and thousands of articles have been written on the Japanese economy, a complete review and synthesis is not within the scope of this paper.

BACKGROUND

The exchange of industrial marketing developed by Bonoma and Johnston (1978) argued for the use of the buyer/ seller dyad as the smallest unit of analysis in marketing. Their model was built upon five major types of dyadic relations inherent in the industrial marketing process.

The sales representative-purchasing agent relationship in which information and help in problem solving are exchanged by the seller for credit for the specific sale with the buyer.

The sales representative-selling firm relationship in which sales efforts are exchanged for money in the form of a commission or salary.

The purchasing agent-buying firm relationship in which talents and abilities for buying and problem solving are exchanged for money, usually a salary.

The organization-to-organization exchange or interorganizational relationship in which goods and services are exchanged for money or credit.

The complex exchange of information, interaction in negotiations, and mutual image building in which all four parties, and mutual image building in which all four parties establish relations with each other. These relations establish the boundaries of the purchasing interaction.

This application of exchange theory to industrial marketing was relatively straightforward. Representatives of the two organized behavior systems interacted in an attempt to gain the necessary resources for the survival of their respective organizations. In the interorganizational dyad, on one side was the buyer attempting to gain the raw materials, component parts, etc., necessary for the continuation of his stated function and the ongoing processes of the firm; on the other side was the seller, attempting to gain the necessary sales quotas to provide the financial resources to ensure continued operation of his organization. This interaction represented the primary characteristic of industrial marketing. Johnston and McQuiston (1984) extended this conceptualization via their Interactive Exchange Model (IEM). They felt what was needed was a framework that not only modeled the interaction between the two organized behavior systems but outlined the resource dependency perspective of the internal and external coalitions that are present on both sides of the dyadic transaction and impact upon the interaction. This model also incorporated the constraints of the larger macro environment in which the exchange occurs.

The Interactive Exchange Model captured a number of important components of the industrial transaction:

The interdependency of the coalitions on each side of the dyad that compose the buying/selling center.

The nature of the exchange between the two organized behavior systems.

The Interdependency of the parties in the interorganizational dyad.

The interaction between the organizations and representatives entitled the vector of interaction.

The larger macro environment in which the transaction takes place.

FIGURE

THE INTERACTIVE EXCHANGE MODEL OF THE INDUSTRIAL TRANSACTION

These aspects captured in the model represent important conceptual advances in viewing the interorganizational relations involved in industrial marketing. Thus, the model, rather than looking at only one side of the dyad, takes into account the coalitions of both organized

behavior systems in the interorganizational dyad. The selling center as well as the buying center is represented in the model. The interdependency of the coalitions that compose the buying or selling center within the respective firms is represented by the interconnecting circles on each side of the dyad. The model hypothesizes that the various departments are interdependent to the degree that they provide some input that is used by their respective coalition. Each organizational coalition is contained within the boundaries of its organization. The communication that takes place between the firms is represented by the vector of interaction, and the entire transaction takes place within the larger context of economic, political, sociological, legal, environs ental, and competitive influences in the macro environment. It needs to be emphasized that the vector of interaction is more than the communication taking place between two boundary role representatives or even two coalitions. It is the total interaction between the two organized behavior systems. As such, it represents all the policies, procedures and programs of each firm in transactions with the other firm in the dyad. As the transaction becomes more complex, this vector expands to include as many coalitions on either side of the dyad as are needed to carry out the interaction and conduct the transaction.

INDUSTRIAL BUYING BEHAVIOR: JAPAN VERSUS THE U.S.

Using the Interactive Exchange Model of the industrial transaction it is possible to both describe Japanese approaches to buying and selling and to contrast those approaches to organizational behavior in the U.S. The starting point for this analysis is with the aspects of the macro environment that impact and shape organizational behavior.

The Macro Environment of Japanese Industrial Marketing

The environment in which the typical Japanese industrial firm operates is significantly different in many ways from the U.S. macro environment. The differences provide important advantages as well as constraints on buyer/seller interactions. The following examples are meant to be illustrative of the use of the model rather than exhaustive.

Economic Influences

The formation of "industrial groups" may be the most significant factor in the Japanese firm's economic environment. An industrial group consists of three major components: the general trading companies, the banks, and the manufacturing base. According to Kotler et al. (1985) the industrial group formation does three things: "First, it greatly expands the capabilities/ options of the firms, particularly medium-sized establishments; second, it allows Japanese manufacturers to concentrate primarily on their product development and manufacturing operations; and third, it reduces the risk of new ventures because of group support and financing." U.S. firms, operating independently of such organizations, must develop organizational skills in finance, marketing, distribution, and planning in order to compete strategically. Thus, a Japanese industrial group is like a trans-organization structure with a financial base provided by the banks, -a manufacturing base provided by the manufacturing firms, and a trading/distribution base provided by the general trading companies.

Political Influences

The Japanese government, through a number of ministries aids business by instituting strategic policies and performing services of administrative guidance. The Ministry of International Trade and Industry is the most influential of these bureaucracies. It's major objective is to strengthen the competitive position of Japanese industry.

In addition to the major role of the Ministry of International Trade and Industry (MITI), the Economic Planning Agency (EPA) of the prime minister's office plays a significant role in economic policy-making. The EPA does long-range planning for economic growth and suggests areas where government support and action can best advance these plans. The process of developing these long-range economic plans involves close consultation with academicians, consumer groups, and industry. Industry's participation occurs through advisory committees composed of business leaders and through business groups. Ministries and other independent agencies formulate their own long-range economic plans, but consider the EPA ideas as part of the process.

Two ministries have the primary responsibility for implementing policy guidelines: The Ministry of Finance (MOF) and MITI. Baranson (1983) notes: "The MOF is the ultimate source of financing, and by guiding commercial banks, it influences the direction of financing of industrial investment in Japan and has intimate links with the entire banking system." Banks and other investors tend to rely on the MOF-MITI perceptions of what are the most promising investment areas for expansion and innovation. This enables the banks and investors to maintain and expand Japan's industrial growth while minimizing commercial risks. This approach also permits the central government to make long-range decisions for the entire society. The latest decision of this type is that by the year 2000, Japan will be primarily an information based economy.

Sociological Influences

A number of observers have noted the high level of identification the typical Japanese develops with his organization. The corporation for which an individual works provides a most significant aspect of their identification. According to Vogel (1975): "A Japanese employee is more likely to identify with the organization where he works than with a professional or occupational specialty." Coupled with this there is a conscious management effort to maintain a sense of belonging by employees within an organization.

Kotler et al. (1985) also point out a number of important sociocultural influences on business strength. The first three support the concept of group identification:

A strong sense of belonging to a group and community

A tendency toward self-effacement and responsibility to the group

A strong sense of "we" versus "them"

A willingness to work hard and persevere toward long-range goals

A strong belief that competence increases with seniority

Legal Influences

Japan has many fewer lawyers than the U.S. Coupled with this shortage of lawyers there is a traditional reluctance to call on lawyer6. The Japanese do not always prefer clear-cut solutions handed down by the courts. Social settlements like compromise or conciliation are often preferred to legal settlements. According to Akamatsu (1968) this preference exists partly because: ". . . many of them, keeping the medieval family structure in mind, feel that drastic victory or defeat in judicial litigation would interfere with amicable relations between people, rather than protect their rights." Another reason for avoidance of legal solutions to business problems is the congestion in the Japanese courts. A case proceeding through to the Supreme Court could wait more than ten years to get a final judgement. Host laws are not strictly enforced most of the time; rather, they function as guidelines or limits. Contracts to conclude business negotiations are the exception rather than the rule and many business deals are closed by handshakes.

Environmental Influences

Many observers feel that the factor of greatest importance in molding the culture of Japan has been its geographical isolation. This geographic isolation has supposedly led the Japanese to develop extremely distinctive national traits and to have a high disregard for foreigners. The isolation is also credited with producing a homogeneous union of people, who, because of overcrowding, developed a strong competitive spirit. Another aspect of the Japanese environment is a lack of raw materials. This has led to the export driven economy characteristic of Japan today. In order to import raw materials and agricultural products, while maintaining a balanced economy, Japan has turned to exploring value added manufactured products.

Competitive Influences

While the outsider's view of Japanese industry is often that of close corporate cooperation, the opposite is closer to the truth. For instance, Japan does not have only one or a few large companies specializing in an industry. The most co on situation is intense competition with a number of companies with similar product lines all operating in a homogeneous market. According to Lazer, Murata, and Kosaka (1985): "Japanese executives have expressed the feeling that having survived fierce domestic competition, the international competition becomes far easier to deal with." An interesting question arising here is whether it is the heightened competition of the domestic market that keeps international companies from penetrating the Japanese market or an intended protectionism.

U.S. and Japanese Firms Compared

A large scale empirical study was conducted by Kagono et al. (1985) to compare U.S. and Japanese organizations. One of the components of this study was the respective views of the operating environments of U.S. and Japanese executives. Table 1 presents the results of the Kagono et al. study.

TABLE 1

COMPARISON OF ENVIRONMENTAL CHARACTERISTICS

In summing up, Kagono et al. felt: "Japanese firms face a less diverse, less competitive, more volatile and high opportunity environment, and a less mobile market. They are, moreover, constrained by interrelationships with other organizations to a greater extent than U.S. firms." Some of the results of the Kagono et al. study do not support the results of previous observers. Several possible explanations exist for this:

The Kagono et al. study dealt with executive perceptions rather than some objective measure of the firm's environment, thus differences between perception and reality may exist.

Other previous research was based on less rigorous data and may have been misinterpreted by the researchers .

Things may change in Japan faster than many observers feel is the case. Japan may be a more dynamic society and less bound by tradition than many researchers feel.

THE BUYING CENTER

Several researchers (Ouchi and Jueger 1978, Kagono et al. 1985) have described U.S. firms as mechanistic organizations and Japanese firms as organic. Table 2 presents the dimensions along which U.S. and Japanese organizations can be contrasted.

The differences in the typical U.S. firm and Japanese firm are significant and have numerous implications for buyer behavior. Japanese firms tend to be slower in the initiation stage of decision making because of consensual decision making. Upon deciding, however, the implementation stage is quicker and smoother than in U.S. firms. The Japanese concepts of "Ringi Sei" and "Nemawashi" are part of the consensual decision-making process. Ringi Sei is a system whereby documents are drafted at lower levels in an organization and then circulated to various units for approval. This system relies on and builds homogeneity and consensus with the decision-making group. Thus, any buying decision based upon ringi sei should provide a higher level of satisfaction among buying center members. If disagreements arise at the lower levels in the organization while drafting or circulating a document, they are generally taken to higher levels to be resolved. The ringi system is not used for all types of buying decisions. Decisions which are relatively complex and require a high level of coordination, like a new task purchase situation, use the ringi system. Straight rebuy situations would not use the system. Nemawashi can accomplish the same effects as ringi sei without the need for the circulation of formal documents. Nemawashi is the term given to the continuous consultation among peers in an organization and between levels and units or divisions. This consultation occurs for decisions from mundane detail to broad general issues. It usually takes place in a climate of mutual confidence and support. This has two effects on buying behavior: it slows down the decision-making process but it builds consensus and smooths implementation.

TABLE 2

CHARACTERISTICS OF TWO FAMILIAR ORGANIZATIONAL IDEAL TYPES: A AND J

The results of the Kagono et al. (1985a) study support and extent this view of Japanese buyer behavior. They found that while U.S. firms place a heavier emphasis on value commitment, innovation and risk-taking, and record of individual accomplishment, Japanese firms place more emphasis on capability as a generalist, and credibility and popularity within the company. These value differences affect the degree and style of participation in buying center decisions. ID U.S. firms participation tends to be limited to specialists whose input is necessary to the decision and those with a direct stake in the outcome. In Japanese firms the buying center is more diffuse with generalists and others with a limited stake participating to ensure consensus. Senior executives play different roles in buying decision in U.S. and Japanese firms. In U.S. firms senior executives play a major role in initiating and implementing innovation and are thus involved in most new task purchase decisions. Japanese senior executives play a major role in promoting cohesiveness within their organizations. When conflict arises in the buying center, U.S. executives are more likely to use a confrontational style while Japanese executives are more likely to use Nemawashi or to simply force a consensus.

VECTOR OF INTERACTION

An area that Japanese firms seem to have developed to a much higher state than U.S. firms is interaction between organizations. At the highest level of development interorganizational linkages lead to networks of firms. The Japanese have developed networks between manufacturers and suppliers, between competitors, within channels of distribution, from spinoffs, and the highest form of corporate network, the industrial group.

The network of primary concern to industrial buyers and sellers is that between manufacturers and suppliers. These tent to be dense inter-company networks often difficult for outsiders to penetrate. These networks often make companies into "production wholesalers" who have their own assembly plants surrounded by suppliers rather than making their own parts and materials (Nakamura 1982). U.S. companies tent to be more vertically and horizontally integrated. In contrast, Japanese firms tend to rely more heavily on outside suppliers. There is also a dependence on good relations with companies in their industrial group for mutual assistance (Kagono et al. 1985b).

Formation of this type of network through strong vectors of interaction is a significant factor contributing to the difference in competitiveness. For instance, it enables Japanese subcontractors to use their experience and expertise gained in specialization to help larger companies in the areas of cost, quality, and speed of production. These subcontractors frequently pay lower wages and this contributes to lower overall labor costs. U.S. firms with more comprehensive, integrated approaches to production normally have higher wages.

In high technology purchases, the vector of interaction between Japanese firms implies technical and marketing capabilities to adapt product designs to buyer needs and to provide ancillary trouble-shooting and maintenance services. Vectors of interaction are strengthened by aggressive customer servicing teams that combine application engineering and marketing skills, supplemented by the high level of technical absorptive capabilities that is typical of Japanese end users.

The buyer-seller relationship in the U.S. is generally much weaker than in Japan in several significant respects. Few U.S. firms have developed customer servicing to anywhere near the extent or depth of 0 Japanese suppliers.

Japanese component supplier industries generally are highly responsive to OEM requirements in terms of quality, cost effectiveness, and rapid adjustment to component design changes. The OEM supplier relationship is also often highly symbiotic, in that OEM's provide small to medium size component suppliers with financial resources and technical support services and personnel. With few exceptions, these buyer-seller relationships in the U.S. are not nearly as supportive as in Japan.

With respect to competitors, the foremost example of well developed vectors of interaction is of those companies involved in the development of high technology. The networks are usually coordinated by MITI and other government or quasi-government organizations such as Nippon Telephone and Telegraph. There are also Japanese examples of collaboration between companies without government coordination. These networks of competing companies are primarily concerned with the purchase of high technology and the conduct of joint research. They provide Japanese companies with an important method for accumulating the necessary resources in an environment where acquisition of other business is difficult and interfirm mobility of skilled specialists is low.

The third networking difference between U.S. and Japanese companies lies in the very close relations between organizations in the same channels of distribution (Kagono et al. 1985b). These channels are often very complex and support more middlemen than in the U.S. Very strong personal relations often closely tie manufacturers and distributors to buyers. The market strength of many leading Japanese companies is partially attributable to the size and cohesion of the sales networks that have become part of their corporate networks.

The fourth type of networking characteristic of Japanese companies is their intentional promotion of spin off enterprises as subsidiaries (Kagono, et al 1985b). AS the number and size of spinoffs grow, they create an extended corporate group. The spinoffs are largely autonomous even though the parent company is usually a substantial minority owner of the subsidiary. Each company is normally listed on the stock exchange. Close links are maintained to the parent company, but the structure is loosely-coupled. This allows a higher level of adaptability than the more tightly-coupled systems of most U.S. subsidiaries. The implications for industrial buying behavior are unclear. While the Japanese parent company and subsidiary often buy and sell to each other, the penetration of the parent company by an outside supplier does not necessarily means sales to the subsidiary. Similarly in U.S. firms, purchasing is sometimes centralized at corporate headquarters, while at other times decentralized to divisions and subsidiaries.

The fifth type of Japanese networking among firms is the industrial group. These are the most complex vectors of interaction between buyers and sellers. Financing and distribution are also provided through the formation of industrial groups. Space does not permit a full discussion of 811 the aspects of Japanese industrial groups, however, such networks do have major implications for buyer behavior for the firms involved in these extra-organizational structures. There are no close equivalents to Japanese industrial groups in the U .S .

The five types of networks discussed here illustrate how the Japanese have developed the vectors of interaction between firms to create unique systems of extended organizations. These networks and the extended organizations they create sharply contrast with the approach of U.S. companies. The U.S. model draws a clear distinction between an organization and all other firms operating in the same environment through transactions in the marketplace and controls exercised through the organizational hierarchy (Williamson 1975).

The Selling Center

On the other side of the dyad, in the selling center a number of unique phenomena occur (Lazer, Murata, and Kosaka, 1985):

Organizational position is not equated with authority, and authority cannot be deduced from an organization chart.

Marketing functions and responsibilities tend to be loosely defined.

Responsibilities are overlapping and do not fit neatly into departmental units.

Individuals do not see their duties as being tied to one functional area, either within or outside of marketing.

Marketing management's main duties involve developing people, getting them to agree, cooperate, work harmoniously, and contribute as much as they can to the company.

Marketing and sales managers spend much of their time looking after and counseling subordinates and helping distributors, wholesalers, and retailers become more effective.

There are also a number of differences in the typical selling centers in Japan and the U.S.

Marketing researchers, advertising professionals, and sales managers tent to identify with their professions in the U.S. and intercompany mobility is high. Japanese marketers identify with their companies and mobility is low.

Japanese marketing executives consider marketing activities to be primarily units of human activity. Managers in U.S. firms often perceive them as impersonal business, sales, and profit activities.

In U.S. firms, marketing is considered to be an area of business specialization delegated to a group of experts and specialists. In Japanese companies, responsibilities in the selling center tend to be in the hands of a broader but less sophisticated and technically trained group of managers.

The differences in the selling centers in Japanese and U.S. firms go on but these are sufficient to illustrate the general aspects of this side of the dyad in each business environment. An interesting question arises as to how well each form of selling center interacts with different forms of buying centers. The Japanese version is a natural complement to their buying centers. Given the recent successes of Japanese industrial marketing in the U.S., the Japanese selling center may also be more appropriate in that market as well. How and why the Japanese selling center works and its level of performance against the U.S. version is a complex question that requires further empirical evidence.

CONCLUSION

This paper has reviewed and contrasted Japanese industrial organization and buying behavior with U.S. industrial buying behavior. Much of the literature used in this review examines only pieces of the Japanese Organization. Thus, using the Interactive Exchange Model of the Industrial Transaction an attempt was made to illustrate how a complex model can organize and synthesize a vast body of literature. A number of questions remain unanswered in the literature such as the performance characteristics of each version (U.S. versus Japanese) of the model. Another question is how well one selling center interacts with the other's buying center. These questions need empirical answers. It is a hope that the conceptual model can be used as a general framework to guide these empirical investigations.

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