One of the major challenges Japanese firms encounter when expanding overseas is in managing the culture of their overseas subsidiaries. The organizational structure and culture of the subsidiary plays a crucial role in the successful implementation of various management practices (Kull and Wacker, 2010). The organizational culture is partly reflected in the way in which a company manages its human resources (Schneider, 1988) and this could potentially lead to either positive or negative operational effects of the firm depending on factors such as the culture of the environment in which it operates.
A vast amount of literature attempts to define Japanese organizational culture in large corporations and how it is beneficial for the operation of Japanese firms. For example, Jain (1987) describes the ideal type of Japanese human resource management of permanent employees (i.e. non-temporary workers) is based on a corporate philosophy of the company providing welfare and representing a type of family for employees. Jain (1987) describes the philosophy as welfare corporatism. This corporate philosophy emphasizes the well being of the individual employee, and promotes teamwork and cooperation in the work environment. The human resource management practices or strategies used to support this corporate philosophy and organizational culture includes permanent employment, participation of employees and a holistic approach towards employees. These strategies are reflected in numerous aspects of the employment and the management of employees in Japanese firms and are discussed in more detail further on.
Furthermore, Schneider (1988) explains, via the use of Hofstede's (1980) work on culture, that underlying assumptions about human relations in Eastern cultures are that emphasis is placed on social orientation, hierarchies and on the group or collective. Western cultures, however, tend to focus less on hierarchies and more on the task and the individual. Emphasis on the group of individuals in Eastern cultures is exemplified via the type of job descriptions offered to individuals. Schneider (1988) explains that in Japanese enterprises, job descriptions are usually vague, allowing for a stronger fit between the individual and the company. Japanese MNEs tend to impose values and norms on subsidiaries abroad by recruiting people whose values fit well with the company, emphasize socialization by providing employees with extensive training and interaction with each other, and use human resource management strategies such as lifetime employment, housing facilities and expatriate rotations to increase organizational commitment of individuals (Schneider, 1988).
Although the specific characteristics of organizational culture in large Japanese firms may be considered the norm and are culturally accepted in Japan, how should the Japanese corporations manage their human resources and operations in subsidiaries abroad? Organizational culture can be used as a means for controlling subsidiaries abroad and ensuring coherence between headquarters and subsidiaries (Schneider, 1988). The Japanese characteristics of organizational culture may not be widely accepted or preferred by foreigners in societies where national cultural values differ from those in Japan. Nonetheless, a multitude of Japanese companies have established subsidiaries abroad and have operated in Western societies, for example, for several years. Uniqlo is an example of such a company. The Japanese retailing company was founded in 1949 in Japan and Uniqlo currently owns 1,700 stores in 17 countries and regions (Interview With the CEO, 2016). As such, we would like to explore the following research question:
What aspects of Uniqlo's management pertaining to Japanese organizational culture have contributed to the management of Uniqlo's subsidiaries abroad?
By identifying which aspects of Uniqlo's organizational culture aid the operation of their overseas subsidiaries, we in turn anticipate that managers of other Japanese firms can benefit from this research in the operation of both their local and foreign firms.
The case study is motivated by the controversy over Japanese organizational culture in large businesses and its efficacy in the implementation of it within overseas subsidiaries. When comparing between the different business sub-functions, the organizational culture and human resource management within the firm is the most sensitive to location, and perhaps the most important sub-function of the business from the internal perspective of the firm's operations. From the perspective of the company, the geographical location and other associated businesses develops the environment in which the company operates in. However, from the perspective of the subsidiary, the company itself creates the environment that influences operations (Hibino, 1996).
As appropriate management strategies depends heavily on cultural and company specific context, this paper will focus on Uniqlo as the subject of a case study by analysing its managerial policy development throughout its period of overseas expansion. Because data on internal management is difficult to obtain, to make our analysis manageable to a varying degree we will rely on both historical and current policies implemented by Uniqlo, supported by statements obtained from employees and management during interviews. Hence, rather than drawing specific conclusions, the purpose of this case is to obtain theoretical insights on the impact of Japanese organizational practices on firm performance, and to determine if aspects of Uniqlo's management practices could be applied for other firms. It must be noted that the description and the definition of Japanese organizational culture or corporate culture throughout the paper is treated in an oversimplified manner (Schneider, 1988). Defining a corporate culture pertaining to Japanese MNEs is difficult, as culture is complex and influences, together with external factors, the way in which companies operate. Thus, this paper defines the overarching Japanese organizational culture using general descriptions provided by multiple academic articles and theoretical analyses.
While the case of Uniqlo's expansion could provide opportunities for us to better understand Japanese organizational culture, it should be noted that Uniqlo's business model is unique and insights from the case method may not be applicable to all industries, as there are operational differences between the fast fashion industry and other industries. However, this paper will attempt to highlight aspects of Uniqlo's organizational culture that have been beneficial for the firm's performance from the perspective of managing overseas subsidiaries, which are generally applicable for Japanese companies that are operating overseas offices.
Rather than evaluating financial performance, the link between management and performance will be drawn through the contingency approach (“best fit” model), which emphasises the importance of HR strategies that are appropriate for the company's culture, operational process and external environment (Waiganjo, Muluku & Kahiri, 2012). Through this approach, we hope to explore Uniqlo's successful practices by accessing the extent to which there is integration between its managerial policies and its overall business strategy, which takes into account the company's culture, operational process and external environment.
The paper will be structured as follows: First, it will provide a brief description of Japanese organizational culture and HRM to define what we refer to as Japanese corporate culture. Subsequently, we will provide the reader with an overview of the firm's historical background and internal management practices when managing overseas subsidiaries, followed by an analysis of its practices. In the analysis that follows, we will discuss the organizational culture at Uniqlo with a focus on international coordination and collectivism. In this section, we will also discuss the theory Z framework developed by Ouchi and Jeager (1980s). Finally, based on our analysis of Uniqlo, we will conclude with the future implications for Japanese firms when expanding overseas in the current global, dynamic environment.
Japanese Organizational Culture & Management
As mentioned previously, corporate culture is partly managed through human resource management (Schneider, 1988). Japanese human resource management practices of large corporations are characterized by being a form of welfare corporatism in which the firms ensure the wellbeing of employees and encourage group work and involvement of employees in the business (Jain 1987). This is visible in many areas of the human resource management conducted in large Japanese organizations. For example, employees are hired if they correspond to the values of the company and its corporate philosophy. Generally employment is long-term and can even be lifetime employment, in which it is expected that an individual continues working for the company until retirement age. Once a permanent employee is hired, the individual must go through training before being granted a working position at the lowest level of the organizational hierarchy. As such, the employee can gradually work his/her way up to higher positions within the firm over time, where promotions are granted based on length of employment (i.e. the promotions are based on a seniority system)(Jain 1987).
Moreover, the participation of employees is also evident in the Japanese management of large organizations. This participation is based on the integration of both the company interests and that of the individual. The Ringi-system used in many large corporations is a decision-making process characterized by being group oriented and consensual decision-making. This also highlights the importance of group work of the employees. Employees are given responsibility as a group to perform certain tasks together and decide the way in which they do so. Allowing the employees to be directly involved in designing work processes increases participation and involvement of the individual (Jain 1987).
Employee involvement and integration of the firm is also reflected in the holistic strategy of management attempting to increase employee identification in the company. Managers execute this aspect of human resource management when taking time to not only discuss business matters with employees, but to also discuss non-job related subjects. Employees are also granted many financial benefits that usually extend to their families as well. These include, bonuses, retirement and family allowances, subsidies for housing, meals, commuting, medical care and recreational activities. This holistic approach, thus, creates great interdependence and integration of employees and managers, which fosters better communication and shared responsibility. The holistic approach also reinforces the aforementioned long-term or lifetime employment of workers, as it is a method for providing individuals with a stable and beneficial work environment in turn for their long-term employment and contributions (Jain 1987).
The Rise of Uniqlo
The brand Uniqlo, which stands for unique clothing warehouse, is an apparel brand of the Japanese global retailer, Fast Retailing. After opening its first store in 1984, the retailer has gained a large global market share by offering high quality casual wear at low prices with its vertically integrated supply chain, spanning from design and manufacturing to retail and distribution. Given its huge net sales in Japan with over 500 retail stores in Japan by 2001, Uniqlo ventured into international markets. Now, it has operations in more than 12 countries and is ranked within the top 5 of the SPA industry (specialty store retailers of private label apparel) (Fast Retailing, 2016).
Uniqlo's expansion overseas has contributed largely to the company's overall business success, however it did not have an easy start. The company first began its expansion in the UK market where it opened its first store in 2001, with the initial plan to open 50 stores in three years (Yanai, 2012). To this effort, the company dispatched over 20 expatriates to London but was forced to pull out of the market within 2 years due to unfavourable results. According to Yanai in his biography, this was because headquarters did not actually have a concrete plan. (Yanai, 2012). Concurrently in 2002, the company opened stores in China as well, however, similar to the UK expansion, the company failed and had to close all its Beijing stores in 2005. However in that same year, the company found some unexpected success in the Hong Kong market (Yi Zhu, 2016).
After analysing the reasons surrounding the success and failures of its overseas expansion, it found several key factors contributing to this, including its inexperience in marketing and the internationalization of human resources (Yi Zhu, 2016). According to the CEO of Uniqlo Hong Kong, Pan Ning, the success in Hong Kong was largely because of the emphasis on a “made in Japan”. Hence, Uniqlo Japan began to expand its re-interpretation of Japanese national culture, to focus on a traditional Japanese customer service and organizational culture. In 2008, Uniqlo developed a unique management policy called “Global One”, which states that every Uniqlo around the world would follow only one best practice, which is the system of belief based around Japanese culture. To this effort, Yanai re-emphasizes the need for all staff at Uniqlo, to share the same management principles and culture as Uniqlo Japan (Yanai, 2012).
Coordination of Organizational Culture at Uniqlo
Japanese organizational culture in firms has often been contrasted with their western counterparts for its differences, and could be regarded as incompatible with Western culture. However the case of Uniqlo's seems to suggest otherwise. According to Yanai (2012), a large part of Uniqlo's success lies in its ability to grow organically overseas by projecting itself as a representative of Japan-ness, and a large reason they are able to do so because of its strong corporate culture. Throughout its expansion overseas, Uniqlo has ensured that subsidiaries integrated into its supply chain adhere to the same, or a similar corporate culture to its own (Yanai, 2012).
For the purpose of coordination and knowledge transfer, Hedlund (1986) describes the theoretical ideal of a “Heterarchical MNC” as one which has every member of the firm be aware of all aspects of the company's operations. While this is certainly not possible, he says that there are mechanisms in place which can impart some of the same qualities. A coordinated, and widely shared corporate culture would make it possible for employees of the firm to share common goals and strategies, allowing them to rapidly transfer knowledge, interpret problems in similar ways and see opportunities to benefit the company at a global level (Hedlund, 1986).
In a globally competitive environment in which Uniqlo operates in, knowledge is one of the most essential assets of the firm, since it helps to supply the necessary skills required for action. It supplies the personal skills required supported by a network of both formal and informal relationships, allowing subsidiaries situated in other countries to have access to knowledge (Martins & António, 2010). During its initial expansion to the UK market, one of the main reasons cited for Uniqlo's failure was the lack of ability to communicate the benefits of the product quality and technology. Along with a much better strategy, the reason why Uniqlo could successfully transmit this information in the Hong Kong market was arguably because the subsidiary decided to adopt the same corporate ethos as the home office. This facilitated the transfer of skills required to communicate the product benefits to the Hong Kong consumers. (Yi Zhu, 2016)
The importance of coordination is emphasized by Uniqlo's success in implementing such a form of intraorganizational interdependence at multiple levels of the organization. During its hiring process, Uniqlo adopts an employee training program that includes frequent international transfer of personnel both to and from its home office in Japan, which aids in the development of a shared corporate ethos (Fast Retailing Co, 2016). Based on our above analysis of Uniqlo, this benefits the company in two ways:
First, by sharing the same corporate culture as the home office, it frees up communication channels since critical information regarding internal management is already available, and is no longer required to be transmitted during routine communication with the subsidiary.
Secondly, understanding of the basic values of the firm on the part of the subsidiary can lead to greater coordination with less input required from the home office. This could naturally lead to a greater level of control transferred to the subsidiary through the internalization of the global corporate culture.
Collectivism in Uniqlo
When Hofstede (1980) developed his framework on cultural dimensions for cross cultural communication, he used the term individualism-collectivism to describe the degree to which people are segregated into groups. On one end of the spectrum is the collectivistic nature of Japanese firms, which values the subordination of the individual for the goals of the group, as well as adherence to its principles (Chailitilerd, 2014). The mode of decision making in these firms is typically consensual, where the manager will not make a decision until the others affected have sufficient time to have their views be heard, and are willing to support the decision. At the other end of the spectrum is the culture of individualism, which places more emphasis on the individual at the firm, and managers may not solicit the opinions of others when expected to make decisions that affect the group as a whole (Bochner, 1994).
Under its management policies, Uniqlo employees are required to adhere strictly to the firm's collective principles, which can be through its “Global One” policy that emphasizes the need for all staff to share the same management principles and culture. The firm is also well known for their “Three promises” for customer service and staff is required to review them together on a daily basis (Fast Retailing, 2016). The firm operates with a collective set of control measures for its employees, which is a characteristic of collectivism. Although these policies are set by management at Uniqlo and are not collectively decided upon or modified by individual staff members in the subsidiaries, it represents a collectivistic approach to management, as there is a strict focus on achieving goals as an entire group of employees by ensuring that the entire group follows a set of principles.
It is not unusual for Uniqlo Japan to operate with a collectivistic organizational culture given its emphasis on following a system of belief based around Japanese culture (Yanai, 2012). For a large corporation like Uniqlo, which operates with a vertically integrated supply chain that involves manufacturing and production in addition to sales and distribution, collectivism does provide the firm with a favourable organizational culture for the implementation of lean practices. According to a study by Wiengarten & Gimenez (2012), lean practices such as manufacturing, Kanbans, push and pull systems require a collectivistic mindset with a long term perspective to be effectively implemented. As such, at the organizational level, this relationship between lean practices and a group-oriented working culture is a contextual factor that is important for Uniqlo in order to communicate and collaborate between different levels of the supply chain (eg. Manufacturing and Distribution).
However, while Uniqlo does operate with a collective set of principles, the mode of decision making within the firm appears to be further along the western end of the spectrum, where decisions are made through a top-down approach by top management with little or no input from lower level managers (Yokota, 2011). During an interview with the Economist (2010), Yanai was criticized for not sufficiently delegating work and making decisions that should be done by subordinates, and Uniqlo store managers have no independent decision making capacity nor say in corporate policy (Yokota, 2011). In collectivistic work environments, group norms and consensus building seem to be far more important in the decision making process, essential to building a harmonious working relationship within the firm (Wiengarten & Gimenez, 2012). Uniqlo however, appears to deviate from this by trading off an inclusive working environment to place a greater importance on achieving tasks individually.
Uniqlo operates with a unique form of a collectivism that does not clearly fall into either ends of the spectrum. This trade-off between a collective management control policy with a top down task orientated decision making approach has given Uniqlo an image of being more internationally orientated than other Japanese companies. Part of its control policy insists that management level employees must be fluent or at least conversant in English and it has a high female participation rate (Fast Retailing, 2016). However, within Japan Uniqlo's organizational management has garnered a rather bad reputation, with articles on the Toyo Keizai (2013) referring to Uniqlo as “Hihei suru shokuba” (The worn out workplace), and others such as the Japan Times referring to it as a “Burakku kigyo” (Black company) with sweatshop connotations (Ayako, 2013).
Is Uniqlo a Type Z organization?
Ouchi and Jaeger (1978) describe three types of ideal work organization: A, J and Z, which each thrive in specific environmental conditions. The Type A organization is the Western Organization, specifically representing North American and Western-European Organizations. The type J organization represents Japanese and mainland Chinese organizations. Lastly, the type Z organization is an emergent type of organization combining characteristics of type A and J organizations. The ideal organizational types are all defined in the following seven dimensions: length of employment, mode of decision making, responsibility, speed of evaluation and promotion, control, degree to which a career path is specialized according to function, and concern (Ouchi and Jaeger, 1978).
The ideal organization of the western firm (Type A) differs greatly from the ideal organization of the Japanese (Type J) in the seven categories. Type A and J are described as opposites within these seven areas. For example, Type A includes short-term employment whereas Type J has a system of lifetime employment. Furthermore, the western ideal organization involves individual decision-making and individual responsibility for actions. The Japanese ideal organization type, however, is built upon consensual decision making of employees and collective responsibility (See Appendix 1 for more details) (Ouchi and Jaeger, 1978).
Despite their noteworthy differences, Ouchi and Jaeger (1978) specify that there are some Type J firms that have successfully operated in Western markets, specifically in North America. By investigating the operations of type J organizations in Western markets, the authors identify that the Japanese companies operating in the United States have a modified organizational structure in which the companies are still able to create complete inclusion of employees, opposing the Type A organization of employees having independence and separated social lives from their workplaces. This combination of Type A and Type J organizations of firms is named the Type Z ideal organization. The authors suggest it could simultaneously allow for individual freedom of employees while creating group cohesion in the organization. The Type Z organization combines a highly collective and non-individual working methods with a basic culture of individualistic values (Ouchi and Jaeger, 1978). Through the evaluation of Uniqlo's corporate culture, we have identified that the company possesses most of the characteristics of a Type Z organization.
Uniqlo has strict regulations about their responsibility towards employees and the training of employee behaviour. The firm's goal is to enable personal and corporate growth by creating an environment that allows people to work innovatively and with a global perspective (Schulz-Müllensiefen and Stockmann, 2016). In relation to the training of employees, it can be argued that Uniqlo has the characteristic of a Type Z organization of implicit, informal control with explicit, formalized measures. Uniqlo created a training programs in order to develop new strategies, provide business insights to employees and help employees understand the company's corporate statement: “Changing clothes. Changing conventional wisdom. Change the world.” (Fast Retailing Way, 2014). Employees go through multiple types of training, including the abovementioned “Global One” (Yanai, 2012), to enhance their professional work behaviour and also go through daily training in stores reminding them of the behaviour expected of them and how to treat customers. Uniqlo expects all employees to share the same vision and to work together as a team at all times (Personnel Development, 2016; Schulz-Müllensiefen and Stockmann, 2016). As such, employees are expected to behave in a certain way, signalling an informal form of control over employees, yet formalized measures such as the comprehensive training program are imposed to ensure employee behaviour. Moreover, the team oriented work environment at Uniqlo also shows that the company reflects certain aspects pertaining to characteristic of consensual decision making found in type Z organizations. As discussed earlier, Uniqlo is unique in that it does not have a fully consensual decision making process, yet it operates a with a limited type of consensual decision making that encompasses a collective work environment and collective control over its employees but a top-down approach to management.
Uniqlo also has the Type Z characteristic of long term employment. The company provides full time workers with child care and nursing care programs, and has a rule stating that four days a week are days in which employees cannot work overtime (Schulz-Müllensiefen and Stockmann, 2016; Safe, Comfortable Workplace, 2016). These benefits enable employees the possibility of working at Uniqlo longer, as the benefits they receive aid them in their personal lives and allows them to have a better work-life balance. Furthermore, Uniqlo also has the Type Z characteristic of holistic concern of employees, including family. The company states that it respects employees and is concerned with their satisfaction. This is reflected in the aforementioned employee benefits, which also signals a form of welfare corporatism at Uniqlo. The company also promotes diversity and has attempted to increase diversity by hiring individuals with disabilities (Schulz-Müllensiefen and Stockmann, 2016; Promoting Diversity, 2016). These measures taken by Uniqlo show the corporate culture of caring for the individual. However, Ouchi and Jaeger (1978) specify that the holistic characteristic at type Z organizations includes employee family members being connected to the company and feeling and identification with the firm. Although the policies designed and implemented by Uniqlo embrace this holistic approach, it is difficult to know the extent to which employee family members of employees feel connected to Uniqlo.
The Type Z characteristic of Individual responsibility is also visible in Uniqlo's corporate culture, as employees are frequently trained in their professionalism and performance in stores. Employees are expected to spend time practicing and training their behaviour and skills independently (Schulz-Müllensiefen and Stockmann, 2016) and master the ‘three promises' for customer service (Customer Promises, 2016). Furthermore, the company has an employee franchising program that allows for more individual responsibility, in which managers have the opportunity of becoming franchise owners of Uniqlo subsidiaries (Uniqlo Annual Report, 2004).
Furthermore, it can be argued that Uniqlo has the characteristic of Slow evaluation and promotion despite their quarterly individual evaluations of employee performance (Personnel Development, 2016). Uniqlo's training of employees is long-term oriented and includes a ten-year training programme conducted via the Fast Retailing Management and Innovation Center (FRMIC). This programme aims to train employees to become leaders, which is in line with their Zen-in Keiei policy describing that employees have the mindset of managers (Personnel Development, 2016). As such, the company manages employees from a long-term perspective, signalling a slow and controlled promotion system at Uniqlo.
The last aspect of the Type Z organization is having a moderately specialized career path. Uniqlo promotes a high level of growth opportunities for the individual employee and has designed its human resource training programmes in light of the need for flexible career options due to the increasing international operations of the firm (Latest CSR Report, 2016). Employees are able to develop skills and knowledge vis the training at Uniqlo and can at the same time tailor their training to their specific career goals (Hyo-sik, 2016; Personnel Development, 2016). Furthermore, the company promotes the possibility of having a flexible career development path by providing employees with the possibility of enrolling in the Uniqlo Manager Candidate Programme (Career Development Path-Uniqlo, n.d.). The company, thus, does have a career path for employees and provides training in this area, yet it is moderately specialized due to the flexibility of employees influencing the path they take.
Based on our research of Uniqlo's human resource management of its subsidiaries in Western Europe and the United States, it can be argued that the management practices are a combination of Type J and Type A ideal organizations and the firm is, thus, leaning towards a Type Z organization. The combination of Japanese and Western practices may be a factor leading to success and resilience of Uniqlo in the Western world, as Ouchi and Jaeger (1978) have highlighted the benefits of this combination in their description of the Type Z organization.
CONCLUSION: Future Implications for Japanese Firms when Expanding Overseas
The case of Uniqlo's success in expanding in the international market lends credence to Ouchi and Jaeger's (1978) framework for a Type Z organization. In the process of internationalization, Uniqlo has developed an organizational culture that reflects elements of both Japanese and Western practices that have been largely beneficial for its overseas expansion. Ouchi and Jaeger (1978) highlight the benefits of operating as a Type Z organization in suggesting that it simultaneously allows for individual freedom of employees while creating group cohesion in the organization.
While this is not specifically necessary for every Japanese firm, as the circumstances for Uniqlo is unique, the decision to unify the organizational culture of the firm on a global level could be applied for other Japanese firms. Organizational culture unity could aid by allowing for more efficient communication channels between subsidiaries and the home office. In effect, this not only helps in knowledge transfer but it also leads to greater coordination and a greater level of control given to subsidiaries with less input required.
The coalition of both Japanese and Western aspects of organizational culture, as well as the unique form of collectivism that is argued to be present at Uniqlo may provide the company with a more internationally oriented image than other Japanese MNEs. This multicultural organizational culture may benefit the company when operating subsidiaries abroad, as it may be more well suited to adapt and operate in both foreign and Japanese environments than a firm strictly adhering to one type of organizational culture. Nonetheless, there is a tradeoff to having such a combination of organizational practices. The unique corporate culture of Uniqlo may be challenging to implement as certain aspects, such as top down management for example, may not be as widely accepted by Japanese employees as it does elsewhere.
Uniqlo's catchphrase developed in 2011 was “Made for All”. Through its “Global One” management policy to develop a global organizational culture, Uniqlo has succeeded in reshuffling the traditional notion of a Japanese firm and its culture to integrate the company into an international market for all.
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