Editor's letter

Japan Management Review Volume 4 Number 3 1996

The past few years have seen as many false dawns for the Japanese economy as there have been changes of government. But the feeling is growing that the worst may now be over.

Output grew at an annualized rate of almost 4 percent in the last three months of 1995. There were upbeat signs in housing, capital equipment and public-works investment. The stockmarket broke through its four-year high in spring 1996. Domestic institutions appeared at last to be becoming more positive about Japanese equities. A batch of company results released in the spring was good and earnings-growth projections up to March 1997 were expected to be more than 100 percent. Even Japan's blighted banks were hinting that the worst of their problems may be over.

No one expects a return to the "bubble" economy of the late 1980s. That was when the price of land and stocks rose dramatically, businesses stepped up their investment in production and distribution, more staff were taken on and financial institutions relaxed lending and investment standards. Almost inevitably, the bubble burst. the prices of land and stocks dropped suddenly, "bad" assets of financial institutions increased, consumers stopped buying new products and new investment ceased. But there is at least one argument for concluding that Japan may have touched the bottom: things could hardly get worse than in 1995.

One exception to the string of good company results is carmaker Mazda, which reported net losses in 1993 and 1994. Despite the recent revival in Japan's domestic market, Mazda sales have declined while exports have been eroded.

Ford has been working closely with Mazda since the 1960s and forged a stronger relationship after becoming a substantial shareholder in 1979. Now Ford is to spend Stg326 million to increase its shareholding in Mazda from 25 percent to 33.4 percent and will have greater say in day-to-day management. The expanded tie-up will enable the two companies to coordinate product development, manufacturing and vehicle distribution, and to improve competitiveness through greater economies of scale.

Ford's resources will be important in expanding Mazda's research and development program. Ford is seeking to expand its share of the Asian market, and is particularly keen to penetrate the Chinese market, where it lags behind General Motors.

If Mazda's technology is combined with Ford's design capacity, this will increase Mazda's chances of gaining market share at home.

It looks like Honda and Toyota bad better watch out!

David Pollitt