|Strategic human resource management of Japanese multinationals - A case study of |
Japanese multinational companies in the UK
|Abstract (Article Summary) |
|This study analyses the human resources management system in Japanese automobile companies, Toyota and Nissan, in their overseas production plants in the UK and analyses differences between their original human resources management system in Japan and in their foreign operations. It found that these companies, as far as their internal operations are concerned, have tried to implement their original practices in spite of cultural differences. However, in the case of production management system they are not completely successful because of organisational differences in their foreign locations. The paper analyzes the effects of these novel practices on the industrial scene in the UK in general. |
|Full Text (5737 words) |
|Copyright MCB UP Limited (MCB) 1999 |
Dipak R. Basu: Nagasaki University, Japan
Victoria Miroshnik: Nagasaki University, Japan
Japanese manufacturing organisations have made a lot of inroads in overseas production bases. The successes of their enterprises have raised interests on the system of production and organisation peculiar to the Japanese business firms (Wickens, 1987; Suzaki, 1987). Particularly that is true about the automobile production sector where non-Japanese firms are adopting Japanese methods of management in a number of countries in order to compete effectively against Japanese firms (Womack et al., 1990; Monden, 1983; Hayes, 1981; Imai, 1986). Spread of this enthusiasm is basically due to the foreign production bases of some leading Japanese automobile companies. In order to understand the strategic management issues regarding Japanese overseas affiliates we discuss here the essential characteristics of the Japanese system of management (Hayes, 1981; Shingo, 1981, 1985).
Japanese system of management is a complete philosophy of organisation which can affect every part of the enterprise. There are three basic ingredients: lean production system, total quality management and human resources managements (Ohno, 1978; Nohara, 1985). These three ingredients are interlinked in order to produce total effect on the management of Japanese enterprises. Because Japanese overseas affiliates are part of the family of the parent company, their strategic managements are part of the management strategy of the parent company (Shimada, 1993; Abo, 1994; Morita, 1992).
The basic idea of the lean production system is described in Table I. The fundamental principles are described at the bottom of Table I. At all levels the fundamental idea is "humanware" (Shimada, 1993) which is described in Figure 1. "Humanware" is defined as the integration and interdependence of machinery and human relations and a concept to differentiate between different types of production systems.
The purpose of this paper is to analyse management styles in Japanese automobile companies in their foreign locations and to examine how far they maintain their original management styles in foreign locations. A number of studies have indicated that management styles depend on the types of organisations and their strategic ambitions (Blyton and Turnbull, 1994; Purcell, 1987; Edwards, 1995; Purcell and Ahlstrand, 1994; Goffee and Scase, 1995). In the existing studies of Japanese multinational companies no clear pictures emerge. In a number of cases, particularly in USA cultural factors dominate over the global organisational plans (Florida and Kenney, 1991). Similar experiences are observed in the case of operations of American overseas companies (Kujawa,1979; Hofstede,1985; Negandhi et al., 1985; Hofstede, 1993). We have analysed two Japanese multinational companies, Nissan and Toyota, in their British operations with particular reference to their human resources management styles.
The method of analysis is basically interviews with the workers and managers of these two companies, Nissan and Toyota, in both Britain and Japan. We have described in detail questionnaires we have used and the answers we have received. We have visited the Sunderland plant of Nissan and the Barnaston plant of Toyota. In Japan we have visited the Sizuoka plant of Nissan and the Nagoya plant of Toyota. We have interviewed 250 workers chosen randomly in each plant. For questions regarding management strategies, we have interviewed vice-presidents, plant managers and directors of these companies in the UK.
Japanese management system: an overview
We discuss below some of the important features of the Japanese management system.
The constant strive for perfection (Kaizen in Japanese) is the overriding concept behind good management, in which the production system is being constantly improved; perfection is the only goal. Involving everyone in the work of improvement is often accomplished through quality circles. These are activities where operators gather in groups to come up with suggestions on possible improvements. There are schemes for implementing suggestions, rewarding employees and feeding back information on the status of the suggestions.
In order to attain high productivity it is essential that all parts and products are fault-free from the very beginning. The goal is to work with products that are fault-free through the continuous improvements of the manufacturing system. Thus zero defects denote how a lean company works in order to attain quality. In a lean production system it is important to move towards a higher degree of process control. Each process is controlled through knowledge gathered about the parameters of the process. Thus instead of controlling the parts produced the process is kept under control. The idea is to prevent defects from occurring, through discovering errors that can lead to defects. Lean production system uses "autonomous defect control" which is an inexpensive means of conducting inspection of all units to ensure zero defects. Quality assurance is the responsibility of everyone. Identification of defective parts is the responsibility of workers, who are allowed to stop the production line in the event that defective parts are found. Responsibility for adjusting the defective parts is delegated to workers. As a consequence the number of personnel working in the quality control department can be reduced; the size of the adjustment and repair areas can be reduced too.
Manufacturing tasks are organised into teams. This makes the workers more aware of the need to manufacture only fault-free parts. An important reason for the improved awareness was that the physical contact between manufacturing stages allowed for better communication. Largely through the use of teams, workers found it beneficial to have the responsibility for correction resting with that part of the process where the error has been committed. Through the use of statistical process control, with tests after each process, the company can get better control over their production processes.
Accomplishing fault-free parts is a prerequisite to achieving just-in-time deliveries. The principle of just-in-time means each process should be provided with the right part, in the right quantity at exactly the right point of time. The ultimate goal is that every process should be provided with one part at a time, exactly when that part is needed. It is possible to have different levels of just-in-time. First, there is the case when parts are moved between different processes in lots. Second, parts are differentiated according to product variants. Third, there is sequential just-in-time. Here parts arrive with reference to the individual products on the line. For example, car seats may arrive at the assembly line in the exact order in which they are needed. In general, the higher the level of just-in-time a company can master the better. However, sequential just-in-time is not always needed. It will vary depending on the nature of the products. When the products are standardized and relatively inexpensive it may not be too important to achieve the highest level of just-in-time.
Pull instead of push
Scheduling of materials is closely related to the principle of just-in-time. It is useful to look at the relationship between forward scheduling and backward request. Before starting to implement lean production in a company final assembly is made to customer order. In all other stages of the manufacturing process productions are according to a forecast. Gradually the number of manufacturing stages producing according to customer order has to be extended. Thus somewhere in the material flow is a point where pull meets push. Behind this point, backward requests are used. Ahead of the point there is forward scheduling. This may create difficulties in stock-outs or too large stocks at this pull-push point. This can be due to the difficulties in making correct forecasts (Karlsson and Ahlstrom, 1996).
The most important feature of the organisational set-up of the lean production system is the extensive use of multifunctional teams, which are groups of workers able to perform many different works. The teams are organised along a cell-based production flow system. Owing to the rotation of the tasks in a team, the increased flexibility reduces the vulnerability of the production system. The number of job-classifications also declines. Workers have received training to perform a number of different tasks, such as statistical process control, quality instruments, computers, set-up performances, maintenance etc. They also have to be trained in a number of functional areas such as materials management, purchasing, maintenance and quality controls. The company has to rotate the workers among tasks frequently.
In the lean production system responsibilities are decentralised. There is no supervisory level in the hierarchy. The multifunctional team is expected to perform supervisory tasks. This is done through the rotations of team leadership among workers. As a result the number of hierarchical levels in the organisation can be reduced. The number of functional areas that are the responsibility of the teams increases. People who are not required as a result of the reductions of requirements for indirect controls normally move to other areas because in the Japanese system the company has no lay-off policy (Kumazawa and Yamada, 1989).
Vertical information system
In a multifunctional set-up it is vital to provide information in time and continuously in the production flow. Information can be of two types:
(1) Strategic information about the overall performances and plans of the company.
(2) Operational information about performances of the teams, quality productivity, lead times and other factors in the production process.
Operational information is more frequent than strategic information about market plans, production plans, process development plans and financial performances.
Limits to lean
However, lean production system is not the only alternative to the traditional production system. There are:
(1) German style quality production model based on a highly skilled work consensus;
(2) systemic rationality model, which are common in the information technology firms; and
(3) the Swedish model of Volvo motor company, reflective production system, in which production teams have direct contact with the customers (Cusumano, 1994; Redher, 1994; Sasaki, 1994; Sandberg, 1995; Nomura, 1993; Altmann, 1995; Jonsson, 1995).
Strategic managements of Japanese multinational companies overseas
Strategic management of a multinational company involves evaluations of its own domestic competitiveness and utilises these experiences in a global setting. At the same time the company has to decide the configurations of its operations across the world, i.e. where to locate which facility. Some detail analysis of two Japanese multinationals, Nissan and Toyota, and examinations of basic characteristics of their operations and their style of management are presented below.
Nissan Motor Manufacturing (UK) Ltd was established in 1984 as a part of the Nissan Japan's global investment strategies. The production started in 1986. Nissan announced, in that year, plans to accelerate the UK manufacturing programme by increasing local content to 60 per cent by 1988 and 80 per cent by 1991 with a plan to produce 100,000 units. By 1994 Nissan from its UK production base has exported cars to 34 different world markets. By 1995 Nissan's total investment reached Pounds 1.25 billion in the UK and the plant in the UK has produced one million cars and one million engines (Company Report, Nissan, 1998).
Employment in the UK plant has gone up from 470 in 1986 to 4,038 in 1995. Total production in 1995 reached 215,346. Out of that 161,215 were for export to other countries. Thus Nissan has successfully used the UK as its export base. At the same time it has created a network of suppliers throughout Europe.
The philosophy of the company in the UK and the management system
According to the company profile "Nissan's Sunderland (UK) plant aims to build profitably the highest quality car sold in Europe to achieve the maximum possible customer satisfaction and thus ensure the prosperity of the company and its staff". Company's management style reflects that.
Organisational layout of production management system
Nissan plant in Sunderland, UK includes a car and component manufacturing facility, an engine machining and assembly plant, a foundry, a plastics injection and blow-moulding plant and a service parts operation all on one site. Environmental considerations are high in the list of priorities in the production system. The use of water based paints, increased volume of recycling activities and the provision of a good operator environment are some of the elements. "Just-in-time" production systems are applied throughout internally. Nissan does not build a large buffer stock of doors, bonnets, and boot lids, the total amount of stock in process time in the body assembly plant is less than one hour. Production flow chart (Figure 2) reflects the optimum design set-up according to the internal "kanban" system. In the "kanban" system each department of the production process should be located in a logical style so as to provide a continuous flow of materials as demanded by the production process. The idea is not to have any inventory in each department but to demand when required. The production management system and plant design must ensure that these demands can be met immediately. Lay-out design of the plant is crucially important as most processes are automated , run by robotics. Optimum lay-out of plants ensures that no robotic system would stay idle or run into each other. Each department puts up a notice outside if they need some parts or components. This "notice" is then photographed by overhead cameras and the information gets transmitted to the central material management centre who transmits this to the suppliers and to the parts manufacturers. In Japan, parts manufacturers are located within a radius of five miles from the main plant, thus external "kanban" is feasible. In the UK, external "kanban" is not possible, because parts manufacturers are located in different parts of the UK and far from the main plant.
Total quality is a philosophy that runs through every aspect of the business, the way in which the plant is run and the way in which the cars it produces are built. Quality is not something left to quality control staff. It is the responsibility of every single person in the organisation. Everyone is made fully aware that they have a valuable and significant role to fulfil. Quality at standards and targets are set in all areas and the plant's performance monitored against these. Results are regularly reviewed and fed back to help improve individual processes. Parts quality is also constantly monitored using special test rigs backed by extensive chemical and metallurgy laboratory facilities. The plant's own quality check process is supplemented at random by Nissan's world auditors.
Human resources management system
The aim of the personnel management system in Nissan plant is to create "mutual trust and cooperation between all people within the plant". It involves teamworking where the management encourages and values the contribution of individuals who are working together towards a common objective and who continuously seek to improve every aspect of the business. It aims for flexibility in the sense of expanding the role of all staff to the maximum extent possible and puts quality consciousness as the key responsibility above all. The production system builds in quality rather than inspects and rectifies. These strict targets are assisted by the fact that the company gives common terms and conditions of employment to all the staff. For example everyone is salaried; there are no time clocks; the sickness benefit scheme, private medical insurance, performance appraisal system and canteen are the same for all. The company believes that "high calibre", well-trained and motivated people are the key to success. Table II regarding the training shows the importance the company attaches to both on-the-job and off-the-job training.
This emphasis on training has resulted in a sharp increase in productivity; the productivity level of the British workers which at the beginning of the operation was very low is now comparable to the productivity level of Nissan in Japan.
Impact of Nissan on British industrial management
Although it is very strange that just one foreign company can significantly influence the way the host country will run their industries, something of that nature has taken place in the UK due to Nissan and other Japanese manufacturing companies.
There are three main elements in the improved techniques introduced into UK manufacturing in the past ten years from 1986 to 1996:
(1) a commitment to "Kaizen" or continuous improvement;
(2) cooperative relationships between workers, managers and suppliers;
(3) emphasis on measuring all aspects of business, from serious faults to misplaced labels to identify precisely what needs improvements.
Before the establishment of Japanese manufacturing bases in the UK, UK managers were reluctant to utilise these concepts because of their fear that it may lead to serious industrial disturbances; also it is not in their psychology to put so much emphasis on non-technical aspects. With the arrival of Japanese car-manufacturing companies like Nissan, Toyota and Honda it has become a compulsion to introduce the Japanese style of management in the UK so as to increase the level of productivity to the Japanese level.
The Japanese effect was introduced through the suppliers of components to Nissan and other Japanese companies. Leading engineering firms like GKN or small companies like Frederick Woolley of Birmingham got to accept the standard of quality of these products and maintenance of supply line as part of their business deal with Nissan. Even UK competitors like Ford Motor Company were forced to change in order to be competitive with the Japanese car manufacturers.
Ford has introduced a Japanese system of production-inventory system in collaboration with Mazda, another Japanese car market, in their plants in the UK. The most significant change took place in Rover car plants which were in collaboration with Honda of Japan. Honda has introduced both the Japanese management system and automated production system in Rover.
However, what is true about the big rival UK car manufacturers is not true about the smaller supplier of components. The UK has achieved significant improvements in productivity and quality standard, but the networks of supply chains to the large manufacturers are yet to accept the Japanese system fully. Nissan estimates that the number of suppliers meeting its top standard of 10 faults per million parts delivered has risen from 16 out of 200 to about 50 in the past four years up to 1996. However, the same figure for Japan is about 150.
The Japanese effect weakens with distance from source. Nissan has influenced small component suppliers such as Frederick Woolley who supplies to Lucas who in turn supplies to Nissan. Lucas has influenced its own suppliers. However, Frederick Woolley has fewer than 100 faults per million parts; its own suppliers score 3,500 or more. The smaller companies further down the supply chain have little direct contact with Japanese inspired method.
Some of the larger companies in the UK are having difficulties in accepting Japanese standards. Under Nissan's QCDDMI supplier evaluation system, suppliers are rated for quality, cost, delivery, development of new products and management. Most suppliers accept the first four, but dislike being rated on management.
Nissan's influence is not limited to the motor industry. Managers from all over the UK come to the Nissan plant. Government has sponsored teams of experts to learn from Nissan, Toyota and Honda.
The significant effect of Japanese investment on UK industrial managements are in the drive for quality and a better relationship between the managers and workforce.
Toyota was established in Japan in 1937 and its first overseas production began in 1959 in Brazil. Expansion continued throughout the 1950s and 1970s with the spending of several overseas plants in Africa, South America, South East Asia and Australia. In 1985, a joint venture company was established in the USA and its own vehicle plants were established in the USA and Canada (in 1988). Toyota (UK) was established in 1989. Production in the UK plant started in 1992; current production is 100,000 units of vehicle with an investment of Pounds 700 million. The engine plant has investment of Pounds 140 million or with the current production of 100,000 units of engine. The target production capacity was recently raised to 200,000 units of vehicle with a further investment of Pounds 200 million. It is a relatively new plant.
Production and operation system
Toyota UK's aim is to satisfy the customer by providing the highest quality at lowest possible cost in a timely manner with the shortest possible lead times. It has a complete manufacturing operation including press and weld, paint, plastics, assembly and engine plus a comprehensive environmental control facility. Quality is built in at every stage and confirmed throughout the process. In the "press and welding" section coils of steel are pressed out into "blanks", flat sheet shaped into the basic part in a pattern which minimises waste steel. Operating to just-in-time production, blanks are cut as required by the press lines. When the press lines require parts to be sent forward, order-details are entered on computers to ensure timely transfer by automatic guidance vehicle (ABV) to the press machines, the largest of which is capable of exerting a pressure of 4,000 tonnes. The presses give each part its third dimension using dies. Dies can be changed very quickly so stocks are kept to a minimum according to the Toyota production system, saving time, money and space. We have to remember that the so-called Japanese style production-inventory systems, which include just-in-time production, kanban system, total quality management, cell-based layout designs, were all invented in Toyota plants in Japan during the early 1950s.
The completed body panels are welded together (90 per cent done by robots) into larger main sub-assemblies. These sub-assemblies are then brought together by robot to form a complete body shell. Throughout the process, team members and technology work together to build a high quality vehicle.
At each stage, the team members check the quality of the work before passing the vehicle on while a number of automated intelligent systems interact to instruct and control the car building system. The car then needs to go through painting, plastic moulding of instrument panels and engine assembly. Despite around 2,500 parts having to be fitted to each car, there are only two temporary parts storage areas where a maximum of eight hours' stock is held. A manifest (printed document) is fitted to the car, containing details of its specifications and providing visual control throughout the assembly process. The car then travels down the assembly line. Throughout the process, each member is responsible for the quality of work they produce and pass on, so an audio cord adjacent to the line enables each member to stop the production line if they have a concern. The cord is pulled once to call support from the team leader; in many cases the problem is addressed quickly, the cord is pulled again by the team leader and the line continues never having stopped. If the problem is a little more serious, the team leader will allow the line to stop until the concern is resolved. Although quality is built in at every stage a complete functional and visual inspection is carried out before line-off to ensure complete customer satisfaction.
Comparative management styles in Nissan and Toyota
In order to examine the characteristics of the supervisory style in Nissan we have taken the opinions of several people in the plant at both shopfloor workers and higher management levels. The opinion expressed on the management style can be summarised as follows:
Appendix A describes the management style in Nissan (see Appendix 1 for Toyota's management style) which is very Japanese in nature; it drives out class distinctions that exist in other industries in the UK, where the managerial staff and ordinary workers live separate lives, with separate facilities. The equal opportunity for every employee is also a new feature in the UK's industrial management policies. Table III shows that objectives of partner selection for Nissan (we could not get any response from Toyota for this questionnaire) are on similarities of technologies and management practice and on the market entry. Political connection is important as for a new and a foreign company it helps to establish smooth relationships in supply chains and distributions. In Table IV we can see the causes of conflict for Nissan (we could not get any reply from Toyota for this questionnaire) with the suppliers are due to different management practices. We have noticed that in Nissan although there is successful implementation of the internal "just-in-time" production inventory management system, it is not so successful regarding the external suppliers of components and distributors which are not yet used to the Japanese system. However, "personnel conflict" is not an important factor in the conflict. In TableV (Appendix 2 for Toyota) we can see that traditional argument of the economist regarding foreign investment flows are not valid. Exchange control or closeness of raw materials are not important, but developments of new market, geographical diversifications and future protection of existing markets are important factors along with the government regional policies. Their observations are against the accepted Western ideas on foreign investment which demand open foreign trade and no regional policies of the host government.
For Toyota at every level there are Japanese managers shadowing their local counterparts. This is different from that in Nissan these local people are all in command, Japanese managers are very few. There are no local partners for Toyota, unlike Nissan; there are internal "just-in-time" production and inventory systems, but an external "kanban" system with the supplier is not yet developed (see Table VI). This is due to the fact that suppliers in Europe have not yet integrated their production and management system to that of Toyota. In the "case of internal management" the style is very similar to that of Nissan, with unified facilities and same job status for all.
Toyota, just like Nissan in the UK, strives to achieve an organisation in which all employees can develop to their full potential. Teamwork is an essential element of both companies' spending philosophy believing that a well coordinated group can accomplish far more than the sum of individual effort. On the average about 100,000 man-days are spent on training prior to production start-up for a particular model in both of these companies (Company Report, Toyota, 1998). Training is held in all locations throughout the world. UK workers can go for training in Japan, the USA and Canada and the workers from Nissan and Toyota's foreign and Japanese establishments can come to the UK for training. Before the start of production process for a particular model, on average a further 20,000 man-days have been spent on specific training courses off-the-job in both of these establishments (Company Report, Toyota, 1998). The costs and time spent on continuous on-the-job training are almost immeasurable.
Changes in Japanese system
Japanese companies no longer depend exclusively on the concept of lean production system. Owing to changes in the external economic environments, collapse of the "bubble" economy of the late 1980s, rise in the exchange value of the yen which makes Japanese exports too expensive, rising costs of labour in Japan have provoked changes in the management system of the Japanese companies (Katayama and Bennett, 1996; Miyai, 1995; CJAWU, 1993). The main competitive pressure has been to expand market shares. The principal means of achieving this has been through price competition. This in turn has reduced profits, thereby inviting cost reductions and increased revenues. Cost reductions are associated with Kaizen, continuous improvements, which has stimulated further price competitions. Increased revenues need increased sales volumes, new products and diversified products. That demands new investments, more indirect labour, increasing break-even point and reductions of profits. During the "bubble" economy this continuous cycle was maintained. Now larger sales volumes are difficult to achieve due to stagnant consumptions. There are also reduced opportunities for Japanese companies to rely on exports as a means of compensating for lower domestic sales.
The production system is changing and gradually adopting a more flexible system with the following characteristics:
- Production system is more flexible in order to adapt itself to changes in demand; this will reduce costs of production.
- Achievement of lower fixed costs using fewer frequent changes in products and less replacement of equipment is being achieved.
- Technological solutions are being implemented in order to have flexibility in production system design on both downstream and upstream products.
- Efforts are there to reduce work-in-progress and set-up times by grouping of parts and products into families.
- Standardised modules of established and reliable design are being incorporated into new products which allow greater mixing of products.
- Mixing of productions is there in order to allow a variety of products to be manufactured without large inventories.
- There are extensive usages of Kaizen activities and TQM (total quality management) and TPM (total productive maintenance).
We can see that Japanese companies in the UK have tried to maintain their own management styles despite cultural differences and have succeeded in many ways not only in their own plants but have influenced a number of UK companies associated with their operations. Although the basic features of Japanese style management system (i.e. just-in-time production system) cannot be transplanted in the UK in the same way that it was implemented in Japan, both Nissan and Toyota have successfully implemented this system internally in their plant management system as far as the relationships between workers-managers are concerned, which is extremely important in a class dominated society like the UK.
Currently when the yen has depreciated to levels somewhat below its recent peak, prospective economic trends in the USA and Europe are uncertain. The environments for exports from Japan remain severe. Japan is yet to recover from its recessions since 1991 although a gradual recovery is expected. However, a large increase in domestic demand for all these producers discussed is hard to predict. Thus competition for market share will intensify in future. Against this background Japanese automobile companies are maintaining their efforts to enhance the competitiveness of their products by bolstering R&D, augmenting efficiency of their manufacturing system, strengthening their sales activities and further localising their overseas operations.
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See Table A1.
See Table A2
|Caption: Table I.; Lean production system; Table II.; Training facilities in Nissan, UK, 1995; Table III.; Nissan: Objectives for partner selection; Table IV.; Nissan: Causes of conflict with partners; Table V.; Nissan: Reasons for choosing the UK; Table VI.; Toyota: Reasons for choosing the UK; Table AI.; Management style in Nissan; Table AIa.; Management style in Nissan; Table AII.; Toyota management style; Table AIIb.; Toyota management style; Figure 1.; Japanese humanware model; Figure 2.; Production flow |