The Application of the Strategic Choice and Industrial Relations Theory for the Japanese Industrial Relations


Since mid 1980's, the strategic choice and industrial relations theory advanced by Tom Kochan and his colleagues at the "MIT school" has been the subject of considerable attention (Godard, 1997). In the field of industrial relations study, the emergence of this model was highly significant for mainly three reasons. First, it tried to explain the transformation process of U.S. industrial relations by making a new theory. As a result, it was successful in understanding the anomalies such as the decline in union membership that traditional industrial relations theories could not provide good explanation. Second, the model provides dynamic processes among government, management, and labor as well as emphasizing the importance of environmental factors. While traditional theories tried to explain the industrial relations mainly by environmental conditions, the strategic choice model added the concept of decision making in different levels and interaction among players to the old theoretical framework. Third, strategic choice model brought the subject of management practices and policies back into the industrial relations research. It promoted a cross-fertilization of research between industrial relations and organizational behavior and human resource management scholars (Kaufman, 1993). In sum, their effort of establishing the strategic choice model was a trial of paradigm shift in the field of industrial relations research.

Turning our eyes to Japan, its industrial relations are rapidly changing these days. For example, many large companies have begun to introduce the pay for performance systems instead of older seniority-based compensation practices. As a result, the traditional practice of industry-wide wage negotiations called "syunto" or spring offensive has also begun to change. Although these changes were accelerated by a long recession after the burst of "bubble economy," there seems to be a fundamental structural transformation continuing before the bubble economy. We have to understand and explain this transformation process in Japanese industrial relations.

There are many studies on Japanese Industrial Relations including English literatures. Among them are there the classical culturalist approach, the descriptive institutional approach, the functional approach, and the neoculturalist synthesis (Shimada, 1983). However, many of these studies do not provide a good explanation of recent changing in Japanese industrial reactions and few studies were conducted based on the strategic choice on Japanese industrial relations. As Kochan and his colleagues emphasize, the factor of strategic choice seems to be important in Japan, too. Therefore, in this paper, I will examine how strategic choice model (Kochan, et al., 1984; Kochan, Katz, and McKersie, 1986) can be applied to the Japanese industrial relations.

Background and Basic Framework of Strategic choice model

Background of Strategic Choice Model

Strategic choice model was developed when industrial relations in the U.S. were changing rather rapidly. Because most of the popular theories at that time were generated during periods of relative stability in U.S. industrial relations practice and consequently are overly static, they have difficulty explaining behavior when the basic parameters of the system appear to be changing. For example, Dunlop's systems model, which is introduced in Kochan et al. (1986), was widely accepted in 1960's and 1970's. But there are some anomalies in the model. First, the model could not foresee the declines of union membership after time. Rather conventional models assume that labor unions were a permanent participant in their employment relationships. Second, conventional models assume that there is a consensus ideology. But based on the models, we could not tell whether or not managerial values, strategies, and behavior in industrial relations were changed. Third, the traditional industrial relations models treat management as reacting to union demands, pressures, and initiatives. But there were many managerial initiatives and changes that affected the transformation in U.S. industrial relations and they have occurred within management.

Kochan, et al (1984) added a more dynamic component to industrial relations theory by developing the concept of strategy, or strategic choice and then tried to demonstrate that industrial relations practices and outcomes are shaped by the interactions of environmental forces, union leaders, workers, and public policy decision makers. They argues that the significant changes in the industrial relations system that began in the 1970s were caused by new firm policies dealing with human resource management and labor relations. The most basic change they identify is the more active involvement of senior line management in the formulation of industrial relations policies.

Basic Framework of Strategic Choice Model

The basic framework of strategic choice model is derived from the paradigm that integrates the traditional theories of industrial relations systems with the literature on corporate strategy, structure, and decision-making. Their model starts with consideration of relevant forces in the external environment that affects employment relationships. Changing external environment induce employers to make adjustment in their competitive business strategies. In making these adjustments, the range of options considered are filtered and constrained so as to be consistent with the values, beliefs, and philosophies engrained in the mind of key decision makers. As choice are also embedded in particular historical and institutional structures, the range of feasible options available at any given time is partially constrained by the outcomes of previous organizational decisions and the current distribution of power within the firm and between it and any unions, government agencies, or other external organizations it deals with.

Industrial relations processes and outcomes are determined by a continuously evolving interaction of environmental pressures and organizational responses. The relative importance of either the environment or the parties' responses can vary over time. Therefore, labor- or product market changes do not have independent effect or operate in a unique or deterministic fashion. Then, choice and discretion on the part of labor, management, and government affect the course and structure of industrial relations systems. Moreover, history plays an extremely important role in shaping the range of feasible strategic adaptations.

The Three Tire Industrial Structure

Their broader conception of the institutional framework of industrial relations is as follows. It divides the activities of management, labor, and government organizations into three tiers: (1) a top tier of strategic decision making, (2) a middle or functional tire of collective bargaining or personnel policy making, and (3) a bottom or workplace-level tier where policies are played out and affect individual workers, supervisors, and union representatives on a day-to-day basis. In this framework, the middle tier encompasses the most traditional terrain of industrial relations, since it focuses on the practice of collective bargaining and personnel policy formulation and on the development and administration of the key public policies governing labor-management relations. The traditional of business unionism that has dominated the American labor movement has made it appear that few important strategic choices or ideologically driven decisions are being made at the top tier. Yet the basic decisions involving such things as what businesses to invest in, where to locate worksites, whether to make or buy various components, and the organizational arrangements used to carry out basic strategies all affect industrial relations at lower levels of the system and therefore are central to analysis of industrial relations. Strategic choices that are relevant to the bottom tier are those most directly associated with the organization of work, the structure of worker rights, the management and motivation of individuals or work groups, and the nature of the workplace environment.

This three-tier framework helps identify an important development that existing industrial relations systems theory does not specifically address: the apparent inconsistencies and internal contradictions in strategies and practices occurring at different levels of industrial relations within firms. First, this framework recognizes the inter-relationships among activities at the different levels of the system and helps explain the origins of any prevailing internal contradictions or inconsistencies among three levels. Second, this framework considers the effects that various strategic decisions exert on the different actors in the system. The three-tier framework encourages analysis of the roles that labor, management, and government play in each other's domain and activities.

Markets, Business, Strategies, and Industrial Relations

Shifts in business strategies are affected by the current state of industrial relations and, in turn, affect future industrial relations outcome at all three levels of the firm. The types of interactions are as follows. Changes in the competitive environment can occur gradually as products change in response to changing consumer demand or as low-cost competition grows. The environment can also change abruptly because of competitive shocks. A sharp increase in competitive pressures forces firms to make decisions that can have far-reaching effects. First, the firm must reassess its commitment to its current line of business and decide whether it wants to attempt to compete in the environment or to withdraw and reallocate its capital resources. Second, if the firm chooses to remain active in the market, adjustments in its competitive strategy may be needed. Third, the strategic choices made by firms that remain in the market require them to rearrange their capital in order to take advantage of new profit opportunities. Finally, changes in business strategy and their related production decisions affect the validity of existing organizational structures, particularly the extent of vertical integration.

The business decisions are influenced by the history and current state of industrial relations in the firm and the industry. The key consideration is whether wages and labor costs have been taken out of competition.

Studies based on Strategic Choice Model

Based on the strategic choice model, Kochan, Katz, & McKersie (1986) tried to explain the historical evolution of U.S. collective bargaining system, the emergence of the nonunion industrial relations system, changing industrial relations in unionized setting, union engagement of strategic business decisions, and so on. Kochan et al. (1984) illustrated the corporate strategy and industrial relations in a single industry of Rubber Tires. Birecree (1993) analyzed the International Paper Company (IP) during the 1980s and revealed that important structural changes in product markets, product mix, and technology of production contributed to IP's perceived need for significant changes in work practices and compensation by 1985. Arthur (1992) analyzed U.S. steel minimills and suggested that variation in workplace industrial relations policies is related to differences in business strategy. Some other studies have been conducted since the introduction of strategic choice models.

The Application of the Strategic Choice Model for IR in Japan

As I described at the first part of this paper. I will examine how the strategic choice model can be applied to the Japanese industrial relations. First, I introduce the historical background of Japanese industrial relations. This part is important in understanding the historical factors that affect strategic choice of each player as well as recognizing the difference between Japanese industrial relations and other countries' industrial relations such as American's. Second, I will examine the recent strategic changes among Japanese corporations and analyze its strategic choice from various points of views. In this section, how and why Japanese companies had to change their strategies will be examined. Also, its influence to the industrial relations will be described. Third, I will review the changes in human resource practices in Japanese companies. The human resource practice is closely related to both management side and labor side. Fourth, I will review the changes in employment practices and labor relations in Japan. The changes of employment practices and labor relations represent the fundamental transformation of Japanese industrial relations. Finally, I will analyze these issues using theoretical framework of strategic choice model.

The History of Japanese Industrial Relations

Here, I will describe the brief summary of the history of Japanese industrial relations. Nishinarita (1998) introduces the historical perspective of industrial relations of Japan. His study shows how Japanese-style industrial relations were formed after the World War II. Also, according to him, the dramatic changes of unions occurred with the advent of the recession of early 1990s. I will review the characteristics of Japanese-style industrial relations and their history after the World War II based on Nishinarita's work.

Overall, the characteristics of Japanese industrial relations have been viewed as 'three sacred treasures' of seniority-based wages, lifetime employment, and enterprise unions. The view was confirmed by the 1973 OECD report. Seniority-based pay is explained with livelihood guarantee (people with higher age need much money) and the degree of specific skills (people with longer experience have high skill). Lifetime employment should be accurately expressed with 'long-term stable employment within an enterprise.' The formation of co-operative attitudes of enterprise unions took place from the 1960s onwards.

Industrial Relations in Occupied Japan (1945-9)

In October 1946, the Japanese Electric Industry Union took action to support their demands for a minimum wage related to the cost of living, as well as 'the protection of existing rights' and 'the acquisition of the right to live.' This dispute led to the creation of 'electric industry wage system', which established as fundamental principles both a guaranteed minimum living wage and a minimum age-related increment. After the passage of Labor Union Law in December 1945, a number of labor unions were formed and by the end of December 1947, 45 percent of the workforce was unionized. The unions were enterprise based and comprised both blue- and white-collar workers. The labor organizations developed a very powerful worker's movement in opposition to managerial authority. However, the powerful position of workers was destroyed by the Labor Union Law Agreement of June 1949.

Emergence of Japanese Industrial Relations (1950-59)

During this decade, both 'permanent workers' and 'temporary workers' were employed. Temporary workers increased after Korean War broke in June 1950. But companies continued to cut staff including permanent workers and employment conditions became extremely insecure. There ware significant labor disputes in major enterprises and the enterprise union system began to emerge. In the middle of the dispute, alternative workers' organizations were founded representing more the management point of view. Thus, the co-operative enterprise union was born in this period.

High Economic Growth and Formation of Industrial Relations, 1960-73

Co-operative unions were established after following events. First, As the result of the defeat of Miike dispute of 1959-60, the unions loss the effective control of the workplace and labor disputes in the essential heavy industries disappeared. Second, it became clear that the workplace struggles were to be subordinate to the union's 'unifying function'. Third, federations of co-operative enterprise unions were founded in 1964. The formation of co-operative enterprise unions rendered collective negotiation meaningless. As a result, collective negotiation was transformed into the management-labor consultation exercise. This trend allowed a sense of enterprise 'community' to emerge.

Low Economic Growth and Establishment of Unionism, 1973-90

In this period, contemporary Japanese industrial relations were formed. After the first oil crisis in 1973, management based upon individual ability began to operate in practical terms. Because the high growth period came to an end, the enterprises push thorough slim-line management such as dismissing temporary workers or offering temporary leave, natural wastage, encouraging voluntary redundancy, and the development of job displacement and temporary or permanent job transfer. Temporary transfer played a significant role in the context of in-firm long-term secure employment. On the other hand, the number of temporary, or part-time workers increased, which cause the decreasing of the union organization rate. The number of strikes fell dramatically and co-operative enterprise unions were formed in the smaller companies.

The movement of Japanese Corporate Strategies

Market Share and Growth Oriented Strategies

In the high growth period of Japanese economy, Japanese companies obtained competitive advantage in the world market. Abegglen & Stalk (1985) argue that Japanese companies "Kaisha" are much market-oriented and much concentrate on growth for obtaining competitive advantage. They illustrate the "winner's competitive cycle", that is, the company must increase its market share so that its volume of business will increase at a rate greater than that of its competitors: A superior rate of increase is achieved by increased investment. Increased investment can have many forms of inducing price cutting, capacity expansion, advertising, or product development. Once a superior rate of increase is established, a virtuous cycle begins: with increased volume, relative to competitors' volume, comes decreased costs. With decreased costs comes increased profitability and financial strength. More cash is available internally and from external source to fund growth. This cash is then reinvested in the business in ways that will yield further increases of market share and replay of the winning cycle. They give some case studies that show how the Japanese companies win the competitive cycle.

Abegglen & Stalk (1985) explained that Japanese companies could seek growth recklessly in the expense of profit because they could access to seemingly unlimited source of borrowed funds and they could ignore their shareholders. Japanese companies could take financial risks by increasing financial leverage because of the relationships they had with their financial institutions. This relationship is called "main bank system." Their financial institutions could reduce their financial risks by establishing close relationships with their clients through shareholdings and access to better information. The Japanese financial institution could lend much money to the high leveraged companies because of the governmental monetary policy that aims to maintain low interest rates and to avoid a liquidity crisis.

With regard to the human resource management Gregory (1998) argues as follows: In such Japanese strategies as seeking growth and market share, mass production and process-oriented innovation were most important. As a result, human resource strategies could focus on training and development of generalist workers able to absorb and improve existing technologies rather than specialists or workers focused on innovative technology. These human resource strategies could easily implemented because of the stable labor force based on lifetime employment practices and seniority-based pay and promotion. Therefore, it can be said that the corporate strategies of Japanese companies could succeed because of the consistent policies among companies, financial institutions, government, and labor relations.

Change in Market Conditions

Ornatowski (1998) shows several changes in the market conditions in the 1980s and 1990s. First, Japanese economy became matured, in terms of both lower growth rates and growth of service sector. And it suggests the end of catch-up economy. As a result, profit margins of Japanese companies have been falling predating the early 1990s recession. After the fist oil shock, operating margins began to drop before recovering in the 1980s. But they dropped again during 1990s. Second, large Japanese companies' international competitive position has declined, primarily due to yen appreciation and companies' declining ability to squeeze more costs from suppliers and factory production.

Also, the labor market has changed. First, the percentage of employees in white-collar jobs with much slower productivity growth than blue-collar workers has risen. The percentage of total white-collar workers increased dramatically from 36 percent in 1970 to 50 percent in 1990. It caused the serious problem of productivity in Japanese companies. Second, workforce has been aging rapidly, with an excess of older workers. Some 25 percent of the Japanese will be 65 or older in 2020 (Lincoln & Nakata, 1997). These factors caused the rise of labor cost because the older workers were given high salary because of the seniority pay system.

The Shift to a Multinational Corporate Strategy

As the Japanese economies enters the 'post growth era', high profits through expanding domestic markets are hard to guarantee. With the majority of companies unable to keep up with the sharp appreciation of the yen, and acknowledging the need for restructuring and for setting up operations overseas, from now on they have to plan to secure profits in the context of the contraction and stagnancy of domestic market. In order to secure their place as global corporations, companies will increasingly have to plan to carve out international markets based on co-operation with multinational corporations, while handing over part of corporations, as can be seen in the case of semiconductors, cars, public works, and insurance. Large companies will continue to place strong emphasis on both growth and market share as corporate strategies, and put even greater emphasis on product, marketing, and service innovations. Large firms will continue to rapidly shift lower-value-added manufacturing overseas while simultaneously increasing performance-based pay and promotion systems within Japan to foster greater white-collar productivity and innovation.

One of the global strategies of Japanese companies was increasing direct investment such as plants and factories to foreign countries. This was aimed to avoid the currency risk that had ever affected the profits of many Japanese companies. The other reason is to resolve international trade conflict between Japan and other countries. Basically, the strategy of Japan as a nation with little natural resource was to import materials from other countries and export products by adding values and earn foreign currencies. But that was criticized by other countries because of unbalance of import and export. To avoid this, many Japanese companies started to localize their production processes mainly in America, Europe and South East Asia.

Another global strategy of Japanese companies was cost cutting. Ikeda (1998) illustrate the cost-cutting strategy in automobile manufacturers. Because of the strong yen, which in 1995 broke through 100 yen to the dollar barrier, Japanese automobile companies faced the need of more cost reduction to maintain their competitive advantages in the international market. Toyota called 113 component manufactures to realize 15 percent reduction in costs by 1997. Nissan also tried to make cheaper cars by setting the goal of upper target of 40 percent for its own cost reductions. Other companies such as Honda and Mazda also followed the cost cutting strategy. As a result, component makers, many of which are the member of keiretsu in the automobile industry, had a hard time because of the strict requirement by the automobile manufactures.

As a result of strategic choice of direct investment and corporate restructuring, the corporate control changed. The vertical and horizontal keiretsu relations which were carefully constructed by every large corporations are now being destroyed. This has resulted from a conversion to dry trading relations with subcontracting and allied companies, the moves to entrust production discovery of the potential of overseas labor, the expansion and construction of overseas production bases, and moves to reorganize in the face of drastic cost competition brought about by 'price collapse'.

Similarly to restructuring, many Japanese companies tried to improve their efficiency by implementing business process reengineering in the early 1990s. Boyd (1995) illustrates a good example of business process reengineering in Japanese companies. He reports the reengineering at Omuron Corp. The company was undertaking BPR (Business Process Reengineering) that will streamline and integrate its R&D process, product ordering, and demand-forecasting systems. The process changes will be enabled by a wave of new systems, including a companywide electronic-mail system and a set of integrated client-server business applications. But unlike the typical American approach to BPR, which is usually dramatic and results in a downsized work force, Omron is taking each step excruciatingly slowly-and only after numerous meetings and reaching a consensus with everyone concerned, including the company's union. "Unlike the U.S., where people might be laid off, it's a matter of not making quick, dramatic changes, because protecting people is a primary concern," one of the Omron's managers said.

The other strategy of Japanese companies for survival is to make alliance with other companies of conducting merger and acquisitions. Especially the latter strategy of M&A was not familiar with Japanese companies but the number of M&A in Japan has been increasing to survive in the international competition. Alliance between Japanese companies and foreign companies has also increasing. In recent case, there were such alliances between foreign financial institutions and Japanese financial institutions after the announcement of deregulation of Japanese financial market.

Changes in Human Resource Management Practices

Many researchers argue that Japanese management system is evolving rather than remaining stable in the long run (e.g., Ornatowski, 1998). Based on the published surveys by the Japanese Ministory of Labor (JMOL), the Federation of Japan Employers or Nikkeiren (FEG), the Japan productivity Center (JPC) and Japan Employment Information Center (JEIC), Ornatowski (1998), describe recent change in Japanese human resource practices.

Based on the results of JMOL survey in 1994, it seems clear that the general trend among the majority of large companies is to maintain the lifetime employment system, not abolish it. Larger firms, however, give considerably less support for the future maintenance of the seniority-based pay and promotion system. In fact, a majority of companies support its gradual weakening and, in many cases, complete abolishment. From 1983 to 1993, the difference between the average wages of older and younger workers decreased, indicating a flattening of the wage curve and thus a weakening of wages based on seniority. Thus, while lifetime employment will be retained, seniority-based pay and promotion will generally be phased out.

Job-based wages didn't come to be widely used until after the first oil crisis (1973 to 1774), when the need for more specialized skills became clearer and "job ability-based wages" became popular to determine part of overall pay using a measure of an individual's overall job abilities along with other components that were still clearly seniority-based. Since the early 1990's, a minority of companies has further developed this system of job ability-based wages to focus solely on individual worker performance over on year compared to goals set at the beginning. Companies use an annual salary system primarily for managers and general managers, not for lower level jobs or employees, though they use it to an extent for specialists, especially in technical areas. Now, according to the survey conducted by Nikkeiren, about nine out of ten companies want to change their compensation system to the performance-based or ability-based pay (Nikkeiren 1998).

Japanese companies also seeks to establish more individualistic human resource management systems (Watanabe, 1998). The core concept is ability-oriented management, in which companies consider diversity of employees and adjust themselves to their abilities and needs through providing different career courses selection. Also, they started to introduce some practices that are used in western countries. For example, many companies are thinking of implementing US-style cafeteria plan to meet the individual needs and reduce the total cost of employee benefit.

In summary, recent major changes in Japanese companies' domestic employment practices have centered on revisions to the seniority system and not to lifetime employment. As a result, it seems the seniority system is being replaced by a new job performance-based pay system increasingly labeled as in "annual salary system."

Changes in Employment Practice and Labor Relations in Japan

The popular Japanese annual collective bargaining called "syunto" or spring offensive is about to collapse (Nikkei 1998b). Wage increases have been determined through spring offensive. It is industry-wide unified struggle. According to Daiko (1984), the Spring Offensive has taken firm root as Japan's primary mechanism for wage determination and has had the desired effect. But this Spring Offensive has no significance when the annual increase based on seniority based pay began to collapse. For example, Fujitsu Corp. decided to introduce the procedure in which employees' annual bonus will be determined automatically according to the company's profits level. As a result, Fujitsu do not have to negotiate the level of annual bonus with labor unions in spring any more (Nikkei 1998a). Also, in the process of Spring Offensive, the level of wage has been determined in a way that keeps same level within industries. However, company unions have begun to accept the difference in wage level within industries. That is, they allow the profitable companies to raise wages higher while some companies that are not profitable do not raise wages.

The other change in Japanese industrial relations is the increase of temporary workers and part timers. This has been caused the spread of outsourcing practices among Japanese companies (Nikkei, 1998c). As a result, the number of workers who are not unionized is increasing. The use of part-time and temporary labor to "buffer" regular workers from market uncertainties is expanding in the current Japanese economy (Lincoln & Nakata, 1997).

The Application of Strategic Choice Model

We reviewed the historical background of Japanese industrial relations, recent changes of market condition and corporate strategies, changes of human resource practices, and changes of recent industrial relations in Japan.

With regard to the historical perspective, it is suggested that Japanese industrial relations systems are a product of dynamic interacting processes between labor and management. Not just because of economic situation or other external environment, but because the strategic choice of both management and union, the fundamentals of today's Japanese industrial relations were established. For example, co-operative nature of enterprise unions is the outcome of strategic choices and interaction between management and labor. Therefore, although the history of Japanese industrial relations differs from those of the U.S., the basic framework of strategic choice model can be applied to the early stage of Japanese industrial relations.

Proposition 1: Although the history of industrial relations is different between Japan and the U.S, the basic framework of strategic choice model can be applied to the historical evolution of Japanese industrial relations.

I showed that in 1980s to 1990s, the environment of Japanese companies changed and it enforce the strategic choice among Japanese companies. The significant change in environment is caused by the long recession after the collapse of bubble economy. However, even before the bubble economy, the situation was changing gradually. The most important point here is the globalization of international businesses strongly affected the formation of Japanese industrial relations through economical situation, corporate strategy and so on. Especially, the pressures of globalization forced government decide to deregulate many domestic industries, which seems to accelerate the transformation of Japanese industrial relations.

Proposition 2: Not only the domestic economy or domestic market environment but also the globalization and international competitive positions affect the corporate strategies of Japanese companies.

In the top tier of the management level, the main choices are (1) direct investment such as plants and factories to foreign countries, (2) cost cutting through restructuring and reengineering, and (3) strategic alliance or merger and acquisition. The role of top tier is to decide the corporate direction in the context of long recession after the bubble economy, which also affects the overall direction of human resource practices and labor relations. Especially, the top tier decision of leading Japanese company will affect the government policy, unions, and other organizations. The effect of large companies' top tire decision seems to strong in Japan. It is because they are still holding power within business groups or keiretsu and the other companies within keiretsu are supposed to follow the directions. For example, the many of component makers in automobile industry were forced to invest to foreign companies to set up their operation after the decision of automobile manufacturers such as Toyota and Honda. Also they are supposed to join the co-operative campaign to reduce production costs. This large movement will finally affect the transformation of industrial relations structure.

One of the characteristics of corporate strategy in Japanese companies is that they tend to decide similar strategic choice at the same time. Especially, many of large companies still seeking the growth and market share. The historical background that Japanese companies were successful by that strategy might affect the tendency. The decision making at the level is very slow and sometimes it is irritating. However, once Japanese leading companies decide the overall direction, the movement will accelerate fast.

Proposition 3: The strategic choices in top tiers in Japanese leading companies strongly influence the direction of industrial relations.

Proposition 4: The strategic choices of top tiers in Japan are rather homogeneous, which accelerate the transformation of its industrial relations.

The changes in human resource practices and labor relations are closely related to the strategic choices in the middle tier and their interactions. Because the Japanese labor relation is rather collaborative than competitive, they finally found the best way that fits into the recent trend or direction. The basic trend is to keep the long-term employment practice instead of giving up the seniority-based pay and promotion. However, the problem of aging population and increasing number of white-collar workers who are less productive will force to change the current labor-management agreement about the human resource practices. In fact, some companies introduced early-retirement plan to promote older employees' voluntary leave. The next industrial relations will be a result of complicated interaction between management, unions, and individual employees.

Proposition 5: Recent transformation of human resource practices and labor relations in Japan are not sufficient enough and still on the way to the new industrial relations systems.

Enterprise union has been the dominated form of unionism in Japan. "The enterprise union seems to employed workers to be the most acceptable and effective form of union organization (Shirai, 1983)." However, the collective bargaining in Japanese industrial relations is also changing dramatically and it may affect current unionism in Japan. Especially, the role of syunto or spring offensive is weakening as a result of changing human resource practices. Also, because the number of temporary workers and part-time workers who usually do not join unions is increasing, the proportion of union membership is declining year after year. This phenomenon is caused by interaction between environmental situation and strategic choices of management and labors. Along with the weakening role of enterprise unions, this tendency will lead next stage of industrial relations system in Japan.

Proposition 6: Along with the decline of union membership, the increasing number of nonunion workers will lead the next stage of Japanese industrial relations.

With regard to the strategic choice in bottom tier, Japanese labor relation has been characterized by labor-management consultation. This characteristic is based on the community-like labor-management relationship. Many Japanese companies think this type of relationship is important and want to keep this system in the future. However, if the trend of increasing individualistic management continues, the community-like relationship will also change. The form of next relationship depends on the strategic choices of both labor and management.

Proposition 7: Collaborative labor-management relationship will change into another type of relationship in the bottom tier of industrial relations. The next relationship depends on the strategic choices of both labor and management.

Finally, in Japanese industrial relations, the interaction among each of three tiers and across the tiers is very strong and that caused the slow decision making in the political and strategic level of corporate directions and industrial relations in Japan. Because of homogeneous characteristic of Japanese culture, this tendency seems to be strong.

Proposition 8: The interaction within and across three tiers is so strong that the complex interaction will cause the future strategic choices, which shape the future structure of industrial relations in Japan.

Discussions and Implications

In this paper, I applied the strategic choice model to Japanese industrial relations. I confirmed that basically, the strategic choice model could be applied to the Japanese industrial relations although their historical background and structure were different from those of the U.S. I also found that the specific characters should be considered when applying strategic choice model to the industrial relations in Japan. For example, Japanese industrial relations seem to be affected more by the international factor than those in the U.S. It is because the Japanese economy has developed mainly through exporting products while importing materials. This basic strategies is closely related to the international relations and thus international factor must be considered even analyzing domestic industrial relations. Also, the homogeneous characteristic of Japanese culture must be closely related to the structure of industrial relations and future evolution of them.

Further study is needed to analyze the dynamic processes of decision making, interaction among players, and their outcomes. For example, more detailed case study would contribute to the understanding such dynamical processes. Especially, the decision making process and interactions at the bottom tier must be studied by careful observation of a few company for a long time. The description of vivid organizational phenomena would lead us in-depth understanding and insightful implications.

Also, study is needed to the topics that could not be covered in this paper. For example, the conditions around Japanese small and mid-sized companies might be slightly different from those around large companies. Or companies in nonunion setting should also be analyzed. These topics should further examined to refine the propositions I raised in this paper, and make progress of developing the strategic choice model in Japan.

Furthermore, research is needed to examine the regional difference in global economy. Especially, comparative study between Japan and U.S. or Japan and other counties will be highly significant for the area of strategic choice model. It is interesting how we explain the difference in transformation of industrial relations using strategic choice model. Also, it is interesting to analyze the effect of globalization to each countries industrial relations system.

Finally, I must say that there are limitations to the application of strategic choice model. First, this kind of theory is difficult to test empirically. Also, it is difficult to predict the outcome of complex interactions between many variables. However, I believe that it is possible to conduct some qualitative research using small number of variables to examine the causal relationship between specific factors. It is also possible to provide some future scenarios of the industrial relations in Japan.


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