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Drucker on Asia: A dialogue between Peter Drucker and Isao Nakauchi

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A Man of Theory & a Man of Practice

In the early 1990s Peter Drucker wasn't one who fell in with those troubled over Japan's economy. Quite the opposite. Writing at the time, Drucker, considered by many "the seminal thinker on 20th-century business organization," called such pessimism "baseless." His reasoning?

During its recession, Japan never relinquished global market share in key sectors and led in the development of Asia. Indeed, as Japan reinvigorates itself, Drucker's confidence just might be prescient. And his forecasting doesn't leave off with Japan.

Drucker on Asia: A Dialogue Between Peter Drucker and Isao Nakauchi(Butterworth-Heinemann, 1997) features the correspondence spanning 1994 and 1995 of Drucker and Isao Nakauchi, founder and head of Daiei, Japan's largest retailer with sales of over $30 billion in 1996. Dated though the collection seems--it first appeared in Japan where Drucker enjoys the status of demigod--the topics are very much of the moment. The challenges posed by an emerging China and a Japan in the midst of reinvention can't be ignored. Thoughts on the evolution of our "knowledge society"--and the role corporations play in that evolution--are germane to all who'll inhabit planet earth 20 years hence.

What do the two have to say about the future? Certainly Drucker is the more robust of the pair in prognosticating the shape of society and the fate of countries in the order of things to come. This is, after all, Drucker on Asia. Nakauchi's comments, though, flesh out the exchange with practical examples of how he managed to build Daiei into one of the world's largest food retailers.

Reckoning with China

Drucker anticipates a multi-centric world economy emerging from what was a triadic relationship between the US, Japan and Western Europe. At the center of the Asian sphere is China--a country, in Drucker's estimation, offering investors a volatile mix of both the greatest dangers and greatest rewards.

The rewards are obvious. The Ninth Five-Year Plan, which is unofficial but attributable to the Chinese government and released after Drucker and Nakauchi had concluded their correspondence, projects China as the world's largest economy by 2030. To achieve this, the plan acknowledges, it will have to attract an immense amount of Western and Asian capital and completely privatize the 11,000 large state-owned enterprises.

But foreign capital isn't a given. Many investors are becoming less tolerant of China's fluctuating business climate. New government regulations introduced every six months send the wrong message to firms looking for stability.

Don't misunderstand, China continues to collect a massive amount of foreign direct investment. However, a recent Wall Street Journal article has the Chinese government bracing for a sizable drop this year. Foreign investment was strongest in 1995 at $92 billion, dipped slightly last year and will fall by an expected $7 billion in 1997.

Dependent nonetheless on money from abroad, China is doing much of its economy-building with help from overseas Chinese. The Chinese diaspora "constitute[s] an invisible economic network" building multinational corporations with little or no outside investment. Lacking a financial infrastructure, mainland China benefits from returning Chinese who provide money, "a critical mass of educated people," and a legal framework for doing business.

Idle Hands

Still, help from overseas Chinese and foreign investors may not have much bearing on the growing mass of unemployed peasants leaving the farm. The Ninth Five-Year Plan sets the goal of full employment and acknowledges that high unemployment could lead to social instability. This admission echoes one of Drucker's primary concerns.

Drucker cites Chinese dynasties toppled by peasant revolt and relates that in 1994 over 100 million peasants left their homes in a futile search for work. Nearly 200 million remained behind without work.

A recent Chinese Ministry of Labor report puts the figure of those currently idle in the hinterlands at 330 million. Astonishingly, the report adds, the entire Chinese work force--those employable but not necessarily employed--expands by 10 million people annually. Drucker worries about the very real possibility that the Chinese government will bungle this issue.

All in All

China's problems shouldn't repel investors. One should know the odds, though. Likening the growth prospects of China to Japan after the war, Drucker hastens to reiterate the risks involved in the proposition. "It is a gamble . . . in which a negative outcome is at least as likely as a positive one." Taking everything into consideration, Drucker asks, can a businessman afford to ignore China? He answers emphatically, "No."

Nakauchi takes to heart Drucker's "No." Long considering expansion into China, he takes it as his duty to help modernize China's distribution system. As it turned out, this was not a decision Nakauchi had to make on his own. In late 1995 Chinese Premier Li Peng requested the cooperation of Daiei in introducing the fundamentals of the Japanese distribution network into rural China.

Daiei had come a long way from its modest drugstore beginnings--a start that Nakauchi doesn't easily forget. In fact, he acknowledges the importance of 1957 as the year in which he embarked on a process of ceaseless business education.

Innovation in Sweets and Meat

It was in 1957 that Nakauchi opened his first store. Business in the first three days exceeded all expectations. On the fourth day a competitor opened nearby and began drawing away customers. To win patrons back Nakauchi conducted an informal poll asking what it was the store should sell. At the time the most popular pastime of a very poor Japan was to sit down with television-owning friends in front of the tube and share sweets. The people answered Nakauchi's question by urging him to offer . . . yes, that's right: sweets.

Nakauchi followed the advice of his patrons and sold sweets by weight as was the custom. The store was a hit again, crowded day after day. Soon a problem presented itself. Because of the slow method of service inherent in selling by weight servers couldn't meet demand. Throngs were turned away. Something had to be done. In what was considered a radical decision, Nakauchi pre-packaged sweets using a new product, the polyethylene bag.

Customers were hesitant. Before, they were able to sample a sweet before they purchased it. Of course, pre-packaging made this impossible. Nakauchi responded by offering a money-back guarantee to anyone dissatisfied. Few were. Nakauchi's first lesson, in his own words: "Innovation means parting with convention." He also happened to be the first to introduce pre-packaged servings at the meat counter.

A recounting of Nakauchi's business lesson segues perfectly into Drucker's vision of the adaptable information-based organization of tomorrow. Of most interest are his predictions on how the Japanese company will be reorganized. In 20 years the kachô or section chief will be a memory. There will be fewer senior executives. And as for the rest of the organization, a leveling will occur and "full information-responsibility" will be expected from each employee.

Drucker's thoughts are nothing short of unsettling to many Japanese since individual advancement in the Japanese company means moving into and through management positions. Nakauchi embraces Drucker's pronouncement, however, and answers with one of his own: "The understanding by executives of their responsibilities [in bringing about the company reorganization] will hold the key to the revitalization of Japan."

--Peter R. Tyksinski

For a book whose English language version is less than a year old, The title "Drucker on Asia" has not lasted well. You won't find much here that directly relates to Asia's current crisis of (economics) confidence, immature banks etc. The price for this slim book is also high. All this is a pity because there are various interesting lessons to be discovered in this published conversation between Peter Drucker and the Japanese Retail visionary Isao Nakauchi. One of my favourites has little directly to do with Asia - it stems from this question which Isao sets up for Peter to answer: "How can the individual and especially the individual in knowledge work maintain his or her effectiveness? Drucker replies by doing a few simple things well: 1) Maintain a goal or vision - his own "to keep on striving" means that one matures but does not age. 2) Take the view Phidias took of his own work "the Gods see it". People who take this view are not willing to do work that is only average; they have respect for the integrity of their work; in fact they have self-respect. 3) Build continuous learning into the way you live - Drucker has done this by taking up a new subject to study every 3 years of his life! 4) Like the Jesuits of the 16 century, build a review of your performance into your work. Do this by keeping a record of results/decisions and comparing these with previously enumerated expectations. This teaches you what you are good at and what you're not good at. I question whether these are simple things to do unto yourself, but then Drucker adds one more irresistible experience-based advisory:"Again and again, when I ask effective people to explain their success, I hear that a long-dead teacher or boss challenged them and taught them that whenever one changes one's work, one's position, one's assignment, one thinks through what the new job, the new position, the new assignment requires. Always it requires something different from what the preceding job or the preceding assignment required". I would be delighted to e-mail dilaogue with other readers of this book on favourite learnings. E-mail me at wcbn007@easynet.co.uk - Chris Macrae, editor of MELNET www.brad.ac.uk/branding/ and author of "Brand Chartering Handbook - how brand organisations learn living scripts".