T H I N K I N G A B O U T . . .

Canon shows how companies can cooperate for the common good.

The Path of KyoseiMany companies around tbe

world believe that they have a moralduty to respond to global problemssuch as Third World poverty, the de-terioration of the natural environ-ment, and endless trade battles. Butfew have realized that their survivalactually depends on their response.Global corporations rely on educat-ed workers, consumers with moneyto spend, a healthy natural environ-ment, and peaceful coexistence be-tween nations and ethnic groups.This reality is to me a great sourceof hope: at this watershed periodin history, it is in the interests ofthe world's most powerful corpora-tions to work for the advancement ofglobal peace and prosperity. To putit simply, global companies haveno future if the earth has no future.

But how, many have asked, canglobal corporations promote peaceand prosperity and at the same timeremain true to their obligation to se-

by Ryuzaburo Kaku

cure a profit? The answer, in my ex-perience, is kyosei, which can bestbe defined as a "spirit of coopera"tion," in which individuals and orga-nirations live and work togetherfor the common good. A companythat is practicing kyosei establishesharmonious relations with its cus-tomers, its suppliers, its competi-tors, the governments with which itdeals, and the natural environment.When practiced by a group of corpo-rations, kyosei can become a power-ful force for social, political, and eco-nomic transformation. At Canon,we have put kyosei at the heart ofour business credo. For the last tenyears, it has been Canon's most cher-ished principle.

I began to see Canon's need for aphilosophy of kyosei when we start-ed doing business on a global scale.As we built plants, hired workers,and managed our finances in foreigncountries, we encountered a new set

of business challenges. These chal-lenges were more than tactical busi-ness concerns such as respondingto fierce competition, managingsuppliers, or dealing with currencyrisk; they were global imbalances-I identify three- that continue totrouble us. They need our collectiveattention as corporate leaders and ascitizens of the world.

The first is the imbalance betweencountries with trade deficits andthose with trade surpluses. Tradeimbalances lead to an unhealthy in-ternational business environmentrife with antidumping laws, risingtariffs, and endless trade disputes.The second is the vast income im-balance between wealthy and poor

Ryuzaburo Kaku is honorary chair-man of the board at Canon in Tokyo,Japan. He was president of Canonfrom 1977 to 1989 and chairmanfrom 1989 to March of this year.

HARVARD BUSINESS REVIEW July-August 1997 S5

T H I N "

There is nothing^ t h the profit

motive - even companiesin the later stages ofkyosei must increase

profits. But that is onlya beginning.

nations. Among the many problemsgenerated by this inequality arewidespread poverty, floods of eco-nomic and political refugees, illegalimmigration, and ethnic or civilwars. The third is an imbalance be-tween generations: the current gen-eration is consuming the earth's re-sources so fast that little will be leftfor the next. The earth's nonrenew-able energy supplies, for example,are in danger of running out, and tbeearth's atmosphere is rapidly deteri-orating. If we look ahead into themiddle of the twenty-first century,we cannot be sure that our planetwill escape environmental ruin. Ul-timately, our work as companiespracticing kyosei should focus onfinding solutions to those three ma-jor global problems.

The Five Stages ofCorporate Kyosei

The kyosei journey begins by lay-ing a sound business foundation andends in political dialogue for globalchange. The process is analogous tobuilding a pyramid in that thestrength of each layer depends on tbestrength of tbe layers preceding it.

Stage 1: Economic Survival. Com-panies in this stage work to secure apredictable stream of profits and toestablish strong market positions intheir industries. Tbey contribute tosociety by producing needed goods,purchasing locally produced raw ma-terials, and employing workers. Inpursuing business goals, bowever,tbey tend to exploit their staffs andcreate labor problems. For instance, Ifeel that some U.S. companies takethe profit motive too far when theylay off workers to increase profits

and at the same time paylarge bonuses to tbeirCEOs. Tbere is nothingwrong with the profitmotive per se - evencompanies in the laterstages of kyosei must in-crease profits. But mak-ing a profit is only tbebeginning of a compa-ny's obligations. As tbeymature, businesses needto understand that theyplay a role in a larger,global context.

Stage 2: Cooperating with Labor.A company enters the second stageof kyosei wben managers and work-ers begin to cooperate with eachother. Each employee makes co-operation a part of bis or her owncode of ethics. When that happens,management and labor start to seeeach other as vital to the company'ssuccess. The two sides are in thesame boat, so to speak, sharing thesame fate. This approach to manage-ment is popular in [apan, wherecompanies are well known for theircommitment to workers' salaries,bonuses, and training. As importanta step as it is, though, tbis stage ofkyosei can become so inwardly fo-cused that it does little to solveproblems outside tbe company.

Stage 3: Cooperating Outside theCompany. Wben a company cooper-ates witb outside groups, such ascustomers and suppliers, it entersthe third stage of kyosei. Customersare treated respectfully and recipro-cate by being loyal. Suppliers areprovided witb technical supportand, in turn, deliver high-qualitymaterials on time. Competitors areinvited into partnershipagreements and jointventures, which resultin higher profits forboth parties. Communitygroups become partnersin solving local prob-lems. Needless to say,forming a kyosei part-nership for the commongood is very differentfrom forming a carteland fixing prices. Com-panies at this stage un-derstand that a rising

tide lifts all ships. They know thatby finding ways to collaborate withcustomers, suppliers, and commu-nity groups, they are helping allparties. But tbird-stage companiesoften focus so much on local and na-tional problems that they neglectglobal problems. For example, inJapan, many companies contributeto [apanese society but continue tohave adversarial relations witb for-eign governments.

Stage 4: Global Activism. Wben acompany begins large-scale business

in foreign countries, it isenter tbe fourtb stage of

kyosei. B^N^joperating with foreigncompanies, l̂ j;ge corporations notonly can increask their base of busi-ness but also can\ddress global im-balances. For exaimple, a companycan help reduce t: ade friction bybuilding productiDn facilities incountries with which its homecountry has a trade surplus. By set-ting up R&.D facilities in foreigncountries, companies can train localscientists and engineers in cutting-edge research work. By training localworkers and introducing them tonew tecbnology, corporations canimprove tbe standard of living ofpeople in poor countries. And by de-veloping and using technology thatreduces or eliminates pollution,companies can help preserve tbeglobal environment.

Stage 5: The Government as aKyosei Partner. When a companyhas establisbed a worldwide networkof kyosei partners, it is ready tomove to tbe fiftb stage. Fiftb-stagecompanies are very rare. Using theirpower and wealth, fiftb-stage compa-nies urge national governments to

A rising tide lifts all ships:by finding v^ays to

collaborate withcustomers, suppliers,

and community groups,companies are helping

all parties.

56 HARVARD BUSINESS REVIEW luiy-August 1997

T H I N K I N G A B O U T . .

work toward rectifying global imbal-ances. Corporations might press gov-ernments for legislation aimed at re-ducing pollution, for example. Orthey might recommend the abolitionof antiquated trade regulations. Thistype of cooperation is quite differentfrom the traditional partnership be-tween business and government, inwhich powerful corporations look totbeir own governments for belp intrade deals or for special subsidiesand protective tariffs.

Kyosei in Action at Canon

Many people criticize the conceptof kyosei for being too idealistic andtheoretical to put into practice, so Iwould like to demonstrate how suc-cessful it has been for us at Canon. Inbrief, each employee makes a com-mitment to live and work in harmo-ny witb others. This spirit is sharedinside the company, then with theoutside community, and finally withorganizations throughout the world.The company has put many years of

dedicated work into making kyosei areality. I believe that we bave madegreat progress.

Establishing a Solid BusinessFoundation. In the first half of 1975,two years before I became president.Canon was losing money because ofproblems with management policyand internal production. We had tosuspend dividends that year andwere in no position to consider in-troducing kyosei, which requires asolid business foundation.

We concluded, after an internal re-view, tbat we had become overly bu-reaucratic and had lost our entrepre-neurial spirit. We put into action astrategy qalled the Premier Compa-ny Plan that was designed to placeCanon in the top ranks of globalcompanies and to move it from be-ing a camera producer to beinga global bigb-technology manufac-turer. The plan set aggressive, long-term performance targets for eachdivision and reorganized the compa-ny along a matrix structure centered

around the main product lines: cam-eras, business machines, and opticalproducts. We also invested heavilyin manufacturing, marketing, andR&D activities, making them thehorizontal links between the verti-cal pillars formed by our three prod-uct groups. We made those invest-ments at a time when the economiesof the world were shrouded in pes-simism due to tbe oil crisis of 1973and when many companies werecutting back on their investments.

We followed this basic plan for tenyears and are still benefiting from itsvision. Today we are tbe world mar-ket-share leader in our major prod-uct areas - copiers and desktop print-ers. During the last ten years, our netprofits have grown at an annual rateuf 20%, sales have grown at 9%, andour return on sales and return onequity have more than doubled. Wehave built a strong foundation forthe practice of kyosei.

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T H I N K I N G A B O U T .

The Journey to Kyosei: Reminiscences of Ryuzaburo Kaku

As chairman and now hon-orary chairman of Canon. Ryuz-aburo Kaku belongs to the tight-knit world of Japan's corporateelite-and is one of that elite'smost nettlesome critics. He hastaken his compatriots to task ona number of issues, includingaggressive trade practices andinsensitivity to the world's so-cial problems. Kaku says that hisrole as g^^^f^Y soes back to hisearly years and that he retainedhis outspoken ways as he rosethrough the ranks at Canon.

I was born in 1926 and spentmost of my childhood in China,where my father beld various jobsin the newspaper business and atthe Japanese embassy. For manyof those years, Japan and Chinawere at war. Wben I returned toJapan at the age of 17, I was con-sidered an outsider by my class-mates, and I tended to spend timewith other children from nontra-ditional backgrounds. Tbat expe-rience taught me tbat so-calledoutcasts were no different fromeveryone else. From that time on,I have empathized with less for-tunate members of society andhave been able to work with peo-ple from any background, partic-ularly in developing countries.

I was a highly patriotic youngman and applied to become a ju-nior student in the naval-pilot-training program. The examinerturned me down because he said Ihad bad eyes. Later, I found outthat tbe examiner was a friend of

tbe family and bad rejected me tospare my life. At that time, enter-ing the training program usuallymeant you ended up as a kami-kaze pilot. After that experience,I developed a healthy amountof skepticism toward governmentand bureaucracies.

When I was 19 years old andworking as a conscripted shipyardlaborer at Mitsubishi Heavy In-dustries in Nagasaki, I heard tbeatomic bomb explode. I hid un-derground and stayed indoors forthree days witb a group of people,none of whom I let leave, becauseI knew about the effects of nu-clear radiation. I will never forgetthat experience and hope thatkyosei will belp ensure that nu-clear bombs never fall again.

My approach to education wassomewhat unusual. I took veryseriously advice that one school-teacher gave me: "Never memo-rize formulas; create your own." Iwent on to fail the entrance examto the prestigious Tokyo Univer-sity Faculty of Fngineering threetimes. Other students did wellbecause they knew tbe formulasby heart, but because I followedmy teacher's advice and devisedmy own formulas to answer thequestions, I took much too longand I failed the exams. After that,I peddled matches and candles fora while before enrolling in ChibaInstitute of Technology, fallingill, and dropping out. Finally, Ilanded at Kyushu University'seconomics department and grad-uated in 1954.

I graduated at a time of eco-nomic depression following theboom years of the Korean War,and I nearly took a job at Sumito-mo Bank. But 1 was afraid of dis-appointing my father, wbo hadwarned me never to become asoldier, a teacher, or a banker. Bythat time, 1 already had taughtschool and bad been a militarycadet, so to take tbe bank jobmight bave been too much forhim. Tben I heard from a distantrelative about Canon, at that timea small and exciting company ledby Takeshi Mitarai, a gynecolo-gist and obstetrician. Dr. Mitaraihad a reputation as a leader witha strong vision and a caring spirit.

After filling out a written appli-cation, I was called in for a job in-terview. Because Canon was stilla small company. Dr. Mitarai andthe other directors all sat in ontbe interview. When I was askedwbat my hobbies were, I men-tioned Mah-jongg, which is a verypopular game in Japan. Dr. Mi-tarai became very cross.

"We don't want gamblers in theoffice," he said.

"Mah-jongg is not gambling,"I replied. "It's a game tbat thewbole family, young and old, canenjoy. My father is the founder oftbe Japan Mah-jongg Society, andhe does not approve of any bet-ting on the game."

"Well, it's no good. It keepspeople up late at night."

"At my home, we have a rulethat we can only play the gamefrom 8:00 P.M. to 10:00 P.M., SO we

58 HARVARD BUSINESS REVIEW July-August 199/

T H I N K I N G A B O U T .

never stay up late," I said. "Youknow what they say-those whoplay Go often miss their father'sdeath, whereas those who playMah-jongg..." Go is a traditionalJapanese board game.

Dr. Mitarai got very upset be-cause he was a Go player.

"I am not yet a Canon employ-ee," I said to him. "So you do nothave the right to scold me likethis. We are equals."

That is how my job interviewwent. Much to my surprise, I re-ceived a notice that Canon haddecided to hire me. I learned laterthat although Dr. Mitarai had puta huge "X" by my name, all of theother directors voted for me. Ifound out also that during a com-pany outing shortly before the en-trance exam, the directors hadbeen playing Mah-jongg after Dr.Mitarai had gone to bed. The clat-tering sound of the game hadawoken him in the middle of thenight and he had come into theroom shouting at them angrily,"If I catch you playing Mah-jonggagain, it will be the end of ourrelationship!" Well, 1 understoodthen why Dr. Mitarai had votedagainst me and why the othersprobably were quite happy to voteforme.

I started my career at Canon inthe cost-accounting division,where I spent six years learningabout product costs, plant lay-outs, and the details of Canon'sproduction processes. I turnedmy somewhat monotonous jobinto a sort of game by managing

to get my work done three to fourtimes faster than it usually took. Ialso began sending memos toCanon's senior managers detail-ing what was wrong with thecompany and what could be doneto fix it. My memos generallywent unheeded until, in 1965, Ipredicted that the company wasgoing to run out of cash, and Iturned out to he right.

At that point, I was made headof both accounting and personnel.My new duties gave me access tosenior managers, to whom I sentrecommendations regarding en-tering, exiting, or completely ig-noring markets. Then, in 1975,Canon once again ran into cashproblems and had to suspenddividends. I was included in thetop-level brainstorming sessionsaimed at developing Canon's newstrategy. It was in such a meetingthat, when asked, I argued thatCanon's financial troubles couldnot be blamed on outside condi-tions but were the result of thecompany's poor decision makingand its bureaucratic organization.My ideas became the central partof Canon's Premier CompanyPlan, which was announced in1976. The Premier Company Planhelped transform Canon from alittle-known manufacturer ofcameras into one of the world'sleading technology companies.And in 1977, I became presidentof the company.

The prevailing wisdom when Ibecame president was that be-cause of inflationary pressures

stemming from high oil prices,companies should avoid makinghuge capital investments. I neverwent along with that logic. I feltthat because Canon was a tech-nology company, it was not as de-pendent on oil as companies inother industries, and I decidedthat Canon should move forwardwith its growth plan, especiallybecause many of its competitorswere retrenching. I radically de-centralized decision making, re-designed the organization, andpoured resources into R&D. Thedecision was wise: Canon'sgrowth in the following years faroutpaced that of its rivals.

Seeing the success of this ap-proach, I introduced a follow-upplan in 1982. The 1982 plan fo-cused on essentially the sameareas, but with two importantchanges. First, we redoubled ef-forts in R&D, convinced thattechnological innovation couldhelp prolong our phenomenalgrowth. Second, I placed greateremphasis on Canon's social re-sponsibilities and made tacklingthe world's many problems a vitalpart of Canon's mission. Canon'ssales grew 17% per year from thebeginning of this corporate over-haul in 1976 to its conclusion in1987. Canon had reached the up-per echelons of technology com-panies. It was then, in 1987, that Iintroduced the concept of kyosei,which blended Canon's techno-logical leadership with the beliefthat we could work with others toimprove the world.

HARVARD BUSINESS REVIEW |uly-August 1997 59

T H I N K I N G A B O U T .

Start by creating a cooperative spiritamong its employees. At Canon, wemanage the company on the princi-ple that there arc no distinctions be-tween factory and office workers.Everyone is a sha-in, which trans-lates as "member of the company."

Canon started cooperating withworkers early in its history, well be-fore other Japanese companies. In1943, Canon eliminated the distinc-tion between salaried and hourlyworkers and did away with the rulethat they had to use different cafete-rias and rest rooms. Similarly, whenTakeshi Mitarai was president ofCanon, he moved the company froma six-day to a five-day workweek,making Canon the first major com-pany in Japan to do so. We were all

against it at the time and said thatCanon would not be able to make aprofit that way. But we found afterwe made the change that Canon'sproductivity actually rose.

Even as a modern corporationwith more than 72,000 employeesworldwide. Canon has kept the co-operative spirit alive. BecauseCanon employees in Japan typicallyspend their entire lives with thecompany, we are able to invest inhigh salaries, extensive training pro-grams, and generous vacation plans.Canon Tokyo has never in its his-tory fired a domestic employee andhas never asked any employee totake early retirement. To managethrough times of slow growth.Canon Tokyo transfers its employ-

ees within the company or reducesthe number of new recruits. (AtCanon's companies overseas, wehave on occasion been forced to layoff workers because overseas em-ployees do not accept job transfers asreadily as Japanese employees do,nor are they as willing to accept re-duced pay to help the companythrough tough times.) Also, the va-cation and bonus plans we offer aremore liberal than those of otherJapanese companies. The averageemployee is ahle to take eight weeksof vacation each year. The eightweeks include periods when thecompany is closed and four weeks ofpersonal, paid vacation to be used atthe discretion of the employee. Wealso offer our employees the oppor-

I have studied a great deal ofJapanese history and have reliedon its lessons many times in mycareer. For example, I based mythinking about a new organiza-tional structure for Canon in the1970s on the organizational de-sign used hy one of Japan's mostsuccessful seventeenth-centuryshoguns. But many are surprisedwhen I tell them that kyosei alsohas roots in early Japan.

From about 1500 to 1640,Japan's traders were among themost successful in the world.Merchants traveled to China, In-donesia, the Philippines, andThailand. As people from thesedifferent areas came together toexchange goods, however, cul-tural differences led to consider-able conflict. (Some things havenot changed.) In order to helpmerchants conduct their busi-ness, a successful Japanese traderteamed up with a famous Confu-cian scholar and developed a setof guidelines known as Shuchukiyaku. The guidelines said, in ef-fect, that trade must be carriedout not just for one's own benefitbut also for the benefit of others.The regulations also stated that

Kyosei in Early Japan

despite differences in skin colorand culture, trading partnersshould be considered equals.

This period of mercantilist ex-pansion was followed in Japan hya protracted period of civil war,after which Japan was unified un-der a form of military govern-ment known in English as ashogunate. The shogunate led thecountry down a different road al-together: it closed almost alldoors to the outside world andput Japan in isolation. It wasn'tuntil the 1860s, when the emper-or was restored to power, that thisinward-looking style of gover-nance gave way to a forward-thinking regime determined tobuild Japan into a modern nation.By then. Western powers had al-ready colonized most of Asia.Great Britain had colonized Indiaand taken Hong Kong after win-ning the Opium War, the Dutchhad taken Indonesia, France wascolonizing Indochina, and theUnited States was in the Philip-pines. If Japan was to remain anindependent state, Japanese lead-ers thought, Japan needed to de-velop a strong military and a pow-erful economy-and quickly. But

as the twentieth century pro-gressed, this drive for economicgrowth and a strong military be-came a national obsession.Japan's militarism led to a num-ber of regional conflicts and ulti-mately to the Second World War.Long gone were the principles ofthe Shuchu kiyaku.

Following the war, Japan con-tinued its march to catch up withthe West. In my opinion, this goalwas achieved in J968, whenJapan's gross domestic productbecame the second largest in thefree world, and the country beganto record a consistent trade sur-plus. But even then, most Japa-nese still thought there was a longway to go before Japan could becalled an industrial power. It wasaround this time that I realized itwas necessary for us to redirectour efforts if we really wanted tothrive in the long term. We need-ed to introduce a broader vision ofour future, one that envisionedour country as part of a largerworld community, a conceptionthat was present 400 years agobut that had been lost along theway. That was how I came to theidea of kyosei.

HARVARD BUSINESS REVIEW Juiy-August 1997

T H I N K I N G A B O U T

At Canon, there are nodistinctions between

factory and office'workers. Everyone is

a sha-in, whichtranslates as ''member of

the company/'

tunity to take a leave of absence ofup to one year to engage in loeal oroverseas volunteer work and stillearn 20% of their salary. By caringfor our employees, we have foundthat they eare for the company-andwe all benefit as a result. In its 60-year history, Canon Tokyo has neverhad a strike.

Working in the Community. Acompany cannot thrive and growwithout its community, whieh in-cludes its suppliers, its customers,its shareholders, and memhers ofthe general publie. A company prac-ticing the third stage of kyosei hasharmonious relations with thosegroups. At Canon, we have intro-duced a companywide customer-sat-isfaction committee, for example,that voices the needs of the cus-tomer within our organization. Itsactivity has resulted in a numher ofnew ideas. For instance, we nowmake sure that the R&D departmentinteraets with customers early on inthe product development process.Also, we allow our customers todownload printer drivers for theirCanon desktop printers from oursite on the World Wide Weh.

Our suppliers also are importantmemhers of our eommunity. Our en-gineers visit our suppliers' plants tolearn ahout production proeessesand to help solve production prob-lems. We are trying to help our sup-pliers improve their technical skillsand the quality of their products.This cooperative approach is verydifferent from simply rejecting partsthat do not pass inspection whenthey arrive.

When we work with the generalpublic and communities, we typical-

ly contribute our tech-nological know-how.That is quite differentfrom traditional corpo-rate philanthropy, inwhich money is donat-ed. With kyosei, we areactive participants inthe relationship. We areinvolved in many proj-ects that put technol-ogy to use in the com-munity. For example, wedistrihute two U.S. prod-ucts for the blind and the

sight-impaired in Japan on a break-even basis. The products, Aladdinand Optacon, were designed by a pro-fessor of engineering who had a blinddaughter. They help the sight-im-paired to read nonhraille text. AtCanon, we train Japanese users andtheir assistants in the use of the prod-ucts, free of charge. We ourselveshave developed a product called theCanon Communieator that helps thespeech-impaired. We market it inJapan on a not-for-profit basis.

Finally, we are proud of the factthat our cooperative policies havealso benefited our shareholders.Over the last ten years, our stockprice has increased on average 9%each year. We are particularly proudthat we achieved this growth whileheing responsible corporate citizensand while laying a foundation for fu-ture growth through our global R&Dand manufacturing networks.

Addressing Global Imbalances.When Canon began manufacturingoverseas, we saw an opportunity toexpand our kyosei activities. We re-alized that our husiness decisionscould, if properly managed, be prof-itable and, at the sametime, contribute to thewell-being of peoplearound the world.

Trade Imbalances.

We attempt to rectifytrade imbalances hy sit-uating factories in thecountries with whichJapan has the largesttrade surpluses. By lo-cating our plants in En-gland, France, Germany,and the United States,we reduce the number of

Japanese imports into those coun-tries. Also, we try to procure parts forour overseas plants from local sup-pliers, which further helps reducetrade imbalances. Some will say thatwe take such steps only to limit cur-rency exposure-hecause 80% of ourrevenues are from export sales andwe are hurt by a rising yen. But oneof the characteristics of fourth-stagekyosei is that both the host countryand the corporation benefit.

Income Imbalances. We buildmanufacturing plants in developingcountries to help reduce the imbal-ance between rich and poor nations.Currently, we have manufacturingfacilities in China, Malaysia, Mexi-co, Taiwan, and Thailand. That, too,is in Canon's interest because laborcosts are low in those countries. Butif a foreign investment is wellplanned and managed, it contributesto tbe host country hy creating em-ployment, increasing the tax hase,reinvesting its profit, contrihuting toexport growth, and facilitating thetransfer of technology.

Investing in developing countriescan be risky husiness, however, sowe take precautions. First, we investonly in developing countries thatinitiate contact witb us, which wetake as a sign that tbey are willing tospend the time and money necessaryto make the deal work. For example,former Israeli Prime Minister Shi-mon Peres asked me to invest in Is-rael. He believes that peace in theMiddle East is impossible unless thearea develops economically and jobsare created, all of wbicb takes time.I fully agree, and I think that this isan excellent example of an area inwhich kyosei can be applied. No

Too fev^ politicians inJapan today are capable

of solving globalproblems. The mantle of

leadership has fallenonto the shoulders of

corporations.

HARVARD BUSINESS REVIEW July-August 1997 61

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amount of preaching will lead topeace as long as many people are un-employed and live in such difficultconditions.

The second precaution we take isto make sure that there is a spiritof independence among the people ofthe host country. Canon's first directforeign investment was made in Tai-wan in 1970. At that time, the Tai-wanese people aspired to economicindependence. Taiwanese business-men were self-reliant and showed ahigh degree of responsibility, so wedecided to form Canon Taiwan tomanufacture 35-miIlimeter compactcameras. Taiwanese nationals nowfill all management posts except forthe top manager's position. We havebrought home almost all our Tapa-nese R&D staff as well. We considerthis the ideal model for a joint ven-ture: it is highly profitable and runby local managers. But now that la-bor costs have risen so high in Tai-wan, it no longer makes economicsense to continue to invest there.Henceforth, we will expand our op-erations in China and SoutheastAsia and eventually, perhaps, in In-dia and South America.

Environmental Imbalances. Wewant to work in harmony with thenatural world, which means tryingto find ways to reduce air and waterpollution, to protect wilderness ar-eas, and to cut back on energy con-sumption. Our most innovative proj-ect, now under way in 21 countries,is recycling cartridges from Canon'sphotocopiers and laser copiers. Eachmonth, we collect about 500,000used copier cartridges from our cus-tomers around the world and shipthem to recycling plants located inChina and the United States. Weplan to open a recycling plant in Eu-rope in the near future. We also arcnow recycling entire photocopiers,thanks to a redesign in our productsthat makes them easier to pack anddisassemhle.

After ten years of research and de-velopment, we have made a majorinvestment in solar panels. Canonformed a joint venture with the U.S.start-up company that pioneered thetechnology, and we are now market-ing solar-cell roofing in cooperationwith some 500 construction compa-

nies around the world. We also aredeveloping a technology known ashioTcmediation. by which microheshreak down chemical pollutants inthe soil 25 times faster than previ-ously possihle. Those products aregood examples of kyosei becausesome day they will generate profitsfor Canon while simultaneouslyhelping the planet.

Advocating Political, Economic,and Educational Reform. Too fewpoliticians in Tapan today are capa-ble of solving global problems. Themantle of leadership has fallen ontothe shoulders of corporations suchas Canon. By making speeches, writ-ing articles, and meeting with gov-ernment leaders, I hope to educatemy country's political leaders aboutthe need to rectify global imbal-ances. Business can address a num-ber of different issues, but I havechosen four that I think are especial-ly important. First, I propose thatcompanies stop relying on the gov-ernment for handouts and special fa-vors. Many Japanese companies he-long to an iron triangle in whichpoliticians, bureaucrats, and largecompanies collude with one anoth-er. It's a joke-a waste of t ime- toask them to consider kyosei untilthey become more self-reliant.

Second, I propose that Japanrewrite its tax system. Japan's taxlaws give strong incentives to save,and consequently personal savingsform a much higher percentage ofgross domestic product than they doin most other developed countries. Ifwe change the tax laws, Japanesepeople will spend a higher percent-age of their income than they donow. That would stimulate domes-tic demand, resulting in increasedimports and a lower trade surplus.

Third, Japan should shift from acentralized government in Tokyo toone that is more decentralized. Atpresent, Japan is divided into 47small prefectures (although thecountry is barely the size of Califor-nia) overseen by a large centralizedbureaucracy. I propose that Japanadopt a system of ten mostly self-governing states and a much smallercentral government, which wouldbe free to concentrate on nationaland global affairs.

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Fourth, we need to reform the edu-cation system. When Japan was un-dergoing industrial development, itsedueation system helped the nationassimilate information from moreadvaneed eountries. If Japan is goingto be a world leader in the next mil-lennium, it must switeh to an educa-tion system that places more em-phasis on creativity and ethics andthat teaehes our young people aboutforeign cultures.

Taking Kyosei a Step Further

As you ean see, putting kyoseiinto practice and moving through itsfive stages requires a strong commit-ment from top managers. But it iswell worth the effort: by adoptingthe practice of kyosei, companieswill find new ways of doing businessand move to the cutting edge of busi-ness strategy, organizational design,and management practice.

Let me demonstrate my pointwith the example of research and de-velopment. When 1 became presi-dent of Canon in 1977,1 decided ourbiggest challenge would be eompet-ing with electric and electronic ap-pliance makers in Japan and withcompanies like Xerox Corporationand Eastman Kodak Company in theUnited States. Canon could not sur-vive unless we increased the numberof ideas coming out of R&D. So I de-cided to increase spending on R&Dfrom a rate of 3% or 4% of Canon'stotal sales to a double-digit rate. Theresults have been evident in thenumber of patents Canon has ob-tained in the United States. In 1987,Canon was issued more U.S. patentsthan any other company.

Then we asked ourselves howkyosei applies in KikD. We wantedto make sure we were heading ina direction that would not onlymake us eompetitive but would alsohelp provide for the common good.We established the following guide-lines: We would not conduct R&Dthat supported military purposesor that harmed tbe environment. Wewould develop technologies in previ-ously unexplored fields and wouldnot copy technologies or productscreated by others. We would encour-age close cooperation among our

worldwide R&D centers to mini-mize waste and maximize ereativity.

Besides being socially responsible,this disciplined approach to R&.Dhas forced us to find ideas for prod-ucts that are truly in demand as wellas in harmony with the environ-ment. For example, in the 1980sthere was a great rush to begin man-ufaeturing IBM-compatible comput-ers and dynamic random-accessmemory (D-RAM) chips. But be-cause we refuse to imitate existingtechnologies, we stayed out of thatmarket. Instead, we developed laserprinters and bubble-jet printers,whieh became Canon's big profitearners. When the D-RAM marketbecame oversaturated and numer-ous businesses suffered heavy lossesor went bankrupt. Canon avoidedlosing large amounts of money.

Kyosei has helped us break throughto another important managementpractice: working with our competi-tors. By looking for ways to cooper-ate with our competitors, we havefound opportunities that we mightotherwise have missed. For exam-ple, Canon is currently involved inpartnership agreements with TexasInstruments, Hewlett-Packard Com-pany, and Eastman Kodak, all ofwhich are also our competitors.

Initiating a cooperative relation-ship with a competitor ean be diffi-cult. When we first tried to form apartnership with Hewlett-Packard,the company gave us the cold shoul-der. But when we presented ourpatents and demonstrated our tech-nological abilities, Hewlett-Packardsaw the advantages in buying laser-printer engines from us. As a result.Canon has developed a long-stand-ing and very profitable relationshipwith Hewlett-Packard even thoughtbe two companies remain fiercecompetitors.

We could not practice kyosei withcompetitors if we did not have ourpatents as bargaining chips. Evencompanies that initially lack inter-est in a partnership with us becomeinterested wben we mention ourpatents and propose cross-licensing.Many companies use their patentsto try to gain a eompetitive advan-tage, so corporations that want to

practice kyosei must be able to bar-gain from a position of strength.Unless a eompany possesses suchcorporate strength, kyosei withcompetitors is out of the question.

The Future of Kyosei

Sometimes I am afraid that all mytalk about kyosei is falling on deafears. I have already reached the con-clusion that it's a waste of time totry to influenee politicians, bureau-crats, and husiness leaders who areaged 60 or older. So these days mystrategy is to talk to people in theirtwenties, thirties, and forties. Thishas been far more successful, wbichsupports my belief that younger menand women understand the need fora cooperative spirit in building a bet-ter world.

I recently met with a group of 35CEOs from Europe, Japan, and theUnited States, We talked about therole of global corporations in worldaffairs. I asked them if they thoughtkyosei had any chance of becomingpopular in the United States, I ex-pressed my doubts and eited recentdownsizing practices tbere. I waspleasantly surprised to hear that myaudience was against that approachto doing business. In fact, they sup-ported the concept of kyosei. Thatwas heartening.

Because multibillion-doUar cor-porations control vast resourcesaround the globe, employ millions ofpeople, and create and own incredi-ble wealth, they bold the future ofthe planet in their hands. Althoughgovernments and individuals needto do their part, they do not possessthe same degree of wealth and pow-er. My point is this: If corporationsrun their businesses witb the soleaim of gaining more market share orearning more profits, they may welllead the world into economic, envi-ronmental, and social ruin. But ifthey work together, in a spirit ofkyosei, they can bring food to thepoor, peace to war-torn areas, and re-newal to the natural world. It is ourobligation as business leaders to jointogether to build a foundation forworld peace and prosperity. ^

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HARVARD BUSINESS REVIEW luly-August 1997