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Special: Know-how of Succeeding in the Japanese Market
1.The puzzling persistence of dango

1, 26. 2006

   The most well known corporate crime in Japan is dango (bid-rigging), in which companies get together beforehand and agree the winner of supposedly competitive bidding. It is commonly practiced in almost all public works projects.

   Tantamount to cartel activity in violation of the Anti-Monopoly Law, dango cases have been probed many times, yet without prospect of putting a stop to it. In November 2005, public prosecutors searched the offices of several major electric-machinery companies in connection with a electrical facilities project ordered by Narita International Airport Corp. Neither party saw dango as a crime, calling it a "necessary evil."

A Salesman's Job is to Schmooze with Bureaucrats

   One of my acquaintances graduated from a prestigious private university and got hired at a heavy electrical machinery maker. He was assigned to a sales department post working with government projects, earning him the envy of peer colleagues who regarded it as a plum job. It entailed visiting government offices, getting information on public work projects, and ensuring his company was included among the designated bidders.
   Government offices rank potential contractor companies according to their track record, scale, technological level and other yardsticks, and designate several to bid on specific projects based on suitability. Competitive bidding then takes place within this group. The salesman's first task is to get his company admitted into the group. To this end, he has to make frequent visits to the relevant government offices and keep in touch with the officials involved. If relations reach the point where both parties can drink and play golf together, the salesman is regarded as truly doing his job. "The reason why a sales department post working with government projects is seen as a plum job is that it helps the bottom line," says my acquaintance. Competition for private orders is very severe and you don't make money on them (because of excessive discounting)." But, he says, public-sector orders are profitable, as dango bid-rigging eliminates competition. According to the first article of Japan's first constitution, the 18-article constitution created during the time of Prince Shotoku (574-622), "Harmony is the most valuable thing." There is a belief in Japan that wise men avoid strife and settle things by negotiation. Competition spoils harmony and works against mutual benefit. So dango means compromising in discussions.
   That might be good for the contractors, but the ordering party must pay high costs. That is why the private sector has adopted rigorously competitive bidding. Excessive costs hurt earnings, and fierce competition weeds out weak companies. But government offices are more magnanimous.
   They prioritize work quality and respect for deadlines-price is a lesser consideration. They cherish companies they can trust. They are concerned that they might be held responsible if companies scamp the job as a result of price competition.

The Role of "Heaven's Voice"

Through public-works projects, administrative institutions in Japan ensure a
Through public-works projects, administrative institutions in Japan ensure a "redistribution of income" by giving money to private sectors. (Picture: Ministry of Land, Infrastructure and Transport)

   In many cases, engineers from both parties in a project are experts in the same field and colleagues from college days. For example, a graduate of the engineering works section of the engineering department of Tokyo University who gets a top grade might go on to research at the college, one getting a second-rank qualification might enter the Ministry of Construction and work at the roads department, and a third might become a road engineer at a private company. The three remain friends.
   The concept of "working for the good of the industry" is deeply rooted in the world of Japanese public works. Government offices shower money on private companies through public works projects in a practice called "redistribution of earnings." In this way, tax money is passed down to lower-income regions through public works. Road and dams are necessary as infrastructure, but the money spent in the affected regions in the form of works expenditure is more important. In the same way, in the process of national economic growth, government offices have nurtured private companies.
   Government offices nurture private companies by ensuring everybody gets a fair share of lucrative public works orders-this is the idea of promotion of industry through (profit) distribution. Kansei dango- bid-rigging led by government offices-started like this.
   But sometimes bidder agreement is elusive. When some companies do not give ground and no agreement is possible, bidders turn to what is known as "Heaven's voice." "Heaven's voice" is usually an industry heavyweight or influential politician, who plays the role of mediator, though he mostly respects the wishes of the government office involved. In most cases, the mediator is a top technical supervisory official. He does not comment directly. After discussion with influential people in the industry and politicians, his opinions are delivered indirectly through obscure channels.
Even though public works bidding is ostensibly competitive, it is principally a matter of "distribution" of public works orders, by arrangement. In this process, government offices have the upper hand over the private sector. As the expression kanson-minpi (respect the official, despise the private merchant) implies, government organizations and private enterprises do not operate on an equal footing in Japan. After World War II, Japan's Emperor-centered state system collapsed, but bureaucrats who acted as the "Emperor's servants" have maintained their powers through other channels. Top-level public service examinations have even been the main arena where Japan's best and brightest compete.

The Rewards for Bureaucrats: Private Sector Amakudari posts

   Amakudari means "descended from Heaven" and in this context refers to the way in which retired bureaucrats can land lucrative jobs in private corporations as a reward for their "distribution" of public works. Corporations that have benefited from bid-rigging offer such ex-officials well-paid sinecure posts such as (non-managing) senior officer or adviser. Bureaucrats' amakudari posts in private corporations reflect their final position in government service. Former bureau heads will get their own office, secretary, car and expenses. Retired high-ranking public officials will become sales representatives, and act as channels for informal communication with government offices.
   For a public works bureaucrat who set up a big-ticket order, perhaps deemed by some a waste of taxpayers' money, a prosperous retirement in the private sector is guaranteed. Even after factoring in the costs of coddling amakudari they have taken on, private companies still make handsome profits from dango. It is a "win-win" arrangement.
   The losers are the taxpayers. Bid-rigging is entrenched because Japanese taxpayers lack a strong awareness of their rights. Monitoring offices like the General Accounting Office and Fair Trade Commission do not have enough power, and this is another reason why bid-rigging and overly expensive orders remain a problem. These organizations were "imported" from the United States after the War as a part of the democratization process. But, despite their appearance of effective functioning, they are not firmly rooted in Japan. The powers of government offices that distribute and spend Japan's budget money are greater, and so the checking function of the General Accounting Office is ineffective. The Fair Trade Commission too is considered a toothless watchdog, and is effectively under the control of the Ministry of Economy, Trade and Industry.
   With no end to dango bid-rigging likely, a strengthening of the penalties for violation of the Anti-Monopoly Law was discussed in 2004. But the lobbying of influential industry organizations like Nippon Keidanren (Japan Business Federation) ensured that such measures were half-hearted.
   Even though prosecutors do expose bid-rigging, parties involved often get suspended sentences and are seldom actually punished. Individuals' sense of responsibility is also watered down by perceived extenuating circumstances-that bid-rigging is done at the behest of corporations. Fines for guilty corporations are small and the profits from orders won through bid-rigging far outweigh them. Society as a whole takes a lenient view of the practice. This is reflected in sentencing, and makes bid-rigging an everyday activity.

Project Carved Up at Meeting in Inn

Sales people do not entertain government officials at such a cheap pub.
Sales people do not entertain government officials at such a cheap pub.

   I once happened to witness bid-rigging in progress. A meeting was held to allocate a public works order for local road construction. Sales representatives of engineering and construction companies got together at a traditional inn and a breakdown of orders for a construction project was produced. As each item on it was read out, an interested representative raised his hand to bid. When two or more showed interest in the same item, a third party interrupted, saying, "I think corporation X would be right for this job." This proposal got the nod at an appropriate time from a senior "coordinating judge," who said, "Then X gets it." There was no discussion or voting. This is how orders are dished out-on a nod over a sake cup.
   "Officials remember companies' history and track record. They have a rough idea which is suitable for a certain item as they have worked for a long time in the industry," one of the people who showed me this scene explains. If each company plays by the "rules," there will not be any trouble, but if someone acts in a high-handed way, relations with the others will suffer and the company will be excluded, he says.
   As they have met many times over a number of years, participants at these meetings have a good idea of each other's situation. It is important to be popular with the other companies. You must have strong supporters when in need.
   For the smooth conduct of the project, a good relationship with others in the industry is essential. Representatives drink, sing karaoke and play golf together. It is a typical case of what is known in Japanese as an "oyaji" (fatherly) job-looking after and coordinating things in a paternal way. There are few women in this kind of sales work.


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