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    Japan
     Mar 25, 2006
BOOK REVIEW
No risk management, no reward
Risk Management and Innovation in Japan, Britain and the United States, edited by Ruth Taplin Buy this book

Reviewed by Sean Curtin

This groundbreaking book offers fresh insights and analysis on the distinctive ways business in Japan, the United States and the United Kingdom responds to risk and innovation.

Assessing and managing risk are becoming increasingly important to both domestic and international companies,



especially in Japan where firms are struggling to keep pace with the fast-moving global environment. Several chapters focus on Japan, particularly those by Anthony Trenton, a legal specialist in intellectual-property law, and Masatoshi Kuratomi, the Development Bank of Japan's UK representative.

This very timely collection of research papers, edited by Professor Ruth Taplin, director of the Center for Japanese and East Asia Studies, emphasizes the need for a strong cross-cultural and interdisciplinary approach to risk management (RM) in today's rough-and-tumble global market. "In a globalized world it is becoming imperative to understand the variations in risk taken at a cultural level, which affect business decisions profoundly," she said.

Until recently, Japan was classified as a prime example of a society that was highly risk-adverse, a trait strongly reflected in the agonizingly slow decision-making processes of its domestic and its international enterprises. By European, and most definitely US, standards, the typical Japanese boardroom takes far too long to make management decisions. However, emerging risks, the relentless tempo of the global market and the rising economic might of China are all forcing a radical rethink on a reluctant Japan.

Taplin argues that to survive, companies "must innovate at a previously unparalleled rate and in the context of greater uncertainty". To thrive, firms have to make their products and services more competitive and add value. A business must understand how to both manage and protect risk, innovation and intellectual property (IP). As the percentage of a company's assets represented by intangibles is constantly rising, essential innovation and the corresponding exposure to risk are becoming inextricably linked to IP-related issues.

The typical Japanese firm is also finding its assets becoming less and less tangible, while the breakneck velocity of global information technology is making a cautious and prolonged decision-making approach obsolete.

Japanese business is facing a simple choice: markedly elevate the importance of RM or face extinction. Where domestic models cannot be modified to meet this challenge, innovative non-Japanese constructs are rapidly being adopted. This process is significantly reshaping business strategies. A similarly dramatic transformation has already occurred in the way Japanese companies handle intellectual property rights (see Exploiting Patent Rights and a New Climate for Innovation in Japan, 2003, also edited by Ruth Taplin) and it appears RM is now following a similar trajectory path.

Masatoshi Kuratomi of the Development Bank of Japan (DBJ) describes some of the emerging strategies Tokyo is adopting to tackle the new RM challenges. He details how the state is using government institutes such as the DBJ to cope with the RM transition phase. For example, private financial institutions and the DBJ are assisting small and medium-size enterprises to deal with the risks of restarting bankrupt businesses by utilizing their IP for bridging loans and leverage purposes.

Various chapters of the book convincingly argue that both Japan and Europe must substantially change their approach to RM if companies want to prosper in an increasingly complex global market. The heightened awareness of risk in both Japan and Europe is also creating a greater demand, and lucrative opportunities, for insurance services that match these newly emerging needs. While banking has already undergone a substantive metamorphosis in the last decade, insurance has somewhat lagged behind and is only now adapting to the new realities of the shifting global landscape.

Underlining the financial sector's interest in this cutting-edge book, it was launched at Lloyds of London on November 1 with a keynote speech delivered by Lord Levene, chairman of the UK insurance giant Lloyds. He emphasized the importance of addressing emerging risk and how this was changing the insurance industry. Some of the authors, including Professor Gerry Dickenson, vice secretary general of the Geneva Association (an international non-profit research organization), and Taplin, also spoke about the importance of developments occurring in Tokyo, Washington and London and their wider implications on international markets.

Globalization is transforming risk management from a once fairly narrowly focused specialty, traditionally anchored in insurance, into an important multi-disciplined field, spanning international law, finance, intellectual property rights, technology, engineering, intercultural studies and beyond.

This comprehensive work also examines RM standards, emerging risks, the managing of risks in a variety of sectors (including marketing, banking, venture capital, insurance and patents), and the way RM has evolved within a range of organizations.

The book also reminds us that planet Earth is awash with a vast spectrum of domestic and international risks that can seriously affect business. Local threats encompass everything from a natural disaster such as Hurricane Katrina to man-made catastrophes such as the Chernobyl meltdown. On the global front there are a host of even more potential destructive threats, such as a pandemic caused by bird flu, AIDS, global warming, a herbicide-resistant superweed spawned from genetic-modification technology, and terrorism, among other things. The breakneck speed of the global bandwagon is amplifying the potential danger, adding another dimension to risk management.

You may have thought that risk management was a dull subject, but reading this thought-provoking collection of essays will probably make you reconsider.

Risk Management and Innovation in Japan, Britain and the United States, edited by Ruth Taplin. Routledge October 2005. ISBN 0-415-36806-5. Price US$112, 182 pages including index.

J Sean Curtin is a writer, broadcaster and academic specializing in Japan.

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