PROFITABILITY AND COMPETITIVENESS - LESSONS FROM JAPANESE AND AMERICAN FIRMS IN THE 1980S

This article has two main objectives: to assess and compare the profit ability of Japanese and American firms and industries during the latte r half of the 1980s; and to explore the relationship between firm prof itability and national competitiveness. The study reveals that: Japane se firms in most industries were less profitable than American firms; after adjusting for differences in tax rates, accounting practices, an d debt levels, Japanese firms had lower returns on assets and operatin g margins than American firms, but similar returns on equity; the retu rns of Japanese companies exhibited far less volatility than the retur ns of American companies; and differences in the average returns of Ja panese firms in different industries were extremely small. The link be tween profitability and competitiveness depends on the effect profits have on firm strategy, particularly the firm's investment strategy. In the U. S., the desire for profits may have encouraged firms to pursue strategies which are not consistent with national competitiveness. Co nversely, Japanese firms have tended to adopted strategies which promo te competitiveness.