The rise and fall of Activity Based Costing in Japan

Activity Based Costing (ABC) has come to light in an era where there was worldwide

attention for Japanese management systems and management accounting practices.

Despite the worldwide hype for ABC as a method capable of producing more accurate

product costs, ABC gathered very little interest from the business community in Japan.

However, in contrast, Japanese management and cost accounting researchers took a

positive view on the concept and attempted to discuss its applicability to Japanese

companies as a viable alternative for their existing cost systems. Although, the

collapse of the Japanese bubble economy in early 1990s provided some impetus for

Japanese companies to show interest in ABC, there was no evidence of them adopting

the practice, nor any serious attempt to do so. This paper seeks to examine the

response of the Japanese business community and academics with respect to ABC and

to summarise the reasons for ABCs’ lack of popularity in Japan as a viable cost

accounting system for Japanese companies. This has been done predominantly via a

review of Japanese academic literature, which has revealed that the main objective of

the researchers was to introduce the concept of ABC and to open up discussion about

its merits for Japanese businesses rather than to promote its adoption by them. The

fact that Japanese companies already have good cost management systems, which are

either effective or somewhat similar to the concept of ABC, and their interest lies on

long term growth rather than short term profitability, are among the main reasons for

the lack of popularity of this concept in Japan. Despite the lack of popularity of ABC

in Japan as a useful costing system and the doubt about its usefulness for Japanese

businesses, the academic discussions on the ABC have certainly provided Japanese

companies a useful reference for assessing the strength and weakness of their own

costing systems.