Etude PwC sur les entreprises japonaises (2012)


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PwC a interrogé une soixantaine de responsables politiques, de dirigeants d’entreprise et d’universitaires, et identifié 4 priorités stratégiques à mettre en place rapidement par les entreprises japonaises : accepter une prise de risques plus forte en termes de développement ; encourager l’entrepreneuriat et l’innovation collaborative ; renforcer la diversité au sein de l’entreprise et promouvoir le leadership en améliorant le système de promotion et de rémunération.

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Etude PwC sur les entreprises japonaises (2012)

  1. 1. Corporate leaders need to champion organisational transformation to succeed in today’s complex international environment.Revitalisingcorporate JapanA prescription for growth
  2. 2. Table of contents 02 essage from our chairman M 03 ransformation towards tomorrow T 04 Executive summary 11 Introduction 16 27 Reality 1: Reality 2: The arrival of Asia Increasing business 19 Maintaining leadership complexity in high-value niche 29 Operating in a markets G-Zero world 22 Myanmar 31 Complexity’s new 23 rise of collaboration The demands: QA with in Asia Harvard Law School’s 24 Business implications David Kennedy 34 Acquisitions in an era of complexity 36 Business implications
  3. 3. 39 50Reality 3: Reality 4:New models Ageing economicof innovation metabolism43 Inside high: Mazda’s 60 Business implications Seita Kanai on innovation and branding strategies44 Seeking solutions: Incubating new businesses in mature companies47 Innovation in action: QA with Twitter Japan’s James Kondo48 Business implications 62 A final word 66 List of interviews 69 Contributors
  4. 4. A message from our chairman Japan was the trailblazer for today’s emerging economies, as the first non-Western nation to become a modern economic power. Its meteoric rise from postwar poverty and landmark achievement in establishing “Made in Japan” as the global catchphrase for quality set the benchmark in economic development. Today, Japan is also the pacesetter for the advanced economies, the first to face challenges looming in everyone’s future: the ageing of society and the imperative to transform mature economies to meet the demands of an increasingly complex global business environment. How Japan fares will hold lessons for us all — which is why PwC believes the world needs a deeper understanding of Japan’s current situation. We saw an opportunity to focus the unparalleled expertise of the PwC global network on the issues facing Japan and Japanese corporations. A PwC team sat down with 60 senior business and political leaders, academics and specialists for extensive discussions, and to learn what changes they’re making in their own organisations in response to current challenges. I would like to thank each of them for taking time from their busy schedules to meet with us. We greatly appreciate their candid participation; they have added invaluable context to our research. We hope our analysis will contribute to today’s debate on the future course of Japan and its leading firms. Our aim — pursued with great respect and affection — is to enrich the dialogue between Japan’s business leaders and their stakeholders. Dennis Nally Chairman PricewaterhouseCoopers International Limited2 PwC
  5. 5. Transformation towards tomorrowThis is an exciting chapter in Japan’s history. It’s a time of change and transformation. A time thatpresents opportunities for leaders to take bold steps that will redefine how their organisationscontinue to be economic trailblazers. A time for decisions that will leverage existing strengths andsubstantial advantages to improve competitiveness and optimise globalisation.As advisors to the world’s largest companies, we know that change can be difficult. It presentsa measure of uncertainty that requires strong leadership. While there is a measure of risk inpursuing new approaches and ideas, the risks of doing nothing are far greater.After speaking with Japanese CEOs over the past year, we believe that many business leadersare already aware of the degree of change required. Our hope is that this report will helpmany Japanese corporations start the process of strategic and operational transformationthey seek.But we’re not just offering a report. PwC has been doing business in Japan for over 80 years.Our people work very closely together to support the growth of Japan’s great companies —its global champions — providing services here in Japan and around the world. We remaincommitted to helping Japanese businesses take the necessary steps to pivot, adapt and growin an extraordinarily complex and fast-paced international environment.Juan Pujadas Hiroyuki SuzukiVice Chairman Territory Senior PartnerGlobal Advisory Services PwC JapanPricewaterhouseCoopersInternational Limited Revitalising corporate Japan 3
  6. 6. Executive summary4 PwC
  7. 7. Japan is an inspiration to the world. Its people live longerand are healthier than in any other nation. Japanese societybenefits from an extraordinary degree of social cohesionand trust that allows it to accomplish remarkable things.Japan’s corporate community has long held the world’srespect. For decades, corporate Japan has been countedamong the short list of global leaders for its advancedtechnology, standards for quality, dedicated workforceand internationally competitive private sector.The world needs a strong, confident and vibrantcorporate Japan. Revitalising corporate Japan 5
  8. 8. Executive summary And the need today is greater than The country’s longevity sits at the That is not to say the answers to ever. The extraordinary postwar era top of Organisation for Economic the new global questions will come of peace, prosperity and dominance Co-operation and Development easily. All nations must weigh their for businesses in the world’s mature (OECD) rankings, while fertility current advantages and circum- industrial economies appears on rests at the bottom, leaving the stances in the face of new global the surface to be coming to an end. country with a shrinking work- “Realities,” which include: Issues around globalisation and force and rising elderly population. 1) The arrival of Asia Asia, the newly emerging competitive nations Demographics combined with very engine of the world’s economic and companies, resource pressure, high public debt levels and operating growth, is producing fierce, new environmental degradation and cli- costs much higher than emerging competitors. However, a new mate change have destabilised the competitors’ imply that without a middle class of Asian consumers traditional economic structures. revitalisation of its economic perfor- gives Japan an opportunity to mance, Japan’s society is going to secure its niche market advantages. The countries and sectors that suffer a decline in living standard. formerly dominated international 2) Increasing business complexity commerce are giving way to emerg- But PwC strongly believes this vital- Growing connectedness between ing markets with growing middle ity can — and must — be restored. economies and more complex classes and increasing exports. While there are many dimensions trade and financial relationships While these new competitors on the to this nexus, in this report we focus necessitates updated management global stage present real challenges on what Japanese corporations can approaches. for the economies and businesses do. We chose this focus because 3) New models of innovation that have traditionally dominated while public policy initiatives are Encouraging entrepreneurship and world markets, they also offer an essential, the needed reforms will innovation within companies can opportunity for growth, improve- not be effective unless Japanese boost competitiveness and help cap- ment and greater competitiveness. corporations also play their part. italise on diverse ideas and efforts Indeed, competition breeds success, to support new and better product and Japan is in an excellent position In many ways, Japan is the world’s development and manufacturing. to capitalise on this critical moment first advanced economy to face chal- in history. lenges like an ageing society and how 4) Ageing economic metabolism to transform a mature economy so it Restructuring domestically focused And yet, despite Japan’s capabil- can thrive in an increasingly complex businesses as well as addressing ity to be the trailblazer, those both global business environment. How it Japan’s ageing workforce and inside and outside Japan feel its tackles these challenges will serve as need for skilled human capital extraordinary vitality ebbing. models for the world. are important for greater national prosperity.6 PwC
  9. 9. Revitalising corporate JapanA prescription for growthCorporations need to embrace rapid transformational change withattitudes of boldness, risk-taking, velocity, flexibility and adaptability.1 3The arrival of Asia New modelsGlobalisation is a business of innovationimperative and Asia is a Entrepreneurship and co-creationfocal point. New, aggressive re-energise the innovationcompetitors are emerging processes as corporations pursuefrom Asia. open models.• How can you compete with • How well is your organisation your “fiercest competitor” adapted to working with from the new Asian 3I outsiders and new partners? NN economic powers? A O SI • How are you encouraging• What is the right collaboration among your VA A 1 TI approach to deal- employees and partners in ON making and alliances innovation? 4 in the region? Global Realities2 What is your company’s 4Increasing strategy? Ageing economic M 2Cbusiness complexity metabolism LIS OM PL BONew strategies are required Japan is the first advanced EX Ato deal with the growing IT Y ET economy to face challengesinterconnectedness in trade 4M like an ageing society andand financial relationships. transforming the organisation• How integrated are your to thrive. foreign operations within • Is your organisation using your business? capital efficiently?• Do your board and • How will you compete in executive team have a the global war for talent? diverse view of the world?Strategic prioritiesTransform Adapt Grow Focusthe organisation innovation your leadership pipeline your growth strategyLeaders need to champion Put yourself in the place of Corporations need to Consider aggressive growthmajor organisational changes an outsider — perhaps an understand the full range strategies such as MAto achieve success in the twenty- entrepreneur with a good idea of capabilities required to activity, direct investmentfirst century. Embrace diversity or technology that will advance successfully lead in today’s and partnerships. The objectivetop to bottom to have the talent, your business: How easy is it for world and makes changes to is to focus more effort onfresh perspectives and vitality these potential partners to work promotions, training, rotation opportunities that will deliveryou need in today’s world. with your organisation and find and compensation that will the type of value-added the right people? produce more global leaders. activities Japan needs in markets that are growing. Revitalising corporate Japan 7
  10. 10. Executive summary Each of these Realities has enor- For Japan, there are specific areas • Transform the organisation – mous consequences for corporations where focused effort can produce Leaders need to champion major aiming to survive and prosper. real and lasting competitive busi- organisational change to enable ness advantages. On the whole, their companies to succeed in To be sure, Japan, the US, European Japanese corporations must do more today’s world. The talents and countries and other nations face to adapt. To be sure, many Japanese fresh perspectives of a wider similar challenges. The need for corporations are doing lots of the group of people, throughout the human capital, entrepreneurship right things, and some are doing organisation and in the gover- and innovation, and a pro-business many of the right things — but given nance structures, are needed. atmosphere — these and other the enormous size of the Japanese Japanese women, foreigners, issues will require solutions unique economy, not enough companies midcareer hires and the young to each country’s traditions, social are adapting fast enough to trans- generation are all groups that makeup, business strengths and his- form and thrive in the future. bring a huge amount of energy tory of success. and multitude of ideas. Japanese This type of rapid transformation corporations that embrace these Japan holds attributes no other requires new attitudes that will groups will find they are better country can match. To maintain embrace boldness, risk-taking, able to win against both domestic these advantages, it is important velocity, flexibility and adaptability. and foreign competitors. for Japanese business leaders to • Adapt innovation – Open up closely consider the many aspects of Armed with these attitudes, the organisation to accelerate the dynamic international business Japanese companies should innovation. Put yourself in the landscape. With external changes pursue a combination of four place of an outsider — perhaps comes an inevitable need to adjust themes of major actions to help an entrepreneur, small business and improve to access emerging navigate today’s complex interna- owner or foreign multinational opportunities and leverage existing tional environment: corporation — with a good idea, national strengths. technology or even a network8 PwC
  11. 11. that will advance the aims of your not risk averse and have the skills progress simultaneously on a variety business: How easy is it for these to confidently guide their organ- of issues, including globalisation, potential partners to work with isations in new directions. governance, innovation, strategic your organisation and find the thinking, capital planning, MA, • Focus your growth strategy – right people? For most Japanese pay and performance management. Many Japanese corporations corporations, the answer is, not can become more aggressive, easy at all. Japanese corpora- Japan is at the forefront of change. with options including mergers tions are going to have to use new Its longstanding global leadership and acquisitions (MA) approaches like intrapreneurship gives the country an opportunity to activity, direct investment and and co-creation with outside act and adapt before many of its com- partnerships. As of yet, domestic organisations to re-energise the petitors. The challenges addressed markets have not rationalised, innovation processes required to today will be those that the rest of conglomerates continue to be be global leaders. the world attempts to overcome in too many businesses and tomorrow. In this sense, quick• Grow your leadership pipeline – corporations’ use of capital is action is important. Some Japanese Understand the full range of inefficient. Understand the unique corporations have already begun capabilities required to suc- opportunities that a high yen taking important steps to address the cessfully lead in today’s world. provides. The objective is to focus issues detailed in this report. With a Corporations must make changes more effort on opportunities that more robust and complete corporate to promotions, training, rota- will deliver the type of value- effort, there is no question that Japan tion and compensation that will added activities Japan needs in will continue to lead the world in produce more leaders who are markets that are growing. many respects. Action, attentiveness able to navigate the challenges of to innovation and detail, and courage today and tomorrow. Companies Of course, different corporations to overcome any challenge are the should open themselves up to are at different starting points, qualities that will win the day, all more merit-based promotion and and in different industries, so the of which are attributes Japan has external senior-level recruitment exact required mix of action will enjoyed for centuries. in order to foster leaders who are vary. Companies will have to make Revitalising corporate Japan 9
  12. 12. 10 PwC
  13. 13. IntroductionCorporate Japan’s rise to the centre of the globaleconomic system throughout the second half of thetwentieth century represents an economic achievementwithout parallel or precedent. During the postwarperiod, Japan laid the foundation for economicstrength, becoming the world’s second-largesteconomy in 1968 and experiencing explosive growthin the subsequent two decades. The reconstructionwas backed by an almost unmatched mastery of themanufacturing process; “Made in Japan” was firmlyestablished as the global benchmark for productquality. Japan’s global reputation for quality standsas the collective achievement of hundreds of enterprisesand millions of people. The strength of Japan Incis a testament to the exceptional characteristics ofthe Japanese people: personal diligence, respect foreducation, teamwork, loyalty, craftsmanship anda tireless work ethic. Revitalising corporate Japan 11
  14. 14. Introduction Exhibit 1: GDP growth for developed vs emerging economies Gross domestic product (GDP) at purchasing power parity (PPP). In current international dollars 1980 2010 2030 32% 49% 51% 43% 57% 68% Non-OECD OECD Source: The World Bank: World Development Indicators; World Bank, International Comparison Program Database; and Organisation for Economic Co-operation and Development (OECD): Perspectives on Global Development 2010: Shifting Wealth. Japan’s extraordinary dedica- When Japan began its export drive with fundamental changes to the tion to quality and engineering in after 1945, most market opportuni- domestic economy: the decline in every aspect of life means not only ties were found in North America working-age population is accelerat- its companies offer extraordinary and Europe. Today, the hotbed of ing, public debt levels are rising and products, but over the past 50 years, global growth is in Japan’s backyard. domestic consumption is declining. it has led a restructuring of global With a capacity for RD that rivals manufacturing, pressuring every the United States’, as well as the To capture today’s opportunities, company and country to up its capital resources needed to invest in Japan’s business leaders at home game and deliver much improved new ventures across the globe, Japan and abroad must move quickly quality at every price point in every is in a prime position to develop and decisively. corner of the globe. This dedica- and provide innovative solutions tion continues to manifest itself in to emerging market aspirations. Businesses cannot wait for new fields such as nanotechnology, government policies that, for robotics and material science, areas Yet, despite Japan’s capability example, seek to soften the impact that need to progress to improve our to be the trailblazer, those both of a stronger yen rather than quality of life. inside and outside Japan feel its focusing on strategic planning and extraordinary vitality ebbing. global diversification strategies. But the global economy is changing. The phenomenal achievements An important impetus for change Emerging markets are challeng- of postwar Japan are in danger must arise from the nation’s ing developed economies, shifting of being eclipsed by 20 years of business leaders. Some Japanese away from low-tech assembly “flat” growth at a time when other businesses are already taking towards research and development countries like South Korea and steps to adapt to today’s economic (RD)–driven innovation. To meet China took flight and are catching realities, and even more robust these new competitors on the global up to Japan. The erosion of historic private sector efforts will support stage, the nations and businesses competitive advantage is coupled a competitive and growing Japan. that have traditionally led world markets must pivot, adapt and grow. (See Exhibit 1.)12 PwC
  15. 15. To identify the current challenges • How has the world changed? • What do companies need toand opportunities for Japan’s Shifts in the global economy can do to address these Realities?corporations, PwC spoke with over be summarised as four Realities: To effectively address the four60 business and political leaders, the arrival of Asia as an economic Realities, companies must faceacademics and other specialists powerhouse; an increasingly and overcome central challengesand combined this with extensive complex international business common to many establishedresearch and analysis. We began landscape; the emergence markets. For Japanese compa-with two fundamental questions: of new models of innovation; and nies, these include accepting an ageing economic metabolism. a measure of risk with their business strategies; embracing diversity throughout the corpora- tion, including in the boardroom; encouraging entrepreneurship; and fostering a more diverse workforce, including expand- ing leadership opportunities for women and foreign workers. This will require bold leader- ship. Indeed, Japan will be hard-pressed to navigate the fourNow is the time when everyone in Japan needs to Realities without addressingshare a sense of crisis and act quickly so that the entire these challenges.power of the nation can be applied to the issues athand. However, I feel a sense of crisis because that isnot happening.Eizo KobayashiItochu Corporation Revitalising corporate Japan 13
  16. 16. Introduction The challenges identified here will Our interviewees highlighted the Change can be difficult, in part only increase. Nevertheless, Japan issues. We were struck by the con- because it presents a measure of has substantial advantages and sistent and considered messages we uncertainty. There is risk in pursu- strengths, which, leveraged cor- were given, whether the interviewee ing new approaches and ideas, but rectly, can support a renaissance in was from industry, the government as this report shows, the risks of Japanese competitiveness. or academia. This consistency from doing nothing are far greater. The such a broad group of distinguished business implications are presented Overall, while many Japanese cor- Japanese and friends of Japan gives as a series of provocative questions porations are adapting and pursuing us a great deal of confidence in put- that Japanese corporations should solutions (and we feature many of ting forward this report’s ideas in a be asking themselves. The purpose these in the report in special call-out bold and direct way. is to help Japanese companies to boxes), more need to do so in order begin the process of transformation to revitalise their prospects for eco- Of course, diagnosing the chal- that they require. We believe many nomic success. lenges is just a first step. In each of business leaders are already aware the sections, we start to describe the of the degree of change required, type of business implications that as evidenced by the responses of Japanese corporations will need to Japanese CEOs to PwC’s annual address to adapt and thrive. CEO survey. (See Exhibit 2.) Japanese CEOs see a greater need for change in some key areas than their counterparts elsewhere. Exhibit 2: Business leaders in Japan recognise the need for change CEOs in Japan 72% CEOs globally 57% 50% 38% 34% 24% 22% 12% Plan strategy Plan a major change Entered an Are “not very confident” changes to RD and alliance in past they have the talent innovation 12 months they need Source: PwC, Delivering Results — Growth and Value in a Volatile World: 15th Annual Global CEO Survey, 2012, Japan base: 169 CEOs of which 45% are from companies with at least US$ 1 billion in revenue in the last fiscal year and 73% are from organisations in business for over 40 years.14 PwC
  17. 17. Japanese corporations, like theircompetitors, need talent modelsthat fully mobilise and engagethe best and brightest from Japan Changing the way we workand around the globe. This needmust be addressed and embraced Some leading companies in Japan are already taking importantthroughout the organisation. How measures to adapt how they work. More of Japan’s corporatecompanies manage, incentivise, community should address contemporary challenges andcollaborate and communicate with quickly, as global competition is accelerating. Among manytheir employees and partners can important actions, companies should consider making criticalset them apart in a world where changes to allow them to:highly skilled people are an increas-ingly scarce and valuable resource. • Harness the energy of entrepreneurs and employees alike – Large companies can make changes big and small toTo best identify the steps Japanese support their innovative employees and Japan’s communitycorporations — and in particular, of entrepreneurs. There are ways to empower employeestheir leaders — can take to improve (both young and old) and outside partners to share theirnational competitiveness and ideas and bring new approaches into their companies, evengrowth, it is important to under- when this may involve tough choices and challenging morestand the ways in which the world traditional business practices and approaches. Discontinuoushas changed and what that means innovation often means breaking with the location andfor the realities of today’s global culture of the mother company. In Japan, the concepts ofbusiness community. “incubation from within” and “intrapreneurship” are critical to fostering the risk-taking that Japan so sorely needs. • Cultivate leadership from new sources – Reversing today’s low retention rates of career-oriented women and opening companies up to talent from around the world can bring in new perspectives to top-level management and provide a competitive advantage in a complex marketplace. • Seek greater diversity in the boardroom – Diverse perspec- tives and experiences are an important asset for corporations, all the more so in times of change. The accelerating pace of change today — whether in technology, regulations or the global economy — means diverse perspectives and experi- ences at the board level can be a real asset to the corporation. • Refine the decision-making process – Enhancing and refin- ing chains of authority helps ensure companies fairly consider important new strategies or innovations that might disrupt existing business units. • Strengthen corporate governance – With global investors placing an increased emphasis on corporate governance, corporations should evaluate whether their governance struc- tures meet evolving international standards. Revitalising corporate Japan 15
  18. 18. Reality 1 The arrival of Asia Opportunities on Japan’s doorstep16 PwC
  19. 19. • Asia is now the world’s engine of economic growth.• Asia’s emergence is producing not only new consumer markets, but also world-class competitors.• Japan appears to be lagging some other economies in integrating with the overall Asian economy.• Competitiveness in the region can’t be achieved by simply trying to “catch up.” Japan Inc is too far behind already, so a different — and much more aggressive — approach is needed to fully participate in Asian growth. Revitalising corporate Japan 17
  20. 20. Reality 1 We are moving to another stage. Now we are expanding exports of final goods to China, and those final goods that are produced in China are being consumed by the Chinese rather than by Americans. So in this real sense our economy is becoming more dependent on China. Takahide Kiuchi Nomura Securities Over the past 40 years, the world Asia. In 1970, only three countries in The rising attractiveness of nearby economy has expanded by a steady Asia had a GDP in excess of US$ 100 markets has not escaped the average of more than 3% per year, billion (in 2005 constant prices), led attention of Japanese companies. notwithstanding the decline of 2009. by Japan’s growing economic might. Outward foreign direct investment Masked beneath this stable path, By 2010, 16 countries in Asia were (FDI) headed to Asia averaged however, has been a dramatic change members of the US$ 100 billion club, 31% of total FDI in the 2005–2011 in the engine of global growth: The boosting billions of new consumers period, a trend that needs to accel- world’s economic centre of gravity into the Asian middle class. (See erate. For example, Kunio Yoda, has shifted demonstrably towards Exhibit 3.) CEO of Morito Company, Limited, a components supplier for automo- bile, train and apparel makers with global operations in China and the Exhibit 3: World GDP per capita, growth and population distribution U.S. and, later in 2012, Vietnam Customers from different markets are at different stages of development, each with vastly different needs and price points. Japan’s corporations accustomed to serving customers in and Myanmar, explains his com- the top left quadrant of this chart need to change their approach, product mix and strategy pany’s changing approach: “We are to successfully go where the new growth markets are. shifting control of the network to Hong Kong. It is a global market, Annual per capita income, US$ and so the president of the Hong Kong office is the top leader for our United States Rich (over $12,000) overseas subsidiaries. He is not an $50,000 executive but an operating officer, Middle ($4,000–$12,000) Japan Germany and all of the overseas offices have Global emerging middle ($1,000–$4,000) been placed under him. He reports France 40,000 everything to Japan but it is all Low (under $1,000) United Kingdom under him. We are moving manage- Size of bubble = population ment operations to the Hong Kong 30,000 headquarters little by little.” And the pace of economic integration Russia is accelerating. Aided by a strong yen 20,000 and aware of constraints on domestic Brazil Argentina growth, Japanese companies have South Africa recently ramped up their acquisitions 10,000 Indonesia across Asia. In 2011, the number of Egypt Algeria Angola China Japanese deals in the region rose Senegal India 42%, compared to a 26% rise in deals in Europe (which includes high-value -2 0 2 Pakistan 4 Kenya 6 Nigeria 10 12 deals such as Takeda’s purchase of Nycomed) and a decline in North Real GDP growth, 2011 (%) America. (See Exhibit 4.) Source: IMF and World Bank18 PwC
  21. 21. Exhibit 4: Change in Japan’s outbound MA, by destination Outbound MA has grown accompanied by an increasing focus on smaller acquisitions in the last year; however, investment in Asia and other emerging regions still lags investment in more mature markets. Deal value, US$ billion Deal volume change, 2010–2011 $60 EU 50 Others Asia 40 44% 42% 30 EU 20 26% NA 10 North A America O 0 2006 2007 2008 2009 2010 2011 –9% EU European Union NA North America A Asia O Others Source: RECOF Corp.Small and medium-sized Japanese the factories and heavy industry as the right talent within these mar-companies are participating in that’s where the opportunity is,” kets, and leveraging their expertisethe deal flow. According to Robert he told PwC. “They are right in the to expand into other markets, is theEberhart, research leader of the middle of the global supply chain key. When the company entered theStanford Project on Japanese and, in my view, they’re driving it.” Thai market, for example, they sentEntrepreneurship, Japanese start- a Japanese manager with techni-ups in software and the high-tech For many large corporations with cal knowledge and manufacturingmaterials and machinery that sup- existing operations in Asia’s largest experience. Yet as the Thai economyport new factories across Asia are economies, expansion across Asia is grew, he said, “we came to need aseeing “explosive” growth. MA the next growth strategy. According general manager who could man-in the region is a core strategy for to Yukio Toyoshima, General age all of the business processes,these medium-sized firms. “Their Manager, International Strategy including sales, procurement, etc.,innovations are directed towards Division of Hitachi, Limited, finding to explore another emerging market Maintaining leadership in high-value niche markets Tochigi-based Mani, a producer of precision surgi- — among other products, the firm makes 100 cal and dental equipment, generates two-thirds of million disposable needles a year and each needle is sales today in Japan, the US and Europe, where inspected by a person — Mani plans to continue to its “tier one” customers reside. Offerings for “tier focus on equipment that surgeons and dentists need two” and “tier three” customers in developing to use by hand, including needles and root canal economies largely follow from the products sold to instruments. In addition, RD will remain in Japan, tier-one markets. staying close to what Mani believes are that market’s standard-setting demands. Yet as production shifts Toshihide Takai, Senior Executive Vice President to locations outside of Japan, Mani is more deeply and CFO, believes that developing Asian economies integrating management from across its operations, will eventually represent a majority of sales — that rotating foreign employees into Japan, for example. markets currently categorised as “tier two’’ will Indeed, Takai believes that within two years it is become much more important to Mani’s business. likely that either one or two senior company officials To protect its advantage in a space that a low- in its Vietnam production centre will become a cost, mass-producer will find difficult to take over board director for the company. Revitalising corporate Japan 19
  22. 22. Reality 1 in order to build a new plant for the increasing its share of high-tech and Germany, which started with a business in Thailand.” The company services exports, and deemphasising similar high-value, manufacturing decided that the head of a new man- lower-value-added exports, where export–led economy as Japan in ufacturing plant outside of Thailand lower-wage Asian countries have the 1980s, has maintained its terms “should be a local Thai resource who already eroded competitive advan- of trade, while Japan has seen an knows our Thai business opera- tages. Yet, Japanese high-tech exports alarming decline — particularly tions very well. Such a cycle will be have actually decreased as a percent- over the last five to seven years. repeated when we grow our business age of total exports to China over the in emerging markets.” past decade. High-tech exports to What this shows is that Japanese India also showed a slight decline in companies are often not moving fast Implied within this conversation is the same period. This is not just an enough and are retaining lower- the need for a new breed of lead- issue for Japan, but for all high-wage valued activities even as they are ership — one which can operate economies. (See Exhibit 5.) increasingly attacked by lower-wage effectively both in Japan and globally. countries such as China. To date, Japan’s superb reputation But are corporations moving fast for quality, innovation and advanced Asia’s increasing importance is enough? As Asia’s most advanced technology hasn’t led enough not just producing new consumer economy, Japan should be thriv- Japanese corporations to find and markets; it is also creating new ing; its corporations are ideally fill the high-value niches where they competitors. Korea’s emergence placed both geographically and are uniquely qualified. In fact, Japan has led to new global champions in, strategically because of previous has seen an alarming decline in its for example, electronics (Samsung investments and existing economic export-pricing power. (See Exhibit and LG Electronics) and automo- relationships in the region. Yet 6.) That is, in a number of industries, biles (Kia and Hyundai), two sectors even as exports to the region have Japan is maintaining a position in where Japanese companies have increased, Japan’s share has not. products where the value is declining had great success historically. Many precisely at the time maintaining and other companies emerging from Japan’s export mix tells the story. As enhancing living standards in Japan China, India, Malaysia, Indonesia, Asian economies develop, Japan’s requires increasingly focusing on Singapore and other growth prosperity depends on maintaining or higher-value products. economies are battling Japanese Exhibit 5: Japan’s export structure to China and India Our generation has a Japan is experiencing a declining share of high-tech and services exports to China relative to its total exports. The export structure to India shows better performance, albeit from a chance because markets smaller base. are growing in India, % share of total exports China and elsewhere China in Asia, and we need to Services High-tech goods Mid-tech goods Low-tech goods Other get to those markets. 2000 Gen Miyazawa 2010 Yahoo! Japan 0% 10 20 30 40 50 60 70 80 90 100 India Services High-tech goods Mid-tech goods Low-tech goods Other 2000 2010 0% 10 20 30 40 50 60 70 80 90 100 High-tech, mid-tech and low-tech are terms classified by the OECD. High-tech includes the majority of ICT products and also refers to electronic engineering, computers and office equipment, precision and optical equipment, aerospace and pharmaceuticals. More information is available at: docserver/download/fulltext/5lgsjhvj7nkj.pdf?expires=1343065200id=idaccname=guestchecksum=7CB5ECD0 D19E00A01F24393FA89C8287 Source: Oxford Economics/OECD20 PwC
  23. 23. corporations in their own home Exhibit 6: Decline in ratio of export prices to import pricesmarkets, across Asia and the world. The terms of trade — the ratio of import prices to export prices and an important indicator of the competitiveness of a nation’s exports — are declining for Japan while holding steadyServices are playing an important for the United Kingdom, Germany and United States. The decline shows that in a number of industries, Japan is getting less for its products.role in Asian growth. Indeed, growthin services industries will outpace 160 Japan GermanyGDP growth in most Asian econo- US UKmies for the foreseeable future. 140Aside from demands from growing 120middle-class markets for services,increasing intra-Asian businesspenetration will create new services 100opportunities as modes of com-munications, capital markets and 80regulatory policies across thosemarkets adapt. And, of course, 60 1989 1992 1995 1998 2001 2004 2007 2010services exports tend to be highvalue-added. No doubt, there has (Year 2000 = 100)been some progress. Retailers Source: Oxford Economics/Haver Analytics— notably online, in domestic con-venience stores and in global chainssuch as Fast Retailing Company’sUniqlo brand — are making sig-nificant headway.1 But Japanesecompanies overall are just catchingup — and need to quicken the pace.1 “Japanese Banks in Asia: Lending a Hand,”The Economist, May 19, 2012. Revitalising corporate Japan 21
  24. 24. While the world is evolving to system thinking, unfortunately Japan is becoming a parts supplier. The margins are getting thinner and thinner, and [companies] still justify their existence because of this, yet it is very dangerous because you are on the lower end of the cost-profit side. William H. Saito Intecur, KK Exhibit 7: FDI growth to Asia Companies can do their part; policy A relatively lower rate of FDI growth means that Japan’s share of investment into important changes are also important. Takeshi Asian markets, particularly China, is declining rapidly. Niinami, President and CEO of Lawson, one of Japan’s leading % growth in FDI to Asia 172% Japan: % share of FDI into China convenience store operators, told 2005–2010 PwC, “Bold reforms and revisions of regulation must be undertaken 12% decisively in order to root out vested interests and create jobs. This will 10 give hope to the younger generation and activate the nation.” 8 Japanese investment in Asia has 66% 6 room to grow. Japanese companies 60% 54% have long experience working in 4 Asia as they’ve shuffled production 33% over the past few decades. That 2 experience needs to shift from the arm’s-length supply relationships to 0 complex market-facing collabora- World Japan UK Germany US 1996 2000 2004 2008 tions, as we cover in Reality 2 and Reality 3. Source: Oxford Economics/Haver Analytics Japanese foreign direct investment is not keeping pace with other major investors. (See Exhibit 7.) The absolute level of FDI is not the most important factor to consider; after all, it can be wasted. Yet given the overall weight of the Asian economy and Japan’s own economic structure, Japan should play a significant and Myanmar meaningful role investing in Asia. Similarly, Japanese MA remains Myanmar offers an example of the significant opportunities that below that of Europe and the US, exist in frontier markets as well as the large role South-South relative to the sizes of their econo- trade can and does play. For example, Myanmar’s GDP is fore- mies, notwithstanding a record cast to expand by 4.8% annually in 2012 and 2013, driven by year in 2011. Japanese corporations large investment projects funded by investors from China, South continue to sit on a large stockpile Korea and Thailand in natural gas and infrastructure. Growth is of cash despite ideal conditions for projected to accelerate to an average of 6.5% a year in 2014–2016 acquisitions, including a soaring yen due to anticipated increases in foreign investment following the and a need to enter growth markets. expected lifting of sanctions in 2013 as the local government pro- gresses on human rights issues. As Northern firms begin to gain “Global competition is getting harder access to this market, the risks and opportunities presented by and harder for Japanese compa- existing South-South trade and investment will come to fruition. nies. They have to change, probably by restructuring by themselves, domestically and also globally,” said22 PwC
  25. 25. Many of my customers are moving to Vietnam, Indonesia and now Myanmar. A ton of companies are in Myanmar right now. We are going to open [a sales] office [in Myanmar too]. Kunio Yoda Morito Company LimitedTamotsu Adachi, Managing Directorand Co-Representative in Japan forThe Carlyle Group, “They need toexpand their global businesses by The rise of collaborationacquiring global companies andforeign companies; also, within in AsiaJapan, consolidation is probablycritical for a lot of industries.” The infrastructure sector illustrates how multinationals use new strategies involving complex alliances. InfrastructureWhile there are examples of Japanese projects, such as new power generation plants, are complex andcorporations that have done an have components that extend for years. Services, maintenanceexcellent job adapting to the rise of programs, skills training and project financing are no longerAsia, these seem to be exceptions. sideline programs for infrastructure companies in Asia; theyMany mid-sized Japanese companies are an integral part of a product offering. It often takes severalstill view their main competition as partners to bring these offerings to market.domestic rather than global. On top of these structuring complexities, heightened com-“Globalisation is obviously impor- petition from low-cost rivals based in Asia and changingtant but what is needed to achieve environmental standards are influencing market dynamics.globalisation is more than simplygoing abroad. It is also extremely Given these realities, Electric Power Development Co., Ltdimportant that globalisation is (J-Power), is pursuing what Yoshihiko Nakagaki, a Senior Boardin-bound too, that foreigners come Advisor and former President, calls integrated infrastructureto Japan,” said Eizo Kobayashi, systems and project-based solutions to expand in Asian markets.Chairman of Itochu Corporation. The clean-coal technology company’s Build-Own-Operate-“We must deeply understand Transfer (BOOT) investment in a coal-fired power generationthe ways of thinking, laws, regula- plant in Indonesia in 2011 is a case in point.tions, commercial ethics, businesspractices, religions, history, cultures Working together with Japanese trading group Itochuand other characteristics of the Corporation and Indonesian coal company PT Adaro Energy,people of each country in order the deal involves the construction and operation of a new plantto promote globalisation.” in central Java. J-Power’s ultra-supercritical (USC) technol- ogy for higher energy efficiency and lower carbon emissions is an important component of the joint offering. “As we faceWe cannot do everything vehement competition in this export business, our quality inin Japan. We have technology determines whether or not we can win a deal. This is going to be the next challenge we will face,” Nakagaki told PwC.RD centres in Europe “What enabled us to win the deal was our technology develop-and the United States ment results.”but we are shifting to Engagements for J-Power in developing Asia won’t end withmore emerging markets; construction. The company expects to continue with skillsfor example, to India training and technology development in the countries where it operates. This too, Nakagaki believes, is part of the attractionand China. of its offering for Asian customers.Toshiyuki ShigaNissan Motor Company, Limited Revitalising corporate Japan 23
  26. 26. Reality 1 Business implications Where is your company Fast-growing Asian economies are within the region is as important as focused in Asia? evolving quickly. The spread of deciding in which countries to mar- low-cost assembly and production, ket your products. These decisions an array of trade pacts and infra- involve a host of considerations such structure build-outs are pushing the as intellectual property (IP) strategy, boundaries of business-to-business tax credits, local market requirements opportunity in high-value niches and access to talent. A successful for those domestic markets. growth strategy will, in part, be Understanding where to best locate driven by a thorough assessment manufacturing or development assets of these and many more factors. Given the diversity in markets — The processes that make opera- On top of locally driven adapta- and in standards — how will your tions efficient in developed markets tions, companies are optimising company achieve scale in your don’t always work in regions where global capabilities where they can priority Asian markets? suppliers are undercapitalised and to achieve cost, talent and market infrastructure insufficient. This is access goals. This is evident in that particularly true as different com- almost every major company is petitive models such as state-owned establishing RD centres around enterprises thrive in this region. the globe and they are sourcing from an ever-wider base of global as well as local suppliers.24 PwC
  27. 27. What is the right approach to Any strategy for Asia needs to have management needs to “think locally” deal-making and alliances in MA as a key tool. And yet, the to take advantage of any newly the region? traditional Japanese approach to acquired assets. acquisitions will not work in these rapidly evolving markets. A hands- There are a variety of partnership off strategy — where few operations structures — from joint marketing are integrated and local manage- or development agreements to joint ment runs largely independent of ventures and acquisitions — that headquarters after an acquisition — can be used in the pursuit of growth faces diminishing returns in a region and establishing a presence in these that is rapidly changing. A cohesive, economies. As a result of the speed company-wide integration strategy with which these alliance models can better balance global and local are changing, companies need capabilities, achieve synergies and, to actively manage their various in turn, establish the flexibility relationships. The rewards of required to respond more quickly to effective management will be high opportunities, as they are more likely (in the form of profitable growth) to spread from investments in these — and the costs of not doing so high markets than from headquarters. as well (in the form of lost IP or Whichever the approach, however, competitiveness). How is your company planning Needs differ greatly from country to in another. Product and services to address the changing needs of country, and even city to city. As the offerings need to be tailored — or emerging middle classes in Asia? (updated) saying goes, “if you’ve built from scratch — for the par- seen one emerging market, you’ve ticular needs and tastes of emerging seen one emerging market” — in middle-class segments. Brands often other words, don’t assume that need to be rebuilt too. what worked in one place will work How can you compete with your Within Asia, new competitors are “fiercest competitor” from the growing rapidly. From giants like new Asian economic powers? Samsung to government-sponsored entities in China, understanding the competition is a critical first step. From there, it is imperative to consider novel approaches to these markets in response. One way to do this is to have management, including local representatives in new markets, imagine that they have been given access to capital and local talent to compete against their own company. Most executives know their company’s major market weaknesses — the soft underbelly, if you will — and where the opportu- nities lie in a market for a firm that can move with a new model. This exercise helps senior executives find new ways to Henk Braam/Hollandse Hoogte/Redux Revitalising corporate Japan 25
  28. 28. 26 PwC
  29. 29. Reality 2Increasing businesscomplexityCompanies are managing a greaternumber — and a wider range —of stakeholders• Interconnectedness among economies is vastly increasing the number and diversity of meaningful economic relationships.• Complexity manifests not only in trade and financial relationships, but also in stakeholder relations.• This environment requires organisational principles that are different from those that have succeeded in the past. Revitalising corporate Japan 27
  30. 30. Reality 2 It comes as little surprise that 59% Exhibit 8: Two decades of increasing complexity of CEOs around the world believe Despite remarkable global economic growth of 67% over the last 20 years, many emerging markets are more impor- factors related to the global economy are growing even faster. The result is a world tant to their future growth than with deepening complexity. developed markets.2 Yet, when thinking of emerging markets, some analysts focus attention on a select few economies with size and influ- ence — think of acronyms like BRICS (Brazil, Russia, India, China and South Africa) or N11 (the “Next 11”). Those groupings alone don’t fully capture how broad and diverse the global economy has become. If South World GDP: 67% growth America, developing Asia, Africa and the Middle East were combined into a single market, it would represent 85% of the world’s population, half of the world’s GDP and an aggregate Mobile subscriptions: growth rate much higher than that of 47,919% growth developed economies.3 Hedge fund industry: 5,079% growth That’s an enormous opportunity — World data stored: 4,185% growth but one fraught with complexity. The Value of stocks traded: 1,079% growth growing interconnectedness among fast-growing regions and countries Regional trade agreements: 600% growth has vastly increased the number of Market cap of listed companies: 498% growth economic relationships — in trade and investment, culture and people World shipping fleet: 329% growth — that an organisation must keep up Air freight transport: 237% growth with. (See Exhibit 8.) Trademark applications: 127% growth 2 PwC, Delivering Results — Growth and Value in a Volatile World: 15th Annual Global CEO Survey, 2012. Countries with US$ 1 trillion GDP: 100% growth Available at: download.jhtml. 3 PwC uses the term SAAAME to describe this Source: PwC analysis based on data from various sources, including UN, World Bank, World Shipping Association grouping of South America, emerging Asia, Africa and and government databases the Middle East. See PwC, Project Blue: Capitalising on the Rise and Interconnectivity of the Emerging Markets. Available at: services/projectblue/rise-of-the-emerging-markets- saaame/rise-of-the-emerging-markets-saaame.jhtml.28 PwC
  31. 31. Why can’t we run the decision processdifferently to support [local staff] sothat they can innovate themselves,decide on the business, the speed, howto communicate? You can’t succeed inthe US or Europe in the Japanese way.You need people to do it on their own.My responsibility was really to stylethat kind of management organisation.Ray HatoyamaSanrio Company, Limited Operating in a G-Zero world “It’s not enough to invest in partnerships. These them. The ability to pivot is a critical advantage. companies must invest in a culture of adaptability.” Bremmer provides examples of some “pivot” Ian Bremmer, President, Eurasia Group countries, like Brazil, Indonesia, Turkey, Vietnam and Singapore. Africa, the world’s most under- G-ZERO - - JEE-ZEER-oh - - n rated growth story, has become a pivot continent. A world order in which no single country or And not all pivot countries are in Asia or emerg- durable alliance of countries can meet the chal- ing markets: on the back of recent energy deals, lenges of global leadership. What happens when Canada has successfully pivoted from an exclusive the G7 is history and the G20 doesn’t work. US sphere to one that includes China. In his new book, Every Nation for Itself — Winners What are the lessons for business leaders? and Losers in a G-Zero World, geopolitical strategist Multinational companies will have to move past Ian Bremmer argues that a new political reality traditional models of cross-border collaboration is taking shape, defined by the lack of a single and integration. The successful companies will be power or alliance capable of providing global adapters — those that understand the changing leadership. The resulting leadership vacuum and competitive landscape and are agile to exploit the diverse political and economic values have pro- advantages it provides. Perhaps that means invest- duced global gridlock when coordinated action is ing in markets with different tax or regulatory required on many issues, from the stability of the landscapes. Or it can mean transforming a state- global economy and climate change to cyberattacks, backed rival into a commercial partner by offering terrorism, and the security of food and water. something that a government-controlled enter- prise can’t get anywhere else, like unique expertise Who wins and who loses in this exceptionally or specific technology. Adaptability, however, is fluid international environment? The key is to not one-size-fits-all. Successful companies in the be a “pivot state,” a country able to build profit- G-Zero world will be the ones who can “pivot” eas- able relationships with multiple other countries ily and quickly to respond to fast-evolving markets, without becoming overly reliant on any one of cultures, economies and governments. Revitalising corporate Japan 29