No country is an island
The Economist December 1st, 2007 Gee-Hsien Chuang KBS - Japanese Business Environment February 21, 2008
The Issue Japan is reluctantly
embracing globalization. • Struggling in import penetration and inward foreign direct investment. US • Lagging behind in the global 22.0% M&A wave (2004). Japan 2.3% EU 47.0% • Overall closed curtain to Other outside interaction and 28.7% investment.
Why is Japan such an
outlier? Regulations • Remnants of post-WWII regulations restricted inward ﬂows of goods and investments in order to protect domestic growth. • Other industry-speciﬁc regulations. Domestic Crises • Financial crises in the 1990s-2000s have been major issues. Cultural Inﬂuences
Why does Japan need to
embrace globalization? • Growth - Domestic markets are mature; Growth opportunities are abroad. • Innovation and Reform - Inﬂow of foreign ideas can boost innovation. - Foreign entrants also spur and incite domestic internal reform. • Laggard - During Japan’s restructuring in the 1990s, large multinationals have emerged through heavy M&A activity. Smaller domestic ﬁrms are struggling. - Local talent lacks the international experience foreign competitors have. • Heavy Competition - More and more competitors, particularly emerging markets.
Not all Japanese ﬁrms are
at fault. • Toyota has factories in 27 countries, and is becoming the world’s biggest automobile manufacturer. “we have been changing our business and management style to respond to the race of globalization.” • Sony Corporation makes 74% of its sales outside Japan. • Nintendo, Canon, etc...
How can Japanese ﬁrms go
global? • Acquire both domestic and international ﬁrms to achieve global scale. Takeda went on a global acquisition spree. - 10 years ago, 50% of revenues from Japan. Today, 30%. • Move upstream into high-value specialty items. • Adopt a regional strategy, focusing on Asian markets. • Form global alliances with foreign ﬁrms.
Outsourcing as a method of
globalization • Outsourcing is a method to stay competitive by reducing costs, but Japanese ﬁrms are cautious with this approach. • Sony outsources standards-based mobile phone and PC manufacturing, but insists on manufacturing proprietary digital cameras and camcorders domestically. • Reasons? - Deep-rooted hostility with China. - Protection of intellectual property. - Japanese manufacturing as a core competency.
Come in, gaijin ( )
• In 2003, the Japan External Trade Organization (JETRO) was assigned to increase/encourage FDI in Japan. The goal was not capital. • FDI results in new ideas, new business models, competition, and reform. • In 2002: - Manufacturing productivity was 60% higher in foreign-afﬁliated ﬁrms. - Services productivity was 80% higher. • Foreign ﬁrms outperformed in proﬁtability, investment, and R&D spending. • Only the strongest foreign ﬁrms enter Japan, resulting in a shock-inducing but positive stimulus.
Foreign inﬂuences on management •
Carlos Ghosn’s turnaround at Nissan. - From near bankruptcy back to proﬁtability. • Ripplewood, a private equity ﬁrm. - Relaunched the Long-Term Credit Bank of Japan as Shinsei Bank in 2000. - Shinsei went public in 2004, resulting in a ¥100 billion payout for Ripplewood.
Conclusion • Foreign investment and
globalization are necessary steps if Japanese ﬁrms wish to survive in a highly competitive global environment. • Change must be carefully planned and executed. - Japanese customers are some of the most sensitive in the world. • Ideas and changes should be thought of as catalysts and inspiration, as opposed to a cut-and-paste strategy.