Japan’s globalization puzzle: intriguing questions by one of my great European friends, a great European banking sector leader
How do you explain Japan’s lack of internationalization with so many big Japanese holdings managing successfully businesses abroad (e.g. Toyota, Toshiba, Mitsubishi, etc.)
Japan’s globalization paradox – a closer look
Its not so simple: Japan is a huge country, third globally, and there are 3500 Japanese companies listed on the Stock Exchanges – they are all different. Some Japanese companies are very excellent and successful and global leaders or even No. 1 in their fields – e.g. you mention Toyota and there are many more.
On the other hand, Japan is the only major country who’s economy has not grown for 20 years, and for example, Japan’s electronics sector dominated the world 20 years ago, but since then there is no growth and essentially no profits, see: http://www.eurotechnology.com/2015/06/18/japanese-electronics/
There are two main factors limiting Japan’s growth
- decreasing and aging population. few babies and no immigration.
- structural reasons (slow growth by traditional established corporations, and too few new high-growth industries), corporate governance issues, addressed by Prime-Minister Abe’s “third arrow”, however most people agree that Prime Minister Abe’s “third arrow” reforms have been more words than action. Maybe the most or only successful “third arrow” reform are Japan’s corporate governance reforms
I’ll give a talk on 6 October 2016 for the Swedish Chamber of Commerce in Japan, Stockholm School of Economics, at the Swedish Embassy in Tokyo:
“Changing the way Japanese corporations are managed”
Exhibit – Toshiba and its scandal
You mention Toshiba – Toshiba is a famous global brand in many sectors, and Toshiba has developed many important technologies in many areas from medical technology (Toshiba’s medical sector has been sold to Canon as a result of Toshiba’s accounting scandal), semiconductors (especially flash memory), but Toshiba’s profits/income averaged over 20 years is close to zero, ant Toshiba did not grow for 20 years, and went through a series of accounting scandals etc. Now as a consequence of these scandals, Toshiba has to sell off several important growth divisions, e.g. their very valuable medical technology sector to Canon. Read comments on Toshiba here:
http://www.eurotechnology.com/2015/07/21/toshiba-income-restatement/
or read in Wall Street Journal about Toshiba here 2 days ago
http://www.wsj.com/articles/toshibas-turnaround-needs-more-work-1471007429
Toshiba’s accounting issues are the result of a combination of mainly two factors:
- 20 years no growth and essentially no profits, compounded by financial problems in the nuclear industry segment as a consequence of the Fukushima Dai-Ichi nuclear disaster (Toshiba had acquired the nuclear manufacturer Westinghouse, and thus is a major nuclear industry manufacturer and contractor)
- corporate governance
Companies such as Toshiba, benefit from their globally famous brand, therefore I am quite optimistic that Toshiba and other Japanese companies in similar situations can recover, if the correct management decisions are taken, and if corporate governance is improved – and this is exactly the reason why the current Japanese government sees corporate governance reforms in Japan as a major priority.
There is no doubt in my mind, that if corporate governance, management and other factors are improved, companies like Toshiba can be transformed into iconic companies, but these will be different companies than today.
As an example, both SONY and HITACHI are quite successful in their revival efforts.
Japan’s electronic sector
Japan’s whole electrical sector is in huge trouble – again caused largely by corporate governance – read: http://www.eurotechnology.com/2015/06/18/japanese-electronics/
Here are some of my interviews on CNBC, BBC etc about these issues, e.g. http://www.bbc.com/news/business-20335272
and
http://www.bbc.co.uk/search?q=gerhard+fasol
http://www.bbc.com/news/world-asia-21992700
Mitsubishi – there is no Mitsubishi Holding Company, but 1000s of companies with Mitsubishi in their name…
As another example you mention is Mitsubishi. There is no single company with the name “Mitsubishi” in Japan. There are 1000s of companies with Mitsubishi in their name, and most are loosely grouped into the Mitsubishi Group – which is not a legal entity, and at their core is Mitsubishi Trading Company, and Tokyo Mitsubishi UFJ Bank etc. In some cases there are cross-shareholdings within the Mitsubishi Group, but these have been reduced much over the recent years. There is no “Mitsubishi Holding Company”. Most companies with Mitsubishi in their name are independent companies, many independently on the stock exchange.
Together the Mitsubishi ‘Group’ is a big part of Japan’s economy – maybe 10-15%, but the ‘Mitsubishi Group’ is not a corporate group in the Western sense. Some of these companies are very successful and very strong – some are very good, but some have difficulties – which can also be overcome. An example is Mitsubishi Motors, an automobile maker, which was acquired around 2001 and then divested again in 2004-2005 by Daimler (then Daimler-Chrysler), and is currently being reformed by Nissan under the guidance of Nissan/Renault CEO Carlos Ghosn.
Read this analysis in Wall Street Journal a few days ago – this is exactly what I will talk about in my talk at the Swedish Embassy
http://www.wsj.com/articles/mitsubishi-motors-probe-finds-weak-governance-at-root-of-scandal-1470141587
The whole picture is quite detailed and differentiated.
“Toyota, Mitsubishi, Toshiba are great companies” … Yes and no. The devil is in the detail. More reading here:
e.g. my talk at the American Chamber of Commerce in Japan: Japan’s Galapagos Effect
My interviews on CNBC, BBC etc about these issues, e.g.:
http://www.bbc.com/news/business-20335272
Read also Masamoto Yashiro talk “Japanese management – why is it not global? asks Masamoto Yashiro at a Tokyo University brainstorming”
(Masamoto Yashiro is my great friend and a legend in Japan’s banking and energy industry. He built Shinsei Bank from the ashes of the bankrupt Long Term Credit Bank of Japan, and served in leadership positions (Chairman, CEO, Board Member) in Esso, Exxon, Citibank, Shinsei Bank, and the China Construction Bank)
Masamoto Yashiro also regularly attends the Ludwig Boltzmann Forum which I am developing into a global leadership platform, which I am organizing, you can see him in the photos here:
8th Ludwig Boltzmann Forum 2016
and here
7th Ludwig Boltzmann Forum Tokyo 2015
Japan’s economy overall and Abenomics
My friend Takeo Hoshi, Professor of Finance at Stanford Graduate School of Business: “Abenomics success probability is 12%, 88% probability of failure”
Download Gerhard Fasol’s Stanford University lecture “New opportunities vs old mistakes – foreign companies in Japan’s high-tech markets”
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