About Pernille Rudlin

Pernille Rudlin was brought up partly in Japan and partly in the UK. She is fluent in spoken and written Japanese, and lived in Japan for 9 years.

She spent nearly a decade at Mitsubishi Corporation (the Fortune 100 $190bn Japanese investment and trading conglomerate) working in their London operations and Tokyo headquarters in sales and marketing and corporate planning and also including a stint in their International Human Resource Development Office.

More recently she had a global senior role as Director of External Relations, International Business, at Fujitsu, the leading Japanese information and communication technology company and the biggest Japanese employer in the UK, focusing on ensuring the company’s corporate messages in Japan reach the world outside.

Pernille Rudlin holds a B.A. with honours from Oxford University in Modern History and Economics and an M.B.A. from INSEAD and she is the author of several books and articles on cross cultural communications and business.

Since starting Japan Intercultural Consulting’s operations in Europe in 2004, Pernille has conducted seminars for Japanese and European companies in Belgium, Germany, Italy, Japan, the Netherlands, Switzerland, UAE, the UK and the USA, on Japanese cultural topics, post merger integration and on working with different European cultures

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Here are my most recent posts

What role did Carlos Ghosn’s status as a foreigner have in terms of his downfall?

And what does this mean for any other foreigner leading or looking to reach the top of a Japanese company?

Obviously the Nissan story is evolving hour by hour, so what follows is based on my current understanding as of 20th November.

The specific accusations are that Carlos Ghosn received share price-related compensation and the Dutch holding company of which he was a director along with Greg Kelly, as part of the Nissan-Renault alliance, used its funds to acquire and refurbish houses which were his residences. These were not declared, not as an income tax issue, but as a fiduciary/governance issue, in terms of declarations to the Japanese securities and exchange commission.

Is the way this possible misuse of funds was exposed specifically because Ghosn was not Japanese? Actually a lot of Japanese Presidents and Chairmen are allowed to use company funds for personal reasons, and because of the blurring of personal/private and employer in Japanese companies, it is quite common for companies to provide housing and other benefits far beyond the norm in the West, particularly to senior executives, who are not, on paper, paid that well. This is particularly true of companies where the President is also the founder or has a high degree of autonomy.

Terrie Lloyd, a long term resident and entrepreneur in Japan wrote an interesting piece on this recently – https://www.terrielloyd.com/terries-take/tt-970-imploding-one-man-shacho-listed-companies-e-biz-news-from-japan/

You also can’t help wondering what had been going on over the years in terms of internal checks and corporate governance at Nissan if they did not know and challenge what kind of “benefits” and compensation Ghosn was getting – as illustrated by this blog post from a Japanese corporate insider https://bdti.or.jp/en/blog/en/nissanltr/?77

So the next question is, as it often is with Japanese corporate scandals, why is this particular accusation being exposed and why now? The official story is that it was made by a whistleblower, which necessitated an internal investigation, and then this led to a plea bargain which would reduce the penalties to Nissan.* There is only one other instance of this happening – with Mitsubishi Hitachi Power Systems and a Thai bribery case – and it was a Japanese manager who was involved.

But I suspect, as do other analysts, that Nissan chose to pursue this and publicly expose it because they didn’t like the direction Ghosn was taking the company in and couldn’t work out another way to get rid of him. There was undoubtedly a long running worry about the degree of control/interference by Renault and the French government and Ghosn’s intention to make the alliance irreversible by the time he finally stepped down in 2022. I also just read a story in the Nikkei Business magazine that Ghosn was very keen for the alliance to partner with Google, Microsoft and Daimler and Chinese companies to create a CASE (Connected, Autonomous, Shared, Electric) strategy. That degree of “foreignness” and with the US, and China, and Daimler with whom Mitsubishi Motors already had a failed alliance might have elicited an allergic reaction from Japanese executives at Nissan and Mitsubishi Motors.

But also, which accounts for the strong words from current President Saikawa, indulgence of senior executives is tolerated so long as they still seem to be working for the good of the company, and Ghosn not turning up for the public apology after the inspection scandal, and the sense that it was his corporate culture of imposing aggressive targets on employees that might have caused that scandal – and yet he blamed Saikawa, might have tipped Nissan executives further into exposing the issue publicly rather than dealing with it in the usual way.

The usual way (see Fujitsu/President Nozoe resignation in 2009), when other executives decide that a President has to go sooner than the usual carousel of 6 years as President and another 6 years as Chairman because they think he’s gone beyond what is morally acceptable and/or they don’t like his strategy, is that they try to let the executive exit honourably, by getting him to resign due to illness or some similar blamefree excuse.

Maybe this option was offered to Ghosn – who had after all been leading Nissan as President and Chairman for nearly 20 years, so way beyond the norm for Japan. But I can imagine that he refused it – and this could be attributed to him being “foreign” – instead of understanding Japan’s “shame” culture, he would have gone down the Judaeo-Christian and legalistic route of saying he had a contract until 2022 and as far as he was concerned he had done nothing wrong, innocent until proven guilty, so bring it on.

There may also be a political aspect – again nothing specifically to do with Ghosn being foreign – but Nissan may have got the hint from Japanese government agencies that they would be supported in taking Ghosn down because they were not politically in favour of the direction he was taking the alliance in – see what happened to Horiemon/Livedoor.

So in summary, I doubt Ghosn was treated differently because he was foreign per se, but because he was foreign he probably reacted differently, just as Michael Woodford did when asked to resign after uncovering scandals at Olympus, believing his own innocence and not fearing public exposure.

But underlying this there could be a resistance in Nissan and beyond, to any further globalizing, whether it results in French or Chinese or American or German control or influence. If I was a foreign executive, particularly if I was Christophe Weber at Takeda, I would be watching further developments in this case like a hawk and making sure I built as many strong, trusting relationships with my Japanese executives as possible.

*The story has indeed evolved – it now turns out that Nissan itself was not part of the plea bargaining deal, it was the two officials, one non-Japanese SVP who managed the Dutch subsidiary and one Japanese who was Ghosn’s chief of staff, who agreed to cooperate with the investigation under a plea bargain.

I was also quoted in the New York Times on this subject.

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Some Japanese companies in the UK see Brexit as a business opportunity

In an article for the Teikoku Databank News in October 2016, I wrote about how Japanese business people in the UK were surprised that many British people’s reaction to Brexit was to try to be positive and seek out new business opportunities – I particularly pointed to Africa and the Middle East, infrastructure projects in the UK and M&A in the UK.

Now Nikkei Business magazine also has an article on Japanese companies in the UK that have indeed seen there are business opportunities in Brexit.

First up is NTT Data, who expect that clients will be looking to introduce new IT systems as a result of Brexit. For example, to cope with any new tariff and customs checks, goods might need IC tags.  Also, there will be more need to check the work permits of EU citizens in the UK.

NTT Data has added over 200 IT consultants and digital design specialists in the past year, to its existing 700 staff and expects to add another 100 this year.  It also acquired UK software development MagenTys company in May 2018 and opened up a design studio in London aimed at collaboration with start-up companies.

Brexit may also mean that the UK’s distribution system needs to adapt – there will be more need for warehousing and holding zones. The Japanese logistics company Nippon Express is therefore looking at strengthening its warehousing business. “We get a lot of enquiries for warehousing, so we want to be ready for any needs arising from Brexit”, says UK MD Toshinori Sakai.

Japanese security company SECOM is also expecting there to be greater needs for security systems arising from Brexit. Up until now security companies had been able to rely on hiring low wage immigrant security guards but if immigration is cut back then there will be greater need for SECOM’s security cameras and other automation, to replace those guards. SECOM’s UK MD, Minoru Takezawa predicts that the cost of providing security will rise as a consequence of cutting off the supply of cheap labour, so technology-based solutions will become more competitive.

SECOM started a new service in 2017 alerting retail chains when people with criminal records are entering their outlets.  They have increased the staffing of their monitoring centre from 40 to 100 and acquired a Northern Ireland headquartered Scan Alarms & Security Systems in March 2017.

Nikkei Business acknowledges that many of Japan’s manufacturers – particularly in the automotive sector –  are preparing for the worst, in terms of Brexit related disruption. But many multinationals in the IT sector, such as Google and Apple, have invested further in London, Cambridge and Oxford, in pursuit of a high skilled workforce and overall Japanese investment into the UK continues to increase in 2016 and 2017, and not just because of SoftBank acquiring ARM in 2016.

Law firm Ashurst’s Hiroyuki Iwamura points out that the UK is a pivot to global markets, particularly to the US. Theresa May is showing particular consideration for Japanese businesses – If they worry too much about the negative impact of Brexit, they may miss some good business chances, Nikkei Business London bureau chief Takahiro Onishi concludes.

If you would like to purchase a detailed list (address, company size etc) of acquisitions made by Japanese companies in the UK in 2016 (24 companies), 2017 (21 companies), 2018 (8 so far), please contact Pernille Rudlin (pernilledotrudlinatrudlinconsultingdotcom)

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Nissan and Ghosn – the cycle of coups d’état reaches back to the 1960s

I always prefer coincidence or cock-up to conspiracy, and former journalist and PR consultant Masaki Kubota clearly feels the same way, judging by the first few paragraphs of his article on Carlos Ghosn and Nissan in Diamond magazine.

As he says, in his years as a journalist, it was the standard defence of any Japanese executive caught up in a scandal that it was a conspiracy of people out to get him.

With Ghosn, you could easily claim, as many have, that this was a conspiracy, born of some kind of alliance between insiders at Nissan who wanted to get rid of Ghosn, his ex-wife and the Japanese government, and this kind of accusation is handy both for Ghosn and the French government or Renault who might have wanted Ghosn to continue to be influential.

But then Kubota does a classic kishotenketsu twist, pointing out the history of Nissan, going back to Ghosn’s installation and even before, is one of a cycle of coup d’etats.

Starting with the most recent history, of the inspection scandals – the exposure of the problem was a way of resisting the inspection system that Ghosn’s management team had introduced, shortly after Saikawa (identified as one of Ghosn’s team) became the new President of Nissan. It was in effect an abortive coup d’état.

Going further back to 1999 the then President Yoshikazu Hanawa was in negotiations with Daimler Chrysler and Ford but instead installed three Renault executives, without even consulting the previous Presidents who were advisors to the company at the time. “It was a kind of a coup d’état” the Nikkei said at the time.

Purging the Don

Even further back, to the 1980s, when the Chairman and former President for 16 years from 1957 was Katsuji Kawamata, there was a coup which led to the purge of union power at Nissan in Japan. It was well known that Kawamata gained his power through cooperating with the Nissan group labour union leader Ichiro Shioji. But then in 1984, Shioji, who was seen as the main obstacle to Nissan opening its factory in Sunderland UK and before that in the US, was hit by a scandal – photos appeared in the weekly magazine Focus, of Shioji on a yacht with a beautiful young woman.  Criticism of Shioji, as “the Don”, mounted and he resigned on 22nd February 1986. The Nikkei reported on this as “the 2.22 coup d’état” a reference to the 26th February Incident, a failed coup attempt in Japan in 1936. It was said that the power behind the 2.22 coup was Takashi Ishihara who was in favour of global expansion, and was the President at the time.

Ishihara had been involved in an earlier coup, when he was still at managing director level in 1969. Documents were leaked to the media about an incident involving a Nissan microbus.  It became clear that this was done in order to purge the upper ranks of the company.

As Kubota says, when there is a fraud in a company, this is often results in a clear out of those in the upper levels of management who are to blame.  In fact, this kind of incident has been quite rare at Nissan, so when it happens, it is likely that it is part of a major change in strategic direction.  So, Kubota asserts, it is definitely a coup d’état.  In Kubota’s experience, it is hard to change a corporate culture that easily, so if Nissan is used to changing strategies by coup d’état, then it will continue to use this mechanism.

Corporate culture will not change just because foreign executives are put in place. Kubota reminds us that for Saikawa to criticize Ghosn so strongly, when Ghosn has not yet been put on trial, is certainly a change from the usual crisis management of Japanese companies.

Kubota sees this singling out of Ghosn by Saikawa, who worked so closely with Ghosn for many years, as a kind of personal insurance.

So where does Saikawa fit in? Kubota has dug out the fact that Saikawa was executive assistant to the President from 1992, Yoshifumi Tsuji. Tsuji had taken over from Yutaka Kume, who had succeeded Ishihara, the instigator of the coup against union Don Shioji.  Saikawa was therefore part of the team that survived the Renault coup.

So it goes round. As Kubota puts it, even in the midst of this coup d’état, there will be people wondering whether they will be the next to be stabbed.

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5 types of Japanese colleagues who are “workstyle reform” blockers

I was surprised to see this explanation of  five generations of “workstyle reform” blockers in the Nikkei Business magazine came with a big red caution notice to readers not to take offence. The categories are not to be taken as hurtful stereotypes but based in research, and do not apply to all people of a particular age group, they explain.

So with that in mind, here’s a precis of the 5 types identified. Even though I’m not Japanese, I’m afraid I do recognise aspects of myself in the “middle manager” category, and am trying not to take offence. Although some of the characteristics are obviously derived from each age group’s experiences of the Japanese domestic economy and society, I am also reminded that there is plenty of evidence each generation around the world has complained about the other generation for the past thousand years or more.

1. The Veteran

Born between 1947-1951, so 66-71 years’ old

  • Work comes first
  • Believes in the virtue of hardship
  • Over strong sense of competition
  • Clings to past experiences of success
  • No intention of changing how they work
  • Gets angry if their way of working is rejected
  • Will oppose competitors’ opinions regardless of content
  • Caught up with “how things were” in the past.

2. The Executive

Born between 1952-1960 so 57-66 years’ old

  • Don’t rock the boat – doesn’t want to challenge
  • Laissez-faire
  • Always talks about “ideally”
  • People are people, I am what I am
  • Rather than change workstyle, is interested in what happens after retirement
  • Uninterested in reform, regardless of content
  • Just wants results, doesn’t make concrete proposals
  • Won’t listen, as retiring soon anyway

3. The middle manager

Born between 1961 and 1970, so 47 to 57 years’ old

  • Superficial
  • Thinks too highly of self
  • Extremely hedonistic
  • Sees everything in cost/benefit, mercenary terms
  • Reform should be done cheerfully, enjoyably without trying too hard
  • Won’t do it if not fun
  • Will oppose anything which increases own workload
  • Tells everyone to do their best and doesn’t do anything themselves
  • Will change the content of any reforms on a whim

4. The shop floor leader

Born between 1971 and 1986, so 31-47 years’ old

  • Pessimistic
  • Not good at interacting with other people
  • Prioritize risk avoidance
  • Strong sense of resignation – “they won’t understand”
  • “If this reform fails, there is no future for me”
  • Won’t promote reform if don’t trust the company
  • Too busy watching others’ reactions to say own conclusions

5. The staff member

Born between 1987 and 1994, so 23 to 31 years’ old.

  • Little sense of crisis
  • Not good at making an extra effort
  • Prioritizes personal life
  • Everything in moderation
  • “Is reform really necessary?” Won’t do it unless feels it’s necessary
  • Let other people take up new challenges or jobs requiring some thought
  • No empathy with the reasons behind the reforms
  • Doesn’t take the company so seriously, ignores directions

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Mitsubishi Corp reinvents itself again

Mitsubishi Corporation has evaded the perennial “death of the sogo shosha” (trading company) threat again, this time by shifting away from resources and commodities.  Non-resource related business now accounts for 70% of its profit, a complete about face from 2011, when it first started categorising its revenues in this way, and non-resource business was 30% of profits.

One contribution to this was Mitsubishi Corp’s acquisition of Norwegian fish farmer Cermaq in 2014, for $1.4bn.  Not only is its production ending up as sashimi in Japan, but it has outlets in the US via supermarket chain Costco. Mitsubishi has also been acquiring businesses in chemicals, automotive, fertilisers and materials sectors and recently raised its stake in Toyo Tires.

Nonetheless, higher resource and commodity prices were a key driver of its recently announced 22% increase in net profit for the last quarter and it has lifted its forecast for the full year to a record level.

It is not being complacent however, as it also announced in its new mid-term plan – to take it through to 2022 – that it will be revising its HR system for the first time in 20 years.  The main change is that the amount of time it will take before a graduate hire can take up a “kacho” grade management position from 20 years (ie not until early 40s) to 10 years. After 10 years, management appointments will be made on merit rather than seniority or which division the person originally came from.

Salary will be based on complexity of the job role, achievement of individual objectives and performance. Depending on performance, salary could be 50% higher than current levels.  Employees above a certain level will also be awarded shares on retirement in order to ensure that company performance is reflected in their compensation.

The current 7 business groups will be split into 10.  6 groups such as “natural gas” and “automotive” will be designated as profit drivers and encouraged to increase profitability. 4 groups such as “petroleum and chemicals” and “industrial infrastructure” will, through restructuring of industries and creation of new businesses, be the growth drivers.

As, like many Japanese companies, particularly the trading companies,  businesses were run on very vertical lines, there was a lack of cross fertilization between groups, so people will be appointed to develop businesses that cut across business groups. A Chief Digital Officer and digital strategy department will also be set up to respond to digitization, artificial intelligence and the Internet of Things.

The Nikkei points out that rivals Mitsui and Marubeni already have Chief Digital Officers and are investing in digital start ups but also that being behind on this does not seem to have impacted Mitsubishi’s top performance amongst trading companies – so far.

It’s often said that Mitsubishi is about organisation and Mitsui about people, if you want to get anything done. So this seems like (a somewhat familiar, from my own experience there 20 years’ ago) attempt to move the company forwards by tweaking the organisation, but also trying to make sure the organisation doesn’t squish the younger people coming up through the ranks – who are an increasingly precious resource in Japan’s ageing and shrinking population.

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Fujitsu stops hunting two hares

My Gmail translation app decided that the headline to this article in the Nikkei should read “Fujitsu response to nits that cannot hunt.” It was some kind of misreading of “nito“, an old Japanese word for “two hares”- referencing the Japanese saying “he who hunts two hares will not even catch one”.  The two hares in this case being the targets of having more than 50% of sales from overseas business and an operating margin of over 10%.

Investment in IT in Japan is booming, and margins are rising, but Fujitsu continues to struggle to make profits overseas, and this is weighing down its share price.  Fujitsu’s President Tatsuya Tanaka said when he became President in 2015 that Fujitsu must change shape and characteristics. He was the first President in the post war period (apart from the temporary President Mazuka) to come from a sales background and has strong ties to Toyota, Panasonic and other Fujitsu customers who have been strong globally.  Some changes have taken place such as the sale of Nifty – an ISP – to Nojima and the car electronics business to Denso. The mobile handset business has been sold to an investment fund and the PC business to Lenovo. It was decided that in January 2019 Fujitsu will sell off its shares in Fujitsu Components, a company with semi conductor and components factories in Mie Prefecture.

Fujitsu is shifting towards IT services, away from manufacturing with these moves.  Free cash flow has improved as a result and investors seem positive towards the restructuring but the share price has not improved. Operating profit overseas is still stuck at 1.7%, compared to overall consolidated profit margin of 4.5%. Overseas business has mainly been the sales of servers and personal computers – both affected by price wars. There has not been so much business in customizing systems, Fujitsu’s main strength. Hideaki Tanaka of Mitsubishi UFJ Morgan Stanley believes Fujitsu should focus on supporting Japanese companies overseas to improve profitability.

Overseas business is still only 36.8% of turnover, and trying to reach 50% is likely to be at the sacrifice of profit margin. Japan’s labour shortage means IT investment is likely to continue domestically. Competitors such as NTT Data and Nomura Research Institute (despite the name, an IT supplier) are both forecasting record high profits this year. “We don’t mind if they stop overseas business all together ” says one foreign securities house.

In fact Fujitsu does seem to be taking an axe to its overseas business, particularly manufacturing, and in Europe, where it has always been proportionately larger than most other Japanese companies. It annouinced that it plans to reassign 5,000 employees across the group on October 26th 2018, mainly from indirect functions such as HR, and accounting, and into professional sales and consulting. The last remaining computer factory in Europe, in Augsburg will be shut down by 2020, potentially affecting around 1,800 jobs. This demotion of overseas business has also resulted in the demotion of executives heading up those businesses, including Duncan Tait, one of the most senior non-Japanese, as Fujitsu has also decided to reduce the numbers on its executive board and move away from a regional to a more country based structure.

IT services account for around 80% of Fujitsu profits but although profit margins are improving, they are still not growing as fast as competitors, such as Nomura Research Institute, whose operating margin improved 0.6% on the previous year to 13.8%. Fujitsu is lagging behind in the development of upstream businesses such as AI and IoT.

Fujitsu also announced that it will partner with Ericsson in the development of 5G  – “the era of a single company doing everything by themselves is over” says President Tanaka.

 

 

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Brexit brings turning point for Japanese automotive suppliers in the UK

“We don’t have any room to store increased stocks” says Hiroshi Seko, the UK MD of G-TEKT, a Japanese automotive supplier. According to the Nikkei newspaper, BMW have asked the automotive body work supplier stock 3 months’ worth of supplies for the Mini because of concerns about the impact of Brexit on supply chains, when normally they only hold around a week’s worth. G-TEKT imports 60% of the raw materials from France but does not actually have anywhere in their factories’ grounds to store these raw materials.

G-TEKT has just started up its fourth factory in the UK (2 in Gloucester, 2 in Wales), to supply Jaguar Land Rover and Toyota.  It has increased employees from 568 to 808 over the past 3 years but is struggling to hire all it needs, particularly from continental EU, because of Brexit.

UK sales represent around 7% of G-TEKT’s global turnover, most of its sales in Europe. It has also just started to build a factory in Slovakia, again to supply JLR, from 2019.

Similarly, Takayuki Furuuchi the UK MD of Japanese automotive supplier Faltec, whose only production in Europe is their factory in Sunderland to supply Nissan, is also wondering if current lead times are sustainable. Faltec imports more than half of its metal materials from outside the UK and is worried that with a no deal Brexit, ithere will be difficulties in the logistics of supply of stainless steel from France and other EU supplier countries.  These supply trucks pass through the Channel Tunnel to Dover. The Dover port authority estimates that a two minute inspection time would lead to a 27 mile tail back of traffic.

Faltec currently has a 2 day lead time from when Nissan orders the parts to when they expect delivery.  Faltec is wondering whether it needs to adjust its procurement, but it has taken many years to build up a supply chain which meets car manufacturers’ rigorous standards and it will likely take a long time to make any changes to this.

According to a Japanese automotive supplier executive, “if there are logistical hold ups, then suppliers will just have to hold more stock”. Faltec is currently investigating holding stock at its own risk and whether there are any warehouses available nearby.

Nissan is starting production of its next generation SUV Qashqai for the European market from 2020.  Expecting that suppliers will be expanding production as a consequence, the local authorities have given the go ahead for a new industrial park near the Nissan factory in Sunderland. But if chaos after Brexit affects the supply chain, there will be an impact on companies’ European strategy.  Both Faltec and G-TEKT have been successfully expanding in the UK for over 20 years – Faltec increased employee numbers over the past few years in the UK, from 341 to 396.  With UK sales at around 6-7% of turnover for both companies, they are not facing a huge hit on a global scale from Brexit, but as suppliers, they have to accommodate whatever car manufacturers request.

“It has been 40 years since Japan’s automotive industry first set up shop in the UK. The British automotive industry is facing a turning point, not just for car manufacturers but for parts suppliers who have invested so much time and money into the UK”, concludes the Nikkei.

 

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Itochu – a vulture fund business model?

Itochu was stuck at the number 4 position among Japan’s trading companies for many years, until the “genius” Masahiro Okafuji became President in 2010. Thanks to his management style, Itochu even managed to push Mitsubishi Corporation out of the top spot, and recorded its highest ever operating profit in 2017.

According to Diamond magazine, these achievements have their roots in the aggressive “vulture fund” techniques that Okafuji introduced. These are quite different from the usual trading company matching of demand and supply, middleman role. As Diamond magazine describes it, first of all, having taken control through acquisition of shares, the business model and organisation are thoroughly analysed, then the profitable areas are developed so that the share price improves, so that their shares can then be sold off at a profit. If there are any weaker businesses, even if there is a long history and the founder has nurtured them, they are cut away.  Itochu did this with various Japanese fashion and food acquisitions from 2010 onwards.

Of course trading companies can make profit in other ways from their acquisitions, by becoming involved in their supply chains and logistics.  Itochu also often sees brands as commodities, to be merged, sold off or cut back as necessary. This does of course mean that employees attached to those brands are also no longer needed.

Okafuji says with regard to human resource development “we are in commerce. So it is a question of knowing what makes money and what doesn’t”.  Diamond magazine contrasts this with other trading companies such as Mitsubishi Corporation “on the noble path” and Mitsui “focusing on commodities”.

Itochu is in our top 5 Japanese companies in the UK, by number of employees – largely because it acquired garage chain Kwik-Fit in 2011, which has just under 5000 employees. It has other associated businesses too –  as I walked past my local Kwik-Fit garage recently I saw an Isuzu truck (Itochu has a large stake in Isuzu) with Stapleton’s Tyres branding (also owned by Itochu) making a delivery.  It also owns First Response Finance – who provide instalment credit to sub prime customers wanting to buy used cars – and a car dealership chain in Germany.  There are no signs as yet of any selling off of these investments.

 

 

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Using big data to understand how Japan’s business ecosystems have changed

It’s tough for Japanese companies to distil what makes them distinctive. Thanks to lifetime employment, most employees have no experience of other companies to compare and contrast their own company with.

One thing that Japanese companies have been excellent at, and have tried to replicate when they expand overseas, is their collaborative networks of companies or “ecosystems”, working as supply chains or in consortia. A few Japanese companies have realised this is a strength, and are trying to incorporate collaboration with customers or co-creation with partners into their vision and values, to the extent that this is in danger of no longer being a differentiator.

Some new research from Nikkei Business usingTeikoku Databank’s database of Japanese business relationships has come to the rescue with some fascinating insights on how Japan’s business ecosystems have been evolving and how they differ from company to company.

The magazine feature starts with a 2 by 2 matrix to illustrate which big companies and which ecosystems are doing well and not so well over the past 5 years.  Matching this against our Top 30 Japanese companies in the UK and Europe, the category members are as follows:

++ Turnover growth was above average both for the company and its ecosystem:

  • Dentsu
  • Toyota

+- Above average growth for the company but below average growth for its ecosystem:

  • Denso
  • Honda
  • Sharp
  • NYK
  • Nidec
  • Murata
  • Ricoh
  • Fujifilm
  • Astellas

+ Below average growth for the company but their ecosystems had above average growth

  • Nissan
  • Sony
  • Itochu
  • Mitsubishi Corp
  • Sumitomo Corp
  • SoftBank
  • Marubeni
  • Mitsui

– – The company and its ecosystem both had below average growth:

  • Canon
  • Eisai Pharma
  • Sumitomo Electric Industries
  • Mitsubishi Chemical
  • Mitsubishi Heavy
  • Kao
  • Panasonic
  • Fujitsu
  • Takeda
  • Hitachi
  • Kyocera
  • Toray
  • Mitsubishi Electric

Panasonic stays faithful to its big ecosystem

Unsurprisingly the trading companies have the most companies in their supply ecosystem, but Panasonic beats trading company Marubeni to the number 5 spot with 55,781 companies in its ecosystem.  Mitsubishi Electric is at #9, SoftBank at #11, Hitachi at #12, Fujitsu at #14, Sharp at #19 for having the most number of ecosystem members.

Suzuki Motors, Isuzu, Daihatsu, Daikin, Kubota, Mitsubishi Electric and Sumitomo Corp all stay faithful to their supply chain, whereas Canon, Rakuten and Shiseido have low loyalty to suppliers.

Sharp‘s rationalization post acquisition by Hon Hai is showing – having reduced the numbers of suppliers in its ecosystem by 25% over five years – and it is also the least “faithful” amongst the electronics and IT companies. Fujitsu has also reduced its supplier numbers by around 10%, and Ricoh and Mitsubishi Electric have cut back a little too. Panasonic has remained relatively faithful and with the same number of suppliers over the past five years. Hitachi‘s supplier numbers have also remained steady, but less fidelity than PanasonicCanon and Sony have both substantially increased the numbers of companies in their ecosystems – presumably as they have diversified into new areas such as medical systems and entertainment.

Panasonic‘s ecosystem remains balanced across several sectors – manufacturing, ICT, logistics/delivery, retail, educational/professional and construction, whereas there has been a clear shift by Sony towards building up its ecosystem in educational/professional, ICT, retail, and logistics/delivery.  Sharp has shrunk its ecosystem in all sectors over five years apart from logistics/delivery.

Automotive supply chains

The reduction in suppliers that Carlos Ghosn started in the 2000s at Nissan has continued – the number of companies in its ecosystem has shrunk 40% over 5 years and it is also the least faithful of the car brands to its suppliers. Only Suzuki and Daihatsu have expanded their ecosystem, and are also relatively faithful to suppliers, as is Honda. Honda, Toyota and Mitsubishi Motors have all shrunk their ecosystems by around 10%, Subaru by 20% and Mazda by 30%.

 

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“We will stick with the UK as a global supply base, despite Brexit” says Honda President

“Europe is the heart of global car culture” says Takahiro Hachigo, Honda’s President since 2015. Although Honda has less than 1% market share in Europe, it competes with European car brands in its main markets of the USA and China. The UK factory has been streamlined, and production lines consolidated as a global production centre, exporting Civics to Europe and the USA.  Hachigo says that they are therefore committed to the Swindon factory as a global supply base, regardless of Brexit. “If there is a no deal Brexit, there will be temporary disruption, so I am very much hoping that this disruption will be avoided and outstanding issues resolved”, says Hachigo.

However, as the Nikkei points out in their interview with Hachigo, if there is a no deal Brexit, without a transition period to 2020, Honda’s exports to Europe will be affected immediately and supply chain issues may make it difficult to export so easily to the USA too.

Honda has committed to a 30 year plan with a goal of “pursuit of quality” – to develop cars that will still sell at a high price, in an age of car sharing and electric vehicles. Hachigo also seems very keen in the interview to keep participating in Formula 1 (another UK strength). UK has that “luxury car maker” image, with Rolls Royce and Bentley, so it is understandable that Honda still wants to keep a base there, but as the Nikkei says “difficult management decisions will be needed in the future” to realise this strategy.  I also wonder whether Honda’s current brand image, in Europe at least, really is convincing as a luxury, higher price positioning.

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