Rudlin Consulting

Author: Pernille Rudlin

  • 6 reasons Japan is behind as a global brand

    6 reasons Japan is behind as a global brand

    Prof Noboru Sato, of Nagoya University and formerly of Honda Motors and Samsung gave the following 6 reasons (article in Japanese) that Japan is behind, not only in the globalization of business, but in terms of global cultural influence – in the arts and sports and also the strength of “Brand Japan”.  Many will come as no surprise to Japan watchers:

    1.  Education

    Fewer Japanese students are studying abroad and Japanese universities are slow in increasing the number of foreign academics they hire.  As Sato acknowledges, Japanese universities need to make their academic staffing more meritocratic if they want to attract the best in the world.

    2.  Young Japanese not working abroad

    Sato points to how Japanese companies have not been proactive in hiring “returnees” – Japanese graduates who have spent part of their education overseas.  However, and I would concur, he acknowledges this has changed recently, and many companies have been taking steps to hire foreign employees and returnees in Japan.  But, as Sato points out, Japanese companies do not make any distinction in terms of pay or promotion prospects for people who have Masters degrees.  This makes them an unattractive prospect for returnees and foreign graduates.

    3.  Uncompetitive education

    Although Japan has very high literacy and numeracy rates, its educational spending as a proportion of GDP is one of the lowest in the world.  In other words parents in Japan are footing the bill.  Computer literacy is lower than most developed countries.

    4. Industry’s lack of global competitiveness

    All the famous names in electronics have been suffering recently – however Sato sees some grounds for optimism that they may regain their strength.

    5. The penetration of Japanese food culture

    Sato gives the first 4 reasons a fairly cursory explanation but really goes to town on this one – he’s clearly had one too many bad “Japanese” meals abroad.  In Sato’s view, the “fake” Japanese restaurants, run by non-Japanese, in Europe, North America and South Korea, are ruining the Japan brand, as are the recent scandals in Japan’s own restaurants and department stores, where lower grade foods were passed off as higher grade, or wrongly stated to be from specific regions.

    6. Tourism

    Japan ranks #33 in the world for tourist numbers, and South Korea, with half the population of Japan, ranks 23rd.  Japan should be attracting more tourists given the richness of its culture and food.

    Sato concludes that much of this could be solved if there was more sense of a need for competitiveness, from primary education onwards, in Japan.  There needs to be more external stimulus and awareness of the need to be competitive relative to other countries.  He does not give any concrete proposals on how this is to be achieved, however.  In a sense Japan has got itself in a virtuous (or vicious) circle, in that it has become one of the nicest places to live in the world, so why would Japanese people feel any sense of urgency to compete with or live in other countries, which seem more dangerous and insecure – and as for the food…

  • Hitachi’s new President, Toshiaki Higashihara Q&A

    Hitachi’s new President, Toshiaki Higashihara Q&A

    As blogged previously, Hitachi announced their new President and COO Toshiaki Higashihara, on January 8th.  The Nikkei Business magazine’s Q&A with him in the 20th January edition asked him for his views on how Hitachi was going to grow, and what would change.

    Higashihara emphasised “One Hitachi”, bringing together services, products and solutions to address customer needs such as energy saving and improving productivity.  The differentiator for Hitachi against Siemens and GE being that in the infrastructure business, Hitachi can also bring ICT skills and solutions around cloud computing and  big data.

    A sense of speed is needed, he added, and this means that not all decisions should be made in Tokyo headquarters.  R&D, purchasing and ICT systems should be looked at in a global context.  He also made positive noises about further acquisitions.

    What will remain constant is Hitachi’s 100 years of “monozukuri” (making things/craftsmanship) and SQDC: Safety, Quality, Delivery Time and Cost.

    It seems Higashihara was close to current President Nakanishi (who becomes Chairman and CEO), as a kohai (protege) and also brings global experience – a masters’ degree in computer science from Boston University and was President of Hitachi Power Europe.

  • First non-Japanese CEO in Takeda’s 230 year history

    First non-Japanese CEO in Takeda’s 230 year history

    Takeda, Asia’s largest pharmaceutical company, caused a sensation in November when it announced that it intended to appoint Christophe Weber, a French 47 year old outsider from GlaxoSmithKline, as its next CEO, subject to board approval. Not only is he not Japanese, but he is much younger than the average Japanese President, and he is the 20 year old veteran of another rival company.

    He was not unknown to Takeda however, as he was key member in the collaboration between Takeda and GSK on a vaccine joint venture.  However, when I discussed this appointment with the President of a Japanese start up company in the same healthcare sector he was not impressed – “a paucity of management” on the current CEO Yasukichi Hasegawa’s part, he harrumphed.

    Hasegawa himself had been appointed by Kunio Takeda, scion of the founding family, in 2003, with Takeda stating “I’ve reached the limit of what I can do to globalize the company”.  Hasegawa took up the baton, acquiring US cancer R&D company Millennium Pharmaceutical in 2008 and Swiss biotech company Nycomed in 2011.  He tried to retain many of Millennium’s executives such as CEO Deborah Dunsire, who also joined Takeda’s unusually “diverse” board which includes Japanese American “Tachi” Yamada, President of Global Health at the Bill and Melinda Gates Foundation and Frank Morich, ex Bayer.  However she resigned in 2013 as a result of the restructuring that Hasegawa pushed through, to integrate Millennium more fully into Takeda and streamline operations.

    Apparently, a couple of years’ ago, Hasegawa said he wanted to have a Japanese person succeed him.  He felt that diversifying the structure and bringing in non-Japanese was going to take time to show results, and he would have to pass the baton on before then.

    Although my healthcare industry CEO used “paucity” to describe Hasegawa’s management capability, it seems from this that there is a paucity of internationally capable management within the Takeda home country organisation to carry on and support the bold moves that are being made – a situation many globalizing Japanese companies are facing.

  • 5 conditions for successful Japanese cross border M&A

    5 conditions for successful Japanese cross border M&A

    SoftBank’s acquisition of Finnish mobile games maker Supercell in 2013 for $1.5bn did not grab the headlines to the extent its $21.6bn acquisition of Sprint did, but Nikkei Business in its December series on cross border M&A points to it as evidence of the final characteristic necessary for successful acquisitions – “animal spirits” – a hunger for growth with the acquisition showing the direction in which Masayoshi Son wants to take the company.

    The Nikkei Business magazine goes on to conclude the series with “Five Conditions for Success” in cross border M&As:

    1. Do not go near M&As without a concrete and detailed management strategy for what will happen after the merger

    2. Set up a specialist team within the company, which investigates target companies and draws up shortlists

    3. Be very strict on the contents of the agreement.  It will be vital when unforeseen problems occur after the acquisition.

    4. For cross border acquisitions, the key is to motivate the management team in the acquired company.  However a proper agreement must be put in place regarding switching to other companies and performance based compensation.

    5. Make preparations in advance for all kinds of scenarios.  Although it’s hard to predict events like the Lehman shock, preparations will help with coping with change.

    I would add a few to that.  For example, whilst it might be best to take some time before making radical changes to the acquired company, symbolic changes such as taking the parent company name relatively early on help focus the two companies on “what is different now” and “what we have in common” and stop both companies from sliding back into their pre merger habits, with the acquired company feeling neglected and directionless.

    Try to bring the acquired company executives into the HQ fold as soon as possible.  Even though it’s best to delegate to them the authority they are used to, it’s also important for them to understand how to socialise their proposals through nemawashi with their peers in the headquarters.  Actually moving to Japan seems to have been a step too far for many non-Japanese executives, but frequent business trips should be encouraged and supported.  Perhaps even a mentor could be appointed.

    Finally, as the Nikkei Business itself points out, it’s actually the Japan HQ that needs to change if their acquisitons are to succeed.

    If you are being acquired by a Japanese company, you may be interested in Japan Intercultural Consulting’s (represented by Rudlin Consulting in EMEA) post merger integration services.

  • Successes of cross border M&A #6 – Terumo

    Successes of cross border M&A #6 – Terumo

    When Terumo, Japan’s biggest medical device maker bought CaridianBCT from Gambro AB for $2.63bn  in 2011, it was expected that the head of Terumo’s BCT unit, Hiroshi Nagumo, would take over as CEO of the new Terumo BCT company.  However Nagumo decided to appoint the CEO of CaridianBCT, David Perez, as CEO instead, with Nagumo reporting into him as SVP and GM for Japan. Perezalso became an executive officer on Terumo’s main board and the headquarters of Terumo’s blood management unit was moved to CaridianBCT’s base in Colorado.

    Nagumo says he made himself “Number Two” after objectively considering whether he could really perform as “Number One”. At the time Terumo’s total turnover was Y328bn,of which the blood management unit represented around Y25bn.  CaridianBCT’s turnover was double that at around Y50bn.  A third of the combined company’s sales were to the USA, and around 20% to Japan.

    “When I thought about appointing myself as the CEO, and leaving the headquarters in Japan, I realised that I would always end up thinking about the customers that I had known the longest, the doctors in Japan” and that this would be counter to the objective of the acquisition, which was to develop new products and expand market share globally.

    In 2012, the sales of the combined company’s blood management business actually fell in Japan, but thanks to growth overseas, the total turnover rose 4.1%.

    As Nikkei Business points out in their series on cross border M&A last month, in the past when Japanese multinationals acquired companies overeas, they tended to send in Japanese managers to run them, but this does not work so well if, as in this case, the acquired company is larger than the acquiring company’s own business in that sector. It can lead to the demotivation of the staff in the acquired company and loss of customers.

    However Terumo did reshuffle the management, and had a strong sense of how they wanted to proceed after the acquisition.  Nagumo had been preparing a project called “Unite” from a year before the acquisition – it aimed to integrate sales, customer service and logistics across the two companies.  Terumo fitted itself to CaridianBCT’s structures, except in Asia, where Terumo was stronger than Caridian, so a different structure, where Terumo’s operations there became TerumoBCT’s representative dealers.

    It took a year to discuss, and then in 2012 it was announced as a one “fell swoop” integration – “we did not want to take so long that customers became confused” says Nagumo.

    Production is taking longer to integrate.  Decisions have to be made about what products will be made in the factories in the USA, Japan and Northern Ireland.  On the other hand, Terumo’s quality control management has been introduced into Caridian’s operations already.  As a result, claims have dropped to a quarter of the level before the acquisition.

    Not everything went smoothly – Perez was amazed at the number of meetings deemed necessary by Terumo before a decision was made.  At the same time, Terumo was puzzled as to when a decision was made, when it had not been properly “socialised” within the company.  “A certain amount of time has to be allowed to understand what is different, culturally”, says Nagumo.  In 2013, former Terumo staff will be posted long term to the USA and in 2014, former Caridian staff will be posted to the Japan office.

    As a result of the success of the BCT business, Terumo has also moved its artificial heart business to the USA, a unit it purchased from 3M in 1990.  As the Nikkei comments – it’s a nice illustration of how to make sure a post merger management structure fits market and customer needs.

    If you are being acquired by a Japanese company, you may be interested in Japan Intercultural Consulting’s (represented by Rudlin Consulting in EMEA) post merger integration services.

  • Japan’s M&A boom – a way of forcing globalization?

    Japan’s M&A boom – a way of forcing globalization?

    I was reading the last chapter of a book (The 1990s and beyond (pdf)) I wrote which was published in 2000 about the history of Mitsubishi Corporation in London, and was reminded that I had come up with a concept of “forced globalization” to describe what Japanese companies might need to do to truly globalize, based on their experiences up to the 1990s.  Much of what I said still holds true, but what I had not anticipated was the surge in cross border acquisitions by Japanese companies as another route into globalization these past ten years.

    My view then was that Japanese companies will not “naturally” globalize, in a business-led pursuit of profitable growth, because of the “representing Japan” mindset of companies such as Mitsubishi Corporation, and the fact that so much knowledge creation and business creation is in Japanese and the Japanese staff feel most comfortable with keeping it that way.

    I proposed that human resource-led “forced” globalization – starting with globalizing the management, might be the only way to break the mould.The graphic I produced to illustrate this is not in the pdf, so I have reproduced it here:

    “Natural” globalization:

    'Natural' Globalization

    “Forced” globalization:

    forced globalization

     

     

     

     

    I was imagining Japanese companies would continue doing what we attempted at Mitsubishi Corporation in the 1990s, which was to hire and develop more non-Japanese people, in the hope that they would then create more global business.  This strategy still continues for many Japanese companies, but as I predicted, takes time, and often the non-Japanese employees quit before it bears fruit, through frustration.

    Acquiring an overseas company is an instant way to globalize the business, and in theory should instantly globalize the management.  But as described in previous posts, often the overseas managers are kept at an arm’s length.

    The bottom line from all of this, which has not changed at all in the past decades, is that Japanese companies will only do what the Japanese employees of that company see the need to do.  The majority of Japanese employees are not likely to want to become global themselves – it is too far out of their comfort zone.  Nor do they want to bring non-Japanese into their circles as this would be a threat to their own careers and status in the company.  Nor do they want to be actively involved in the management of the overseas subsidiaries – the risks of being associated with any failure are too great.

    The constructive message of this, however, is it is therefore up to the employees and management of the acquired company to take the initiative and ask to integrate with the Japan parent – just as the Brazilian employees and managers at Schincariol asked Kirin to change the company name to Brazil Kirin.  Japanese executives are familiar and happy with complying with requests that come from “bottom up” and represent the consensus views of a group of employees.

    If you are being acquired by a Japanese company, you may be interested in Japan Intercultural Consulting’s (represented by Rudlin Consulting in EMEA) post merger integration services.

  • Successes of Japanese cross border M&A #5 – Kirin

    Successes of Japanese cross border M&A #5 – Kirin

    Given the headline grabbing news of Suntory acquiring Beam Inc for $16bn today, the second case study on Kirin in the final part of the Nikkei Business’s recent series on Japanese cross border acquisitions will have been read closely by Suntory executives.  Suntory through the acquisition has become the third biggest drinks maker in the world, having already acquired Lucozade and Ribena from GSK in and Orangina Schweppes in 2009.

    There were talks between Kirin and Suntory in 2010 regarding a possible merger which failed due to an inability to agree on the management and ownership of the merged organisation – Suntory is privately held, and still family run, whereas Kirin is a publicly listed company, belonging to the Mitsubishi group of companies.

    Kirin had also been acquiring companies since 2007 when it bought the Australian dairy and beverage company National Foods which then acquired Dairy Farmers.  Kirin then aquired Lion Nathan, a major Australian brewers, and formed Lion Nathan National Foods in 2009.

    Kirin’s concern was that in a consumer facing industry, simply despatching executives from Japan to run the business would result in marketing and product development that does not suit the local market, so they have delegated a fair amount of authority to the local executives. It was a process of trial and error since 2010, with the acquisition of Brazil’s Schincariol (the second largest Brazilian brewery and beverage company after AmBev) in 2011 proving a turning point.

    Kirin promoted the Brazilian COO to CEO with the new board having 3 Japanese and 4 Brazilian members.  Schincariol was also still an owner-run company, with each factory managing its own purchasing and warehousing.  Kirin could have intervened to standardize but was concerned that they may have made mistakes without local knowledge.  So whilst major investments and disposals had to be approved by Japan headquarters, operational decisions were left to the local executives.

    Schincariol managed to make Y3bn cost savings by 2012 and doubled their operating profit.  At the request of the local staff, they changed the name to Brazil Kirin in November 2012.

    Nikkei Business comments “it seems that learning from the company you acquire brings results.”

  • Successes of Japanese cross border M&A #4 – NTT Communications

    Successes of Japanese cross border M&A #4 – NTT Communications

    Having covered the perceived failures of the Nippon Sheet Glass/Pilkington, Daiichi Sankyo/Ranbaxy and Ricoh/Ikon M&As, Nikkei Business in its December 9th edition then goes on to examine some of the more successful deals by NTT Communications, Kirin Holdings and Terumo.

    NTT Communications bought US telecommunications company Verio in 2000 for $5.5bn, just before the dotcom bubble burst, resulting in NTT Communications posting a $5bn loss in 2002. Nikkei Business points out the same assumption was made “that the company would just keep growing as it is” that Nippon Sheet Glass and other Japanese companies made about their acquisitions and that the acquiring company then uses economic crises as an excuse for the acquisition’s failure and the need to shrink it down or cut back, rather than their lack of any plans for worst case scenarios.

    NTT Communications went down that route, and did not make any further major acquisitions until 2011, however, they used the intervening years to completely overhaul their M&A strategy.  Instead of relying on investment banks and consultants, they decided to build up their own knowhow and insist on planning beforehand how they were going to restructure any business, rather than after the acquisition was made.  In the case of Verio, they pulled out of the ISP business and merged the backbone business with NTT Europe, leaving only small-medium enterprise hosting with Verio. This was in order for NTT to strengthen its services to larger customers.

    As well as rethinking how to restructure their business, they also decided that future candidates for acquisition would be found by themselves, and analysed inhouse – all aspects from management, services, legal, financial and HR. They listed up over 1000 targets for this process.  They saw the need to get back into the acquisition game as the telecommunications market was changing, and there was a need for interconnected large scale data centers, used by multiple customers.  NTT Communications felt the only way to put such an infrastructure in place quickly was through acquisition.  In 2012 they bought an Indian data center company Netmagic and UK company Gyron Internet, followed by a French web based conferencing system company Arkadin and then in 2013 spent a further $875m on US companies Virtela and Raging Wire.  Operating profit has been on the rise since 2011, and sales look to be recovering next year too.

  • Japan and the legacy of Margaret Thatcher

    Japan and the legacy of Margaret Thatcher

    I suspect it is hard for people in Japan to understand why Margaret Thatcher’s death has aroused such strong feelings of hatred and adulation amongst British people, even 23 years after she ceased to be prime minister.

    My generation (people born in the 1960s) is sometimes labelled “Thatcher’s children” – because we grew up under her.  We remember 1971, when she was education minister and abolished free school milk for seven to eleven year old school children.  Actually many children, myself included, really disliked the free school milk, which was lukewarm and smelly by the time we were given it to drink at morning break each day. 

    We had already moved to Japan by the time I was seven. I did not escape, however, as we had to drink milk at my Japanese school too, which was even worse tasting, in my opinion, because it was homogenised rather than pasteurised.

    People thought we were crazy to move to somewhere as foreign as Japan, but England in 1972 did not feel like a comfortable place to be either – there had been miners’ and dockers’ strikes, followed by declarations of a state of emergency.  Wage and price freezes had been announced and unemployment went over 1 million for the first time since the 1930s. 

    There were economic problems in Japan too – I remember the toilet paper panic buying because of the oil crisis – but as is now well known, the crisis was the trigger for Japan to start innovating in car manufacturing.   Just before we left the UK, Honda had started importing cars to the UK, and when we returned to the UK in 1977, we decided to buy a Datsun Sunny 120Y.

    My grandparents were horrified.  They still had strong memories of the war and had opposed us moving to Japan.  They could not understand why we did not buy a British car, like the Triumph Dolomite they owned.  It was manufactured by British Leyland, which was then being crippled by a series of strikes.

    Margaret Thatcher was extremely patriotic too – but she was happy to welcome any foreign investor who shared her ethic of hard work.  While my generation was busy hating her for destroying mining communities, cutting education spending and warmongering, her government encouraged Nissan to open its first factory, in Sunderland, an area in desperate need of jobs thanks to the closure of mines and shipyards.

    Thirty years later, there are no British owned volume car producers, but nearly 1.5 million vehicles were produced in the UK last year, closing in on the 2 million peak of 1970, and 86% of production is exported.  Only 195,000 people are directly employed by the car industry, however, compared to 850,000 in 1970.  The North of England remains a high unemployment, depressed region. This explains the depth of feelings about Mrs Thatcher’s legacy – she was right, from a business perspective, but there was a human cost which was not addressed.

    This article by Pernille Rudlin originally appeared in Japanese in the May 15th 2013 edition of the Teikoku Databank News and also appears in Pernille Rudlin’s book  “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on  Amazon.

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  • Successes & Failures of Japanese cross border M&A (#3 Ricoh and Ikon)

    Successes & Failures of Japanese cross border M&A (#3 Ricoh and Ikon)

    Ricoh undertook a “10,000 person restructuring” in 2011, using the usual method in Japan of trying to force into early retirement or transfer to subsidiaries their unwanted staff.  This resulted in a judgement in the Tokyo courts in favour of two Japanese Ricoh employees on their claim that they had been unfairly forced to transfer to a subsidiary.

    The Nikkei Business magazine, in its recent series on the successes and failures of Japanese cross-border M&A links this domestic issue to Ricoh’s acquisition of the US office equipment distributor Ikon Office Solutions in 2008 for $1.6bn.  Ricoh acquired Ikon in order to compete with Canon, particularly in trying to enter the office tablet and projector markets in developed countries.  However, just as with Nippon Sheet Glass/Pilkington and Daiichi Sankyo/Ranbaxy, the sudden change in operating environment from the Lehman Shock meant that Ricoh’s resulting bloated structure with many overlaps following the acquisition became a far more acute problem.

    As the Nikkei points out, Japanese companies need to recognise that following a major M&A, their own Japan headquarters needs to change its structure in order to remain strong in everchanging global business environments.

    On that point, during my recent visit to Japan, I was surprised how often the idea of setting up a separate, global headquarters, possibly not even based in Japan, was brought up by Japanese executives at the various blue chip companies I visited.