Category: Human resources

Is Sharp still a Japanese treasure?

Sharp Corporation Chairman and President Tai Jeng-wu was the second in command at Taiwan’s Hon Hai when it acquired Sharp in 2016.  His cost cutting organisational reforms have turned the company’s results around in a “V” shaped recovery.  He is now hurrying ahead with restructuring the business portfolio.  In an interview with Nikkei Business he says Sharp is “Japan’s treasure” and is at pains to point out how influenced he has been by Japanese teachers in the past.  Japan and Taiwan continue to have good relations (reinforced by a common threat of China, hinted at in this interview with the dig at unfair competition from state owned companies), and many Taiwanese speak excellent Japanese.

He says that unlike Carlos Ghosn, he did not arrive at Sharp with a posse of executives.  He feels that the reforms are still only half way but he wants to work alongside Sharp employees – rather than a top down imposed change.

Asked what was the problem at Sharp, he said “it is not for me to say, but I suppose the crisis occurred when there were problems with management in the 2010s – when people who have only had experience in one particular technical area or business become president.  You need to have a general overview to be a top executive, so when there was a crisis they were unable to respond. How I fixed the $2.5bn loss was to cut costs by around $1.7bn and then cut back investments and with some transient profits, we were back in the black.”

Don’t be a big fish

“You have to develop people step by step.  When I started at Sharp, I said when announcing my strategy that “Sharp should not be a big fish, but should aim to be a fast swimming fish”. So I kept asking every day for things to speed up.  I set some rules for developing successors.  I lowered the limit requiring presidential approval to Y3m ($27,000).  That was to ensure I would be aware of all the company’s problems. I then increased the limit to Y20m ($184,000) in 2018 when I put the CEO structure in place and this year I increased the limit to Y100m.”

“I will stay on as chairman of Sharp until March 2022.  My wife and family want me back in Taiwan though. All the time from 2016 I have been looking for a successor.  I even asked a Japanese consultant to help, but I cannot find one.   I want the successor to be Japanese – it doesn’t matter if it’s an internal or external appointment. Maybe it could be someone from Hon Hai even.  They should be able to manage in the current harsh environment, covering a wide range of businesses and find synergy with Hon Hai.  It is the second criterion that makes finding the right person difficult.”

Japanese managers became bureaucrats

“It used to be that Japanese management of factories and businesses were strong, and my teachers were all Japanese. But then Japan went into a recession and the founder managers all disappeared, and managers became bureaucrats. That is why management strength declined.  Japan is now only strong in parts and materials. ”

Sharp’s employee levels are back to the same as before the management crisis.  “There were two early retirement drives during the crisis, and a lot of good people left.  Those who remained when I joined the company in 2016 were one of three types – highly capable and loyal, those who couldn’t find another place to go and those where were waiting to be pushed. I actually never cut employees. In fact we need to increase our employees – we had some influxes from when we took over Toshiba’s PC business and other M&A.”

“I am not a god, I just improved everything step by step”

“I renegotiated the contracts for solar battery procurement and saved around $100m. I have also brought the Sharp brand back in house for the US TV production business.  A brand is like a person’s name. Selling it is wrong. During the crisis Sharp sold off its precious buildings for $188m and then spent $30m on out of date computing.   I am not a god, I just improved everything step by step. I was taught to do Horenso (keeping bosses in the loop) and check everything thoroughly, not just sign off easily by Japanese teachers.”

I am now promoting management based on data, and a shift to B2B (business to business). B2C (consumer) business is currently 65% of our turnover, I want to make it 50/50. The structure of trade in B2C is unfair – companies like ours in a free trade country have to compete with state owned companies who don’t have to invest or write off so much. That is why Japan’s IT/electronic companies’ share is falling – it’s a structural problem.   In B2B it is a fairer fight. W have built a good ecosysytem over many years, so we have a good chance.

A Rising Sun Alliance of Japanese electronics companies

“I think there should be a Rising Sun Alliance of Japanese companies. There are a lot of Japanese electronics manufacturers but I don’t see that they will merge -t here is too much pride. I do have to be careful as Hon Hai is not a Japanese company. I am reflecting every day on how to manage employees. If I am criticised, it is not just my, but Taiwan’s pride at stake.”

“Sharp will last over 100 years.  It is a treasure of Japan. I would like the brand to last another 100 years. I come to the office every day before 7:00am and give a bow to the statues of the founders in the front entrance. Sharp is a treasure to me too.”

Nikkei Business comments that there is no doubting his sincerity and dedication – apparently he lives in a single man’s dormitory and walks round the factory at 5am in the morning thinking about Sharp.  He is at pains to seem almost more Japanese than the Japanese in this. But, the Nikkei wonders, will this be enough to succeed in the new territory for him and Sharp of B2B platform business.

 

 

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The successes and failures of Japan’s era of big overseas acquisitions

The era of Japan’s big overseas acquisitions began with domestic mega M&As in the 1990s according to Nikkei Business magazine.  Following the bursting of Japan’s economic bubble in 1990, a wave of M&As happened in the financial sector, giving birth to Mizuho from Fuji Bank, Daiichi Kangyo and the Industrial Bank of Japan and Sumitomo Bank and Sakura Bank producing SMBC. In the steel sector with NKK merging with Kawasaki Steel and becoming JFE and in the pharmaceuticals sector with Yamanouchi and Fujisawa merged to become Astellas.

The key concept for these M&As in the 1990s was “restructuring” – to rationalise the back office and integrate R&D. Then in the second half of the 2000s came a wave of overseas acquisitions, to counter the business impact of the shrinking, ageing population of Japan by growing overseas but also to benefit from further restructuring and rationalisation.

Mega overseas acquisitions of the 2000s

In 2007 Japan Tobacco acquired the UK’s Gallaher from RJR, becoming the third biggest tobacco company in the world. In 2006 SoftBank acquired Vodafone Japan and then the US company Sprint Nextel, then British ARM Holdings in 2016. Takeda acquired US Millennium Pharmaceuticals in 2008, then Swiss Nycomed in 2011, with the biggest M&A ever by a Japanese company, acquiring Ireland’s Shire in 2019.

“Growing overseas means the development of our human resources has become an urgent necessity” said the President of Takeda in 2006, Yasuchika Hasegawa. Hasegawa  was seen as “an alien from outerspace” for his dry, rational management style, arising from many years working in the USA.  Although Takeda had been the biggest pharmaceutical company in Japan for some years, it only ranked around 17 in the world before its acquisition spree and urgently needed to find new drug development sources. It felt it was lagging competitors.

The need for global management skills

Hasegawa decided to globalise the company internally by recruiting a foreign successor to himself in 2014 – Christophe Weber from GlaxoSmithKline.  Three out of the seven current Takeda directors are not Japanese.

Japan Tobacco‘s managers sent overseas after the Gallaher acquisition found themselves caught between overseas executives determined to defend their patch with rational, logical arguments about productivity, logistics and profitability. After years of painful discussion, it was agreed to close the factory in Northern Ireland.  Even now, says Masamichi Terabatake, the current President of Japan Tobacco, a Japan based executive needs to be prepared to travel around the world regularly to discuss strategy with local executives. “You need to keep global staff motivated. Investment and marketing cannot be left vague, they have to be quantitative so they can be transparently discussed. That’s probably why executives in the West are a bit younger!” he says.

NSG acquired UK’s Pilkington in 2006, becoming heavily indebted to do so. From being very domestic, it became a company whose sales were 80% overseas. Unfortunately this proved to be terrible timing as the automotive and architectural glass market crashed after the Lehman Shock.

Many of the acquirers also struggled because they did not have managers with experience of managing overseas businesses.  As Nikkei Business magazine says, mega M&A means mega complexity for which plenty of preparation and a high level of management know-how, with the ability to spread this know-how horizontally and vertically is needed for success.  It’s still not clear how far Japanese companies have progressed in this.

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The enduring Japanese family firm

I attended a Japan Society talk last month on shinise  (Japanese family firms) – given by academics Innan Sasaki and Davide Ravasi.  Sasaki and Ravasi argued that shinise have survived over 100 years, by keeping small and focused on traditional crafts like sweet making, sake brewing, and textiles.  They are very much embedded in the society and community in which they operate – the highest concentration is in Japan’s old capital, Kyoto.  In return for their commitment to the local community, they gain a social status and support from the community.  They are meant to have a higher moral purpose than pure profit and therefore do not seek to take risks and grow much beyond their current geography and sector – which means they are more resilient to external economic shocks.  When downturns happen locally, they survive through the strength of local support. This contrasts with what Sasaki and Ravasi call “instrumental” firms, who exist for a purely economic purpose.

Even large Japanese multinationals behave like Kyoto shinise

Listening to their descriptions of shinise‘s motivations and behaviours, I realised they were very similar to the way I describe bigger, multinational Japanese firms in my seminars.   Even though Japanese multinationals have taken the risk to expand overseas, and are often no longer owned by the founding family, the ethos of having a higher moral purpose than shareholder value, of corporate contribution to society and strong risk aversion to ensure longevity still endures.

And like the shinise, the darker side is the sacrifices needed to be regarded as a proper member of the family firm and the difficulty of becoming a senior manager if you were not born into it – or at least recruited straight from university like Japanese headquarter permanent staff.

Nikkei Business magazine had a feature last month on family firms in Japan showcasing research that family owned firms in Japan perform better than non-family owned firms in terms of Return on Assets. “They don’t hold on to unnecessary assets” says Professor Yasuhiro Ochiai of Shizuoka University.

Japanese family owned multinationals that have performed well

DMG Mori is still owned by the Mori family and has been particularly active recently in M&A overseas since the current Mori took over as President in 1999, most notably in their merger with German machine tool manufacturer DMG.  Apparently quite a few of DMG Mori’s employees come from the wider “family” of customers and suppliers.

Of course the most famous Japanese company still managed by a founding family member is Toyota.  However the current President Akio Toyoda is adamant that the company name is Toyota, the family name is Toyoda, and Toyota is not a Toyoda family company, “it’s everyone’s company.”

Those that are listed on the Tokyo Stock Exchange and also active in Europe were:

  • Suntory (Torii family – founded by Shinjiro Torii in 1899) – chairman is from the founding family.
  • Aisin (automotive parts maker in the Toyota group founded in 1949 – chairman is part of the Toyoda founding family)
  • Shimano (Founded 1921, president is a Shimano)
  • DIC (Dainippon Ink) founded in 1908 by Kijiro Kawamura, a Kawamura is on the board of directors

And how to avoid toxic family rows

It’s not all joy in a family of course. Nikkei Business also looks at the family rows that have affected the performance of companies like Idemitsu (petroleum company) founding family shareholders fighting a merger with Showa Shell and the rebellion against founding family member Yoichiro Ushioda and chairman by executives of LIXIL (owners of German bathroom fittings company Grohe).

Nikkei Business’s prescription for avoiding trouble is:

  1. Frequent communication between family members
  2. Treat family members who are employees the same way as other employees in terms of company regulations
  3. Don’t withhold information for family only, be transparent in management
  4. Don’t appoint a successor from the family if there is noone suitable
  5. Keep family assets and company assets separate
  6. When there is a generation changeover, keep criticisms to yourself
  7. Avoid too many family members as employees
  8. Ensure a structure is in place to stop family members going rogue

For more on what being a “family” means for Japanese firms and the non-Japanese employees that work for them, this was one of my most popular articles in recent years.

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4 cultures of controlling overseas subsidiaries

During a recent trip to Japan I visited Amazon’s offices to have lunch with an acquaintance who has been working there for 1 year and 3 months.  He told me that Amazon has expanded so rapidly this past year that he is now in the upper half of a chart which shows all employees ranked by their length of time working for the company.

He also told me that almost all the non-Japanese people working there were, like him, locally hired and that there were hardly any expatriate staff from the US headquarters. I therefore wondered how Amazon HQ could control a subsidiary which is growing so rapidly without any expatriate managers to keep monitor it.

Amazon also tries to minimize the number of processes and procedures it has, in order to maintain the speedy, fast to market, start up mentality it had when it first began over twenty years’ ago.

The 3 usual ways to control overseas operations

In the various multinationals and their subsidiaries I have worked in or with, you can usually find three types of headquarter control.  American, sales focused companies tend to control their subsidiaries by setting numerical targets. If the subsidiary employees and managers hit the targets, they get bonuses, if they miss them, they get fired.  Many multinationals who are not American in origin use these systems because numbers are easy for everyone to understand, regardless of language.

Another way of managing subsidiaries which both European and American multinationals also use is to ensure compliance through having strong regulations, processes and systems, and clear hierarchical chains of command, so everyone knows who has responsibility and authority for each part of the business.

A third way, which is more common among Japanese companies and also companies such as the German Mittelstand, family owned companies, is “control by the family” – in other words members of the headquarters family are sent out to subsidiaries to monitor what is going on and promote the corporate culture.

Amazon’s way

My Amazon contact explained that Amazon ensures its employees behave in compliance with Amazon’s core values by having a very rigorous hiring process.  Candidates are interviewed several times by multiple employees and asked questions about past experiences, to reveal what kind of mindset they have.

I can imagine, however, that it is difficult for Japanese companies to use this method if their overseas subsidiaries were the result of an acquisition, or if the company has already been operating overseas for several decades.  There will already be a substantial legacy of staff who may have rather different values and behaviours to those of the Japanese headquarters.

It would also be a mistake, and damaging to the benefits of having diverse, localised operations that are close to their customers, to impose too rigid a set of behaviours and values on all overseas employees.

Nonetheless, I strongly recommend that Japanese companies who are about to acquire or set up operations overseas ensure they have a clear, globally understandable company mission and values (rinen) and hire or promote their overseas employees accordingly.

This article appears in Pernille Rudlin’s latest book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

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Murata – reinjecting enjoyment into corporate philosophy

Murata is one of Japan’s most quietly successful companies, with a 40% share of global sales of the tiny ceramic capacitors that are essential to the electronics industry.

Tsuneo Murata, 3rd president from the founding family, says in an interview in Nikkei Business that the bursting of the dotcom bubble in 2001 was a turning point for the corporate culture. They had become too arrogant during the IT bubble of the 1990s and had stopped listening to customers. They did not recover as quickly in the early 2000s as rivals did. Tsuneo Murata, who was then EVP, asked board members and employees for their views on the company culture and what was preventing recovery. He was told the company had become conservative, cautious, inflexible, bureaucratic and slow.

So he set up an organisational cultural reform committee It was tasked with ensuring that the culture became one which adapted rapidly to a changing environment, where the genba (shopfloor) had autonomy and people could freely discuss, create and challenge.

The need for persistence in cultural reforms

Murata became President in 2007. Even with the Lehman Shock walloping profits shortly after, he insisted on continuing with cultural reforms. He went back to the founding philosophy of Akira Murata, to rediscover the sense of freedom that Murata used to have. Actually the philosophy does not mention freedom. In translation it says pretty much what many Japanese corporate philosophies say – contributing to society through innovative technology, building trust, working in partnership, etc.  The one part that isn’t translated into English is the word “yorokobi“, meaning to enjoy.  To me that’s the most important bit – a lot of Japanese companies have lost their sense of fun since the 2000s.

It sounds like the success of Murata is as much to do with Tsuneo Murata’s personality.  Since becoming President he continues to eat in the same canteen as workers in the headquarters in Kyoto and does not use the executive elevator (unless in an emergency). “I don’t think there’s a single employee that does not like him” says one employee.

He is asked by Nikkei Business how he ensures a common understanding of corporate culture when Murata acquires other companies – for example, IPDiA in France in 2016.  “It takes time, especially when it’s a foreign acquisition, because generally overseas employees are not as loyal to their companies as in Japan anyway. But if we introduce our corporate philosophy to them, they have empathy with it. I think it’s important to communicate it thoroughly.”

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Brexit for Hitachi – like bees on a tearful face

We blogged earlier this year that Alistair Dormer, first foreign EVP of Hitachi and former CEO of Hitachi Rail in the UK might be in line to become the next (and first foreign) president of Hitachi Japan.

It seems – according to Diamond magazine – that the current chairman of Hitachi, Hiroaki Nakanishi, has deliberately set up a competition between Dormer and the other candidate, Koji Kojima.  Dormer is now heading up the global elevator and rail business, where 80% of sales are overseas. Kojima is leading Hitachi’s “internet of things” business, which also means reviving the stagnating home appliance business in Japan.

The Hitachi rail factory in Newton Aycliffe, UK assembles carriages from domestic and imported parts from Japan and elsewhere to sell locally and re-export. It is “plagued by the risk of Brexit”, says Diamond magazine. On top of which losing the London deep tube rail bid to Siemens was like “bees on a tearful face” – a Japanese expression meaning adding to add insult to injury, or to make matters worse.  The Newton Aycliffe plant is currently finishing back orders, and if it does not win any further projects, will have to start reducing employee numbers.

Dormer moved to Tokyo after being made EVP and is, according to a Hitachi official,  “rapidly gaining popularity” with his British sense of humor and gentle handling of employees who are not good at English – which I take to mean he has not, thankfully, imported any British sarcasm, irony or bantz.

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The good and bad of no longer being “Japan owned”

I’ve been wondering for a while whether Japanese employees of companies such as Sharp or Takata have been feeling any change in corporate culture since being acquired by Taiwanese or Chinese companies and whether those companies could still be considered to be “Japanese”.

Nikkei Business has inteviewed employees from Sharp, Toshiba memory division and also from the laptop division of NEC (now owned by Lenovo) and come up with  13 aspects that have caused difficulties for Japanese employees who have been “bought” (as the Nikkei puts it) and 7 positive effects.

Difficulties:

1. Having to work much harder than before – due to increasing focus on short term profitability – even longer hours than is the norm in Japan.

2. Loss of right to evaluate staff – a sense that Taiwan HQ is now in charge of career development

3. Increase in employees who have a “Taiwan First” mindset

“If you don’t like doing things the Hon Hai way, then start your own business, or go and work for Nidec or Panasonic. If you can’t do that, then suck it up, seems to be their attitude” says one employee.

4. Rigid management by numbers

5. English skills are now compulsory

6. Nemawashi (stakeholder management/consensus) no longer works

7. Large cuts in salary

8. Reduction in autonomy

9. Sudden changes in supplier relationships

10. Reduction in  management positions

11. Being posted to unwelcome locations

12. Collapse of succession planning

13. Low capability managers being seconded to your company

Some of the above could happen to any acquired company in any country, but I guess 1, 4, 5, and 6 are particularly acutely felt for Japanese companies acquired by foreign companies.

Some employees saw an upside however:

1. Structural problems are removed

2. Disappearance of bullying bosses

3. Job becomes more fulfilling

4. “Rags to riches” when previously your career history or educational record counted against you

5. Increased salary

6. Improved credit rating

7. More opportunities for promotion

Again many of these are the result of issues arising from having worked for a failing company, and now being owned by a more successful one – but I can see that for many Japanese who were stuck – with their careers blocked by bullying bosses, or considered lower status because of not being a lifetime employee since graduation or not coming from a top university –  it is refreshing to be evaluated and promoted purely on ability.

 

 

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How to hire and retain top staff in Japan – send them abroad

The most frequent complaint I hear from British and other multinationals with subsidiaries in Japan is around staffing.  They can’t get the staff they want and they are not sure the employees they have are really the best for the job.  This complaint is particularly focused on sales, as most “gaishi” (foreign multinationals) in Japan are primarily sales focused.

Many suspect that this is a cultural issue and contact me because they want to understand how sales and marketing work in Japan. They are aware that customer relationships are all important, and far more long term and personal rather than transactional.   So expecting an instant result from a sales call to a new prospect is unrealistic. Incentivising aggressive sales behaviour with bonuses does not seem to work either.

I confirm that sales and marketing are different in Japan but I also explain that it is going to be tough for them to hire the “elite” from Japan’s top universities, who might have the necessary status and connections to approach blue chip Japanese prospects.  This elite usually want to join Japanese blue chip companies, and view gaishi as high risk, low status employers.

Good staff can be found amongst those alienated by traditional Japanese companies

Good staff can be found amongst the groups that feel rejected or alienated by the Japanese blue chip companies – the salaryman who has worked in a Japanese company for 25 years and now finds himself being given a madogiwazoku (window gazing) job or young female graduates who understandably feel that a foreign owned company is more likely to reward them and promote them on merit rather than on how much overtime or drinking with the boss and customers they do.

Another promising group are those Japanese who have been educated outside of Japan. A recent survey by DISCO – a Japanese recruitment company –  of most popular choices for Japanese graduate recruits shows the clear contrast in mindset between the top 10 for graduates of Japanese domestic universities and those who graduated from an overseas university.

Japanese graduates of foreign universities prefer to work for foreign companies

The top 7 choices for Japanese graduates of foreign universities are Deloitte Tohmatsu, PwC, Amazon, Google, Goldman Sachs and McKinsey. Mitsubishi Corporation and All Nippon Airlines are the only Japanese companies in the top 10, at number 8 and number 9, with KPMG bringing up the rear at number 10.

Mitsubishi Corporation and All Nippon Airlines are also in the top 10 choices for Japanese graduates of domestic Japanese universities – at number three for Mitsubishi Corp after fellow trading company Itochu at #1 and Toyota at #2 and at #6 for All Nippon Airlines. All the other Top 10 choices are Japanese too – Suntory, MUFG (financial services), Shiseido, JTB (travel), Japan Airines and Tokio Marine and Fire Insurance.

My old employee Mitsubishi Corporation made a conscious effort to target Japanese graduates of foreign universities and schools more than 20 years’ ago. In fact I was asked to help interview such graduates – whether to make them feel more at ease or to show that Mitsubishi Corp really was global in mindset, I’m not sure.

Twenty years’ on, many Japanese companies are scrabbling to recruit “global human resources”, but as the DISCO survey points out, Japanese graduates of foreign universities have very different ideas of what they are looking for in a career, compared to domestic graduates.

Japanese graduates of foreign universities want a job which helps realise their dreams and pays well, over stability and long term employment

When asked whether they felt a job should be a way to realise your dreams or a way to make sure you have a secure lifestyle, 40% of graduates of foreign universities chose the former with a further 25% saying they had some preference for the former, whereas for the domestic graduates, nearly 60% said they preferred the secure lifestyle.

As for wanting high pay versus wanting a secure lifestyle regardless of high pay, nearly 80% of foreign graduates strongly or somewhat preferred high pay, compared to under 60% of domestic graduates.  Only 40% or so of foreign graduates wanted to work for one company for a long time, compared to 70% of graduates of Japanese universities.

Foreign companies in Japan need to offer overseas opportunities to Japanese graduates

And as Japanese companies have long suspected, most Japanese graduates of Japanese universities prefer to work in Japan rather than overseas.  Whereas 70% of the graduates of foreign universities want to work outside Japan.

So for foreign companies in Japan, as well as offering higher pay and work which is more engaging, offering a chance to transfer to an operation outside Japan may also be needed to attract and retain foreign university graduates.  That is the card which Mitsubishi Corporation and other trading companies have been playing for decades now and it has paid off for them.

 

 

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Chipping away at the three treasures of Japanese HR

Several Japanese blue chip companies have announced some quite radical changes to their HR systems, just in time for the new Reiwa era. The so called three treasures of lifetime employment, seniority based pay and a company union have been looking a little tarnished for some years now. They seem a legacy not even of the Heisei era but of the post war Showa era of a booming economy and a need to retain a young workforce.

Hitachi had shown the way four years ago (as described in our blog post at the time), abolishing seniority based pay for its managers and replacing it with pay based on job roles. They have made further waves recently with the announcement of the first ever Hitachi subsidiary President to be in their forties.  The newly formed Hitachi Global Life Solutions will be led by Jun Taniguchi, born in 1972.

Hitachi claim that this new system is needed for the company to be truly global and able to appoint and transfer managers around the world, regardless of where they were recruited. Beer and soft drink manufacturer Asahi Group Holdings has also been shifting to global standards. Around half their employees are non-Japanese, as a result of their acquisitions of European brands such as Peroni, Grolsch and Fullers. They have said their Presidents and CEOs will be evaluated on return on equity from now on, and given the boot if it is not maintained above 13%.

Japanese megabank MUFG says it will reduce new hires in Japan by 45% to 530 next spring, and will cut the 6000 employees in its Tokyo headquarters by half. Not all Japanese HR traditions are being thrown out of the window, however, as the surplus 3000 will not be made redundant, but rather redeployed to sales functions or sent overseas to areas where MUFG is expanding like the USA and Asia (but not it seems, Europe).  MUFG  is automating the functions that these staff performed, as well as cutting many of its retail branches in Japan. It will instead be beefing up its overseas compliance and digital payment systems divisions.

Some Japanese politicians and commentators have said that the “rei” of Reiwa sounds rather cold, as it can sometimes mean “order” or “command”.  It also, when combined with the radical for water, becomes a character meaning chilly or freezing.  It certainly feels like some icy winds will be blasting through Japanese cosy HR traditions in the new era.

 

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Will Hitachi lop off one of its three branches?

I keep blogging about Hitachi, because they are one of the most influential companies in Japanese business circles, along with Toyota and Panasonic. The way they have reinvented themselves since their record breaking loss in 2009 is watched closely by other Japanese blue chips.

According to the Nikkei Business magazine last month, discussions are well advanced to sell off Hitachi Chemical and Hitachi Construction Machinery. Both have appointed financial advisors – a non-Japanese investment bank  in Hitachi Construction Machinery’s case.  Hitachi Chemical is one of Hitachi’s three largest and longest surviving subsidiaries, known as the Three Branches (Hitachi Metals and Hitachi Cable being the other two).

Hitachi has already reduced 900 subsidiaries down to 500 and finalised the sale of car navigation system subsidiary Clarion to the French company Faurecia last month. The company will be delisted, ending 56 years of history as a listed company, leaving Hitachi with only 4 listed subsidiaries.

Clarion used to have a close relationship with Nissan, who in turn held a small share of Clarion,. With Ghosn’s restructuring of supply chains in the 2000s, Clarion began to struggle, and Hitachi stepped in, ending with over 60% share in the company. Faurecia says its interest in Clarion is to strengthen its autonomous driving capabilities. It also aims to improve Faurecia sales to Japanese and American car manufacturers and Clarion sales to European manufacturers. It may even invest in Clarion’s plant in Hungary, which is currently underutilized.

Social Innovation, not commoditization

Hitachi meanwhile is focusing its business on what it calls “Social Innovation” – the Internet of Things and social infrastructure. It is hiving off any businesses which are product focused and in danger of becoming commoditized. This would include Hitachi Chemicals, who have a stable profit margin of 5%, mainly providing chemicals for semiconductors and smartphones.  Hitachi Construction Machinery is trying to move more into the services sector, and its profit margins are not as healthy as competitor Komatsu.

Neither company wants to be sold off, according to an investment banking insider, but are under pressure from Hitachi. So rather then be bought by a new parent company that they did not choose, they are making defensive moves. This won’t be the first time that one of Hitachi’s subsidiaries chose their own buyer. Hitachi Power Tools led the negotations themselves that ended in being sold to KKR, the American private equity fund in 2017.

Conversely, Hitachi is buying up businesses where it feels it needs strengthening, such as its acquisition last year of Swiss company ABB’s power grid business.  Hitachi needs the cash for growth, which is another reason for selling off its listed subsidiaries.

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