Category: M&A

The fourth industrial revolution should not be mercantilized

UK is the birthplace of innovation and will not sink, despite Brexit, says Toru Sugawara, the deputy editor of the Nikkei Business magazine – Japan’s equivalent of The Economist (only with more business, less economy).

He acknowledges that Brexit is casting a shadow on the world economy, and that the problems will not end just with an extension, as the negotiations will drag on, unless the result of the referendum is reversed.

He points to how employment remains buoyant in the UK, despite GDP growth being the lowest in 6 years, and says that this could be because immigration from the EU is decreasing – which was one of the reasons people voted to leave. He does not mention that net immigration has not dropped, as more people are coming from non-EU countries.  So unless you believe that EU immigrants only have jobs which UK natives could do, and non-EU immigrants only do jobs that UK natives couldn’t do…

He believes the UK’s resilience derives from an inner strength which helped it to lead the industrial revolution as the “birthplace of innovation.” Because the UK has worldclass universities  “UK research levels are extremely high. Even if they leave the EU, there are researchers who want to learn from the UK” – according to  an engineer from a major Japanese electronics company.

The UK is similar to Japan, Sugawara notes, in that neither was able to match Silicon Valley in terms of being able to turn innovations into world changing businesses.  He thinks the UK is changing, however, dating from when the British Business Bank launched in 2014, bringing together various funds for startups and small businesses and also the introduction of the regulatory sandbox, to allow new kinds of financial services to test their products.

Venture capital funding in the UK in 2018 was $7.9bn, double that of Germany or France (although what he doesn’t say is that this was down from a high of $8.1bn the previous year, and that Germany and France seem to be catching up) . Dr Yuri Okina of the Japan Research Institute points out that the UK’s strength is that as well as having the world’s financial centre, there is a rich source of accountants, lawyers, consultants and other specialists who support an ecosystem for new business.

If this network could be boosted further, then the UK could lead the 4th wave of the industrial revolution, asserts Sugawara. He warns that Japan, who puts its funds into propping up zombie companies, with regulatory systems that impede new industries from growing, will get left behind. “That’s the bigger worry” he concludes.

So he seems to be turning an encouraging pat on the back for the UK into a kick up the backside for Japan.  What he says is not going to be news to many Japanese companies, who have reacted to the difficulties they face in Japan by investing in the UK (and elsewhere in Europe). Sugawara mentions SoftBank‘s acquisition of the UK’s ARM, but there have been plenty of other less spectacular investments. Much of it has to do with CASE (Connected, Autonomous, Shared, Electric) in the automotive industry –  Sony Innovation has invested in What3Words (a geocoding system) – also invested in by Daimler. Itochu has invested in Hiyacar and I realise now that its acquisition of UK car repair chain KwikFit probably also fits into this automotive services play. Similarly Sumitomo Corporation has invested in the Nordic parking company Q-Park and Sweden’s car sharing service Aimo.  Japan’s Park24 acquiring National Car Parks in the UK is probably also looking to a CASE future. Panasonic acquired Spanish automotive systems and parts company Ficosa in 2017.

So really, it’s not about any one country leading the fourth industrial revolution – it will be collaborative and global by its very nature. Both Japan and the UK need to keep their doors as wide open as possible to let everyone get on the ride.

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Acquire or be acquired – predictions on the future of Japanese mergers and acquisitions

Japanese companies used to be seen as very reluctant to acquire and merge with other companies, but the record breaking £46bn acquisition, finalised in January 2019, of Irish pharmaceuticals company Shire by Japan’s Takeda may not even be the peak of what has been at least 10 years’ of an overseas spending spree by Japanese companies.  Faced with a declining, ageing domestic market, Nikkei Business magazine expects Japanese companies to continue their spending spree in 2019, even if there is not a big ticket purchase like Takeda/Shire.

Autonomous vehicles, Internet of Things and other new technologies are likely to be the focus of future M&A.  For example Japan’s tyre maker Bridgestone has acquired the telematics business of Dutch company TomTom. “Tyre companies are also entering the era of CASE (Connected, Autonomous, Sharing Electric)” says Bridgestone’s CEO Masaaki Tsuya. Sensors can be placed in tyres to understand driving conditions, for example.

In the IT sector, NEC has acquired the UK company Northgate Public Services in January 2019 and in December of the previous year acquired Denmark’s KMD Holding and is looking to acquire a stake in India’s Mindtree.

Food and drink companies are also active – Mizkan, Ajinomoto and Asahi Beer have all made acquisitions recently in Europe.

In the financial sector, Nikkei Business speculates that a Japanese company like SMFG or Orix might be interested in acquiring GE’s aircraft leasing business GECAS, headquartered in Ireland – although GE has since denied GECAS is for sale.  MUFG might be interested in the US Bank of the West.

Most of the acquisitions of Japanese companies have been by Chinese companies, but Nikkei Business also wonders whether some of the big Western automotive suppliers such as Bosch, Continental, ZF, or Magna might not be interested in acquiring Japanese automotive suppliers.

Declutter and dispose

M&A is also an opportunity for Japan’s keiretsus (conglomerates and company groupings) to do a bit of tidying up. The trendsetter in this has been Hitachi, who have been pursuing a rigorous policy of “selection and focus” in rearranging their business portfolio. Over the past 10 years or so they have sold off Hitachi Global Storage Technologies to Western Digital, Hitachi Logistics to SG Holdings, sold a 27% share in Hitachi Capital to MUFG, sold Hitachi Power Tools and Hitachi Kokusai Electric to KKR and Clarion to Faurecia.

Japanese investors and banks are keeping a watch on Hitachi High Technologies, Hitachi Chemical, Hitachi Automotive Systems, Hitachi Construction Machinery and Hitachi Metals as the next possible candidates.  Hitachi Chemical and Hitachi Metals were supposed to be two of the “Three Branches” of Hitachi along with Hitachi Cable, so the idea that they could be sold off would be heresy to some Hitachi old timers.  As the Nikkei Business magazine says, Hitachi is trying to compete as a global company, so any business that has no synergy with its “social innovation” vision is likely to be dropped.

Panasonic already sold off its security camera business and foreign funds are eyeing up Panasonic Avionics – an inflight entertainment company – as a likely next candidate. “It has nothing to do with Panasonic’s main business”, one investor commented.

Takeda seems to be preparing to dispose of its consumer healthcare business to help fund its acquisition of Shire, as it has spun off its vitamin drinks and other products into a separate company.

Fujitsu has also been disposing of its hardware businesses – mobile phones, car electronics and PCs and Sony‘s mobile phone business is still struggling, and rumours that it could be sold continue.

Spark surprise

Nikkei Business concludes with some surprise predictions from the experts it spoke to:

  • Astellas and Daiichi Sankyo merging
  • Pioneer and JVCKenwood merging
  • SoftBank acquiring NEC
  • Fast Retailing acquiring Gap
  • Google acquiring Recruit
  • Amazon acquiring 7&i (7-11 convenience store chain)

Unsettling though it may be for the employees concerned, if clarity in the focus and business of Japan’s iconic companies results from these M&As, ultimately it should make for a more confident Japan Inc.

 

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Lessons from the decline of Japanese electronics manufacturing in the UK for the automotive industry

Although around 10,000 manufacturing jobs in Japanese electronics companies in  the UK were lost in the 1990s-2000s, about the same number have been added, either created by Hitachi Rail or in the automotive or air conditioning sectors. Japanese electronics companies such as Sony, Fujitsu, Panasonic, NEC, Mitsubishi Electric and Hitachi still all employ thousands of people in the UK.

It is a story of how industrial policy cannot ultimately stop product obsolescence, shifts of manufacturing to cheaper locations or the transformation from mass manufacturing of products to supply chain ecosystems providing solutions and services. Recent investment from Japan in the UK is in services and infrastructure, for the domestic UK market, and at least for now, the EU. But this has meant fewer jobs in the areas that voted Brexit.

Bunging £10s of millions at Nissan to compensate for tariffs was not going to stop these shifts. Over 10% of the 7,000 Nissan employ in the UK are working in design centres, not on the factory floor. Being a gateway to the EU now, even in manufacturing, needs regulatory alignment and free movement of people so suppliers can visit and base themselves at client sites and provide services and ship prototypes around the region.

The shift to electric vehicles means the car companies have to cooperate more than ever with ICT and electronics companies. Many of these ICT and electronics companies have joint European HQs spread across the UK, Netherlands or Germany, with senior management and teams scattered across the region, working virtually or at customer and partner sites. They have also integrated back office and technical support into cheaper locations such as Portugal or Poland.

Some examples of the history of Japanese electronics companies in the UK over the past 30 years:

Fujitsu

Fujitsu is the biggest Japanese employer in the UK with over 8,000 employees, 2,000 down on a few years ago, as it grows delivery and support centres in Portugal, South Africa and India and downsizes in the UK. It acquired 80% of UK’s ICL in 1990 (increasing to 100% 1998). ICL had 2,000 UK employees, 26,000 worldwide, with mainframe and PC factories in Letchworth, Manchester and the Midlands.  ICL was born out of 1960s industrial policy – the British government had a 10% stake in it for a while. To this day, Fujitsu provides a lot of  government IT infrastructure and services. Its last computer factory in Europe, in Augsburg in Germany, will shut down in 2019, retaining manufacturing in Japan only.

Hitachi

Hitachi used to employ around 1,000 people in its factory in Aberdare, Wales, making cathode ray TVs, video recorders and microwave ovens. It was shut in 2001, blaming low price competition from Asia. Hitachi has since shifted away from consumer products to infrastructure. In the UK it acquired the now stalled Horizon Nuclear Power projects in Wylfa and Oldbury and set up Hitachi Rail in the UK as the global headquarters with a new factory in Newton Aycliffe, employing nearly 2,000 people.

Hitachi employs another 4,000 people in the UK services sector – for example credit and loans company Hitachi Capital, IT consultants Hitachi Vantara and Hitachi Consulting and Vantec, providing logistics for Nissan.

Sony

Sony came to the UK in 1973, and had 2 plants in Pencoed making cathode ray TVs, employing 1,800 by the 1990s. As these started to shut down, Pencoed transformed itself into an innovation centre, developing and producing broadcast and professional equipment, employing 500-600 people.

Sony has been restructuring across Europe recently, consolidating back office functions into cheaper regions. It was still manufacturing DVDs in Enfield in the UK but this was shifted to Austria in 2017/8, reducing capital in UK by over £250m. It still employs nearly 2,000 in its music, home entertainment and interactive businesses in the UK.

Ricoh

Ricoh still has a factory in Telford (and two other plants in UK), employing the same number of people in 2018 as in 1991 – around 700 – but the product range has shifted from faxes to printers and consumables.

Mitsubishi Electric

Mitsubishi Electric acquired Apricot Computers in 1990, with a plant in Glenrothes and R&D in Birmingham, employing 442 in 1991. Glenrothes was shut in 1999, blaming cheap competition in Asia. It still has manufacturing in the UK, employing nearly 1,000 people (many of whom are non-UK EU citizens) in Livingston, at its airconditioning plant.

Panasonic

Panasonic, formerly known as Matsushita, had many plants in UK from 1970s to 1990s, employing 1,621 in Cardiff (TVs, microwaves), 469 in Gwent (electric typewriters, carphones), 160 in Port Talbot (components for TVs, video recorders, microwaves) and 63 in Reading (fax machines).  Most Matsushita/Panasonic plants in UK shut down in early 2000s, with production shifting to Eastern Europe. 1 plant remains in Wales, employing 400 people, manufacturing microwave ovens but also conducting R&D into fuel cell technology.  Panasonic has acquired Belgian IT company Zetes and Spanish automotive supplier Ficosa recently.

NEC

NEC is also shifting into IT services via European acquisitions. It used to have a semiconductor plant in Livingston (Silicon Glen, remember that?) which employed 1200 by 2001, when it shut down. NEC UK employees now number over 1000 again thanks to the acquisition of Northgate Public Services, in 2018.

Others

Oki Electric were relatively late in shutting down their Cumbernauld printer plant in 2018 – and now all production is in Asia.  JVCKenwood shut down their East Kilbride TV/CD player factory in 2008 and shifted production to Poland. Pioneer closed its CD player/TV factory in Wakefield in 2009. Toshiba had a factory in Plymouth, which used to make TVs, video recorders, but is now owned by a US company and makes air conditioners. Sharp (now owned by a Taiwanese company) still has a factory in Wrexham as does Brother.

 

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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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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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Brexit watch – Top 30 Japanese companies in the UK

We’ve been tracking the 30 biggest Japanese employers in the UK for over 3 years now, so it seems a good moment as Brexit draws nearer to see what changes they have made over the past three years, explicitly or implicitly, to prepare for Brexit and beyond. Overall, the top 30 Japanese companies in the UK have had a good 3 years’ in the UK, with total number employed increasing by nearly 15% to just under 90,000, out of the 140,000 employed by 1000 Japanese companies that is usually cited. I even wonder whether that 140,000 ought to be revised substantially upwards, as I believe the estimate dates from 2015.

However the average increase conceals some hefty drops (Fujitsu, Nomura and Yazaki) and substantial increases – the latter largely due to acquisitions.

Nearly every annual report from the companies that make up the 30 biggest Japanese employers mentions Brexit, but few state explicitly what actions they have taken to deal with the risk, unless they are financial services companies facing regulatory issues.  Most note that the outcome is uncertain, and that they are monitoring and planning.

No tax haven please we’re Japanese

As well as Brexit, another factor that some Japanese companies in the UK have to take into account is the tightening of the Japanese tax haven law.  Passive income such as dividends and royalties, if received in a country with a corporate tax below 20%, will be subject to charges from the Japanese tax authorities.  The UK corporation tax rate is 19%, due to go down in stages to 17% and Theresa May has recently promised “whatever your business, investing in a post-Brexit Britain will give you the lowest rate of corporation tax in the G20.”

As I stated in my speech to the UK Tax Forum, because of their long term, stakeholder oriented, risk averse ethos, Japanese companies are not really interested in the UK as a tax haven. Panasonic, seen as a bellwether in terms of corporate governance in Japan, cited the tax law as the reason to move its headquarter function from the UK to the Netherlands, where the headline rate of corporate tax is 25% (although sweetheart deals can be done). I also think that the decision of the European headquarters in the UK of trading companies Sumitomo Corporation and Mitsubishi Corporation to sell their shares in investments such as Princes and Triland Metals in the UK to their Japan headquarters is part of this drive – to avoid being seen as using the UK as a tax haven for their dividend earnings.

Whose standards are they anyway?

Japanese companies would be more interested in the second part of May’s statement – “you will access service industries and a financial center in London that are the envy of the world, the best universities, strong institutions, a sound approach to public finance and a consistent and dependable approach to high standards but intelligent regulation”.

But of course the question they will be asking is “whose high standards?”

There are around 200 Japanese companies with manufacturing in the UK, and we estimate around 50% of their production on average goes to the EU (excluding the UK). 30% is to the UK and the remainder to the rest of the world. In Toyota’s case, over 80% of their production in the UK is exported to the EU. So it’s no surprise that, as repeatedly stated, including in the Japanese Ministry of Finance’s “Message to the UK and the EU” of a couple of years’ ago, Japanese business want harmonised regulations and standards across the UK and the EU.

All the Japanese financial services companies affected by EU regulation have taken action – Hitachi Capital and MUFG have strengthened or set up bases in Amsterdam, MS&AD in Brussels, Sompo International in Luxembourg, SMFG, Mizuho and Nomura in Frankfurt.

The rise of the pure UK plays

Looking at who’s in and who’s out of the Top 30, the rise of “pure services” is noticeable, largely through acquisitions such as MS&AD acquiring Lloyds underwriters Amlin and InsureTheBox, Dentsu acquiring multiple advertising and marketing agencies in the UK, Outsourcing acquiring recruitment agencies and government debt collectors. Bubbling under are Park24, now the owner of National Car Parks. Many of these investments are very domestic UK market oriented, so Brexit proof in the sense that they are not reliant on the European single market in terms of supply chains, regulation or freedom of movement.

Conversely manufacturing companies have dropped out – such as JTI, with the closure of its Gallaher factory in Northern Ireland last year and Fujifilm, who have three different production sites in the UK.

Freedom of movement and solutions

As well as emphasising the need to harmonise regulations and standards, and ensure tariff free trade, the Japanese government “Message to the UK and the EU” of two years ago also pointed out that Japanese companies in all sectors employ large numbers of non-British EU nationals in the UK.  Because many of them have UK -based regional headquarters, or have design and engineering or customer support centres in the UK, they rely on the freedom of movement of these non-British EU nationals as well as the freedom of movement of British employees themselves, to visit or be seconded to client sites to provide pre sales, installation and aftercare support.  This also applies to Japanese engineers visiting the UK from Japan who at the moment are finding themselves being turned away because they gave the wrong answer at the border, saying they have come to the UK “to work”.

This last issue is likely to be raised quite insistently in any post Brexit trade deal between Japan and the UK, and if not solved, I would expect to see the numbers employed by the Top 30 in the UK to fall in the years to come.

Click below to see the rankings (pdf file)

Brexit watch Top 30 Japanese employers in the UK Sep 2018 Rudlin Consulting Ltd

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Which Japanese companies have the most non-Japanese employees?

There are more than 80 listed Japanese companies who have more non-Japanese than Japanese employees, but are they truly global companies?

The companies with the largest proportions of non-Japanese employees are mostly electronics manufacturers with factories in Asia and China – Foster Electric (98.9% of its employees are non-Japanese), UMC Electronics (98.5%), Mabuchi Motor (96.4%) and Minebea Mitsumi (91.6%) for example.

Two of these have no non-Japanese in management positions, according to Toyo Keizai. (who define “management” as having management positions in the Japan headquarters). Minebea Mitsumi (with 9 non-Japanese managers representing 0.5% of management) has at least set a goal of having 10% of its management to be “diverse” and Toyo Keizai says there are more cases of, say, a Thai employee being seconded to Indonesia and then moving to Japan headquarters as part of a management development path – something that is more common in Western multinationals.

The Japanese company with the largest number of non-Japanese employees in absolute terms is Sumitomo Electric Industries – a big employer in the Europe, Middle East & Africa region too – with several automotive wire harness factories in Africa.  Other companies with large numbers of non-Japanese include the NYK group (due to employees manning ships and other logistics operatives) and NTT (who have acquired large multinational IT services companies like Dimension Data).

In terms of largest proportions or absolute numbers of non-Japanese in management in their headquarters, Nissan with 163 non-Japanese managers (5.9%) and Nomura with 181 non-Japanese managers (4.1% of management) are the standout companies in Toyo Keizai’s Top 100. The only other companies in the ranking with non Japanese management in double figures are Panasonic (27), Honda (15), Denso (15), Dentsu (14), Fujifilm (14), Fujitsu (14), and Daikin (10).

It is very tough being one of a handful of non-Japanese managers in Japan HQ, and I would agree with Toyo Keizai’s implication, that to offer truly global careers in a global company, both to Japanese and non-Japanese employees, the number of non-Japanese in management positions in the headquarters need to increase substantially in order to reach the kind of critical mass that makes a difference.

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Making sure the Toray brand cuts through in the global fibre industry

Still from Toray’s Blue Butterfly campaign

“Intel Inside” translated brilliantly into Japanese as “Interu Haitteru”.  Now Toray, Japan’s largest synthetic fiber manufacturer and another successful Japanese B2B company that nobody has heard of outside of Japan, would like to do the same thing by having “Toray Inside” tags for products containing Toray fibres.  According to Kei Shimabara, Director of the Toray Marketing Planning Office in the Nikkei Style, this collaborative marketing has worked with Boeing’s 787s and UNIQLO’s Heattech clothing, but has not permeated much beyond that.

As Shimabara acknowledges, Toray is not a well known brand outside of Japan and this needs to be worked on in order to expand Toray’s business overseas.  Shimabara sees Toray’s marketing as inseparable from sales – there is not a separate marketing department for each business unit at Toray.  Sales representatives are also supposed to be marketers.

The supply chains are long in Toray’s businesses, and start with Toray’s textile fibres and resins – with many B2Bs before reaching the C(onsumer).  They have several plants across Europe, some making luxury car interior fabrics, some making carbon fibre for the blades of wind turbines.  In the UK their factory weaves polyester and nylon fabrics for fashion, industrial and medical uses.  Europe is bundled together with “North America and other areas” in the annual report – representing around 16.6% of revenues – the same proportion as China and “other Asian” markets, with Japan making up the other half.

Presumably North America and Europe are combined as a result of the legacy of Toray acquiring American company Zoltek in 2014, and with it some production in Europe. This acquisition will make it even more critical that employees as well as customers understand what Toray stands for. Shimabara says he is bringing together company wide project teams, including HR and PR to work on this.  “Digital marketing is going to be a powerful tool” says Shimabara, “but, embarassingly, I have not touched it up until now, so have just started studying it.”

The Toray website has some nice TV ad videos, with the theme of a blue butterfly and “Materials can change our lives” but the current annual report has the rather generic “Toray Way” on its cover, and uses a corporate mission statement that I have seen in many, many other Japanese technology companies of “Contributing to society through the creation of new value with innovative ideas, technologies and products”. It looks like Mr Shimabara has his work cut out to cut through.

 

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Will the next CEO of Mitsubishi Motors be French?

Eyebrows are being raised about Guillaume Cartier’s appointment as a senior executive at Mitsubishi Motors.  Not only is he “only” 49, and French, but he was appointed a year ago by Nissan’s Carlos Ghosn to head up overseas sales, a position usually reserved for people who have been seconded from Mitsubishi Corporation (my old employer), such as the current CEO Osamu Masuko.

In his first interview with the Japanese media, in Diamond magazine, Cartier says that working at Mitsubishi Motors is “an interesting challenge” and that the company has a strong desire to change.  He sees his mission as “to grow the company – it is very simple”.

Changes that Cartier has undertaken in the past year included persuading Sojitz, (another Japanese trading company) to sell its 49% share in the Philippine production and sales company, making it a 100% subsidiary, after initial resistance from Sojitz to the proposal.  This approach could also impact joint ventures that Mitsubishi Motors has with Mitsubishi Corporation.

In Europe, Mitsubishi Motors only owns 25% of some dealers (France, Germany,Switzerland) and Mitsubishi Corporation owns 100% of Colt Car in the UK. There are two Russian subsidiaries, one of which is a joint venture between Mitsubishi Motors, Mitsubishi Corporation and Sinoco.  Mitsubishi Motors also owns 30% of PCMA Rus, a joint venture manufacturing cars and parts with Peugeot Citroen – which raises questions of how that is seen by Renault, Nissan’s alliance partner.

Cartier says the key is whether performance is good, not so much whether it is a subsidiary or a joint venture.  He says 12 of his 15 major markets are steadily growing.  If the performance of a region is below expectations, then all options need to be considered.  The new style is not to rely on trading companies, but to review the business looking at performance first of all.

Mitsubishi Motor’s performance is currently good – 1.1 million cars were sold in 2017, and increase of 19% since the fuel efficiency scandal of 2016.  It introduced new models like the Xpander and Eclipse Cross and also positioning ASEAN and Oceania as the backbone of its sales and marketing. The Xpander is manufactured in Indonesia and being introduced into Thailand and Vietnam.

Cartier hopes this V shaped recovery will improve employees’ confidence, which has been missing up until now.  “We must change our mindset, which means accepting risk.  Mitsubishi’s new brand message is “Drive your ambition” and this is also a message for our employees.  I want them to make decisions, to drive forward and not be afraid of growth”

Mitsubishi is an “abnormal” company, according to Cartier – because despite being a small manufacturer, it pioneered electric cars and plug in hybrid vehicles.  By becoming a member of a 10 million unit alliance, it will be able to expand its business options.  For example if US tariffs are raised on car imports, this would have a big impact on Mitsubishi, who export all their cars to the USA from Japan, but there is now the option of producing Mitsubishi cars at other alliance member factories in the USA.

Diamond finished the interview asking whether Cartier was prepared to live for a long time in Japan as an executive, clearly hinting about the possibility of him taking over from Masuko as CEO.  Cartier’s response was that he has already brought his family over, and both he and his family are happy.  So the answer is “yes”.

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Three ways Japanese businesses can grow when they’ve been booted out by their parents

Japanese blue chip companies such as Hitachi, NEC, Panasonic,Sharp, Sony and Toshiba have been hiving off non-core business since 2011, through sales to private equity funds such as KKR, or to Chinese companies or other Japanese blue chips.  It often seemed like the kiss of death to the employees concerned at the time, but in many cases has resulted in successful turnarounds.

Fujitsu, having absorbed Toshiba‘s mobile phone business, then sold off the unit to Polaris, a domestic Japanese investment fund. According to Nikkei Business magazine’s article on how to dispose of non core business, Polaris’s President Yuji Kimura is confident of future growth, despite the stagnation of the Japanese  mobile phone market.  Polaris has decided to focus on the Raku Raku range of models, which are simplified smartphones, aimed at the elderly.

However other spin offs, such as Hitachi, Sony and Toshiba‘s LCD businesses merging to form Japan Display and Haier’s acquisition of Sanyo‘s white goods business from Panasonic, are still struggling.

Nikkei Business magazine highlight three points for success:

1. Review business scope

WIthdraw from markets were there is strong price competition even if it is an area that the company has a strong technological edge and look for other markets where the technology can be put to use.  Even if this means shrinking the size of the business, build up a structure which is profitable.

2. Understand where you can win and make nimble, strategic investments

For example, only 1 year and 3 months after KKR acquired Panasonic‘s healthcare business in 2013, they surprised everyone by acquiring the diabetes healthcare business unit from Germany’s Bayer.  The company was renamed PHC Holding.  Its CFO Masahiro Uda says “we never could have done this if we remained within Panasonic”

3. Change the organisational structure

When Pioneer sold off their DJ audio unit to KKR in 2015, they had to switch from a mass production product development mentality to a small scale production mentality.  Many processes became obviously unnecessary and were consquently realigned and development cycles became much shorter.

KKR Japan’s CEO Hirofumi Hirano adds a further point – that you must not forget to have a dialogue with employees, to explain to the union what the aim of the acquisition is, and what you see as the potential for the company.  “There is still a strongly rooted mistrust of investment funds in Japan” he says.  In the 1990s they were seen as asset strippers, and even though their image has improved recently, you still hear them being called “vulture funds”.

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