One of my least favourite and most used expressions about Japan is “the nail which sticks out gets hammered down”. It does however have its use in explaining Japanese risk aversion when it comes to individuals going against the group. Of course many successful business people did well precisely because they were not conformists – and Japan is no exception to this. Tadashi Saegusa, now senior chairman of Misumi and Yoshimitsu Kobayashi, chairman of Mitsubishi Chemicals are both nails which stuck out, despite their senior status in the Japanese business world.
In a conversation moderated by Nikkei Business magazine, Kobayashi talks about how he did not join Mitsubishi Chemical until the age of 28, having spent some time in post graduate study, including in Israel. He therefore missed the usual graduate entry scheme. “I was an outsider from the start” he says. Saegusa initially joined a predecessor company of what is now Mitsui Chemical but then left to join the Boston Consulting Group – the first person to be recruited by them in Japan.
Japan has become complacent
Both worry that Japan has become complacent during the 30 years of the Heisei era. Japan’s GDP has stayed flat, whereas the USA’s GDP has doubled during that time, says Kobayashi. 7 of the world’s top 10 companies were Japanese in 1989 (mostly Japanese banks) whereas not one of them is in the top 10 now. Kobayashi worries that Japanese people are not aware of how this seems from the outside – citing a survey that shows that 83% of young Japanese people are satisfied with the current situation.
Saegusa agrees that there is no sense of crisis in Japanese companies and of understanding what is lacking. For 27 years people have been told not to spend money or invest, which is the same as saying “don’t challenge the status quo”. “Everyone is in the same situation in Japan, so we’re rotting from the inside, if we don’t challenge ourselves.”
It can’t just be about the art of manufacturing, it’s how you design the business too
Even in basic research, China is top, and Japan is somewhere between 4th or 10th depending on the survey, says Kobayashi. “Yes Japan still leads in some sectors globally, but starting with semi conductors, there are many areas where it has lost share. How long can Japan keep its share of the carbon fibre business when Taiwan and South Korea are chasing it? It’s just a question of time. It can’t just be about monozukuri (craftsmanship, manufacturing ability). It’s how you design the business itself.”
Saegusa believes that such a large gap has opened up with the US in some sectors that it’s too late to catch up. “But Japan has just let this situation drag on. You can do something when a company still has life left in it, but when there is no money or resources left, then it’s too late. You have to look at the worst case scenario and focus the business, showing a path to survival, before it happens. That is what a leader needs to do.”
Only 10-20% of people in a group will take action
“Only 10-20% of people will actually take action in any large group of people” says Kobayashi. So many Japanese companies are still sitting on their cash, despite Abenomics. “Companies and their managers have lost the will to fight and just want to avoid doing anything extreme. They’ve lost speed and dynamism.”
“If you look at the US in the 1990s, it was revived by venture capitalists, university researchers and professional managers who would trigger changes. If you took a risk as an individual and succeeded, you would earn big money. But Japanese companies put priority on balance and are group oriented – it’s difficult to develop professionals. If you try to become a professional, you get slapped down. Everyone turned into salarymen, who would not take risks. That’s why we we’ve ended up not being able to develop managers.”
The age of the individual and platformers
Kobayashi believes this model worked in times of high growth and mass production. But now in the age of the individual, it is the platformers like Google, Amazon, Facebook and Apple who are using new cultures and innovations as triggers. “Japanese businesses do not realise what a handicap their culture is.”
Japanese companies have become too big, says Saegusa. “There is not that ‘create, build and sell’ mentality you get in the US. Bloated companies don’t give rise to leaders, rather to people who are good at pulling everything together.”
See your predecessors as war criminals
When he was working at Mitsubishi Chemicals, Kobayashi would say “see your predecessors as war criminals” (senpai wa senpan 先輩は戦犯). “If your predecessor did something wrong, you have to say so and do something about it, otherwise it won’t change. And when you become a senior manager, you have to be prepared to be treated like a war criminal.”
“A nail which sticks out too much cannot be hammered down” says Saegusa, noting that Kobayashi is rooted in a strong sense of values. “But such people are rare, even though they are needed right now.” When Saegusa left his Mitsui group company, he was seen as an outsider but now more and more people say that his life choices were the right ones. “If organisations treasure outsiders, they will find the old order breaks apart – but they may fear this kind of revolution.”
When Kobayashi was running Mitsubishi Chemical, he appointed a CTO, CIO and CMO from outside the organisation. “I felt that we could not develop such people inside the company. Now I am an external director of Toshiba, and we appointed a CEO from outside the organisation. Japan will have to change its corporate governance radically in the next five years to deal with the fast pace of change globally. If you make use of an external perspective early on, then you can deal more effectively with changes such as more vocal shareholders.”
Mitsui and Mitsubishi must lead the change away from big company disease
Saegusa worries that it might take 20 or 30 years more, to reach an absolute bottom, before Japanese people understand what their fundamental strengths are. Large groups like Mitsui and Mitsubishi must take responsibility for leading the change away from “big company disease”. “We have the information resources to know that we are losing on a global level.”
“It’s not over for Japan. I also think Japanese people can be great, but we need to reflect on what has happened and realise we have become complacent. We have been totally defeated these past 30 years, but if we can work together to find out spirit to fight back, we can be a strong country once again”, says Kobayashi.
This dialogue seems in strange contrast to the kind of articles we read in the Western press in recent years saying that while Japan is not Number One any more, there are so many good things about the country in terms of civility and a general good standard of living. And this is reflected in how Japan has become such a popular tourist destination. I suppose we recognise there are worse models than becoming a gently stagnating, ageing society where people are polite and kind to each other.
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