Japanese Business Blog - Rudlin Consulting

EMEA CEMEA EMEIA – Japanese regional headquarters in Europe – scope and location

My old employer Fujitsu’s latest attempt to resolve the “European regional headquarters” conundrum that many multinationals face is to create a region called EMEIA – Europe, Middle East, India and Africa. This is partly a reflection of the IT industry (having large outsourcing desktop support operations in India, which in Fujitsu’s case had actually been managed out of the USA operation previously) and also the legacy of the former Fujitsu Siemens global HQ in Germany selling hardware into India.

The EMEIA region will be headed up by Duncan Tait, CEO of Fujitsu UK & Ireland, who has also been made Corporate Senior Vice President in Fujitsu HQ’s new global matrix structure, so this represents a tipping of power back to the UK, having tipped over to Germany previously, with the previous tripartite European structure of C(ontinental) EMEA, UK & Ireland and the Nordics.

I had mentioned previously that there seemed to be a shift towards Japanese companies basing their European or EMEA headquarters in the UK. Some say this could be due to the relative tax structures in the UK being more favourable now than the Netherlands or Germany. My view is that Japanese companies are not quite as hard headed as that, and it is more to do with the favourable business climate (diverse, flexible workforce) and global infrastructure and support services that the UK offers.

I have big worries, therefore, on how any British exit from the EU might ultimately impact Japan’s investment in the UK. UKIP leader Nigel Farage and the Labour Party’s shadow chancellor Ed Balls recently had an exchange on this, with Farage (rightly alas) pointing out that Nissan were very negative on the impact of the UK not joining the euro and yet their factory is still in Sunderland.

For sure, Nissan will not be closing that factory down any time soon – it’s too efficient and the UK market is too important for that. But what I would be worried about if I was in government would be the more hidden ripple effect of headquarter location. It is true for all industries, not just the automotive industry, that the location of a major company’s regional headquarters will also affect its procurement, marketing, financing behaviours and therefore the suppliers around it. Furthermore, the roles needed to run these consolidated functions are the most senior and well paid jobs in an organisation. The economic impact is therefore not just about the size of the directly employed workforce in a factory. If the UK were no longer in the EU, I wonder whether we might not see a slow drift of headquarter functions, and supporting services and people, back to Germany or the Netherlands or Belgium.

Nissan’s European HQ is actually in Switzerland – unusually for a Japanese company – 18 out of the Top 30 Japanese employers in Europe have their regional headquarters or part of their regional headquarters in the UK. Official location may be only half the story however – I know that many Japanese companies are moving towards a more “virtual” regional structure, with top jobs and functions located across Europe. I will examine this further in future postings.

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Wally Olins CBE 1930-2014

I was very sorry to hear of the death of Wally Olins on Monday. Although he was 83, and had recently undergone an operation, it seemed he was recovering well, and I was looking forward to his postponed book launch for Brand New: The Shape of Brands to Come and maybe catching up with him before then as he had said he had wanted to chat further with me about Japan – which was typical of Wally, that despite his immense expertise and experience, he was always curious to know more and very generous and open to relative newcomers to his field.

We had worked together both when I was at Fujitsu for their new brand promise “shaping tomorrow with you” and after that with his company Saffron on another corporate vision project for a Japanese owned subsidiary. As Ian Stephens, principal of Saffron, has said in their statement about his death, Wally was infectiously charming but also famously impatient – he sometimes sought reassurance from me that his straight talking style was not going to upset Japanese executives.

Although he was impatient with Japanese companies’ caution, indecisiveness and inarticulacy, I sensed Wally was approving of Japanese companies because they instinctively “get” (and had been practicing, at least in Japan) the concept he had been preaching, that a company’s brand is about nurturing its collective identity, giving it an emotional connection to its customers.

I understand his impatience now, as he did seem, despite his four score years and more, like a man who still had a lot more he wanted to give and achieve. The best compliment we can pay him therefore is to buy his new book, and keep the flag flying for his work and ideas.

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

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

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

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

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?

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:

“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

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

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.