This article, written by Rochelle Kopp, founder of Japan Intercultural Consulting and Pernille Rudlin, European Representative of Japan Intercultural Consulting appeared in the December 2006 edition of Success Stories Japan
The non-integration strategy
The overseas M&A spree by Japanese companies in the late 80s was legendary for its excess and for its failure. Just as many Japanese firms lost billions on high profile foreign real estate investments during the bubble period, many others were similarly burned on the overseas companies they acquired. Often there was nothing fundamentally wrong with the acquired company, but it quickly ran aground when the new Japanese parent sent large numbers of expatriates to manage it, alienating the existing staff and causing them to leave, thus destroying the original corporate culture. At the other extreme, the acquired foreign firm was never integrated into the company as a whole, and left to operate on its own.
This latter approach has various tempting aspects to it. One obvious one is the cost saving in using fewer Japanese expatriates. The Japanese headquarters company can also justify it to themselves philosophically by saying that they are respecting the local culture by not imposing the Japanese company culture on the new subsidiary. The new subsidiary is likely to react positively too, feeling relief that they are not going to lose the autonomy that they had before and that they will not have to deal with the inevitable tensions caused by having to integrate staff from the parent company. If the newly acquired company is already performing well, then this approach seems to offer continuity and can be justified by an ‘if it ain’t broke…’ philosophy. If the newly acquired company then starts to have problems, the headquarter staff can point the finger of blame at the legacy management.
It is precisely when the new subsidiary starts to have problems, or indeed when there are positive developments, such as new plant investment, that the sustainability of the ‘leave them alone’ approach becomes doubtful. Superficially, allowing the new subsidiary autonomy shows that the subsidiary management is trusted by the headquarters, but this trust is quickly revealed as having been surface only, when large numbers of expatriate Japanese are flown out to trouble-shoot, or to set up the new plant. Real trust has not been built up through in-depth, side by side collaboration by key personnel from both companies. Without this real trust, Japanese headquarters will be reluctant to delegate. Well written, positive sounding monthly management reports from subsidiaries and the occasional board meeting are not enough to persuade most Japanese managers that when it comes to the crunch, the local managers can sort out problems or set up new projects in the correct corporate ‘way’. They also worry, probably rightly, that the systems and processes that they can rely on in Japan are not well embedded in the overseas subsidiary. Underpinning both the lack of trust in people and in the processes is a lack of trust that would have come from explicitly shared values and an understanding of how those values are manifested in the workplace.
An example of this that we have come across recently was when a joint venture between a large Japanese chemicals company and a large European chemicals company became a fully owned subsidiary of the Japanese company. Initially, the Japanese company let the newly acquired company carry on as before, with a European Chief Executive Officer and a wholly European team of managers, all originally from the European chemicals company. Then the CEO left and was replaced by another European, and the Japanese company sent over one expatriate – a sign that they were beginning to get nervous after the departure of the known and trusted CEO. Then when the second CEO left, he was replaced by a Japanese expatriate. Then, when plans for a new factory in Europe were approved, more and more Japanese expatriates began to appear, to the point where the senior management team is now half European and half Japanese.
This has led to complaints from the Europeans about the perceived behaviour of the Japanese expatriate managers – the long and non-transparent Japanese decision making processes seem to exclude the Europeans. National cliques are forming, and suspicion and paranoia are rife. The long hours worked by the Japanese managers worry the Europeans, who wonder if they too are expected to work until late at night every night, and on weekends.
This worry is justified, because for many Japanese companies, a willingness to work late is seen as an indication of loyalty to the company and ability to put the group wellbeing before individual needs. If employees do not work late, they are less trusted.
Does this mean that European employees of Japanese companies should work late if they wish to be trusted? It would certainly help, but we believe this is a very dangerous expectation to impose on locally hired staff. Quite apart from the damage that excessive overtime work is causing to Japanese society itself, Europeans are very keen to preserve their work/life balance, and many will simply refuse to work at a company where long hours are the norm. We already know of a British company, recently acquired by a large Japanese healthcare company, who told us they are having problems hiring a Chief Financial Officer, because good candidates are saying that they are deterred by the notoriety of Japanese working hours.
Behaviours, values, and culture
Behaviours such as a willingness to work long hours are proxies that companies use to measure how far corporate values are being upheld by employees. Different cultures may have disagreements about the desirability of some of these behaviours but there is usually plenty of common ground regarding the values themselves. For example, few people would question the desirability of ‘loyalty’. It is how these are thought to be manifested that is the sticking point.
This is where the creation of a hybrid culture comes in, but it is not enough to have a lovingly crafted, mutually-agreed list of values or mission statement. There has to be agreement on how these values will be demonstrated and how the mission statement will be implemented.
The framework of a hybrid culture is a set of communication norms that are designed by the multicultural work team, blending the best practices of each culture. A norm is a behaviour (way of doing things, or custom) that the group practices on an ongoing basis. A norm serves as a ‘ground rule’ for the group’s behaviour. Through a process of consciously creating norms for the group, positive norms can be selected. If norms are not created consciously, there is the danger that negative and counter-productive norms will develop.
In the team building sessions we have conducted, we first of all ask for behaviours that each national group has noticed in the other group, which they find positive, and behaviours that they find puzzling or troubling. Then we analyze the behaviours to uncover the values underlining them. Some of the values can be acceptable to all, and some may not be as high priority for some national or corporate cultures as for others. For example group orientation is more important to Japanese than it is to Americans or Europeans, and role clarity is less important to Japanese.
We focus first of all on the common positive behaviours. These are the starting point for the group norms. For example, a common one that Japanese mention with regard to the British and the British mention with regard to the Japanese is “helpfulness”. Then we look at the behaviours which the team has found puzzling or troubling; lengthy decision-making for example. The long time that Japanese spend on decision-making can be traced back to Japanese values of consensus decision making, relationship orientation and group orientation. Consensus decision-making is not a value that is totally alien to other cultures. Within Europe, for example, the Swedes, Dutch, Belgians and Germans all have forms of consensus decision making. However many Europeans also value swift actions and are more task-oriented than relationship-oriented. The group can then come to an agreement that decisions should be made through consensus, but a time limit or a limit on the number of people that have to be consulted, or a limit on the number of pre-meetings can also be set.
Foreign acquisitions in Japan
The same process can be used for acquisitions of Japanese companies operating in Japan by foreign companies. Indeed, if values are not compared and mutually comfortable norms and structures created, it can jeopardize the entire deal. In one case we are aware of, a potential acquisition of a Japanese components manufacturer by an American company was scuttled because the American side was insistent on the particular role that sales engineers should play in the organization. This view was based on a particular set of values and assumptions concerning how to work with customers. The American firm viewed their way of using sales engineers as a key aspect of their competitive advantage, that they felt very emotionally attached to. The Japanese organization had a strikingly different approach, and was reluctant to suddenly change a way of doing things that had worked in the past and was comfortable for their Japanese customers. Faced with this clash of approaches, the American organization became nervous, and discussions ground to a halt. If the two sides had taken the opportunity to dig beneath the formal structure of the engineer role in each of their organizations, and discuss their values relating to customer service, they might have discovered more similarities than differences, and been able to find a common ground to move forward.
In acquisitions of Japanese companies operating in Japan by foreign firms, these issues of culture often become key sticking blocks. This is in part due to the fears that many Japanese have about having their taken over by foreign owners, since this is something that is still rather rare and dramatic in Japan. Indeed, acquisitions of any type are less familiar to most Japanese than to people in the west, and having the acquirer be a foreign firm is a wild card that leads to more concern. Also, since most Japanese have spent their entire working lives at one firm, they tend to be particularly attached to their company’s existing ways of doing things, and less comfortable trying other approaches. Thus, foreign firms making acquisitions in Japan need to take particular care to not impose their culture willy-nilly on the acquired firm, and instead working together to develop a hybrid that leverages the best of both the acquirer’s and acquiree’s values and business practices.
Culture as a “powerful seed”
Carlos Ghosn, President and CEO of both Nissan and Renault, has said that “cultural differences can be viewed as either a handicap or a powerful seed for something new.” The process of creating a hybrid culture, and explicitly stating the behaviours or competencies that are expected by employees in order to demonstrate the values of that hybrid culture, can lead to an enhanced competitive advantage for the new company. Greater trust between employees will allow access to capabilities and knowledge which might otherwise remain hidden inside each culture. The new culture and its associated behaviours can help the company overcome rigidities from its past. Also, by discussing the issue of culture head-on, the company can avoid having it become the catch-all for every friction or discomfort that comes up during the acquisition process. If cultural issues have been examined and addressed, it’s difficult to start blaming everything on “those Japanese” or “the Americans.” Furthermore, we have found that the cultural discussions held in the process of designing the hybrid culture and its norms lead to a greater mutual understanding and feeling of closeness between the acquirer and acquiree personnel, that becomes a key basis for ongoing cooperation and synergy.
U.S.-based Rochelle Kopp and U.K.-based Pernille Rudlin have assisted several major Japanese firms with post-merger integration. For further information on their work please visit www.japanintercultural.com.
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