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Octopus balls to Tokyo – why it matters where your company is from in Japan

Takoyaki (octopus balls) are typical Osaka street food

Most countries have rival cities – usually the official capital city versus other cities which consider themselves to be the real business, historical or cultural heart of the country – think London versus Manchester or Birmingham, Berlin versus Dusseldorf or Frankfurt, Rome versus Milan, Madrid versus Barcelona. Japan is no exception and the rivalries go way back into history.

Kyoto used to be the capital of Japan, before Tokyo (or Edo as it was then) began to usurp it in the 17th century. If you ask Japanese people today about Kyoto, they joke that Kyotoites still think Kyoto is the real capital of Japan, and the Emperor is just temporarily visiting Tokyo (he moved there in 1868, when Tokyo became the official capital) – and will return one day.

Tokyo literally means the Eastern Capital and is part of the Kanto region, where the ruling feudal Tokugawa shogunate was based from the 17th century. Kanto means East of the Barrier (usually considered to be the Hakone checkpoint) and Kansai – the region where Osaka, Kobe and Kyoto are based – means the West of the Barrier (originally the Osaka Tollgate).

Before Kyoto’s reign as capital for a 1000 years, Nara (also in the Kansai region) was the capital and seat of the Emperor but is now a quiet backwater, more visited by tourists than business people. Kobe is the other main city in the Kansai region – a port with a strongly cosmopolitan feel and very close to Osaka geographically. Whilst Kyoto remains aloof and quietly superior (and has some very successful high tech companies of its own such as Kyocera and Nidec), the real battle now in business culture is between Osaka and Tokyo.

Osakans see Tokyo as standardizing, dull and full of bureaucrats and view Osaka (which historically had very few samurai but plenty of merchants) as the real money maker, with vastly superior food. Many of Japan’s celebrities, comedians and musicians come from the Kansai region too.

So what does this mean for corporate cultures? Osaka companies often have merchant roots – the joke goes, when you meet an Osakan, you don’t ask “how are you” (ogenki desuka) but “how’s business” (moukarimakka). To which the correct response is “bochi bochi denna” – a wonderfully vague way of giving nothing away, like saying “plodding along nicely thank you”. Osaka companies are brash, tough negotiators and mean with the money. “They’d skin the fleece off a gnat” said one British engineer to me, describing his colleagues in the Osaka HQ of a consumer electronics company.

Tokyo companies are gentlemanly but at the same time highly political. You need to have a good understanding of their organisation, the factions and the individual relationships to understand how to get things done. Mitsui and Mitsubishi, both Tokyo based corporate groups, are distinguished by the saying “Mitsui is people – Mitsubishi is the organisation”. It’s hard sometimes to understand how exactly this is different, but it seems to boil down to the idea that if an individual is powerful enough at a Mitsui group company, they can get things done, whereas at a Mitsubishi group company, the whole organisation has to support an action.

The other main corporate groups, Sumitomo and Itochu, are Kansai based companies. Both have strong “mercantile” roots – Sumitomo in metals trading, hard-nut, conservative and domestically focused and Itochu – strong in fashion and consumer goods, and seen as the more maverick, progressive and international in outlook. The regional cultural differences don’t seem to have been that strong between Sumitomo and Mitsui as various mergers have taken place between their respective member companies, particularly in financial services. However regional cultural differences have definitely had an impact on Astellas Pharma, the product of a merger between Yamanouchi (Tokyo) and Fujisawa (Osaka). Apparently many Fujisawa employees were horrified that Yamanouchi was going to be the dominant partner in the merger. Fujisawa had a strong tradition of innovation and had regarded Yamanouchi as “Mane-nouchi” (Mane = imitation) – a bunch of play-safe Tokyo bureaucrats.

Those who know Japan well will have spotted that there is an important region missing from this analysis – Chubu. Literally and metaphorically this is the midlands of Japan. Just like the Midlands in the UK it is the historic heart of the car industry. Nagoya is the main city, and teased just as Birmingham in the UK is for being ugly and soullessly modern. The area has the last laugh though, as it is the most wealthy in Japan – thanks to the enduring success of Toyota (so mighty their home town was renamed Toyota City) and its corporate group of suppliers such as Denso.

So, where are the top 30 Japanese companies in Europe from?

Kanto/Tokyo based companies:

• Asahi Glass
• Astellas (but Fujisawa originally Osaka)
• Canon
• Daiichi Sankyo
• Fujifilm
• Fujitsu
• Hitachi
• Honda
• Kao Corporation
• Mitsubishi group
• Mitsui group
• Nissan
• Nomura (but was Osaka originally)
• NTT group
• NYK group
• Olympus
• Ricoh
• Sony
• Toshiba

Kansai based companies:
• Horiba (Kyoto)
• Nidec (Kyoto)
• Nippon Sheet Glass (Sumitomo Group)
• Omron (Kyoto)
• Panasonic (Osaka)
• Sharp (Osaka)
• Sumitomo group (Osaka)
• Takeda Pharma (Osaka)

Chubu based companies:
• Denso
• Seiko Epson
• Toyota

Chugoku (Hiroshima etc) based companies:

• Fast Retailing/Uniqlo

Reports, profiles and other research on the Top 30 largest Japanese companies in Europe, Middle East and Africa are available to subscribers to our premium, paid newsletter – subscriptions are available here.

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A bunch of gobo, or burdock roots, or Japanese Presidents

Along with “tako tsubo” (octopus pot), another Japanese concept “gobou nuki” (plucking out burdock roots) used in HR has been deemed harmful to corporate Japan’s global prospects.

The term has been used frequently in the Japanese media recently, according to Masahiro Kotosaka, an ex McKinsey consultant now at Ritsumeikan University. In a recent article in Nikkei Business Online he points out that the recent appointments as President of Takuya Hirano at Microsoft Japan, Tatsuo Yasunaga at Mitsui & Co, Koji Arima at Denso, Tatsuya Tanaka at Fujitsu and Takahiro Hachigo at Honda have all been described as plucking burdock roots, as they are in their 40s or 50s, younger than normal for Presidents in corporate Japan. The average age of Japanese Presidents was 62 in 2014 (up from 61 in 2013), around 10 years higher than the global average.

The older age is of course partly explained by the continuation of seniority based pay and promotion in Japan – although Panasonic, Sony and Hitachi have all recently announced they are abolishing or looking to abolish this system.

The average age in Japan for a “kacho” (section head, the first managerial position in Japanese companies) is 38.6 and 44 for a “bucho” (department head, or General Manager) according to Recruitworks. In India, China or Thailand, the average is 9 years lower for kacho and 10 years lower for bucho. Even the US average is 5 years lower for both positions.

Kotosaka asserts that Japanese companies need to start pulling out younger burdock roots, people who might be future executives, and making sure they have early leadership experience. If this does not happen, the younger generations of Japanese will soon feel a big gap with their overseas peers.

Already Kotosaka has heard (as I have) from Japanese companies that they feel the utilisation of non-Japanese or external executives has increased and the presence of Japanese executives has faded.

The most notable example is of course Christophe Weber, President of Takeda Pharma, and his team of 16 executives, of whom 8 are non-Japanese and have come from outside the company and two are non-Japanese who joined through being executives in a Takeda acquisition. Weber had his first leadership experience at the age of 29 when he became a country manager at GSK. Carlos Ghosn of Nissan also became head of a factory at the age of 27.

My former employer Mitsubishi Corporation is mentioned as an honourable exception to the lack of experience given to juniors, along with gaishi (foreign owned) consulting companies and private equity firms. For such companies, people are the main asset, and it’s true I suppose that trading companies such as Mitsubishi that have now moved more towards acquisitions rather than trading, do afford ample opportunity for younger Japanese to take up management positions abroad. In practice though, I have seen many instances where the acquisition is left to manage itself, and the Japanese expat director mostly stays in the regional headquarters, processing paperwork to send back to Japan HQ, rather than hands on managing the business.

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A still from Honda’s Endless Road advertisement

Honda is not in the Boston Consulting Group’s World’s 50 Most Innovative Companies of 2014, having reached #12 in previous years. Other Japanese companies include Toyota at #8, Sony, Softbank, Hitachi and Fast Retailing (Uniqlo). Other automotive companies in the Top 50 are Tesla, BMW, Ford, Volkswagen, Daimler, Audi and Fiat. “It’s becoming a mini Toyota” says Nikkei Business Magazine, “consumers will soon be saying ‘we don’t need a Honda like this'”.

Takanobu Ito became President of Honda in June 2009 and is stepping down in June 2015. This has been portrayed in the Western media as being a consequence of the Takata airbag scandal, but this was not mentioned by Honda as a reason, and 6 years is a standard stint for many Japanese company presidents.

Ito does apologise, however, in a Nikkei Business Magazine interview, for setting the numerical target of 6 million vehicle sales by 2016. “It was just a dream” he says now. Honda had fallen into the trap which many Japanese companies find themselves in, of stretch goals and visions being taken at face value by employees, particularly outside Japan. Honda was selling around 2.5 million vehicles a year when the “dream” was announced in 2012, as part of the 2016 Mid Term Plan. Honda in the US decided to boost sales of the Accord and Civic by offering even better incentives than Hyundai.

Previously, Honda’s brand had been so strong, it had not had to discount at all. And then followed the recalls of the Fit hybrid and the Takata airbag problems.

Ito had also restructured the company away from its previous bipolar Japan and North America organisations into 6 regions – Japan, North America, Latin America, China, Asia, Europe. He has reorganised the R&D side, cutting the number of new models in development by 20%. Honda used to sell itself as a pioneer, but is now behind Toyota in hybrid car and fuel cell vehicle development.

Ito believes Honda must learn from smaller manufacturers like Subaru and Mazda and focus on its brand image. “We have structured the company to be global, but now we need the system to make sure this bears fruit”. The relatively young (55) Takahiro Hachigo (former VP and Director of Honda Motor Europe) will become the 8th President of Honda, with four out of the 6 board directors also changing.

Honda is still making profits, but Nikkei Business concludes that it may be facing the same issues as Sony, another formerly innovative Japanese company, if it does not “rip up the unwritten rules”, and stop relying on past successes. Both Honda and Sony had become too focused on playing it safe and lost the ability to respond to customer needs. Honda is harshly judged because it was so innovative in the past. But it should not look to the past, says the Nikkei, but to the future, and not just to innovative products but innovative management.

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Honda breaks the unwritten rule for presidential succession

Most of the Western media has covered the recent announcement that Takahiro Hachigo will succeed Takanobu Ito as President of Honda as an indication that Ito is taking the rap for the recent Takata airbag recall, but the Nikkei Business magazine has a somewhat different angle on this. Ito had a 6 year innings, which is pretty standard for a Japanese president, and this is the season for announcing top executive changes in time for the start of the new financial year in April, and the shareholders’ meetings in June. In fact, according to the Nikkei, Hachigo was pretty much the successor chosen by Ito himself, to carry on the strategies that Ito had been pushing since 2009 in order to globalize Honda, through 6 global hubs.

Hachigo had experience in many of those global hubs – including a year at Honda Europe pushing through restructuring there, as well as North America and China. What is more unusual, says the Nikkei, is that Ito has broken the unwritten rule in nominating Hachigo, set by founder Soichiro Honda, that Honda presidents should have been the president of Honda R&D. Hachigo only got to a “Managing Officer” board position.

Unusually for a Japanese car company, Honda R&D is an entirely separate company, to which Honda Motor pays a fixed proportion of sales each year. Ito has commented that his globalization strategy is now facing problems in the R&D side – the current president of the R&D company is stepping down, and being replaced by Koichi Fukuo, who had been heading up product quality, and was seen as a possible presidential successor to Ito.

Ito is not going to become chairman, which would be the usual position for a retiring president, so he does seem to be stepping away somewhat, but very much with “his men” in position it appears.

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Why Japan lacks a real car culture

Kenji Momota, a former racing driver who now writes on the car industry for Diamond and other business publications, believes that Japan’s car industry is facing defeat because of the lack of a car culture in Japan.

He muses on how the only proper car museum in Japan is actually privately owned (founded by the owner of a concrete product sales company) and several hours away from Tokyo, in Ishikawa Prefecture. There are several corporate car museums (Toyota’s in Aichi prefecture, Honda’s in Tochigi, Mazda’s in Hiroshima, Suzuki in Shizuoka and Daihatsu in Osaka) and there was a state museum of transport, founded in 1936, but since 2007 it has focused on the rail industry.

The lack of a national car culture has its roots in the beginnings of the industry after the war, when joining the car industry was seen as a high risk, equivalent to joining a start up venture, by top graduates. Many employees were transferred over from the zaibatsus’ heavy machinery and shipbuilding companies. These employees felt they really didn’t really understand cars. An inferiority complex persisted until a couple of decades or so ago, with even Toyota calling itself “a country bumpkin company” or Honda saying “a small company like ours”.

Then along came the post war baby boom generation, to whom car ownership was the ultimate dream. The older generation were happy to defer to them, believing it was good to have cars made by those who loved cars. The baby boomers made cars for their own generation, during the economic boom time, and that was fine until recently, when the baby boomers have started to retire, and are buying their final cars.

The younger generations are not so fixated by car ownership, with the improvements in public transport, those living in cities can be car free without too much inconvenience. Running a car company has become more about management ability, and understanding finance. Apparently many executives that Momota has spoken to have confessed “we don’t really know what to do next” in the face of a major structural change in the motor industry, with US IT companies such as Google entering the industry via telematics.

Momota recommends constructing a culture from a zero base, as a new industry – which will be a service industry. He points to Mercedes’ “mercedes me” as an example of the future. However Mercedes have been able to do this because they have such a strong brand in the first place. He worries that if Japanese car companies team up with US IT companies, their brand will be lost in a bland global one size fits all. “Japanese car manufactures must review the past and present of their industry, and quickly, in earnest, take the first step into the future”. Judging by a conversation I had recently with a US brand consultancy, at least one Japanese car company is looking to take such a step.

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Reputation and rankings fall for most Japanese companies – Reptrak 2013

Just as with RepTrak 2012, Canon and Sony continue to be the only two Japanese companies in the Global Top Ten, with Sony falling from #2 to #6 and Canon up one place from #9 to #8. Apple and Volkswagen have dropped out of the top 10, with Rolex and Nestle replacing them.

The survey is based on 55,000 interviews with consumers in 15 countries, for 100 companies who have above average reputation in their home market 2006-2012, a global footprint in production/distribution and a high familiarity with consumers in 15 countries. Companies are scored on responses as to whether the consumer would buy the product, recommend the product, welcome in their community, would work for, would invest in the company.

Canon and Sony have both maintained their RepTrak Pulse Score at the same level as 2012, but all other Japanese companies have seen their scores fall from last years’ levels. Yet again Sony gets all its love from Europe. Asian consumers favour BMW, Microsoft, Rolex, Disney and Apple.

There are twelve more Japanese companies outside the top ten:

Bridgestone is at #28 (up from #34, but actual RepTrak Pulse Score is down from 73.35 to 71.88)
Panasonic #32 (down from #14)
Honda #35 (down from #22)
Nintendo #36 (down from #32)
Toyota #37 (same as 2012)
Toshiba #55 (down from #52)
Fujifilm #59 (down from #43)
Sharp #73 (down from #68)
Nissan #83 (down from #62) Biggest fall in rank and score.
Suzuki Motor #85 (up from #88 but RepTrak Pulse Score has fallen from 67.34 to 65.53)
Hitachi #89 (down from #79)
Fujitsu #96 (down from #85)

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honda

Tag: honda

Octopus balls to Tokyo – why it matters where your company is from in Japan

Japanese companies need to pull up younger burdock roots if they really want to grow globally

Honda – an endless road to globalization

Honda breaks the unwritten rule for presidential succession

Why Japan lacks a real car culture

Reputation and rankings fall for most Japanese companies – Reptrak 2013

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