20180303 Ed materials

1. Swingby Corporation
November 18th 2017
Globalizing Japan
By Ed Kuiters

2. Swingby
We have been moving left and right to look at M&A, FDI, Demographics, Public
Finance. Time to bring it under control. Proposed structure:
1. Case for globalization - McKinsey, Aging Society
2. Why do they fail? - Why do so many Japanese International Mergers &
Acquisitions Fail?
3. Cases - Nissan, Kirin, Toshiba, Sharp
4. Importing globalization: - Inbound FDI.. challenges
5. Recommendations: Putting it all together
How did we get here?

3. Swingby
Why are General Motors and Volkswagen more successful in China than Honda and
Toyota? Why are LG and Samsung bigger in India than Panasonic and Sony? Why is
IBM larger in Japan than Fujitsu is in the United States?
Fortune Global 500’s 35% in 1995, 13 percent in 2010, 10% today
Demographics
Japan’s population is expected to fall from 127 million today to less than 100 million
between 2040 and 2050. A declining population will almost certainly reduce the
absolute level of private consumption, along with tax revenues and, potentially, overall
GDP. (Presentation: Future of Aging Japan)
Case for Globalization

4. Swingby
Inefficiency
Japan has among the lowest labor productivity rates of any major developed country.
Japanese companies are therefore generally less competitive and more vulnerable to
foreign attackers at home. Japanese workers tend to be among the world’s most
diligent, but they are both collectively and individually inefficient. Headquarters are
overstaffed, employees focus more on work effort than on impact or outcomes, and
limited outsourcing and offshoring to a handful of IT-related functions.
Japan’s productivity-per-hour in 2015 ranked 20th among 35 Organisation for
Economic Co-operation and Development (OECD) countries. Japan has been the least
productive among the Group of Seven industrialized countries since 1970.
Examples: Overtime (2000+ hours p/y), Paper based, Hanko “The hanko culture might
look strange to people from other countries,” Nakajima said. “But it is the basis of a
unique tradition … inherent to the identity of Japan.”
Case for Globalization - Inefficiency

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Case for Globalization - Inefficiency

6. Swingby
1. Sales and sales growth—are
we growing and gaining share?
2. Gross margin and cost of
goods sold—are we adding
enough value?
3. The gross margin and
production costs of each
product—are there further
opportunities for continuous
improvement?
4. The bottom line—are profits
large enough, and are they
increasing?
Blind for indirect costs
increases.
Case for Globalization - Inefficiency

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HBR:
“It is primarily the export-led Japanese industries—electronics, autos, semiconductors,
telecommunications, and so on—that are successful in true global competition.
The great majority of Japan’s domestic businesses are far less accomplished than its
global ones. Accounting for approximately 80% of the Japanese economy, they wage
their competitive battles almost exclusively within the confines of Japan’s insular home
market. The peculiarities of that market range from Japan’s national tastes and quality
and safety standards to such elements as its unique business traditions and myriad
formal business regulations.
These conditions, rather than outright legal barriers, have made it difficult for
companies outside Japan to challenge its domestic companies at home. As a result,
without the challenge of international competitors to press them into shape, the majority
of Japan’s domestic companies have become complacent. This is especially true in the
service, construction, and food-production sectors.”
Case for Globalization - Inefficiency in services

8. Swingby
HBR:
“Interestingly enough, supermarket chains above a certain size in Japan seem to
experience diseconomies of scale from excessive overhead that result in lower
efficiency and performance than that experienced by slightly smaller chains. Our
studies found similar results in studies of the hotel and airline industries.”
Case for Globalization - Inefficiency in services

9. Swingby
HBR:
My findings, taken from a variety of global companies from both the service sector (e.g.,
wholesalers and chain supermarkets) and manufacturing (e.g., chemicals, electronics,
and vehicles) put the number of excess workers in these combined industries at a
minimum of 15% to 20% of the white-collar work force. If my estimates are correct
across the economy as a whole, that means there are currently at least 5 million to 6
million redundant workers to be found in Japanese industry. If all of these jobs were
eliminated to sharpen the competitiveness of Japanese companies—which admittedly
is not politically or socially feasible in the near term—I estimate that unemployment in
Japan would soar from its current level of under 2.5% to over 10%.
Case for Globalization - Inefficiency in services

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Strengthening the Japanese Economy
Japan’s Global Competitiveness (McKinsey, OECD)
https://youtu.be/ZSQhjOm1MWM

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Market Entrance from overseas
Japanese customers want value. Value means products that look attractive or stylish
but are nonetheless significantly less expensive than traditional offerings. With a few
exceptions, Japanese companies have been slow to offer such value, giving foreign
competitors a chance to muscle in, especially those that have significant control of
product distribution. Businesses have attracted consumers around the world by offering
some combination of value and an exciting shopping experience (Costco, H&M, IKEA,
Zara) or a simple, intuitive user experience (Amazon, Apple). Other companies, such
as Wal-Mart, use their global footprint to bypass Japan’s multilayered distribution
system and thus to introduce products at prices significantly lower than the Japanese
competition’s. But... the overall share of foreign competitors remains small.
(Presentation: Future of Aging Japan - Inbound FDI)
Case for Globalization

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Japan’s ten largest companies are less global than their overseas peers, as measured
by the percentage of revenues, assets, and stock ownership outside Japan.
Are we not Globalized yet?

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1) Analyze
● Market segmentation analysis to determine if your product will sell in the local
market.
● Prepare a product gap analysis against local products. Is there a demand that is
not satisfied by a local company?
● Perform a SWOT analysis against competition. Will the market buy your product?
● Consider market opportunity/sizing. How big is the market and how long will it take
you to capture your targeted sales?
Steve Jobs on the NeXt https://www.youtube.com/watch?v=HNfRgSlhIW0
How do Companies Globalize?

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2) Business Plan
Each market has its own nuances due to economic, cultural, governmental, and market
conditions. Develop a localized business plan that drives local success while remaining
integrated with the overall corporate strategy and objectives.
3) Beach head
Many global companies try to launch with executives from the parent company or
rapidly build a local team from scratch. This is time consuming, risky, and slows time to
market. Using proven senior interim executives allows the company to hit the ground
running while the company hires the right senior management team.
4) Product readiness
● Compliance with regulations.
● Localization
● Patents and trademarks.
● Local logistics and distribution.
How do Companies Globalize?

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5) Organisation readiness
Cultural differences, language, regulations, or customs, requires a firm to be flexible in
the policies and procedures implemented in an international operation to ensure
employees are engaged and executing on the company’s plans. Adjust your local
organisation accordingly
● Structure: organization, policies, procedures and handbooks that comply with local
requirements while maintaining balance with overall company policies.
● People: competitive benefits and compensation packages to attract qualified local
employees.
● Connect: organize local IT infrastructure, payroll and human resource functions—
again in a way that lends itself to outsourcing.
How do Companies Globalize?

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6. Go-to-Market Strategy
The effective selling and marketing of your products or services requires a
comprehensive, cohesive strategy that addresses sales strategy, sales delivery,
branding/value proposition, marketing strategy, marketing programs, and pricing, which
together create clear market differentiators that propel market acceptance and revenue
growth.
● Sales: direct, indirect, OEM, distributor, hybrid?
● Compete on: solution, feature, consultative, price?
● Local or parent brand.
● Marketing plan and KPIs.
How do Companies Globalize?

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7. Get Connected
Gain a strong competitive advantage by creating a supporting ecosystem of
complementary products and services via third-party relationships.
● Negotiate alliance/partner/distributorship programs.
● Develop an ecosystem strategy and business model.
● Build an internal alliance team to manage and foster relationships.
How do Companies Globalize?

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1. Globalization Story
2. English
3. HR
4. Global Marketing
5. M&A, joint ventures and alliances
How can Japan Globalize?

19. Swingby
Many Japanese companies understand the benefits of globalization. But their
executives may lack a compelling “globalization story” for employees—global goals,
aspirations, and value propositions. Are these widely understood and properly
communicated in a way that excites and energizes the organization while addressing
the anxiety that comes with big changes in direction? Spending time and effort
developing such messages may seem trivial, but a globalization effort won’t get far
unless employees are on board.
Obama: https://youtu.be/7owMXrLu2d8
Why? Simon Sinek: https://youtu.be/qp0HIF3SfI4
Globalization Story

20. Swingby
The move to English is critical because it opens up a world of talent. Everything else in
the globalization journey follows from gaining access to a higher-quality employee pool.
It’s hard to get a rich exchange of talented people across units and geographies without
a lingua franca.
In 2009 Japan had the lowest score of any of the International Monetary Fund’s
advanced economies on the Test of English as a Foreign Language, administered to
foreign students who want to study in the United States. It had the second-lowest score
among Asian nations, outperforming only Laos. Prestigious schools such as Tokyo
University or a few of the leading Japanese companies make high English scores a
prerequisite for acceptance could rapidly increase the overall English ability.
English Strategy: https://youtu.be/jtZw_z9_-Lk
English @ Rakuten: https://youtu.be/6uFoArRtaqs
(https://youtu.be/oYntOwTMj38)
English as the Corporate Language

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Typical Japanese executives have never held an international assignment or worked
outside their companies or business units. Nearly all senior executives are Japanese.
Such professionals may be quite capable of managing domestic businesses but are
increasingly ill-prepared to run global enterprises in fast-changing, competitive markets.
Government survey found that the single biggest hurdle for globalization was the
“securing and training of human resources in Japan.”
Japanese corporate human-resources model: time-based advancement, egalitarian
compensation, and lifetime employment. The HR function focuses almost entirely on
recruiting at the university level. International experience not only isn’t essential to
advancement but also is often seen as a negative. Japanese organizations tend to be
monocultural and monolingual, making it difficult for foreigners to succeed. Also,
women have trouble advancing: Japan placed 94th of 134 countries in the World
Economic Forum’s Gender Gap Index 2010. Most Japanese companies need to rethink
HR’s role and to adopt an employment strategy incorporating new approaches to
career paths, compensation, and performance evaluation.
Talent Management Strategy

22. Swingby
These are the basic steps Japanese companies can take to upgrade their talent
management:
1. Embrace diversity and set aspirational targets for women, foreigners, and
Japanese managers from other companies and industries. Without targets there is
no way to guide the HR organization or track progress.
2. Create a global rotation program open to the top 100 to 200 executives, enabling
them to work abroad in other parts of the company. The program should guarantee
their original positions and tie promotions to participation.
3. Hold HR more accountable for talent strategy and development rather than just
internal placement and recruiting. (Dave Ulrich: https://youtu.be/57PmDk73u7I)
Nestle: https://youtu.be/5HIlROqdik0
Amazon: https://youtu.be/kl2xdxGIjqg
Global Convergence in HR? https://youtu.be/JzQqi8qoin0?t=2m23s
Talent Management Strategy

23. Swingby
In recent years, Japanese consumer product companies have had trouble turning their
technical and manufacturing prowess into brand equity and products tailored for foreign
consumers. Indeed, they have spent too little time trying to understand consumers and
are often disconnected from the markets where they want to build share.
Some of the best-known Japanese companies lack proper marketing functions,
believing that a product-development group, a sales team, and a contract with a leading
Japanese advertising firm will suffice. But this approach has had its day. The ever-
faster pace of product development—homogenizing products, prices, and channels—
makes marketing and branding more important than ever. Samsung, for example,
introduced the Galaxy Tab in November 2010, just six months after Apple launched its
iPad.
World-class marketing organizations: 1) Consistent customer experience 2) Ability to
absorb insights from other industries or markets 3) Cutting-edge techniques to better
understand consumer needs.
Building a Global Marketing function

24. Swingby
Brands are immensely beneficial to their owners when they have unique value
propositions effectively communicated to strategically selected customer segments. But
the concept of brand management is alien to most Japanese consumer companies.
Each business unit and geography tends to control the brand on its own turf, and that
sometimes leads to an inconsistent brand identity or experience.
In the majority of global companies that have built substantial brand equity, the most
important marketing decisions are made by the chief executive officer, the equivalent
head of an autonomous business unit, or someone, such as the chief marketing officer
(CMO), who reports directly to the organization’s most senior decision-making position.
In these companies, it’s the CMO who makes the final call on the balance between
global and local marketing, on trade-offs among go-to-market channels, and on how
much to invest in new advertising media. However, fewer than 1 percent of Japanese
companies with revenue above $1 billion have a CMO, compared with more than 10
percent in US companies of equivalent size.
Global Marketing

25. Swingby
How can a Japanese company with global aspirations become truly brand-oriented?
1. Assign powers to the CMO position and where it should be in the organizational
structure.
2. Recruit marketing talent worthy of the brand-value goals. The key positions must
be filled with people who are as fluent in global marketing insights as they are in
Japanese culture. To bring in alternative ways of thinking, it will be necessary to
recruit marketing talent from other industries or geographies.
3. Give power to global business units and brand “owners.” Matrix structures—
characteristic of organizations in which both country managers and global brand
and business unit owners share power—do have their challenges. Delegating all
decision making to a specific geography is unlikely to create successful global
businesses. Marketers increasingly tend to identify “tribes” of consumer archetypes
that cross borders. Each archetype involves similar products and brands.
Steve Jobs on Marketing: WHY? not WHAT? https://goo.gl/Phjv37 (Why? Simon Sinek:
https://youtu.be/qp0HIF3SfI4 )
How to implement Global Brand Marketing?

26. Swingby
- Mitsubishi Materials: Company admits to product data falsification at three subsidiaries
for products used in crucial parts of aircraft and cars (2017)
- Kobe Steel: Falsified strength and durability data for its products going back years
(2017)
- Nissan Motor: Recalls more than a million vehicles because of falsified quality control
checks (2017)
- Subaru: Falsified quality control data (2017)
- Mitsubishi Motors: Caught yet again in for falsifying fuel economy tests (2016)
- Suzuki Motors: Admits to falsifying records (2016)
- Asahi Kasei: Admits to falsifying construction records for scores of large buildings
which resulted in these building tilting over (2015)
- Toshiba: Serious accounting irregularities over the course of seven years discovered
(2015)
- Lixil: Significant accounting irregularities uncovered (2015)
The Brand “Japan Inc”

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- Toyo Tire and Rubber: Company caught falsifying data on its products, leading to
resignations of senior management (2015)
- Bridgestone: Indicted by the U.S. Justice Department, resulting in a $425 million
criminal fine (2015)
- Hitachi: The company agreed to pay $19 million to The Securities and Exchange
Commission (U.S.), which had charged Hitachi, Ltd. with violating the Foreign Corrupt
Practices Act (2015)
-- Novartis: Top Japanese executives at the Japanese unit quit after they admitted to
falsifying data on the company' drugs (2014)
- Riken: Admitted to one of the world's worst scientific frauds, when it was disclosed
that it had falsified research results (2014)
- Takata: Company found to be been hiding information about its defective airbags for
tens of millions of cars (2014)
- Takashimaya Co. and Tokyu Hotels: The two companies admit to food fraud and false
labeling of food products (2013)
The Brand “Japan Inc”

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- Daio Paper: Financial irregularities discovered (2011)
- Olympus: Huge accounting irregularities going back years found by new British CEO
Michael Woodford (2011)
- Nikko Cordial Corp: Significant financial irregularities uncovered (2006)
- Kanebo: Ceased operating as an independent company after discovery of falsified
financial reporting (2005)
- Seibu Railways: Delisted from the Tokyo Stock Exchange in after discovery of
financial irregularities (2004)
- TEPCO: Company found to have filed at least 29 falsified reports with nuclear safety
regulators since the 1980s leading up to the Fukushima disaster (2002)
- Tokyu Corporation, Snow Brand and Nippon Meat: These three large companies are
caught intentionally mislabeling food products sold at Tokyu Store supermarkets and
other places (2002)
- Bridgestone: Forced to recall millions of tires after the U.S. National Highway Traffic
Safety Administration linked hundreds of accidents and at least 46 deaths to problems
with the tread on its tires (2000)
The Brand “Japan Inc”

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- Mitsubishi Motors: Company revealed that it had covered up safety defects and
customer complaints about its vehicles (2000). Four years later, it made further
admissions of a broader cover-up going back decades.
- Long Term Credit Bank of Japan: Nationalized after it is found that the bank had been
falsifying financial statements (1998)
- Yamaichi Securities: Files for bankruptcy after accounting irregularities discovered
(1997)
- Daiwa Bank: U.S. Federal Reserve ordered the bank's branches closed after finding
that Daiwa, in collaboration with the Ministry of Finance, had hidden more than a billion
dollars of losses from U.S. investigators (1995)
- Toray: https://goo.gl/Vzg7yQ
WHY??
The Brand “Japan Inc”

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1) a lack of inspired leadership
2) employees feel more responsibility towards each other than towards the customer
3) because of a strict hierarchy in Japanese companies.
4) white collar unproductivity
5) seniority system which blocks talent
6) lack of decision making capacity
7) lack of accountability/ corporate governance
The Brand “Japan Inc”

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It goes something like this;
CEO: This year we will grow 3%, just like last year.
Bucho: Ehm.. how?
CEO: What didn't you understand? 3%!
Bucho: This year we will grow 3%, just like last year.
Kacho: Ehm.. how?
Bucho: What didn't you understand? 3%!
Kacho: This year we will grow 3%, just like last year.
Shain: Ehm.. how?
Bucho.. 3% you fool!!
The “shain” has but 1 objective.. "3%".. but since the company is not innovating, not
effectively expanding into new markets.. not doing anything to create this growth.. and
since he would like to be able to send his kid to university and he has no one to pass
the buck.. He has no choice but to make the 3%..
The Brand “Japan Inc”

32. Swingby
Where were we??
7 week BREAK...

33. Swingby
Demographics: aging, shrinking society (= market), growth outside of Japan
Globalization:
opportunity; find new markets, potential for inbound FDI.
threat: jobs moving overseas, attack of domestic, (inefficient) sectors: no evidence
What is needed? (according to McKinsey)
Storytelling: helicopter view (trends) => fear => confidence => action
Brand: what, how => why, how, what
HR: education, problem solving, output instead of input, talent sourcing
Global Marketing: Consistent customer experience, Absorb insights from other
industries, techniques to better understand consumer needs. (CMO, global business
units and brand owners)
M&A, JV’s and Aliances
Demographics, Globalization

34. Swingby
Only a few Japanese companies have tried and perfected a serial-acquisition strategy.
Besides M&A, many companies have tried partnerships with trading concerns, minority
joint ventures, and alliances. Generally speaking, these approaches have disappointed,
in part because they neither build capabilities nor help companies share best practices;
at best, they provide an international revenue stream or rudimentary access to new
markets. Indeed, many Japanese multinationals act more as holding companies for
international subsidiaries than as truly global organizations. When they buy companies,
they do minimal integration, except to consolidate revenue—ignoring opportunities for
cost-cutting, engaging talented employees of the acquired enterprise, and identifying its
best products and taking them global. Ineffective post-merger management, which
often stems from language and other cultural barriers.
M&A, JV and Alliances

35. Swingby
1. Japanese company creates a “second home,” which offers freedom from the
constraints of headquarters—meaning more room for across-the-board
experimentation and for decision making free of home market bias. Existing
businesses run from the Japanese headquarters remain undisturbed, while
managers can share with headquarters the lessons learned in the second home.
2. Another way for Japanese companies to grow internationally involves joint
ventures with domestic competitors. In many cases, these companies can’t
compete for overseas projects, because of high costs, a lack of scale, or
inexperience navigating in foreign markets, so they could consider collaborating.
How?

36. Swingby
Customer focussed; ZARA https://youtu.be/UUZetKIR55Y
Donut Economy: VPRO bit.ly/dedonuteconomie.
(TED: https://youtu.be/1BHOflzxPjI)
Base Economy: https://youtu.be/UxADtyzvjJk
How?

37. Swingby
Globalization is a means to an end.
The end is to create and sustain a self-reinforcing cycle of profit growth and value
creation, access to a richer asset and talent pool, and a more compelling value
proposition for employees and investors. Getting there will be difficult. Many Japanese
companies must make big changes, but most will start the journey with considerable
advantages: scale, relative strength in the home market, formidable quality standards
and service, and experience working with an aging and digitally sophisticated
population.
The path forward will seem difficult for most senior Japanese executives, figuratively
standing on the shore and looking across the ocean to a world whose language many
of them don’t speak and whose habits and successful behavior seem radically different
from their own. Even if they have concluded that some things in their companies must
change, it may be difficult to imagine how to move the organization in a new direction.
The most expedient path, is “getting the boat pushed out into the current” by ensuring
that faster globalization becomes a leading priority.
Conclusion

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Notes