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Japan rises again: Japan's reluctance to resort to Western streamlining is being tested by China's growth, global competitors and activist investors. (Regional Report/Asia).

Something is stirring in boardrooms in the Land of the Rising Sun. It's called risutora, or restructuring.

Japanese CEOs are making changes. None are as radical as those routinely implemented by their American counterparts, but cumulatively they point to an important increase in Japan's competitiveness. The steps include squeezing out older workers and excess labor, out-sourcing low-end manufacturing, shifting more production to China and getting out of unprofitable businesses.

Ironically, it was a gaijin Gaijin

Japanese term used to describe a non-Japanese investor in Japan (outside person). A more polite version of the same word is gaikokujin which means outside country person.
, or foreigner Foreigner

All institutions and individuals living outside the United States, including US citizens living abroad, and branches, subsidiaries, and other affiliates abroad of US banks and business concerns; also central governments, central banks, and other official institutions of
, who showed Japanese execs the way: Carlos Ghosn, the Nissan Motors “Nissan” redirects here. For other uses, see Nissan (disambiguation).
Nissan Motor Company, Limited (日産自動車株式会社
 CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board.  who parachuted in from Renault when the French company took a controlling stake. Ghosn took a venerable but money-losing company and turned it profitable by cutting costs, shuttering old factories and demanding better prices from suppliers. "Ghosn's presence is like a storm wind," remarked Akio Kosai, chairman of Sumitomo Chemical, Japan's second-largest chemical maker.

Here are some of the tools CEOs are using to follow Ghosn's lead:

Trimming the work force

Japanese executives will probably never go as far a some free-market economists wish in slashing payrolls. Much more than their Western peers, Japanese managers feel an obligation to their work forces and to their country's social stability. "What CEOs worry about is maintaining the long-term viability of jobs in the enterprise," says Eamonn Fingleton, the Tokyo-based author of In Praise of Hard Industries.

But for the first time in the postwar era, flagship companies in Japan are shedding workers instead of passing on the pain to their suppliers and forcing them to trim labor costs. Last year, Matsushita President Kunio Nakamura started pushing 13,000 employees, or 10 percent of its Japanese work force, into early retirement. Clearly, the concept of lifetime employment is showing cracks. In a wrenching social phenomenon, Japanese "salarimen," who assumed they could coast to retirement at age 60 or so, are being shoved out in their 50s.

Getting out of non-core businesses

NEC (NEC Corporation, Tokyo,, An electronics conglomerate known in the U.S. for its monitors. In Japan, it had the lion's share of the PC market until the late 1990s (see PC 98).

NEC was founded in Tokyo in 1899 as Nippon Electric Company, Ltd.
, one of Japan Inc.'s most conservative companies, is spinning off its semiconductor business. NEC President Koji Nishigaki says his company plans to retain 70 percent of the new company's shares after the initial public offering. The unit will employ 25,000 workers and is expected to produce annual sales of about $5 billion, according to according to
1. As stated or indicated by; on the authority of: according to historians.

2. In keeping with: according to instructions.

 Nishigaki. This move is considered an acknowledgment acknowledgment, in law, formal declaration or admission by a person who executed an instrument (e.g., a will or a deed) that the instrument is his. The acknowledgment is made before a court, a notary public, or any other authorized person.  by NEC that it can't effectively make all of the things it now manufactures and that it feels competitive heat from Korea and Taiwan. "More companies will follow NEC," predicts Shin Horie, vice president at Goldman Sachs The Goldman Sachs Group, Inc., or simply Goldman Sachs (NYSE: GS) is one of the world's largest global investment banks. Goldman Sachs was founded in 1869, and is headquartered in the Lower Manhattan area of New York City at 85 Broad Street.  in Tokyo.

Tadashi Okamura, the CEO of Toshiba, also is scrambling to better focus his company. When he took over in 2000, he inherited a company with $46 billion in sales, 190,000 employees and 353 affiliate companies. It made what by American standards was an absurdly wide range of products, from nuclear power plants to medical imaging systems, from elevators to cell phones. So in addition to laying off 17,000 workers in Japan by 2004, Okamura has started integrating his semiconductor operations with Fujitsu's, formed an alliance with Mitsubishi Electric Mitsubishi Electric Corporation (三菱電機株式会社   to develop a global standard for third-generation mobile phones and announced the integration of Toshiba's power transmission business with Mitsubishi Electric's. It's tricky to sort out the issues of control in these ventures, but Japan's Big Six electronics concerns -including Fujitsu, Sony and Matsushita-all are using them to pool their expertise and resources. "We have to find a strategy to survive the global competition," Okamura recently told reporters.

NEC and Casio have each turned over some operations to a major outsourcing specialist. In October 2001, NEC announced that it would transfer the manufacturing business of its Ibaraki facility, which employs nearly 500 workers, to Solectron, which produces servers, workstations and storage products for NEC. This past May, Casio cut a three-year, $1.6 billion deal under which it will sell some of its manufacturing operations Manufacturing operations concern the operation of a facility, as opposed to maintenance, supply and distribution, health, and safety, emergency response, human resources, security, information technology and other infrastructural support organizations.  in Japan and Malaysia to the contractor Flextronics.

These moves aren't dramatic by American standards, but they are nonetheless noteworthy, since the Japanese have stuck fiercely to the notion that they had to run their own manufacturing operations. "But now those business models have become obsolete to some extent. They are trying to define a new model," says Satomi Ushioda, an analyst at Nikko Salomon Smith Barney Smith Barney is a division of Citigroup Global Capital Markets Inc., a global, full-service financial firm, that provides brokerage, investment banking and asset management services to corporations, governments and individuals around the world. .

Making the China play

Japanese CEOs have been skeptical of China's manufacturing capability, but now that's beginning to change. "To compete with Europeans and Americans locating very modern facilities in China, they don't have a choice but to move their latest manufacturing to China," says Takatoshi Kato, adviser to the president of The Bank of Tokyo-Mitsubishi and a former top bureaucrat at the Ministry of Finance. "We Japanese thought China didn't have the capacity to absorb the latest production capabilities, but now we realize they do."

Canon CEO Fujio Mitarai says he is expanding in China for another reason as well. "After joining the World Trade Organization, China is expected to develop as a huge market and we want to be there for that," Mitarai says. Right now, 65 percent of Canon s production is in Japan, but that figure is expected to decline to 60 percent by 2006-and China will be getting much of the company's new manufacturing.

To be sure, there are some steps that Japan's executives still are not taking. They haven't absorbed foreigners Foreigners


the condition of being an alien.


Law. the seizure of foreign subjects to enforce a claim for justice or other right against their nation.

gypsyologist, gipsyologist

 into their top management ranks and they haven't been able to delegate significant decision-making authority to regional headquarters. They've also wrestled with how to offer performance-based pay, a concept that strikes at the heart of their culture's group mentality.

But there's little doubt that Japan Inc. is making changes across a broad front. "The question is whether the changes are happening fast enough for us to compete internationally," says Kato. External factors are helping. Thanks to the relatively weak value of the yen and an increased volume of exports, companies such as Matsushita expect to regain profitability. At the same time, Fujitsu's losses are shrinking as semiconductor prices recover.

Japanese CEOs are no longer asleep at the wheel, and the effects of their revitalization re·vi·tal·ize  
tr.v. re·vi·tal·ized, re·vi·tal·iz·ing, re·vi·tal·iz·es
To impart new life or vigor to: plans to revitalize inner-city neighborhoods; tried to revitalize a flagging economy.
 are becoming apparent. American competitors, be advised: If you haven't already encountered market pressure from the Pacific, you're likely to feel it soon.

RELATED ARTICLE: What's Behind the Wake-Up Call

The transformative steps that many Japanese CEOs are taking have been spurred by two major changes in their economic climate:

Growing competition from South Korea and Taiwan. Korean firms such as Samsung Electronics Samsung Electronics (SEC, Hangul:삼성전자; KSE: 005930, KSE: 005935, LSE: SMSN, LSE: SMSD) is a South Korean multinational corporation and the world's largest and leading electronics and information technology company. , the world's No. 1 maker of semiconductor chips, are giving Japanese electronics giants a run for their money in digital videodisc See DVD.  players, bigscreen televisions and other high-margin businesses. Taiwan, meanwhile, is moving its high-tech manufacturing to China and obtaining a new advantage over Japan. European and American companies that have relocated huge amounts of manufacturing to China also have obtained a cost advantage over Japanese rivals that have kept production at home.

Pressure from investors. Traditionally, the vast majority of Japanese companies This is a list of companies from Japan. Note that 株式会社 can be (and frequently is) read both kabushiki kaisha and kabushiki gaisha (with or without a hyphen). See that article for more details.  have been members of keiretsu keiretsu: see zaibatsu.

In Japan, a strong alliance of related organizations that shares knowledge and cooperates to control its sector of the business, including the supply chain and distribution.
 business groups, in which participants hold a majority of one another's shares. That insulated in·su·late  
tr.v. in·su·lat·ed, in·su·lat·ing, in·su·lates
1. To cause to be in a detached or isolated position. See Synonyms at isolate.

 CEOs from real investor pressure. But under a new government mandate and in reaction to a huge consolidation in Japanese banks, a selloff sell·off  
The sale or disposal of a relatively large number of stocks, bonds, or commodities that often causes a sharp decline in prices.

Noun 1.
 is underway. New investors, many of them foreign, are demanding better performance. "Until recently, Japanese CEOs didn't worry about profitability," says Goldman Sach's Vice President Shin Horie. The arrival of more foreign shareholders is magnifying the pressure of the shareholder, which has never happened in corporate Japan."
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Author:Holstein, William J.
Publication:Chief Executive (U.S.)
Geographic Code:9JAPA
Date:Oct 1, 2002
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