There is no other way for Japan but globalisation
By Virginia F. Bodmer-Altura
There are many well established Japanese brands and companies but all based on the “Japan model“, and therefore based upon the traditional Japanese conduct of business. However this is no longer the success model to compete in a globalised world and this recognizes Tadashi Yanai, Chairman and President of Fast Retailing (clothing retailer Uniqlo) but his company made the necessary steps for change and he declares to Japanese business community: “Dare to err”.
Rejuvenating overseas business models
In a study by McKinsey the researchers of the international consultancy group come to the conclusion that there is no other future way for Japan but globalisation. The authors of the study Naoyuki Iwatani, Gordon Orr and Brian Salsberg state: “The survival for many Japanese companies may depend on their ability to greatly increase overseas revenues and profits, given demographic and economic trends suggest slower or stagnant growth in the home market, and even Japanese companies with established global businesses face stronger competition and must rejuvenate their overseas business models”. With this they declare obsolete the replicating practice from the Japanese market in foreign operations.
Mergers and acquisition and change of corporate language
As we noted in the textile machinery (e.g. Uster Technology) area Japan is more eager in the merger and acquisition business. In general terms not all these mergers and acquisitions turned into success because there is sometimes a cultural gap, also language wise and therefore modern Japan should adapt according to common sense English as a globalised corporate language.
It is no longer sufficient to dominate the home market
It is no longer sufficient to absolutely dominate the Japanese home market, because Japan’s population will shrink from today 127 million to less than 100 million between 2040 and 2050 thus also leading to a reduction of private consumption, tax revenues and the overall GDP General Domestic Product, and it has to be considered that private consumption at the end of 2008 was around JPY 220 trillion (USD 2.5 trillion) or 59 % of GDP. In an optimistic estimation private consumption in 2040 will reach JPY 293 trillion and with the assumption of an absolute increase of GDP per capita of more than 50 % as the authors of the McKinsey study suggest.
There is another important factor illustrating that Japanese companies – with the exception of a few world-leading industries – have the lowest labour rates of productivity of any major developed country and therefore they are more vulnerable also to foreign attackers in their domestic market. There are some examples also in clothing retailing, e.g. H&M and Zara and those enjoy growth rates often far exceeding those of most larger Japanese rivals.
Despite the fact that Japanese workers are named among the world’s most diligent the study claims “that they are both collectively and individually inefficient“. Adding to that is the fact that headquarters are overstaffed and according to the survey the employees focus more on work than on impact or outcomes leading to limited outsourcing and off-shoring, except for IT-related functions.
Competition in innovation
In former times Japanese companies were leaders in providing innovative products appealing to consumers in developed markets. It is noteworthy that consumers in fast-growing emerging markets do have different needs today and the traditional Japanese identification of such needs in R&D laboratories at home are challenged and Japanese companies need to get closer to their customers around the world. Those laboratories have today increasing competition from China, South Korea and Taiwan. It has to be mentioned in addition that Japanese consumers are changing too and ask for more value.
What is needed is a corporate-innovation model being globally collaborative, with product ideas, customer insights, money, and talent coming from all over. Truly, Japan is at the forefront in R&D, spending 3.8 % of GDP but not when one looks at the different categories once dominated by Japan and now coming from outside of the country (e.g. textiles). In a 2010 report by the National Association of Manufacturers located in the USA and under the aspect of categories the finding was that Singapore and South Korea were the top two countries for innovation, far ahead from Japan and ahead of eighth ranked USA.
McKinsey analysed the largest Japanese companies in each of 16 industries and the finding was – with the exception of the automotive sector – 15 of these industries are less global than their overseas peers when measured by the percentage of revenues, assets and stock ownership outside Japan and no noticeable progress towards globalisation was registered from 2006 to 2009.
What are the solutions?
The conclusion of the study recommends five steps across organisation, marketing and strategy to successfully globalise. There are: making the case for globalisation by the management in a globalisation story for the employees by designing global goals, aspirations and value positions and because employees have to be compulsory on board for achieving the aim of globalisation. There is one good example and that is Shiseido (beauty and care) having had the vision to “become a global player representing Asia with its origins in Japan”. Another aspect is as mentioned before the adaptation of English as a corporate language and to provide managers with international assignments or send them abroad to other companies to acquire the necessary experience and being subjected to another business environment and also women should have career opportunities, however Japan is placed 94th of 134 countries in the World Economic Forum’s Gender Gap Index 2010 and among high income countries only South Korea had a lower score. It is also a necessity to build a global marketing function which is practically inexistent in Japan. Additionally, Japanese companies should get more out from strategic corporate development by mergers and acquisitions (including effective post-merger management; Japanese companies have also a strong currency for doing international deals), joint-ventures and collaborations.
How Uniqlo serves as an example
In this context Tadashi Yanai, Chairman and President of Fast Retailing Company (Uniqlo) has been also addressing Japan’s biggest problems and he named them bluntly: “conservatism and cowardice”. He added: “Japanese want stability, peace of mind and safety. But the world keeps changing and other countries are growing, while we in Japan stick to our old ways”.
He further stated that Japan is looking down on developing countries but it should be willing to learn from companies in these countries if they are doing better than we are. He denies that Japanese business people and companies are of individuality and he proposes that Japan should get back to the spirit that reigned after the 2nd World War, in fact Fast Retailing was started in 1949.
Yanai admits frankly that Uniqlo has also made some mistakes and had to learn from these mistakes. The company opened the first Uniqlo store outside of Japan in London (GB) in 2001, failing according to his words “spectacularly” and in 2003 16 stores in the UK were closed because of the mistake to do everything the British way and not to capitalise on the own strengths, for instance a flat organisation and not a British class system. Today Uniqlo has more than a dozen thriving stores in the UK including a flagship store on London’s Oxford Street. Also China was first a flop when Uniqlo entered the market and by somewhat similar mistake by going too far in adapting to China and selling – due to the low income of Chinese – at lower prices. Japanese Uniqlo would have sold well, but not the products of the somewhat Chinese Uniqlo. Today, China is Uniqlo’s fastest growing market with around 100 stores and by 2020 it is projected to have more stores in China than in Japan (800 plus). The international operations are growing fast and there are now stores in 10 countries and the sight is on Thailand, Brazil and India. Yanai predicts that by 2015 most of his Japanese employees will be located outside Japan.
To conclude, Uniqlo learned from failures to create the best possible Uniqlo in other countries and by making use of the best aspects of its own organisation and by recognising early that globalisation is essential. To make such ventures outside of Japan successful, Yanai confirms that it requires understanding other markets on their own terms and therefore the ingredients of the success has to be both Japanese and global.