Brexit and Misunderstanding of Japanese Business Values

for February, 2016

Brexit and Misunderstanding of Japanese Business Values

Posted on 18 February 2016 in Cultural Awareness, Japanese Corporate Culture, Market Insight, News, Uncategorized -
Brexit

David Cameron recently urged non-British leaders of major companies in the UK to support his opposition to a Brexit by implying they would take their business elsewhere should the UK leave the EU. However, both Toyota subsequently said they would not reconsider their investment should that happen. This was reported in a recent article in the FT as a ‘blow’ to his campaign and incorrectly used as an implication of their support of a Brexit.
Apparently Mr Cameron wasn’t listening at the Hitachi Rail Opening Ceremony in Newton Aycliffe last year when Hitachi CEO Hiroaki Nakanishi announced that they were there to stay and both him and the Japanese Ambassador spoke of historical ties between Japan and UK concerning train manufacturing. (See my blog about this event) This sense of commitment is one particular aspect of doing business with the Japanese that comes from a corporate culture that values long-term relationships, obligations and loyalty over quick profits. Resulting disparities between these values and those of a globalising world have forced change in many areas for Japan, some of which were inevitable such as the shedding of less profitable products of companies and an openness to competition as opposed to supplier/brand loyalty. Such co-operative values are not particularly valued nor are they very effective in western societies where short-term profits and logic prevail. However, these values still remain very much part of Japanese business culture and generally mean that a contract with a Japanese firm, however painstakingly long and arduous it is to forge, is, by western terms, something you can rely upon unless you do something unforgivable.
I am also not suggesting that the Japanese businesses in the UK will stubbornly stay here regardless in the case of a Brexit if it means they will lose profitability or access to vital supply chains. They have shown in the past they will pull out when things go irreparably wrong. Let’s hope it does not come to that. However, it is naïve to expect Japanese bosses of major Japanese companies that have been in the UK for many years, have historical and emotional connections to them and have built communities around them or even more so one that has committed to basing their global HQ for train manufacturing here to publicly deny the values which underpinned that investment in the first place, even if it would further an aim that most Japanese businesses in the UK support- the UK staying in the EU. You only have to consider the Japanese values of honne (real feelings) versus tatamae (public feelings) and face-saving alongside the above mentioned sense of obligation & commitment to understand why this would not be a comfortable situation.
Japan is one of the major inward investors in the UK and has shown immense commitment to R &D, training and education, job creation and community involvement here. I often feel that this long-termism is not always recognised nor appreciated and in this case has been used for political posturing.

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Sharp Corp’s Big Decision-Japanese Business Values Meet the Test of the West

Posted on 11 February 2016 in Market Insight, News -
Sharp

Whether Sharp Corp accepts a take-over bid from a non-Japanese investor, or the less lucrative bailout offer by the state sponsored “Innovation Network Corporation of Japan” (INCJ), it is certainly being seen as a ‘Test by the West’ of whether they can embrace open competition, meet our standards of corporate governance and shed Japanese corporate values that no longer meet the globalisation imperative demanded of them.

A decision to go with the Taiwanese investors Foxconn would be entirely in line with Prime Minster Abe’s rhetoric of cleaning up corporate governance issues and attracting more FDI into Japan. It would also make sense to the outside world, many of whom have become critical of Japan’s prospects for reform. Media reporting of this (in particular by the FT) has been very unforgiving of Sharp Corp’s procrastination on making the decision by saying: “If Foxconn is offering a better deal for shareholders, Sharp’s board should recommend it.” Money talks in individualised societies that value competition, cost effectiveness and short-term profits with no desire to support non-profit making companies. The Japan state funded bail-outs come across as protectionist attempts to keep their know-how away from foreigners whilst forcing shareholders to lose out on much higher returns promised by a more profitable bid.

Difficult Decision

However, it is no surprise that Sharp Corp are finding this decision a difficult one given deeply rooted Japanese corporate values that are inextricably tied to their culture. These include: long-term thinking, selective (often Japan focussed) and long-lasting relationships & obligations, face-saving, loyalty and a need for carefully built up consensus within hierarchies, all of which are valued above competitiveness, individual goals and short-term profits. Japan never adopted the investor model of organisation seen in most Anglo countries-a model that has ROI for investors as its principle goal. A more comfortable fit with Japanese culture was the close-knit “Keiretsu” network model that served the purposes of a fairly insular yet successful business world in its post-war heyday. Although the “keiretsu” network has largely been disbanded, the thinking behind it has not, resulting in actions that are illogical to our understanding and frustrating when doing business with them.

Take the case of the Japanese train company that has served a station to pick up just one school girl in a remote area of Hokkaido. This made big news in the UK, unsurprisingly given that prioritising customer needs before company profits on the train system is something we all dream of here. Mitsubishi Pencils recently attempted to stop production of certain non-profit making pencils used by animators. This seemingly logical business decision caused a back lash from the artists, citing adverse effects on the quality of animations. Mitsubishi Pencils compromised on keeping some of the colours. Loyalty and quality in one of Japan’s strongest home-grown industries won above profit but was perceived outside of Japan as a prime example of how Japan keeps churning out un-productive products out of a misguided sense of brand loyalty.

No wonder then that Sharp Corp could still be swayed by the INCJ offer, which is being seen as offering “more long term worth than the Foxconn deal” and no surprise that Sharp Corp are not immediately putting the needs of their shareholders first-this is not the only motivating factor in Japanese business values. As quoted in the Japan Times, “Money matters, but what’s important is the company’s long-term viability.”

Can Japan Adapt?

However, it is becoming clear that the way in which these values and inflexible structures are played out within Japan Inc. are at odds with a competitive, impatient and evolving world. Corporate cultures entrenched by traditional values, a preference for loyalty and face-saving over competitiveness combined with uber-rigid hierarchies are stifling entrepreneurialism, hindering corporate governance reforms and repelling non-Japanese talent, who want to climb the rungs of the corporate ladder and make autonomous decisions as managers. These differences also cause issues overseas when the skills of Japanese managers and the Japanese corporate culture clash with the demands of global assignments and the people issues in M&A deals.

Given their rapidly shrinking population and woeful representation of women at management level, Japan is facing one of its greatest economic challenges yet: to adapt their corporate values. The eyes of the business world are on Sharp Corp for that very reason. Can Japan successfully reform the corporate structures that hold it back domestically whilst retaining some of their more noble business values? I, for one, hope they can but naturally, it will have to be a long-term game. Whether the outside world is willing to wait around is another matter entirely!

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