Japanese Companies Will Be Tested in 2013

Hirai Takashi [Profile]

[2013.02.18] Read in: 日本語 | 简体字 | 繁體字 | ESPAÑOL | االعربية |

Generally speaking, Japanese companies can be expected to perform robustly in 2013, for several reasons.

First, the domestic business climate is likely to be favorable. The Liberal Democratic Party has returned to power, and while on the political front it must concentrate on the summer election for the House of Councillors, it plans to vigorously implement measures to stimulate the economy. The new government will be generating additional demand for reconstructing the region devastated by the March 2011 earthquake and taking other steps to prop up the economy.

The second reason is that overseas markets are returning to normal. Diplomatic relations between Japan and China are apparently headed down a rocky road, but the accompanying economic problems will be ironed out sooner or later. Europe is finally ready to resolve its various crises and can be expected to make slow but steady progress in that direction. And the outlook for the emerging markets in Southeast Asia and other regions is, on the whole, one of strong growth. These overseas trends are good news for Japanese companies.

Third, corporate employees are tackling urgent tasks. The electrical equipment and automobile industries—two pillars of the Japanese economy—are implementing an assortment of projects. The leading consumer electronics makers have suffered record losses, but they have liquidated a large portion of their outstanding debts and are now, under new management setups, looking toward the future. Japan’s major corporations are also engaged in consolidation and realignment, albeit not very actively. And the auto industry, which lost considerable ground during the global financial crisis, has regained the production level it was at just prior to the crisis.

Innovation and Market Development

These are some of the clear positive signs we see with regard to corporate performance this year. But this is no guarantee that the good times will continue over the longer run. After all, the factors I have enumerated tell us only that the corporate sector will benefit for a period of time from an improved overseas climate and that it has freed itself from some past complications.

Needless to say, competition is at the heart of business, and overseas corporations also have set their sights on the promising group of emerging countries. They also will be looking for opportunities in Japan, since it remains a huge market. Unless Japan’s own corporations can regain a competitive edge over their foreign rivals and open up new growth sectors, they will find it impossible to sustain better performance for any length of time.

Toward this end, Japanese businesses need to direct their attention toward two broadly defined tasks. First, they need to put extra effort into coming up with innovations. On this front, there is a need to call into question the conventional approaches to providing value to consumers and corporate clients. In Japan’s domestic market, which has become mature, some companies have thrived by offering new forms of value to customers.

Consider, for instance, the market for used books, which has been in existence for ages and evolved well past the state of maturity. The Japanese company Book Off Corp., which sells used books and other secondhand merchandise, has rapidly expanded growth through innovations related to recycling old books, improving their appearance, and selling them in sparkling stores. Similarly, Akindo Sushirō Co. and other chains of revolving sushi bars have shaken up the traditional world of sushi shops; and with their low prices and high-quality fare, they are still on a roll. Other noteworthy foreign companies enjoying vigorous growth in Japan are Apple Inc., the well-know supplier of such consumer electronics as the iPhone and iPad, and Amazon.com Inc., which has assembled a vast distribution network for its online sales of all kinds of merchandise. If companies are to avoid a downward spiral in domestic business sectors, perhaps their only choice is to reenergize existing markets by creating new forms of value.

The second task for corporate managers is to strive to develop global markets. Until now Japanese companies have achieved growth by engaging in a friendly rivalry among themselves, developing good products, outperforming foreign rivals, and strengthening their corporate structures. This is a sort of one-directional, Japan-based growth strategy, which has resulted in high-quality, high-performance product lines. The drawback, though, is that these high-priced items often fail to meet the needs of overseas customers. The globalization companies must aim for in the years ahead should be two-directional. This will require making localization at overseas business and production sites the foremost concern. Moving away from a focus on exporting goods, Japanese firms must strive to create value at the local level. Needless to say, they will need to devote attention to forging alliances with local companies and engaging in mergers and acquisitions.

The Path to Renewed Growth

It will be necessary to act with a healthy sense of crisis and speed. From time to time, when they sense a crisis at hand, Japanese companies rise to the occasion and demonstrate the full potential of their organizational capabilities. At this moment, they also need a sense of speed, which can provide them with momentum for exploring options and opening up paths to renewed growth. If, instead, they remain inward-oriented, with their attention focused only on rationalizing loss-making operations and cutting costs, they will be treating symptoms rather than curing the disease.

Will business firms take the first step on this new journey? When we look at the year 2013 from this perspective, we can see that it may be a touchstone for gauging the outlook for Japanese companies.

(Originally written in Japanese on January 14, 2013.)

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Senior Partner, Roland Berger Ltd. Earned an MS from the University of Tokyo Graduate School of Science and an MBA from the MIT Sloan School of Management. Worked with Bain & Co., Dell, Starbucks, and other companies before arriving at his current position with Roland Berger. Author of Nihon kigyō shūeki fuzen: Shūekisei kōjō no tameno saiteki seichō sokudo (Profit-Sacrificing Practices Among Japanese Businesses: The Optimal Speed of Growth to Achieve Greater Profitability).

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