I wish I had heard about the book “Beating Japan” from Francis McInerney and Sean White earlier, because it shows where the origins are, that lead Japanese business to apply the wrong strategy for international business. We see the results of the in the book discussed looming danger now at most major Japanese companies. Although the book was published in 1993, most of the observations about the larger Japanese companies is still true.
A recent article from the Asahi Shimbun shows that the local governments have started to take some actions against larger companies, who were expected to create a longterm local relationship, especially after the government was giving out rather nice subsidies. Less than a decade after receiving a combined 20 billion JPY in local government subsidies, 21 companies shut down or scaled back their local projects. Some of the companies say they were forced to pull out of Japan due to the yen’s appreciation and competition with Asian rivals, but I see the problem much deeper. Having now more background info from the book “Beating Japan”, I understand that many of these companies had been out of touch with their customers outside of Japan. Future global end-user demands were seen in high numbers, but the necessary constant reality check was missing. While Japanese companies tend to have a very close relationship with their customers in Japan, most companies selling or expected to sell in the future abroad have focused on distributor sales channels. With distributor sales it can be very challenging to get a sense of the end-user needs. Even worse, if sales occurred directly abroad, still in every case the decision power stayed in Japan. (I don’t know of any exception, but if you know, let me know!). There is no way to be globally competitive with such an approach.
Overall the 21 companies, mainly manufacturers, each received 100 million JPY or more in subsidies for 23 projects since fiscal 2002 according to Asahi Shimbun. The largest sector was TV-related businesses, which accounted for 10 projects. For example Panasonic Corp. announced in October last year that it will suspend operations at two of its three plasma TV plants in Amagasaki (Hyogo Prefecture) by the end of March 2012. Previously the Hyogo prefectural government had provided 14.5 billion yen in subsidies to the three plants. I am really impressed about the local government, because they have asked Panasonic Corp. to return 1.26 billion yen of the 3.84 billion JPY in subsidies already paid out.
In some cases the local governments have gone even to court to get some of their money back! Based on the info from Asahi Shimbun in April 2011, the city of Ina (Nagano Prefecture) sought mediation from the local court after NEC Lighting Ltd. (manufacturing lamps for LCD TVs) closed a plant after a little more than five years. When the plant opened in 2005, the prefectural and municipal governments decided to provide 300 million yen and 159 million yen in subsidies respectively. Due to poor sales NEC Lighting had to close the plant in November 2010 and concentrate production at their factory in Shanghai. Ina city demanded NEC Lighting to pay back all subsidies, but the company refused, saying there were no provisions in a city ordinance specifying a minimum period of plant operations. At the end the result was that the local government agreed to the court’s mediation proposal that the company pay 10 million yen. What an amazing waste of tax money, which will be expanded now even further with all the people, who have been laid off as a consequence of the plant closure and most likely cannot find quickly a new job.
I really wish large Japanese companies learn from their mistakes quickly and either focus solely on the local market, where they do best, or when going abroad to invest the same focus on customer satisfaction as done locally. As long as local governments are changing, so I expect the same for larger Japanese companies. “The days have ended when local governments try to attract factories, which carry the risk of moving out,” said Muneaki Koide, a former banker who heads a municipal industry support center in Fuji, Shizuoka Prefecture. “We have to support small businesses with deep roots in the region.” The rather static government is changing, so should larger Japanese companies.
Brought to you by Sibylle Ito (伊藤シビル)