Japan business leaders urge real globalisation

Japan requires an urgent change in mentality focusing on the customer

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In the early 1990s, Japan seemed to be everywhere. Its car and electronics brands were worldwide household names. Numerous football clubs in the English Premier League had shirts sponsored by Japanese companies. In one of the most remote spots on earth, Japanese cranes were busy re-erecting the giant stone heads on Easter Island.

Japan at its peak undoubtedly put on a good show of being global, but in the view of a new generation of corporate leaders, it was an illusion. Japan was far from being globalised and many boardrooms — even those with large overseas operations — still fall short on this measure.

The great crisis facing the country, say the chief executives of four of Japan’s most prominent companies in a series of exclusive interviews with Nikkei and the FT, is one of mindset.

Japan, admits the leader of one of its largest companies, has an education system that is still too insular to create the wave of aggressive, ambitious globalisers it profoundly needs.

All four bosses — aged from 50 to 69 — agree that Japanese business has been excellent at grasping the needs of domestic customers. For too long, however, Japan Inc has not done the same with overseas customers.

Now, because of shrinking domestic markets, growth for Japan can only lie beyond its borders. This will occur only if it understands non-Japanese customers. Globalisation is not a business choice, says Hiroshi Mikitani, the founder of the e-commerce platform Rakuten, but a matter of survival. “The greatest business risk [Japan] faces is that of staying at home,” he says.

Rakuten’s Hiroshi Mikitani © Bloomberg

As Mr Mikitani notes, the internet is where globalisation’s realities hit hard. But he believes his experience of developing a business with English as the in-house language, where a fifth of staff are foreigners, offers general lessons: “In Japan, there are only 16,000 graduates who majored in computer science. There are 60,000 in the US and 300,000 in China. I assume there are more than that in India,” he says. “If I’m asked whether I want to hire engineers from a pool of 16,000 or a pool of more than a million, the answer is self-evident.”

Even businesses that appear bound to the domestic market, such as the department store chain Isetan Mitsukoshi, must adapt. In the past two years, the proportion of Chinese among shoppers at Mitsukoshi’s Ginza store has risen from low single-digits to 25 per cent. Mitsukoshi has changed the topography of the store and retrained staff. Not to understand its overseas customers’ needs “would be disrespectful to them”, says Hiroshi Ohnishi, the chain’s president, who has been raising the number of Chinese-speaking employees and specially training in-store sales reps of Japan’s cosmetic brands. “If a department store has 10 floors, with 10 per cent of its customers on average on each floor, that means there must be at least two floors for the Chinese.”

Hiroshi Ohnishi of Mitsukoshi

In the past, Mr Ohnishi says, globalisation for department stores meant opening branches in Europe and the US to sell gifts to Japanese tourists travelling there. Later it meant opening branches closer to home and selling Japanese-flavoured affluence to shoppers in south east Asia. But those were very small revenue streams.

With the shrinkage of the Japanese market, “a retailer faces difficulty unless it secures a certain size of overseas market”, he says. “We are aiming at racking up 10 per cent of sales outside Japan [from 5 per cent now].”

Achieving a shift in mentality will not be easy. Tadashi Yanai, president of Fast Retailing — clothing store Uniqlo is a subsidiary — is blunt in his criticism. It is, he says, exceptionally difficult to make Japanese employees think globally and vital to avoid the “superficial globalisation” of the past. “Many Japanese people believe that their country is special and best. You can go to a bookshop and find a lot of books praising Japan. They disgust me,” says Mr Yanai, who thinks that the countdown to the 2020 Tokyo Olympics is a critical time. Japan must have truly globalised by then, he argues.

Fast Retailing’s Tadashi Yanai © Bloomberg

Key, he says, is for Japanese to speak English. He has pushed his own company to become effectively bilingual in internal communications. “I want to give the Japanese headquarters the global mindset of being a ‘foreign company based in Japan’.” Top executives, he adds, need to “think with foreigners”, with more people “in the most important posts” going abroad for experience and to “train the managers there”.

Mr Yanai saw both the threat and opportunity of globalisation back in 2011, when Gap opened its Tokyo flagship store in one of the most glamorous corners of the Ginza shopping district. Some 12 companies bid to occupy the same building, of which Fast Retailing was the only one from Japan. Its competitors were no longer local Japanese rivals but worldwide market-dominators. Survival, Mr Yanai realised, depended on becoming the same.

Central to a globalised psychology, he says, is an acceptance that you are in business for the customers, something missing when Japan first started spreading its sales forces across the globe.

Hitachi's Hiroaki Nakanishi

That same assessment, say analysts, lies behind the resurrection of Hitachi as an aggressive global player — a revival led by the company’s chief executive, Hiroaki Nakanishi, and widely regarded as the benchmark of 21st century Japanese turnrounds.

The problem confronting the company was the legacy of its earlier worldwide push. Hitachi, in common with many Japanese companies, opted to make products overseas as foreign markets grew. But sales and manufacturing were never directly linked, Mr Nakanishi says, and operations were all controlled from Japan. “The relationship was Japan saying ‘make this many’ or ‘sell this many’. The control towers were all located in Japan.”

The new phase of globalisation, he adds, will involve a full, localised service to overseas customers. He gives the decision to move the control centre for Hitachi’s European rail business to the UK as a prime example. The Japanese market was clearly limited, the European customers would not be well served from headquarters in Japan and the foreign base has made a more logical launch pad for global acquisitions.

Mr Nakanishi’s enthusiasm for more global thinking means he does not rule out something once unthinkable for a top Japanese conglomerate — moving its headquarters overseas. As he puts it: “Globalisation is in transition.”

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