http://pwc.to/UbvKxz PwC a interrogé une soixantaine de responsables politiques, de dirigeants d’entreprise et d’universitaires, et identifié 4 priorités stratégiques à mettre en place rapidement par les entreprises japonaises : accepter une prise de risques plus forte en termes de développement ; encourager l’entrepreneuriat et l’innovation collaborative ; renforcer la diversité au sein de l’entreprise et promouvoir le leadership en améliorant le système de promotion et de rémunération.

1. Corporate leaders need to champion
organisational transformation to succeed in
today’s complex international environment.
Revitalising
corporate Japan
A prescription for growth

2. Table of contents
02 essage from our chairman
M
03 ransformation towards tomorrow
T
04 Executive summary
11 Introduction
16 27
Reality 1: Reality 2:
The arrival of Asia Increasing business
19 Maintaining leadership complexity
in high-value niche 29 Operating in a
markets G-Zero world
22 Myanmar 31 Complexity’s new
23 rise of collaboration
The demands: QA with
in Asia Harvard Law School’s
24 Business implications David Kennedy
34 Acquisitions in an era
of complexity
36 Business implications

3. 39 50
Reality 3: Reality 4:
New models Ageing economic
of innovation metabolism
43 Inside high: Mazda’s 60 Business implications
Seita Kanai on innovation
and branding strategies
44 Seeking solutions:
Incubating new businesses
in mature companies
47 Innovation in action:
QA with Twitter Japan’s
James Kondo
48 Business implications 62 A final word
66 List of interviews
69 Contributors
pwc.com/gx/revitalising-corporate-japan
pwc.com/jp/ja/japan-service/revitalising-corporate-japan

4. A message from our chairman
Japan was the trailblazer for today’s emerging economies, as the first non-Western nation
to become a modern economic power. Its meteoric rise from postwar poverty and landmark
achievement in establishing “Made in Japan” as the global catchphrase for quality set the
benchmark in economic development.
Today, Japan is also the pacesetter for the advanced economies, the first to face challenges
looming in everyone’s future: the ageing of society and the imperative to transform mature
economies to meet the demands of an increasingly complex global business environment.
How Japan fares will hold lessons for us all — which is why PwC believes the world needs a
deeper understanding of Japan’s current situation.
We saw an opportunity to focus the unparalleled expertise of the PwC global network on the
issues facing Japan and Japanese corporations. A PwC team sat down with 60 senior business
and political leaders, academics and specialists for extensive discussions, and to learn what
changes they’re making in their own organisations in response to current challenges.
I would like to thank each of them for taking time from their busy schedules to meet with
us. We greatly appreciate their candid participation; they have added invaluable context to
our research.
We hope our analysis will contribute to today’s debate on the future course of Japan and its
leading firms. Our aim — pursued with great respect and affection — is to enrich the dialogue
between Japan’s business leaders and their stakeholders.
Dennis Nally
Chairman
PricewaterhouseCoopers
International Limited
2 PwC

5. Transformation towards tomorrow
This is an exciting chapter in Japan’s history. It’s a time of change and transformation. A time that
presents opportunities for leaders to take bold steps that will redefine how their organisations
continue to be economic trailblazers. A time for decisions that will leverage existing strengths and
substantial advantages to improve competitiveness and optimise globalisation.
As advisors to the world’s largest companies, we know that change can be difficult. It presents
a measure of uncertainty that requires strong leadership. While there is a measure of risk in
pursuing new approaches and ideas, the risks of doing nothing are far greater.
After speaking with Japanese CEOs over the past year, we believe that many business leaders
are already aware of the degree of change required. Our hope is that this report will help
many Japanese corporations start the process of strategic and operational transformation
they seek.
But we’re not just offering a report. PwC has been doing business in Japan for over 80 years.
Our people work very closely together to support the growth of Japan’s great companies —
its global champions — providing services here in Japan and around the world. We remain
committed to helping Japanese businesses take the necessary steps to pivot, adapt and grow
in an extraordinarily complex and fast-paced international environment.
Juan Pujadas Hiroyuki Suzuki
Vice Chairman Territory Senior Partner
Global Advisory Services PwC Japan
PricewaterhouseCoopers
International Limited
Revitalising corporate Japan 3

6. Executive summary
4 PwC

7. Japan is an inspiration to the world. Its people live longer
and are healthier than in any other nation. Japanese society
benefits from an extraordinary degree of social cohesion
and trust that allows it to accomplish remarkable things.
Japan’s corporate community has long held the world’s
respect. For decades, corporate Japan has been counted
among the short list of global leaders for its advanced
technology, standards for quality, dedicated workforce
and internationally competitive private sector.
The world needs a strong, confident and vibrant
corporate Japan.
Revitalising corporate Japan 5

8. Executive summary
And the need today is greater than The country’s longevity sits at the That is not to say the answers to
ever. The extraordinary postwar era top of Organisation for Economic the new global questions will come
of peace, prosperity and dominance Co-operation and Development easily. All nations must weigh their
for businesses in the world’s mature (OECD) rankings, while fertility current advantages and circum-
industrial economies appears on rests at the bottom, leaving the stances in the face of new global
the surface to be coming to an end. country with a shrinking work- “Realities,” which include:
Issues around globalisation and force and rising elderly population.
1) The arrival of Asia Asia, the
newly emerging competitive nations Demographics combined with very
engine of the world’s economic
and companies, resource pressure, high public debt levels and operating
growth, is producing fierce, new
environmental degradation and cli- costs much higher than emerging
competitors. However, a new
mate change have destabilised the competitors’ imply that without a
middle class of Asian consumers
traditional economic structures. revitalisation of its economic perfor-
gives Japan an opportunity to
mance, Japan’s society is going to
secure its niche market advantages.
The countries and sectors that suffer a decline in living standard.
formerly dominated international 2) Increasing business complexity
commerce are giving way to emerg- But PwC strongly believes this vital- Growing connectedness between
ing markets with growing middle ity can — and must — be restored. economies and more complex
classes and increasing exports. While there are many dimensions trade and financial relationships
While these new competitors on the to this nexus, in this report we focus necessitates updated management
global stage present real challenges on what Japanese corporations can approaches.
for the economies and businesses do. We chose this focus because
3) New models of innovation
that have traditionally dominated while public policy initiatives are
Encouraging entrepreneurship and
world markets, they also offer an essential, the needed reforms will
innovation within companies can
opportunity for growth, improve- not be effective unless Japanese
boost competitiveness and help cap-
ment and greater competitiveness. corporations also play their part.
italise on diverse ideas and efforts
Indeed, competition breeds success,
to support new and better product
and Japan is in an excellent position In many ways, Japan is the world’s
development and manufacturing.
to capitalise on this critical moment first advanced economy to face chal-
in history. lenges like an ageing society and how 4) Ageing economic metabolism
to transform a mature economy so it Restructuring domestically focused
And yet, despite Japan’s capabil- can thrive in an increasingly complex businesses as well as addressing
ity to be the trailblazer, those both global business environment. How it Japan’s ageing workforce and
inside and outside Japan feel its tackles these challenges will serve as need for skilled human capital
extraordinary vitality ebbing. models for the world. are important for greater national
prosperity.
6 PwC

9. Revitalising corporate Japan
A prescription for growth
Corporations need to embrace rapid transformational change with
attitudes of boldness, risk-taking, velocity, flexibility and adaptability.
1 3
The arrival of Asia New models
Globalisation is a business of innovation
imperative and Asia is a Entrepreneurship and co-creation
focal point. New, aggressive re-energise the innovation
competitors are emerging processes as corporations pursue
from Asia. open models.
• How can you compete with • How well is your organisation
your “fiercest competitor” adapted to working with
from the new Asian 3I outsiders and new partners?
NN
economic powers? A O
SI • How are you encouraging
• What is the right collaboration among your
VA
A
1
TI
approach to deal- employees and partners in
ON
making and alliances innovation?
4
in the region?
Global
Realities
2 What is your
company’s 4
Increasing strategy? Ageing economic
M
2C
business complexity metabolism
LIS
OM
PL
BO
New strategies are required Japan is the first advanced
EX A
to deal with the growing
IT Y ET economy to face challenges
interconnectedness in trade 4M like an ageing society and
and financial relationships. transforming the organisation
• How integrated are your to thrive.
foreign operations within • Is your organisation using
your business? capital efficiently?
• Do your board and • How will you compete in
executive team have a the global war for talent?
diverse view of the world?
Strategic priorities
Transform Adapt Grow Focus
the organisation innovation your leadership pipeline your growth strategy
Leaders need to champion Put yourself in the place of Corporations need to Consider aggressive growth
major organisational changes an outsider — perhaps an understand the full range strategies such as MA
to achieve success in the twenty- entrepreneur with a good idea of capabilities required to activity, direct investment
first century. Embrace diversity or technology that will advance successfully lead in today’s and partnerships. The objective
top to bottom to have the talent, your business: How easy is it for world and makes changes to is to focus more effort on
fresh perspectives and vitality these potential partners to work promotions, training, rotation opportunities that will deliver
you need in today’s world. with your organisation and find and compensation that will the type of value-added
the right people? produce more global leaders. activities Japan needs in
markets that are growing.
Revitalising corporate Japan 7

10. Executive summary
Each of these Realities has enor- For Japan, there are specific areas • Transform the organisation –
mous consequences for corporations where focused effort can produce Leaders need to champion major
aiming to survive and prosper. real and lasting competitive busi- organisational change to enable
ness advantages. On the whole, their companies to succeed in
To be sure, Japan, the US, European Japanese corporations must do more today’s world. The talents and
countries and other nations face to adapt. To be sure, many Japanese fresh perspectives of a wider
similar challenges. The need for corporations are doing lots of the group of people, throughout the
human capital, entrepreneurship right things, and some are doing organisation and in the gover-
and innovation, and a pro-business many of the right things — but given nance structures, are needed.
atmosphere — these and other the enormous size of the Japanese Japanese women, foreigners,
issues will require solutions unique economy, not enough companies midcareer hires and the young
to each country’s traditions, social are adapting fast enough to trans- generation are all groups that
makeup, business strengths and his- form and thrive in the future. bring a huge amount of energy
tory of success. and multitude of ideas. Japanese
This type of rapid transformation corporations that embrace these
Japan holds attributes no other requires new attitudes that will groups will find they are better
country can match. To maintain embrace boldness, risk-taking, able to win against both domestic
these advantages, it is important velocity, flexibility and adaptability. and foreign competitors.
for Japanese business leaders to
• Adapt innovation – Open up
closely consider the many aspects of Armed with these attitudes,
the organisation to accelerate
the dynamic international business Japanese companies should
innovation. Put yourself in the
landscape. With external changes pursue a combination of four
place of an outsider — perhaps
comes an inevitable need to adjust themes of major actions to help
an entrepreneur, small business
and improve to access emerging navigate today’s complex interna-
owner or foreign multinational
opportunities and leverage existing tional environment:
corporation — with a good idea,
national strengths.
technology or even a network
8 PwC

11. that will advance the aims of your not risk averse and have the skills progress simultaneously on a variety
business: How easy is it for these to confidently guide their organ- of issues, including globalisation,
potential partners to work with isations in new directions. governance, innovation, strategic
your organisation and find the thinking, capital planning, MA,
• Focus your growth strategy –
right people? For most Japanese pay and performance management.
Many Japanese corporations
corporations, the answer is, not
can become more aggressive,
easy at all. Japanese corpora- Japan is at the forefront of change.
with options including mergers
tions are going to have to use new Its longstanding global leadership
and acquisitions (MA)
approaches like intrapreneurship gives the country an opportunity to
activity, direct investment and
and co-creation with outside act and adapt before many of its com-
partnerships. As of yet, domestic
organisations to re-energise the petitors. The challenges addressed
markets have not rationalised,
innovation processes required to today will be those that the rest of
conglomerates continue to be
be global leaders. the world attempts to overcome
in too many businesses and
tomorrow. In this sense, quick
• Grow your leadership pipeline – corporations’ use of capital is
action is important. Some Japanese
Understand the full range of inefficient. Understand the unique
corporations have already begun
capabilities required to suc- opportunities that a high yen
taking important steps to address the
cessfully lead in today’s world. provides. The objective is to focus
issues detailed in this report. With a
Corporations must make changes more effort on opportunities that
more robust and complete corporate
to promotions, training, rota- will deliver the type of value-
effort, there is no question that Japan
tion and compensation that will added activities Japan needs in
will continue to lead the world in
produce more leaders who are markets that are growing.
many respects. Action, attentiveness
able to navigate the challenges of
to innovation and detail, and courage
today and tomorrow. Companies Of course, different corporations
to overcome any challenge are the
should open themselves up to are at different starting points,
qualities that will win the day, all
more merit-based promotion and and in different industries, so the
of which are attributes Japan has
external senior-level recruitment exact required mix of action will
enjoyed for centuries.
in order to foster leaders who are vary. Companies will have to make
Revitalising corporate Japan 9

12. 10 PwC

13. Introduction
Corporate Japan’s rise to the centre of the global
economic system throughout the second half of the
twentieth century represents an economic achievement
without parallel or precedent. During the postwar
period, Japan laid the foundation for economic
strength, becoming the world’s second-largest
economy in 1968 and experiencing explosive growth
in the subsequent two decades. The reconstruction
was backed by an almost unmatched mastery of the
manufacturing process; “Made in Japan” was firmly
established as the global benchmark for product
quality. Japan’s global reputation for quality stands
as the collective achievement of hundreds of enterprises
and millions of people. The strength of Japan Inc
is a testament to the exceptional characteristics of
the Japanese people: personal diligence, respect for
education, teamwork, loyalty, craftsmanship and
a tireless work ethic.
Revitalising corporate Japan 11

14. Introduction
Exhibit 1: GDP growth for developed vs emerging economies
Gross domestic product (GDP) at purchasing power parity (PPP).
In current international dollars
1980 2010 2030
32%
49% 51% 43%
57%
68%
Non-OECD OECD
Source: The World Bank: World Development Indicators; World Bank, International Comparison Program Database;
and Organisation for Economic Co-operation and Development (OECD): Perspectives on Global Development 2010:
Shifting Wealth.
Japan’s extraordinary dedica- When Japan began its export drive with fundamental changes to the
tion to quality and engineering in after 1945, most market opportuni- domestic economy: the decline in
every aspect of life means not only ties were found in North America working-age population is accelerat-
its companies offer extraordinary and Europe. Today, the hotbed of ing, public debt levels are rising and
products, but over the past 50 years, global growth is in Japan’s backyard. domestic consumption is declining.
it has led a restructuring of global With a capacity for RD that rivals
manufacturing, pressuring every the United States’, as well as the To capture today’s opportunities,
company and country to up its capital resources needed to invest in Japan’s business leaders at home
game and deliver much improved new ventures across the globe, Japan and abroad must move quickly
quality at every price point in every is in a prime position to develop and decisively.
corner of the globe. This dedica- and provide innovative solutions
tion continues to manifest itself in to emerging market aspirations. Businesses cannot wait for
new fields such as nanotechnology, government policies that, for
robotics and material science, areas Yet, despite Japan’s capability example, seek to soften the impact
that need to progress to improve our to be the trailblazer, those both of a stronger yen rather than
quality of life. inside and outside Japan feel its focusing on strategic planning and
extraordinary vitality ebbing. global diversification strategies.
But the global economy is changing. The phenomenal achievements An important impetus for change
Emerging markets are challeng- of postwar Japan are in danger must arise from the nation’s
ing developed economies, shifting of being eclipsed by 20 years of business leaders. Some Japanese
away from low-tech assembly “flat” growth at a time when other businesses are already taking
towards research and development countries like South Korea and steps to adapt to today’s economic
(RD)–driven innovation. To meet China took flight and are catching realities, and even more robust
these new competitors on the global up to Japan. The erosion of historic private sector efforts will support
stage, the nations and businesses competitive advantage is coupled a competitive and growing Japan.
that have traditionally led world
markets must pivot, adapt and grow.
(See Exhibit 1.)
12 PwC

15. To identify the current challenges • How has the world changed? • What do companies need to
and opportunities for Japan’s Shifts in the global economy can do to address these Realities?
corporations, PwC spoke with over be summarised as four Realities: To effectively address the four
60 business and political leaders, the arrival of Asia as an economic Realities, companies must face
academics and other specialists powerhouse; an increasingly and overcome central challenges
and combined this with extensive complex international business common to many established
research and analysis. We began landscape; the emergence markets. For Japanese compa-
with two fundamental questions: of new models of innovation; and nies, these include accepting
an ageing economic metabolism. a measure of risk with their
business strategies; embracing
diversity throughout the corpora-
tion, including in the boardroom;
encouraging entrepreneurship;
and fostering a more diverse
workforce, including expand-
ing leadership opportunities for
women and foreign workers.
This will require bold leader-
ship. Indeed, Japan will be
hard-pressed to navigate the four
Now is the time when everyone in Japan needs to Realities without addressing
share a sense of crisis and act quickly so that the entire these challenges.
power of the nation can be applied to the issues at
hand. However, I feel a sense of crisis because that is
not happening.
Eizo Kobayashi
Itochu Corporation
Revitalising corporate Japan 13

16. Introduction
The challenges identified here will Our interviewees highlighted the Change can be difficult, in part
only increase. Nevertheless, Japan issues. We were struck by the con- because it presents a measure of
has substantial advantages and sistent and considered messages we uncertainty. There is risk in pursu-
strengths, which, leveraged cor- were given, whether the interviewee ing new approaches and ideas, but
rectly, can support a renaissance in was from industry, the government as this report shows, the risks of
Japanese competitiveness. or academia. This consistency from doing nothing are far greater. The
such a broad group of distinguished business implications are presented
Overall, while many Japanese cor- Japanese and friends of Japan gives as a series of provocative questions
porations are adapting and pursuing us a great deal of confidence in put- that Japanese corporations should
solutions (and we feature many of ting forward this report’s ideas in a be asking themselves. The purpose
these in the report in special call-out bold and direct way. is to help Japanese companies to
boxes), more need to do so in order begin the process of transformation
to revitalise their prospects for eco- Of course, diagnosing the chal- that they require. We believe many
nomic success. lenges is just a first step. In each of business leaders are already aware
the sections, we start to describe the of the degree of change required,
type of business implications that as evidenced by the responses of
Japanese corporations will need to Japanese CEOs to PwC’s annual
address to adapt and thrive. CEO survey. (See Exhibit 2.)
Japanese CEOs see a greater need
for change in some key areas than
their counterparts elsewhere.
Exhibit 2: Business leaders in Japan recognise the need for change
CEOs in Japan
72%
CEOs globally
57%
50%
38%
34%
24%
22%
12%
Plan strategy Plan a major change Entered an Are “not very confident”
changes to RD and alliance in past they have the talent
innovation 12 months they need
Source: PwC, Delivering Results — Growth and Value in a Volatile World: 15th Annual Global CEO Survey, 2012,
Japan base: 169 CEOs of which 45% are from companies with at least US$ 1 billion in revenue in the last fiscal
year and 73% are from organisations in business for over 40 years.
14 PwC

17. Japanese corporations, like their
competitors, need talent models
that fully mobilise and engage
the best and brightest from Japan Changing the way we work
and around the globe. This need
must be addressed and embraced Some leading companies in Japan are already taking important
throughout the organisation. How measures to adapt how they work. More of Japan’s corporate
companies manage, incentivise, community should address contemporary challenges and
collaborate and communicate with quickly, as global competition is accelerating. Among many
their employees and partners can important actions, companies should consider making critical
set them apart in a world where changes to allow them to:
highly skilled people are an increas-
ingly scarce and valuable resource. • Harness the energy of entrepreneurs and employees
alike – Large companies can make changes big and small to
To best identify the steps Japanese support their innovative employees and Japan’s community
corporations — and in particular, of entrepreneurs. There are ways to empower employees
their leaders — can take to improve (both young and old) and outside partners to share their
national competitiveness and ideas and bring new approaches into their companies, even
growth, it is important to under- when this may involve tough choices and challenging more
stand the ways in which the world traditional business practices and approaches. Discontinuous
has changed and what that means innovation often means breaking with the location and
for the realities of today’s global culture of the mother company. In Japan, the concepts of
business community. “incubation from within” and “intrapreneurship” are critical
to fostering the risk-taking that Japan so sorely needs.
• Cultivate leadership from new sources – Reversing today’s
low retention rates of career-oriented women and opening
companies up to talent from around the world can bring in
new perspectives to top-level management and provide a
competitive advantage in a complex marketplace.
• Seek greater diversity in the boardroom – Diverse perspec-
tives and experiences are an important asset for corporations,
all the more so in times of change. The accelerating pace of
change today — whether in technology, regulations or the
global economy — means diverse perspectives and experi-
ences at the board level can be a real asset to the corporation.
• Refine the decision-making process – Enhancing and refin-
ing chains of authority helps ensure companies fairly consider
important new strategies or innovations that might disrupt
existing business units.
• Strengthen corporate governance – With global investors
placing an increased emphasis on corporate governance,
corporations should evaluate whether their governance struc-
tures meet evolving international standards.
Revitalising corporate Japan 15

18. Reality 1
The arrival of Asia
Opportunities on Japan’s doorstep
16 PwC

19. • Asia is now the world’s engine of economic growth.
• Asia’s emergence is producing not only new consumer
markets, but also world-class competitors.
• Japan appears to be lagging some other economies
in integrating with the overall Asian economy.
• Competitiveness in the region can’t be achieved by
simply trying to “catch up.” Japan Inc is too far behind
already, so a different — and much more aggressive —
approach is needed to fully participate in Asian growth.
Revitalising corporate Japan 17

20. Reality 1 We are moving to another stage. Now we are
expanding exports of final goods to China, and those
final goods that are produced in China are being
consumed by the Chinese rather than by Americans.
So in this real sense our economy is becoming more
dependent on China.
Takahide Kiuchi
Nomura Securities
Over the past 40 years, the world Asia. In 1970, only three countries in The rising attractiveness of nearby
economy has expanded by a steady Asia had a GDP in excess of US$ 100 markets has not escaped the
average of more than 3% per year, billion (in 2005 constant prices), led attention of Japanese companies.
notwithstanding the decline of 2009. by Japan’s growing economic might. Outward foreign direct investment
Masked beneath this stable path, By 2010, 16 countries in Asia were (FDI) headed to Asia averaged
however, has been a dramatic change members of the US$ 100 billion club, 31% of total FDI in the 2005–2011
in the engine of global growth: The boosting billions of new consumers period, a trend that needs to accel-
world’s economic centre of gravity into the Asian middle class. (See erate. For example, Kunio Yoda,
has shifted demonstrably towards Exhibit 3.) CEO of Morito Company, Limited,
a components supplier for automo-
bile, train and apparel makers with
global operations in China and the
Exhibit 3: World GDP per capita, growth and population distribution
U.S. and, later in 2012, Vietnam
Customers from different markets are at different stages of development, each with vastly
different needs and price points. Japan’s corporations accustomed to serving customers in and Myanmar, explains his com-
the top left quadrant of this chart need to change their approach, product mix and strategy pany’s changing approach: “We are
to successfully go where the new growth markets are.
shifting control of the network to
Hong Kong. It is a global market,
Annual per capita income, US$
and so the president of the Hong
Kong office is the top leader for our
United States Rich (over $12,000)
overseas subsidiaries. He is not an
$50,000
executive but an operating officer,
Middle ($4,000–$12,000)
Japan Germany and all of the overseas offices have
Global emerging
middle ($1,000–$4,000) been placed under him. He reports
France
40,000 everything to Japan but it is all
Low (under $1,000)
United Kingdom under him. We are moving manage-
Size of bubble = population ment operations to the Hong Kong
30,000 headquarters little by little.”
And the pace of economic integration
Russia is accelerating. Aided by a strong yen
20,000
and aware of constraints on domestic
Brazil
Argentina
growth, Japanese companies have
South Africa recently ramped up their acquisitions
10,000
Indonesia across Asia. In 2011, the number of
Egypt Algeria Angola
China
Japanese deals in the region rose
Senegal India 42%, compared to a 26% rise in deals
in Europe (which includes high-value
-2 0 2 Pakistan 4 Kenya 6 Nigeria 10 12 deals such as Takeda’s purchase of
Nycomed) and a decline in North
Real GDP growth, 2011 (%)
America. (See Exhibit 4.)
Source: IMF and World Bank
18 PwC

21. Exhibit 4: Change in Japan’s outbound MA, by destination
Outbound MA has grown accompanied by an increasing focus on smaller acquisitions
in the last year; however, investment in Asia and other emerging regions still lags investment
in more mature markets.
Deal value, US$ billion Deal volume change,
2010–2011
$60 EU
50
Others
Asia
40 44%
42%
30 EU
20 26%
NA
10 North
A
America
O
0
2006 2007 2008 2009 2010 2011
–9%
EU European Union NA North America A Asia O Others
Source: RECOF Corp.
Small and medium-sized Japanese the factories and heavy industry as the right talent within these mar-
companies are participating in that’s where the opportunity is,” kets, and leveraging their expertise
the deal flow. According to Robert he told PwC. “They are right in the to expand into other markets, is the
Eberhart, research leader of the middle of the global supply chain key. When the company entered the
Stanford Project on Japanese and, in my view, they’re driving it.” Thai market, for example, they sent
Entrepreneurship, Japanese start- a Japanese manager with techni-
ups in software and the high-tech For many large corporations with cal knowledge and manufacturing
materials and machinery that sup- existing operations in Asia’s largest experience. Yet as the Thai economy
port new factories across Asia are economies, expansion across Asia is grew, he said, “we came to need a
seeing “explosive” growth. MA the next growth strategy. According general manager who could man-
in the region is a core strategy for to Yukio Toyoshima, General age all of the business processes,
these medium-sized firms. “Their Manager, International Strategy including sales, procurement, etc.,
innovations are directed towards Division of Hitachi, Limited, finding to explore another emerging market
Maintaining leadership in high-value
niche markets
Tochigi-based Mani, a producer of precision surgi- — among other products, the firm makes 100
cal and dental equipment, generates two-thirds of million disposable needles a year and each needle is
sales today in Japan, the US and Europe, where inspected by a person — Mani plans to continue to
its “tier one” customers reside. Offerings for “tier focus on equipment that surgeons and dentists need
two” and “tier three” customers in developing to use by hand, including needles and root canal
economies largely follow from the products sold to instruments. In addition, RD will remain in Japan,
tier-one markets. staying close to what Mani believes are that market’s
standard-setting demands. Yet as production shifts
Toshihide Takai, Senior Executive Vice President to locations outside of Japan, Mani is more deeply
and CFO, believes that developing Asian economies integrating management from across its operations,
will eventually represent a majority of sales — that rotating foreign employees into Japan, for example.
markets currently categorised as “tier two’’ will Indeed, Takai believes that within two years it is
become much more important to Mani’s business. likely that either one or two senior company officials
To protect its advantage in a space that a low- in its Vietnam production centre will become a
cost, mass-producer will find difficult to take over board director for the company.
Revitalising corporate Japan 19

22. Reality 1
in order to build a new plant for the increasing its share of high-tech and Germany, which started with a
business in Thailand.” The company services exports, and deemphasising similar high-value, manufacturing
decided that the head of a new man- lower-value-added exports, where export–led economy as Japan in
ufacturing plant outside of Thailand lower-wage Asian countries have the 1980s, has maintained its terms
“should be a local Thai resource who already eroded competitive advan- of trade, while Japan has seen an
knows our Thai business opera- tages. Yet, Japanese high-tech exports alarming decline — particularly
tions very well. Such a cycle will be have actually decreased as a percent- over the last five to seven years.
repeated when we grow our business age of total exports to China over the
in emerging markets.” past decade. High-tech exports to What this shows is that Japanese
India also showed a slight decline in companies are often not moving fast
Implied within this conversation is the same period. This is not just an enough and are retaining lower-
the need for a new breed of lead- issue for Japan, but for all high-wage valued activities even as they are
ership — one which can operate economies. (See Exhibit 5.) increasingly attacked by lower-wage
effectively both in Japan and globally. countries such as China.
To date, Japan’s superb reputation
But are corporations moving fast for quality, innovation and advanced Asia’s increasing importance is
enough? As Asia’s most advanced technology hasn’t led enough not just producing new consumer
economy, Japan should be thriv- Japanese corporations to find and markets; it is also creating new
ing; its corporations are ideally fill the high-value niches where they competitors. Korea’s emergence
placed both geographically and are uniquely qualified. In fact, Japan has led to new global champions in,
strategically because of previous has seen an alarming decline in its for example, electronics (Samsung
investments and existing economic export-pricing power. (See Exhibit and LG Electronics) and automo-
relationships in the region. Yet 6.) That is, in a number of industries, biles (Kia and Hyundai), two sectors
even as exports to the region have Japan is maintaining a position in where Japanese companies have
increased, Japan’s share has not. products where the value is declining had great success historically. Many
precisely at the time maintaining and other companies emerging from
Japan’s export mix tells the story. As enhancing living standards in Japan China, India, Malaysia, Indonesia,
Asian economies develop, Japan’s requires increasingly focusing on Singapore and other growth
prosperity depends on maintaining or higher-value products. economies are battling Japanese
Exhibit 5: Japan’s export structure to China and India
Our generation has a Japan is experiencing a declining share of high-tech and services exports to China relative
to its total exports. The export structure to India shows better performance, albeit from a
chance because markets smaller base.
are growing in India,
% share of total exports
China and elsewhere China
in Asia, and we need to Services High-tech goods Mid-tech goods Low-tech goods Other
get to those markets. 2000
Gen Miyazawa 2010
Yahoo! Japan
0% 10 20 30 40 50 60 70 80 90 100
India
Services High-tech goods Mid-tech goods Low-tech goods Other
2000
2010
0% 10 20 30 40 50 60 70 80 90 100
High-tech, mid-tech and low-tech are terms classified by the OECD. High-tech includes the majority of ICT
products and also refers to electronic engineering, computers and office equipment, precision and optical
equipment, aerospace and pharmaceuticals. More information is available at: http://www.oecd-ilibrary.org/
docserver/download/fulltext/5lgsjhvj7nkj.pdf?expires=1343065200id=idaccname=guestchecksum=7CB5ECD0
D19E00A01F24393FA89C8287
Source: Oxford Economics/OECD
20 PwC

23. corporations in their own home Exhibit 6: Decline in ratio of export prices to import prices
markets, across Asia and the world. The terms of trade — the ratio of import prices to export prices and an important indicator
of the competitiveness of a nation’s exports — are declining for Japan while holding steady
Services are playing an important for the United Kingdom, Germany and United States. The decline shows that in a number of
industries, Japan is getting less for its products.
role in Asian growth. Indeed, growth
in services industries will outpace
160 Japan Germany
GDP growth in most Asian econo-
US UK
mies for the foreseeable future.
140
Aside from demands from growing
120
middle-class markets for services,
increasing intra-Asian business
penetration will create new services 100
opportunities as modes of com-
munications, capital markets and 80
regulatory policies across those
markets adapt. And, of course, 60
1989 1992 1995 1998 2001 2004 2007 2010
services exports tend to be high
value-added. No doubt, there has (Year 2000 = 100)
been some progress. Retailers Source: Oxford Economics/Haver Analytics
— notably online, in domestic con-
venience stores and in global chains
such as Fast Retailing Company’s
Uniqlo brand — are making sig-
nificant headway.1 But Japanese
companies overall are just catching
up — and need to quicken the pace.
1 “Japanese Banks in Asia: Lending a Hand,”
The Economist, May 19, 2012.
Revitalising corporate Japan 21

24. While the world is evolving to system thinking,
unfortunately Japan is becoming a parts supplier.
The margins are getting thinner and thinner, and
[companies] still justify their existence because of
this, yet it is very dangerous because you are on
the lower end of the cost-profit side.
William H. Saito
Intecur, KK
Exhibit 7: FDI growth to Asia Companies can do their part; policy
A relatively lower rate of FDI growth means that Japan’s share of investment into important
changes are also important. Takeshi
Asian markets, particularly China, is declining rapidly. Niinami, President and CEO of
Lawson, one of Japan’s leading
% growth in FDI to Asia 172% Japan: % share of FDI into China convenience store operators, told
2005–2010 PwC, “Bold reforms and revisions
of regulation must be undertaken
12%
decisively in order to root out vested
interests and create jobs. This will
10
give hope to the younger generation
and activate the nation.”
8
Japanese investment in Asia has
66% 6 room to grow. Japanese companies
60%
54% have long experience working in
4 Asia as they’ve shuffled production
33% over the past few decades. That
2 experience needs to shift from the
arm’s-length supply relationships to
0 complex market-facing collabora-
World Japan UK Germany US 1996 2000 2004 2008 tions, as we cover in Reality 2 and
Reality 3.
Source: Oxford Economics/Haver Analytics
Japanese foreign direct investment
is not keeping pace with other
major investors. (See Exhibit 7.) The
absolute level of FDI is not the most
important factor to consider; after
all, it can be wasted. Yet given the
overall weight of the Asian economy
and Japan’s own economic structure,
Japan should play a significant and
Myanmar meaningful role investing in Asia.
Similarly, Japanese MA remains
Myanmar offers an example of the significant opportunities that below that of Europe and the US,
exist in frontier markets as well as the large role South-South relative to the sizes of their econo-
trade can and does play. For example, Myanmar’s GDP is fore- mies, notwithstanding a record
cast to expand by 4.8% annually in 2012 and 2013, driven by year in 2011. Japanese corporations
large investment projects funded by investors from China, South continue to sit on a large stockpile
Korea and Thailand in natural gas and infrastructure. Growth is of cash despite ideal conditions for
projected to accelerate to an average of 6.5% a year in 2014–2016 acquisitions, including a soaring yen
due to anticipated increases in foreign investment following the and a need to enter growth markets.
expected lifting of sanctions in 2013 as the local government pro-
gresses on human rights issues. As Northern firms begin to gain “Global competition is getting harder
access to this market, the risks and opportunities presented by and harder for Japanese compa-
existing South-South trade and investment will come to fruition. nies. They have to change, probably
by restructuring by themselves,
domestically and also globally,” said
22 PwC

25. Many of my customers are moving to Vietnam,
Indonesia and now Myanmar. A ton of companies
are in Myanmar right now. We are going to open
[a sales] office [in Myanmar too].
Kunio Yoda
Morito Company Limited
Tamotsu Adachi, Managing Director
and Co-Representative in Japan for
The Carlyle Group, “They need to
expand their global businesses by The rise of collaboration
acquiring global companies and
foreign companies; also, within
in Asia
Japan, consolidation is probably
critical for a lot of industries.” The infrastructure sector illustrates how multinationals use
new strategies involving complex alliances. Infrastructure
While there are examples of Japanese projects, such as new power generation plants, are complex and
corporations that have done an have components that extend for years. Services, maintenance
excellent job adapting to the rise of programs, skills training and project financing are no longer
Asia, these seem to be exceptions. sideline programs for infrastructure companies in Asia; they
Many mid-sized Japanese companies are an integral part of a product offering. It often takes several
still view their main competition as partners to bring these offerings to market.
domestic rather than global.
On top of these structuring complexities, heightened com-
“Globalisation is obviously impor- petition from low-cost rivals based in Asia and changing
tant but what is needed to achieve environmental standards are influencing market dynamics.
globalisation is more than simply
going abroad. It is also extremely Given these realities, Electric Power Development Co., Ltd
important that globalisation is (J-Power), is pursuing what Yoshihiko Nakagaki, a Senior Board
in-bound too, that foreigners come Advisor and former President, calls integrated infrastructure
to Japan,” said Eizo Kobayashi, systems and project-based solutions to expand in Asian markets.
Chairman of Itochu Corporation. The clean-coal technology company’s Build-Own-Operate-
“We must deeply understand Transfer (BOOT) investment in a coal-fired power generation
the ways of thinking, laws, regula- plant in Indonesia in 2011 is a case in point.
tions, commercial ethics, business
practices, religions, history, cultures Working together with Japanese trading group Itochu
and other characteristics of the Corporation and Indonesian coal company PT Adaro Energy,
people of each country in order the deal involves the construction and operation of a new plant
to promote globalisation.” in central Java. J-Power’s ultra-supercritical (USC) technol-
ogy for higher energy efficiency and lower carbon emissions
is an important component of the joint offering. “As we face
We cannot do everything vehement competition in this export business, our quality in
in Japan. We have technology determines whether or not we can win a deal. This is
going to be the next challenge we will face,” Nakagaki told PwC.
RD centres in Europe “What enabled us to win the deal was our technology develop-
and the United States ment results.”
but we are shifting to Engagements for J-Power in developing Asia won’t end with
more emerging markets; construction. The company expects to continue with skills
for example, to India training and technology development in the countries where
it operates. This too, Nakagaki believes, is part of the attraction
and China. of its offering for Asian customers.
Toshiyuki Shiga
Nissan Motor Company, Limited
Revitalising corporate Japan 23

26. Reality 1
Business implications
Where is your company Fast-growing Asian economies are within the region is as important as
focused in Asia? evolving quickly. The spread of deciding in which countries to mar-
low-cost assembly and production, ket your products. These decisions
an array of trade pacts and infra- involve a host of considerations such
structure build-outs are pushing the as intellectual property (IP) strategy,
boundaries of business-to-business tax credits, local market requirements
opportunity in high-value niches and access to talent. A successful
for those domestic markets. growth strategy will, in part, be
Understanding where to best locate driven by a thorough assessment
manufacturing or development assets of these and many more factors.
Given the diversity in markets — The processes that make opera- On top of locally driven adapta-
and in standards — how will your tions efficient in developed markets tions, companies are optimising
company achieve scale in your don’t always work in regions where global capabilities where they can
priority Asian markets? suppliers are undercapitalised and to achieve cost, talent and market
infrastructure insufficient. This is access goals. This is evident in that
particularly true as different com- almost every major company is
petitive models such as state-owned establishing RD centres around
enterprises thrive in this region. the globe and they are sourcing
from an ever-wider base of global
as well as local suppliers.
24 PwC

27. What is the right approach to Any strategy for Asia needs to have management needs to “think locally”
deal-making and alliances in MA as a key tool. And yet, the to take advantage of any newly
the region? traditional Japanese approach to acquired assets.
acquisitions will not work in these
rapidly evolving markets. A hands- There are a variety of partnership
off strategy — where few operations structures — from joint marketing
are integrated and local manage- or development agreements to joint
ment runs largely independent of ventures and acquisitions — that
headquarters after an acquisition — can be used in the pursuit of growth
faces diminishing returns in a region and establishing a presence in these
that is rapidly changing. A cohesive, economies. As a result of the speed
company-wide integration strategy with which these alliance models
can better balance global and local are changing, companies need
capabilities, achieve synergies and, to actively manage their various
in turn, establish the flexibility relationships. The rewards of
required to respond more quickly to effective management will be high
opportunities, as they are more likely (in the form of profitable growth)
to spread from investments in these — and the costs of not doing so high
markets than from headquarters. as well (in the form of lost IP or
Whichever the approach, however, competitiveness).
How is your company planning Needs differ greatly from country to in another. Product and services
to address the changing needs of country, and even city to city. As the offerings need to be tailored — or
emerging middle classes in Asia? (updated) saying goes, “if you’ve built from scratch — for the par-
seen one emerging market, you’ve ticular needs and tastes of emerging
seen one emerging market” — in middle-class segments. Brands often
other words, don’t assume that need to be rebuilt too.
what worked in one place will work
How can you compete with your Within Asia, new competitors are
“fiercest competitor” from the growing rapidly. From giants like
new Asian economic powers? Samsung to government-sponsored
entities in China, understanding
the competition is a critical first
step. From there, it is imperative to
consider novel approaches to these
markets in response. One way to
do this is to have management,
including local representatives in
new markets, imagine that they
have been given access to capital
and local talent to compete against
their own company. Most executives
know their company’s major market
weaknesses — the soft underbelly, if
you will — and where the opportu-
nities lie in a market for a firm that
can move with a new model. This
exercise helps senior executives find
new ways to compete.
photo: Henk Braam/Hollandse Hoogte/Redux Revitalising corporate Japan 25

28. 26 PwC

29. Reality 2
Increasing business
complexity
Companies are managing a greater
number — and a wider range —
of stakeholders
• Interconnectedness among economies is vastly
increasing the number and diversity of meaningful
economic relationships.
• Complexity manifests not only in trade and financial
relationships, but also in stakeholder relations.
• This environment requires organisational principles that
are different from those that have succeeded in the past.
Revitalising corporate Japan 27

30. Reality 2
It comes as little surprise that 59% Exhibit 8: Two decades of increasing complexity
of CEOs around the world believe
Despite remarkable global economic growth of 67% over the last 20 years, many
emerging markets are more impor- factors related to the global economy are growing even faster. The result is a world
tant to their future growth than with deepening complexity.
developed markets.2 Yet, when
thinking of emerging markets, some
analysts focus attention on a select
few economies with size and influ-
ence — think of acronyms like BRICS
(Brazil, Russia, India, China and
South Africa) or N11 (the “Next 11”).
Those groupings alone don’t fully
capture how broad and diverse the
global economy has become. If South World GDP: 67% growth
America, developing Asia, Africa and
the Middle East were combined into
a single market, it would represent
85% of the world’s population, half
of the world’s GDP and an aggregate Mobile subscriptions:
growth rate much higher than that of 47,919% growth
developed economies.3 Hedge fund industry: 5,079% growth
That’s an enormous opportunity — World data stored: 4,185% growth
but one fraught with complexity. The Value of stocks traded: 1,079% growth
growing interconnectedness among
fast-growing regions and countries Regional trade agreements: 600% growth
has vastly increased the number of
Market cap of listed companies: 498% growth
economic relationships — in trade
and investment, culture and people World shipping fleet: 329% growth
— that an organisation must keep up
Air freight transport: 237% growth
with. (See Exhibit 8.)
Trademark applications: 127% growth
2 PwC, Delivering Results — Growth and Value in a
Volatile World: 15th Annual Global CEO Survey, 2012. Countries with US$ 1 trillion GDP: 100% growth
Available at: http://www.pwc.com/gx/en/ceo-survey/
download.jhtml.
3 PwC uses the term SAAAME to describe this Source: PwC analysis based on data from various sources, including UN, World Bank, World Shipping Association
grouping of South America, emerging Asia, Africa and and government databases
the Middle East. See PwC, Project Blue: Capitalising on
the Rise and Interconnectivity of the Emerging Markets.
Available at: http://www.pwc.com/gx/en/financial-
services/projectblue/rise-of-the-emerging-markets-
saaame/rise-of-the-emerging-markets-saaame.jhtml.
28 PwC

31. Why can’t we run the decision process
differently to support [local staff] so
that they can innovate themselves,
decide on the business, the speed, how
to communicate? You can’t succeed in
the US or Europe in the Japanese way.
You need people to do it on their own.
My responsibility was really to style
that kind of management organisation.
Ray Hatoyama
Sanrio Company, Limited
Operating in a G-Zero world
“It’s not enough to invest in partnerships. These them. The ability to pivot is a critical advantage.
companies must invest in a culture of adaptability.” Bremmer provides examples of some “pivot”
Ian Bremmer, President, Eurasia Group countries, like Brazil, Indonesia, Turkey, Vietnam
and Singapore. Africa, the world’s most under-
G-ZERO - - JEE-ZEER-oh - - n rated growth story, has become a pivot continent.
A world order in which no single country or And not all pivot countries are in Asia or emerg-
durable alliance of countries can meet the chal- ing markets: on the back of recent energy deals,
lenges of global leadership. What happens when Canada has successfully pivoted from an exclusive
the G7 is history and the G20 doesn’t work. US sphere to one that includes China.
In his new book, Every Nation for Itself — Winners What are the lessons for business leaders?
and Losers in a G-Zero World, geopolitical strategist Multinational companies will have to move past
Ian Bremmer argues that a new political reality traditional models of cross-border collaboration
is taking shape, defined by the lack of a single and integration. The successful companies will be
power or alliance capable of providing global adapters — those that understand the changing
leadership. The resulting leadership vacuum and competitive landscape and are agile to exploit the
diverse political and economic values have pro- advantages it provides. Perhaps that means invest-
duced global gridlock when coordinated action is ing in markets with different tax or regulatory
required on many issues, from the stability of the landscapes. Or it can mean transforming a state-
global economy and climate change to cyberattacks, backed rival into a commercial partner by offering
terrorism, and the security of food and water. something that a government-controlled enter-
prise can’t get anywhere else, like unique expertise
Who wins and who loses in this exceptionally or specific technology. Adaptability, however, is
fluid international environment? The key is to not one-size-fits-all. Successful companies in the
be a “pivot state,” a country able to build profit- G-Zero world will be the ones who can “pivot” eas-
able relationships with multiple other countries ily and quickly to respond to fast-evolving markets,
without becoming overly reliant on any one of cultures, economies and governments.
Revitalising corporate Japan 29