Chartered Management Institute: In my Opinion

Gideon Franklin, a Chartered Management Institute Companion and a managing director at Mizuho International plc, argues that the Japanese ability to cope with shocks offers lessons for UK leaders.

by
Last Updated: 09 Oct 2013

Japanese people thrive on shocks. Japan recovered from its banking crisis of the 1990s with its companies in much stronger health than before, and I have no doubt that this time round the same will happen. It has defied all the odds to become the second-largest economy in the world, despite the fact that four-fifths of its land is unusable and that it relies on outside sources of energy and raw materials. Japan rode the oil shocks in the 1970s by exporting itself out of difficulty, and the shock of the strong yen by moving manufacturing offshore. Why are Japanese leaders so good at dealing with shocks?

This resilience might stem partly from its natural environment and climate. Japan has had to deal with every kind of natural calamity, including earthquakes, tsunami and typhoons. Everything is ephemeral, even the beauty of the cherry blossom; rebuilding is part of the cultural tradition. Historically, you can find further evidence of 'shock therapy'. In the mid-19th century, the samurai leaders, armed just with swords, had to yield to large ships from the US carrying gunpowder and modern weapons. Japan subsequently proved itself more nimble than other Asian countries in assimilating western technologies and science, 'dual tracking' these new influences with its unique blend of Shinto, Buddhist and neo-Confucian thinking.

In the workplace, this resilience starts with a work ethic that calls for everyone to club together in times of adversity. This is deeply engrained in the psyche and, in my view, stems from the system of agriculture. To cultivate rice in this mountainous terrain required communities to work together with communal systems of irrigation. From an early age at school, there is a daily rota for pupils to join in tasks, from serving lunch to cleaning the school building, nurturing a sense of duty, teamwork and loyalty.

Japan has many extraordinary companies with inspirational leaders, none more so than Nidec - world leader in miniature motors for hard disk drives. An interesting story about the enigmatic founder and CEO Shigenobu Nagamori helps illustrate the Japanese attitude to adversity: he gets graduate recruits to clean the toilets on their first day of work. Nidec recently revealed plans to restructure, in order for margins to double when the economy recovers. Meanwhile, the company's management eyes future generations of electric and hybrid cars for new applications for its motors. Japanese companies have an unfaltering commitment to R&D, however rough the going gets.

One thing Japanese managers have been slow to embrace is growth through mergers and acquisitions (M&A), as the corporate culture has traditionally been focused on organic growth. Nidec is an exception, having made 27 acquisitions. M&A is becoming more popular among Japanese companies and, indeed, cross-border Japanese M&A is a bright spot in a troubled global M&A market. There have been conspicuous acquisitions, for instance, in the pharmaceutical, financial and manufacturing sectors as Japanese companies look beyond their own shores for sources of growth.

My company is part of the Mizuho Financial Group, which was born out of the Japanese banking crisis of the late 1990s through the merger of three banks in 2000: Dai-Ichi Kangyo Bank, Fuji Bank and Industrial Bank of Japan. In the ensuing years it became one of the 20 largest firms in the world. We have banking relationships with 70% of listed Japanese firms. Our global M&A advisory group has over 100 people completing more than 100 transactions a year.

I concentrate on M&A between Japan and Europe. It is striking to me that, preoccupied by the attractions of 'Chindia', companies in Europe have tended to ignore Japan in their Asian strategies. How weird that supposedly multinational firms often have no strategy for the world's number two economy. The most common reasons are that 'Japan is too complicated, with the language and cultural differences' and 'Japan is a mature economy'. Meanwhile, ticking the box by developing a strategy for Asia has all too often simply entailed cheap outsourcing.

Yet there are now great opportunities for investment into Japan or joint ventures with Japanese companies. Commonly, the Japanese company provides technology and manufacturing expertise, the western partner global marketing knowledge. Exchange of people and ideas mean one and one make three. Japanese companies have proved popular M&A partners, typically taking a long-term view and keeping existing management in place.

It bugs me that the British media is often negative about Japan and delights in offbeat stories about obscure aspects of the culture. Managing its own PR is probably an area in which Japan falls short. Yet, between the headlines, you may have noticed some significant changes taking place. Toyota, for instance, has emerged as the world's largest car producer, breaking General Motors' 78-year record of selling the most cars in the world. There is something to be gained from going Japanese, starting with the way Japanese people thrive on shocks.

CV

Gideon Franklin is a managing director at Mizuho International plc with responsibility for its mergers and acquisitions advisory. A graduate in Japanese from Cambridge University, he is fluent in the language and lived and worked in Japan for many years, including during the 1980s 'bubble period'. Directorships include Charlton Athletic plc, the first football club to become a member of the London Leaders programme run by the London Sustainable Development Commission.

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