Photo Credit: sofi5t
By Zerui Pan
Once as brilliant as Sakura, or cherry blossoms, the full bloom of Japanese Multinational Corporations (MNCs) in the 1980s and early 90s astonished the world. Corporations such as Mitsubishi, Mitsui, and Itochu swept the podium among the Fortune Global 500 in 1995, and nationally Japanese companies won 37 of the top 100 seats compared to the United States’ 28. Their global dominance seemed so entrenched that few felt it would wither in the future. Globalization would go on to conjure storms that challenged these corporate powers, yet they believed themselves prepared to weather them. But were they?
The rapid decline of Japanese MNCs in the decades since resembles the fleeting nature of cherry blossoms, whose bloom is swift and brilliant, but also short and momentary. Except for Toyota and Honda, all companies on the Fortune Global 500 rankings lost their place to other global firms thirteen years later, with an average drop of 129 positions. As J. Stewart Black and Allen J. Morrison observed in their book, Sunset in the Land of the Rising Sun, such a dramatic failure in global competition could be ascribed to Japanese companies’ inability to switch from a domestic focus into a more regional or global focus. Two primary factors contributed to this struggle in transitioning from export-oriented to local-based corporations. One is the unpleasant overseas experiences that Japanese MNCs encountered in the early stage of expansion; the other is their low tolerance for potential risk. Together, these factors shaped Japanese companies’ two unique attributes: over-prudence in foreign investment, and distrust of foreign leadership. As the two authors contend, if Japanese MNCs still refuse to become passport-blind and embrace cultural diversity, their future in an increasingly globalized world will be foreseeably grim. More than a decade later, has their suggestion successfully nudged Japanese MNCs to adjust some of the policies?
Some observers seem to believe so. One report published by the Japan Finance Corporation Research Institute suggests an upward trend for foreigners entering Japan as “business managers.” Non-Japanese managers found greater executive opportunities in Japanese firms after 2014. Although the number dropped drastically in 2020, it was primarily due to the COVID-19 pandemic and restricted border policies, according to the report. The figures for the past two years are still roughly double compared to 2010 when Black and Morrison published their book. The influx over the last decade reflects a higher acceptance of foreign CEOs in Japanese corporations. Furthermore, a study conducted by Tokyo Shoko Research in 2021 indicates that seven out of the ten highest-paid executives in Japan are not Japanese. This new managerial blood has infused new perspectives that have helped Japanese MNCs to break down old paradigms detrimental to global competition. Simultaneously, they have enhanced cultural diversity while increasing internal creativity. The “bamboo ceiling” —or the barriers that exclude non-Japanese employees from executive leadership positions in Japanese companies— has become less conspicuous, if not dissolved entirely.
Yet, the drama around Carlos Ghosn and Nissan reveals another side of the story. Once saving Nissan from bankruptcy, Ghosn was held up as a national hero. His unprecedented success inspired thousands of collaborations between ambitious foreign managers and faltering Japanese corporations. In 2018, however, the incredibly acclaimed Ghosn was arrested in Japan over alleged financial misdeeds and fraud. Theories and conspiracies circulated at the time, including one suggesting that Ghosn was the scapegoat for the long-lasting dissonance between Nissan and the French government. His miraculous escape in a cargo box, and all scandals revolving around him and Nissan remind the world that distrust is always lurking behind similar coalescences. Furthermore, it substantiates Black and Morrison’s observation that Japanese MNCs tend to perceive foreign leadership as something external and disposable when necessary. When things go right, Japanese MNCs are willing to grant foreign managers resources and power proportional to their talent. When something goes out of bounds, however, the cultural gap between each side could start to widen and engender misunderstandings. Mutual distrust grows out of misunderstandings and eventually transforms into antagonism. In this sense, we cannot conclude that Japanese MNCs are now putting equal trust in foreign and domestic employees.
Since demand for localized products is often greater than that of standardized products, export-oriented companies face low growth ceilings. A move to localization in foreign countries is thus essential if Japanese MNCs want to maintain their dominance of international markets. Their experience in exports and the domestic market, however, provides meager experience on how to localize their products overseas. If they continue to struggle to cooperate with local leaders, their competitiveness in the global future remains questionable.
The latest rankings of Fortune Global 500 also support this observation. Even though Japanese MNCs have apparently become more open to cultural diversity, their performances do not reflect this change. Among the top 50, only Toyota and Honda remain on the list. Among the top 100, Japanese MNCs occupy only nine spots, four-fold fewer than in 1995. Perhaps even more telling, zero newcomers have made the list since 2010. What we see therefore, is a group of veterans who at one time dominated the world market such as Mitsubishi, Itochu, Hitachi, etc.
Yet, we should not jump to the conclusion that the move to cultural diversity is pointless. The success of Apple, Google, and many other MNCs illustrates how diversity, when paired with competent management, can increase a company’s creativity and productivity, which Japanese MNCs currently lack. Meanwhile, the switch to multiculturalism more broadly takes time to reveal its benefits. Though the number of foreign managers surged, we might need to wait another 10 years to see any substantial changes within Japanese MNCs. It is also important to note that the declining Japanese economy partially contributes to the continued underperformance of Japanese MNCs. Dropping fertility and labor force participation rates means fewer workers are available in the labor market. The aging population further exacerbates this workforce shortage while simultaneously resulting in low investment rates. Less money is invested into technological innovation; something essential to increasing overall economic output. All of these factors lie beyond the grasp of Japanese MNCs, however, and thus require broader mobilization on the part of the state in order to alleviate.
Last month, the Japanese yen experienced another round of depreciation, pushing the cost of imported raw materials to a historical high. More than half of Japanese companies expected a hit to their earnings while more than three-quarters anticipated a downturn in their businesses. At the same time, the weakening of the yen again dissuaded Japanese MNCs from investing in foreign markets. Not only will these multinational players have to overcome prevailing cultural barriers, but they will also be saddled with navigating erratic financial waters. Twelve years after Black and Morrison made their prediction, Japanese MNCs are arguably still stuck in the mud. Their future prospects are foreseeably gloomy, if not entirely bleak.
Cherry blossoms are not only praised for their transient beauty, but also their annual resilience in the face of harsh winters. Will Japanese MNCs survive through their long winter? If they can successfully cope with the diversity problem and ailing Japanese economy, their spring should not be far behind.
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