Expert gives tips to foreign firms on M&As in Japan

Kyodo

Foreign businesses looking to take over Japanese firms should show patience and be prepared to learn from their newly acquired companies, according to a British academic and former banker with experience working in Japan.

George Olcott says lessons can be learned from a series of successful and disastrous foreign acquisitions of Japanese firms in the late 1990s.

And the academic believes that despite a slowdown in the number of foreign mergers and acquisitions of Japanese firms, the pharmaceutical, automotive and food sectors face “significant” problems of scale and are vulnerable to foreign takeover.

Olcott, a senior fellow at the Judge Business School at Cambridge University, says foreign buyers must understand the needs of Japanese consumers and be prepared to learn from their new Japanese staff if acquisitions. Olcott, who studied five acquisitions in depth for his new book, “Conflict and Change: Foreign Ownership and the Japanese Firm,” said Renault’s tieup with Nissan Motor Co. worked well because the French automaker recognized Nissan’s core strengths, particularly in engineering and manufacturing, and showed a willingness to learn.

“It sent a strong signal that there’s an equality about the partnership,” Olcott said.

But one of the companies studied by Olcott, which he did not identify, decided to replicate a low-cost strategy in Japan that turned out to be “catastrophic.” Customers turned away from the company because they wanted more sophisticated products, he said.

Other key lessons include delegating authority to the local chief executive, who can set strategy to suit local conditions.

This was the case when drug giant Roche bought Chugai Pharmaceutical Co. and retained its Japanese chief executive to give a sense of continuity to a company that was working well and did not need radical change.

Olcott, who is half-Japanese, has experience in running a Japanese firm. His employer, Swiss Bank Corp., took over the asset management arm of Long-Term Credit Bank of Japan Ltd. in 1998.

He found that appointments at the bank were not based on a meritocracy and employees who entered the company at the same time were being paid the same rate.

Olcott introduced performance-related pay but found it did not always have the immediate desired effect of raising morale or productivity.

The open-plan office layout was altered to cubicles to provide more privacy, but Olcott found this led to a temporary decline in cohesion.

He advises new owners to make changes gradually and ensure that the traditional strengths of Japanese firms are retained through various safeguards. While it is possible to make radical changes, new owners are mistaken if they think employees can be made to behave like Americans or Europeans.

Olcott says there has been very little merger and acquisition activity in the last five years due to the recovery in Japan and defensive mechanisms employed by firms.

But he believes the situation could soon change as some firms are disposing of their subsidiaries and concentrating on their core businesses.