Japan’s maverick entrepreneurs offer Abe lessons in growth

by William Pesek

Bloomberg

There’s no shortage of pundits eager to tell Shinzo Abe how to shake up Japan’s economy. Instead of looking to academics for advice, though, the prime minister should get into the trenches with some of the nation’s more unconventional corporate heads.

Abe talks, for example, about wanting to make Japanese companies worldlier. For pointers, he should study what Tadashi Yanai has already accomplished at Fast Retailing Co., home of the Uniqlo brand. Yanai has become Japan’s richest man — and the only Japanese on Time magazine’s latest 100 most-influential list — largely because of his success at expanding abroad.

At home, low-cost clothier Uniqlo smartly recognized that deflation was a secular, not cyclical, phenomenon. But going global, Yanai discovered, required two skills at which Japan Inc. has traditionally failed to excel: taking risks and speaking English. Yanai shook up the company’s ranks by promoting on merit rather than seniority, and revamped its marketing with edgy ad campaigns. Equally important have been Uniqlo’s efforts to tap foreign talent and to hold staff meetings in English, so that executives can perform better overseas.

Abe has nodded toward some of these ideas, promising to bolster English education. But then, so have the last 10 prime ministers. Will Abe actually address what researcher C.H. Kwan dubbed the “Economics of Engrish” back in 2002? Abe could start by challenging Finance Minister Taro Aso, who has suggested that corporate Japan’s poor language skills are actually an asset. Japan escaped the worst of the 2008 financial meltdown, Aso has claimed, because its bankers were mystified by subprime loans: “Managers of Japanese banks hardly understood English, that’s why they didn’t buy.”

Working women

The prime minister also talks about drawing more women into a fast-aging workforce. Neglecting half the population holds back growth and undercuts Japan’s competitiveness. Yet some of the same ideas that Abe is floating failed when tried by education company Benesse Holdings Inc. Its experiment with a three-year maternity-leave program similar to Abe’s backfired: Fewer women returned to work.

Instead, companies as varied as Asahi Group Holdings Ltd., KDDI Corp. and Sumitomo Mitsui Financial Group Inc. have shown that intensifying diversity and recruitment efforts can substantially increase the number of female managers. The rollout of Nissan Motor Co.’s Note hatchback in February was a milestone. By setting specific targets, the company has put more women into executive jobs than any other Japanese automaker. Three of them were responsible for the rollout of new models, including the Note.

Some Japanese companies have even figured out ways around issues that the prime minister is afraid to touch, such as immigration. It’s easy for outside experts to argue that Japan, with its graying population, needs an influx of new workers in order to keep its social-welfare model afloat. Yet, politically, the issue remains a third rail.

The world’s second-biggest construction-equipment maker, Komatsu Ltd., has dealt with the labor shortage by rehiring 90 percent of its retirees; they were willing to accept a 40 percent cut in salaries in order to get their old jobs back. By offering tax incentives to other companies to tap highly skilled retirees, Abe could soothe bond markets, which see the risk of Japan’s pension obligations becoming financially unsustainable.

The most effective reforms will inevitably be controversial: They will all challenge powerful vested interests. (That’s part of the reason Abe has been so vague about details in the run-up to the Upper House election later this month.) Even within stodgy Japan Inc., though, several mavericks have shown that such challenges are possible.

Chasing mavericks

Defying a powerful nuclear lobby, for instance, SoftBank Corp. President Masayoshi Son is investing ¥20 billion ($199 million) in renewable-energy projects and promoting an Asia-wide “supergrid” to link cities from Mumbai to Tokyo. His $21.6 billion bid for U.S. mobile giant Sprint Nextel Corp. would let the creative destruction emphasized by economist Joseph Schumpeter play out with innovative pricing and network investments.

Hiroshi Mikitani, the president of e-commerce giant Rakuten Inc., has proven even more daring. In mid-2011, Mikitani caused shockwaves when he left the main business lobby, Nippon Keidanren, and started a rival association. He’s fighting to make corporate Japan nimbler and more entrepreneurial by creating space where long-neglected small-to-midsize companies can brainstorm and make policy recommendations that are getting Abe’s attention (the prime minister met with the group in April).

Mikitani loudly condemns the “Galapagos syndrome” that plagues too many Japanese industries, whose products are highly evolved but unable to survive beyond the water’s edge. Rather than coddle such industries, Abe, too, would do well to force them to adapt or die.

All these executives remain outliers within Japan Inc., of course. Conservative forces still dominate, as illustrated by this week’s Olympus Corp. ruling. For his role in a $1.7 billion fraud that caused an 80 percent plunge in market value, former Chairman Tsuyoshi Kikukawa received a suspended sentence. Contrast that with the fate of scrappy Internet entrepreneur Takafumi Horie of Livedoor Co. In 2007, Horie, then 35, was locked up for accounting irregularities. Many believe Horie’s real crime was speaking out against Japan Inc.’s insular ways.

Even so, enough top executives have successfully challenged the status quo for Abe to take note. They have proven how much change is possible, even within the claustrophobic constraints of Japanese society and business. Abe should absorb the lesson.

William Pesek is a Bloomberg View columnist. His opinions are his own.

  • Adam

    There are some very good points here: elephants in the room, to use the English idiom. Either these uncomfortable points can be addressed, or Japan can face questions of its ability to survive. This is not a criticism; it is an opportunity for a country and society that I admire.