As Carlos Ghosn’s stint saving Nissan from the junkyard ends, I’m thinking more of Apple’s iPhone than cars.
That the most prominent foreign CEO in Japanese history is resigning, and turning the keys over to Hiroto Saikawa, isn’t a big surprise. Ghosn long said he wanted a Japanese back in the Nissan driver’s seat so he could focus on Renault’s alliance with Mitsubishi Motors. The surprise is that a Brazilian-born, Lebanese-raised Frenchman succeeded so spectacularly in insular, change-averse Japan.
The journey began back in 1999, when Japan Inc. scowled at the idea a gaijin (foreigner) could rescue a 40,000-employee zombie from bankruptcy. No other Westerner had ever flown that close to the Land of Rising Sun’s corporate core. And Ghosn, then 45, was inheriting a wreck: nearly $40 billion of debt, a roster of duds clogging showrooms, a labyrinthine distribution system, losses in five of the previous six years and a stubborn culture not about to bow to some coddled outlander.
Yet 1999 is also the year Japan kind of, sort of, invented the smartphone. Not the iPhone or iTunes, but i-Mode, NTT Docomo ‘s high-speed mobile internet phones. Didn’t you know Japan almost beat Steve Jobs to one of techdom’s biggest revolutions by eight years? Sadly, neither did Mari Matsunaga, Takeshi Natsuno and Keiichi Enoki 18 years ago this week when Team i-Mode unveiled the future. Their mistake? “Inventing the mobile internet is one thing — capturing global value from this invention is another,” says Gerhard Fasol of Eurotechnology Japan.
Fasol is referring to the “Galapagos syndrome” that’s dogged Japan since long before 1999. Japan Inc. has a knack for inventing game-changing gadgets but often lacks the vision or ambition to take them truly global. Here, think Sharp in 1997 giving the world its first commercial camera phone, but focusing domestically. Just like the robust assortment of endemic species Charles Darwin encountered off Ecuador’s cost, Japan Inc.’s advances tended to thrive at home but survive poorly overseas.
Nissan’s Ghosn gamble went against this syndrome, and it’s paid off spectacularly. Within a year, the man known as “Le Cost Killer” had steered Nissan back toward profitability. Today, the Renault-Nissan is a juggernaut, churning out almost as many vehicles as General Motors and having Toyota and Tesla looking over their shoulders. While Ghosn made it look easy, his challenges were formidable. He earned another nickname in Yokohama, “The Icebreaker,” for discarding antiquated business practices. He renegotiated supplier deals, championed merit-based pay, challenged seniority-based promotions, and phased out entire management levels to accelerate decision-making and foster innovation.
Gaijin aren’t necessarily smarter or better than Japanese CEOs. But the insularity that pervades corporate boards fosters a kind of groupthink that holds Asia’s No. 2 economy back. This blinkered reality explains why Prime Minister Shinzo Abe’s mild and uncreative moves to improve governance got only modest traction. Nice that Tokyo is starting to do what it should’ve 15 years ago, but Abenomics needs policies with teeth as a shrinking and aging population confronts a rising and globally ambitious China Inc.
“It’s fundamental change that Japan needs,” says Kwok Chern-yeh, head of Japan investments at Aberdeen Asset Management. “Signs of progress — such as improved corporate governance and measures to address practices on overwork — are ad hoc. Policymakers must address a rising dependency ratio, antiquated labor laws, box-ticking boardroom culture and an urban-rural wealth divide. They need to foster competition against vested-interest groups.”
Tokyo has yet to tackle that box-ticking culture. A key problem is that yen devaluation is still a bigger priority than structural reforms to boost competitiveness. Timidity and systemic rigidities don’t just keep executives from taking risks like creating a global i-Mode ecosystem or upending tradition, but from hiking wages. Herein lies the answer to the biggest mystery facing Japan: why historically tight labor markets aren’t producing fatter paychecks. CEOs simply lack the courage and foresight to share profits with workers.
With leadership like that, it’s not hard to see why the buoyancy Japan’s stock market is enjoying isn’t translating into broader prosperity. Executives who should be shaking up a suffocating corporate system, innovating and creating the next technological revolution are gunning for more corporate welfare. Abenomics, in other words, is doing more to coddle CEOs than make them accountable.
That’s why, 18 years on, it’s worth remembering what might have been. If Nissan had gone with a 60-something man from central Japan Inc. casting in 1999, it might not today be giving Elon Musk a run for his money in the electric car space. Imagine how Docomo putting the internet in your pocket might have turned out differently had executives thought bigger. Galapagos is a fascinating place to visit, but it’s best not to get stuck there. Kudos to Ghosn for offering Japan Inc. an escape plan.
Based in Tokyo, William Pesek is executive editor of Barron’s Asia and writes on Asian economics, markets and politics. www.barronsasia.com