TOKYO -- Softbank Group CEO Masayoshi Son used the word "arbitrage" twice in his speech to the group's shareholders meeting on June 21.
Referring to the fact that the group's stock price dropped after it announced its acquisition of British semiconductor company ARM Holdings, Son said, "It often happens that (the real value of) a thing is not recognized by anybody when it makes its debut." He added, "When most people are not aware of a fact, however, there is an opportunity for huge arbitrage."
A typical example of arbitrage -- the simultaneous purchase and sale of an asset to profit from a difference in the price -- is a hedge fund's simultaneous buying and selling of a stock in spot and futures markets in order to gain from price differences.
Son's business investment strategy is often described as "arbitrage" aimed at profiting from differences between prices in Japan and foreign countries, especially the U.S.
The progress of the information technology revolution has been faster in the U.S. than in Japan. Son has been expanding his business empire through mergers and acquisitions designed to take advantage of this time lag as well as a strong yen and low interest rates in Japan.
"Future that has already happened"
Son's strategy is reminiscent of the concept of "the future that has already happened" invented by management guru Peter Drucker. He argued that it is impossible to predict the future but it is possible to identify and prepare for it.
Japan's birthrate, for instance, determines the size of its future working population. Arbitrage is possible when you find a change that has already happened or a reality whose future consequences are already clear.
Japanese companies' typical strategy for responding to economic globalization has also been described as a form of arbitrage.
As the world economy has become globalized, demand for low-priced, high-quality products has grown among consumers.
In response to this trend, many Japanese companies have shifted production to low-cost countries to earn profits from exports.
But the changing business environment is undermining the effectiveness of this approach.
The share of trade in global gross domestic product grew only 0.2 point during the five years since 2008, when the collapse of Lehman Brothers triggered a global recession, according to Boston Consulting Group. The share increased 35 points from 1960 and 2008.
The key factors behind the slowing growth of trade include the digitization of the economy, resurging protectionism and deepening of globalization.
Progress in digital technology, for example, has reduced the need for mass production in large manufacturing facilities. It is now possible to profitably manufacture small amounts of high-quality electronic gadgets that are needed to meet only local demand.
This explains why Adidas has shifted part of its production in China back to Germany.
The trend may spell trouble for export-oriented Japanese companies. The list of the world's most valuable companies speaks volumes about Japan Inc.'s struggle to adjust itself to the changing global economic landscape.
Even the most valuable Japanese company, Toyota Motor, is ranked 48th globally.
Struggling Japanese firms may have a lot to learn from flourishing Swiss corporate giants like Nestle, which occupies the 13th spot on the global list of most valuable companies.
Coffee products still constitute the core of Nestle's sprawling food business empire, accounting for a third of the company's sales.
The Swiss conglomerate has reported an annual loss only once in its 151-year history. Its sales, excluding those of companies it has acquired, have consistently shown faster growth than the global GDP.
There is no big secret in Nestle's business strategy. It has expanded its operations into 191 countries and areas in the world, with diversified product and marketing strategies tailored to the needs and preferences of local consumers. Its markets range from poor developing nations where it sells bags of coffee and soup for $0.13 per unit to rich industrial countries where it offers high-end food products and sophisticated coffee makers.
Masayoshi Son, chairman and CEO of SoftBank Group
Michael Briner, the company's vice president who has a stint in Japan under his belt, says that while Japanese companies are "all Japan," Swiss conglomerates are "all global."
Only 40 Nestle employees work on the third floor of the company's headquarters in Vevey, Switzerland, from where its Asia-Oceania unit, headed by Briner, operates.
Most of the company's employees, a diversified workforce composed of people from over 100 countries, work outside Switzerland under a highly decentralized management structure.
There are many other such globalized companies in Switzerland, including Roche Holding, a pharmaceutical juggernaut ranked 21st in market value, and Novartis, another leading drugmaker, which holds the 29th spot on the list. These two companies are also operated by a globalized workforce with nearly 100 nationalities.
Losing ground
Japan has been steadily losing ground in terms of international competitiveness over the past quarter century, according to The World Competitiveness Rankings compiled annually by Swiss business school IMD. After topping the list for five consecutive years until 1992, Japan kept slipping in the ranks during its "lost two decades." It is ranked 26th for 2017.
In contrast, Switzerland has maintained its second position after Hong Kong.
Mark Schneider, CEO of Nestle
The key difference between Japan and the most competitive countries lies in the ability to become a vibrant global business hub by attracting diverse talent from around the world, according to IMD Prof. Arturo Bris.
Switzerland appears to be a good model of successful globalization for Japan.
The small country has a multilingual workforce and is keen to accept foreign talent.
The lesson Japan should glean from Switzerland's success is the importance of building up a multinational workforce with diverse skills and backgrounds that is necessary for effective and sophisticated arbitrage in today's globalized world.
