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Japanese companies must dare to be different

Copycat strategies will fail in the face of accelerating competition and innovation

| Japan
Doing things like other companies is more of a liability in globally competitive markets.

It's that time of year again -- we have witnessed graduation days, school and company entrance ceremonies, interdepartmental transfers, the close of one fiscal year for most Japanese companies and the beginning of the next.

The uniforms worn by graduating students and brand-new employees, the formulaic speeches, the observation of the same time-honored rituals of the season across the nation, touchingly remind one that Japan is different. It is hard to imagine scruffy college graduates in the U.S. today tamely attending corporate entrance ceremonies wearing dark regulation suits. Japanese schools and companies demand levels of discipline, uniformity, and group consciousness that exist nowhere else.

As a long-time foreign resident of Japan I admire the cohesiveness that derives from Japan's collective sense of order. But as an adviser to Japanese companies competing in global markets, I increasingly believe it is a liability, at least as reflected in the ways Japanese companies are addressing the challenges of truly borderless markets.

Japanese companies across many industries face the same challenges -- an aging population; shrinking domestic markets; the commoditization of products in which Japan once dominated; the emergence of multinational giants operating on a global scale that threaten the survival of domestically focused local players. The problem is, they are mostly addressing these challenges in similar and predictable ways.

This is the time of year when Japanese companies perform yet another ritual-announcing their "Mid-term Strategic Plan" in anticipation of June-end annual shareholders' meetings. Reading these plans, as my work requires me to do, leads to the honest conclusion that most are more or less the same, within and across industries. A majority consist simply of setting ambitious financial targets, without explaining in detail how these targets will be achieved. Companies challenged by a shrinking domestic market adopt the same formula-selective M&A in emerging markets that will incrementally beef up the topline. Manufacturers of heavy electrical equipment and construction machinery all vaguely proclaim they will expand their business domains through innovation in artificial intelligence and the internet of things. All pay lip service to the noble goals of "sustainable development," "corporate governance" and "diversity and inclusion." The format, content and style bear an eerie resemblance to each other.

The sameness of Japanese corporate strategies brings to mind Michael Porter's classic "What Is Strategy," published in the Harvard Business Review 20 years ago. The article introduced the idea that success involves developing a product that is not simply better and cheaper than competing products, but one that is actually unique, one so distinctive that it can escape, or at least sidestep, direct competition.

In the article Porter comments that the decline of Japanese competitiveness, already evident 20 years ago, was rooted in a misguided effort by Japanese companies to go head-to-head in the same product categories on price and quality instead of developing unique products:

Japanese companies rarely develop distinct strategic positions .... Most Japanese companies emulate one another. All rivals offer most if not all product varieties, features and services; they employ all channels and match one another's plant configurations.

Twenty years after Porter's article, it is clear that some globally successful groups have established clear identities. Toyota Motor, for example, would not be confused with its old rival Nissan Motor (now controlled by France's Renault), let alone smaller competitors, such as Suzuki Motor. Leading machine tool makers, notably Yamazaki Mazak, have similarly done well globally by maintaining unique qualities.

But, as one surveys other sectors, particularly those focused largely on domestic markets, one sees the same pattern -- three or four companies competing against each other and their overseas rivals head-to-head.

Take beer, for example. Four companies -- Kirin, Asahi, Suntory and Sapporo -- fiercely compete for domestic market share with a line-up of beer and non-beer drinks that are essentially identical in content and price. Faced with a shrinking domestic beer market, the four producers have tried to find growth elsewhere -- but all in the same ways: (a) offering new categories of non-beer drinks such as canned mixed drinks; (b) venturing into pharmaceuticals; (c) acquiring beer companies in emerging economies like Brazil and Myanmar to counter declining demographics in Japan. By applying the same formulas as their peers, the beer producers ensure that none can break from the herd and excel -- or fail. In a society where "a nail that sticks out gets beaten down," blending in with one's peers gives a sense of safety in numbers, but in a competitive global environment the feeling of comfort is false.

The first step Japanese executives can take to differentiate themselves is to resist the conventional wisdom that the cure for a shrinking domestic market is selective overseas M&A -- which I call Global Strategy Lite. If Ajinomoto, the food manufacturer, wants, as it proclaims, to be "truly global" and compete with Switzerland's Nestle, acquiring a few mid-sized food companies in selected "rising star" emerging economies will not help.

As Kirin Holdings discovered in Brazil, when it acquired a small direct competitor of AB Inbev's Brazilian subsidiary, fighting against an established global giant with an 80% market share does not end well. For some companies that are not already operating on a global scale, an honest assessment may conclude that it is too late to try to compete on even terms with multinational global giants.

Japanese executives must seriously ask themselves whether the domestic market is ultimately safe in a borderless product market. True, Japan is a notoriously hard market for foreigners to penetrate. But with each passing year Amazon is taking e-commerce market share from Rakuten, and Google search engine share from Yahoo Japan, as the global players adapt to local preferences.

One possible solution is beyond imagining for most Japanese executives. If Ajinomoto wants to become "truly global," the shortest path would be merging with Nestle. But this solution is unthinkable for most because it would imply a subordination to a larger foreign group. But think again. The Nissan-Renault "alliance" -- in which the French group actually has the whip hand -- offers one model for balancing local autonomy and global synergies.

In any event, as the multinational leadership of companies such as AB Inbev demonstrates, global companies no longer are, or can afford to be, dominated by a single nationality. Rejecting a friendly merger with a larger foreign counterpart now may lead to involuntary absorption later. Sharp, the consumer electronics group, was taken over by Taiwan-based Hon Hai Precision Industry (better known as Foxconn), after it ran into financial difficulties. Toshiba is on the verge of selling off its prized semiconductor business, after disastrous losses in nuclear engineering.

The other, difficult, path is to follow Porter's advice: Identify and build your strategy around a differentiated core of competitive advantage, and unsparingly shed the rest. The world's five largest companies by market capitalization -- Apple, Alphabet (Google), Microsoft, Amazon and Facebook -- seem to demonstrate Porter's thesis: all five compete with each other on different fronts, but each possesses a unique core of competitive advantage.

In Japan, the success of one-of-a-kind companies like Fanuc, the robot manufacturer, Shimano, a world leader in bicycle parts, and Fast Retailing (Uniqlo) point to the same conclusion. So does the fact that some of the most successful Japanese companies since 1945 were led by mavericks, such as, recently, Tadashi Yanai of Fast Retailing and Masayoshi Son of SoftBank Group.

The urge to conform has deep roots. In many ways it is still a source of strength, and what makes Japan a wonderful place to work and live. At the same time, the herding instinct can be self-defeating, creating an easy target for predators while giving a false sense of safety to the huddled prey. For Japanese companies in a hostile global environment, daring to be different may be a counter-instinctive key to survival.

Stephen Givens is a practicing corporate lawyer based in Tokyo. He is concurrently a professor in the Law Faculty of Sophia University.

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