Japanese companies 'working on new industrial models to regain edge'

The new Roland Berger study – “Industry Model 2.0: Raising the Competitiveness of Corporate Japan” – analyses the key differences between Japanese companies and businesses from other major countries. The study also looks at several examples of successful and unsuccessful business models chosen by Japanese companies to define the key features for good business.

In response to the stagnating domestic market and strong competition from foreign businesses, Japanese companies have started developing new strategies. Nevertheless, except for a small number of companies, the traditional business model still remains predominant in Japan. Only 63 per cent of Japanese companies are focusing on fewer than three business segments, compared to over 80 per cent in the US, France or Germany. 

“The general assumption is that a diversified portfolio makes it possible to minimise risks. Still, companies with a highly diversified portfolio were as badly hit by recent crises as sector-focused ones, and they had more difficulty in recovering,” says Martin Tonko, partner and co-author of this study. In fact, in contrast to highly diversified groups, Japanese companies focusing on a single sector have experienced annual sales growth above 10 per cent since 2004.

A very important issue for Japanese companies is also the internationalisation of their business – a step that requires a well thought-out strategy.

 “Japanese companies that go international tend to have higher profitability than their purely domestic counterparts,” says Tonko. For instance, Japanese companies operating in only the domestic market experienced a 0.5-per-cent drop in Ebit in 2011. Companies generating more than half of their sales abroad enjoyed Ebit growth of 7.4 per cent.

But while internationalisation opens the doors to new growing markets, it also triggers competition with global players. In many cases, Japanese companies need to increase their specialisation in order to focus efforts and resources and achieve the required level of product, cost and service excellence.

Because of the high risk of natural disasters in Japan, as the tsunami in 2011 showed, some companies have started to move overseas to hedge their supply chain risks. Several Japanese companies have initiated industrial model changes to succeed on a global scale.

In their study, the Roland Berger experts analyse the strategies of Japanese companies and identify five key features for successful business on an international level including compact business portfolio with distinct synergies among its businesses, conscious efforts toward achieving high customer loyalty, ability to profit despite shortened product lifecycles, high value chain that is flexible and controllable, cultural diversity as a basis for innovation.

The changes observed at Japanese businesses range from new market entry strategies and new approaches to suppliers, customers and product development to new internal organisation and HR policies. 

“There is no doubt that Japanese companies need to further globalise their operations. But this does not mean that they need to follow the path of US or European companies. We’ve seen that Japanese companies that are successful internationally tend to follow an original methodology,” says Shingo Ikeda, senior project manager, 

Roland Berger Strategy Consultants oversees client work in Southeast Asia.

“Three factors are creating tailwinds for Japanese companies – the opening up of Indo-China, deeper integration of Southeast Asia links and existing operations bases in Thailand. These factors mean that there is no better time than now for Japanese companies to internationalise in Southeast Asia.”