Bridging Differences in Japan
M&A activity is challenging at the best of times. Various statistics point to the fact that less than 30% of deals truly achieve deal goals at the quantum originally planned and in the timeframe originally envisaged. On adding the complications that are inherent in carrying out a crossborder deal, it is easy to understand why so few companies can effectively realize value in such a transaction. While there is a significant set of examples of Western companies investing in Asia, the quantum of investment in Asia’s most mature economy – Japan – still lags.
Much of this lack of inbound activity might be attributed to economic and demographic reasons, for example, the strength of the yen making it less attractive for a foreign acquirer, or the stronger motivation for Japanese firms to expand overseas to counteract shrinking domestic market potential on the back of an aging and diminishing population. However, given the cyclicality of economics and some emerging hope related to policies being driven by the government under the leadership of Prime Minister Abe to revitalize the Japanese market (at the very least weakening the yen), it is possible that there will be a resurgence of foreign investment in Japan.
Based on our past experiences, we would like to take the next few paragraphs to touch on the people-factor challenges of integration that such acquiring firms may wish to consider in order to enhance their chances of realizing a successful outcome.
The differences that create issues in the integration of these organizations can often be characterized around three main pillars:
- Decision-making styles
- Communication challenges
- Cultural acceptance
Decision Making Styles
Naturally, the above factors manifest themselves a little differently, depending on the relative situations of the buyer and the seller. Much has been written about the differences in decision-making styles between companies in the West and Japan, with the general consensus that there is greater respect for the ability to be decisive in the Western context. This is not to say that the seeking of consensus assumes lesser importance, but the ability to quickly motivate a team towards a decision is perhaps as important and implies clarity of thought process. Furthermore, in cases of impasse, the ability to quickly set a direction from a top leadership perspective and have the fortitude to stand behind the decision as being right for the joint enterprise is equally valued.
The oft-quoted success of the Renault Nissan operation has largely been attributed to the visionary leadership of Carlos Ghosn, who enjoys near legendary status in Japan. This was cemented when early into the deal he saw to it that he met with senior management at Nissan and made certain that he clearly articulated his vision, showed decisiveness on strategic direction, and “walked the talk” by agreeing to step down if the decision proved misguided and did not deliver the results that he was committing to deliver. Such commitment to the decision quickly earned the respect of his Japanese team and reduced the more generally held view of leaders who have been “parachuted in having no stake in the game."1
Communication is a skill requiring highly specialized competencies in the best of times. The content, medium, messenger, and timing are all critical for ensuring that all resources within the organization are adequately informed and motivated regarding the purpose and challenges associated with the integration. In Japan, especially in the acquisition of a “traditional” Japanese business, this can
be a particularly challenging obstacle to overcome for Western firms – the choice of words, the poor translation of messages, the difficulty in effectively using methods like brown-bag lunches – requiring companies to specifically address methodologies for ensuring the proper transmission and interpretation by staff of the message.
In the Japanese context, as in a number of other Asian economies, communication is much more about trust and relationships. The ability to effectively get beyond the stolid veneer and more effectively dialogue about intrinsic issues is critical. The need for precision in messaging and awareness that translated messages can often carry unintended hidden meanings must be understood and addressed with painstaking care. Clearly, more than just technical competence in linguistic skills is required to interpret what is said by one party to another, but in many cases, what is not said, or what studied silence implies, is even more critical.
Overcoming the challenges raised by the hesitance to actually raise questions, the lack of active participation in large group settings, the reliance on back channels of communication – requires an inherent knowledge of styles of information sharing and communication, which are influenced by both national and corporate culture, in order to effectively promote integration initiatives. An added consideration in effective communication are the perceptions by the affected of the messenger himself. Is the person supported by the head office of the acquiring firm? Does the person seem willing to listen to local concerns, and help balance the intentions/aspirations of the non-Japanese acquiring firm with local requirements, to drive success in the local context, etc.?
To draw again from the Renault/Nissan example, it has been reported that a committee that included the highest management levels of the two firms, 11 crosscompany teams, and nine cross-functional teams within Nissan were created by Carlos Ghosn in order to drive participation and effective communication between Renault/Nissan and within Nissan itself.1
Much is said about culture in any cross-border deal. This is often emphasized in the Japanese context, given the much-touted “uniqueness” of the culture. To some extent, the combination of culture and language does contribute to the difficulties encountered in effecting cultural integration or change. However, the differences, especially in the last 15-20 years, have become less apparent and often manifest themselves more subtly. These differences are often less noticeable at the agreement and negotiation stages, and only truly manifest themselves during integration. Having a strategic approach to influencing both corporate culture (which is much more about what a company stands for, how work is conducted, and attributes that define the organization) and national culture to define the overall culture of the newly integrated entity becomes a critical element for ensuring deal success.
In the Japan context, for many non-Japanese acquirers, distinguishing between what aspects of the culture stem from the national culture and what are corporate culture attributes is often challenging. Well aware of the fact that we are grossly oversimplifying matters, traditional Japanese businesses have tended toward a very directive approach to decision-making – more rooted in hierarchy, where information sharing tends to be more one-sided and open discussions in the Western sense are less common.
Understanding the difference between what attributes are changeable from a company-culture perspective and which are areas where allowances need to be made for national culture is a critical first step. National culture requires culture sensitization on the parts of both the buyer and the seller, as actions and messages can very easily be misunderstood. As for corporate culture, a more direct and proactive intervention is required – a clear articulation of the desired “to-be” culture is crucial. Clearly understanding the gaps between the existing and desired culture by both parties and an acceptance that the culture change process, like most other aspects associated with the transaction in Japan, is an extended process (quick turnarounds in a one to two-year period are rare – a four to five-year timeframe is likely to be a lot more realistic) is paramount for the medium to long-term success of such undertakings in Japan.
1 Froese, F. and Goeritz, L., Integration Management of Western Acquisitons in Japan, Asian Business & Management, 2007, 6.
Representative Director & President
Aon Hewitt Japan (SKusumi@mclagan.com)
India Lead and Senior Consultant
Aon M&A Solutions