Japanese companies could do with a reshuffle

Business | November 24, 2010 at 12:15 am




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Age. It’s a terrible thing and it can do terrible things to you. Take the case of what is arguably the oldest company in the world. Kongo Gumi is a construction firm that operates out of Osaka in Japan. Certain Buddhist shrines that were constructed in 578 AD were said to have been built by them, and 40 generations passed and still a man with the surname Kongo presided over affairs. It was a very familial affair. When you consider the next four firms by age, they are also Japanese companies. And if you were to believe Yasuchika Hasegawa, chief executive of Takeda Pharmaceuticals (a company that was founded in 1781), 20,000 Japanese companies, maybe more, are at least a century old. That’s a lot of age packed into one corporate environment.

In a world where companies enter and exit through a revolving door, this is a wonderful thing to see. Japan is in many ways a society of corporate heirlooms that are passed down from one generation to the next. And no one wants to just see these Japanese companies fall by the wayside. But to be brutally honest, a large number of these businesses are getting by because credit does not make a dent by way of costs and bankers don’t really bother whether they are lending to a profitable business or not. This has the two-fold effect of making corporate culture weaker by way of laxity and productivity is affected since these companies don’t need to turn a profit to get credit. There is a very real danger that if productivity drops much further, the Japanese GDP will become negative since the country’s businesses will be dragging it down.

If you were to look at the domestic markets, where two-thirds of the Japanese output is churned out, production per worker is hit badly by a large degree of competition. Simply put, companies refuse to consolidate, spread their businesses too thin and as a result profits are low since industries are saturated. Take the automotive industry, Japan’s joy and pride for so many years. You can rattle off names such as Toyota, Honda, Nissan, Suzuki, Mitsubishi, Daihatsu, Mazda and Subaru and yet feel you’ve missed out on someone. Contrast that with South Korea that has got mainly Hyundai as its dominant car maker. And so, despite having a market 2.5 times the size of South Korea’s, the market per car company is only two thirds that of South Korea’s. Add to the mix the global slowdown in the automotive industry since 2008 and you find that the Japanese are in a real pickle.

Manufacturing and services companies both suffer from the same issue. Banks have a large stockpile of cash since they have saved a lot but this money is pumped into ultra-safe Japanese bonds. It is an effort not to build wealth, but to sustain finances. Japan needs to give a shot in the arm to its flagging domestic economy, its single largest source of demand. The finance industry too must do its bit for the economy and Japanese companies, investing their ¥1,500 trillion savings with a view for the future.

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1 Comment

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