Our MD Sarah has recently written a few articles for Forbes Japan about Japan UK business covering topics such as Considerations for Successful M&A in the UK by Japanese companies looking at the need to do due diligence into social and political aspects, as well as have more insights into the local corporate cultures in order to keep a high reputation. She also wrote an article about the Sony buyout of Kadokawa and how this may represent the need to keep that technology in Japan as well as a recent article about the potential Honda Nissan merger (this was written before it was rejected) and an article about the recent announcement that Tokyo Metro will be part of the consortium running the Elizabeth line on the London underground. All articles were very popular with readers, regularly featuring in the top three most read article on-line.
See the media section for links to Forbes Japan. As these articles are in Japanese, the English original versions are below. Hopefully they will give you more insight into the Japanese business culture and the differences with the West as well as more information about UK Japan business relations. Enjoy.
Understanding the UK business environment for successful investment and reputation building.
Japanese companies who are looking to do successful M&As in the UK as well as build up a high reputation, must really get to grips with the current corporate environment in the UK and the wider influences in the relevant industry including the social and political context. However, a common dynamic in some of the relationships seen between Japanese companies and their acquisitions/investments in the UK is a lack of oversight from the Japanese HQ on what is happening in the UK. This is due to an initial lack of due diligence into how British institutions operate and a significant distance in terms of information-sharing and long-term business development/staff development.
In the UK, a short-term ROI mentality along with the growing presence of institutions that operate unethically towards workers and their wider CSR duties to communities, has created a very different business environment to that in Japan and is slowly creating a culture of distrust between top management and workers. Industrial relations in the UK are at their worst since the 1970s. Public opinion towards unethical corporate behaviour (poorly performing train companies and highly indebted water companies that dump sewage illegally into rivers) is at an all time low.
Therefore, for optimal success, long-term investment and reputation building in the UK, it is important that Japanese companies can:
· Understand the corporate cultures of the businesses they are buying and invest in on-going staff training and development to ease the transition and keep the relationships strong. I have seen a major Japanese company buy a UK business that had such an awful corporate culture that employees were very hostile to the buy-out and the Japanese ex-pats-this affected staff retention and reputation.
· Make use of Japanese business concepts such as ‘kaizen’ by implementing root-cause analysis and improvements as well as taking accountability for mistakes and defects. This process relies on a certain amount of trust and long-term relationships, as well as high-level information sharing. Establishing ‘horensou’ to enable this high-level information sharing with your acquiree will also allow the UK side to feel involved in the company’s decision-making processes.
· Understand the political environment-with a change of government due to happen before next year, there will be more focus on ethical and employee-friendly corporate behaviour as well as more investment in skills and education.
· Understand the relationship between BB and Government. In Japan, due to a historically close relationship between BB and Government, there is a certain tolerance to the Government subsidising and supporting companies that have been fiscally irresponsible or have behaved badly. The UK is different-private companies are supposed to perform or dissolve. Don’t be fooled into thinking that the current British Government does due diligence on contracts awarded through its bidding process or that companies supported by the Government behave in a more responsible manner. They don’t, and the tolerance of the British public towards Government contracts being awarded to incompetent companies is very low, especially after the recent Post Office Scandal and the Covid contracts scandal.
· Research the ‘ethical’ environment of the company and its operations as well as the behaviours of other companies in that industry. Sumitomo and Osaka Gas bought SES, a highly leveraged water company, in 2013. The industry was already struggling with underinvestment in an ageing infrastructure and has been involved in dumping illegal sewage into the rivers. The Japanese sold the business last year as they were not prepared to put anymore equity into it-the timing coincided with the uncovering of illegal sewage dumping into British rivers and huge public protests against that.
· Understand the power of public opinion in the UK and the changing social environment- vast inequalities are emerging in the UK and there is an acute cost of living crisis, meaning that when the actions of executives who receive huge bonuses impact upon innocent, modest and hardworking people, it can lead to public anger. Such behaviours are almost as upsetting to the public as seeing the Queen attend her husband’s funeral alone due to Covid restrictions that were largely ignored by the leading politicians and their aides. Unethical corporate behaviour is also not acceptable in Japan but given that inequalities have not risen to such a huge extent there and there is a much higher respect for hierarchies and preference for harmony, there can be more of a ‘shoganai’ attitude towards such behaviour.
· Invest in effective reputation building, PR and strategic communications. This has not always been seen as a key part of Japanese business development, especially since the level of trust in business is much higher in Japan than in the UK and given the cultural aversion towards ‘blowing your own trumpet’. However, it is key in the UK. Japanese investment in the UK has many value-added aspects within communities including skills training, apprenticeships, education and cultural benefits but I do not see many Japanese companies really PRing the benefits of these. Instead, they take a more modest and Japanese CSR approach, whereby investments into the wider community are seen as part of a company’s remit as opposed to a USP. However, there are huge advantages and opportunities for Japanese companies to build up their reputation in the UK by continuing to invest in training and education and highlighting the benefits of these investments. For example, Fujitsu Ltd’s Education Ambassador Programme, which partners with schools, colleges and universities across the UK to enable students and educators to improve their digital skills, is hugely successful in supporting young people with their careers. This would be a perfect platform on which companies like Fujitsu can rebuild their reputation in the UK. However, Japanese companies need to be aware that PR and strategic communications are cultural-what works in Japan does not necessarily work in the UK and ‘face saving’ is not acceptable here.
Japanese investment is important to the UK and especially with a change of Government on the cards, Japanese companies would do well to bring in their stakeholder model of governance alongside philosophies of what companies actually stand for and who they serve-not just the shareholders and management but also the employees, customers and local communities. According to Calbee Inc.’s boss Akira Matsumoto, ‘Stock owners come only fourth in his list of priorities, after customers, employees and the wider community. Only by ignoring them — and focusing on the greater good of the company — can he serve their needs.’ Japanese companies would also do well to bring in a more socially acceptable form of CEO renumeration and resist the pressure from Western corporate governance advocates to move Japanese CEO bonus in line with more Western structures that further inequalities and currently bear no resemblance to the behaviour of the company or its responsibilities to its wider stakeholders.
Sony Kadokawa
Sony are often credited with being the ultimate ‘business pivoting’ success story, going from producing tape recorders and radio transistors after the end of WWII to becoming a leading name in the electronics industry and consumer hardware products in the 1980s to then restructure their business units to focus on more profitable areas such as gaming and entertainment. They revolutionised the music industry by producing the world’s first portable music listening device (the Sony Walkman) and jointly developed the compact disc with Phillips and are now one of the world’s largest music publishers. They also maintain a stronghold in the gaming console market with Sony said to control 70% of the global console market. The recent release of an upgraded version of their PS5 console contributed to an almost tripling of profits in Sony’s game and network service business to $909 million.
It makes business sense for Sony to leverage strategic alliances and collaborations within its diverse business model, and Sony has acquired many companies within the anime and gaming space.
However, news that Sony is in talks to acquire Kadokawa, a major player in the Japanese entertainment industry, have caused consternation from both gaming and anime fans, with some commentators even saying it would have a dramatic impact across games and anime not only in Japan but also globally.
Fans concerns
Some of these concerns are about whether popular games developed by companies already owned by Kadokawa will be then be made exclusive to PlayStation-although Sony subsidiaries regularly release games on non PlayStation consoles.
Anime fans are equally concerned that Sony may monopolise the anime industry and drive out creativity. They are also worried that a similar thing may happen when Sony bought the anime media company Crunchyroll, (and with it Funimation), when fans lost access to digital libraries of Funimation anime after Sony merged the two companies.
There is no doubt that strategically, this acquisition represents a profitable move for Sony’s market share. Buying Kadokawa would bring a huge amount of IP across anime and manga under Sony control as well as give them the controlling share of FromSoftware, the Japanese video developer/publisher, who develop the popular video game: Elden Ring.
Keep control in Japan
However, this move could also reflect the tendency of Japanese companies to avoid unsolicited takeovers and keep Japanese companies under Japanese ownership, given the fact that METI has just released new guidelines stating that company boards must consider unsolicited offers if they offer corporate value. There have been some unsubstantiated rumours from fans that this acquisition is happening to prevent hostile takeovers from overseas with some fans speculating that Kodakawa approached Sony to prevent a hostile takeover from Kadokawa’s largest shareholder, the Korean company Kakoa.
Sony already have a small share in FromSoftware alongside the Chinese company Tencent but by acquiring Kadokawa, Sony would get the controlling share of FromSoftware, taking away the opportunity for Tencent to make the same move.
However, whatever the motivation, it is clear that Sony needs to consider the voices of the consumers and fans when deciding what happens next if this acquisition goes ahead.
Nissan and Honda merger- a global versus UK perspective.
Some commentators are wondering why these two companies would partner up, as there are no obvious complementarities between the two brands. It is also being questioned whether the Japanese government is forcing this deal to happen to bail out Nissan, whose profits are falling and who have recently been linked to a potential acquisition by Taiwanese maker of iPhones, Hon Hai Precision Industry Co., better known as Foxconn. The Japanese government recently set an automative sales share target to increase Japanese automakers’ global market share of software-defined vehicles to 30% by 2030. Part of this strategy involves encouraging Japanese car manufacturers to cooperate and collaborate with each other beyond competition.
Despite denials from Honda that this deal is a bail out for Nissan, from a Japanese industrial strategy perspective, this development makes perfect sense and in some respects, mirrors the behaviour of how the government and companies operated in the ‘developmental state’ of the economic miracle era, when the Japanese government had a large influence over how companies operated, in certain cases bailed out companies and when Japanese companies within the same keiretsu networks supported each other to survive. It also makes sense that Japan is looking to increase its competitiveness in the EV market, given the growing dominance of Chinese companies and the uncertainty of potential US trade tariffs under President Trump. The combined group after a Nissan-Honda merger would become the third biggest car manufacturer in the world.
Despite the obvious difficulties that this merger will bring to all companies involved, including decision-making on product selection and strategy, it will be much more likely that Japanese companies can collaborate more seamlessly together than what happened within the Nissan Renault alliance.
UK perspective
From a UK perspective, this proposed merger is being watched very carefully by car manufacturing unions, especially given that Nissan recently announced last month that it will cut 9,000 jobs globally (around 6% per cent of its global workforce). This announcement has already caused uncertainty within Nissan’s Sunderland plant in Northeast England, which was the site of the first investment from a Japanese company in the UK in 1986 and which is only currently running at half capacity.
However, the merger could be a boost to Nissan’s Sunderland plant if, as has been speculated, it brings Honda back to car manufacturing in the UK, using some of the spare capacity at the plant. Honda opened its first factory in Swindon in Southeast England in 1985 but closed it down after Brexit, causing job losses not only at the main factory but also within the local supply chain. However, Nissan remained in the UK and it has recently been revealed that Nissan received a huge package from the UK Government to convince them to stay in the UK after Brexit.
The UK was, pre-Brexit, home to the largest number of Japanese car manufacturers in Europe. The added value of Japanese investment in the UK plays an important role in areas such as skills and education. Nissan is no exception having recently announced that it will lead MADE NE (Manufacturing, Automation, Digitalisation, Electrification North East) with local government partners to create open access training facilities in Sunderland, covering skills development from primary school to apprenticeships, with a particular focus on EV and battery manufacturing and will support targeted industrial innovation projects with funding and equipment.
Therefore, the proposed Nissan Honda merger could potentially bring lots of benefits to the UK economy, which has seen zero growth between July and September 2024 and which currently has a manufacturing skills shortage.
Tokyo Metro part of London Underground
There is a sense of optimism amongst UK train passengers after the recent announcement that Tokyo Metro will be part of the GTS Rail Operations Limited consortium that has won the bid to manage the *Elizabeth line on the London Underground from May 2025.
According to Transport for London, 87.4% of trains on the Elizabeth line arrived at their destination within 5 minutes of their scheduled arrival time. Compare that to Tokyo Metro’s services-99% per cent of Tokyo Metro’s services came within five minutes of their scheduled time in 2022 -and you can see why users of the Elizabeth line will be hoping that the reliability and punctuality of the Japanese train system will be transferrable to the UK.
Despite it being the busiest line in the UK, the Elizabeth line has attracted a lower than average rating from its users in the Public Performance Measure (PPM) having been beset by many reliability and punctuality issues. In the year leading up to February 2024, the Elizabeth line was in the news due to to several high profile incidents: thousands of passengers – were stranded on trains for several hours because of a problem with overhead wires and were trapped without power or toilets. Four damaged rails were discovered within eight days in November 2023.
These problems are mostly attributed to the fact that the Elizabeth line is not just an underground line but has overground segments that link into the wider UK railway system; a system which suffers from an ageing infrastructure.
The different signalling systems on this line are also a challenge. There are 41 stations on the Elizabeth line route, which spans more than 100 km. Its on-board software has to communicate with three different signalling systems along the route. The Elizabeth line will also eventually stop at a new transport superhub in West London, Old Oak Common Station, which will link the Elizabeth line with the high-speed HS2 train-line, due for completion in the 2030s.
The fact that this consortium includes a key player in the UK rail industry; the Go-Ahead Group, who already own one of the UK’s biggest train operators, will certainly help mitigate some of these operational challenges. However, aside from these operating issues, there will be other challenges involved for this new consortium:
1) There are always communication issues involved within international joint ventures between the people involved in the project decision-making and communications and this will no exception, given that this is the first time for Tokyo Metro to be directly involved with operating a train line overseas and that the Go Ahead Group has not had projects in Japan.
2) Managing stakeholders and public opinions will also be of utmost importance. The relationship with Network Rail, who look after the UK’s railway infrastructure, will be one of the hardest to master. There are also the issues of train strikes and public opinions regarding the reliability and rising costs of train travel in the UK that could cause reputational issues. Japanese companies don’t always do their due diligence on these wider issues, which can come as a shock once they have to deal with the backlash of these.
**The Elizabeth Line, one of the UK’s busiest lines, named to commemorate the 70th anniversary of Queen Elizabeth's reign, opened in 2022 and has been operated by Hong Kong’s MTR Corporation.
Sarah Parsons, based in Lincolnshire in England, is the Managing Director of East West Interface, supporting companies with their cross-cultural communications and strategies. They have worked with many large Japanese companies and Japanese executives in the UK. Sarah is also an Associate of the Chartered Institute of Public Relations, UK and has lectured on Japanese Business, Cross Cultural Communications, International HRM and Industrial Relations at leading universities in the UK such as SOAS, University of Sheffield, University of Warwick and Cranfield University. She is currently a Research Associate in the Japan Research Centre and Associate Tutor within the Centre for International Studies and Diplomacy at SOAS, University of London.
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