Survey of mergers and post-merger integration in Japan

• From May 2007, foreign companies can buy Japanese companies more easily via an exchange of shares
• Access to the Japanese market and products, technologies and R&D resources are important goals for foreign buyers in Japan
• The main integration problems are differences in language and mindset as well as a lack of information about factors unique to Japan
• Lack of employee involvement, slow-moving integration and little attention paid to cultural differences are common mistakes by buyers
• Roland Berger has pinpointed eight success factors for post-merger integration in Japanese companies

From May 2007, legal changes will make it easier for foreign companies to buy Japanese ones via an exchange of shares. However, the success of a transaction is determined by post-merger integration, which still has some aspects unique to Japan. If management takes into account these cultural differences in the first few months after the merger, considerable synergies and a successful fusion with the Japanese firm are possible. These are the results of a survey by Roland Berger Strategy Consultants among over 30 top managers involved in mergers and post-merger integration. The managers were interviewed and completed a written questionnaire.

The survey shows that a lack of information about cultural aspects unique to Japan can lead to major problems with mergers. "This is a surprising finding, considering that so much has been written about Japan and Japanese companies," says Dr. Dirk Vaubel, author of the survey and Partner at Roland Berger Strategy Consultants in Tokyo.

Based on the survey, the interviews and many years of consulting experience on post-merger integration projects in Japan, the consultants have defined eight success factors for successful integration:

1. Understand aspects unique to Japan and take them into account in integration

In particular, the HR, purchasing and sales divisions of Japanese companies have unique cultural aspects. For example, purchasing is still characterized by close relationships with suppliers, in contrast to the more relaxed, market-oriented supplier relationships in Europe or the US. The route of goods from manufacturer to end customer often goes via wholesalers, resulting in a sometimes surprising lack of market knowledge on the part of Japanese companies.

2. Learn from Japanese strengths

In the past, foreign companies tended to buy financially weakened Japanese companies; well-known examples of this are Nissan and Mitsubishi Motors. But foreign buyers still ought to regard their investment as more than just a way of entering the Japanese market. "Foreign buyers can often learn something valuable, especially in manufacturing and quality," says Dr. Carsten Herbes, author and Project Manager at Roland Berger Strategy Consultants in Munich and Tokyo.

3. Gain the support of management and employees

In a merger, winning over the managers and employees of the partner company is a key success factor in Europe too. But in Japan the management is almost exclusively recruited from inside the company. The management team thus often feels even more of a duty to the employees than to the shareholders. Motivating the management and workforce is therefore twice as important: for example, by creating global sales opportunities for Japanese products or giving Japanese employees global areas of responsibility in the new companies. But skilled negotiation on thorny issues, such as retaining the Japanese company name after acquisition, can also help to break down resistance.

4. Prevent a negative image of mergers and create a sense of equal worth

Corporate mergers often still have a negative image in Japan and are even described in terms such as "kidnapping" or "slave trade". Companies can prevent this problem by using carefully nuanced communication that, for example, emphasizes the idea of partnership or talks of combining capital rather than taking over a company. "In Japan it is normal even for merger partners of different sizes to demonstrate that they are of equal value. The buyer should use symbolic gestures to achieve greater acceptance without relinquishing the integration goals," explains Herbes.

5. Tailor the forms of communication to Japan

This means both using the right media and sending the right message. "Personal communication is better and specific examples, even from other industries, have proven to be valuable arguments," says Vaubel from experience.

6. Ensure opinions can be shared freely and avoid conflicts in advance

In Japan, the open sharing of opinions is often hindered by the seniority principle, with younger employees considering themselves subordinate to older ones and often participating less in meetings. A direct talk with the relevant employees can be of use in these situations. Foreign buyers often underestimate the potential for conflict, as conflicts are not shown by open disagreement but by subtle signals. "You need to spot the first signs of a conflict and deal with the possible crisis in good time and consistently, using Japanese methods, such as informal preliminary talks or middlemen. That is the basis of successful integration in every case," emphasizes Herbes.

7. Set up consistent integration monitoring

Every post-merger integration project requires consistent monitoring of integration, and this is especially important when investing in Japanese companies. Employees of Japanese companies focus first and foremost on commitment to their job, while the results tend to be considered of secondary importance: nobody wants to be exposed in front of their coworkers because delays come to light, for example.

8. Do not give up on integration activities right from the start

Many companies give up on certain integration activities right from the start or apply them only in a diluted form, because they fear they will fail due to specific Japanese conditions. Synergy opportunities are thus often missed. Particularly in areas where the buyer expects major resistance, Japanese employees are often willing to make changes. "Never give up too early and risk losing out on certain synergy effects in your hurry to adapt. Internal actions such as satisfaction surveys or benchmarking against Japanese competitors can help to introduce changes in areas where they initially seem difficult or even impossible," advises Herbes.

The publication "Mergers and acquisitions in Japan: Successful post-merger integration is the key" provides an overview of the findings of Japan experts at Roland Berger Strategy Consultants. If you would like a copy, please e-mail us at: