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Restructuring in Japan: Unexpected opportunities for foreign companies

2009

Despite the changes that have shaped the Japanese economy in recent years, we still encounter distinctive features of business in Japan. Foreign managers working in the country have long been well aware of certain typical practices, whether they concern the long-term supplier relationships, lifelong employment or the seniority principle. And this experience has led to the Japanese subsidiaries of foreign corporations adapting more or less to the Japanese business environment.

But what happens when big changes have to be made – when more competition, rapid sales slumps or tougher profit targets imposed by the foreign parent company demand a tough restructuring program? The people heading the Japan-based subsidiary then find themselves in a dilemma. On the one hand, they are under pressure to restructure and that probably means cutting jobs and consolidating the supplier portfolio. On the other, they think they have to consider a Japanese business environment in which “you can‘t fire anyone“ and the long-term relationships with suppliers seem sacrosanct. Japan, too, has been hit hard by the present financial crisis. So restructuring programs of every kind will again be at the top of the agenda, both for Japanese and for foreign managers.

So what‘s possible and what is not possible in Japan? How can a foreign company design an effective restructuring program for its Japanese subsidiary? Our study seeks to provide answers to these questions. The term “restructuring“ is used here to cover all far-reaching changes, not only those affecting the workforce but also changes in organizational structure, supplier portfolio and business strategy.

The results of our survey are surprising. We found that foreign companies enjoy a far greater degree of freedom in Japan than domestic companies. What‘s more, Japan‘s peculiarities need not be an obstacle to restructuring, but can sometimes even help. The point is to know how to use the available scope for restructuring and to proceed sensitively but without falling into the trap of excessive self-restraint.

The study was compiled in the second half of 2008 as a joint project by the German Chamber of Commerce and Industry in Japan (GCCIJ) and Roland Berger Strategy Consultants. It is based on an online survey in which questionnaires were sent to the senior management of 385 European companies in Japan. A total of 98 replies were evaluated, representing a response rate of 26%. In addition, a number of the companies responding agreed to in-depth follow-up interviews.

Since the study‘s findings are largely based on confidential information, we cannot identify the companies taking part or the individuals interviewed.

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