Industry Review Japan: Consolidate or Lose!
Japanese companies never really recovered from the country's lost decade. Compound annual growth rates for sales and operating profits of the top 2,000 Japanese companies in terms of global sales indicate a rapid decline in global competitiveness. Some industries have seen notable consolidations, but around half of Japanese companies see further room for consolidation in their industry. This is particularly true for industries such as chemicals. But consolidation is not an easy game: the current success rate of Japanese mergers is under 50% and more than half of merged companies show lower profitability post-merger. Japanese companies need advanced consolidation management techniques to avoid the pitfalls of strategic inconsistency and failed integration management.
"Japanese industry must consolidate or they face decline," says Roland Berger Principal Dr. Martin Tonko. "Apart from large tier I corporations, Japanese enterprises generally lag behind their US and European peers in terms of competitiveness measured by profit and sales growth." This is the conclusion of a recent Industry Review by Roland Berger Strategy Consultants. Few Japanese companies outperform the average in terms of growth in profits – just 9% compared to 22% in the US and 28% in Europe. Despite high levels of corporate indebtedness in the past, several industries maintain their traditional structure. "As a result, companies with low competitiveness that should have been shaken out of the market naturally, still remain on the field," says Tonko.
Notable consolidations
A survey of Japanese companies carried out by the Teikoku Data Bank reveals that approximately half of the companies interviewed see further room for consolidation in their particular industry. The reason consolidation is progressing slowly is a general awareness on the part of Japanese managers of the difficulties of merging companies, particularly in the current market situation. Industries such as industrial machinery, construction, chemicals, hotels, restaurants and food remain largely unconsolidated, while beer, telecommunications, automotive and marine transport have made more progress. "The trend is toward increased market consolidation and stronger efforts to improve competitiveness," says Tonko. Consolidation appears inevitable in the chemicals, food, construction and paper industries.
Successful consolidation
Consolidation is not an easy game, however. The survey revealed that more than half of the companies investigated experienced a decline in profitability post-merger. "The two main reasons for failure are a lack of strategic consistency and the failure of integration management," says Tonko. "In several cases, companies carried out acquisitions to prevent the insolvency of the target, rather than to execute the strategy of the acquirer. Japanese companies often view integration management as simply an exercise in combining balance sheets. This means that synergies in operations are neglected."
Japanese companies must employ prudent pre-merger and post-merger management techniques. To achieve true global competitiveness, revenue synergies are vital. "Japanese companies must also consider consolidation involving other industries or countries," says Tonko. "Currently, in many cases consolidation only occurs within industries and within Japan. This tends to lead to more cost synergies. However, recently cross-industry and cross-country activity has picked up – which is a good sign."
"Japanese industry must consolidate or they face decline," says Roland Berger Principal Dr. Martin Tonko. "Apart from large tier I corporations, Japanese enterprises generally lag behind their US and European peers in terms of competitiveness measured by profit and sales growth." This is the conclusion of a recent Industry Review by Roland Berger Strategy Consultants. Few Japanese companies outperform the average in terms of growth in profits – just 9% compared to 22% in the US and 28% in Europe. Despite high levels of corporate indebtedness in the past, several industries maintain their traditional structure. "As a result, companies with low competitiveness that should have been shaken out of the market naturally, still remain on the field," says Tonko.
Notable consolidations
A survey of Japanese companies carried out by the Teikoku Data Bank reveals that approximately half of the companies interviewed see further room for consolidation in their particular industry. The reason consolidation is progressing slowly is a general awareness on the part of Japanese managers of the difficulties of merging companies, particularly in the current market situation. Industries such as industrial machinery, construction, chemicals, hotels, restaurants and food remain largely unconsolidated, while beer, telecommunications, automotive and marine transport have made more progress. "The trend is toward increased market consolidation and stronger efforts to improve competitiveness," says Tonko. Consolidation appears inevitable in the chemicals, food, construction and paper industries.
Successful consolidation
Consolidation is not an easy game, however. The survey revealed that more than half of the companies investigated experienced a decline in profitability post-merger. "The two main reasons for failure are a lack of strategic consistency and the failure of integration management," says Tonko. "In several cases, companies carried out acquisitions to prevent the insolvency of the target, rather than to execute the strategy of the acquirer. Japanese companies often view integration management as simply an exercise in combining balance sheets. This means that synergies in operations are neglected."
Japanese companies must employ prudent pre-merger and post-merger management techniques. To achieve true global competitiveness, revenue synergies are vital. "Japanese companies must also consider consolidation involving other industries or countries," says Tonko. "Currently, in many cases consolidation only occurs within industries and within Japan. This tends to lead to more cost synergies. However, recently cross-industry and cross-country activity has picked up – which is a good sign."
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Martin Tonko
Hisaji Yoneda
