Japanese businesses look overseas in wake of earthquake, tsunami

Convinced that a shrinking and disaster-hit economy cannot sustain growth, Japanese companies are placing a multibillion-dollar bet on their ability to expand their businesses overseas.

The uncharacteristic push into foreign markets has triggered conflicting reactions, with some Japanese government officials worried that the country’s largest businesses will divert resources elsewhere.

But for those who link Japan’s decline with its nationwide insularity, the fresh globalization push — with a spike in post-quake international mergers and acquisitions — suggests that Japan Inc. is willing to challenge its staid corporate culture to uphold long-term viability.

The March 11 mega-disaster worked as an accelerant, bringing new energy to unconfronted social issues such as rural flight and population decline, and new urgency to economic trends. Even before the earthquake and tsunami, Japanese corporations were aiming efforts overseas. But now the old concerns about the shrinking domestic market are paired with new concerns about energy shortages, disaster vulnerability and a fragile supply chain.

Moreover, the strong yen is giving Japanese companies greater buying power, and after vast cost-saving restructuring in the past decade, many have cash to spend. In the first six months of the year, Japanese companies spent some $94.5 billion on cross-border mergers and acquisitions — a 79 percent jump from the same period a year earlier.

The activity is being driven by companies that make products as varied as beer, gadgets and lipstick. Some are global newcomers. Some are international veterans driving for more. But for many, according to Japanese business analysts, the global efforts will require a shift in hiring and communications practices, a countermeasure against the business customs and language barrier that make foreign investment by Japanese companies particularly difficult.

“For the first time I’ve seen, Japanese companies are bringing in executives from the outside and installing them with power,” said Kenneth Lebrun, a Tokyo-based lawyer at Sherman & Sterling who specializes in cross-border business deals.

This year, the JS Group — Japan’s leading manufacturer of housing materials — decided that its top position in the domestic market was no longer enough. Two months ago, the company released a blunt management vision for the next five years; the document described how the number of Japanese households will peak in 2015 and decline “constantly” thereafter.

“We need to revise our business structure thoroughly,” the vision statement said.

In a banner that spread across the width of a page, it added: “We will become a leading global company.”

This required, and will require, wholesale change. The company had already consolidated five of its breadwinning brands into a new brand, Lixil. That collection of brands, in the latest fiscal year, was responsible for $12 billion in profits but only $400 million in profits overseas. In May, the JS Group named a new president — an outsider named Yoshiaki Fujimori, who previously ran General Electric’s Japan arm.

Now, the JS Group (and Lixil) are talking about India, China and Southeast Asia, hoping to increase that $400 million in overseas profits to $10 billion by 2016. The company has made two significant foreign purchases during the past two years, but now it is looking for more. It has asked 1,000 of its engineers to research hit products for emerging markets — specifically China, where the company now has three Shanghai showrooms.

The quick changes have stoked some resistance, particularly among the many employees who feel that the JS Group makes Japanese-only products — quality, but geared for this country’s tastes.

“This is a big change for us,” said Toshimasa Iue, Lixil’s head of global business, another outsider hired 11 / 2 years ago. “We are huge in Japan, but on the other side we are very tiny.”

Seven JS Group factories were damaged in the earthquake, but its overseas plans were hatched well before the disaster, and it stuck with them. Usually, experts note, a drastic event will freeze business activity. Not in this case. For many Japanese companies, the disaster did nothing to slow business deals.

“I was doing a deal for Asahi on the Monday after the earthquake,” said Kenneth Siegel, a Tokyo-based managing partner at the law firm Morrison Foerster.

In May, for $2.3 billion, Toshiba bought a Swiss electronic metering company, Landis and Gyr, that can help efforts to create smart grids. Around the same time, Takeda Pharmaceutical, the Japanese drugmaker, pulled off a $14 billion deal for Nycomed as part of its effort to expand business in Europe. Lixil has not finalized any deals but is looking to acquire or partner with companies in emerging markets, allowing it to live up to its new name.

Lixil, Iue said, is what you get when you multiply the English words “living” and “life.”

That corporate math gives no hint of the company’s Japanese origin.

“Using the word Lixil,” he said, “means there is no nationality.”

Special correspondent Akiko Yamamoto contributed to this report.

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