Japan Trend Toward Global Mergers & Alliances
Today, years after the buying binge of Japanese companies in the 1980's and 1990's, Japanese companies understand that mergers must make sense on many levels, well beyond simply seeking business synergies with the merged partners. The most important component of an effective merger, especially cross-border mergers is the ability to integrate the cultures of the two companies.
It is essential to examine the proposed structure of the merged entity. Most successful deals have utilized a holding company structure that was introduced in 1996 as part of a number of financial and economic de-regulation measures known as the "Big Bang." The measures included relaxation of antitrust laws and the legalization of 100% stock deals.
Under a holding company structure, the two merger partners create an umbrella entity which allows the two companies to work in parallel. Integration may be accomplished step by step, division by division. Synergies may be achieved via specific policies such as implementing joint procurement and common infrastructure such as distribution networks.
One way to tell if a merger is well conceived, experts said, is to look at the proposed structure of the merged entity. The best deals, they said, will take advantage of a holding company structure that was formalized in 1996 as part of a series of financial and economic deregulation measures nicknamed "Big Bang." The measures also included the relaxation of antitrust laws and the legalization of all-stock deals.
Under the holding company structure, the two merger partners create an umbrella entity that allows the two companies to work in parallel. Integration might be pursued gradually, division by division. Short of integration, synergies may be explored through specific policies, such as carrying out joint procurement and consolidating common infrastructure such as distribution networks.
Increasing Numbers of International Mergers
The number of mergers involving Japanese companies as buyers or sellers quadrupled in a decade, to over 2,700 deals in 2006 from 621 in 1996. In most transactions, the buyers were Japanese companies which have bought increasing numbers of overseas businesses for the first time since the late 1980's. Corporate takeovers used to be unusual in Japan due to a cultural aversion to selling one’s company which in the past was considered as a failure by founders and owners.
However, after many years of slow growth and with the nation’s birthrate the world’s lowest, companies have little choice but to seek new methods to increase revenue and profit, such as by buying foreign competitors.
The influence of bad debts and prolonged recession has given rise to several cross-border merger and alliances in corporate Japan. Many experts anticipate that the merger trend will increase to allow international firms to gain a significant position in the Japanese market. This trend has spread from financial firms to basic industries as well as software, telecom and biotechnology. Japanese businesses face global overcapacity and shrinking demand.
In 1998, Nikko Securities reported a record 908 mergers and acquisitions involving Japanese companies, an increase of 35% over 1997. The approximate value of publicly declared deals was $90 billion. Foreign firms spent $6.91 billion acquiring Japanese corporations in 1998 representing 600% more than 1997, according to KPMG. There were a variety of other deals that were not announced.
The prominent chemical company, Teijin Limited, entered a joint venture with DuPont. Nissan Motors' merger with Renault has shown that large-scale foreign mergers can be successful. Sumitomo Rubber, Japan's senior tire company and owner of the Dunlop brand, entered an alliance with Goodyear Tire & Rubber Co. Sumitomo and Goodyear entered a complex global arrangement in order to become the top tire producer in the world. The companies will pool research costs and avoid overlapping investments.
The collapse of Asian markets and an overdeveloped industrial economy has caused Japanese firms to relinquish overseas branches, sell foreign assets and reduce domestic employment. Recently, there are signs of industrial recovery, however, these trends and structural reforms need to continue over the next several years.
Japanese companies are recognizing the need to operate internationally in order to survive. Foreign pressure has motivated Japanese companies to begin streamline redundant corporate structures. The removal of trade barriers in Japan is essential for the long-term survival of Japanese business.
Globalization and New Thinking by Corporate Japan
The process of globalization is gradual and requires radical new thinking by corporate Japan. The increase in the merger and alliance market is gradually creating a more competitive economy by eliminating weak organizations and allowing progressive companies to thrive.
Recently, a variety of innovative Japanese technology companies have been seizing the opportunity to expand their international markets in the U.S. and other Western countries in order to offset slower sales in Asia. As more flexible medium and smaller firms strive in this direction together with the large traditional companies, Japan’s economic recovery should accelerate. Moreover, several Japanese firms have been developing projects in new technologies and markets outside their core businesses.
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