Japanese companies are back to life. Hitachi, Sony, Toyota, NIDEC, and Nitori were not satisfied with their respective markets and turned their eyes to the global market. Among Hitachi’s approximately 300,000 employees in 2002, 20 percent of them were working overseas. 57 percent of Hitachi’s employees, which increased to 368,000 in 2022, are working overseas. Sony has reduced its electronics business, which accounted for 68 percent of its sales in 2012, to 34 percent last year. Meanwhile, the entertainment industry increased from 17 percent to 51 percent, while the Japanese market only accounted for 16.2 percent of NIDEC’s sales in the first half. The remaining 83.7 percent came from overseas. The Japanese firm sold evenly in the world’s three major markets of the U.S. (24.3 percent), China (23.6 percent), and Europe (20.6 percent). The Japanese firm beat Japan to the point where Ikea, the world’s largest furniture maker, couldn’t stand a chance. It plans to increase its overseas sales ratio from the current 3.8 percent to 10 percent in 2025. Of course, Japanese companies faced crises. What changed them was their competition for survival. Japanese electronics companies, including Hitachi and Sony, plunged into a dark period of large-scale deficits in the 2000s. The company has overcome the recession in Hokkaido, which is considered a “hell” in the Japanese retail industry. Business reorganization was essential to enable the company to compete in the global market. Hitachi shifted its focus over the past 15 years from the domestic market and mass-produced products to globalization and IT. In the process, the company also took the opportunity to sell off its parent business and main business.
NIDEC expanded its motor business from the automobile and machine tools businesses to the automobile and machine tools businesses. Another common point among the companies was that they set the direction of their business reorganization from simple manufacturing to a new business model incorporating IT. Nitori pioneered a new genre called “manufacturing, logistics and IT retail.” By integrating IT into logistics, the furniture manufacturing and sales businesses have evolved into a fast fashion (SPA) industry like Uniqlo. Hitachi has transformed into an Internet of Things (IoT) infrastructure service provider that helps DX of infrastructure. Sony has created a new business ecosystem ranging from content creation to distribution. It has evolved manufacturing into a business model that can enjoy network effects like a subscription economy and a platform business. It is also similar that NIDEC chose M&A as a means of achieving business reorganization. Over the past 40 years, NIDEC has achieved 72 M&As. In other words, Hitachi purchased a company twice a year. Over the past decade, Hitachi has invested more than 4 trillion yen into M&A alone. Nitori did not hesitate to destroy unwritten rules in the Japanese business community, such as intercepting targets for acquisition by rivals if necessary M&A deals are needed. Tetsuro Ito, founder and CEO of Commonwealth Investment Trust, a renowned Japanese investor, cites the “SATORI” strategy as a criterion for determining which companies will survive 30 years from now.
Satori, which means “deukdo” and “realization” in Japanese, is an expression that comes from the initials of “social contribution,” “agility,” “technology,” “overseas,” “resilience,” and “integration.” All Japanese companies that have come back to life were well versed in Satori strategy. In the era of ESG (Environmental, Social, and Corporate Governance), the Japanese company quickly recovered from the shock of COVID-19 by making agile advancements into overseas markets by combining its flagship businesses with IT. Ikuziro Nonaka, a professor emeritus of Hitotsuba University, points out that the reason for the “lost 30 years” is that Japanese companies failed to become a game changer like Tesla as a result of their focus on analyzing the phenomenon due to over-managing of risks. “Innovation is created when risk is boldly accepted,” he said. “Japanese companies that survived have completely changed their organizational consciousness through management models that pursue the essence of digitalization.” Investors who distinguish between companies that survived and those that fell behind were stung by the eyes of investors. Japanese companies that are doing well also have something in common that their share price net asset ratio (PBR) has significantly improved. PBR is the stock price divided by net asset per share. Less than 1 times PBR means that the market capitalization is lower than the value of liquidating the company and is not trusted by investors.
Hitachi’s PBR, which was 0.96 times in 2019, improved to 1.96 times as of January 23 this year. This is in contrast to the collapse of Toshiba, another Japanese electronics company and Hitachi’s competitor. Toshiba was delisted from the Tokyo Stock Exchange on December 20 after 74 years of sluggishness. Toyota’s PBR exceeded 1 times. Sony’s PBR, which was 1.6 times, changed its front seat to 2.5 times. On the other hand, the PBR of Samsung Electronics, Hyundai Motor, and LG Electronics is similar to or worse than before COVID-19. It is pointed out that it is time to seriously consider whether the representative Korean companies are planning survival strategies 30 years later and “managing the Korean version of SATORI.”
SALLY LEE
US ASIA JOURNAL
