Japan has had a tough time in recent years,with some of its major companies posting significant losses or profit warnings.The domestic market is stagnating and shows limited growth potential:local demand is sluggish and the current population of approx.127 million is aging at a rapid pace.
By 2050,the Japanese population is expected to shrink to below 100 million people.Thus,companies have already initiated drastic changes in their business and industrial models.These changes can make the difference between being a healthy or ailing player and provide companies with the flexibility and globalization necessary to overcome economic difficulties.
The new Roland Berger study"Industry Model 2.0:Raising the Competitiveness of Corporate Japan"analyzes the key differences between Japanese companies and businesses from other major countries.The study also looks at several examples of successful and unsuccessful business models chosen by Japanese companies to define the key features for good business.
Stronger business focus and internationalization are needed
In response to the stagnating domestic market and strong competition from foreign businesses,Japanese companies have started developing new strategies.Nevertheless,except for a small number of companies,the traditional business model still remains predominant in Japan.At the moment,only 63%of Japanese companies are focusing on fewer than three business segments,compared to over 80%in the US,France or Germany.
"The general assumption is that a diversified portfolio makes it possible to minimize risks.Still,companies with a highly diversified portfolio were as badly hit by recent crises as sector-focused ones,and they had more difficulty in recovering,"says Martin Tonko,Partner at Roland Berger Strategy Consultants and co-author of this study.In fact,in contrast to highly diversified groups,Japanese companies that focus on a single sector have experienced annual sales growth above 10%since 2004.
A very important issue for Japanese companies is also the internationalization of their business–a step that requires a well thought-out strategy."Japanese companies that go international tend to have higher profitability than their purely domestic counterparts,"says Tonko.For instance,Japanese companies that operate in only the domestic market experienced a 0.5%drop in EBIT in 2011.At the same time,companies that generated more than 50%of their sales abroad enjoyed EBIT growth of 7.4%.
But while internationalization opens the doors to new growing markets,it also triggers competition with global players.Thus,in many cases,Japanese companies need to increase their specialization in order to focus efforts and resources and achieve the required level of product,cost and service excellence.
Five striking characteristics for successful business
Because of the high risk of natural disasters in Japan,as the tsunami in 2011 showed,some companies have started to move overseas to hedge their supply chain risks.Several Japanese companies have initiated industrial model changes to succeed on a global scale.
In their study,the Roland Berger experts analyze the strategies of Japanese companies and identify five key features for successful business on an international level:
Compact business portfolio with distinct synergies among its businesses
Conscious efforts toward achieving high customer loyalty
Ability to profit despite shortening product lifecycles
High value chain flexibility and control
Cultural diversity as a basis for innovation
The changes observed at Japanese businesses range from new market entry strategies and new approaches to suppliers, customers and product development to new internal organization and HR policies. "In order to change their business model, companies need to take a three-step approach, starting with portfolio optimization, including non-core businesses, followed by business model innovation and finally further internationalization," says Hélène Burger, Senior Project Manager at Roland Berger Strategy Consultants. "Once enacted, companies will no longer pay for unnecessary diversification with lower profits. Instead, they will gain a more competitive edge."
