Japan is famous for its mega-companies. From industrial giants Toyota, Sumitomo and Hitachi, household brands Sony, Nintendo and Canon, to emerging giants Softbank and Rakuten, Japan boasts companies famed for their products and services in every corner of the globe. Five of the world’s top fifty largest businesses are Japanese, a remarkable feat when you consider that the list is dominated by oil and gas companies, a commodity that Japan has virtually none of.
Trends over the last 20 years however have meant that many of those Japanese companies that helped catapult Japan to the world stage are having to compete with a fast-changing commercial landscape and fierce competition from China, Korea and Taiwan. The result of this has seen Japanese brands being pushed further away from the eye of the consumer than ever before. This in itself has engendered a perception that Japan, as the “sick-man of Asia”, is in a slump that it will never get out of. Yes, the struggles of Sony, Sharp, JVC and Panasonic are real and all have been victim to commoditisation within the CE sector, and all have made critical strategic errors to compound these shifting market forces. However, Sony have responded by streamlining the whole group and selling off unprofitable units such as their Vaio business to focus on more lucrative areas where they still have a lead, such as their CMOS sensor business where they dominate in the supply of CMOS sensor components to Apple. Panasonic have reacted by closing down their plasma display business and focusing on their automotive, infrastructure and energy businesses; Sharp by selling parts of the company to Foxconn, shutting down unprofitable plants and offering early redundancy to thousands of employees; and JVC by licensing their TV brand to Orion and merging the rest of the company with Kenwood. The trend has continued this year with two audio giants, Pioneer and Onkyo, merging their operations.
But, despite all this, Japan is still the world’s third largest economy. How can this be? Sony being in trouble means that Japan is in trouble, surely? Whilst the bubble years of the 80’s is unlikely to return, Japan is still very much alive and kicking as beneath the problems of these well-known giants lies a layer of mega, billion dollar companies that are virtually unknown to the outside world, and in some cases, unknown to the average Japanese person. It is these companies that offer an insight to the continued success of Japanese firms around the world, and represent opportunities for western firms looking to trade and develop business opportunities with Japan Inc. They are cash-rich, all are looking to diversify, and all are on a constant search for technologies that can give them a lead over rivals both home and overseas.
“It is fair to say that if a bunch of man-eating aliens wanted to get Planet Earth’s attention, they could usefully start by taking out Shin-Etsu. The resulting silicon shortage would make the notorious Arab oil embargo of the mid-1970s look like a picnic.” This is how a recent Forbes article website described the impact of what would happen if Shin-Etsu ever went out of business (which is in no way likely to happen). Putting it another way, a world without Shin-Etsu products would have an effect on nearly every human on planet earth.
The Shin-Etsu Chemical Co., Ltd was formed in Niigata in 1926 as a nitrogen fertilizer company. Today, they are Japan’s largest chemical conglomerate and possess the number one global share in polyvinal chloride (more commonly referred to as PVC) which is used in everything from sewage pipes to clothing; semiconductor silicon – the base material for every silicon chip ever made; and photomask substrates which are used in the manufacture of semiconductors and displays.
With sales of approximately $10.5 billion in 2014 and backed by a global workforce of 18,000 people, Shin-Etsu’s expansion continues unabated with new plants being announced this year in Taiwan and Louisiana in US. They are also a well-renowned innovator, exemplified by constantly featuring on Thomson Reuters top 100 global innovators list, and have a proactive and open attitude to outside techs, providing opportunity for western firms with solutions in increasing manufacturing efficiency and performance capability.
Murata Manufacturing is another of Japan’s secret success stories and like Shin-Etsu, if Murata were to cease operations today, the impact will be felt the world over. One high-ranking official at Apple was quoted recently as saying, “smartphone production around the world will grind to a halt if Murata stops operating” (again, this is in no way likely to happen).
Founded in 1944 by Akira Murata (his grandson Tsuneo is now President), the Kyoto-based company has a dominant market share in ceramic components for mobile phones and other devices. They reached a record net sales level in the year to March 2014 of approximately $7billion and an impressive operating income ratio of nearly 15%.
Murata is not resting on its laurels however, and its recent activity in the healthcare and energy/cleantech sectors through licensing and M&A represents a serious opportunity for western technology firms.
Whilst ShinEtsu makes the raw material that chips and components are made from, and Murata makes the actual components themselves, Fanuc makes the robots that are used to apply those components into consumer and commercial products. There are 250,000 Fanuc robots installed worldwide and they are one of the largest makers of industrial robots in the world. Revenues hit $6 billion in 2014 and are projected to grow 60% year on year on the back of continued rapid growth in automation.
Established in 1972 by Dr Seiumon Inaba as a spin-off from Fujitsu, the company has adopted an Apple-like approach to its product development by focusing on developing a small range of best-in-class products instead of making products for every eventuality. Over the four decades they have been in existence Dr. Inaba has built Fanuc into the world’s biggest supplier of industrial robots. Its computerized controls, used in more than half of the world’s machine tools, give lathes, grinders and milling machines the ability to turn metal into just about any manufactured product, from a titanium hip implant to the aluminum strut in the wing of a Boeing 747.
4. NTT Data
The Forbes Global 2000 list recognizes NTT Data as the 5th largest IT Services company in the world. It is Japan’s largest such company.
As Japan’s former national carrier, the name NTT may be familiar to some, but since being spun-off from the main NTT group in 1988, the extent of NTT Data’s business both domestically in Japan and increasingly overseas is familiar to only to those closely involved in the IT services industry.
As an example of their influence on every day life in Japan, all credit card transactions in the country are made on the back of the NTT Data managed CAFIS system. NTT Data also has the right to resell Tweets and their metadata in Japan making it ideally placed develop new revenue streams based on data generated from social networking.
Overseas, whilst its profile remains fairly low, NTT Data partners with a range of businesses and government agencies providing an array of services including consulting and managed services. In fact its overseas influence is steadily growing - this year it announced the acquisition of US IT consulting firm Carlisle & Gallagher.
With deregulation in the financial and banking sector soon taking place Japan, NTT Data is becoming increasingly active in seeking cutting-edge technologies from the west, especially in the increasingly competitive fintech space. The dominance of the Japanese mega-banks - long-term IT customers of NTT Data - will soon be under threat by deregulation. As these very same banks have been prevented by regulations from working with and/or acquiring overseas technology companies they are effectively depending on NTT Data to bring them solutions and services that can maintain their dominance. Thus, from a company that has provided IT Services, NTT Data is now increasingly adding a very powerful consultancy and advisory element to its armory.
5. Recruit Holdings
Recruit Holding is the largest staffing company in Japan, and fifth largest in the world. Their October 2014 IPO saw them raise $1.9 billion, some of the proceeds of which will be used to fund acquisitions both overseas and in Japan.
Established in the 1960’s to provide services to companies looking for people to recruit and students looking for employment, the company gradually evolved into a multi-faceted media, publication, IT services, and adtech conglomerate. They are active in the VC community and with CEO Masami Minegishi boldly stating that he plans to acquire up to 100 companies over the coming years, Recruit are increasingly active in the western VC community to help meet Minegishi’s brave objective of being the world’s largest staffing and services company by 2020. Complementing this, Recruit have established Silicon Valley-based Recruit Strategic Partners who have a focus on investing in IT companies primarily for strategic purposes.