EA-TOKYO ARTICLES & ADVICE
Restructuring Japan: a viewpoint from a turnaround insider
Corporate turnarounds well and truly hit the headlines in Japan when Nissan CEO Carlos Ghosn wrenched the Japanese auto maker out of a black hole of debt, division and declining sales and transformed it into a thriving automotive powerhouse with the largest profit margin in the business.
With the rise of the corporate turnaround in Japan, many people are curious about this growing phenomenon. Foreign strategic players and private equity have played a huge role with their capability to realize changes, provide turnaround expertise, identify global partners, and introduce capital for revival. Allan Jardine, Head of Japan Operations for Asia-focused corporate turnaround specialists The Salzer Group, provided EA-Tokyo with a unique insight into the industry in Japan, and some key lessons the turnaround business can provide to entrepreneurs.
The Salzer Group operates in corporate turnarounds, rapid expansion, revitalization, and due diligence. “We coordinate major restructuring projects of 100 to 5,000 people, especially in large, complex and multi-site facilities,” Jardine says. “Additionally we find investment opportunities that are ‘under the radar,’ link them with trusted partners and steer them to profitability.”
Many people have drawn the parallel (in the main correctly) between entrepreneurship and the turnaround business, he says. Although most of the turnaround business is corporate in nature, there are deep parallels with pure entrepreneurship in the sense that a turnaround is in effect a “re-birth” drawing on past mistakes to build a stronger, more capable company. “The analogy I use is that of re-building rather than building from scratch − for which there are benefits in terms of the ability to learn from past mistakes, accumulated experience, assets and goodwill,” Jardine says. “However there are also clear downsides especially in Japan where it would be actually easier to start with a clean sheet than to re-arrange the existing pieces on the board.”
According to Jardine, the corporate turnaround area is “booming.” Working with clients, he develops an understanding of their strategic plans, corporate cultural issues and current challenges, then produces fundamental changes, typically taking a loss-making company and creating a highly profitable business.
CASE STUDY:
One example of a turnaround operation carried out by The Salzer Group involved the Japanese division of a western specialty chemical multinational that was actively resisting integration into the globalization initiatives of Head Office. “The company was split internally resulting in a confused workforce and mounting losses. We convinced the Japanese senior management team that the change was beneficial to their staff and to Japan. The local management exceeded downsizing targets and led the process. The division was transformed from a loss-maker into the highest profit-earner globally by becoming a fully integrated member of the global company.”
What has brought about the conditions for turnarounds and who is executing them?
In terms of the macro economic conditions, Jardine outlined renewed political courage, the opening up of hitherto restricted domestic sectors; a strengthened banking system; a spread of attractive mid-size companies with cutting edge design and innovation capabilities, as well as a general shift to lower cost countries, damaged balanced sheets, low profitability and low focus on shareholder value; as well as firms with too much debt or excess cash and a huge availability of capital compared to the number of entrepreneurial initiatives. “
Looking at the types of deals being done, we see divestiture of non-core divisions of troubled corporations, solid operating companies with balance sheet problems as well as orphaned subsidiaries of foreign firms or simply companies faced with new business model paradigm.”
Red flags of a struggling business
“The most important part of a buy out − is to get buy in,” Jardine says. The following areas are recurring challenges to a smooth turnaround, the awareness of which can be used by entrepreneurs to revitalize a struggling business:
• Muddled thinking − lack of a clear profit orientation with an insufficient focus on customers and too much emphasis on chasing competitors.
• No shared vision or common long-term plan − actually employees will have the solutions to problems. Before looking “outside the box” take a look inside first!
• Many firms and managers blame internal problems on external circumstances. “Often I hear about management who refuse to make decisions − the key here is to force decisions and responsibility downwards and engender a sense of urgency.”
• Many focus on cultural issues: Japanese are pragmatic and sensitive to change − but do as you say you will, and incentivize, incentivize, incentivize!
Lessons for Entrepreneurs from the Turnaround Industry:
• Small can be good − opportunities lie more in effective partnering rather than efficient production.
• In a rapidly changing world, substantial experience in a field may be advantageous but there are gains to be had by inexperienced players who can move quickly and match their businesses to a new business paradigm.
• Change can happen much more rapidly than people normally choose to acknowledge.
Industry in Japan at an historic turning point
Explaining that most of his clients require turnarounds to be completed both during and after in relative secrecy, Jardine did divulge that his recent assignments in Japan have covered a wide range of industries: manufacturing, chemical, FMCG, telecommunications and convergent industries, finance, insurance, IT and system integration as well as media, internet and content publishers. “So you can see from our client base that activity is spread right across the board,” he says.
“Looking forward, the industry in Japan is at an historic turning point,” Jardine explains. “The next wave will be focused on firms that require operational as well as financial turnaround. Logistics, distribution and retail would certainly be some of the sectors to watch. However, although it is challenging to pinpoint the all the areas we favor going into 2006, we will definitely see an overall shift away from the current focus on real estate.”
Ignore negative stereotypes
“Assume nothing, work fast and focus on objectives, making sure everyone else does, then earn trust and respect with strong results,” Jardine advises. “Ignore negative stereotypes about what can and cannot be done and deal with the issues as they arise − don’t invent them before they arise, and don’t let anyone else do it either.”
Article provided by Jonathon Walsh of Business Grow in cooperation with Allan Jardine.
Allan Jardine is Head of Japan Operations for Asia-focused corporate turnaround specialists The Salzer Group, (www.thesalzergroup.com/), with six offices throughout Asia. Allan may be contacted at allanjardine@thesalzergroup.com
