The repeated folly of the 外人 boss in Japan

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Several weeks back a foreign private equity firm asked what was CM’s opinion on gaijin (foreign) bosses in Japan. The answer was along the lines that an overwhelming majority end up failing for two main reasons:

1) failure to speak the language/understand the culture to a sufficient level and

2) thinking what has worked overseas will automatically apply in the domestic market.

Carlos Ghosn of Nissan-Renault fame could probably go down as one of the few that got it right. In his case Nissan was out of ideas, options and was prepared to listen to its new masters. Michael Woodford of Olympus fame was the other stand out gaijin CEO whose fate was cut short by a board coup after the Englishman uncovered massive fraud.

Sony under Sir Howard Stringer was different. Sony was not a cash strapped basket case on life support like Nissan was so the internal feudal structures could comfortably survive. The urgency to implement drastic change was not deemed an imperative. Stringer had no real command of culture or language and as such the machine below him functioned more or less as it wished. It is no surprise to see the man under Stringer is now the CEO and one can be sure almost all of the staff hitched their trailers to Hirai.

A chat with one of the Japanese dealers of a European auto marque last week highlighted the problems of gaijin bosses without sufficient cultural cut through. The company is struggling to compete with rivals who are simply leaving it for dust. The OEM has had 4 sales heads in the space of 2 years, For a country that prides itself on long term service, promotions based on tenure and stability, it was not a surprise to see the local staff keep their heads down. Why bother engaging with the new boss on what problems exist. Best stay silent. With any luck he’ll be gone and the next person will arrive and we can restart the game.

Yet these foreign bosses ask, “why don’t the local staff engage?” To the locals it is a simple matter of surviving til the next gaijin boss lands. Many gaijin bosses wonder why the Japanese staff spend a lot of time in glass rooms without them. They’re formulating the group responses which they think the boss wants to hear. Many seek to buy time. It is collective rationing on a life-raft.

The Japanese staff invariably prefer security over risk taking, So there is little incentive to be risk takers, even if some staff are bilingual. It isn’t a criticism but an acknowledgment that they don’t trust gaijin bosses. It isn’t even a reflection on the gaijin boss per se. Culture matters. If a gaijin boss can’t converse in a tongue that shows a commitment to understand cultural norms the likelihood of the message being conveyed (not withstanding another layer of translation) is almost pointless.

Another dealer mentioned that it has had the dealer margins recently slashed in favour of volumetric targets before bigger incentives kick in. While such strategies may excite the hungry salespeople outside Japan, the local sales teams here openly admitted the strategy change has had the opposite impact in terms of motivation. One sales member said, “dame, dame, dame!” (Dame = bad). He said it will more than likely mean that they push for selling cheap, low-end, low-margin product just to eat.

The irony is that if the OEM raised the initial margins for the dealers they would feel a margin of safety which would be seen as a way to sell even more bikes because they like the idea of predictability. The added pressure sedates not seduces. The dealer will likely struggle to the point of bankruptcy before trying radical maneuvers. The problem for the OEM is that reversing the strategy will create even less trust between dealer and OEM because it will highlight the lack of understanding. Gaijin strategies don’t apply.

The CEO of one American auto brand here has been crushing it for almost a decade. A gaijin with a mastery of language, culture and an understanding of the marketplace. In a decade, sales have quintupled and likely go up another 20% this year. Why? The dealer relationships are rock solid. They are treated as family. There is dialogue and communication and there is a shared sense of responsibility. If times get a little tight, the HQ makes accommodations so both end up in a win-win situation. In short – Trust!

The aforementioned European make effectively says that “you better make space for all the new cars coming your way next month” The dealers feel there is no relationship. The OEM seems totally dismissive of dealer issues. No matter how tough the market the OEM has no sense of loyalty to the dealers. That makes them feel uncomfortable about leveraging up or taking risk. They balk at buying too much stock because there is little to no flexibility.

Many gaijin CEOs need to know that when in Rome, do as the Romans do. Yet too many foreign bosses come in with the mentality they can swing the locals to their way of thinking. Usually that learning process occurs after realizing that hiring natives who speak their language doesn’t necessarily buy the skills they thought would help ram home the strategies that have worked in other countries.

While all the efficiency, profitability and success metrics make sense from a shareholders perspective, the local staff want security, longevity and shared accountability. The gaijin bosses that try to force Western norms before addressing the concerns of staff will find that both parties will have less of both desired outcomes.

A wise fund manager once said about Japan – “it isn’t capitalism with warts, but communism with beauty spots!” The sooner gaijin bosses understand that they will benefit from the collective strengths of the land of the rising sun.

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