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Japan's Foreign Targets Include CEOs

Post Time:Jul 28,2008Classify:Industry NewsView:373

TOKYO -- As more Japanese companies expand by making large acquisitions abroad, some are finding they are missing a key element of success: a top executive who can bring together diverse domestic and foreign operations.

Despite Japan's large pool of talented executives, the strength of Japanese managers often lies in fostering consensus and a corporate culture over a long period of time. Many home-grown managers are reluctant to embark on the kind of radical shake-up that many Japanese corporations need right now, especially those that are trying to manage global operations.

That can lead Japanese companies to look overseas again for non-Japanese executives to take top jobs. Foreign bosses brought in by high-profile Japanese companies in recent years include Carlos Ghosn at Nissan Motor Co. and Howard Stringer at Sony Corp.

Joining the list more recently is Stuart Chambers, a former chief executive of U.K. glassmaker Pilkington PLC that two years ago was acquired by a rival only half its size, Japan's Nippon Sheet Glass Group. In April, Mr. Chambers was named CEO of the combined company, and he took the helm on June 27.

A straight-talking Englishman, Mr. Chambers, 52 years old, faces the task of melding the domestically focused Japanese company with the British company that has wide international experience through operations in two-dozen countries. He needs to pay down some of the debt used for the $4 billion acquisition of Pilkington, and to deal with the rising cost of energy, which the company expects will drag down operating profits by a third in the fiscal year ending in March.

Mr. Chambers is determined to make a strong impression fast and is focusing his early efforts on shaking up the company's work force. "You need success, and you need early success so that you can cut short the debate about, 'Well, why do that?'" he said in an interview.

Nippon Sheet Glass executives say they decided on a foreign CEO because a non-Japanese chief could make change happen quicker. They also decided that its managers, who were experienced mainly in Japanese operations, wouldn't fare so well as the company expanded internationally.

The Japanese market, where Nippon Sheet Glass made 80% of its sales, had plateaued around 2001-2003 amid a slow-growing economy and declining population. In contrast Pilkington, after inventing the revolutionary float glass process in the 1950s that made plate glass obsolete, developed a network of subsidiaries and joint ventures to become the most international of the largest glass makers in the world.

Buying the U.K. company instantly turned Nippon Sheet Glass into one of the world's biggest makers of windows and windshields, a $24 billion market. It now operates in 29 countries. "If we had not done anything we might have been bought by someone else," says Tomoaki Abe, vice chairman of Nippon Sheet Glass.

Other Japanese companies, too, are looking overseas for expansion, and corporate Japan's shopping bill abroad is $27.5 billion so far this year, already surpassing last year's total of $23.2 billion, according to data provider Dealogic. On Wednesday, Tokio Marine Holdings Inc., Japan's biggest nonlife insurance company, said it will acquire U.S. nonlife insurance group Philadelphia Consolidated Holding Corp. for about $4.7 billion.

More generally, about 77% of mergers and acquisitions world-wide don't create value for shareholders, according to a survey by the accounting and consultancy firm KPMG. What's more, the intense competition for deals had in recent years sent the price tag of companies skyrocketing.

"This made the job of being successful even more difficult," says John Kelly, head of KPMG's integration advisory practice.

Mr. Chambers gained plenty of experience in cost-cutting at Pilkington, where he became CEO in 2002. One analyst in Tokyo said in a note that he thought Mr. Chambers would carry out drastic structural overhauls at Nippon Sheet Glass based on Pilkington's restructuring experience, where he calculated the company's head count dropped to 24,000 from 37,000 in the mid-1990s and overhead costs dropped to 18% of overall costs from 31% .

The company already has offered early retirement to Japanese managers to streamline the work force. About a quarter of them have accepted. He says his aim is to install meritocracy among the 6,200 employees in Japan, and will start his new management system next fiscal year, which starts on April 1.

Unionized factory workers at Nippon Sheet Glass won't be affected by the job cuts. Still, says Keisuke Fuse, director of the International Bureau at the National Confederation of Trade Unions, "such a large scale of retirement of managers at one time could affect quality control of manufacturing business."

Mr. Chambers, a rugby fan who speaks German, French and some Japanese, says it is important that the company's official language be uniform -- English -- to make the transformation smooth. But he stressed these issues must be handled with tact; he made a 15-minute DVD in which he explained in Japanese his program for change to the work force.

"I only understood about quarter of what I was saying, but I took the trouble to learn it," Mr. Chambers says. "That doesn't change for one second that anybody in Japan, who wants a global job running operations across several countries, needs to learn English."

The Pilkington team now seems to be growing in influence within Nippon Sheet Glass. Of the five executive directors on the 12-member board, four are former Pilkington executives. Six of the 10 senior executive officers are also from the acquired firm.

Some of the workers are reassured that the company's headquarters remain in Tokyo and that Brunei-born Mr. Chambers has bought an apartment in the metropolis and spends at least half his time in Japan.

Nippon Sheet Glass's acquisition of Pilkington has already been successful in one key respect, retaining the senior management of the acquired company.

"It's quite unusual, with egos and concerns about who's running things, for the top managements of two public companies to get together and continue to work together," says Mr. Chambers.

Source: online.wsj.comAuthor: admin

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