Overcoming Japan’s “Galapagos syndrome”

Globalizing Japan’s high-tech industries

At the Bank of Kyoto’s New Year celebration meeting, Japan’s stagnation and need for globalization were center of discussion – despite focus on globalization, the present author was more or less the only non-Japanese invited and attending(!).

The Chairman of Japan’s Industry Federation KEIDANREN, Mr Sakakibara (Chairman of Toray (東レ株式会社)), deplored that Japan’s economy is the only major industrial country not growing, and emphasized the need to overcome Japan’s well known Galapagos syndrome.

In an effort to overcome lack of growth in Japan, Japanese companies over the last years have been extremely active acquiring European technology companies – actually our company advised several Japanese companies’ M&A teams on European acquisition strategies and opportunities.

Japanese companies are particularly active acquiring European technology companies – this year alone, the EU-Japan investment registry shows Japanese acquisitions in Europe totaling € 6 billion – far more than European acquisitions in Japan this year.

Japanese acquisitions 2015 in Europe include:

• Canon’s tender offer for Swedish CCTV leader Axis AB for US$ 2.8 billion
• Sosei acquires Cambridge University spin-out Heptares Therapeutics for up to US$ 400 million
• Hitachi to acquire rail technology companies AnsaldoBreda and Ansaldo STS for EURO 2 billion
• NTT Communications to acquire German data center operator e-shelter for US$ 840 million
• Nikon to acquire Scottish Optos plc “The retina company” for approx. US$ 387 million

Post-merger know-how and execution are key

It is well-known that EU <-> Japan post-merger management requires substantial management know-how. While such management known-how has been built up between US-Japan over many years, EU-Japan investments had only a shorter time to develop, and in many cases companies are not willing to invest sufficiently in such know-how. As a consequence the majority of EU <-> Japan investments has failed unfortunately – poster-children are the failures of Vodafone’s acquisitions in Japan and the failures of Docomo’s investments in EU, and there are many more examples.

To overcome these problems, several recent Japanese investments are substantial investments but short of 100% where local European management is kept in place – following the Renault-Nissan success story. Indeed, Carlos Ghosn has emphasized that the Renault-Nissan investment would probably have failed, had it been a 100% take-over.

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