Japanese conglomerates are warming to Western-style management, despite government constraints, acco...
Japanese conglomerates are warming to Western-style management, despite government constraints, according to Natasha Chetwynd, director of Japanese equities at Britannic Asset Management.
She is optimistic that restructuring within large conglomerates is on the rise and cites general trading company Itochu as an example. Its shares have risen 13.85% in yen terms for the year to 18 March 2002.
She says: 'It has quadrupled its profits and halved its debts through focusing on high return business. It also sold non-core assets and some assets with large capital gains, such as software business CTC Itochu at the height of the technology, media and telecoms bubble.'
Although it has not completely restructured, Mitsubishi has also forged a new role for itself in the market, says Chetwynd. 'It is no longer just a commodity trader but has become involved in value-added projects such as buying natural gas rights in Asia,' she says.
While some companies are making corporate restructuring progress, it is slow because of legal constraints, says Jonathan Greenhill, director of Japanese equities at RSA Investments.
He adds: 'It is unfair to expect them to be aggressive so quickly. At present, if they lay off staff they face paying their employees for a further 12-18 months. But it is encouraging to see a pick-up in share buy-backs and the formation of strong alliances.'
Hitachi and Mitsubishi Electric, for example, have recently merged their semiconductor businesses, while Wal-Mart has bought into Seiyo, a chain of restaurants.
Greenhill says: 'We are undecided whether the Wal-Mart alliance with Seiyo is beneficial, but it will be interesting to see how it develops. Western businesses such as Merrill Lynch and Boots entered the Japanese market but had to pull out as they buckled under the system.'
The more Western approach to staff management is also catching on, says Chetwynd. 'This is positive as long as the business is supported by strong balance sheets and operating margins,' she says. 'Hitachi has been a real success in becoming more internationally compatible.'
Sarah Whitley, head of the Japanese department at Baillie Gifford, agrees with this assessment. 'Recently, Hitachi made the bold move of asking employees to take a 5% pay cut,' she adds.
Going forward, Chetwynd is generally optimistic about Japan. She says: 'The market is cyclical and news from the US and Japan is better than expected. There will be a rally that will last until May or June 2002 and could go on longer.' For this reason, Greenhill is overweight cyclicals and owns Nippon Steel and Nippon Unipak, the paper company.
Chetwynd is overweight wholesalers and neutrally weighted industrial electronics. She cites MHI, a machinery manufacturer that makes aerospace ships and gas turbine machinery as a favourite.
Despite general positive noises coming from Japan, Greenhill says the government has continually disappointed by refusing to take deregulatory action or reform the banking sector.
Chetwynd agrees that the government is difficult to read. 'It is no longer as keen on reform because the economic environment is so weak,' she says. 'Companies however have a need to become more attractive on an international level.'
Strong alliances forming in Japan.
Quadrupled profits for trading firm Itochu.
Legal constraints delay restructuring process.
The Japanese yen remains weak.
Government difficult to read.
£300bn of liabilities
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