| BUSINESSWEEK ONLINE : AUGUST 9, 1999 ISSUE | ||||||||
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| INTERNATIONAL BUSINESS
Corporate Japan: No Room at the Top As companies restructure, older managers lose their jobs Masayuki Otsuka has had a classic career at Nippon Steel Corp. After 30 years in the Tokyo headquarters of the world's No. 2 steelmaker, he moved to a subsidiary to make way for younger managers. Then he shifted to a small affiliate of the subsidiary. Now 60, Otsuka advises recruits, and he has some surprising things to say about the career path he followed. ''I tell them to develop skills they can take with them if they leave the company,'' Otsuka says. ''Transferring employees to subsidiaries no longer solves problems.'' Sound counsel. Japanese corporations are closing their countless subsidiaries at a record rate. And the closings are hitting older managers such as Otsuka especially hard. For decades, those who didn't reach the top were parked in affiliates--where they might be no more than ''window sitters.'' Now, the lifetime-employment system is crumbling as companies strengthen balance sheets and focus on core strengths. The trend signals the wrenching change Japan faces after an eight-year recession. It also suggests the pain many Japanese will suffer: older managers as they are forced from sinecures, younger ones as they confront dashed hopes for secure careers. Schroders Japan Ltd. estimates that restructuring could push unemployment to a record 5% this year from 4.1% in 1998. U.S. MODEL. As Japanese companies chip away at their seniority-based management system, they are forcing executives to perform or go--and bringing Japan a little closer to the U.S. model. ''The move is gradual,'' cautions Koichi Hori, representative director of Boston Consulting Group in Tokyo. ''It's not easy to fire people.'' But the pressure is fierce. Recent surveys show that almost one listed company in eight intends to close subsidiaries or leave them to their own devices. Mitsubishi Electric, retail chain Daiei (DAIEY), Toyo Tire & Rubber, Mitsui Chemicals, and Sumitomo Corp. plan cuts (table). Itochu Corp., the blue-chip trading company, will cut a third of its 1,027 worldwide subsidiaries in the next two years. ''Only 62% of our companies are profit-making,'' says Sumitaka Fujita, a senior managing director. ''If a company doesn't make money, we will close it.'' LUXURY LOST. That's a drastic change in attitude. Vast and often wasteful affiliate networks have been a key part of Japan's full-employment system. At the height of the late-1980s bubble, Nippon Steel had one unit that grew mushrooms and another making semiconductors. But like the system they sustained, these subsidiaries are now unaffordable luxuries. Trimming down will be a tricky business. Many subsidiaries are run by the ex-bosses of rising stars in their parent companies--who are reluctant to force out former patrons. ''Even if the president of the parent decides on a drastic change, it's hard for him to persuade his seniors,'' says Ryoji Itoh, a director of consultants Bain & Co. Japan. Still, the generation taking charge has little choice but to shrink its empires. While there is no measure of the hidden unemployment among affiliates, Schroders estimates that joblessness must exceed 10% for Japanese companies to return to 1990 profitability levels. Lots of pain is inevitable. But companies will also have to overhaul pay and promotion to reward merit instead of lifetime loyalty. ''This is the only way to boost productivity and returns on capital over the long run,'' says Kathy Matsui, strategist at Goldman Sachs (Japan) Ltd. Some subsidiaries may manage to stand alone. Nippon Telegraph & Telephone Corp. spun off its mobile-phone unit as NTT Do Co Mo five years ago. Its stock price is now higher than its former parent's. But many subsidiaries will have to die. Either way promises rewards as well as adjustments. ''This is the age when employees can start to work for themselves,'' says Nippon Steel's Otsuka. ''If I were younger, I could have done that.'' In time, many managers in the generation behind Otsuka's may forget their anxiety and take his advice to break free. By Emily Thornton in Tokyo _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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