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Last Updated: Wednesday, 13 October 2004, 14:25 GMT 15:25 UK
Remodelling Japan Inc
As part of a special series on Japan, BBC News Online's Sarah Buckley reports on the battle between Western and Japanese-style management practices.

Nissan factory (September 2004)
Japan's companies are examining their internal motors

Nissan and Mitsubishi, two of the world's most famous car companies, have both stared into the economic abyss in the last five years.

But while one has recovered to become Japan's most profitable automaker, the other remains in deep trouble.

Their crises expose weaknesses in Japan's traditional corporate model - weaknesses that were hidden until the economic downturn exposed them.

Just five years ago, Nissan had debts of $22bn and was close to bankruptcy.

The company had been complacent about its place in the market and its designs were felt to lack imagination, analysts say.

Toshiyuki Shiga, head of Nissan's General Overseas Markets, explained that although Nissan's problems were widely reported by the media at the time, the company's own employees would not believe there was a crisis. They were tunnel-visioned and ostrich-necked, he said.

1999 - debts of $22bn
Alliance with Renault under Carlos Ghosn
Now one of world's most profitable car companies
Made $7.29bn profit in year end of March 04

To compound problems, there was no forum for discussion among employees.

"Everybody had a plan or proposal to revive Nissan, but actually these kind of ideas... were completely not on the table," he said.

In Mitsubishi's case, its failings have resulted not only in huge losses, but in criminal proceedings.

Former president Katsuhiko Kawasoe and ex-vice president Takashi Usami are currently on trial near Tokyo accused of covering up safety defects for years which have been linked to the deaths of at least two people in 2002.

Analysts say a culture of not confronting problems, and complacency resulting from Mitsubishi Group's proud history, have prevented it from facing up to problems.

Inherent weaknesses

Both companies have suffered as a result of potential flaws in the traditional management model.

The first of these is the system of "keiretsu" - companies bundled together to promote each others' business interests.

This system means that companies are often propping up less profitable partners, and can also breed a false sense of security.

Alliance with Daimler-Chrysler forged in 2000
But German President Rolf Eckrodt resigned this year
Net loss of $660m expected in 2004
Japan's only unprofitable car maker

This has particularly hurt Mitsubishi, which as a group has dominated corporate Japan since the 1880s, said Yuuichiro Nakajima, Managing Partner of investment bank Crimson Phoenix.

"In the minds of senior management, there was the notion of other group companies coming to the rescue, and they continued to believe in that white knight. Therefore they could put off dealing with problems," he said.

The other defining quality of the archetypal Japanese company is what has been described as a "silo mentality" - employees only concentrating on their narrow responsibilities within their own department.

One advantage that Ghosn had when he arrived was that he was an outsider so he didn't need to be so careful about treading on people's toes
Yuuichiro Nakajima on Nissan CEO Carlos Ghosn

This was one of the first issues tackled by maverick French national Carlos Ghosn. He took over as Nissan's CEO when French car-maker Renault announced it was taking a 37% share in Nissan in 1999. That stake has since been increased to 44%.

Mr Ghosn introduced something called "cross-functional team working". This encourages dialogue across departments and divisions, engendering what Nissan's Toshiyuki Shiga terms "healthy conflict". It also enables the ideas of younger employees to get heard.

Mr Ghosn also tackled bloated management - cutting 22,900 jobs, some 15% of the total workforce, and halved the company's suppliers.

As a result, it is now Japan's most profitable car company, posting a $7.29bn profit in year end of March 2004.

Unhappy marriage

Like Nissan, Mitsubishi Motors forged an alliance with a foreign car maker, in 2000. Daimler-Chrysler initially took a 37% stake, although that has since been reduced to 20%.

But unlike Nissan, its foreign marriage has not ended happily. When Mitsubishi asked Daimler to bail it out financially, Daimler refused.

Mitsubishi has responded with an aggressive restructuring plan. It has declared it will cut 11,000 jobs in the next three years, and has reduced its departments from 230 to 157.

Mitsubishi President Hideyasu Tagaya (September 2004)
Mitsubishi's Hideyasu Tagaya wants to boost internal communication

The company's president, Hideyasu Tagaya, a cheerful man with an ebullient and open style, said he was also striving to improve communication within the company - broadening workers' perspectives by enforcing internal rotation.

"At the moment a person can come into the company and work in the same job for 30 years," he said.

But where Mitsubishi is not changing is in the make-up of its board - Mitsubishi Motors' executive managers have all come from Mitsubishi Motors or other parts of the Mitsubishi Group.

Mr Tagaya insisted that those from different Mitsubishi arms counted as new faces.

"It's the group but actually they're from the outside," he said.

But analysts argue Nissan benefited from completely fresh blood.

"One advantage that Ghosn had when he arrived was that he was an outsider so he didn't need to be so careful about vested interests and established relationships... about treading on people's toes," said Mr Nakajima.

Doing it Japan's way

So who does the average Japanese corporation resemble most - Nissan or Mitsubishi?

Seijiro Takeshita, director of Mizuho International PLC, said that Nissan is rare in its radical solutions. He said most companies had the Mitsubishi "gene", although the increased presence of foreign shareholders was forcing them to change, at least in part.

This means that they are reducing consensus management and increasing meritocracy.

But Mr Takeshita argued that the core characteristics of the Japanese model - weak shareholder influence, and a lack of clarity of responsibilities - had not changed.

He said these notions reflected key Japanese social values - loyalty to one's retainer and consensus building - and that Japan would never resemble the US in its core business practises.

"Still, the notion of belonging to the corporation itself is far greater than the thinking that it belongs to everyone," he said.

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