Report on Survey for Current Situations of Japanese Companies’ Cross-border M&A Compiled
"Cross-border M&A and Japanese Companies - Overcoming Challenges in Cross-border M&A by Insights from leading Domestic and Overseas M&A Players"
April 9, 2019
In the summer of 2018, the Ministry of Economy, Trade and Industry (METI) started conducting interviews with overseas companies and foreign-affiliated investment funds with rich experience in M&A and holding workshops, including group discussions with Japanese companies, and other events. Through these efforts, it collected fresh opinions from domestic and overseas companies playing leading roles at the forefront of M&A and compiled them into a well-organized report on challenges related to cross-border M&A by Japanese companies.
1. Background to the preparation of this report
As many Japanese companies are recently becoming aware of cross-border M&A as an important and effective tool to achieve global-level business growth, an increasing number of Japanese companies are engaging in cross-border M&A. However, as cross-border M&A is often a highly challenging goal, a significant number of companies are unable to fully achieve the expected results. Against this backdrop, in FY2017, METI inaugurated a Study Group for Japanese Companies’ Cross-border M&A and, since then, bringing together experts, the study group has been holding discussions on challenges that Japanese companies are facing in M&A and has compiled a report of key points that Japanese companies should understand in order to effectively take advantage of cross-border M&A along with case examples. METI has released the report which is titled “Report on Discussion Results of the Study Group for Japanese Companies’ Cross-border M&A” along with a document titled “Nine Actions for Successful Cross-border M&A.”
In FY2018, METI conducted the following survey, aiming to enrich the efforts mentioned above and share them with a broad range of Japanese companies and, through this, to encourage such companies to make bold attempts at international success, despite the fierce business environment of global competition.
2. Details of the survey
- Aiming to clarify the challenges faced in cross-border M&A and make supportive measures more specific, METI held round-table discussions in the United States, the United Kingdom and Singapore, respectively, by bringing together employees of Japanese companies who have been dispatched to these countries as part of their companies’ efforts for post-merger integration (PMI)and local management of foreign companies acquired by Japanese companies; and it also held interviews with 15 companies from the United States, the United Kingdom, Germany, Singapore and India and five global private equity firms , including those not developing business in Japan.
- Aiming to disseminate key points of cross-border M&A and other actions to a broad range of Japanese companies by taking advantage of the Nine Actions for Successful Cross-border M&A and to further clarify challenges that Japanese companies are facing in cross-border M&A, METI held workshops including open discussions in Japan targeting companies that are engaged in, or that intend to embark on cross-border M&A.
- Through interviews with overseas companies and foreign-affiliated investment funds, METI also produced a list of factors that make Japan an attractive investment opportunity and challenges therein, and well-designed efforts for cross-border M&A and leading case examples of successful companies.
3. Outline of the Report on Discussion Results of the Study Group for Japanese Companies
The report categorizes the challenges that Japanese companies are facing in cross-border M&A into three groups: “shortage of global-scale management capability” and “undeveloped global-scale management systems” that companies face in developing business overseas, and “insufficient preparation of frameworks for execution of M&A that take into account the entire M&A process.”
- Shortage of global-scale management capability
- Ability to clearly communicate one’s own management philosophy, vision, strong points and the position of M&A in business strategies;
- Ability to speak local languages to communicate the items above; and
- Ability to adapt to local corporate cultures which are often different from the domestic culture so as to effectively promote post-acquisition management.
- Undeveloped global-scale management system
- Addressing corporate governance in which accountability and outcome accountability are taken into consideration; and
- Compensation systems meeting global standards, including incentive systems.
- Insufficient preparation of frameworks for execution of M&A that take into account the entire M&A process
- Clarifying key points that companies should understand in the respective processes of M&A strategies, implementation and PMI; and
- Formation of M&A-related units within companies
As mentioned above, in advancing cross-border M&A, Japanese companies need to acquire overseas companies that operate under different languages, cultures, business practices and systems and to control the management of acquired companies. Accordingly, it is indispensable for Japanese companies to have global-standard management strategies and comprehend the systems and frameworks that many overseas companies have incorporated and consider as standards. This is considered to be one of the great differences between international and domestic M&A. Moreover, in order to ensure success, Japanese companies must develop, implement and continue to iterate concrete strategies that cover cross-border M&A processes ranging from initial selection of partner organizations to post-acquisition management.
Information on the “Nine Actions for Successful Cross-border M&A” and the “Report on Discussion Results of the Study Group for Japanese Companies’ Cross-border M&A”:
- The Report and the Nine Actions formulated by the Study Group for Japanese Companies’ Cross-border M&A (released in March 2018)
Division in Charge
Investment Facilitation Division, Trade and Economic Cooperation Bureau