Yoshiaki Fujimori outlines why companies such as the LIXIL Group Corporation, together with Abenomics, are not only changing the economic landscape of Japan, but the cultural landscape as well, and why global investors should be paying attention.
What role does the private sector need to play in order for Abenomics to be a success?
First of all, the government is implementing its economic stimulus program; the three arrows of Abenomics. The first two arrows are fiscal policy and monetary policy, which gives the private sector access to cheap capital.
So, there is no reason that the private sector shouldn’t utilize it. We should be aggressive in making acquisitions, going overseas for growth, because Japan is limited in the sense of growth.
Indeed, LIXIL is focused on going global for growth. That abundant resource that the government gives us, whether it’s capital investment over here in Japan, or to encourage going global with mergers and acquisitions (M&As), provides a platform from which we have to be aggressive. That’s one side of it.
Now, Prime Minister Abe has the third arrow, which is focused on structural reforms. They are in agriculture, healthcare, and in various sectors of the economy. But Prime Minister Abe also states that he’s going to make a change in industry or the business sector.
What does that mean for the private sector? Should the private sector continue with the same business model that we have been using before under the new reforms? That isn’t logical.
So we have to be innovative. We have to create new business models, we have to align with the newcomers, we have to align with foreign companies, global companies; we must not simply repeat what we have done in the past.
That is our responsibility as an industry.
From the economic revitalization perspective, Prime Minister Abe is pushing more women to work; he’s pushing for greater diversity.
I think this is an area where the private sector has to match two or three times the effort that the government proposes, because I truly believe that women will play a fundamental role in this revitalization.
I think that in order for Japan to grow as an economy, women’s intelligence and perspectives have to be harnessed.
That, I think, gives us an engine for growth, an engine for innovation, an engine for more energy for the entire country.
Women have been extremely underutilized, their power taken for granted. I truly believe in that. Women are fundamental to Japan’s brighter future and we are working with Minister Arimura to harness this capability together.
The imminent signing of the Trans-Pacific Partnership (TPP), which is comprised of 12 countries, 40% of the world’s GDP and 1/3 of its trade, will be the largest trade deal in history. Considering at the moment Japan’s demographic crisis and the fact that more than 50% of Japan’s economy relies on domestic demand, how important are free trade agreements (FTAs) such as the TPP to growing Japan’s economy, and what impact do you think the TPP will have on LIXIL’s operations?
I work closely with Keizai Doyukai, which is the Japan Association of Corporate Executives, to guide Japan on this topic.
It’s very different from many business associations in that the CEOs are members in a personal capacity, and it creates the opportunity for CEOs to speak more freely about his or her views on the economy, on political agenda, and so forth.
We’re very much a proponent of the TPP and not only just the TPP, but also the Japan-EU and Japan-Korea-China multilateral agreement called the Regional Comprehensive Economic Partnership (RCEP), which is the three countries plus all of the Asean countries, including India, New Zealand and Australia.
But the question is what do these agreements bring to Japan? First of all, LIXIL operates in a global environment where we want to play by the rules.
Fairness is very important. Jack Welch used to say, “You can’t play a game with no rules.”
Those multilateral agreements, regional agreements, they provide us with common rules that we can play by.
Either it is intellectual property or government procurement or tariffs and no-tariff measures; it provides the private sector with a level playing field.
Now, when Japan opens to the world, there are two possibilities: Japanese companies can go international and international companies can also come to Japan.
Some people say we have to protect ourselves from this competition that is coming to Japan, but I believe that any protective industry is going to be unable to survive in the long term.
If we open the door and competitors come into Japan, that really makes us more competitive at the end of the day. I believe in Japan’s capacity to compete with others on the same level playing field.
We can win because of our work ethic, diligence, and hard work. But if we’re protected, the end is nigh, in a sense.
How have you been able to break down all these barriers and create one single company, something many Japanese companies would find very hard to do?
Well, it’s certainly a challenge to do something that is outside of the traditional norms, because when you fail, criticism can be strong.
But when you do it the traditional way and you fail, the criticism is not as obvious. Take risks, don’t be afraid of risks, don’t be afraid of failure.
It is important that decision making should be well informed, so that risks are taken in a calculated manner. But be aggressive, be optimistic, because if you worry about failure most of the time, you’ll stop.
So, self-confidence and being optimistic is the core attribute that a CEO has to have, especially here in Japan.
I also believe it is important to set a clear vision. I have always said to our employees that to secure your future you have to create it.
We focused on setting clear objectives based on a three-step path to transformation. Change will happen when you don’t like the status quo.
When you are not satisfied with the current situation, then you find out where you want to go.
So you look at the world and you find the best practices that you want to achieve and you set the vision to where you want to be. You do this to set the vision, which comes first.
Then you have to communicate this vision 100% of your time to fundamentally convince your employees of this vision. The communication includes not just talking to them, but to get their commitment for this journey.
So they have to be in line with it. Then you have to execute the plan with a team and with a long-term oriented strategy. So the three-step process is vision, communication and execution.
I think those are the three steps that you need. But it always starts from the vision.
How do you plan to launch your competitive advantages and differentiate yourselves not only from the international community, but also from your domestic competitors?
We take the approach of globalization through M&A, because we want to acquire the best brands in the world. From the Americas, to Europe, and also the best brands in Asia.
Of course there are different approaches to global expansion. You can go to the country and build factories and build your brand for 20 or 30 years. Or, you can do M&As.
An M&A always carries risks, but it gives us time and it gives us something that would take far longer to establish, which is the brand.
So, the product you can develop, the channel you can develop, but the brand that has been there, such as American Standard in the U.S. for 150 years – you’ll never beat that brand.
So, I think our strategy is a multi-brand strategy, unlike the many single-brand companies. Toto for example is a single-brand, no matter where they go they use Toto.
Panasonic, Sony, they use the same brand globally. Our strategy is the multi-brand strategy, so we’ve acquired brands in Africa or Europe or the Americas that people are already familiar with.
We have a global brand, like Grohe, which is like the Mercedes of showers and faucets. Permasteelisa is a global brand, all the architects in the world know Permasteelisa.
So a combination of the strongest global brand as well as the globally well-known high-end brand is how we approach the world.
Arguably one of LIXIL’s most important competitive advantages is its unique corporate culture for a Japanese company with its obsession with equality, meritocracy and diversity, which lead to developing high quality human capital. How important is this to the success of LIXIL and how do you implement this on a global scale to promote leadership?
I think the culture is very important, especially when you are working in 150 countries and the 150 countries have different backgrounds.
Everywhere has a different background in terms of religion, culture, history – it’s all different. So the question is, what is the thing that bonds them or unites them in one direction.
That’s what I call the LIXIL values, the company’s core values where people behave and act on those core values.
We have five core values that we diffuse through the entire company. We define leadership based on a person’s ability to implement and embody those values.
So we’re trying to create a set of people, when we’re thinking of 10 years from now, 20 years from now, to create a company with core values that lead us into the future.
That’s why those core values are important, and those core values are important when we’re working in 150 different cultures, histories, languages.
Trust and confidence is vital to the success of Abenomics. What would you say to international investors who are maybe hesitant about investing in Japan and partnering with Japanese companies?
I would say that we are revitalizing Japan. So visit us and you’ll see that we’re changing. We’re changing not only structurally, but culturally as well.
We’re transforming ourselves and there are certainly opportunities to take advantage of.
I see many companies in Japan where there are significant changes taking place, sometimes where we would have never imagined.
Even in areas such as the Internet of Things (IoT) sector, there is significant progress; maybe not as much as in Silicon Valley, but Japanese companies have been very helpful and very successful in supporting progress in areas such as IoT.
The uptick in intelligence or robotics probably is the future, a big mega-change, I would say. I believe Japan is good at that, in terms of technology and capacity.
We can create significant business opportunities in these areas.
But not only that, the culture is changing as well. Abenomics is not just changing the economic state of Japan. It’s not a policy, it’s not just tools, but we’re changing culturally as well.
We’re changing our culture to be more global, we’re changing our culture to be more diverse, we’re changing our culture to be more digital. It’s all about the leadership.
When leaders are not into it, and don’t educate or train people, it never happens. So that’s why we’re trying to lead Japan here at LIXIL.
The board has changed our corporate management team to include more global people. Half of my directors are non-Japanese. Again, I’ll say it’s all about leadership.
It’s top down. You need to embody the change you want to see in the world.
So you’re setting a trend for Japan?
Setting the trend, but we also have to educate people. When I joined this company, I set up an entire leadership program. I had extensive training from GE.
So we set up a similar system to train everyone from executives to entry level. We have the executive program, we have a senior program, we have a junior program, the freshman’s program.
We have to train them. We have to put our money into their leadership training. Not only do the leaders set the stage, but also they train the future generations.
Also, we created roundtable communication, by visiting our regional operations. When I visit local places, I not only meet with customers, but I lead the roundtables.
I do the big meetings to try to convince them or try to communicate where we’re going, why we do this, what the benefit of doing this is.
The leader has to spend a lot of time, I would say more than half of your time, communicating and leading the people to where we want to be.
So it’s communication. You have to develop a sense for what needs to be changed. I sense it by seeing the people everywhere at all the levels.
We also do employee surveys, to understand what they think about our strategy for globalization. Do they understand it? Do they agree with it? Are they into it?
Investment in leadership development was traditionally not done in Japanese companies, but we want this to be a core hallmark of LIXIL’s future growth.
This is not just for Japan, it has been rolled out to our entire global operations.
At all stages of an individual’s promotion within the company there will be a leadership program. When you’re training to be an executive, there will be another leadership program.
So it’s a really structured program built from scratch for LIXIL at a global level. Plus we’ve also just instituted global grading, so if a Japanese employee wants to go and work in New Jersey in the American Standard brand’s business, we can make that happen because we have a global grading and HR process that makes one LIXIL possible.
Can you tell us a little bit about your personal experience with implementing Abenomics and implementing this openness to another way to doing business from your own perspective?
It’s interesting that I went to the United States in the early ‘90s, actually in 1990, when the first Gulf War started with George Bush Senior.
The first thing that I encountered when I was in the U.S. was diversity training – it’s amazing. Diversity training and leadership training.
So, diversity training, and my first reaction to it was, “Why are we doing this?”
But when you go through diversity training and understand how deep in one’s mind discrimination can be, you feel like there’s something wrong and you can do something to change it, and how to cope with that to be more equal-opportunity oriented.
In fact GE as a company has changed a lot, but also the U.S. has changed a lot.
Things have changed enough in 25 years for Mr. Obama to become President and Hillary Clinton to become a candidate for the presidency.
It’s only 25 years that I’ve been seeing huge change happening in the United States, it’s not like 50 years or 100 years. GE’s diversity training, that was a personal item.
I mean that’s my experience. If the country initiates, if the company leader initiates and cascades all the way by training, then something happens and that is what Mr. Abe is doing in Japan.
That was an example of a significant personal experience that tells me this is a great thing, and this changed the country.
Leadership is the same thing. I got the leadership training about a year after I joined GE, but when I joined the leadership course I picked up the dictionary and looked for what leadership was in Japanese.
I couldn’t find the word. It hit me that the concept of developing leadership didn't really exist in Japan. That was in my mid-thirties.
I didn’t get any leadership training until that point. Before the training, I thought that leadership was something that you’re born with.
I concluded after the course that leadership is something that I can develop myself through my own effort. Anybody can do it by processes, by training, by effort.
That was a huge change in my mind, that I could do it instead of “Jack Welch is a great leader and he was born with it,” when actually it’s not like that, he can develop 33,000 employees to be leaders.
That’s why I’m doing this. Even if in Japan they don’t get it today, young people will pick it up faster.
When you continue five years, 10 years, 15 years, it makes the whole difference. You can do it.
It has to all be integrated. Leader-led is great, the vision, but they have to have the training to support that, the education to support that, and actually you have to hire good people.
You get people like Jin Montesano, our Chief Public Affairs officer, you get other women, you promote women, you get other foreigners to come in and you integrate them into your system, you spend the time to educate and train them properly.
I respect Mr. Abe. I think that Mr. Abe is doing exactly the right thing. I mean he set the stage. The change, the diversity, he does all this sitting, but again unless it becomes a social framework, social architecture, in which I think the private sector can help, Japan cannot change.
Japan aspires to go through all of these changes. What is the perception that Americans should have of Japan? What should they perceive in Japan in a couple words?
I want them to think of Japan as we’re again an emerging economy. Again, Japan 10 or 15 years ago is different from Japan today. We’re re-emerging.
We’re a re-emerging economy. Again, we’re in a stage of transformation. The stage of transformation may provide some instability, but the instability provides an opportunity.
Imbalance provides an opportunity because someone who is smart, who is aggressive and optimistic gets to capitalize in this environment.
In the quiet traditional no-change world, no one can win. This re-emerging market, re-emerging economy, those who take risks, those who are aggressive, those who want to lead can win big time.