What new Japan Inc needs in order to succeed

JAPAN - At a Hitachi factory in the city named after the company, there is a turbine being assembled for the Senoko Power Station in Singapore.

It is an impressive piece of engineering, precisely machined and made of material strong enough to withstand the enormous pressure and heat from generating millions of kilowatts of power.

I am here with journalists from India and several ASEAN countries, being shown around this sprawling facility, which makes the parts used in thermal and nuclear power stations.

We have been invited by Hitachi to learn more about the company and what it is doing to meet the demands of a fast-changing world.

The factory is spick and span, every tool in place, every place neatly organised, every organisation of work detailed to the last instruction.

The teams of workers speak quietly, four to five at each station, and there is an intensity about the way they go about the task at hand.

When you are assembling a thermal turbine weighing hundreds of tons and designed to rotate thousands of rounds a minute, it is best to give it your undivided attention.

For such a big place, there are surprisingly few workers.

This is obviously no sweatshop but a concentration of highly skilled engineers and technicians.

The next day, we travel 900km to visit a factory at the company's Kasado Works, which makes Japan's famed bullet trains, the Shinkansen.

The product is different but the tight organisation of the shop floor and the attention to detail are the same.

Here, they talk about double-skin aluminium cabins and friction welding, and there is enough capacity to produce 60 car trains a month.

It even has its own dock by the sea so the completed trains can be shipped from the factory to anywhere in the world.

Together, these two facilities represent the Hitachi that no longer wants to be known as the maker of television sets and refrigerators but of trains and power generators, and what it calls "social innovation infrastructure".

I will get to hear a lot more about these three words over the course of this visit as Hitachi wants the world to know that that's how it sees its future.

It's about helping countries improve their transport infrastructure, health-care facilities, urban planning and digital technology - all the big stuff that only a company with heavy engineering capabilities combined with cutting edge IT can deliver.

It's not a business that a copycat workshop in China or Taiwan can replicate using cheap labour, which it could, and did, for TV sets, fridges and even laptops.

Japanese companies like Hitachi had to change their business models in the face of this relentless competition, and they have had a hard time doing so.

Will it be good enough, though, to save Hitachi, and more importantly, Japan?

The story of how Hitachi has struggled in recent years to transform its business mirrors the story of a Japan that has limped from one decade of economic stagnation to the next.

There is now renewed optimism in the country after the appointment of Prime Minister Shinzo Abe, who promptly declared that Japan was back and announced new initiatives to revive the economy.

But whether Japan succeeds depends on companies like Hitachi making the next leap forward, together with other behemoths like Toshiba, Mitsubishi, Panasonic, Sony and many other household names that consumers worldwide recognise.

For Hitachi, that transformation began in 2010, when Mr Hiroaki Nakanishi was appointed its new president after the company suffered four years of losses, with its worst ever in 2008 when it lost 787 billion yen (S$9.9 billion).

The changes he sought appear to have worked somewhat; Hitachi turned profitable that year and has remained so to date, though its profit margins trail behind its global competitors.

His strategy? Severe cost-cutting, a move away from manufacturing electronic appliances, growing new businesses outside Japan, particularly in Asia, and, yes, social innovation infrastructure.

His biggest overseas coup has been leading a consortium to win a multi-billion-dollar contract last year to replace the entire fleet of inter-city trains in the UK.

In an interview with Mr Nakanishi, it is clear he is a strong supporter of Abenomics.

For a Japan that had been in the doldrums for so long, Mr Abe, with his aggressive growth policies and nationalistic stance, must have seemed like just the leader the country needed.

For a corporate veteran like Mr Nakanishi who had seen Japan - and Hitachi - conquer the consumer world in the 1970s and 80s only to witness it languish the next two decades, it couldn't have come sooner.

Asked how Mr Abe has helped companies like Hitachi, he cited the PM's travels round the world to build better relations and open the door for Japanese companies.

In Hitachi's new business, this is critical for success as many of its clients would be local governments or their agencies.

In fact, in the week of our visit, the media there reported that the PM had skipped a parliamentary discussion on an important Bill - an unprecedented absence for a Japanese PM, according to one report - as he was busy visiting Turkey and finalising an agreement to build five nuclear power stations there.

Japan's super salesman was in action - to the delight of corporate chieftains like Mr Nakanishi.

But there is a great deal more that will have to change to turn the country around.

Indeed, if Hitachi is right about where its growth will come from, it will need to up its game in areas that Japanese companies have not been known to be strong in.

When the business isn't about producing widgets but developing large-scale city projects like train systems and power stations, the key to success isn't the technology but about developing relationships with people in other countries, speaking their language, building organisations and systems that work in different settings and cultures, and being willing to employ foreigners in senior positions who are able to operate outside Japan.

It will require Hitachi to be open to new ideas, willing to discard set practices that work only in Japan, and a boldness to execute the new strategy rarely found in traditional Japanese companies.

Can Hitachi - and more important Japan - make these changes?

Mr Nakanishi knows what is at stake, which is why he is a man in a hurry.

I wonder though if they realise what it will mean for the country if they do succeed.

For a society that is so used to being closed, exclusive and conservative, being open, inclusive and daring will mean nothing less than changing its DNA.

Japan may be back, but it will have to be quite different to succeed.


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