Over the past decade, Japanese companies have been anticipating and bracing for the inevitable shrinking of their domestic market. Indeed, talk of Japan’s super-aging society and lagging productivity seems almost cliché. And yet, compared to its peer markets in the Americas and Europe, Japan faces a more immediate existential imperative to expand in foreign markets through all available means.
Among the various means of achieving foreign market expansion, cash-soaked Japanese firms have turned time and again to a classic pair: mergers and acquisitions. Data from the Japan Bank for International Cooperation documents a nearly four-fold increase in foreign direct investment between the global crash of 2008 and the COVID-induced border closings in 2020. And the largest portion of these foreign investments were large-scale M&As.
With Japan’s borders finally re-opening—due, in part, to growing pressure from domestic firms—many industry-specific observers anticipate not only a rebound but a potential renaissance in Japan-led M&A activities.
For communicators and public affairs professionals working in international business, there are few opportunities as exciting as those that will result from these transactions. But these moments will also introduce risks and challenges that are easily overlooked.
From our vantage as advisors to both in-bound and out-bound firms, we’ve repeatedly observed a fundamental and recurring challenge among our clients: cultivating cultural intelligence and then applying it to issue and stakeholder management.
As Japanese firms move to acquire and/or merge foreign firms into their portfolios, they will also expose themselves to whole new worlds.
Take the example of plastics. While Japanese companies are just as serious about plastics as other multinational companies, when it comes to communicating about this topic outside of Japan, they can expect to encounter:
- A broader and more diverse base of stakeholders. In addition to industry-specific peers and supply chain partners, regulators and researchers, there are varied and vocal segments of conscious consumers who pressing for broader awareness of plastics’ impacts on health and environment.
- Unique issue priorities across stakeholder groups. Each of these different stakeholder groups tend to focus on unique sub-topics within the broader conversation about plastics, including standards for a circular economy, innovations in packaging and distribution, new plastics and alternatives to plastics, industry waste reduction, lower-carbon manufacturing, barriers to consumer recycling, and cleanup and reclamation activities.
- Diverse and conflicting opinions on the issues. Among environmental advocates, for instance, there is a serious and sustained debate about the responsibility of producers to finance the collection, recycling, and disposal of packaging waste and other by-products. Among those who support this principle, there are competing ideas about the proper economic mechanisms (e.g., taxation, penalties, and/or credits) to facilitate the desired outcomes.
- Heightened stakeholder expectations of companies. Despite the complexity of intersecting issues and divergent solutions within the plastics conversations, most stakeholders align in their expectation that companies, especially CPG/FMCG companies, should express an unequivocal point of view on a relevant subset of the issues, and more importantly, take concrete actions that demonstrates the sincerity of their commitment.
One of the benefits of acquiring a company is that its existing leaders have accumulated insight and experience with the issues and stakeholders in their home market. Many fact-based or data-driven companies also seek to complement these leaders’ perspectives with objective, systematic media and policy analyses.
Firms that stop at this point will have a basic understanding of the new markets in which they are operating. But there’s more to know if you want to connect your company to the larger, diverse, and more active stakeholder communities in their new markets.
To drive towards a deeper, more nuanced level of cultural intelligence, we would supplement with analyses of the digital and social data generated by their advocacy.
In addition to a more complete picture of the issue landscape—that is, the substance, tone, and direction of conversation, proper analyses of relevant digital and social data can reveal networks and sub-communities that your company may want to monitor, niche media that speak directly to these communities, patterns of influence within and across different communities, and online opinion leaders whose support could prove as consequential as more formal, institutional figures.
Equipped with this form of cultural intelligence, Japanese companies entering or expanding further into foreign markets can go with a sense of confidence that their values and commitments will not only translate but also resonate with the expectations of their host market.