East Asia Watch--Are Japanese Multinationals in Trouble?

Now comes news that the highest ranking foreigner at Nomura Holdings, Jasjit Bhattal, has resigned after he was not able to win enough support to overhaul the bank's global wholesale operations. The Wall Street Journal calls the departure a "blow to Nomura's bid to become a global investment-banking powerhouse and creates a leadership vacuum at the bank's wholesale-banking unit." Nomura was one Japanese company that many experts held up as the example of one that could integrate foreigners into its upper ranks and transform its culture.

This is the latest sign that Japan's largest companies may be facing a structural problem--Olympus is mired in scandal, Sir Howard Stringer has not been able to force the competing fiefdoms at Sony to cooperate and Toyota's top leadership seems to be in a fog. Carlos Ghosn is probably the only foreigner at the top of a major Japanese company, Nissan, and his performance seems to be the exception that proves the rule--the Japanese cannot break out of a Japanese-only management culture. Everything must be approved in Tokyo; very few decisions can be devolved to different geographic leaders, as Western multinationals do.

This is still early days and it's a really complex subject, but it's possible that the Japanese have been very successful for several decades now when the West was not really paying attention to its manufacturing and its technology development. The Japanese centrally controlled model worked because it concentrated on incremental improvements and quality. But in today's environment, the model does not seem to be working very well. General Motors, Ford Motor and even Chrysler are gaining on Toyota and Honda, for example.

The Japanese could still surprise us, as they have before, and come up with a way to adapt their model. But at the moment at least, it's looking like they could face years of difficulty.