Was Ghosn saving Nissan a Death-Toll for Japanese Business?
Mr. Ghosn arrived as COO of Nissan in 1999 to a die or die crisis. Debt - estimated from $13 to $20 billion - along with a projected next-year loss of $200 million threatened the business's viability. Nissan was so desperate that it sold a controlling stake in the company to outsider Renault, a surprise move for a Japanese firm.
Installed COO Mr. Ghosn faced a foreign, questioning environment and one of the greatest business challenges imaginable. He quickly identified as the crucial issue the overly rigid binds of Keiretsu, and his remarkably effective solutions grew from adopting a more Western model of doing business.
Mr. Ghosn's reforms raise one question - can traditional Japanese business culture survive the modern economy?
Keiretsu roughly means several, heavily interlocked businesses, and historically is localized to Japan. It implies mutual support, and some argue was centered around a "main bank," an organizing source of capital for members of a keiretsu. Despite varied criticisms of the concept, as a term keiretsu is pertinent in that it encompasses a set of cultural norms in Japan that may have played a large part in Nissan's freefall into debt.
These norms include copying rivals' product lines, sustaining of unprofitable businesses, xenophobia and excessively worker-focused policies, instead of profitability and shareholder-focused policies.
Many Japanese analysts expected Mr. Ghosn to quickly adopt the keiretsu style of business, with some hoping he would be an outsider who would cut jobs, be vilified then discarded. The press emphasized his status as a Gaijin, or outsider, with some calling for his physical beating. His initial policies of cutting 20,000 jobs, shutting several plants and demanding heavily reduced costs from suppliers were considered ill-advised, lacking judgment, and a rejection of keiretsu.
Top executives predicted that his limited cultural understanding would soon limit his ability to get things done. In spite of the low expectations - or perhaps because of - Mr. Ghosn promised that he and the entire top management would resign if certain goals, such as profitability, weren't met within a year.
Mr. Ghosn kept his job. His policies were so successful that they fueled a growing suspicion that the traditional Japanese culture of business was broken. Nissan not only achieved profitability - it grew both nationally and internationally, cutting into rivals' market share. Instead of calling for his removal, the press deified Mr. Ghosn, even writing a popular manga comic strip about him. Changes towards a more Western way of business include adopting stock-options and eliminating unneeded cross-shares in other companies.
Mr. Ghosn's success, which continues to date despite one serious downturn, is commonly reported in the press to be an example of how the Keiretsu system has failed. But exactly how much of Nissan's poor performance was institutional not cultural remains understudied. Businesses fail all over the world, not just Japan. And Toyota, in contrast, has succeeded while maintaining keiretsu stylings. Ultimately, Nissan's turnaround provides a rich base for future studies into keiretsu viability, and not a definitive rejection.