Corporate Japan on a Shopping Spree
Japan's strong yen has increased companies' desire to grow internationally to the point where the nation is now ranked the third biggest cross border acquirer - a significant jump from being placed 10th last year. Japanese companies have taken advantage of the fact that many of their international competitors have been weakened by the European financial crisis and moved into the market with successful M&A transactions. Data shows that the value of mergers and acquisitions abroad by Japanese firms has more than doubled since last year.
The financial crisis led Japanese companies to increase their cash and decrease capital spending. Furthermore, banks feel confident in financing these deals because Japanese companies are in strong financial shape. This in turn places these firms in an advantageous position to buy. Also, since the earthquake and tsunami that hit Japan earlier this year, companies have learned that need to be more diversified. Adding production facilities abroad and finding foreign suppliers will ensure that production will not halt if another natural disaster were to strike the nation. More and more companies are becoming convinced that without adding M&As to their business plan they will not achieve growth.
The Japanese corporate shopping spree is not over yet. Executives are struggling to maintain competitiveness and profitability in the domestic market because it is export-oriented and the yen is high. Therefore, the "build-or-buy" decision is increasingly becoming a "buy". With plentiful supplies of cash on hand, Japanese companies are looking to continue making global investments. All the successful deals so far are making other companies interested in going global. Furthermore, companies are making decisions faster as they are gaining more experience in the field. These investments are welcomed by European firms as well because they are searching for buyers due to the region's debt problems.
For the Japanese society, it is a moment of unease and fear that Japan will follow other developed nations in hollowing out its industrial manufacturing and technology base and that there could be disastrous, longer-term consequences. So, is overseas M&A a solution for the problems of Japanese corporations? How great is the danger, and what will be the longer-term effects, of this globalization in Japan?