Some might argue that the Japanese consolidation was unique, because of the unusually close relationships between banks and borrowers. But even though that part of the context is different, multinational companies today face a similar challenge: excess supply caused not only by financial leverage, but also by excessive competition. Once again, consolidation is needed to provide stability. That consolidation will probably be driven by those with strong R&D leadership. Global access to R&D capabilities in, for example, energy or environmental innovation will drive demand in the future.
The global financial-services industry will also face consolidation, but geopolitical factors rather than innovation will determine the results. In the past, banks did not compete across state lines (in the U.S.), across national borders (in the E.U.), or across some prefecture and province boundaries elsewhere. But with the advancement of global economies, and increasing cross-market competition among global players, banks no longer secure high enough profit margins in their home territories. Credit default swaps, high-risk solvency and leverage ratios, and other excesses were the products of a short-lived effort to compete through innovation, and they will all be regulated in the future. Banks and other financial-services firms will have to refine their business models: Low cost structures, global economies of scale, internal risk management capability (as opposed to risk transfer technology), and a sufficient capital base will be hallmarks of this new, more mature business model.
During the 1990s, many Japanese business leaders waited years for recovery. After all, the fundamentals of the world economy were solid. Productivity and quality were increasing, and global markets were expanding. Only a few companies took the measures that helped them rebuild: reducing supply, building a business based on repeat customers, and embracing consolidation. Many global companies, unwilling to forget the boom times, will make the mistake of waiting for recovery. Others will learn to be more proactive — and they will be the corporate leaders of the next decade.
Yoshiyuki Kishimoto is a senior executive advisor to Booz & Company based in Tokyo. He has broad-based financial-services experience, having spent more than 20 years consulting to banking, securities, insurance, and nonbank financing firms.
Hiroyuki Sawada is a partner with Booz & Company based in Japan. He specializes in business transformation, especially the strategic and competitive dynamics of industrial reconstruction, including acquisitions, alliances, and the integration of organizations.
Chieko Matsuda is a partner in Booz & Company’s Tokyo office. She focuses on strategic finance and business strategy for top management, including the fields of business portfolio management, financial decision making, mergers and acquisitions, investor relations, and credit ratings.