This must be particularly true for the Japanese, who are traditionally cautious about foreign participation in their firms and for whom mergers are relatively new. Other large OECD countries are more used to the topsy-turvy world of mergers and acquisitions. Some seem frankly unconcerned about who owns their firms, as long as those firms are well managed and deliver the goods, so to speak. And in the globalised market that sentiment is likely to become more widespread.
Cross-border mergers and acquisitions, often called M&As, have grown rapidly in recent years, and are one of the hallmarks of globalisation, reshaping industry at the international level. In fact, the value of M&As worldwide increased more than six-fold during the period 1991-98, from US$85 billion in 1991 to US$558 billion in 1998. The top six were valued at US$169 billion. In 1998, cross-border M&As were worth 60% more than in 1997 and more than twice as much as in 1996. The total number of cross-border M&As also increased rapidly during the same period, from 4,149 in 1991 to 5,373 in 1998, reaching a record high of 6, 310 in 1995.
Most cross-border M&As have taken place in only a handful of countries, particularly the United States, the United Kingdom and Germany. But Japan may be changing. The Nissan-Renault’s global partnership agreement in March 1999, in which Renault spent US$5.4 billion to buy a 36.8% equity stake in Nissan and a 22.5% stake in Nissan Diesel, is just one example. The sluggish local economy and intense competition worldwide gave Nissan little option other than to seek foreign capital. The alliance included a huge capital injection from Renault, but the deal also included allowing Renault’s Chief Operating Officer to formulate revival plans. The job cuts were one of them.
There are other examples of cross-border M&As. Also in the automotive industry, Mazda has put itself in the hands of a foreign partner, Ford of the United States. In the financial sector, the merger of GE Capital of the United States and Toho Mutual Life Insurance Company in April 1998 led to the establishment of GE Edison Life; and Nikko Salomon Smith Barney was established in 1999 as a joint venture with a 51% stake owned by Nikko Securities and a 49% stake by Travelers Group (Salomon Smith Barney).
A series of amendments to the Foreign Exchange Law since 1980 have helped fuel this M&A activity. But Japanese managers still see M&As as a measure of last resort. Japanese corporate culture, including its lifetime employment system and labour immobility, will probably stay cautious as long as the job cuts continue and there may well be a build-up of pressure. On the other hand, these are hard lessons of globalisation, which Japan embraces, and the restructuring resulting from M&As should lead to a stronger economy. What is clear is that more Japanese companies are streamlining their businesses and M&As with domestic or foreign firms are no longer quite as unthinkable as they once were.
©OECD Observer No 219, December 1999