Stuart Isett--Sygma for TIME

Changing for the Better
Massive restructuring will lead to a stronger, more competitive Japan
By JAMES C. ABEGGLEN

Japanese companies are under great pressure to change. Deflation, recession, global competition and the emerging information technologies have combined to force a wave of restructuring. While some of these pressures are new, the fact of change is not. Japan has not been a static mercantile monolith. As the country moved from poverty to wealth and from peasant agriculture to industrial prowess, change has been continual, with outmoded industries disappearing entirely as new ones dominate--and with corporate winners and losers jostling one another in a fiercely competitive economy.

Important basic industries like coal mining and aluminum smelting have simply disappeared. Mature industries like autos have gone through wrenching change. Rapid market growth leads to a large number of producers; mature markets force concentration. The losers go to the wall, with badly managed Nissan a basket case and troubled Mitsubishi Motors looking for foreign partners. The winners--like Toyota and Honda, world powers by any measure--increase their investments at home and abroad.

Auto industry restructuring is nothing new in Japan. As early as 1971, General Motors bought into Isuzu, which was going broke in the car business after success with trucks. In the auto wars of the 1970s, Ford bought into Mazda. Neither move saved the day: Isuzu gave up on cars, and Mazda remains in trouble. The notion of selling out to foreigners was in its time a new idea (though a dubious one); industry restructuring is not.

What's happening now, however, is indeed new. Giant, over-diversified companies--especially those in electronics, like Hitachi, NEC and Toshiba--need to sharpen their focus. "In the past you had only to be in a growing sector and somehow you made a profit," says Toshiba president Taizo Nishimuro. "Now you have to rank high worldwide in each sector or you cannot survive." Nishimuro is as good as his word, divesting low-market-share businesses--automated teller machines to Oki Electric, small motors to Densan--and forging alliances for others: with Carrier for air-conditioning, with General Electric for turbine blades. Most spectacularly, he combined his company's large-motor business with that of arch-rival Mitsubishi Electric in a worldwide joint venture. Competitors like Hitachi are following this lead. Here is a new type of restructuring, one that will accelerate with the legalization of holding companies, making it easier for a firm to reorganize its businesses.

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