A Scotsman at Mazda

In 1996 a small earthquake hit Japan Henry Wallace, a Scotsman, was appointed head of Hiroshima-based Mazda, Japans fifth-largest auto manufacturer. Although Mazda had a proud history as one of Japans more innovative automobile manufacturers, the company seemed to have lost its way in the 1990s. With Japan mired in a prolonged recession, Mazda saw its domestic sales shrink. At the same time, the company was unable to expand its international sales to make up for the shortfall. From the peak of 1.4 million units in 1990, Mazda's sales had slumped to 770,000 units in 1995. In the fiscal year ending in March 1995 the company lost the equivalent of $710 million, and in the year ending March 1996 it managed a thin profit of $2.7 million. This poor performance was too much for its major shareholder, the Ford Motor Company of the United States. Ford responded by increasing its stake in Mazda to 33.4 percent with a $500 million investment and placing one of its own, Wallace, as president.
Wallace, who before moving to Mazda had been the president of Ford's Venezuela operation, was the first foreigner to head a major Japanese company. The appointment was greeted with some trepidation in Hiroshima. Like many Japanese companies, Mazda's organization practices and business relationships had been influenced by the country's cultural traditions. The company honored the practice of lifetime employment. Internal promotions were based primarily on seniority. Decision making was consensus-based, and there was an emphasis on harmony and a reluctance to create discord within the management group. Mazda also had long-standing "family-like" relationships with an extensive network of local suppliers. Many in Hiroshima feared that Wallace's appointment would signal an end to all this. How would Wallace's decisions affect a community where 40 percent of the workforce depended directly or indirectly on Mazda? Would lifetime employment be replaced by American-style layoffs? How would Wallace function in a society and company that valued long-term relationships, trust, and reciprocal obligations? Would Wallace break decadeslong commitments to local suppliers and instead purchase more parts from overseas? The head of one small Hiroshima supplier noted, "If the president were Japanese he would have some sympathy towards us. He would think, 'You have been working hard for Mazda, even in times of difficulties, so we will support you.' He would take care so that as many companies as possible would survive."
Others worried about what would happen to Mazda's consensus-based decision making. When the Japanese have a meeting, "only those who are opposed to a proposal speak," noted Takeshi Morikawa, the president of Mazda's workers union, in an interview. "If you are for an idea, you keep quiet. But Ford people speak, even if they are for an idea. They ask questions, or they speak about why they are for the idea. So at some meetings the Japanese think that foreigners are dominating the floor too much . . . In Japan, asking about details can seem to be an attack on the integrity of the person. Just look into my eyes and then you will know. So the questioning process to a Japanese is a problem. They don't understand it."
Another concern centered on whether a man whose command of Japanese was highly imperfect could possibly understand the cultural context within which business decisions were made in Japan.
Wallace also admitted to having concerns, particularly with communication. As he observed in a 1996 interview, "In the West we have this direct communication. But in Japan it's indirect communication. Very often you are left to draw your own conclusions . . . It's particularly difficult to have brainstorming sessions. When you have to go through an interpreter, all you get back is the answer to your question. You don't get back the wider view."
Eighteen months into his job, Wallace seemed to be making progress improving Mazda's performance, while simultaneously easing some fears that followed his appointment. A clear strategy had been articulated where none existed before. The workforce had been reduced, but through attrition rather than layoffs and the lifetime employment system remains intact. Some suppliers were cut as orders for parts were shifted to lower-cost sources overseas, but the shift was not as dramatic as many feared it might be. Wallace repeatedly emphasized that he was not trying to dismantle the traditional supplier network, or keiretsu. Several unprofitable models were discontinued, and more attention was focused on marketing and market research than had historically been the case at Mazda. Big changes also occurred in the internal management structure and decision-making processes. Merit became a much more important basis for promotions, while decision making shifted away from the old consensus-based system and toward a system characterized by more spirited debate.
Wallace also noted that being Western was an advantage. Because foreigners are always expected to act differently, Wallace was able to cross the lines of Japan's hierarchical business world in ways that would be more difficult for a Japanese president. For example, the day after he was appointed president Wallace asked the leaders of Mazda's union to talk with him, an action that was unprecedented at Mazda. Wallace also took the unusual step of sharing confidential strategic information with the union leaders in order to win their cooperation -- a move that so far has been successful.

Source:Global Business Today, Second Edition Charles W. L. Hill

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