The Journal The Authority on Global Business in Japan

Six months ago, the clouds on the horizon for most businesses around the world appeared to be mild and relatively unthreatening. For foreign companies in Japan there were, of course, concerns about the lingering impact of the US–China trade war on top of the day-to-day worries over sales, revenue, staff, and other routine issues. But there was no inkling that anything was seriously amiss in the global economic order.

Even when the very first reports of a small outbreak of an unknown virus in the Chinese city of Wuhan began to emerge in late December, there was no sense that we were on the brink of the crisis we see unfolding around us now.

Today, those clouds are dark and towering thunderheads. They are directly above, and some experts say the tumult they bring threatens to turn the entire world economic order on its head and leave us facing a global recession that could be deeper and longer than the Great Depression of the 1920s. For some companies, analysts have warned, it is already a matter of survival.

Michael Alfant, group chairman and chief executive officer of Fusion Systems Group in Japan, told The ACCJ Journal that this is an existential threat to many companies, particularly small and medium-sized enterprises (SMEs).

“Research shows that the typical SME in Japan or the United States has between 20 and 40 days of cash reserves on hand at any given time,” he said. This is a function of a company’s need to be nimble and to emphasize growth when an opportunity arises. But it is also cause for concern.

“There is a metaphor that I like to use. When the CEO of a large company will tend to talk about ‘weathering the storm,’ I have this image of a large ship in turbulent waters that will get through, even if it gets a bit choppy,” said Alfant, who is also chairman of the American Chamber of Commerce in Japan (ACCJ) Emergency Disaster Response Advisory Council.

“My image of SME CEOs in the same situation is that they are down at the bottom of the ocean with a limited supply of oxygen and wondering if it’s enough to get them to the surface.”

Part of the problem, the experts agree, is that while companies operating in Japan will usually have a business continuity plan in place to deal with most contingencies that pose a threat to their operations, few predicted something such as the coronavirus.

“It was just not on people’s radar,” admits David Wagner, president of crisis and business communication specialists David Wagner & Company. “Since 2011, companies here are more prepared for an earthquake and the wider impact of something like that, but a global pandemic was not something that was considered.”

Typically, foreign companies in Japan have procedures in place for a major earthquake, and to deal with the fallout from a sexual harassment complaint, he said, while those in the food sector have guidelines for dealing with food safety. Other potential issues that companies face include the counterfeiting of products, disruption to supply chains, cybersecurity questions, or a public-relations problem with the potential to harm their reputation. Similarly, lessons were learned as a result of the global financial crisis triggered in 2007 and the coordinated terrorist attacks of September 11, 2001.

The 9/11 attacks caused almost 3,000 deaths and $10 billion in damage.
Photo: Marion Doss

Debbie Howard, chair of Carter Japan Market Resource Network KK and a former ACCJ president, believes Covid-19 is different and arguably compounded by being:

  • A health issue that poses a physical risk to anyone exposed
  • Global, rather than geographically constrained

“This feels bigger than 9/11, the financial meltdown [of 2008], and Japan’s earthquake because it is a combination of all three at the same time,” she said. “And it affects all businesses, large and small. And we still do not have a firm understanding of how long it is going to last or just how much damage it is going to ultimately cause.”

Nevertheless, there are measures that companies can imple­ment now that will serve to mitigate the fallout they suffer as a result of an event that will be remembered long after the virus has been defeated.

Alfant said: “For SMEs, every single decision comes back to cash flow. Clearly, the owners of these companies care deeply about the safety and well-being of their staff, but when it comes to survival, it’s all about cash, cash, and cash. Without it, they are deprived of oxygen.”

The world’s costliest natural disaster was the 2011 Great East Japan Earthquake and Tsunami that killed about 16,000 people.
Photo: William Saito

Experience suggests that a company can survive for 60 days, at the outside, and that survival is often down to the willpower of CEOs and the teams around them, according to Alfant.

“The mistake that many SMEs make is to wait too long to cut,” he added. “A mitigation strategy is all about saving cash as quickly as possible. Cut the expenses, draw down bank credit, apply for government assistance, call in debts, and chase anything that is overdue. But you have to do it fast.”

Dylan Scudder, president and CEO of management consul­tants Milestone Inc., agrees that time is of the essence—in part because the situation surrounding the coronavirus crisis is evolving and diverging so rapidly.

“And because that is the situation, a team needs to be able to adapt quickly, decide whether the organization is going to stay with its traditional business model, whether it is going to reinvent itself, or whether its future is a combination of both these models,” he said.

ACCJ Governor and AbbVie G.K. President James Feliciano says that, as a pharmaceutical company, AbbVie’s core aim of helping patients has not changed, but the way that has to be done has to be able to endure “incredible disruption.”

“The first priority was how to ensure the health and well-being of employees in such a fluid situation,” he said. “The concept of ‘work from home’ or working remotely is not so engrained in Japan. Thankfully, we have a ‘work anytime, anywhere’ policy, so this was not as much of an issue for us.

“Other issues surrounded developing rules for engagement and whether or not to travel and so on,” he added. “These decisions have had to be made in a very fluid environment, while communicating with the company in a remote setting.

“Our mission does not change, but our tactics must adjust.”

Wagner emphasized: “For me, it’s not about the size of a business; it’s all about the agility of the management team and the ability to use resources to maximize the opportunity. But it is clear that an organization with a strong balance sheet has more flexibility. Others will have much less resilience.

“And what has happened has shown us that companies need to think the unthinkable and to have the teams ready to go when the worst happens.”

Alfant said it is equally important to ensure that lines of communication with employees, customers, and business partners remain open.

“It is incumbent upon a business partner to have the moral high ground and cut their compensation,” he said. “And then you go down to your most senior staff and ask if they can voluntarily accept some pain before you get to your more junior employees.

“Transparency is important, and you have to remember that people want to hear facts and the truth,” he said, adding that failure to be open will only compound problems down the line.

In addition, the boss being physically present—whether that be in the office, other facilities, or out speaking with creditors, customers, or the bank—sends another positive message. Alfant also recommends writing to every client to reassure them that the company is doing everything in its power to avoid any disruption to its services, a proactive message that serves to reassure key partners. Suppliers need similar reassurances and “sincere, transparent discourse.”

Megumi Tsukamoto, executive director of Caterpillar Japan LLC and an ACCJ Governor, said it is important for a company to identify essential and non-essential business operations and then focus on the parts that are critical to survival. In the event that even critical operations are difficult to retain, plans must be introduced to “ramp down, with mitigating effects.”

Looking on the positive side of the current crisis, Tsukamoto said she hopes that the events of the early months of 2020 “might be a turning point for promoting Society 5.0 in Japan,” pointing to the government’s stated commitment to increasing its focus on education, healthcare, and e-government.

“If I can find one positive outcome of Covid-19, it is that it can be a trigger to fundamentally changing Japanese society and the economy, including business,” she said.

ACCJ Chairman Christopher LaFleur, who is also senior director for Japan at McLarty Associates, concurs that business owners and senior executives face special responsibilities in time of crisis.

“They must focus on two things: first, how to best ensure the safety of their employees; and second, how to ensure that the company can continue to provide employees the employment, and customers the goods and services, they need.”

But, he cautioned, this is not an easy equation to solve in any crisis and will be particularly difficult in this one.

“Maintaining the confidence of all key stakeholders requires that owners and managers provide them the most complete, balanced, and open assessment of the challenges possible. In particular, communicate often and, whether the news is good or bad, get it out there quickly.”

He also echoed suggestions that stakeholders should be informed of your position, with reassuring messages such as, “US companies recognize this is a global crisis, that we are all in it together, and US companies will be doing their utmost to support their employees, custo­mers, and partners in Japan.

“Circumstances may vary for each individual firm, but the ACCJ and its members, as a group, will continue to do what we can—here in Japan—to act responsibly as good corporate citizens and to contribute to rapid recovery as the crisis recedes.”

The largest bankruptcy in US history was Lehman Brothers’ collapse with $600 billion in assets in 2008.
Photo: Photo: thetaxhaven

The global nature of the coronavirus crisis poses some unique challenges when dealing with a head office overseas, say the experts. While headquarters were concerned and made every effort to assist their Japan offices during the Great East Japan Earthquake and Tsunami of March 11, 2011, for example, they were in a position to do just that because they were geogra­phically distant and not immediately impacted. With a global pandemic, that is no longer the case.

“A pandemic puts everybody on the front line,” said Scudder. “It is better to make decisions locally because they impact people locally, but headquarters can be your lifeline, so it is important to share what is happening.

“And the thing about this crisis is that it is reshaping the relationships between stakeholders,” he added. “You need to report back to head office, you need to stay on top of all these relationships.”

There is, however, more at stake than merely the survival of a company. Analysts warn that executives and business owners need to make sure that they are taking good care of their own mental and physical health, as failure to do so can also precipitate the collapse of a company.

“Of the long list of things that need to be considered in a situation like this, I’d put this right up there at the top,” said Howard. “Business owners cannot help anyone if they’re not looking after themselves.”

Scudder agrees: “It’s all about making sound judgement calls, and that is only possible if you are getting sufficient amounts of sleep, exercise, and quiet time. Leaders have to find ways to manage the stress that they will undoubtedly feel.”

Deborah Hayden, managing director of strategic commu­nications experts Finsbury in Japan and vice-chair of the ACCJ Alternative Investment and Women in Business Committees, goes even further, cautioning that, “a leader that visibly shows his or her stress is not going to inspire colleagues.

“If business owners have particular circumstances beyond their control that require attention, then choose a ‘deputy’ who can convey messages in a clear and concise fashion,” she counsels. “Being worried about circumstances outside the realms of the office will only impair performance when leadership is needed.”

And she similarly warns, “We are at a unique moment in history, one that will not be forgotten. Companies will be judged on their actions, not on their words,” she said.

“Good company behavior will be remembered and rewarded. Bad behavior will be remembered and punished. Business leaders have a moral obligation to do the right thing by their employees and other key stakeholders. The world is watching. And companies need to make sure that their employees are kept informed of what they need to do, why decisions are being made, and what steps the companies are putting in place to support employment and keep businesses functioning as well as they can in this situation.”

It is also heartening to remember, the experts point out, that one day this crisis will have passed. The toll—on people and on businesses—has already been horrific and will be worse by the time it has run its course, but we must heed the lessons.

“If leadership is about making decisions with imperfect information, limited resources, and time constraints, then this pandemic is the motherlode of lessons to be learned. But the process of extracting these lessons will be unique to each organization,” said Scudder. “We know that we develop confidence through preparation, and we know what the alternative is. While responding to what’s already happened, we still have a chance to prepare for what’s to come.”

Julian Ryall is Japan correspondent for The Daily Telegraph.
Transparency is important, and you have to remember that people want to hear facts and the truth.