TOKYO A sign hanging opposite Tadashi Yanai's spacious 31st floor Tokyo office reads: 'Change or die'. The head of Japan's leading apparel chain, Fast Retailing (9983.T), believes it's a message corporate Japan must heed.
As Japan's lost decade stretches into a lost generation, the nation and its corporations face ever starker choices as grinding competition in foreign markets, fading opportunities at home, and a soaring yen expose the failings of slow moving management and a hesitancy to engage with the rest of the world.
Toyota Motor (7203.T) remains the world's biggest automaker by value, but has seen market share slip to General Motors (GM.N) and Volkswagen AG (VOWG_p.DE) and has South Korea's Hyundai (005380.KS) in its rear-view mirror.
Sony (6758.T), a benchmark of consumer electronic cool in the 1980s, is on track for a fourth straight annual loss as it struggles against Apple Inc (AAPL.O) and another South Korean champion, Samsung Electronics 005930.K, while gamers' long-time darling Nintendo, heading for a first annual loss, has investors fretting it's standing still as smartphones bleed it of customers.
A deepening accounting scandal at camera and medical device maker Olympus Corp (7733.T) is not helping the mood at Japan Inc.
"There is no choice but to change. Those that don't will fail," says Yanai, a rare example of entrepreneurial success that made him Japan's richest man last year and in 2009.
The postwar generation of business leader that helped lift Japan from the rubble of defeat is gone, says Yanai, replaced by 'salarymen'. "In their world, stability is the norm. You need managers instead that are going to seek out change," he says.
The conservative steadfastness of much of corporate Japan means minimal churn in business rankings and offers little sustenance to new ventures cowering beneath a canopy of creaking conglomerates.
Typically, fewer than 5 percent of Japan's companies are newly registered, compared with nearer one in 7 in Britain, Germany and the United States, noted the American Chamber of Commerce in Japan, citing a World Bank study.
Japan needs to "aggressively" support venture firms, says Satoshi Amagai, a former Sony executive who managed the consumer electronics maker's Aibo robot dog business.
Amagai made his own radical change last year. After 31 years, he quit, saying Sony was more in the grip of accountants than innovators. He set up a venture selling vein recognition technology developed by Sony as an alternative to fingerprint scans.
During Japan's corporate heyday, Sony and other corporations had all the ingredients for success: a low yen, low labor costs and a competitive edge in analog technologies, Amagai said.
For Yanai, transformation means turning his retail business, and its flagship Uniqlo brand, into the world's biggest clothes retailer -- putting it on every major shopping street in the world over the next 10 years.
That would unplug its fortunes from a stagnant home market.
FROM HELP TO HINDRANCE
That domestic market of 127 million people was once corporate Japan's biggest asset, a springboard that launched the likes of Toyota and Sony to global dominance, says Hitoshi Mizorogi, CEO and chairman of leading semiconductor slicing machinery maker Disco Corp (6146.T).
Now, he adds, it's a snag that leaves Japan Inc. trailing foreign rivals.
"South Korea has a small population and is a small market and that meant the Koreans had to go overseas," says Mizorogi, speaking above the bustle at the Tokyo Stock Exchange.
Some of that bourse babble was about the latest dent to the battered image of Japanese companies after Olympus admitted to hiding losses it began accumulating in the wake of Japan's asset bubble collapse two decades earlier.
"Japan provided a sense of security. I think that's the difference," Mizorogi says. It allowed corporations to sprawl into unwieldy conglomerates making everything from beard trimmers to nuclear reactors.
Within three decades, government statisticians project a population decline of 20 million people -- unless the Japanese start having more babies. That unprecedented decline is like losing a city the size of Boston every year.
The consumers who are left will be forking out more tax to pay for higher welfare spending and to service national debt already exceeding $10 trillion.
"The impact of this on Japan is going to be absolutely huge," says Alex Kerr, who in 2002 published "Dogs and Demons: Tales from the Dark Side of Japan," criticising the collusion between business, bureaucrats and politicians that unleashed a tsunami of pork barrel construction, cementing over rivers and building roads to nowhere -- adding to a bloated national debt.
And there are precious few foreign workers to take up the slack. In 2008, according to the OECD, non-Japanese accounted for just 0.3 percent of the workforce, behind South Korea with 2.2 percent and Germany where one in 10 workers is an immigrant.
That structural handicap has been looming for years, but until the Lehman shock pushed the global economy into a downturn -- making the yen a sanctuary for investors and a burden for exporters -- burgeoning markets overseas provided profits that put off any day of reckoning.
Exports account for around only a tenth of Japan's economy, significantly less than before the recession.
Earlier this month, Economy Minister Motohisa Furukawa was grim, describing the outlook for Japan's economy as "increasingly severe," as the euro zone debt crisis added to uncertainty and the yen's strength defied intervention.
Disco, which makes two thirds of its revenue overseas, but builds most of its slicers and grinders in Japan, can hang on for now, but if the yen gets stronger, it may have to decouple much of that production from Japan, Mizorogi reveals.
JAPANESE AREN'T REVOLTING
Beyond the swing of forex rates and the fortunes of foreign markets, Mizorogi points to a more intractable malaise that handicaps all of Japan -- political apathy and a lack of government policy initiatives.
"I think there's a big political problem here," he says, noting the high taxes companies pay and the inability of the ruling class to win trade concessions with the rest of the world.
He's not alone.
"The Number One problem as I saw it, and still see it today, is the absence of a center of political accountability, the absence of a political steering wheel," said Karl van Wolferen, who, in 1989, at the pinnacle of Japan's economic miracle, published "The Enigma of Japanese Power," a landmark book that exposed fault lines in the country's power structure that have bedeviled it since.
Japan's fleeting moment of political transformation came in 2009 when the Democratic Party ended half a century of almost unbroken rule by the Liberal Democratic Party. A year later, the shake-up had juddered to a halt amid squabbling and policy back pedaling that, among other things, has hampered efforts to rebuild after the March 11 earthquake and tsunami.
"There were a lot of hopes after the tsunami and Fukushima nuclear catastrophe, and there were many articles written about how finally Japan was going to wake up and change. But these events seem instead to have spurred a flight back to the old order," says Kerr.
The change Japan craves in its executive suites needs to begin on the streets, says Nicholas Benes, head of the Board Director Training Institute of Japan.
"If people got a little angrier, if it just popped a bit, it could easily be a turning point, and when it trips it tends to trip significantly," he explains.
But so far, there's been little sign of outrage from Japanese bemoaning their lot in a harsher global economy.
While ripples of protest spread throughout the rest of the industrialized world, with 'occupy' camps springing up in parks and squares of U.S. and European cities, the Japanese are quiet.
A protest called to occupy Tokyo's Roppongi district -- a favoured hang-out of the city's well-to-do, including foreign bankers, and the location of Yanai's office -- attracted just 80 people, according to local press reports.
Beyond some anti-nuclear demonstrations, the only group getting out the placards are farmers, and they just want the status quo, fearful the government will commit to joining the Trans Pacific Pact free trade zone of nations.
Sitting at the meeting table in his office, Yanai dismisses those who oppose a more open Japan, easier for companies to get in and out, as "idiots."
"We have to convince the world there won't be any more inward looking policies," says the apparel tycoon.
"If we don't, there is no future."
(Reporting by Tim Kelly, Editing by Ian Geoghegan)