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The Number of Japanese Companies in the Fortune Global 500 List is Stabilizing

Since 1995, ninety-six Japanese companies have dropped out of the 
Fortune Global 500. What’s important to note, however, is that the fastest rate of decline occurred from 1995 to 2005, after which the rate of decline slowed and now is almost flat, despite the large number of Chinese firms
joining the list.

How companies rank in the Fortune Global 500 corresponds to some extent with their own country’s growth, creating a natural shift from slower growing economies such as Japan’s to faster growing ones such as China’s. However,
over the past 5 years (since 2014), only 5 Japanese firms have dropped off the list: Sharp (sold), Fujifilm Holdings, Alfresca Holdings, Cosmo Oil, and Japan Tobacco. The United States dropped more companies from the list than
Japan in the same timeframe.

Is Dropping in the Ranking Always Bad?

Keep in mind that this is a revenue-based ranking, and movements up or down don’t always equate to good or bad, respectively. Higher revenue can be the result of mergers and acquisitions, while lower revenue could indicate carefully
planned divestitures, and/or more focus by a diversified conglomerate. Divesting under-performing or non-strategic areas and acquiring companies accretive to the bottom line or with a larger global footprint can be a very smart
move. Take Hitachi for example. Revenue was down slightly in 5 years, and profit was up. They’ve executed some smart divestitures along the way, which contributed to lowered revenue and higher profit, while positioning them
for strategic acquisitions in the power industry (ABB Power Grids) and automotive industry (Honda affiliates Keihin Corp., Showa Corp. and Nissin Kogyo Co).

In some segments Japanese companies are clearly losing ground globally, such as in consumer electronics, where the digital revolution changed how these devices were made, leading manufacturing and then ultimately market share
to shift to lower cost countries. A COVID-19 driven downturn could, however, present new opportunities. Japanese companies have been and continue to stockpile cash, despite increased shareholder activism and a pick-up in buyback
activity in Japan to improve ROE for shareholders. Some companies have taken very little risk, choosing instead to make slow but steady progress on their inwardly-focused goals, which might not include aggressive global aspirations.
In a time when complex international deals involving Japanese giants such as the Texas Central Railway are facing potential COVID-related setbacks, focusing inward might feel good. I’ve heard from Japanese colleagues that this
can be a huge comfort zone – global business can be such a headache. However, that’s not a winning strategy for Japan. As I’ve pointed out in my previous blog on 
How Japan is Doing with Artificial Intelligence and What’s at Stake, globalization brings the benefits of international specialization, and enhances productivity through competition and cross-border information
exchanges. It also enhances Japan’s global security. Without globalization, Japan’s companies will continue to slide from the Fortune Global 500 over time, and there will be no Japanese newcomers on the list bringing opportunity
and security to Japan. To prepare for the future, the leaders of Japan’s largest companies can:

●　Create a corporate environment in Japan that attracts upwardly motivated top talent (
including more women) into their ranks, creating a truly engaged workforce ready to align with and execute leadership-driven reforms that will make their significant cash reserves go farther

●　Acquire synergistic global businesses that give them presence in key overseas markets Attract and retain the best local talent for those businesses, adapting to local HR practices and benchmarks

●　Manage those global businesses with a light touch

●　Monitor such businesses for big issues and make corrections when required

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