Kao the $14bn beauty, household and chemicals company has been active in overseas acquisitions for more than a decade now, acquiring John Frieda in 2002 and Molton Brown in 2005, but is better known in Japan for its domestic acquisiton of cosmetics, pharmaceuticals and textiles company Kanebo in 2006. This followed the near collapse of Kanebo after a “window dressing” financial scandal in which senior Kanebo executives collaborated with the auditors PwC to falsify accounts.
Domestic acquisitions in Japan are often not entirely initiated by the acquirer, and often follow government pressure to rescue lame ducks, for the good of the nation. It can be imagined that Kao, in many ways a competitor to Kanebo, had several barriers to overcome in successfully integrating Kanebo. And indeed, last year’s “skin whitening” recall by Kanebo and the slowness of Kao to make any public statement on this, prompted many to think Kao really had not yet got a grip on Kanebo.
In an interview last year in the Nikkei Business (in Japanese, subscription only), Michitaka Sawada, President of Kao, was at pains to describe Kanebo as a “superb, adult company” that takes responsibility for its own mistakes. As the parent company, Kao will of course support them he said, and not leave things at that level. “We will apologise all we can, but what is important is to focus on what we need to do next”.
It’s interesting to note the “family” analogy there, so common in Japanese companies, and also the distinct flavour of “hansei” (which we describe in our Japan Intercultural Consulting seminars) – a process of apology, reflection and redress in what he says.
Apparently information flows stopped above a certain level, and there was not the right atmosphere for disclosing problems. There was not a problem in product development, he asserts, more that after sales follow up was not sufficient. The consolidation of Kanebo and Kao’s R&D functions in October 2013 was not related to the skin whitening scandal. All of Kanebo’s functions such as sales, marketing, production had been left independent after the acquisition, but Sawada questions whether that is now the correct strategy, when thinking about future growth.
“We said at the time we were acquiring Kanebo in order to lead Japan’s cosmetics market and expand globally, but although we do have the biggest market share, I am not sure we can say our brands have responded to the changing environment, nor that we have expanded globally as much as we intended”.
When asked if he intended other acquisitions such as Molton Brown to stay independent, he says the beauty care division is also reviewing the reasons for acquiring and working out how they can contribute to the growth of Kao’s beauty care business. “We can learn new tastes from Molton Brown, and use each other’s technology to grow the business. We may have to do something more to grow. If we do not reach our targets we have to ask whether we continue to support the business. We were too lenient in the way we conducted M&A in the past and did not do enough reviewing.”
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