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ECONOMY

Japan Inc. plays catch-up on economic security after Ukraine war

  • May 24, 2022
  • , Nikkei Asia , 4:12 a.m.
  • English Press

By TAMAKI KYOZUKA, Nikkei staff writer

 

TOKYO — More Japanese multinationals are devoting resources to analyzing economic security risks, as Russia’s invasion of Ukraine and other geopolitical turmoil spotlight their difficulty in making quick decisions to minimize potential losses.

 

Hitachi established an economic security office within its external relations division in April. The team shares developments in various countries with relevant departments, broadening beyond the conglomerate’s previous approach of holding overarching discussions at management meetings.

 

“We will implement robust risk management and establish a system where we can stably maintain our target profit margins,” President Keiji Kojima said.

 

Engineering company IHI created an economic security management team in October, bringing together expertise from areas including its legal department, where staffers confer with government officials on issues such as equipment exports. Other companies making moves in this direction include beverage group Kirin Holdings, sportswear maker Asics and big trading houses like Mitsubishi Corp.

 

Such analysis has been a weakness across much of corporate Japan, as illustrated by the relatively slow response to the invasion of Ukraine.

 

More than 300 companies globally had withdrawn from Russia as of mid-May, information compiled by Yale University shows. This list is heavy on Western businesses, which often have specialized risk assessment departments. Shell, for example, introduced scientific scenario planning in the 1970s, and likely used such analysis in its decision to exit Russia.

Yet few Japanese businesses are making what the Yale list calls a “clean break.”

 

“Japanese companies are weak when it comes to intelligence tied into geopolitical risks,” said Keisuke Adachi, a partner at KPMG Japan and an expert on corporate crisis response.

Back in 1987, Toshiba Machine — now known as Shibaura Machine — was found to have supplied machine tools to the Soviet Union in violation of export controls. The scandal asked tough questions of companies regarding their positions on security issues.

 

But Japanese companies outside of defense-linked industries are not that sensitive to economic security. They need to catch up, said Kumiko Pivette, an expert on geopolitical risk at PwC Japan.

 

“Economics and security are entangled in complicated ways,” Pivette said. “We’re in a time when companies are right in the middle of disputes among nations.”

 

In addition to building a foundation for risk analysis, companies need to find or cultivate talent with the knowledge or information-gathering know-how. A survey by PwC Japan found that 48% of Japanese companies had no geopolitical risk specialists on staff.

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