The influence of bad debts and prolonged recession has given rise to increasing cross-border merger and alliances in corporate Japan.  Many experts anticipate that the merger trend will increase to allow international firms to gain a significant position in the Japanese market.  This trend has spread from financial firms to basic industries as well as software, telecom and biotechnology.  Japanese businesses face global overcapacity and shrinking demand.

In 1998, Nikko Securities reported a record 908 mergers and acquisitions involving Japanese companies, an increase of 35% over 1997.  The approximate value of publicly declared deals was $90 billion.  Foreign firms spent $6.91 billion acquiring Japanese corporations in 1998 representing 600% more than 1997, according to KPMG.  There were a variety of other deals that were not announced.

For example, the prominent chemical company, Teijin Limited, entered a joint venture with DuPont.  Nissan Motors has negotiated with foreign carmakers.  Sumitomo Rubber, Japan's senior tire company and owner of the Dunlop brand, entered an alliance with Goodyear Tire & Rubber Co.  Sumitomo and Goodyear entered a complex global arrangement in order to become the top tire producer in the world.  The companies will pool research costs and avoid overlapping investments.

The collapse of Asian markets and an overdeveloped industrial economy has caused Japanese firms to relinquish overseas branches, sell foreign assets and reduce domestic employment.  Recently, there are signs of industrial recovery, however, these trends and structural reforms need to continue over the next several years.

Japanese companies are recognizing the need to operate internationally in order to survive.  Foreign pressure has motivated Japanese companies to begin streamline redundant corporate structures.  The removal of trade barriers in Japan is essential for the long-term survival of Japanese business.

The process of globalization is gradual and requires radical new thinking by corporate Japan.  The increase in the merger and alliance market is gradually creating a more competitive economy by eliminating weak organizations and allowing progressive companies to thrive.

Recently, a variety of innovative Japanese technology companies have been seizing the opportunity to expand their international markets in the U.S. and other Western countries in order to offset slower sales in Asia.  As more flexible medium and smaller firms strive in this direction together with the large traditional companies, Japan’s economic recovery should accelerate.  Moreover, several Japanese firms have been developing projects in new technologies and markets outside their core businesses.