Companies should redefine ‘purpose’ to thrive: KPMG Japan chairman

TOKYO — Japanese companies should redefine their “purpose” to become resilient and thrive in the new era, Toshiya Mori, chairman of KPMG Japan, told the Nikkei Global Management Forum on Tuesday.

Mori stressed the importance of following a broad purpose as more Japanese companies seek growth overseas and a new generation emerges in order “to clarify the meaning of their existence,” adding that it “needs to be visible in their activities to be accepted by the society and community,” said Mori.

According to surveys conducted by KPMG before and after the coronavirus pandemic began, around 65% of CEOs and other managers in 11 countries understood the importance of having a purpose before the pandemic, with the figure rising to 80% in the second survey.

However, only half of Japanese CEOs surveyed recognized the importance of defining a purpose. “Companies should contribute to realizing a sustainable society. That is the role of a corporation,” Mori stressed.

It is said that out of 60,000 global companies with a history of over 100 years, 25,000 are in Japan.

“Japanese companies emphasize harmony and are good at improvement,” Mori said, “but they are not good at discarding the past or disrupting what we have today,” with old companies tending to cling to past success.

Mori also said “diversity” has become another keyword for many business leaders amid the pandemic. “Not only profit but also relationships with diverse stakeholders should be valued,” he said.

Cars could cost only 20% of today’s prices: Nidec CEO Nagamori

One of Japan’s most outspoken CEOs, Shigenobu Nagamori of motor manufacturer Nidec, believes cars could eventually cost barely 20% of today’s prices due to disruptions caused by the spread of electric vehicles and the expansion of supply networks.

His remarks at the forum come at a time when major Japanese automakers’ traditional close relationships with their keiretsu suppliers could potentially come to hinder them from adopting advanced technologies.

Nidec Chairman and CEO Shigenobu Nagamori said close relationships with keiretsu suppliers could potentially hinder Japan’s auto industry from adopting advanced technologies. (Photo by Rie Ishii)

Although Nagamori acknowledged that the EV market is growing slower than expected, he reiterated that it will soon trigger a dramatic price competition in the auto industry.

“The prices of cars have increased, while home appliances and other goods have experienced a series of price declines,” Nagamori said, calling electric vehicles a big innovation. “The price competition will soon happen as new players such as Tesla and others come into the market.”

When asked how much prices would decrease from around 2 million yen ($19,000) today, Nagamori answered, “If we assume EVs will account for over half of the auto industry after 2030, prices would be one-fifth.”

“In China, cars are selling at around 450,000 yen,” Nagomori argued, referring to the value-priced EV model launched recently by SAIC-GM-Wuling Automobile, a joint venture among SAIC Motor, General Motors and Liuzhou Wuling Motors.

Affordable cars are also being launched in Europe, Nagamori said, describing these cars as “free from preconceived notions of the past.” Lowering car prices could, he added, be critical to delivering vehicles to consumers in developing countries.

As the world’s largest motor manufacturer, Nidec seeks to supply high-quality, low-cost electric car parts to various Japanese automakers. “We want the Japanese car industry to win the world. Sometimes success in the past could impede [new challenges,” Nagamori said.

Nagamori also talked about another challenge Japanese companies face: a shortage of talent. He insisted Japanese university education needs changes, as the young generation today lacks a global, business-oriented mindset.

H.I.S. chief Sawada envisions space tours for $300,000

The COVID-19 pandemic has opened up opportunities for the Japanese travel agency H.I.S. to expand its scope, CEO Hideo Sawada told the forum earlier on Tuesday.

“You could think of a crisis as a chance,” said Sawada, whose company was hit hard by the global outbreak as international travel ground to a halt. The company asked its employees to come up with ideas for new businesses and picked about 10, including soba restaurants.

H.I.S. CEO Hideo Sawada, right, and fashion designer Junko Koshino discussed opportunities opened by the coronavirus pandemic. (Photos by Rie Ishii)

Sawada said the world is entering a new era and the company should “do more and more new things.” Digital initiatives by H.I.S. include virtual tours, in which local guides tell remote tourists about travel destinations. In the long term, Sawada also eyes space travel.

Sawada is looking to enable consumers to travel to a space hotel for about 30 million yen ($285,000). He said he wants to ask Elon Mask, founder of Tesla and SpaceX, for space travelers to stay in an orbiting H.I.S. hotel before visiting the moon or Mars.

Fashion designer Junko Koshino, speaking in the same session, also said the pandemic could be an opportunity. “Japan is in an era of isolation,” she said. “It could be a good idea to learn more about Japan … before traveling overseas, especially for young people.”

Daiichi Sankyo CEO Manabe pledges to prepare for future pandemics

Sunao Manabe, CEO of Japanese pharmaceutical company Daiichi Sankyo, vowed earlier Tuesday to address global challenges in COVID-19 vaccine development and distribution, which is expected to be an essential factor in resuming normal activities.

Manabe referred to a messenger RNA vaccine developed by the U.S. pharmaceutical company Pfizer, which possibly has a very high efficacy of 90%. It is still not certain whether coronavirus vaccines would be required once a year, like those for influenza, or more often. “And the virus mutates,” he said. “We still have some challenges in R&D.”

Daiichi Sankyo President and CEO Sunao Manabe vowed to address global challenges in the development and distribution of COVID-19 vaccines. (Photo by Yo Inoue)

“We have our proprietary technology,” he added — “Daiichi Sankyo is trying to address these issues as well.”

He also pledged to prepare for future pandemics. “To face such future risks, using our science Daiichi Sankyo would like to contribute to the world,” he said. He also listed antibiotic-resistant bacteria — which could cause as many as 10 million deaths — as another theme in the company’s agenda.

Daiichi Sankyo is part of the project in Japan to distribute the COVID-19 vaccines developed by the U.K.-based AstraZeneca and the University of Oxford. It is also working on its own vaccine for the disease.

Daiichi Sankyo’s vaccine “is also messenger RNA, but what we target is a bit different” and also has a high efficacy, Manabe explained. “Once we develop a technology like that, in addition to COVID-19 we will be able to apply it to a future pandemic.”

Netflix CEO Hastings says streaming to take over broadcast

Reed Hastings, founder and co-CEO of the U.S. streaming service Netflix, told the forum that with or without pandemic lockdowns, video streaming will take over broadcast for series and films.

Netflix founder and co-CEO Reed Hastings explained that streaming has an advantage because it lets people watch anytime they want. (Photo by Rie Ishii)

“Broadcast will stay strong for sports and news, but I think series and films will mostly be moved to streaming,” Hastings said. He explained that streaming has an advantage because users can watch content anytime they want.

Netflix has been one of the most notable beneficiaries of the world’s coronavirus lockdowns. It expects about 34 million new members from just this year, which Hastings said is about 4 million more than in the last few years.

But the CEO said the key to growth is not just the boost from COVID-19. “Basically, people want to watch great series or films whether there is COVID or not,” he said. The company has been focusing on creating original content.

“Fortunately, now all around the world, consumers can get the Netflix service. … We really get this content-sharing around the world,” he emphasized. He referred to the example of “Crash Landing on You,” a South Korean drama that has become a global hit.

Hastings recently published a book, “No Rules Rules: Netflix and the Culture of Reinvention.” He said, “The essence of it is, if you have the right people, you can manage through culture and through values, rather than through command.”

Green push brings opportunities for carmakers: FCA chairman

John Elkann, chairman of Fiat Chrysler Automobiles, told the forum that despite uncertainties posed by the pandemic, it is a “very good moment” to be in the automobile industry.

Elkann is also chairman of the European holding company Exor, which invests in FCA and will become the largest shareholder in Stellantis, a company to be formed out of the merger of FCA with French automaker Groupe PSA announced last year.

Fiat Chrysler Automobiles Chairman John Elkann said “there are many exciting novelties” in the auto industry now, and striving for carbon neutrality “has a lot of implications … in how we build a car.” (Photo by Rie Ishii)

“If you … want to invest in the future, [investing in the car industry] will be rewarding for every stakeholder,” Elkann said. He added that cars are changing and “there are many exciting novelties around connectivity, autonomy [and] safety.”

He also said that striving for carbon neutrality “has a lot of implications not only on the powertrain but also in how we build a car and what a car is made of.”

On the FCA-PSA merger, Elkann said the new company will be among the largest vehicle producers in the world. “We definitely believe that the size which we [will] have is going to allow us to be competitive,” he said. He explained that the merger would cut costs on investments and that there would be a run rate of 5 billion euros ($5.9 billion) of annual synergies.

As a businessman running a family business, he said that “there is no magic formula” for staying in business across the decades. He said all generations should have “the same desire to go ahead and to make sure that one wants to write a new chapter.”

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KPMG study finds Malaysia among leading global manufacturing destinations

  • Ranked 4th among 17 economies in cost of doing business in manufacturing
  • Very strong in Primary Costs, but needs to improve labour skills & mindset

Adding to Malaysia’s appeal as a global investment destination, a recent study by KPMG sees Malaysia ranking fourth among 17 economies in an assessment comparing their competitiveness as manufacturing hubs.

This puts Malaysia ahead of countries in the Asian region such as China, Japan, Vietnam and India.

The joint study by KPMG and The Manufacturing Institute in the US, entitled “Cost of Manufacturing Operations around the Globe”, provides a current assessment of how the manufacturing sector in the US compares in competitiveness to its main trading partners.

This study evaluates a total of 23 cost factors that impact the cost of operations (Cost of Doing Business or CoDB) of a business conducting manufacturing operations in the United States relative to sixteen other countries that are leading manufacturing exporters to the US.

These factors include costs that directly impact a firm’s bottom line (Primary Costs) and factors that impact overhead costs and the ability to operate efficiently, typically related to the business environment or ease of doing business (Secondary Costs).

The overall CoDB Index scores are determined at equal weightage of the Primary and Secondary Costs.

The study indicates that Malaysia’s ranking on the CoDB Index results from high scores on the Primary Cost Index, where Malaysia emerged at the top, tied with China, Mexico, and Vietnam. The country had outperformed on three factors: hourly compensation costs, real estate costs and corporate tax rates.

In analysing the results further, by changing the weight of the Primary Costs and Secondary Costs from equal (50%–50%) to 70%–30%, Malaysia would be ranked the number one most cost effective location in the CoDB Index.

“Malaysia continues to be a prime manufacturing hub for investors despite uncertainties in the current landscape. This is especially significant in our new reality, where operational stability and cost containment are central in every company’s long-term business survival,” says Johan Idris, KPMG Malaysia managing partner during a virtual media briefing on the study.

KPMG study finds Malaysia among leading global manufacturing destinations

Malaysia: a thriving ecosystem

KPMG study finds Malaysia among leading global manufacturing destinationsThe study’s findings bide well for Malaysia as a destination for companies looking to expand, reorganise or launch their supply chain. “An immediate effect out of the Covid-19 pandemic has seen companies around the world relooking at their supply chains. A study by McKinsey estimates between 16% to 26% of global exports, worth US$2.9 trillion to US$4.6 trillion, could move to new countries over the next five years if companies reshuffle their supplier networks,” says Johan (pic, left).

“KPMG’s study proves that we have the factors in place to aid Malaysia in moving up the production value chain. It is by acting with agility and building on our resilience that we are able to maintain our competitive advantage and remain a preferred destination for high quality investments.”

Also participating in the briefing was InvestKL CEO Muhammad Azmi Zulkifli, whose organisation just celebrated the major milestone of successfully attracting 100 global companies to establish their operational HQ to the Greater Kuala Lumpur region. “Malaysia offers a thriving ecosystem for companies looking to locate their operations here. The government is pro-business, our cost of doing business is competitive and we thrive in our Ease of Doing Business ranking.”

Azmi also adds that, “Office rental rates in the capital city for example are the most affordable in APAC according to Knight Frank’s first quarter Asia-Pacific Prime Office Rental Index 2019.”

He further notes that Malaysia is boosted by the country’s access to global markets, world-class connectivity, infrastructure and highly-skilled talent. “Greater Kuala Lumpur pivots towards ‘Industries of the Future’ and there is a strong focus on advance manufacturing and services which aims to push the industry up the value chain towards high-impact, high tech and sustainable activities.”

While acknowledging that transformation during challenging times is vital, he urges companies to seize opportunities through diversification, technological upgrading, creativity and innovation. “We seek to attract and facilitate more investments such as these to support the government’s vision of Industry 4.0 and to stimulate the economy further.”

KPMG study finds Malaysia among leading global manufacturing destinations

Areas of improvement

While Malaysia may rank high in the Index, there is still much work to be done. As Johan points out, Malaysia is ranked 11th out of 17 when it comes to Secondary Costs, which is associated with things like quality of labour, ease of doing business, infrastructure, and risk and protection.

While this puts Malaysia higher than China, they are also ranked lower than South Korea, Taiwan and Japan.

Responding to questions, Johan says that it’s vital for Malaysia to not only continuously focus on maintaining competitive Primary Costs, but also work on improving their quality of labour, infrastructure and ease of doing business, which all fall under Secondary Costs.

In terms of improving quality of labour, this pertains to upskilling and reskilling employees. Johan stresses that organisations need to prioritise investing in people. “In any organisation, the most important asset is people. You need to give people the right knowledge, tools and skillsets.”

But it’s not just organisations. The government and “everybody”, Johan says, needs to support the talent pool. “Quality isn’t just about the right skill, but also the right mindset. It’s also about wellbeing. You need to ensure that people not only have jobs, but support them during the times of crisis. There are things on the ‘soft side’ and ‘hard side’ of talent that we have to continuously look into, if you want people to come and invest in Malaysia,” he stresses.

Another area of importance is in adopting Industry 4.0 (I4.0), something which Azmi stresses upon. “It’s about moving up the value chain. We must be cognisant of the fact that Malaysia has a limited population and that’s where we need to drive efficiencies. And efficiency gains will come with developments in technology and in innovation.”

Johan says that Malaysia has gotten a good start towards I4.0 adoption, considering the government blueprint. “Everybody understands that it needs to happen.” The Covid-19 pandemic has accelerated traction – Johan says that more companies are approaching KPMG to understand their I4.0 journey and pain points.

He also notes that industry associations are helping companies embrace I4.0, though there’s need to be more coordinated with efforts in helping SMEs towards I4.0.

KPMG study finds Malaysia among leading global manufacturing destinationsUnder the Ministry of International Trade and Industry (MITI), of which InvestKL is a part of, there is a fund dedicated towards upbringing and identifying the right Malaysian companies for I4.0 assessments, as well as guiding them towards the next step in adoption.

There are, in short, a number of activities coordinated across the country in I4.0 assess and support. “What is key to us is that after an assessment, we look at how we can best partner these local companies and SMEs to an MNC (Multinational Corporation). Being part of their global value- or supply-chain will accelerate their journey,” Azmi (pic, left) elaborates.

The ministry is engaging with the required associations for this. Azmi points to the Federation of Malaysian Manufacturers (FMM) as a “close ally” – the association has thousands of members which MITI and its various agencies continuously engage. The goal is to raise the base line of Malaysian manufacturing excellence to bring it closer to the levels global manufacturers in the country operate at while creating a higher quality talent pool in the manufacturing sector. And with Malaysia’s strong attraction as a global manufacturing hub, expect more parts of the global supply chain to resettle in Malaysia as well.

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