• 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 has now stabilized, despite the large number of Chinese firms climbing in the list’s rankings.

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 time frame.

• Only Nine Japanese Companies are in the Bottom 100 of the Fortune Global 500

Japan’s remaining companies in the list are well distributed, with only 9 companies in the lower 401-500 ranked block. Those companies are: East Japan Railway (470), Chubu Electric Power (454), NEC (450), Sumitomo Electric Industries (445), Kansai Electric Power (428), Medipal Holdings (417), Takeda Pharmaceutical (414, new to list), Subaru (405), and Toshiba (401).

• Is Dropping in the Global Fortune 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. It was ranked 78th in revenue in 2014, and by 2020 had dropped to rank 106. However, they’ve executed some smart divestitures along the way, which lowered revenue, while positioning them for acquisitions in the power and automotive industries with ABB Power Grids and Honda affiliates Keihin Corp., Showa Corp. and Nissin Kogyo Co.

• Most Segments are Up vs 5 Years Ago

Looking at Japanese companies grouped into market segments as shown below, the segment revenue is not shrinking. Most segments have held steady or grown on an actual Yen basis. Don’t be surprised. Many of the companies in these segments are over 100 years old, and quite stable.

Segments that are declining include Electronics, Oil & Gas Operations, Electric Utilities, and in the “Other” category (details not shown) Computer Hardware. Even if a segment is up, though, that's not the whole story. If the Auto and Truck Manufacturers segment revenue is up, how does that compare to a broader index of Auto and Truck Manufacturing companies globally? And thus, are the largest Japanese auto and truck manufacturers gaining or losing share in the global market?

• Implications for Japan’s Global Businesses

For each of Japan’s big industries there are different considerations for globalization such as:

• rate of change and ability to adapt to rapid change (such as disruptive business models)

• global levels of competition and the legal and regulatory environments

• alignment with Japan’s national priorities, etc.

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. But for these unique times, let’s think about how to weather a storm like the global COVID-19 pandemic. 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 deliver 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 and provide the resources they need to grow

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

This blog was authored by Chet Chetwynd of JMNC Solutions. To see more from Chet, visit and subscribe to Chet’s Blog. For 18 years, Chet has been helping global Japanese companies with leadership and corporate culture, business development, acquisitions and divestitures, strategy and business planning, and portfolio optimization.

He is currently focused on leadership coaching in the area of global growth and transformation. See more at www.jmncsolutions.com. Get in touch with Chet if you’re a leader in a Japanese company operating outside of Japan, and would like to discuss your growth and transformation ideas or challenges with someone who’s been creating winning solutions at the complex intersection of Western and Japanese business practices.