Michel Théoval
EBC senior vice-chairman, president Thales Japan
I first came to Japan for the 1970 Osaka Expo 40 years ago, and we are also celebrating THALES in Japan’s 40th anniversary here this year. For 13 years I have been president of Thales Japan, which is part of the Thales Group and produces electronics for aerospace transport and defence. Our company started selling to Japan in 1898, and our first customer was the Imperial Japanese Navy.
Now our business is divided fifty-fifty between defence and civilian. Our industry customers include both major Japanese airlines, civilian public services, plus financial and construction companies for railway projects abroad. Every military boat, ship and plane in Japan probably has “something on board” made by Thales.
One target business area for us is air traffic management; the current equipment is very out of date, so the Japanese government is working on a new system. Another target is space. We are looking to cooperate with Japanese space companies.
The Japanese side is not aware that their air traffic management systems are so out of date; it is getting more and more difficult for planes to land in Tokyo, and of course there is a safety issue too. People in Japan tend to think that the number of runways is most important, but actually it is the way the planes are managed in the air.
Look at the efficiency of the Shinkansen system where trains run every few minutes; a similarly advanced system is needed for air traffic. Many other Asian nations have modern integrated systems, and they have tried to improve the system here, but you can’t fit a jet engine onto a zero-fighter, and a new system is necessary.
The train sector is a closed market, and the problem is that all suppliers face a so-called “safety clause”. It is almost secret, known only to Japanese companies and essentially an excuse for them to refuse foreign suppliers. It is not a cost issue, it is a question of habit; the suppliers are always the same small group of Japanese companies.
We have similar issues in our defence business. Japan’s first choice is Japan-made defence equipment; if that’s not available, they go to US makers – and after that, if necessary, they turn to Europe. Ninety-five percent of Japan’s defence spending goes to domestic companies and, of the rest, 87% goes to buy US imports.
Having said that, maybe there is a chance for European companies? The first reason is technical: Japanese products look very good on paper and they are an engineer’s dream. But, nevertheless, they are not based on actual combat experience.
US products are very good because the market is huge – 50% of the world defence market – but they are designed for that enormous defence system. The US market is very competitive, yet the manufacturers are also quite complacent because the market is so huge. Japan needs defence products for a medium-sized military with a shrinking budget, just like Europe.
The second reason there is an opportunity for European companies is a financial one; because of the size of the European market, prices are constrained. Japan is used to high prices, yet generally Europe is cheaper for better quality. Austria is a good example, where even though the country is small, they are very competitive thanks to technical ingenuity and low prices.
In my opinion, Japan and the US are not drifting apart – that’s just an idea journalists have invented. Even if it were true, Japan would have no way to survive without the strong support of the US.
Having said that, it is better to have two legs than one. The US and Europe do not make the same products, and Japan would benefit from doing business with both. Japan wants to protect its industry – which is fine – but they still need to push their companies to make alliances with EU countries.
Before this stint in Japan, I worked in Moscow, and before that in Paris as a sales manager for Asia. The biggest deal of my career was when I sold a Franco-German short-range air-defence system to the Pentagon for bases in Germany.
When I came to Japan for the Expo, I was just 25 years old and I worked part-time looking after visitors from overseas. The very first time I came here was to prepare for the Expo actually. I remember it well; it was Christmas, cold and wet – my first impression of Japan was of my own utter powerlessness. Since I could not speak the language, read or write, I had no idea what was going on.
Before that I had discovered Japan through the films of Ozu, Mizoguchi and Kurosawa, and like many Frenchmen I practised judo when I was young. We decorated our dojo with huge images of sword-bearing samurai. But when I arrived, Japan was a completely different place to what I had imagined, already a very modern country, in fact, accepting modernity with zeal. But at the same time Japan was guarding its unique cultural identity, and that hasn’t changed.
Our Western companies work for profit. But in spite of what Japanese businessmen say to their guests, they don’t work for profit, they work for market share; Japan is the only capitalist country with such a feudalistic approach.
Reform in Japan is very difficult, and the reasons are political. There are many rules which prevent foreign imports, and which have little purpose except to benefit bureaucrats. The government has put politicians at the head of each ministry over the bureaucrats, yet I am sure change will take some time. We will not feel the effects of that for a while.
Japan is certainly in a bad situation, but remember that Japan has immense resources and still has a very sturdy system that is resistant to many things. Japan could successfully reform itself, and become a tough competitor to China, or it could accept decline.