Nissan’s Investment in Mitsubishi Motors

In mid-May, Nissan Motor Co. surprised Japan when it announced it would invest $2.2 billion in Mitsubishi Motors to gain effective control of the latter. The surprise was twofold. First, the announcement’s speed and timing astounded many. After all, it came only three weeks after Mitsubishi publicly acknowledged it had overstated its cars’ fuel efficiency, which enabled Nissan to buy Mitsubishi at a bargain price. More importantly, nobody contemplated Mitsubishi Motors would be acquired by a non-Mitsubishi firm, let alone Renault-controlled Nissan. A diversified business group supplying tanks (Mitsubishi Heavy Industry), beer (Kirin), and financial services (Mitsubishi UFJ Bank), Mitsubishi has been synonymous with the Japanese way of management: a horizontal “Keiretsu” where independently-run firms bearing the common name “Mitsubishi” assist each other, especially in difficult times. Only two months before, Taiwan’s Foxconn outbid a Japanese government-controlled fund to acquire Sharp, a troubled electronics giant, for $3.5 billion. Do these deals signify Japanese multinational enterprises finally have abandoned traditional nonmarket practices in favor of market principles? We should be cautious about drawing such a conclusion because economic rationales always have been an important, if not the primary, driver, for Mitsubishi and other Keiretsu groups, with the participants in the Mitsubishi system working together to build Mitsubishi into a trusted brand, sharing customers, and reducing transaction costs. This time, they agreed leveraging Nissan would led to a more efficient rescue of Mitsubishi Motors because the former has a successful restructuring track record. As for Nissan, the deal provides growth opportunities because of Mitsubishi’s strong presence in Southeast Asia, which flows from the position of Mitsubishi & Co., a trading powerhouse. In the final analysis, what we are seeing is nothing more than a “traditional” Asian business structures (e.g., business groups) acting in a rational manner to cope with contemporary operating challenges.