Restructuring around 50% overseas procurement (1989)

Absorbing the strong yen with money, materials and people

The heart of this decision was that the strong yen — an external condition — was absorbed by rebuilding the structure of procurement and of the company’s bases, rather than deflected with currency hedges. If you are paid in dollars and buy your equipment from foreign suppliers with those dollars, no exchange loss arises. Watanabe Eiji extended the scope of his response beyond money (the exchange rate) to materials (equipment sourcing) and then to people (moving design work overseas), cutting away from the inside the weakness by which yen-denominated costs swelled when translated into dollars. That he reversed the prevailing acceptance of loss-making orders not by proclaiming a policy but by accumulating results and know-how — overseas purchasing rising from ¥8 billion to ¥34 billion — tells you the character of the reform.

Even so, lowering the cost of building did not remove the risk of where the orders come from. In 1998 the Asian currency crisis cut JGC’s order intake sharply and it fell back into two consecutive years of net loss. Regional diversification of the order book remained a management problem on a different plane from procurement strategy. Still, in planting in the organization a capacity not to leave its results entirely to the external environment, the restructuring of the late 1980s can be read as a case of meeting a condition no single company can move — the strong yen — by redesigning the inside.