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Foreigners at the Wheel
A new boss at scandal-hit Mitsubishi Motors

Is this the car industry to take over the world? A decade ago, there was no question which country made the most advanced, economical and best-quality mass-market vehicles. Now, many of Japan's carmakers seem to have run off the road. Last week debt- and scandal-ridden Mitsubishi Motors Corp. (MMC), the nation's No. 4 auto company, said it will accept a new chief operating officer from major shareholder DaimlerChrysler.

That is much the same position that Renault's Carlos Ghosn holds in Nissan, while Ford's Mark Fields is Mazda's president. It leaves only two of Japan's five major carmakers, Toyota and Honda, with no foreigners in top jobs. Proof that Japanese management just doesn't have what it takes to succeed anymore? Well, yes and no. It does show that globalization doesn't countenance national pride — which Japan is coming to recognize even in the automotive sector which used to be the flower of its industrial prowess.

MMC and DaimlerChrysler first joined forces earlier this year when the German giant bought 34% of the Japanese company for $2.1 billion. The deal was intended to help MMC pare the $14 billion in debt it built up in its over-ambitious 1980s expansion, and to accord DaimlerChrysler access to Mitsubishi's small-car expertise. It also gave the German giant three seats and veto power on MMC's 10-member board. But the Stuttgart-based company was barred from increasing its stake for 10 years and MMC insisted it remained independent.

Then in the last two months, after a government investigation, Mitsubishi admitted hiding customer complaints from the authorities over 20 years. It also recalled nearly a million vehicles. With its reputation in tatters, MMC agreed that "DaimlerChrysler will increase its influence." Rolf Eckrodt, the head of the conglomerate's rail systems unit Adtranz, would become COO and an 11th board member. MMC CEO Kawasoe Katsuhiko would be replaced by respected executive VP Sonobe Takashi. The German company also cut the price it would pay for its stake to $1.9 billion, and it gained the right to raise its holding "without limit" in just three years.

It is too early to say that foreigners have taken over MMC. DaimlerChrysler's shareholding is matched by the 34% held by other members of the Mitsubishi group. Seven of the 11 board seats will be filled by MMC and other Mitsubishi executives. Incoming president Sonobe has made clear he is no seat-warmer. "I will be responsible for strategy, product development and finance over the long term," he explained. "The COO will be in charge of day-to-day operations and will report to the CEO. Staying independent is important and we managed to do that by keeping DaimlerChrysler's stake at 34%." Really? Well, Eckrodt may have something to say about that. After all, when he took over then-troubled Adtranz in 1996, he swept away jobs, shut factories and slashed costs. And he has been candid about DaimlerChrysler's ambition to eventually take full control. "If that is feasible under the current agreement, then it is the right thing to do," he told the Financial Times.

So are Japan's once world-beating managers now failures? Analysts say many firms did react too slowly to shrinking markets, as 28% of local demand for non-mini vehicles disappeared over the last three years. But that does not mean foreign executives are automatically better. "That Japanese management has become increasingly global has nothing to do with the failure or success of Japanese management. It simply reflects the changing trends of the industry," argues analyst Stephen Usher of Jardine Fleming Securities in Tokyo.

Just as Daimler took over America's Chrysler, and Ford owns numerous European marques, Japanese companies are belatedly becoming more closely entwined with world industry. Foreign takeovers are part of globalization. Some conservative voices in Japan fret that the nation could lose control over its economy, but they are few. "There's nothing wrong with the Wimbledon effect," says a senior member of the ruling Liberal Democratic Party, an oft-used Japanese reference to the British tennis tournament where players from abroad dominate. At the same time, the LDP man hopes that Japanese will one day head some U.S. and European companies.

Perhaps more shocking to the Japanese than the sight of yet another foreign boss running a leading carmaker was the scandal that precipitated it. The Mitsubishi name represents more than Japan Inc. — it is nearly synonymous with modern Japan itself. The group began in 1870, just as the nation was emerging from feudal isolation, and grew to dominate industries from shipping to banking to brewing.

Now, on top of MMC's two decades of car-defect deception, affiliate Mitsubishi Electric has admitted that it had concealed a handful of incidents when its TVs emitted smoke or caught fire. That kind of executive behavior has no place in any nation that means to be part of the 21st century. As Mitsubishi Motors Corp. has found out, Japanese companies that fail to comply with the rising standards of the new Japan could well find foreigners doing it for them.

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