OPINION: Challenging environment requires change

TOKYO (The Japan News/ANN) — The corporate history of JXTG Holdings, Inc. ― a major group of companies led by the largest petroleum company in Japan ― can be described as a history of restructuring. When and why is restructuring necessary? For this installment of Leaders, a column featuring corporate management and senior executives, The Yomiuri Shimbun asked Representative Director and Chairman of the Board Yukio Uchida about what is key for successful restructuring.

The utmost goal for restructuring is to “build a competitive company in the global market.”
 With the liberalization of petroleum product imports having been introduced in a globalizing economy, our survival depends on competition with foreign companies. Due to changes in the social environment toward establishing a low-carbon society, in which carbon dioxide emissions are limited, domestic demand for petroleum products has been in decline. Business opportunities exist, however, when a given industry is in the midst of transformation. Restructuring can be said to be one of the approaches to deal with the various challenges involved.

[JX Holdings, Inc. and TonenGeneral Sekiyu K.K. completed business integration in 2017 to establish JXTG Holdings, Inc. The integrated company and its group companies intend to generate synergistic effects worth ¥100 billion annually by the end of  fiscal 2019.]

 One important thing is how to produce added value through integration synergy, beyond simply combining the existing value of the two former companies.
 For example, we can consolidate operations of the facilities of the former Tonen-General Kawasaki refinery and the former JX Energy Kawasaki plant, which are adjacent to each other in Kawasaki, Kanagawa Prefecture. The two facilities can share raw materials and intermediate products ― partly finished petroleum refinery products or petrochemicals. By exchanging such items among the group companies, we do not need to procure them from non-group suppliers. Personnel distribution can also be optimized. The advantage of expanding scale will also be significant in sales and transportation.
 In my view, transforming our mind-sets is more important. Why did we decide to move ahead with the restructuring? I have created venues for dialogue with managerial staff as well as executives, to remember and reconfirm the reasons behind that question. Board members and I held 16 sessions to talk directly to more than 900 employees in the positions of department managers and group managers.
 The two companies boast long corporate histories. Maximizing the strength of each, we should together transform our way of doing business to truly become one company. We aimed to develop a new company through aggressive discussions respecting different opinions. With that in mind, we had candid exchanges of viewpoints.
 After discussions, we drink together to get to know each other better. The important thing is to transform our mind-sets right away, define our goal and have a common understanding of how to accomplish it. Of course, the corporate cultures are different. However, such differences are insignificant amid the changing business environment for the petroleum industry.
 We started to rebrand affiliated service stations as ENEOS in October. We seek to improve customer satisfaction through integration by enhancing our quality of service.

Awed by huge tanker
 My seminar advisor at Kyoto University was Prof. Masataka Kosaka, an academic in international politics. He was a well-known figure and appeared often on TV programs. Before I had joined a company, Prof. Kosaka told me, “The situation regarding the Middle East will be interesting.” That drove me to pay attention to the region and I joined a company in the petroleum industry, which is deeply connected to the area.
 I was first assigned to the Mizushima refinery in Okayama Prefecture and was amazed at a huge oil tanker there. It was 300 meters long and 50 to 60 meters wide. “The tanker is the lifeline of Japan’s energy supply.” I was deeply impressed.
 After working at the Mizushima refinery, I was transferred to the planning division at the head office and assigned to work on the acquisition of the Chita plant in Aichi Prefecture. We purchased the plant from a general trading company that decided to withdraw from the petroleum refining business. The deal can be said to be the origin of our restructuring.
 Structural reform in the petroleum industry began in the 1970s ― after the oil crisis ended Japan’s rapid economic growth. At that time, there were as many as 38 oil-related companies, including refiners, primary distributors and others.

[Oil distribution in Japan ― which imports almost all of the oil it consumes ― has shifted to deregulation since the 1980s, after being protected by governmental regulations. In 1996, the Provisional Measures Law on the Importation of Specific Refined Petroleum Products was abolished, which liberalized imports of petroleum products.]

 Liberalizing the oil industry in the 1990s marked another turning point. At the same time, oil demand decreased. In 1999, Exxon and Mobil ― the two U.S. oil majors ― merged. I was stunned at the merger of the top two oil companies in the United States.
 Everyone started thinking, “Anything could happen in the oil industry.” Restructuring progressed also in Japan and I personally have been involved with restructuring many times. I believe that by the early 2000s, the number of petroleum companies had decreased by around two-thirds from its peak.
 One of the factors that drove us to establish JXTG was the business integration agreed by Idemitsu Kosan and Showa Shell Sekiyu in 2015. As the president of JX Holdings then, I had always thought about our next move. Around the summer of the same year, we began negotiations on the long-planned business integration initiative with Tonen-General.
 Idemitsu and Showa Shell will become one company next April and the Heisei era will conclude at the end of that month. Looking back on the Heisei era, the period represents “30 years of restructuring.” It is deeply moving to me.
A means, not an end
 While business cooperation among companies can take different forms including business partnerships, integration is the ultimate form and it requires a decision by top management. There is no going back.
 To reach such a decision, there is a serious sense of urgency for the future. Restructuring to establish JXTG was possible because top executives of the companies involved shared such a sense and had exhaustive discussions over the group philosophy ― what missions and core values we should establish.

 [Voices have been raised that many industries in Japan have not made progress in restructuring despite the existence of a large number of companies.]

 I do not know about the situation in other industries. What I can say is that restructuring is a means, not an end. It’s a means for promoting transformation of industries and companies. If the reason for the slow pace of restructuring is just ― “It is unnecessary. We are not that desperate” ― then I am envious.
 Looking back on restructuring in the past, many cases are seen in which companies with common shareholders seek higher business efficiency, as well as cases of a stronger company’s bailout of a weaker one. However, what ultimately needs to be done is a win-win restructuring focusing on the future, in which we bring globally competitive companies together. I think this is the case for our company. We must embark on a challenge in growing sectors such as overseas business under our new business structure.
 Amid ongoing deregulation, the barriers separating industries, such as petroleum, power utilities and gas have become lower recently. If asked if there will be restructuring across industries in the future, I cannot definitively say “No.”
 How can we optimize Japan’s energy supply? How do we revive Japan’s industrial complex, which is the heart of the manufacturing industry? Based on such a frame of reference, there should be room for cooperation without excluding oil exploration companies and the petrochemical industry.
 Instead of each company starting from scratch individually, it is better to share and utilize companies’ capacities. There may be new mechanisms for generating synergistic effects through business cooperation, rather than integration. In my understanding, it is just a matter of time before we will face the issue of restructuring and cooperation across industries to expand the scope of growing sectors.

■ Key Numbers
50%
The company has the largest share of domestic gasoline sales, at about 50 percent in fiscal 2017. The number of affiliated service stations is more than 13,000. Group businesses include crude oil and natural gas development and metals. According to the consolidated financial results for the fiscal year ended March this year, its revenue was ¥10.3011 trillion. The consolidated number of employees was 39,784 as of March 2018.

■ Yukio Uchida / Representative Director, Chairman of the Board of JXTG Holdings, Inc.
Born in Fukui Prefecture in 1951, Uchida graduated from the Faculty of Law at Kyoto University in 1973, and joined Nippon Mining Co. Due to restructuring, the company changed its name over the years to Nikko Kyodo Co., Japan Energy Corporation and JX Nippon Oil & Energy Corporation. He took the positions of president of JX Holdings Inc. in 2015 and president of JXTG Holdings Inc. in 2017 before assuming his current position in June this year. He has dealt with business restructuring through having spent considerable time in planning sectors in his career.

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