Lixil serves up a new style of Japanese multinational

What do you get when you take five proud but domestic Japanese companies, merge them, and then add four large foreign acquisitions in the space of a few years?

You might expect an almighty mess. The actual result is Lixil, one of the world's largest makers of building products, and an unprecedented attempt to forge a Japanese multinational out of a declining domestic industry.

The outcome of the experiment is unclear - with operating margins of just 4 per cent last year, Lixil has a long way to go - but under chief executive Yoshiaki Fujimori, the company has defied predictions of a disastrous clash of cultures.

"I think we are extremely far ahead from the original state," says Mr Fujimori. Of the 10 board directors, he says, four are non-Japanese and only one is a survivor from the pre-merger days.

But he says there is further to go, that Lixil is still an internationalised Japanese company and not yet truly global. "It's still the mind of the people. The Germans are still German, the Japanese are still Japanese, the Americans are still American - we're trying to create one global company," he says.

The five original Japanese companies were Tostem, which made core building materials; Inax, a plumbing specialist; Toyo Exterior, a seller of carports and conservatories; Shin Nikkei, a provider of interior fittings; and Sun Wave, which made kitchens. All traditional Japanese operations, they agreed to combine in 2011 in pursuit of survival as their market declines.

That merger was followed by an overseas acquisition spree including American Standard bathroom products for $342m; Permasteelisa, the Italian group that made the facades for London's Shard skyscraper, for €573m; and largest of all, German bathroom products group Grohefor €3.06bn. The deals have boosted sales by 34 per cent to $13.5bn.

Mr Fujimori, an executive at General Electric in Asia and the US for 25 years, is an unusual leader for any Japanese company: blunt, forceful and not afraid of a little trash-talking. He says that further acquisitions in plumbing or exteriors would be add-ons in emerging markets; but Lixil's kitchen segment still needs to move into global markets.

"We've acquired the top three big ones already - there's none left [in water technology]. If Toto wants to sell to us, we'll buy," says Mr Fujimori. His minder winces: Toto is Lixil's main competitor in Japan, so while it is clearly a joke, it is a joke with an edge.

Hiroki Kawashima, SMBC Nikko Securities analyst, likens Lixil to a "mini-SoftBank" for its acquisitive nature, but he says the real test is to come: "Mr Fujimori can add the firms together, but creating synergy is another matter. Remember that the original Tostem-Inax merger [in 2001] took a decade to bear fruit."

Mr Fujimori is not daunted by the challenge. He is outspoken about the need for corporate Japan to change and calls on his fellow chief executive officers to "be gutsy".<

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"The risk of doing nothing is the highest. It's the highest crime. So don't be afraid, don't be afraid of change," he says. Many Japanese leaders bemoan the conservatism of their staff, he says, but Mr Fujimori urges them to look in the mirror before telling employees to change: "In my heart - you've got to be that before you tell your people."

One of the big problems for Lixil is growth and profits at home. With Japan's population falling the market for new housing is in steady decline. Its annual net profit for the year through March is tipped to have fallen as much as 45 per cent due to weak domestic demand, and analysts are calling for more job cuts.

The answer, says Mr Fujimori, is refurbishment - which he predicts will grow because of ageing, energy policy and the threat of earthquakes.

As people get older, they "don't want to build new homes, they want to live where they are", but many will require elderly-friendly adaptations. The shutdown of nuclear power after the Fukushima disaster, meanwhile, requires a renewed focus on energy efficiency.

"Japan is probably the only country where you're allowed to build with single glazing. We have not been so energy conscious in terms of how you build houses," says Mr Fujimori. He attacks the government's feed-in tariff for renewable energy as a "horrible" policy and says there should be mandates for homes to generate their own energy instead.

Most of all, though, Mr Fujimori is calling for Japan to change its ways, moving past the "internationalisation" of exports and foreign subsidiaries and creating truly global companies.

"We will fail most of the time if we stick to Japanese management and stick to the Japanese way," he says. "If we don't accept diversity, don't value diversity and don't utilise global intellectual capital - then we'll fail."

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