Regulations long impeded restructuring, and business mores condemned it. But corporate Japan, looking for an antidote to an almost decade-long recession, has nonetheless started the process. These days, even blue chips such as Asahi Chemical Industry, Mitsubishi, Nissan, and Toshiba are buying and selling assets (Exhibit 1).

This sea change offers huge opportunities for foreign principal-investment firms willing to establish a local presence—if they master the nuances of Japanese business culture and practice. Only by doing so will they be able to complete deals and to become effective managers of the assets they acquire.

M&A becomes more attractive

Almost without exception, large Japanese companies participate in keiretsu: integrated corporate groupings characterized by cross-shareholdings, close and long-term business relationships, and strong ties among managements. As a result, these companies find themselves ensnared in businesses that are sometimes barely profitable or even losing money. The Western approach to such underperforming assets is often to divest the noncore ones, but few Japanese managers have ever been exposed to M&A practice, let alone regarded the divestiture of any business as a suitable strategy.

But Toshiba’s mid-1998 announcement that it would divest all of its underperforming noncore businesses signaled a transformation in Japanese attitudes....