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Japan Tobacco to Break Free of Government

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Japan Tobacco Inc, the world’s third-largest tobacco company by sales volume, will for the first time install top management that aren’t former bureaucrats, the WSJ reports. The company, half-owned by the Japanese government, is hoping to become a more efficient company in order to compete with competitors including British American Tobacco PLC and Philip Morris International Inc. The government is also planning to cut its holding in the company, in part to raise funds for post-quake reconstruction.

Since 1985, at least one of the posts of president and chief executive has been held by a former finance ministry official. Japan Tobacco’s incoming chairman Hiroshi Kimura said, however, that there was no deliberate intention to not employ ex-bureaucrats in the post.

Retired Japanese bureaucrats frequently move to management positions in the private sector in a practice known as “Amakudari,” or “descent from heaven.” The practice has been criticized for breeding collusion between the state and the private sector, stymieing much-needed political and economic reforms in the country. The system came into the spotlight once again during the nuclear crisis at Fukushima after last year’s earthquake, when critics said close ties between Tokyo Electric Power Co. and the government undermined safety standards at the nuclear plant. Several former officials of Japan’s Ministry of Economy, Trade and Industry have taken on jobs at Tepco.

Becoming a fully private company would allow the company to have more management freedom for strategic decisions, including overseas acquisitions, particularly as Japan’s smoking population decreases. Japan Tobacco already makes more than half of its revenue from overseas. It would also shield the company from pressure from Japan’s tobacco farming lobby. In a recent interview with the WSJ, senior vice president Yasuyuki Tanaka said Japan Tobacco’s management freedom “won’t be secured without full privatization.”

Japan Tobacco’s is the latest move by Japan Inc. to break free of its old ways as it strives to compete on the international stage. For example, Japan Airlines Co. is aiming high as part of its restructuring of the bankrupt company, with plans for an initial public offering as big as $6 billion. The national carrier already implemented route and job cuts as part of its turnaround and even expects to post a profit for the full year ending March 2014.

Private companies, especially Japan’s once-mighty electronics giants, are also implementing some tough choices to revive their fortunes. Earlier this month, Sony Corp. said it would reduce headcount by some 10,000 people, after it warned that it expects to post a loss of $6.4 billion for the past fiscal year, more than double its previous forecast.

The Japanese government has taken action to reverse its electronic industry’s decline, investing $2.5 billion in a fund that pools the assets of Sony, Toshiba Corp. and Hitachi Ltd., known as Japan Display Inc. The goal is to create a more competitive display-panel business to compete against other Asian rivals, mostly South Korea’s Samsung Electronics Co.

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