Japan’s major bearing manufacturers, NSK (Nippon Seiko) and NTN, are set to merge. Although the two companies have emphasized the principle of “equal partnership," questions remain as to whether the new company will be able to respond effectively to the rapidly changing competitive environment.
Bearings are components that support shafts and enable them to rotate smoothly. They are widely used in automobiles, generators, metalworking machinery, and virtually all types of mechanical equipment. If the two companies successfully complete their merger, the combined entity would surpass Sweden’s SKF to become the world’s largest bearing manufacturer. As two long-established Japanese companies with more than 100 years of history and once fierce competitors, their “marriage" has attracted considerable attention from the market.
NSK and NTN will establish a holding company, with both companies becoming wholly owned subsidiaries under the new holding company. As automotive bearings, their core products, have become increasingly standardized, the two companies have become caught in intense price competition, resulting in declining profitability. Although both have been working on structural reforms, they are approaching their limits. NSK President Toshiharu Ichimyo stated, “To maintain our international competitiveness, we must carry out restructuring."
NSK specializes in small, high-precision products, while NTN has an advantage in large drive-related products. In addition, NSK is strong in linear motion products used in semiconductor manufacturing equipment and machine-tool positioning, while NTN is a world-class company in automotive drivetrain applications. By building complementary product portfolios and cooperating in areas such as joint procurement of materials, the two companies are expected to generate synergies.
The key issue, however, is how the merged company will be governed. “The merger process places great importance on the principle of equal partnership, with the highest priority given to employee engagement," NTN President Eiichi Washitori explained at the shareholders’ meeting held in late June. The public materials released by both companies when the merger was announced also stated that the merger would be carried out “based on the principle of equal partnership."
If the merger were instead structured as an acquisition by the larger company or as the conversion of one company into a wholly owned subsidiary, the existing governance structure could simply be carried over, potentially resulting in talent loss and delays in organizational integration. From this perspective, an equal merger is a structure that employees are more likely to accept.
However, the two companies must not shy away from friction. They need to prioritize the interests of the combined group, make decisive decisions, and execute them quickly; otherwise, they risk falling behind the rest of the world. NSK President Ichimyo also stated at a press conference in May, “What we lack in strengthening our international competitiveness is speed. We will make full use of the business foundations and resources that both companies possess. First, the consolidation and reorganization of production bases, as well as the streamlining of overlapping organizations, will be key management challenges."
Several years after the holding company officially begins operations and the two organizations gradually integrate internally, it is also possible that the companies could retain their existing names and the new company name while one absorbs the other, or that one company could eventually become a wholly owned subsidiary of the other.
There is no absolute answer when it comes to corporate governance after a merger. However, expectations are high that these two companies will be able to transform themselves—much like the bearings they manufacture—into a single enterprise that operates smoothly, efficiently, and in true harmony.
