Japanese firms step up intelligence gathering as US-China tensions mount

A growing number of Japanese businesses are strengthening their intelligence gathering as the country finds itself increasingly exposed to the mounting tensions between the US and China.

Companies in sectors that have historically been less exposed to geopolitical disruptions — including Suntory, Hitachi and Mitsubishi Chemical — have hired risk executives and created new job roles and dedicated teams in recent months, as they catch up with their counterparts in more politically sensitive sectors.

The move to bolster their risk management capacity comes as investors call on Japanese companies to strengthen their disclosures on their response and readiness for contingencies such as the war in Ukraine, supply chain disruptions caused by the pandemic and increased tensions between the US and China over Taiwan.

Kyohei Yabu, research manager at the Japan External Trade Organization, said Japanese companies often face the dilemma of how they can comply with changing regulations in the world’s two largest economies.

“The risk of Japanese companies being caught between the two sides is increasing,” he said.

A report by consulting firm PwC Advisory published in September found that almost a third of Japanese-listed companies with sales of more than ¥500bn ($3.9bn) cited “geopolitics” in their annual reports, compared to 11 per cent a year earlier.

“Japanese companies have been slower to respond to economic security and geopolitical risks compared to US and European companies,” said Kazuhide Ueno, a lawyer at the legal firm TMI Associates.

“For investors, corporate security initiatives have become a criteria like ESG [environmental, social and governance] for judging a company’s value,” Ueno said. According to his research, the number of Japanese companies mentioning “economic security” in their annual reports has more than doubled to 27 this fiscal year, from the previous year’s 11.

Last month Suntory poached Go Eguchi, a US-based executive at trading house Mitsubishi, naming him the beverage group’s first chief intelligence officer.

A person close to the company said the group, which owns the US maker of Jim Beam bourbon whiskey, recognised the need to strengthen its intelligence gathering, after being warned of US regulatory challenges if it established a headquarters for a joint venture in a country considered too close to China.

Mitsubishi Chemical, Japan’s largest chemical company, last year created the position of chief supply chain officer to oversee risks in the management of its plants, logistics, procurement and climate measures. The role will also include addressing future geopolitical risks, such as China’s invasion of Taiwan, according to the company.

Mitsubishi Chemical was in negotiations to buy coal from Russia when Moscow launched its full-scale invasion of Ukraine last year. Within days, it had started talks with Australian suppliers. The pivot, analysts said, underscored the need for a senior role to navigate such risks.

The group also established a team dedicated to risk management. “Such a structure was always needed as a global company, but we simply didn’t have it,” the company said.

Hitachi last year named its finance chief as chief risk management officer, creating working groups to discuss crisis management and regional geopolitical risks.

Although there is no designated executive, beverage maker Kirin has also launched internal discussions on how its subsidiary in Taiwan would respond in the case of a contingency, such as an invasion by China.

The corporate focus on geopolitical challenges and economic security coincides with efforts by the Japanese government — which passed an economic security bill in May — to ensure stable supplies of critical materials such as chips and batteries amid supply chain risks.