Restructuring the Organization and Group Entities to Accelerate Success (Part 2)

It is not uncommon for subsidiaries to have more relaxed transaction terms compared to their parent companies. Therefore, differences in compliance risks and governance can become critical issues during integration. In particular, discrepancies in contract terms and compliance standards between business partners can significantly impact the integration process. For this reason, it is essential to review contract conditions early in the integration phase and implement appropriate risk management measures.

When major differences exist in contract content or compliance standards (such as credit management or subcontracting law compliance) between parent and subsidiary companies, legal and accounting departments may resist the integration workload, creating potential opposition. To minimize these risks, it is crucial to assess the workload in advance, hold regular meetings with integration leaders and stakeholders, and secure consensus. Specifically, quantify the number of contracts and partners requiring renegotiation, set deadlines, and develop an execution plan with clear commitments from relevant departments.

Additionally, decisions on whether to continue certain transactions must be made early. High-risk partners should be identified promptly, and alternative strategies considered. For example, renegotiating contracts to comply with Codes of Conduct (COC) or restructuring agreements to meet subcontracting law requirements may be necessary. Failure to address these issues could lead to legal risks post-integration, potentially damaging corporate value.

For major clients that account for a significant portion of revenue, careful evaluation from a credit management perspective is essential. For instance, for partners representing over 80% of sales, contract terms and credit risks should be thoroughly reviewed to ensure transaction stability. By conducting a comprehensive review of partners and contract terms, compliance risks and governance alignment can be secured, enabling smooth post-integration operations.

As noted, if the parent company’s credit management standards or contract conditions differ significantly from those of the subsidiary, failing to take appropriate measures could result in substantial legal risks. This risk is heightened when preparation time for integration is short, as critical issues may be overlooked.

To mitigate these risks, contracts should be systematically categorized, and required actions for each type clarified before integration. Begin by classifying contracts by partner type (customers, suppliers, subcontractors, distributors) and contract type (outsourcing, manufacturing, agency, licensing), then compare them against the parent company’s standards. Next, identify necessary adjustments for compliance with COC and subcontracting laws. This approach clarifies which contracts require revision and minimizes post-integration legal risks.

If reviewing all contracts in a short timeframe is impractical, prioritize high-risk agreements and those with significant impact. Collaborate with legal and accounting departments to identify critical contracts and focus on their revision. For major clients representing a large share of revenue, responsible departments should prepare detailed documentation of transaction terms and work closely with legal and accounting teams to set appropriate post-integration conditions, ensuring transaction stability.

Unifying business policies and brand management is a key challenge in corporate integration. Applying uniform standards post-integration may risk undermining the competitiveness of the acquired company. For example, if the acquired company’s operational policies or quality standards differ from those of the parent company, enforcing changes could reduce product or service quality and harm customer satisfaction.

To avoid such issues, differences in business policies and brand management should be analyzed before integration, and items requiring standardization versus those allowing flexibility should be clearly defined. For instance, if the acquired company’s standards align closely with specific market needs, imposing uniform standards could weaken market competitiveness. In such cases, introducing exceptions or temporary measures may be necessary.

Some processes can follow the parent company’s standard rules while retaining unique practices that preserve the acquired company’s strengths. For example, even if the parent company has standardized quality control processes, maintaining the acquired company’s unique quality practices in certain markets can enable differentiation. Establishing these policies before integration helps preserve brand value and competitiveness.

Aligning fiscal periods and standardizing accounting practices is another critical challenge in corporate integration. For the acquired company to meet the parent company’s closing schedule, standardization and harmonization of accounting processes are essential. Without this, delays or errors in financial reporting may occur, reducing management accuracy.

To prevent such issues, differences in accounting processes should be analyzed before integration, and necessary changes identified. For example, parent company accountants should collaborate with the acquired company’s finance and sales teams to explain closing procedures and system rules, then establish a new monthly closing workflow to accelerate reporting. Standardizing data entry methods and account classifications ensures consistency and prevents confusion.

Beyond accelerating closing, improving workflows is also effective. For instance, if the acquired company manages closing processes in a decentralized manner, centralizing data management enables real-time financial monitoring and faster closing. Strengthening collaboration with sales and administrative departments and standardizing pre-closing data preparation further enhances accuracy.

In short, minimizing the impact of fiscal alignment and account standardization requires harmonized accounting operations, unified systems, and close interdepartmental collaboration. Through proper process design and thorough workflow review, financial management accuracy can be improved, reinforcing the company’s overall management foundation.

In corporate integration, IT system consolidation is a critical factor for improving operational efficiency and ensuring data consistency. However, system migration is not merely a technical task—it is closely tied to organizational workflows and operational rules, requiring careful planning. Challenges often arise when migrating to the parent company’s standard system, especially if the acquired company uses specific system modules that are incompatible with the standard system or if differences in business processes lead to resistance from frontline teams.

To prevent such issues, it is essential to first review the functional requirements and actual usage of the systems targeted for integration and accurately assess the scope of impact. Based on this analysis, thorough discussions between the parent company’s IT team and the acquired company’s business teams should be conducted to establish a migration policy that both sides can agree on.

For example, if the parent company has a custom-built sales management system optimized for its unique business processes, its IT team may resist integrating the acquired company’s systems. This resistance often stems from concerns that merging systems could compromise consistency, especially when the parent company’s system is designed around specific business practices or contractual conditions that differ slightly from those of the acquired company. Additionally, strong attachment to the custom-built system’s design philosophy can make consensus-building even more difficult.

In such cases, rather than enforcing an immediate migration to the standard system, a phased approach may be more effective. For instance, temporarily running both systems in parallel while gradually integrating them can reduce disruption. Developing an interface to link the acquired company’s sales data with the parent company’s system ensures data consistency while adapting business processes. Furthermore, for certain operations, retaining some functions of the existing system while gradually transitioning to the new system can help minimize the additional workload caused by integration.

Finally, let us summarize the key points for successful subsidiary integration covered in both parts of this series:

• Even for wholly owned subsidiaries with ongoing business interactions, it is important to recognize that they may have distinct cultures and a strong sense of autonomy. Integration should be approached carefully and over sufficient time.
• Identify gaps in compliance risks and governance between the parent company and subsidiary, assess the risks these gaps create, and take appropriate measures.
• Even if HR systems and compensation structures appear aligned, attention must be paid to avoid perceptions of disadvantage or unfairness on either side.
• When core systems and major business applications differ, early assessment of the impact on workflows and a realistic system integration plan are essential.
• Setting Day 1 and planning integration activities must consider peak workload periods for receiving departments to avoid resource bottlenecks.

Looking back, full-scale consolidated management in Japan only became a priority in the 2000s. Before that, some subsidiaries were established to differentiate brand policies or compliance/governance standards. Today, unified policies across the group are a fundamental requirement. We hope the points discussed in this article will serve as useful guidance when considering group restructuring.

At ABeam Consulting, we provide end-to-end support—from subsidiary strategy formulation and business planning to new subsidiary setup and integration execution. Our approach goes beyond procedural aspects, assisting with absorption mergers, business carve-outs, and positioning within the corporate group, as well as defining the group’s overall vision. We also help clarify the role of subsidiaries post-restructuring, address resistance, and ensure smooth integration of operations and systems.