Company Town : HOLLYWOOD GIANT FOR SALE? : NEWS ANALYSIS : Fundamental Folly of Japan’s Multinationals: Fear of Letting Go : Management: Problems with foreign subsidiaries are likely to grow as more firms move offshore to cope with the strong yen.

When Matsushita Electric bought MCA five years ago, it promised a great deal of autonomy to the company’s management under Chairman Lew Wasserman and President Sidney Sheinberg. Now, as Matsushita contemplates selling the entertainment giant amid reports of management differences, the company is revealing the weak underbelly of Japan’s giant multinationals: their inability to effectively manage foreign subsidiaries.

It’s a problem that will become increasingly acute as Japanese companies move more operations offshore to deal with the impact of a sharply rising yen.

“If you believe that the key to competitive success will be learning and knowledge transfer and using human networks, the Japanese have a fundamental problem on their hands,” says Schon Beechler, associate professor of international management at Columbia Business School.

It’s not a new problem. For years, American managers of Japanese-owned firms have complained about their parent companies’ unwillingness to offer them enough pay, responsibility and autonomy. Worried over loss of control, Japanese companies typically send “shadow managers,” trusted soldiers who maintain almost nightly contact with their bosses at home, often receiving blow-by-blow instructions by fax.

Over time, Japanese corporations have learned a few lessons. After decades of refusing to put local nationals in top executive positions, a few are recognizing that they have no choice. Matsushita kept MCA management on and offered it autonomy.

But it is evident today that that hardly solved the problem. Autonomy doesn’t necessarily mean the same thing to the American manager as it does to the Japanese manager. In Japan, when a manager is given autonomy, it is understood that he will internalize the goals of his bosses and operate within those narrow parameters. For an American manager, autonomy means making independent management decisions and being judged based on results.

MCA’s Sheinberg, for example, was disappointed when Matsushita turned down his proposals for acquisitions including British-based Virgin Records.

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In turn, Matsushita executives were puzzled that MCA management didn’t recognize the financial troubles Matsushita was facing and take them into account. They were even more horrified when Sheinberg went public with his complaints, something they considered a clear sign of disloyalty.

Matsushita, whose skill has been in squeezing production costs and then marketing and distributing the products, could never understand the high-risk world of movie making, where the performance of one individual can mean the difference between success or failure.

“Matsushita grew successful by nurturing docile, hard-working employees who keep their mouths shut,” says Jerry Sullivan, a professor at the University of Washington’s School of Management.

Sony has also had problems with its acquisition of Columbia Pictures after it paid too much to get the team of executives it wanted, became embroiled in lawsuits and lost control of expenses, finally being forced to take a huge write-off to cover losses.

Not all Japanese management overseas has been a failure. In the 1970s and ‘80s, Japanese managers showed they could do a better job managing blue-collar workers than American managers could. “The expectations of blue-collar workers are low in terms of how they are going to be treated,” Beechler says.

Factory operations also have less trouble because the goals of manufacturing companies are more clearly communicated.

“In manufacturing, it’s easy to communicate because the target is simple: to increase productivity and improve quality,” says Yoshitaka Fujitani, president of NKK, a Japanese steel company that acquired National Steel. “In the MCA case, that’s different. It’s a software company.”

But even in the manufacturing world, Matsushita tends to have more problems than most, weighed down by a heavily interventionist corporate style and a desire to impose its conformist ways on its employees everywhere.

Sullivan recalls talking to a Matsushita factory manager who complained that he had to get permission from headquarters in Osaka simply to send out a job survey to his American factory workers.

“Matsushita is conservative even by Japanese standards,” agrees Sully Taylor, assistant professor of business at Portland State who has studied Matsushita factories around the world. “They try to inculcate overseas employees with their value system and their view of the world.”

Matsushita’s problems with MCA may be a harbinger of problems the Japanese will face in a range of areas where individual performance and creativity are the keys to success.

Beechler, who has traveled around Europe, the United States, Mexico and Southeast Asia interviewing executives at Japanese subsidiaries, found widespread dissatisfaction over pay and career opportunities. The clear trend, she says, is for smart, independent-minded executives to move on, leaving those more interested in employment security.

Japanese banks in America are in particular trouble because of their failure to manage their human resources.

The New York affiliate of one Japanese bank became so frustrated with American employees coming to work late, it began requiring employees to punch in on a time clock.

“The workers went crazy,” Beechler says. “They almost had a total revolution on their hands.”