M&A activity in Japan soared to a record high $150 billion in 1999, up from $18 billion in 1998. Seventy-five transactions (valued at $77 billion) that quickly consolidated the banking sector accounted for half of the boom. Another hot area was telecommunications, with 52 deals, valued at $30 billion. The automotive sector too has been going through a transformation, including the sale of stakes in Nissan Motor (Renault), Mitsubishi Motors (DaimlerChrysler), and Subaru (General Motors).

Moreover, in 1999 cross-border deal activity rose sharply, tripling in value from the previous year—to $27 billion on nearly 150 deals. This increase signaled an important trend for foreign companies in the world’s second-largest market. While many of the deals involved distressed businesses, and the level of activity pales in comparison to the 12,000 mergers and acquisitions in the United States in 1999, global companies are no longer ignoring deals in Japan. Yet in the country’s unique social and business culture, mergers and acquisitions are unusual even between home-grown partners, so a knowledge of how to do deals in Japan is becoming a required skill for the world’s most sophisticated companies.

Japanese corporate boards are packed with insiders who have remained in place for...