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It will be interesting to see how far Ghosn’s well documented ruthlessness and unsentimentality which he demonstrated in turning around Nissan in Japan will come to the fore in next month’s decision about where to invest for the new Qashqai, because really, to Nissan, the UK is not as important as a market or a manufacturing base as the UK might like to think. Plus, Ghosn has now got Mitsubishi Motors to worry about as well.
Here’s some figures to illustrate:
- UK based employees represent around 5% of Nissan’s global workforce
- UK based production represents around 10% of Nissan’s global production and around 70% of its European production (the rest is manufactured in Spain and Russia).
- Car sales in the UK market represent around 3% of Nissan’s total units sold worldwide. Europe & Russia represent around 15% of total units sold. So the UK market is about 20% of Nissan’s Europe & Russia regional sales.
From the UK perspective:
- Nissan is the third largest Japanese employer in the UK, with around 8000 employees – not only in the Sunderland factory but also several hundred working in design at Nissan Technical Centre Europe in Cranfield (ultimately registered in Belgium so that should make a quick getaway easier) and a design centre in London
- Nissan is the 8th largest Japanese employer in Europe – around 16,000 employees in total – so around half are in the UK. However the European regional headquarters is in Switzerland, to which the UK factory sells all its production. The operational headquarters and holding company for the rest of Europe is based in France.
- Nissan Sunderland’s plant accounts for nearly 1/3 of the UK’s car production. 80% of it is ultimately exported, 76% to Europe.
And of course there’s the supply chain and the jobs it provides – the UK car industry likes to say it supports around 800,000 jobs.
Calsonic Kansei is a supplier to Nissan, and is also in our Top 30 Japanese companies in the UK, employing over 1300 people – with factories in Llanelli and Sunderland – and Spain. Nissan has a substantial stake in Calsonic Kansei, but the cosy mutually supportive supply chains of 20 years’ ago have long disappeared, thanks in part to Ghosn. So it’s not hard to see Calsonic Kansei and others responding as quickly as they can to any shifts in location of demand.
It’s legendary in Japan that when a Nissan employee went to Ghosn to beg him not to axe one of the suppliers totally dependent on Nissan because it was headed up by a member of their own family, Ghosn responded “which is it to be? That Nissan collapses or your uncle’s company collapses?”
For how complex and tough life is these days in the global automotive supply chain, this comment in the Financial Times recently was very revealing:
“We manufacture part of one component for the Nissan Qashqai. We purchase raw materials from Taiwan, we manufacture in the UK in a Japanese owned factory. Our customer is in Germany, where our product is bonded together with products from other countries. Our customer’s customer is in France, where the bonded component is integrated into a car component. The component is shipped to Sunderland and becomes a part of a “British” car.
How Mrs May and her merry band are going to sort this mess out is beyond me, and I suspect beyond them.
The development time lines for the most basic of automotive components is two to three years, which means that we are already “post Brexit” for new business development. How do I persuade customers to invest in new product development with us when nobody has a clue on what basis I might sell eventually sell my product to them, and given rules of origin, in some cases on what basis they might sell their product to their customer. We have good relationships with our customers, but at the end of the day they are running their business for their benefit and may well decide its just not worth the uncertainty and risk.”
Carlos Ghosn is “reassured” by Theresa May saying that the British government would be “extremely cautious” in maintaining Nissan’s Sunderland UK factory’s competitiveness. But he may nonetheless think some rebalancing is in order.
The European senior management team of a business which had been newly acquired by a Japanese company complained to me about being treated as if Europe was one homogenous country, when in fact they only had offices in 5 very different countries in Europe, with a headquarters in Germany. “It’s true, we know how to work with each other in Europe – after all Europeans have been living and working together for hundreds of years, but it seems strange that on paper we’re supposed to be a tri-regional structure of Europe, North America and Asia, and yet North America has only two employees and Asia has no regional headquarters, with Taiwan, China, Korea and Japan being managed separately”
This was just a small company, but actually I have seen similar situations in many other much larger Japanese multinationals. It’s partly that Europeans are very sensitive to their status –and want to be treated on a par with other regional heads – and this means the European definition of regions, with Asia as one region.
But it’s also due to a justifiable concern that if the company is meant to be offering global products and services, it needs to have a well-balanced global structure operating off common platforms, systems and processes. If the company grows by acquisition, you often end up with very different portfolios of services and products from country to country, incompatible processes and systems and no clear idea of how revenue and costs should be shared across the regions which are contributing to the global offering.
This can cause huge, long running arguments, partly because standardizing trade, production processes and technology are interrelated issues. Once you decide what products and services are global and what are local, you have the basis for splitting revenue accordingly. But you have to be careful this does not lead to regional organisations focusing on their local products and services, refusing to participate in global contracts because they make more profit out of local contracts.
Once you know what you are offering globally, you can standardise the technology – such as having all the company’s websites running off the same content management system, or production running off the same platforms or sales and purchasing using the same global accounting system.
Sometimes Japan headquarters has to swallow their pride for the sake of speed and efficiency. I was impressed that Nomura, when it acquired Lehman Brothers, decided to move their dealing onto the Lehman platform, because they judged it to be technically superior and faster than trying to integrate platforms or shift everyone onto the Japanese system.
Nobody wants to deal with these problems because they are so complex and lead to fights and easy resistance by those claiming that the global standard is not going to work in their markets. But unfortunately, if you do not deal with these issues soon after an acquisition, they fester and become even more difficult to resolve.
You may remember, though it feels like a lifetime ago given what has happened since, that the front pages of the British business press in early 2014 were full of debate about whether to welcome or be worried by the US pharmaceutical company Pfizer’s bid to take over AstraZeneca, a UK-Swedish company. The £63bn bid would have made it the biggest foreign takeover of a British company in history.
Initially the British government wanted to portray the bid as a vote of confidence in what they had done to make Britain an attractive destination for foreign investment. However, the former CEO of AstraZeneca, Sir David Barnes, said that he was concerned that Pfizer would “act like a praying mantis and suck the lifeblood out of their prey. “ Pfizer wants to move its tax domicile to Britain when it acquires AstraZeneca, to take advantage of the UK’s low corporate tax rate and what is called a “patent box”, which gives tax breaks for research.
If Pfizer want these tax incentives, it should invest in the UK itself, and not attempt to do it via a takeover, Sir David argued. Pfizer last hit the headlines in the UK when it closed down its 60 year old research facilities in the east of England, with the loss of nearly 2000 jobs, in 2011. A few years before that it closed R&D sites in Nagoya, Japan and the US. The reasoning at the time was that research was better outsourced to smaller companies.
I have not heard anyone say that this trend has reversed, yet AstraZeneca committed to investing £500 million in a new research facility and headquarters in Cambridge, which is the main science cluster in the UK. Pfizer say it would honour this investment, and the jobs that depend on it, for five years at least.
The consensus in the UK seemed to be that given Pfizer’s “accounting led” approach, such commitments may not be worth much. The US company Kraft also promised it would not cut jobs when it took over one of the UK’s most famous companies, the chocolate manufacturer Cadburys, in 2010, and then shortly after closed down one of its factories.
This does not mean that the UK is hostile to all foreign takeovers, however. Japanese companies are much more welcome, as they are seen as having long term commitment to their investments. Takeda’s acquisition of Swiss company Nycomed did lead to job losses but this is seen as inevitable after a merger.* It is the wholesale closure of a factory or R&D site with major impact on the community around it which troubles people in Europe.
Many of the British researchers laid off by Pfizer in 2011 have found jobs in small start ups, but not everyone can be an entrepreneur or has the personal resilience to go through the trauma of redundancy. When I ask participants in my training what they like about working in a Japanese company, they almost always mention the stability, the long term view and the loyalty of the company to its staff. Large, stable employers are important for the health of the community, whatever the country of origin.
* Takeda announced it would close its Cambridge Science Park R&D facility in August 2016. R&D activity will be concentrated in the US and Japan, and the UK will move from global coordination activities to European only. I wonder how long that will last if the European Medicines Agency moves out of the UK however.
A couple of Japanese expatriate business people with whom I was having lunch with recently both remarked how surprised they were that their British colleagues were quick to recover from the Brexit shock and think positively about the business opportunities it might bring. I too have been trying to be positive and have been doing some further research into how Japanese companies are evolving in the UK. The opportunities I have identified for Japanese companies in the UK are:
1. Africa and the Middle East
The UK has historic ties to Africa and the Middle East, which means that is still a good base for coordinating activities across those regions as there are many expatriates from and experts in those regions, who live in the UK, and are sources of information and management capability.
The UK government is going to be looking to boost trade to non-EU countries, as a counterbalance to any negative impact from Brexit on trade with the EU, so there is likely to be plenty of support for developing business with these regions.
It might even be easier than before to hire people from those regions in the UK. Although a vote for Brexit was partly to stop immigration to the UK, this was very much about preventing lower skilled people from Eastern Europe living in the UK. Most Japanese companies were not hiring such people in the first place, so I doubt any restrictions on this kind of immigration will have much impact.
Japanese financial services companies are already changing the status of non-UK branches to a European Union branch or incorporated subsidiary, and are strengthening their African operations, but it looks like those operations will still be reporting into the London office, which will act as an EMEA coordination function.
Japanese manufacturers have already shifted lower skilled, labour intensive production eastwards in Europe or to Africa and I assume Brexit will accelerate this trend, with the UK being a regional hub for engineering design and development expertise
Despite the fact that manufacturing has moved eastwards or south to Africa, the British government is well aware that British people desperately want well paid, secure manual worker jobs to return to the UK. The most obvious way to do this is through public sector investment in transportation and energy. Hitachi and other such infrastructure companies should still find plenty of business, although it is not clear what will happen to EU funding for energy and transport infrastructure projects.
3. Acquisitions in the UK
As Softbank’s acquisition of ARM proved, there are still companies in the UK which are attractive acquisition targets, not as a gateway to the Single Market but because they are unique in terms of their brand, technology or expertise. For example, food and drink brands unique to the UK, Lloyds underwriters and UK advertising agencies have all recently been acquired by Japanese companies. It seems likely the weak pound and strong yen will continue for a while, so there may be some bargains for the brave.
Many Japanese companies have set up European regional headquarters, largely in the UK, Germany or the Netherlands and use this as a base for consolidating their administrative activities across the region. Increasingly these days the designated region covered is not just Europe, but EMEA – Europe, Middle East and Africa. The historical ties that the UK in particular has with Africa and the Middle East, means that it is not only easy to access the Middle East and Africa from London, but also that it is relatively easy to get hold of information about countries in those regions in the UK as there are many expatriates and experts on those countries based in the UK.
One such expert is Professor Sir Paul Collier, a professor of economics at Oxford University, whose speech to a group of Japanese businesspeople in London I attended a while back. Sir Paul had met Shinzo Abe at a G8 meeting, and his speech was largely in support of the recent initiatives by Abe and Japanese businesses to become more involved in Africa, recently reinforced by the TICAD meeting in Nairobi.
He is realistic, however, saying that “I am not going to tell you Africa is wonderful. Africa is complicated and has a small economy, but it has got significant opportunities.” The opportunities fall into four main areas – natural resources, the infrastructure needed to exploit those resources, growth in sectors such as electric power, construction, consumer goods and the “e-economy” such as payments by mobile phone.
He also pointed to the specific attractions that Africa would have for Japan. Firstly that as African growth is very commodity price dependent, and Japan is a big commodity importer, having investments in Africa is a useful “hedge” against commodity price movements. Secondly, Japan is apparently welcome in Africa. “Africa is tired of Europe and doesn’t like being told what to do”. The USA behaves like a colonial power but does not have any money to invest into Africa. China was hugely popular in Africa 10 years ago, but apparently many African leaders are now feeling frightened of becoming too dependent on China and are trying to push back on deals.
The biggest negative for Japan, in Sir Paul’s opinion, is that culturally, “Africa is Japan upside down. Japanese society is one of very high trust and very high social cohesion, and Africa isn’t”. And of course, Africa isn’t one country but 54 countries and the levels of opportunities and risk vary considerably from one country to another. Sir Paul’s recommendations were to focus on Lagos and Nairobi, with possibly a sub office in Rwanda. With regard to corruption, the risk is reputational rather than financial, and he recommends having a policy and making it very clear to counterparts what that policy is.
He also reinforced the view that approaching Africa from the UK was a good tactic. “The UK, public and private sectors, have the knowledge, network and the contacts but not the products that Africa wants.” Japan has those products, so, teaming up with the British should bring plenty of mutual benefit.
Drawing on the data from its annual CSR rankings for Japanese companies (previously blogged about here), Toyo Keizai has also listed up the Top 300 best places for women to work in Japan. The rankings are topped by Mitsukoshi Isetan department stores, with Shiseido (beauty and skin care) at #2 – neither of which are in our Top 30 companies in Europe, but Fujitsu, 3rd largest Japanese company in Europe is also the 3rd best place to work for women in Japan.
Toyo Keizai comments that Fujitsu does not score so well on the total number of women employees (only 15.4% of Japan employees) but the retention rate is good (17.8 years being the average time female employees have worked at Fujitsu) and Toyo Keizai judge it to have a supportive working atmosphere for women, noting that Fujitsu has set a target of 20% of new executive appointments to be female by 2020.
Fujifilm at #4 (29th largest Japanese company in Europe) also does not have a particularly high proportion of women employees in Japan (17.1%) but has implemented various supportive polices and systems for childcare, flexible working and support for women returning from maternity leave. The proportion of women managers (5.7%) is apparently quite high for a manufacturer.
Other Top 30 Japanese companies in Europe which are in the Top 300 include Sony at 6th, Toshiba at #22, Nissan #24, JT Group #29, Takeda Pharma #30, Toyota #35, Daikin #35, Mitsubishi Corp #41, Sumitomo Electric #50, Denso #54, NTT Data #58, NYK #67, Canon #69, Bridgestone #79, Honda #79, Ricoh #86, Itochu #96, Konica Minolta #105, Asahi Glass #109, Dentsu #118, Kyocera Group #155, Panasonic #278.
Just focusing on our UK Top 30 brings in more of the financial services groups – all the megabanks (MUFG, SMBC and Mizuho) rank at #46 and Nomura is at #58 along with new entrant post ARM acquisition Softbank. Insurance group MS&AD are at #17, Suntory at 49.
To download the Top 30 Japanese Companies in the UK in conjunction with the Toyo Keizai Top 300 places for women to work data (pdf), please subscribe to our newsletter below:
To download the Top 30 Japanese Companies in Europe in conjunction with the Toyo Keizai Top 300 places for women to work data (pdf), please subscribe to our newsletter below:
Yoshihiko Hatanaka, President of Astellas Pharma since 2011, has told everyone to “drop the G” for global from their titles and organisations. “60% of our employees, 65% of our turnover and 49% of our shareholders are overseas, so we really don’t need to specify ‘global’ in the way we work” he said in a recent interview with Nikkei Business magazine.
He acknowledges that Japanese pharmacos are still minor compared to the non-Japanese majors and says Astellas (ranked around 18-20th worldwide with $13bn revenue in 2015) does not have to grow to survive but instead focus on being a leading company in a few key areas of specialism, such as transplantation and urology. However Hatanaka worries that competition is fierce in oncology, another area Astellas sees itself as a leader in.
He has introduced new structures for research and also new management development programmes with an overseas university for general manager grades, 1/3 of participants being Japanese. There is also training for senior executive candidates in their late 40s and early 50s – “this may seem young, but it is not compared to other overseas pharmaceutical companies”. He does not deny it is possible there will be a non-Japanese President succeeding him.
Astellas is the product of a merger between Yamanouchi and Fujisawa in 2005, employing 4628 people in Europe, Africa and the Middle East as of 2015, around 500 of whom are in the UK, where the regional headquarters is based operationally (although the holding company is registered in the Netherlands). If Brexit results in the European Medicines Agency leaving the UK, presumably it is highly likely the balance will shift even more away from the UK and the regional headquarters will revert to the Netherlands both legally and operationally, unless they opt for an EMEA HQ = UK, Europe HQ in NL approach.
More than half of the Top 30 largest Japanese companies in Europe are also in the Top 50 Japanese listed companies for CSR according to the Toyo Keizai. Which is reassuring, although there are some notable no-shows and laggers.
Fujifilm (#29 of our Top 30 in Europe) leads the CSR rankings and Canon, Ricoh, Denso and Bridgestone are all in the top 10.
Toyo Keizai has published the 10th edition of its annual CSR research into 1325 listed Japanese companies and previewed the top 700 of these in its online magazine, from which we have extracted the rankings for the Top 30 Japanese companies in Europe and in the UK.
Rankings are based on evaluations made in 4 categories of:
- Human resources – Family friendly policies, diversity (gender, age, LGBT, disability etc), health and safety, graduate retention rates – and whether there are any non-Japanese executives
- Corporate governance – whether there is a CSR executive, any evidence of corruption or cartels, values and vision, risk management, crisis management policies
- Sociality – volunteering (including overseas) , NPO/NGO alliances, ISO standards
Top 30 companies in Europe that are not in the CSR top 700 include some surprises – Nippon Sheet Glass (Pilkington), Fast Retailing and Yazaki (which is privately owned anyway).
Hitachi has fallen from #39 to 147 and Olympus has improved to reach #175 from 263 in 2015 – which seems to imply its post-scandal clean up is working (although it seems Olympus is now suing Michael Woodford and one other UK director for repayment of some pension funds, so clearly the battle is not over yet).
Toshiba has fallen to #52 from #14, unsurprisingly given its recent governance problems. Toyo Keizai notes that other slippages such as Denso from #3 to #6 and Toyota from #8 to #16 are largely to do with delays or non disclosure in progress with gender diversity, specifically, women in management positions. Nissan slipped from #5 to #11 due to governance issues.
Companies which scored the best on Human Resources metrics that are also in the Top 30 European companies are Sony, Nissan, Fujifilm, Japan Tobacco and Toshiba. Best scores on environment were Nissan, Daikin, Bridgestone, Ricoh, Canon, Honda, Denso, Toyota, Toshiba, Sony, Fujifilm, Konica Minolta and Suntory. Best scores on governance were Ricoh, Fujifilm, Panasonic, Konica Minolta, Bridgestone, Sony, Asahi Glass and Honda.
To download a pdf of the full CSR rankings of the Top 30 (corrected 8th October 2016 to include Mitsubishi Corporation, Suntory, Kyocera and Konica Minolta) biggest Japanese companies in Europe, please subscribe to our newsletter via the link below