Rudlin Consulting

Author: Pernille Rudlin

  • Gravity still matters for Japanese trade and business expansion

    Gravity still matters for Japanese trade and business expansion

    TThe Japan External Trade Organisation has published its annual survey of the international operations of Japanese companies. An overview in English is available here, but not the full version that is available in Japanese only.

    The English language overview only mentions Europe once, in the context of China, the US and Western Europe comprising 60% of the export destinations that Japanese companies are focusing on.  The more detailed Japanese version breaks Western Europe into the UK and Western Europe excluding UK. As a consequence, the UK didn’t make the top 10 of future export destinations.  56.7% selected China (up from 49.1% in 2012), then the USA (50.3% – a large increase on 34.1% in 2012), Taiwan, Vietnam and Thailand. Western Europe excluding the UK was next, at #6, selected by 39.8%, up from 23.2% in 2012.  Clearly the gravity model of trade is not dead yet, but a less hostile presidency or an Economic Partnership Agreement helps.

    The report also highlights the interest of Japanese companies, particularly SMEs, in using e-commerce to trade abroad. However, digital trade does not seem to be overcoming the gravity model either. Again, China is by far the most popular sales destination for e-commerce, then the USA, Taiwan, Hong Kong, Singapore, South Korea and Thailand. France just pips the UK at 8th, cited by 16.3%, up from 10.4% in 2016. The UK was cited by 14.9% of companies, not much changed from 14.2% in 2012.  In terms of where Japanese companies are focusing their future e-commerce efforts, China was selected by 40% (for food, drink, cosmetics, clothing, machinery, and haircare products), then the US for food – particularly tea and rice – cosmetics, clothing and machinery. Germany was selected by 5.2%, France by 4.9% and the UK by 3.4%.

    In terms of where Japanese companies are planning to expand their business (not just via exports), a leap in the USA’s popularity stands out again – up 8% from 31.9% in 2019. Western Europe (including the UK) was 6th most popular, after China, Vietnam, the USA, Thailand and Taiwan, selected by 30.4%, up 5% on a year ago.  Japanese companies who are looking to expand in Western Europe are mainly manufacturers of ICT and electronic devices, clothing and apparel and “other manufacturing”.  Expanding in Western Europe was the fourth highest choice as a destination for expanding the R&D function for new product development, the fifth highest choice for expanding R&D for localisation, high value added manufacturing, regional coordination functions and logistics. The UK did best as the destination for R&D for new product development, coming in at 8th, after China, Vietnam, USA, Taiwan, Western Europe, Thailand, Indonesia and Singapore. It was the tenth ranked choice for R&D for localisation and for regional coordination, 11th for logistics, 12th for high value added manufacturing, 13th for sales and not in the top 15 for applied engineering.

    The UK has become the world’s fifth largest economy again, having dropped to 6th, after India  was hit by a recession. You might, therefore, have expected the UK to rank higher if market size were all that counted. That it has not is partly due to gravity, but also the maturity of the UK-Japan business relationship and Japanese companies’ search for growth, not to mention the uncertain impact of Brexit in the longer run.

     

  • Directory of Japanese Companies in the UK – March 2021 edition

    Directory of Japanese Companies in the UK – March 2021 edition

    Our March 2021 directory of over 1000 Japanese companies in the UK, classified into manufacturing, wholesale, services and financial services is available for purchase as searchable pdf. Each company has a brief business description, full company name, location, latest employee total and ultimate parent company name – ideal for identifying potential investors, partners and customers.

    Please email us if you would like a copy and we will issue you an invoice via Paypal (£49 + VAT). Upon receipt of payment we will email a pdf of the directory to you.

  • Authenticity and food

    Authenticity and food

    I often ask participants in my cross-cultural training sessions what symbolises home to them. This acts as an ice breaker and allows them to talk about their diverse cultural backgrounds – their Guyanese mother’s curry or Moroccan grandmother’s tagines, even if their own nationality is New Zealander or French.

    At a recent session, the Japanese participant said ramen most reminded him of home. We agreed that although it is possible to buy ramen and make it in the UK, ramen at a yatai – in Japan – was what he really meant.

    The ramen you can buy in England is made by Nissin, but manufactured in Hungary. I also checked the udon brands available online at Sainsbury’s – one of the UK’s biggest supermarket chains – three were made in China and one in Thailand.

    Japanese food is so popular in the UK, there was a Japanese themed week in the current TV series of Great British Bake Off – where someone made a matcha cake and another chef used soy sauce in their cooking.

    This caused a controversy on Twitter because the Department for International Trade used the programme as an opportunity to claim that soy sauce would be cheaper in the UK thanks to the UK-Japan Comprehensive Economic Partnership Agreement. It turned out, however, that Japan-made soy sauce would only be cheaper in the sense that without the UK-Japan deal, the WTO tariff of 6% would have applied. Now that there is a UK-Japan trade deal, there will be a 0% tariff, as there was between the EU and Japan anyway.

    In fact, a large proportion of UK imports of soy sauce comes from the Netherlands – Kikkoman has a factory there – or from Poland, where Associated British Foods brand Blue Dragon has a factory. If there is no UK-EU trade deal, these will be 6% more expensive. Soy sauce from other countries such as China and Malaysia will be cheaper even with a 6% tariff, as previously they attracted the 7.7% EU tariff.

    There is a manufacturer of soy sauce in the UK too – Shoda Shoyu acquired a British company Speciality Sauces, with a factory in Wales, in 2000, where they also make miso and mirin.

    There are plenty of food snobs in Europe who claim that only soy sauce made in Japan tastes truly authentic, but obviously for every day cooking of the hybrid culture kind that British enjoy, cost performance is important too.

    Europeans, including the British, are keen to impose “Geographic Indicators” in their trade deals – that Parma ham must come from Parma, Champagne from Champagne, Stilton cheese from Stilton. But for many of these items, like ramen at a yatai, it is not just the location of manufacture, but the location of consumption that makes it a truly authentic, delicious experience – the atmosphere, the climate, the other food. I did not really appreciate the taste of Guinness until I drank it in a pub by the sea in Ireland, with soda bread, butter and mussels.

    This article was originally published in Japanese in the Teikoku Databank News on 2nd December 2020

  • Culture and conduct

    Culture and conduct

    I was surprised to receive a letter from my bank, NatWest, a couple of months ago, offering me £4,000 to switch my business account to another bank. It turned out that this was not a scam, but a consequence of the bank having been rescued by UK government funds during the Lehman Shock. In return for the £46bn bailout, NatWest has to encourage competition in the UK business banking sector.

    Various new internet-only “challenger” banks were offered to me such Starling but in the end I chose the Co-operative Bank, which was established in 1872. This was partly due to my concern that there were likely to be technical issues with transferring to somewhere new and untested with no physical presence. It helped that I was called almost immediately by someone from the local branch, inviting me to come and meet them face to face. But I also liked the Co-operative Bank’s customer-led values and ethics. 

    This clearly defined corporate culture was the result of the Co-operative Bank’s own past problems. In 2013 it reported losses and a funding gap between how it valued its loan portfolio and the actual value it would realise from it.  

    An independent review concluded that the root of the problem was in its takeover of the Britannia Building Society in 2009 and poor management controls. The non-executive chairman of the bank resigned and was later banned by the Financial Conduct Authority from working in the financial services industry for taking illegal drugs and using his work email and phone improperly.

    In the five years since, the Co-operative Bank has strengthened its management controls and ethos, as well as undergoing restructuring, including reducing the numbers of branches from over 370 to 50.

    My old bank NatWest also hit further problems after the Lehman Shock. Its problems in 2008 were a consequence of management arrogance and overreach, but its involvement in the LIBOR (London Interbank trading system) interest rate fixing scandal in 2012 was found to be the result of a corporate culture of greed. The investigation into the LIBOR scandal by the Financial Conduct Authority resulted in a new regime emphasising corporate culture and conduct in financial services.

    A Japanese manager who had been in the London branch of his bank in the early 2000s and had recently returned for a second posting remarked to me how much tougher the environment in the City of London is as a result. He and other managers have to undergo training not just on complying with regulations, but also on how to identify and deal with problematic conduct, both their own and their teams.

    The Co-operative Bank has just received a takeover approach from a US private equity firm. SMBC and other Japanese financial institutions are investing in London’s fintech and start up banking sector. Any investors in British financial firms will need to ensure that their own corporate culture and values are robust enough to ensure further scandals do not occur.

    This article originally appeared in Japanese in the Teikoku Databank News on 13th January 2021

  • The advantages of investing in smaller countries

    The advantages of investing in smaller countries

    I was asked to speak at a Portugal-Japan Investment event at the end of 2019. Initially I was worried about what I could say as I was not sure there would be much that would interest Japanese companies in Portugal. The population is only around 10 million and multinationals mostly either have a small sales office there, or cover it from Spain.

    For British people Portugal is mainly seen as a nice place to go on holiday – for golf or the beaches or to enjoy the rich history, culture and port wine.  There are also some similarities in temperament between Portugal, the UK and even Japan – a gentility, understatement and a slight melancholy which contrasts with bigger European nations like Spain or France or Germany.

    Portugal is the UK’s longest standing ally – for more than 650 years –  and the Portuguese Prime Minister and officials who spoke at the event emphasised that they saw Portugal as an additional base for Japanese companies, rather than an alternative to the UK.

    Portugal has strengths in traditional sectors such as food, apparel and automotive manufacturing. For example, Toyota has a joint venture with Caetano, who also have a joint venture with Mitsui, manufacturing electric buses.  There are also some emerging strengths, such as energy and IT services, particularly business process outsourcing.

    The two Japanese companies that spoke on the panel with me were Fujitsu, who employ nearly 2000 people in Portugal now, providing business process outsourcing and IT services and Marubeni, who have invested in various energy projects.

    All the presentations emphasised the obvious advantages of Portugal. Firstly, that the economic and political risks are low. Portugal has recovered well from the Lehman Shock recession, does not have much populism, and the coalition government has been in power for over 5 years.

    Secondly, Portugal has a well-educated (particularly in science, technology and maths), multilingual workforce. And thirdly, as well as being in the EU, it also provides a bridge to Portuguese speaking markets, most notably Brazil.

    But there was an additional reason, given by the Marubeni representative which caught my interest. He said that starting a new business in a smaller economy meant it was more “manageable”.  A foreign direct investment expert at the event confirmed what I had found out through my own researches on Japanese companies in Europe – smaller European countries are becoming popular foreign direct investment destinations.

    Japanese companies in Portugal have quadrupled (from a small base) over the past 6 years, but other European countries of 6-11 million population size have also seen an increase in Japanese acquisitions or greenfield manufacturing investment, such as Finland, Sweden, Hungary and Czech Republic.

    The number of Japanese expatriates in Portugal has not risen quite so rapidly.  Growth in the Japanese communities in the Netherlands, Poland and Ireland has been greater. From a business, as well as a weather, food, golfing and cultural perspective, I wonder whether this might be about to change.

    This article by Pernille Rudlin was originally published in Japanese in the Teikoku Databank News on 15 January 2020

  • Japanese companies in Ireland

    Japanese companies in Ireland

    I have been visiting Ireland about once a year recently for business, but also for family reasons. The business side is to provide training for companies there that have been acquired by a Japanese company, or in one case, had acquired a company in Japan via its US parent.

    My parents also now live in Ireland. After 25 years’ working in Japan, they initially retired to France but never felt completely at home there.  My stepfather’s father was Irish, so he has family in Ireland. It was also easy for my stepfather to get an Irish passport, as an insurance against Brexit so that he can continue to receive free healthcare and a state pension.  My mother has become Danish for the same reason – and was able to do so because her father was Danish.

    They now live close to my cousins, near the city of Cork, which has become a hotspot for technology companies, particularly American ones.  Trend Micro and Alps have factories there, with the latter employing around 850 people making electronic components.

    Cork also has a pharmaceuticals and biotech cluster, as does the capital of Ireland, Dublin, which is where Astellas and Takeda* have plants.  Astellas employs over 400 people manufacturing raw materials and immunosuppressants and Takeda employs around 300 people making cancer therapies and active ingredients for various drugs. Ireland is the biggest net exporter of pharmaceuticals to the EU.

    Multinationals are attracted to Ireland because of the young, well-educated, English speaking workforce, and also the very low corporate tax rate of 12.5%.  

    Aircraft leasing in particular has benefitted from Ireland’s low tax policies. Nine out of the ten top aircraft lessors are based in Ireland, and over half the world’s airplanes are owned and managed there.  Japanese companies such as Orix Aviation and SMBC Aviation Capital have substantial operations in Dublin.

    Locating operations in Ireland purely for tax reasons may turn out to be unsustainable in the long term however, as the EU, the OECD and Japan are all taking steps towards international tax cooperation and clamping down on tax avoidance.

    The other risk to consider is of course Brexit.  The UK forms a “land bridge” to the EU for Ireland. Around 85% of Ireland’s freight trade goes to British ports, and about 40% (around 190,000 freight containers a year) of that is re-exported to elsewhere in the EU.

    Pharmaceuticals and electronic components are often shipped by air and various EU shipping companies have started up new routes connecting Ireland to the EU recently. So the main concern is any friction caused to trade that is only between the UK and Ireland.

    This is partly why the land border between Northern Ireland and the Republic of Ireland has become the key issue for resolving Brexit.  But the most important concern has nothing to do with business – there are many more families like mine, living in both countries, who do not want to lose the peaceful coexistence that the open border has brought with it.

    This article by Pernille Rudlin was originally published in Japanese in the Teikoku Databank News on November 13 2019

    *Takeda acquired Shire for $62bn in 2019, who relocated their HQ from the UK to Ireland in 2008 for tax reason. Takeda is now liquidating Shire Holdings in Ireland and transferring the assets to Takeda Ireland, to make repatriation of dividends to Japan easier – presumably avoiding Japan’s tax haven laws.

  • Video: the Brexit agreement one month on

    Video: the Brexit agreement one month on

    Pernille Rudlin, Managing Director of Rudlin Consulting and David Henig, Director, UK Trade Policy Project at European Centre for International Political Economy participated in a Japan Society webinar on February 4th 2021, talking and answering questions about the Brexit agreement one month on, the impact on Japanese companies in the UK so far and what the future might hold. A video of the whole session is available below:

  • Finding a balance in employee development

    Finding a balance in employee development

    At a meeting I facilitated of Japanese and non-Japanese board directors of a financial services company in London, the Japanese directors had many questions about employee development in the UK. They wanted to know how the highly specialized professionals in the firm gained the management knowledge needed to reach senior management positions. The answer was that in the UK this is largely through attending externally provided courses, in contrast to Japan where this knowledge has traditionally been gained “on the job” through job rotation.

    This then led to a further question – what is the incentive for employers to invest in externally provided training if employees just use this as a springboard to go to another company?

    The answer to this was that British financial services companies are under increasing pressure from the regulatory authorities for managers to be accountable for not only their own conduct and behaviour but also that of their team. This means that the annual performance appraisal is not just about whether performance targets have been met but also behavioural goals. Any gaps between expectations and achievement in terms of performance and behaviour should then lead to a development conversation about what kind of training and resources the employee needs to do their job better.

    With the introduction of “job type” (job kei) HR systems, this kind of approach will be needed in Japan too. It is different from seika shugi/performance based systems because seika shugi was more focused on performance targets and the impact on bonuses, whereas job type appraisals are both on performance and behaviours and what this means for the person’s future development.

    Managers cannot just leave it up to HR departments to take their usual approach to training each cohort simultaneously because the training has to fit the job descriptions and personal development plans.  Similarly pay and bonuses cannot be set at a “one size fits all” basis across every department either.

    It may take a while for a graduate recruit to grow into the job, however, depending on the function or business they are allocated to, so it would be unfair if there was too much disparity in the way the graduate intake was treated, early on.

    This is why major employers in Europe such as Unilever have multiple graduate training programmes.  Unilever offers 7 different tracks for its Future Leaders Programme for new graduates: marketing, HR, finance, R&D, supply chain and engineering, technology management and customer development (sales).

    I nearly joined the Unilever marketing track (more than 30 years’ ago) but rejected the offer because I felt overwhelmed by the huge binder they placed in front of me, mapping out my first three years in minute detail. Instead, I joined a PR company as one of their first graduate recruits. I later came to regret this choice, as the training programme was entirely in-house, poorly executed and graduate trainees were treated inconsistently. Japanese companies need to find a balance between these two extremes and the Japanese one cohort model, both overseas and in Japan.

    This article was originally published in Japanese in the Teikoku Databank News on 11th November 2020

  • Visualizing brands

    Visualizing brands

    I collect English language publications by Japanese companies dating as far back as 1910 to see how they represented themselves in the past, when they were trying to project a global image. These include books published by Mitsui and Mitsubishi, which feature many photographs of their impressive office buildings, ships, mines and founding families.  The message is one of scale, solidity and history.

    In the 21st century Japanese companies don’t need to impress so much and prefer to put a human face on what they do. But there is a lack of appealing photos that show both Japanese and non-Japanese people working together in a natural way. Many such photos feature models who are impossibly glamorous, or have distracting hairdos or beards. They are also usually doing things which I have never seen people do in an office such as all gathering around one laptop and pointing at it, or writing on glass walls.

    Using photos of your own employees is one way around this. I featured in several annual reports and brochures for a Japanese trading company I worked for, as I usefully represented two types of diversity at once – being both female and not Japanese. But even then I did things which I would never do in my normal working life such as pointing at a clipboard and wearing a helmet.

    We wanted to use employees in our marketing at a Japanese ICT company I worked for, to communicate our corporate brand value of genuineness. Most employees are not good actors however, so looked very awkward in the photos and videos.

    Japanese corporate websites tend to be bland and abstract in design, still focusing on solidity and history and look much like the websites of other multinationals.  It seems that if a company tries to be globally appealing, it loses what makes it distinctive.

    British brands had similar issues in the past. British Airways tried to drop the “British” and be BA, “the world’s favourite airline”, removing the British flag from the airplane tailfins. Mrs Thatcher, who was Prime Minister at the time, objected strongly to this so the plan was dropped. Similarly, Royal Mail tried to sound more global by rebranding itself Consignia, but reverted to Royal Mail after much criticism.

    Arguments also break out over the words used for the brand values and mission statement. British and American native speakers can have very different reactions to words like “ambitious”, and non-native English speakers feel left out of a linguistic battle they cannot win.

    Japanese companies should not be afraid to use visuals with a distinctively Japanese appeal to their global stakeholders – customers, employees and communities. Which is why the Osaka Expo mascot Inochi no Kagayaki-kun is very clever – it is clearly Japanese, but also has the quirky personality of a living thing. I hope more Japanese organisations work with designers to come up with such humanised representations of their corporate culture, which do not have to rely on English words or fake-seeming photographs.

    This article was originally published in Japanese in the Teikoku Databank News on October 14th 2020

  • Are there 10% or 1% fewer Japanese companies in the UK than five years’ ago? And why?

    Are there 10% or 1% fewer Japanese companies in the UK than five years’ ago? And why?

    We covered in a previous post how Japan originated companies continued to increase their presence in Europe – apart from in the UK and Switzerland – over the past 5 years.  We used the Japanese Ministry of Foreign Affairs annual data, which showed an 11% decline from 1,064 Japan originated companies in the UK to 951 in 2019.

    The other source of data on Japanese investment overseas is the Toyo Keizai annual directory. This shows a 1% decline in Japanese companies in the UK from 2018-9, from 972 to 966. It’s the first drop since at least 2015, numbers having risen 11% 2015-2018, according to the Toyo Keizai totals for the UK. We analysed this further in this post, noting that it’s hard to work out where Toyo Keizai derives the net drop of 6 Japanese companies in the UK from. Their list of the 7 companies which have closed down in the UK 2019 shows that this was mainly due to reorganization of holding companies or merging of companies rather than full withdrawal from the UK. Of the 8 new Japanese companies in the UK in 2019, 5 were indirect investments into energy companies by Nippon Koei, a civil engineering company and 2 were indirect investments by WDI, a Hong Kong originated Dim Sum chain which is registered in Japan.

    Subsidiaries turning into branches

    The Ministry of Foreign Affairs only breaks down its figures by organisational type and sector, but this does provide further clues. The biggest absolute decrease in numbers is amongst those categorized as a subsidiary incorporated in the UK. There were 480 such companies in the UK in 2014 – this fell 16% to 404 in 2019. Conversely branches of local subsidiaries rose 31% from 179 to 226. This seems to indicate that a fair number of UK incorporated subsidiaries unincorporated and became branches over this period, particularly over 2018-9.  This tallies with what we have observed empirically – most famously with Sony Europe and Panasonic Europe becoming branches of EU subsidiaries but also a dozen or so others such as Takeda, Shionogi, Sanden, Fujitsu General, Murata and Alps becoming EU branches.

    It looks like Brexit also provided an excuse to do a bit of tidying up, – consolidating multiple subsidiaries into one, for example. The Ministry of Foreign Affairs data also include companies established by a Japanese national with over 10% share in equity in its figures. This number has shrunk by 68 since 2014 to 96. We suspect this may be in part to do with those Japanese nationals becoming permanent residents in the UK or British citizens (other MoFA figures show this group has grown considerably) and therefore no longer included.

    Manufacturing turning into wholesaling

    Breaking the number down by sector also provides some insights. Japanese companies in the UK who are manufacturers are the biggest group, despite the UK’s heavily services oriented economy.  Their numbers have dropped 22% from 2014 to 2019, from 417 to 326. Conversely, the number in the wholesale and retail sector has increased 44% from 112 to 161. The changes in the two sectors may be related, as Oki, Sony DADC, Tamura, Keihin, Nicera, Zeon Chemicals and Maruwa stopped production in the UK during this period but remained as wholesalers in the UK. Financial services companies, traditionally a UK strength,  fell by a third from from 114 to 75, which is surprising considering they were active pre-Brexit in acquisitions, but perhaps again reflects some Brexit-related consolidation and divestment. Closures we are aware of include MC Asset Management, Speedloan Finance, Okasan Securities, Nomura Alternative Investment Management, Sumitomo Mitsui Asset Management.

    The sectors where there have been significant jumps in investors show where Japanese corporate interest in the UK now is. The number of Japanese utilities companies investing in the UK rose 120% from 10 to 22 and in the lifestyle and leisure sector by 289% from 9 to 35 – some new entrants we have been aware of the past couple of years in these two categories have been Hakutsuru Sake, MTG, Asahi Premium Brands, JERA Power, Nippon LP Resources, DTM Renewables and Sojitz Energy. The majority of “new” Japanese companies in the UK over the past five years were the result of acquisitions.