Pernille Rudlin - Rudlin Consulting

About Pernille Rudlin

Pernille Rudlin was brought up partly in Japan and partly in the UK. She is fluent in Japanese, and lived in Japan for 9 years.

She spent nearly a decade at Mitsubishi Corporation working in their London operations and Tokyo headquarters in sales and marketing and corporate planning and also including a stint in their International Human Resource Development Office.

More recently she had a global senior role as Director of External Relations, International Business, at Fujitsu, the leading Japanese information and communication technology company and the biggest Japanese employer in the UK, focusing on ensuring the company’s corporate messages in Japan reach the world outside.

Pernille Rudlin holds a B.A. with honours from Oxford University in Modern History and Economics and an M.B.A. from INSEAD and she is the author of several books and articles on cross cultural communications and business.

Since starting Japan Intercultural Consulting’s operations in Europe in 2004, Pernille has conducted seminars for Japanese and European companies in Belgium, Germany, Italy, Japan, the Netherlands, Switzerland, UAE, the UK and the USA, on Japanese cultural topics, post merger integration and on working with different European cultures.

Pernille is a non-executive director of Japan House London, an Associate of the Centre for Japanese Studies at the University of East Anglia and she is also a trustee of the Japan Society of the UK.

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Here are my most recent posts

Sumitomo Corporation and Osaka Gas sell Sutton and East Surrey Water

Japanese trading company Sumitomo Corporation and Osaka Gas have sold their 50/50 ownership of the UK utility Sutton and East Surrey Water for £380m (including £291m in debts) to the Pennon Group plc, a UK based water utility company. Sumitomo Corp and Osaka Gas set up a joint venture for the ownership of Sutton and East Surrey Water in 2013. In October 2023, Ofwat named SES Water among the four worst performing water companies financially in the UK, calling for them to turn around their finances. According to the FT, Sumitomo and Osaka Gas did not want to put equity in the business, so decided to sell and paid a £7.8m dividend last year.

Sumitomo say it has sold off its share as part of its portfolio reshuffle under its Medium-Term Management Plan “SHIFT 2023” and is “executing strategic asset replacement”. It will continue to reinforce and develop its primary earning pillars by “leveraging its strengths utilizing management capital including operation know-how acquired from this UK water business.”

Pennon also owns South West Water, Bristol Water and Bournemouth Water. South West Water was fined £2.15m for illegal sewage dumping in April 2023. SES Water was fined £300,000 in October 2022.

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Japanese companies positive on growth and profitability in Europe, Africa and Middle East, but facing labour shortages

JETRO’s 2023 global survey has been published but as always, in Japanese only. 7,632 Japanese companies responded during August – September 2023, from 82 countries and regions. An English translation will no doubt follow in due course, but for the time being, here are the key highlights as relate to the Europe, Middle East and Africa region:

The outlook for Japanese companies in Africa and the Middle East is more positive, compared to a deteriorating view of performance and predictions for profitability and growth for China, and also Hong Kong, Vietnam, South Korea and Singapore
Profit – Proportion of companies in the major economies of the EMEA region expecting to be profitable in the coming year:
1. South Africa 86%
2. UAE 76.5%
3. France 75.7%
4. Netherlands 72.6%
5. UK 71.4%
6. Germany 68.2%
Growth – Japanese companies in Europe are showing stronger than global average intention to expand. Japanese companies in South Africa particularly cited increased exports to neighbouring countries such as Zambia, Namibia and Congo. Japanese companies in Germany cited a number of reasons – increased exports to Central and Eastern Europe, Africa, Turkey, etc, the expansion of the EV market, growth of the semiconductor market within Europe and increased demand due to environmental regulations (large companies, chemical products, petroleum products). The percentage of companies expecting business to expand in the next 1 – 2 years:
1. South Africa 57.7%
2. Germany 54.9%
3. UAE 53%
4. France 51.4%
5. Netherlands 51.2%
6. UK 43.9%
Labour shortages – Over 50% of Japanese companies are facing human resource shortages. The proportion is particularly high in large manufacturing companies. Labour shortages are being faced by more than 60% of companies in North America and Europe. The issue is particularly acute in the Netherlands, the United States, Germany, and France.
Japanese companies in the EMEA region note that trying to recruit internally first or rotating staff within the region can help with hiring. For retention, offering the ability to work from home and ensuring a steadily increasing salary in line with inflation have helped with motivation.

Sekisui Jushi acquires German traffic engineering company WEMAS Absperrtechnik

Japanese transportation, safety and construction manufacturer Sekisui Jushi has acquired German traffic engineering company WEMAS Absperrtechnik.

The transaction supports the Sekisui Jushi Group Vision 2030 strategy, through which the company aims to enable the safety, comfort and security of people across the globe.

Sekisui Jushi was originally a subsidiary of Sekisui Chemical. In August 2023 Sekisui Chemical sold off part of its stake in Sekisui Jushi with the result that Sekisui Jushi is no longer an affiliate of Sekisui Chemical by the equity method. The intent is “to continue to collaborate with Sekisui Jushi Corporation as a good business partner going forward.”

Sekisui Jushi already has a holding company for Europe and Sekisui Jushi Strapping in the Netherlands, employing around 45 people. The acquisition of WEMAS will add 130 more employees.

Sumitomo Heavy Industries opens new European HQ in the Netherlands

Sumitomo Heavy Industries employs over 4,300 people across Europe in a variety of sectors including cryogenics, energy, gears, motors and injection moulding machines. It acquired Invertek in the UK in 2019, Lafert in Italy in 2018 and FW Energie in the Netherlands in 2017.

Up until now the subsidiaries had been directly managed by Japan headquarters but from January 2024 they will be managed by a new European headquarters, Sumitomo Heavy Industries Europe, based in the Netherlands. The regional headquarters is intended to provide sales, accounting, and procurement-related support, as well as strengthen governance.

Outsourcing Inc to undergo Bain backed MBO

According to the Nikkei, Japanese human resources service company Outsourcing aims to take its shares private through a management buyout with Bain Capital, which will likely exceed 200 billion yen ($1.3 billion). It seems that rapid expansion through M&A has made the group difficult to manage. Outsourcing is currently listed on the Tokyo Prime market, and it may be that the increasing demands of maintaining this status have become too onerous.* Several other listed Japanese companies have undergone MBOs recently, such as Benesse, Taisho Pharmaceuticals and Sidax.

The Japanese version of the Nikkei report says that Outsourcing had 230 consolidated subsidiaries as of September 2022. As the number of companies within the group increased, the cost of maintaining the company’s listing increased, including the time-consuming task of preparing consolidated financial statements. In 2021, inappropriate accounting was discovered at 17 group companies. Outsourcing intends to use Bain to proceed with post merger integration, including the consolidation and abolition of group companies and strengthening corporate governance.

Of the 110,000 employees, 58.8% are overseas. We estimate around 1,200 of those employees are in the UK, and 5,000 or more are in the EMEA region. It is hard to estimate accurately as so many employees are despatched employees rather than core administrative and management staff and each country treats the status of outsourced employees differently. Outsourcing has not updated its fact sheets or fact books in English for several years, which is perhaps a reflection of the complexity they now face. The website features rather a lot of photos of the founder, Doi Haruhiko with the late Queen Elizabeth II , due to Outsourcing’s sponsorship of the Royal Windsor polo match.

The board of directors used to reflect two of Outsourcing’s biggest acquisitions in Europe, CPL Resources and Otto Holdings. Irish born Anne Heraty from CPL still seems to be on the board but Franciscus van Gool from Otto seems to have resigned.

*UPDATE

On 20th December 2023, the Tokyo Stock Exchange requested Outsourcing Inc to submit an Improvement Status Report with regard to the status of implementation and operation of the improvement measures, having found that multiple companies in the group made inappropriate applications for employment adjustment subsidies (the Japanese equivalent of the furlough scheme used in various countries during the pandemic) at the same time.

The EU’s Corporate Sustainability Reporting Directive

The EU’s Corporate Sustainability Reporting Directive came into force in January of this year, which means that individual EU member governments must now adopt the directive at a national, legal level. The CSRD strengthens the existing EU Non-Financial Reporting Directive rules, in that global companies who are not listed in the EU will also have to comply – this includes Japanese companies who may only have what they might see as a minor presence in the EU.

From 2024, the CSRD will compel all “large” EU companies or companies that have listed securities in the bloc, to produce extensive new reports on a range of environmental, social and governance impacts of their business and of their parent companies. Japanese companies who fall into this category include Omron and Ricoh, who are both listed on the Frankfurt Stock Exchange.

Most Japanese companies will fall into the group of global companies who are not listed in the EU, but are defined as “large”, who will need to disclose on a consolidated group level their 2028 financial year, in 2029.

The definition of “large” means any company that has a subsidiary or branch in the EU with two of the following three characteristics – assets over €20m, revenues of over €40m or 250 or more employees. It is estimated that overall around 50,000 companies will be subject to this new reporting requirement. I estimate that at least seventy Japanese companies would be in this category.

To ease the transition, from 2024 until 2030, the EU has a phase-in approach for international, non-EU companies, so that a parent company can voluntarily disclose at a consolidated group level, before 2029, on all its global entities. This would mean their large EU entities are exempt from reporting gradually and individually.

In other words, if the Japanese company is already reporting at a global consolidated level by 2029 the kind of data required by the European Sustainability Reporting Standards, then there is no need for any further reporting. The ESRS are still being defined but will include not only environmental protection but also social, such as treatment of workers across the value chain, and governance, such as diversity on company boards and internal controls and risk management.

Penalties for not disclosing under these standards include public denunciation, an order to change conduct and financial punishment.

Having read many hundreds of Japanese annual reports over the years, although the level of disclosure, in English, has improved, there are many who will not currently make the grade. For example, many only disclose data about Japan based employees.

You may still think your company will be exempt from these regulations, but one of the biggest changes to EU standards is that there is an element of extra-territoriality. Global supply chains are also to be included in the reporting. If your company supplies to a Japanese company with a significant presence in the EU, they may soon be asking you searching questions about your global environmental, social and governance activities.

This article by Pernille Rudlin was first published in Japanese in the Teikoku News, 9th August 2023

Japan’s NTT Data acquires UK Sapphire Systems

NTT DATA Business Solutions AG, the German subsidiary of NTT DATA has acquired Sapphire, a UK-headquartered provider of digital operations software and services to primarily mid-market customers in the US and UK markets. This will strengthen NTT Data’s capabilities in SAP cloud and digital related services.

Sapphire has over 400 employees in 8 countries, with 168 in the UK. It also has offices in the USA, Argentina, Mexico, Lebanon and India.

This is the latest in a long series of NTT Data acquisitions around the world, including Everis in Spain (2014), MagenTys (UK, 2018), itelligence (Germany, 2013) and Dell’s services business (2016). The NTT group has nearly 37,000 employees across Europe, Middle East and Africa, making it the fourth largest Japanese employer in the region.

Daiwa Securities group acquires Irish M&A advisory IBI Corporate Finance

Daiwa Securities has added another acquisition to its European network of corporate advisory firms by acquiring IBI Corporate Finance for over 10 million euros. This will add 28 employees to the 300 or so based in Europe. More than half of the European employees are based in London and Manchester, building on the acquisition of Close Brothers in 2009. Recent acquisitions have been elsewhere in Europe such as Montalban in Spain in 2019.

IBI provides M&A advice across sectors including finance, health care and infrastructure, centering on on small- to mid-cap M&As worth less than $500 million.

Fuyo General Lease to set up UK renewable energy investment subsidiary

Fuyo General Lease is setting up a subsidiary in the UK from April 2024 to invest in renewable energy, particularly offshore wind. It entered the European renewable energy business in June 2022, and in about a year and a half, the total amount of investment and loans exceeded 50 billion yen in Japanese yen. The company will also invest approximately 30 million euros (approximately 4.7 billion yen) in a fund managed by Danish investment company Copenhagen Infrastructure Partners (CIP).

Fuyo General Lease already has subsidiaries in the UK and Ireland focused on aircraft leasing and acquired British company Aircraft Leasing and Management in 2014. Other Japanese leasing companies such as Orix have already been expanding in Europe – Orix acquired Spanish renewables company Elawan Energy in 2020.

The rise of the Japanese permanent resident in Europe

There were around a quarter of a million Japanese permanent residents living overseas in 1989, the first year of Heisei, just before Japan’s economic bubble burst. Now, as of 2022, there are over double (+126%) the number – 557,034. It has been a steady increase, with particularly strong growth in 2006-8 and 2013-2015.

The number of Japanese nationals on long term visas has also risen, but not to quite such an extent – from 340,000 to 751,000 (+120%) and since 2020 the number has dropped. Long term visa holders are likely to be corporate expatriates and students on longer courses, so this decrease could partly be explained by the pandemic, but there does not seem to be any sign of recovery by the end of 2022, even though the severity of the pandemic had faded by then.

Country by country, the picture is more patchy. The USA is still the biggest host of Japanese nationals (419,000) – nearly a third of the Japanese nationals overseas, but this has declined 6% since 2018. The number of Japanese nationals in China, the second largest host, has dropped 15% over the same period. The UK, 6th largest host, has 7% more Japanese nationals than in 2018 whereas Germany (8th) has 7% fewer Japanese nationals and France (10th) 8% fewer. Australia, Thailand and Canada (3rd, 4th and 5th respectively) have also seen increases.

By city, Los Angeles, Bangkok, New York, Shanghai, London, Singapore, Sydney, Vancouver, Honolulu and Hong Kong are the 10 largest hosts. San Francisco has dropped out of the top 10 and been replaced by Honolulu.

Breaking it down by visa category shows that overall in Europe the number of Japanese nationals in the 17 biggest hosts rose 17% from 2012 to 2022 to over 216,000. But the driver behind this has been the number of nationals who are permanent residents. This rose 80% from 2012 to 2022 to over 90,000 people, with a particularly marked increase 2021-2. The number of people on long term visas in Europe has actually fallen by 13%, to 126,000.

The UK has the largest number of Japanese permanent residents – 27,179 – up 77% on 2012. Germany has nearly double the number of Japanese permanent residents it had in 2012 – to 17,496. France is the third largest host with 12,572 permanent residents, up 95% on a decade ago. Belgium has tripled the number of permanent residents and Austria doubled it.

It is hard to know what the drivers are behind Japanese taking up permanent residency in Europe. Obviously one factor is marriage to a local person and having a family. The stereotypical view would be of a Japanese woman marrying a European man – often after having come to Europe to study and work, having perhaps despaired of the traditional education, career and marriage prospects available to women in Japan. There does seem to be an element of that in that there are 1.6 Japanese women permanent residents for every man, up from 1.1 in 1989.

The ratio of permanent to long term residents in the UK and Germany is around 2:3, whereas in the USA it is around 50/50. In Australia and New Zealand is more like 3:2. In Brazil and Argentina over 90% of residents are permanent.

Permanent residency may also be the only available option if a Japanese person wants to stay in their new home country, but does not want to lose their Japanese citizenship. As this editorial in the Asahi newspaper explains, it has long been a source of contention in Japan that dual citizenship has not been permitted. The eight plaintiffs in a recent court case who wanted to contest this said that they took up citizenship of another country in order to maintain their business in that country, or to take public office.

Japan does seem out of step with the majority of countries in the world – 70% of countries allow multiple citizenship. It is also an open secret that many Japanese nationals abroad do actually have dual or multiple citizenships, as there is no mechanism for the Japanese authorities to become aware of this. The data above comes from the Japanese Ministry of Foreign Affairs, and is dependent on Japanese nationals registering with their local embassy. It is only when inheritance, tax and other matters have to be dealt with that multiple citizenship comes out in the open as issue. The true number of Japanese nationals (current and former) in Europe is likely to be much larger.

The charts below attempt to show the different trends in the main countries in Europe which host Japanese nationals. There are some obvious anomalies, which may be explained by changes in citizenship laws and visa regulations in each European country. It’s also notable that Switzerland has long been a major host of Japanese permanent residents whereas, by contrast, the Netherlands would seem to be much more of a corporate expatriate destination.