Category: Africa

Top 30 Japanese companies in Europe – who’s in, who’s out and which countries are benefitting

In my previous post I looked at the growth drivers or otherwise at the top 5 largest Japanese companies in Europe, Middle East and Africa (EMEA) – Yazaki, Sumitomo Electric Industries, NTT Data, Fujitsu and Canon.  Overall employee growth for the largest Japanese companies in the region has been a healthy 22% over three years (see table below). But of the top 5, only NTT Data has beaten this average.

Yazaki and Sumitomo Electric Industries are automotive manufacturers who have consolidated their position as the biggest employers by further greenfield investments in new plants in Moldova, Serbia and Bulgaria over the past three years.

Of the other three, IT services company NTT Data has more than doubled in size over the past three years in the region through acquisitions. Fujitsu, however, has shrunk as it shifts from hardware manufacture and sales to IT services. Canon has grown by 15%, partly through taking on Toshiba Medical Systems.

Toyota group strength in Europe

The rest of the Top 30 shows a similar pattern – the automotive sector growing through greenfield investment in new or expanding plants, with the electronics/ICT sector growing through acquisition, or shrinking through consolidation and moving towards B2B in automotive and medical fields.   Panasonic more than doubled in size in the region, through acquiring Spanish automotive company Ficosa and Belgian technology company Zetes.

Honda’s employee total in EMEA hardly changed over three years, Nissan’s only grew 2% whereas Toyota grew 16% – which shows something about the relative fortunes of those car brands in the region recently.  Toyota will presumably expand further once it fully takes over the joint venture factory with PSA in the Czech Republic.  Other Toyota group companies have also expanded – such as Denso, Toyota Industries and Toyota Tsusho via its French/African trading company CFAO acquired in 2012.

Bridgestone employee numbers have grown 43% partly through acquisitions in France but also expansion and greenfield investment in Eastern Europe and Russia. Japanese automotive glass manufacturers (who also make architectural glass) Asahi Glass grew 33% but Nippon Sheet Glass only expanded its employees by 4% – still recovering from the bad timing and heavy debts of its acquisition of Pilkington Glass in 2006.

Fastest growing, fastest shrinking companies

The fastest growing Japanese employer in the region was electric motor manufacturer Nidec – more than tripling in size over the past three years, having been on a spending spree around the world – with around 25 acquisitions, many of them in Europe, since 2015. Nidec is the only new entrant into the top 30 over the three years, pushing out Fast Retailing (owner of Uniqlo, Comptoir des Cotonniers, Princesse TamTam etc). Fast Retailing grew too, opening new Uniqlo stores in Spain, Belgium, Sweden and the Netherlands in the past couple of years, with further stores to come in Italy and Denmark.

Sony and Ricoh have both shrunk by over 10%, however, with neither making any major acquisitions. Konica Minolta, which grew 25%, acquired various IT services providers in Germany, France, UK and the Czech Republic.  Bubbling under the Top 30, at #31, NEC also grew rapidly, by 47%, after the acquisition of IT services companies like KMD in Denmark and Northgate Public Services in the UK.

European hot spots

Climate change has sparked investments from Mitsubishi Electric and Daikin in European air conditioning manufacturing and alternative energy production.  Mitsubishi Electric has an air conditioning factory in Scotland employing 1000 people and expressed quite clearly its concerns regarding Brexit to a parliamentary committee in 2018 (by the way, I think there must be a typo in the submission, as it says 20% of its UK employees are EEA, which is considerably more than the figure of 13 they state).  In December 2017 it announced it had started production of airconditioners at its new factory in Turkey.

So yes, it’s true that the UK has taken a ‘lion’s share’ of Japanese investment in recent years and therefore Japanese company employment in the EU. I estimate around 160,000 jobs out of 750,000 or so in the region (21%) are in the UK. But this share of investment is largely due to big ticket acquisitions by Japanese companies in the UK (SoftBank/ARM, MS Amlin etc) and also that investment in real estate is counted as “greenfield” investment.

Around a quarter of Japanese jobs in the region are in the automotive sector, and they’re moving eastwards

If we look at greenfield investment, largely in manufacturing, generating thousands of new jobs, with the exception of Hitachi’s rail factory in the UK, this has been going to Eastern Europe, CIS, Turkey and North Africa.  The automotive sector is particularly key. I estimate around 250,000 of the 750,000 or so people employed by Japanese companies in the region are in the automotive sector.  Brexit is giving extra impetus to automotive and other supply chain manufacturing jobs to accelerate their move eastwards.

Top 30 Japanese employers in EMEA 2018
Rank 2018 Rank 2015 Company Total global employees 2017/8 no in EMEA 2017/8 % in EMEA 2017/8 Employee growth 2015-2018
1 1 Sumitomo Electric Industries 255,133 60,537 23.7% 7%
2 2 Yazaki 306,118 57,661 18.8% 19%
3 9 NTT Data 118,000 36,000 30.5% 140%
4 3 Fujitsu 140,365 27,000 19.2% -8%
5 4 Canon 197,776 25,623 13.0% 15%
6 5 Toyota 369,124 22,147 6% 16%
7 18 Panasonic 274,143 21,931 8% 116%
8 13 Bridgestone 142,669 17,510 12.3% 43%
9 10 Asahi Glass 53,224 17,400 33% 19%
10 8 Toyota Tsusho* 56,827 17,000 29.9% 10%
11 7 Nissan 138,910 16,807 12% 2%
12 11 Denso 171,992 16,688 10% 15%
13 6 Ricoh 97,878 16,680 17.0% -10%
14 16 Hitachi 307,275 16,000 5.2% 36%
15 14 JT Group 57,963 15,410 26.6% 27%
16 30 Nidec 107,554 12,917 12% 223%
17 15 NSG 26,957 12,500 46% 4%
18 17 Dentsu* 62,608 12,176 19.4% 11%
19 21 Toyota Industries 61,152 11,837 19.4% 48%
20 12 Sony 117,300 11,730 10.0% -11%
21 19 Konica Minolta 43,299 10,825 25.0% 20%
22 24 Kyocera Group 75,940 10,024 13.2% 40%
23 25 Daikin 70,263 9,227 13.1% 36%
24 20 Honda 215,638 8,591 4.0% 0%
25 23 JTEKT 49589 8,128 16.4% 12%
26 26 TDK 102,883 8,045 7.8% 20%
27 22 Itochu* 102,086 7,382 7.2% -5%
28 27 Olympus 35,124 7,353 20.9% 15%
29 31 Mitsubishi Electric 142,340 7,300 5.1% 46%
30 28 Mitsubishi Corporation 77,476 7,189 9.3% 19%
TOTAL 3,977,606 529,619 13.3% 22%
*based on estimates as official figures not disclosed
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Pernille Rudlin’s latest book, Shinrai:Japanese Corporate Integrity in a Disintegrating Europe is available on Amazon.

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The top 5 Japanese companies in Europe, Middle East & Africa all have headquarters in the UK

Over half a million people worked for the 30 largest Japanese employers in Europe, Middle East and Africa (EMEA) in 2018, 22% more than in 2015. Going by the research we have done on the main host countries of the region (Germany, UK, France, Netherlands), this would indicate there are around 750,000 employees of Japanese companies in EMEA.

The top 2 by a large margin are Sumitomo Electric Industries and Yazaki, both making automotive components such as wire harnesses.  They both have multiple manufacturing sites employing thousands of people, mainly in eastern Europe, north Africa and South Africa.

Yazaki‘s EMEA headquarters are in the UK and Germany.  The UK side supervises branches and subsidiaries across Europe, with R&D and customer service centres across the UK and the EMEA region. Yazaki Wiring Technologies European HQ is in Cologne, with subsidiaries in Eastern Europe and Turkey. Yazaki’s EMEA workforce has grown by nearly 20% since 2014/5 with recent greenfield investments  such as a new factory in Serbia and a third plant in Bulgaria.

Sumitomo Electric Industries also has European headquarters in the UK and in Germany (the Bordnetze side of the business). The Sumitomo Electric Wiring Systems operation in the UK originates in the acquisition of Lucas Industries in 1999. There is no longer any manufacturing in the UK but it supervises factories in Germany and Italy, with Sumitomo Wiring Systems Japan directly owning factories in Eastern Europe and Africa. Similarly the German HQ arises from the acquisition of Bordnetze from VW and Siemens in 2006. Sumitomo Electric Industries’ workforce in EMEA has grown 7% in three years, including acquisitions in Germany and a new plant in Moldova.

Sumitomo Electric Industries and Yazaki were the top 1 and 2 in 2014/5, but the third largest Japanese employer in EMEA, NTT Data, was only the 9th largest three years ago.  NTT Data has grown through acquisitions such as Dell’s services business, Everis, MagenTys and Keane. NTT Data EMEA is based in the UK, owning subsidiaries across Europe. Again, there is a split regional HQ, with NTT Data Europe GmbH owning Itelligence – but not for much longer.  The parent company, NTT is undertaking a major restructure of its business, uniting NTT Data EMEA, Everis and itelligence as part of EMEA & Latin America region, moving to a matrix rather than vertical organization. By 2020 NTT intends to have 2 companies under its new NTT Inc holding company for its non-Japanese business – NTT Data and a merged NTT Communications/NTT Security/Dimension Data organisation.  The global headquarters for NTT Inc will not be in Japan but in London.

Dropping down a place from 3 to 4 over the past 3 years is Fujitsu, another Japanese IT major, in the awkward position of being both a supplier and competitor to NTT.  Fujitsu’s presence in Europe originates from its acquisition of the UK’s ICL in 1990 and a joint venture with Siemens, which it later bought out.  Fujitsu’s workforce in EMEA (or EMEIA as it names it, adding in India) has dropped by 8% since 2014/5 and looks to shrink further in 2019 and 2020 with the closure of the last PC manufacturing plant anywhere in Europe, in Augsburg, Germany.  As it shifts to IT services business, its workforce in its global delivery centres and service desks is growing in lower cost but skilled, multilingual countries in the region such as Portugal, South Africa, Poland, Morocco and Russia.

Canon was also pushed down a place to 5 from 4 three years’ ago by NTT Data’s rise, but its workforce in EMEA has grown around 15% over the period. Canon acquired Dutch company Oce in 2009 and Canon Europa is the Netherlands based holding company which owns Canon Europe in the UK, acting as the functional and marketing headquarters for the region.  Canon has grown partly through taking on Toshiba’s medical systems business and also through the acquisition of Sweden based Axis Communications in 2015.

From a UK perspective, whilst it’s reassuring that all of the top five Japanese companies in the region have some kind of regional headquarters in the UK, this does not mean that largest proportion of the jobs they have generated is in the UK.  In manufacturing the drift is eastwards and southwards, and even for IT services, business process outsourcing and support jobs are shifting to Eastern Europe, Portugal, Africa and India. As they all have an EU based alternative headquarters, it is unlikely there will be any change in the HQ structure post Brexit, rather that virtual management teams dispersed across a very broadly defined region will become even more common.

Part 2 of this analysis continues here.

Pernille Rudlin’s latest book, Shinrai:Japanese Corporate Integrity in a Disintegrating Europe is available on Amazon.

 

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Fujitsu and NEC: same woes in Japan, diverging in Europe and Africa

Increased sanctions on Huawei should benefit Japanese ICT (Information & Communication Technology) companies NEC and Fujitsu, yet both seem to be struggling after years of restructuring, says the Nikkei. They were at the core of what used to be known as the Den Den Family – suppliers to Japan’s former Ministry of Post and Telecommunications, now NTT.  However their telecoms business seems to be undermining rather than helping their restructuring efforts.

“Fujitsu is no longer a manufacturer, because of its shift to IT services, and NEC has lost its strengths in technology, they are no longer globally competitive”, says an NTT executive.  NTT was not using Huawei for its DoCoMo mobile network business anyway, so this will not be a source of new business.

Years of restructuring with little result

NEC started an early retirement program in Japan for employees over 45 in 2018, with 2,170 employees leaving at the end of the year. Fujitsu also transferred some of its Japan based employees who are not in customer facing divisions to customer facing divisions, resulting in 2,850 people leaving the company by March 2019.

Both companies have sold off businesses in areas such as semiconductors, smartphones, PCs and internet service provision.  Compared to 2000, when both achieved operating income of Y260bn, NEC’s revenues have dropped 42% and Fujitsu  has fallen by 25% and operating income has fallen by half or more. Employee numbers have dropped by 29% at NEC and 30% at Fujitsu.

Neither company has achieved operating profit margins of over 5% since 2000, despite repeated restructuring.   Market capitalization is down 80% for NEC and 73% for Fujitsu.

The new president of Fujitsu, Takahito Takada, recognises that there are still issues that need to be resolved, domestically and overseas.  His predecessor Tatsuya Tanaka had also tried to increase operating income but delays in restructuring in Europe meant this was not achieved.  NEC has also repeatedly missed profit targets.

Reluctance to merge, difficulty in partnering for 5G

Both NEC and Fujitsu have been focusing more on developing IT systems for private and public sector clients, and telecoms is becoming more peripheral to the business.  There are moves afoot to integrate the optical transmission equipment business of both companies into one unit that is globally competitive, involving the Japanese Ministry of Economy, Trade and Industry, the Ministry of Internal Affairs and Communications and NTT.  However, given that NEC and Fujitsu have always been competitors, and have never integrated any of their businesses before, there is a strong reluctance on their part to proceed.  Furthermore, NTT itself says if the result of such a merger is continuing high prices, then this will not be viable.

Even though NTT was the first in the world  to introduce 3G, Fujitsu and NEC did not capitalise on this or for 4G, and were outstripped by Huawei. The question now is whether they can catch up with 5G.  Both are seeking partners overseas – NEC with Samsung and Fujitsu with Ericsson.  Previous partnerships like this for 3G and 4G, with Alcatel-Lucent, Siemens and Nokia did not bear fruit. NEC is hoping to get business from Rakuten’s entry into mobile phone services, setting up a communication network with US startup Altiostar Networks.

Unable to compete with Google or Microsoft in IT services

Even in the core business of IT systems, with Industry 4.0, AI and IoT, Fujitsu and NEC do not seem to be showing any signs of new growth sources.  Amazon is eating into their cloud offerings and it is difficult to compete with the massive R&D budgets of companies like Google.

NEC is trying to get away from reactive, passive IT system building based on customer requests. They are investing in anticipation of customer needs, in areas such as food waste reduction, building a demand and supply platform to ensure more accurate forecasts.

Fujitsu is aiming to become more competitive by shifting new business creation out of Japan.  It has set up an AI HQ in Vancouver. This is an attempt to escape from the model it has relied on in the past, of developing hardware in Japan and then selling it overseas.

Both companies are also having to compete with Google and Microsoft or startups for talented IT people. NEC introduced a system this  year to recruit outstanding researchers with a starting salary of $93,000.

Europe, Middle East, Africa

NEC and Fujitsu diverge in their strategies for the Europe, Middle East and Africa region. Fujitsu has been cutting employees in EMEA (or as they call it EMEIA – including India). This is happening particularly in Germany and the UK where it could be argued it is overweight, thanks to the legacy of the acquisition of ICL in the UK and the joint venture with Siemens. It announced in the past year it will close the factory in Augsburg, Germany – the last remaining computer factory owned by anyone, in Europe.

NEC, on the other hand, has grown in the region. They acquired Northgate Public Services in the UK and KMD in Denmark in 2018. They are also proactive in Africa, looking at getting involved in Japanese development aid projects.

The market in developing countries could be where NEC is a strong alternative to Huawei, whereas the investment in AI in Canada suggests to me that Fujitsu is still pursuing its dream of being a leader in AI and supercomputing, taking on North America.

 

 

 

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Which Japanese companies have the most non-Japanese employees?

There are more than 80 listed Japanese companies who have more non-Japanese than Japanese employees, but are they truly global companies?

The companies with the largest proportions of non-Japanese employees are mostly electronics manufacturers with factories in Asia and China – Foster Electric (98.9% of its employees are non-Japanese), UMC Electronics (98.5%), Mabuchi Motor (96.4%) and Minebea Mitsumi (91.6%) for example.

Two of these have no non-Japanese in management positions, according to Toyo Keizai. (who define “management” as having management positions in the Japan headquarters). Minebea Mitsumi (with 9 non-Japanese managers representing 0.5% of management) has at least set a goal of having 10% of its management to be “diverse” and Toyo Keizai says there are more cases of, say, a Thai employee being seconded to Indonesia and then moving to Japan headquarters as part of a management development path – something that is more common in Western multinationals.

The Japanese company with the largest number of non-Japanese employees in absolute terms is Sumitomo Electric Industries – a big employer in the Europe, Middle East & Africa region too – with several automotive wire harness factories in Africa.  Other companies with large numbers of non-Japanese include the NYK group (due to employees manning ships and other logistics operatives) and NTT (who have acquired large multinational IT services companies like Dimension Data).

In terms of largest proportions or absolute numbers of non-Japanese in management in their headquarters, Nissan with 163 non-Japanese managers (5.9%) and Nomura with 181 non-Japanese managers (4.1% of management) are the standout companies in Toyo Keizai’s Top 100. The only other companies in the ranking with non Japanese management in double figures are Panasonic (27), Honda (15), Denso (15), Dentsu (14), Fujifilm (14), Fujitsu (14), and Daikin (10).

It is very tough being one of a handful of non-Japanese managers in Japan HQ, and I would agree with Toyo Keizai’s implication, that to offer truly global careers in a global company, both to Japanese and non-Japanese employees, the number of non-Japanese in management positions in the headquarters need to increase substantially in order to reach the kind of critical mass that makes a difference.

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Toyota Group dominates Top 30 Japanese employers in Europe, Middle East & Africa

We’ve revised our Top 30 Japanese employers in Europe, Middle East & Africa (EMEA) again, this time to include Toyota Tsusho (in at #12) and Toyota Boshoku (in at #29), bumping NYK and Suntory out of the rankings.

The 30 biggest Japanese employers in EMEA now represent over 460,000 employees, around 12% of their total global employment.  EMEA employee totals have increased more than the global totals, at around 6% from 2014/5 to 2015/6 compared to <0.5% worldwide, showing that the region is still growing for Japanese companies.  As you might expect, the total employment in Japan is shrinking, by about 2% year on year.

Adding Toyota Tsusho and Toyota Boshoku made me appreciate once again how important the car industry continues to be worldwide as a source of employment and also how dominant the Toyota Group is.  5 out of the Top 30 are Toyota Group companies (JTEKT and Denso as well as Toyota Tsusho, Toyota Boshoku and Toyota Motor).  A further 4 are purely automotive (Yazaki, Nissan, Bridgestone, Honda) and 6 have automotive related companies in their group (Sumitomo Electric Industries, Hitachi, Asahi Glass, NSG, Panasonic and Toshiba).

Toyota Tsusho is not entirely focused on cars however.  It is a general trading company, and is particularly strong in Africa, since it acquired the French company CFAO in 2012.  CFAO has an automotive sales network but that is only part of its business.  Toyota Boshoku makes automotive components such as seating, door trims and air filters.

Similarly, 8 out of the Top 30 Japanese employers in the UK are automotive and a further 2 have automotive related businesses in the group.  Our revised Top 30 now included Sumitomo Rubber, who have not only acquired the global rights to the Dunlop brand but also bought a UK tyre distributor Micheldever earlier this year.

If you would like more customised reports on the Top 30 Japanese employers in Europe, Middle East & Africa (showing trends in total global employees, Japan based employees, EMEA based employees) and the Top 30 Japanese employers in the UK (showing trends in total UK employees, regional HQ location, region covered, percentage UK of Europe and of global) please contact pernilledotrudlinatrudlinconsultingdotcom

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Brexit rebalancing for Japan’s automotive companies

Nissan Ambassador Max Whitlock receives his gold all-electric Nissan LEAF to celebrate his double gold medal success at the Rio 2016 Games.

Record UK car production for 2016 was reflected in the 2% increase in employment by the largest Japanese automotive companies in the UK on the previous year. The fall investment in the UK automotive sector from £2.5bn to £1.66bn tells the other side of the story, which is that employment growth for Europe and Africa overall for those companies was greater than in the UK – at 7% – the main contributor being Yazaki opening plants in Morocco and Bulgaria.

As Mike Hawes of the Society of Motor Manufacturers and Traders puts it “Any imposition of tariffs is “an absolute red line for the industry” that would throw the future of some plants into doubt. “It would be very hard to overcome that level of additional cost, given plants operate on pretty wafer-thin margins.” Factories would not close overnight, he added, “but the potential is for death by a thousand cuts” as the manufacture of new models was moved abroad. “If you produce three or four models and you lose one, then inherently your competitiveness is affected.”

The Japanese automotive sector account for 7 of our Top 30 Japanese employers in the UK (if you count Pilkington, which manufactures a mix  of automotive and construction glass).  Globally these seven companies (Honda, Toyota, Nissan, Calsonic Kansei, NSG Pilkington, Denso, Yazaki) employ over a million people, around 10% of which are in the Europe and Africa region and around 2% (23,000) in the UK.

According to our analysis of last year, a rebalancing may well already be under way.  It looks like Nissan and its suppliers (Calsonic Kansei and Yazaki) had a good year in 2016 in terms of employment and production levels –  but Calsonic Kansei has made investments in plants in Spain and Russia over the past couple of years, where Nissan has other factories. Toyota and its supplier Denso reduced their employment levels in the UK in 2016 – in line with the decrease in production at Toyota.  The big growth story in Europe & Africa in terms of employment and investment was Yazaki, who added 150 employees to its design and sales operations in the UK, but this was dwarfed by the additional 10,000 employees in the region generated by opening plants in Morocco and Bulgaria.

Honda, Calsonic Kansei and NSG have their regional headquarters in the UK.  Honda‘s UK employment and production levels grew  (whereas employment shrank in the region overall) and they have publicly declared that their UK factory will be a global supply hub (80% of its production is exported to the EU). However, relative to the to the other 6 companies they have a smaller presence in the Europe & Africa region – the only other production facility being a factory in Turkey – which at least has the advantage of being in a customs union with the EU.

Reports, profiles and other research on the Top 30 largest Japanese companies in Europe, Middle East and Africa are available to subscribers to our premium, paid newsletter – subscriptions are available here.

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Not just Toyota – the Brexit rebalancing has already started

Toyota‘s warnings at Davos that it was having to consider how to survive in the UK after Brexit were preceded by a very under-the-radar announcement that it would be making some redundancies at its Burnaston plant.  It is a sign of what is to come for Japanese companies in the UK and our research (see below) shows that a rebalancing is already being undertaken by many.  Whereas Japanese companies increased their employment across Europe, Middle East & Africa by nearly 10% from 2015 to 2016, UK employment levels remained unchanged.*

Toyota said that a reduction was necessary as the initial burst of production needed for new models introduced in 2015 is now stabilising.  Indeed, Toyota’s total workforce in the UK had already fallen by 3.6% in 2015/6 and by 9% across Europe.

Now it is clear that the UK really will leave the Single Market and the Customs Union, where there are long term trends in place already, such as automation or phasing in and out of models, Brexit will provide the impetus to rebalance resources across Europe and beyond, to maintain integration in the Single Market or ease of serving other growth markets if Europe disintegrates further and/or growth slows.  Hardline Brexiters, Trump and Putin may welcome the disintegration of regional arrangements, but multinationals are moving in the opposite direction, integrating their operations regionally and globally both in terms of supply chains and people.

Fujitsu already made similar move in announcing 1800 redundancies in the UK in October 2016 – part of 3300 job losses across Europe.  It stated it was not related to the Brexit referendum result, but part of a longer term transformation programme – mainly to do with moving more of its IT services support to lower cost bases.

Our latest compilation of the Top 30 Japanese companies in Europe and the UK – now most annual reports for year ending March 2016 have been published –  shows that this process had indeed started before the referendum.  Fujitsu has reduced its workforce in the region it calls EMEIA (Europe, Middle East, India and Africa) by 3% from 2015/2016 and in the UK (in which it was possibly overweight anyway, thanks to the legacy of having acquired ICL) by far more – 15%.

Fujitsu is still the biggest Japanese employer in the UK, with over 10,000 employees, but if it dips much below 8000 as a result of the latest round of redundancies, then Nissan, currently with 7,657 employees, might well overtake it.  Nissan’s UK workforce grew 2.9% in 2015/6 and actually shrank across Europe by 2% in the same period.  Calsonic Kansei, one of Nissan’s key suppliers, also grew its workforce by 10% in the UK to 1,729.  Presumably this will hold until the new Nissan models will come online in 2019 giving a year or two of high production and sales, until, well, see Toyota above.  As previously posted, car manufacturers operate on the basis that a factory needs to serve a market of at least 100 million consumers in order to be sustainable.  The EU qualifies, as does Russia – but the UK on its own does not.

Other big increases in the UK workforce were due to acquisitions – Mitsui Sumitomo & Aioi Nissay Dowa group acquiring Lloyds underwriters Amlin and Insure The Box, Softbank acquiring ARM  and Dentsu Aegis acquiring various agencies in Europe and the US, absorbing their UK workforce with it. Organic growth highlights were Hitachi (18.8% up) – building on its Hitachi Rail acquisitions – soon to be employing 900 at its Newton Aycliffe plant, Ricoh (up 11% in the UK but only 1% in Europe) and Fast Retailing, expanding their Uniqlo and Comptoir des Cotonniers retail business, with 1100 employees, up from 700 the previous year.

However Hitachi expanded 70% across Europe, presumably due to the acquisition of Ansaldo rail businesses in Italy and NTT Data also expanded across Europe by 20% to 18,000 employees  (NTT Data’s UK workforce is surprisingly small compared to Fujitsu, at around 450 as of 2015). Automotive supplier Yazaki grew by almost a quarter, to reach 45,200 – a large part of this being its manufacturing in Eastern Europe and North Africa – similar locations to the largest Japanese employer in Europe, Sumitomo Electric Wiring, whose workforce shrank slightly to 56,273.

What next for the UK and Japanese companies in Europe?

I would give up any hope of expanding automotive manufacturing in the UK.  As outlined above, the shift eastwards in Europe, to Turkey and also to north Africa has already taken place.  Which would seem to negate the need for suppliers to be in the Single Market, but note that the EU already has free trade deals with Egypt, Tunisia, Morocco and Algeria and Turkey is in a customs union with the EU.  Yazaki (headquartered in Germany) and Sumitomo Electric Wiring (tripartite headquarters across Italy, UK and Germany) used to have manufacturing in the UK but are now largely focused on pre-sales engineering.  Calsonic Kansei still has manufacturing in the UK, but has recently invested in plants in Spain and Russia where – not at all coincidentally – Nissan has factories.

The UK still has strength in the design side of the automotive engineering, and I wonder whether the UK government deal with Nissan didn’t have some kind of grant or tax break for supporting this, to cushion the blow to the manufacturing side from any tariffs.  Although Nissan’s European headquarters are in Switzerland, there is a large design centre in the UK.  Similarly Honda has an R&D operation as well as a Formula 1 team based in the UK.

80% of the UK economy is services, and we are a net exporter of services.  Delivery of services requires you to be close to the customer.  So what the UK needs to ensure is that the customers with the biggest budgets – the regional headquarters of multinationals, Japanese or otherwise – stay in the UK.   Our professional services – not just finance but R&D, design, IT, consulting, accounting, legal, marketing – all thrive because they are supporting these regional headquarters. Lower taxes and deregulation might keep some headquarters happy, but ultimately they have to worry about their proximity to customers too.  By leaving the European Union, the UK will be perceived as less close to EU customers (and also the regulatory environment).  We have to hope that the positive, proactive “global” UK that Theresa May outlined in her recent speech really does come together, and deals are quickly negotiated with African and Middle Eastern countries, so that the UK can position itself as the EMEA (Europe, Middle East & Africa) regional headquarters of choice.

The UK is currently the regional base for over half of the top 30 Japanese companies in Europe or EMEA.  Keeping it that way will also, as the Japanese government itself pointed out, need a free movement of people in the region and a liberal immigration policy.  If this becomes an issue, which it already has of course, the other trend I have highlighted elsewhere, of an increasingly virtual structure, where regional management and functions are scattered around a region, will intensify and will be increasingly difficult to service from one location, particularly if that location is not part of the Single Market or immigration has become a sticking point in free trade agreements.

If this happens, then UK services companies are going to have to open more offices across the EMEA region and relocate their personnel accordingly – as various banks have already announced.

(*Percentages calculated only for those companies where annual report figures for the EMEA or Europe region and the UK were available.)

The Top 30 Japanese employers in Europe (showing changes 2014/5 to 2015/6 in total global employees, Japan based employees, EMEA based employees) and the Top 30 Japanese employers in the UK (showing changes 2014/5 to 2015/6 in total UK employees, regional HQ location, region covered, percentage UK of Europe and of global) are available to download, if you sign up for our free monthly newsletter:

Reports, profiles and other research on the Top 30 largest Japanese companies in Europe, Middle East and Africa are available to subscribers to our premium, paid newsletter – subscriptions are available here.

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Brexit business opportunities for Japanese companies

shutterstock_407998837A 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

2. Infrastructure

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.

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Japan – into Africa

ticadMany 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.

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