Brexit

Japanese companies should put their hard Brexit contingency plans into action now

“Don’t give up on expressing your concerns to the British government, but also start putting your contingency plans into action now” was the response from Haruki Hayashi, CEO of Europe & Africa for Mitsubishi Corporation to a question at the end of a lunch seminar in London I attended earlier this month, along with 150 mostly Japanese business people. The question had been “if we won’t know until October 2018 the likely shape of the agreement between the UK and the EU, won’t it be too late to put our contingency plans into action by then, in time for March 2019?”.

To another question regarding the possibility of a second referendum, Hayashi responded – “however desirable, might it not have the same result? And aren’t the British too proud to have a second referendum?”

Hayashi’s speech was a geo-political, economic and risk analysis of the impact of Brexit. He started by hinting that the meeting between Ambassador to the UK Tsuruoka (who was present at the lunch) and the Japanese Chamber of Commerce and Industry in the UK (JCCI UK) that morning had been encouraging – that the ambassador said Theresa May’s visit to Japan had been fruitful in the sense of being a reaffirmation of a common vision on security, economic issues and global partnership and also that there was clear agreement that the EU Japan agreement would be the basis for a quick agreement between UK and Japan.

But then he shared a classic Mitsubishi Corporation political (including security, business environment) risk versus economic impact matrix, plotting the key countries in the EU along with Japan. Unsurprisingly, he predicted the UK economic impact to decline and political risk to increase from its current position clustered with France, Germany, Japan, Italy, Spain and Poland.

“London is the UK”- and up until now, the UK was the EU for Japanese expats

Nonetheless, from Japan’s perspective, the UK is currently so dominant in terms of Japanese presence in the EU, it will take a while for this to unwind. I hadn’t realised quite how dominant in terms of where Japanese themselves are located – there are around 207,000 Japanese living in the EU, and around a third of those are in the UK, with 90% of those in England and over half in London. “London is the UK for Japanese” said Hayashi. There are around 1000 Japanese companies in the UK, around a third of them are members of the JCCI UK. This represents 15% of the 6465 Japanese companies in the EU, which is not far from the 16% of EU GDP that the UK economy represents or the 13% of the population of the EU that the UK represents.

But as I have blogged elsewhere, it is the size and function of these Japanese companies, and also I now realise the density of the Japanese expatriates in them, which is where the UK has been dominant – many of the Japanese companies in the UK are the regional headquarters, and most of their Japanese expatriates are located there.

The UK also took the lion’s share of Japanese investment into the UK. Hayashi pointed out here was a big increase in Japanese acquisitions in the UK from 2010, particularly in 2016, with Mitsui Sumitomo Insurance acquiring Amlin and Softbank acquiring ARM (although I see the latter as an investment rather than an acquisition in the sense of integrating or accessing a market).

Japan’s soft power – more British visit Japan than Japanese visit the UK

Japan’s soft power in the UK is very apparent too – Hayashi listed up all the British brands that aren’t Japanese, but are Japanese influenced, like Yo! Sushi, Wagamama, Wasabi, Itsu and Superdry. And I can testify to his point that the Mitsubishi Corporation sponsored Hokusai exhibition at the British Museum was completely sold out. More British people now visit Japan than Japanese visit the UK – the cross over being in 2011 – 292,000 visited Japan last year, 75% of whom were tourists, whereas Japanese visitors have been at a fairly stable 220,000 to 240,000 a year to the UK. And British tourists spend more than Chinese tourists – because they stay longer and spend more on accommodation.

Japan’s voice is being heard more than a few years’ ago

Hayashi pointed out how the share of global GDP has shifted over the decades from the traditional West to China and India, and that EU integration seems to be losing pace. Japan can take leadership, to continue to support globalization and rebuild it to include China and Russia. Hayashi says he was initially rather embarrassed at the coverage his comments about Brexit got in the Guardian newspaper, but now he thinks it was fair, and that as British people do read the newspapers, it’s important for Japanese companies to have their voices heard in the media – for which they need to have a focused message. “Write to UK ministers about your concerns. Don’t give up. Start now”.

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Pernille Rudlin interviewed by BBC on UK trade delegation to Japan and Brexit

Pernille Rudlin is interviewed by BBC World Service Business Matters on Theresa May’s trade delegation visit to Japan and the likelihood of being able to get any kind of commitment to a trade deal. You can hear it or download it here There’s a clip in the introductory news headlines and the actual piece starts 6 mins 38 seconds in on the podcast, 3 minutes 50 seconds in if you are listening to the streaming version.

Amsterdam is first choice for Japanese companies’ regional HQ in Europe post Brexit

“When the UK leaves the EU, it is the strongest candidate for regional headquarters” says one Japanese manufacturer about Amsterdam, in the Nikkei Business magazine. Since the UK said it would leave the Single Market, Japanese companies have started their search for new regional HQ locations. Although Frankfurt and Zurich are also in the game, Amsterdam is seen as particularly strong.

There are many pluses: low taxes, and various regimes to suit different businesses. The logistics infrastructure is robust and it is easy to access the other main economies in Europe from there. Additionally, the lifestyle is congenial for Japanese people.

A priority for Japanese companies is the financial infrastructure. “If we are physically close to our financial services suppliers, then we can easily exchange information and opinions” says the manufacturer. Of Japan’s megabanks, Bank of Tokyo-Mitsubishi UFJ and Mizuho have regional coordinating operations in Amsterdam. There is a possibility that Sumitomo Mitsui Banking Corporation will also move its European coordination activities to Amsterdam.

However, Japanese companies who are looking at moving their base to Amsterdam have one increasing headache, which is the uncertainty of the Dutch political situation. In a survey from 2016 (ie before the election where Wilders’ Party for Freedom did not do as well as feared) of the members of the Japanese Chamber of Commerce in the Netherlands, political, economic and social environment came second as an increasing area of concern, after worries about employment (being able to hire or bring in Japanese employees, tax, pensions and ability to lay off workers). The third biggest area of concern was for expatriate visas and the process of obtaining ID cards. 4th was the legal and regulatory framework – obtaining permits, approvals, meeting standards and whether those standards are appropriate.

There is a concern that if the Netherlands cracks down on immigration, it will be difficult to hire a diverse labour force – one of the UK’s traditional strengths and attractions for Japanese companies.

Top 30 Japanese companies in Europe 2021

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Japanese investors in UK considering shifting operations to Asia, the Americas post Brexit

Although over half of the of the 10,508 Japanese companies surveyed by the Teikoku Databank thought Brexit would have a negative impact on the Japanese economy, it is a salutary reminder that not only the UK but also the EU are just a small corner of the Japanese corporate environment that only 9.2% had business in the UK or other EU countries. A tiny 1.9% had actually set up sales arms or local subsidiaries, with 7.5% having collaborative agreements or importing/exporting from the EU or some other indirect business. Unsurprisingly, the larger the company, the more likely they were to be active in Europe. Manufacturers and wholesalers were dominant, but financial services companies represented the top direct investors.

Of the companies surveyed,

35.9% had business with Germany
31.5% with the UK
23.3% with France
21.4% with Italy
11.9% with Spain, 11.9% with the Netherlands

Of those who were in Europe and considering moving operations, the top choices for destination were:

2.9%　to Asia
EU (undecided/unspecified) 1.6%
Italy 1.5%
UK 1.3% (despite Brexit)
Germany 1.2%

Of those who had directly invested in the UK, 12.8% of those who were looking to move operations were considering elsewhere in the EU (Unspecified EU, Germany, France being the most cited) but Asia and the Americas were also mentioned as frequently as Germany or France.

51.3% of the companies who responded felt that Brexit would have a negative impact on the Japanese economy, although over 60% felt that it would have not much impact on their own company, with only 9.4% saying it would have a negative effect. However 46.2% of those who had direct investments in the UK said there would be a negative impact.

Hardly any respondents (less than 1%) said Brexit would have a positive impact on the Japanese economy or their industry and only 2.6% of those companies with direct investments in the UK said it would have a positive effect on their own company.

In other words, large numbers chose “don’t know” or “no effect” as their response.

The Teikoku Databank concludes that the EU is likely to be dominated by Germany and France in the future and the non-Eurozone EU countries are going to find it hard without the UK as a member. There are counterwinds to free trade and a concern that Brexit will lead to other countries leaving the EU. “The EU is nice as an ideal, but there are too many contradictions in terms of the varying levels of political and economic development” says one canned goods wholesaler.

Brexit rebalancing for Japan’s automotive companies

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.

Japanese companies in the UK

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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 engine 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.)

Reports, profiles and other research on the Top 30 largest Japanese companies in Europe, Middle East and Africa are available from Rudlin Consulting – please contact pernillerudlinrudlinconsultingcom for further details.

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British customer service has improved – or is it just the technology?

I asked two Japanese expatriates who were both on their second stint in the UK what had changed since their last stay in the UK 10 or so years’ ago. To my surprise, both said that they thought customer service had improved.

My initial response was that this was probably due to the big increase in people from Eastern Europe who are working as waiters, shop assistants and so on, with far more enthusiasm and efficiency than had been normal in the UK in the past.

But on discussing this further, and thinking about my own recent experiences, I realise the improvement they were talking about has more to do with technology than the cultural mindset of service sector employees. One of the Japanese expatriates said “when you arrange for someone to come to your house to repair something, they arrive when they say they will”. This used not to be the case – you could take a whole day off work waiting for someone and not even get a phone call explaining the delay.

When I recently bought a washing machine, I purchased it online and chose a time slot and a day for it to be delivered. I was surprised to see that they would deliver up until 21:00 in the evening. Then followed a series of emails and text messages from the store to remind me and offer me a chance to change the slot if I wanted. It’s common to receive further texts during the day of delivery, narrowing the time slot down to within one hour. The delivery and trades people have some kind of handheld GPS device which helps them map their journeys from customer to customer and they can be tracked and assisted by support staff in their company offices.

Then, this week, I realised another item I had bought from Amazon had not arrived, so I went online, clicked the “call me” button and within 1 second someone (I suspect from an Indian call centre) called my mobile phone and immediately arranged for a replacement to be sent the next day.

I realise this kind of service is available in other countries, but it does seem according to various surveys that the British are the biggest online shoppers in the world. According to McKinsey, although internet penetration is higher in the US that Europeans, Europeans are much more likely to prefer a digital channel for buying or using banking services than Americans.

Services now account for 80% of the UK economy, so it’s no surprise I suppose that the UK has got better at delivering them. For Japanese companies, despite Brexit, the British service sector still represents an investment opportunity – both to gain technology and to reach other virtual markets in the rest of the world. It is noticeable that recent acquisitions or investments into the UK from Japan have largely been in the technology-based services sector– from Softbank acquiring ARM, through to Aioi Nissay Dowa acquiring InsuretheBox.

This article was originally published in Japanese in the Teikoku Databank News and also appears in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.

Poland, migration and the future of the EU

It has just been announced that Polish immigrants now represent the largest group of foreigners living in the UK. There were around 831,000 Polish born residents in the UK in 2015, overtaking Indian born residents. This represents a ¾ million increase on 2004 when Poland joined the EU, showing the scale and speed of the increase in immigrants from Eastern Europe – one of the root causes of the British vote to leave the EU.

Poland’s connections to the UK go back further than this, however. A large group of Poles settled in the UK after WWII, and were welcomed because of the well-known heroism of Polish pilots who flew in the Battle of Britain.

Trading links with Poland date back even further, to medieval times and the Hanseatic League of merchants who did business with each other from Russia through the Baltics to Germany, the Low Countries and into the UK.

But it would be wrong to think of this as a European Union style alliance of nation states. League membership was by city. Many of the European countries as we know them now did not exist then. Member cities such as Gdansk or the Hanse capital of Luebeck were semi-autonomous, or controlled by the Holy Roman Empire, or Prussia, or Denmark. And of course more recently the eastern part was under the domain of Soviet communism.

If you visit Gdansk now, the old part of the city is in fact a beautiful, partly imaginary, post-war reconstruction of a pre-Germanic past. The actual old city had been obliterated by WWII. Also worth a visit is the European Solidarity Centre which commemorates the Gdansk shipyard union Solidarnosc and asserts that its strike in 1980/1 started the process which culminated in the Berlin Wall coming down in 1989.

British people who are sceptical about the European Union say it should only be about trade, and that they want control back of UK borders, money and laws. For other EU members, the EU was a way of regaining control of their lives, by ensuring peace and democracy. This aim was not so appealing to the UK, who had no such recent experience of ground wars, dictatorships or being occupied by other countries.

Many people and political leaders in other EU member countries – including Poland – are beginning to say the EU represents a threat to their national sovereignty too. Border controls are being reinstated and there is a strong possibility eventually the EU itself will disintegrate.

Polish residents in the UK are worrying what will happen to them post Brexit and the millions of British who live elsewhere in the EU are also nervous for their future.

Many of the people working for Japanese companies in the EU are migrants, so I think the best thing Japanese companies can do right now is reassure them that they will look after them, and if necessary offer relocation to subsidiaries in other countries, including Japan.

This article was originally published in Japanese in the Teikoku Databank News on 11th October 2016 and also appears in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.

Brexit accentuates structural trends and cultural differences in Europe

Whatever the outcome of the Brexit negotiations, there are two conclusions we can already draw from what has happened so far in terms of how Japanese businesses may need to respond. One is that structural trends in business which were already apparent in Europe will be accelerated and the second is that differences in negotiating approaches in Europe have not disappeared, despite nearly 25 years of the European Union and single market.

In terms of organisational structure, there is a strange mix of physical disintegration and integration on a virtual level. Currently, over half of the biggest Japanese companies in Europe have their regional headquarters in the UK. This is because of the depth of financial and other support services that are available in the UK, the free movement of people that enables hiring many different nationalities in the UK and the ease of doing business in the English language. The latter advantage will not disappear with Brexit of course, but if the UK does not keep its EU financial ‘passport’, it’s possible a lot of the financial and other services will shift to Amsterdam or Frankfurt. Brexit may also bring an end to the free movement of people between the EU and the UK.

In any case, many of the back office, functional, coordinating jobs were already moving out of the UK. Cheaper, English speaking, well-educated employees can be found elsewhere in the EU. Larger Japanese companies are already developing a pan-European management structure, where teams are scattered across several countries. This is proving very challenging for Japanese employees who are more accustomed to a team working physically together, seated in a cluster of desks. Japanese companies will have to put processes in place to enable discussions and decisions to be made via remote communications and maintain a generous budget for travel.

The second conclusion is that Europe is still split between the pragmatists and the principles and rules based groups. The pragmatists, often traditional trading nations such as the UK, Netherlands and Denmark, tend to negotiate step by step, concession by concession, whereas Japanese companies prefer to acquire all information and know all the risks before making one big decision. Principles and rules based countries such as France or Germany clash with the pragmatists because they refuse to make concessions on what they would consider key principles (such as the free movement of people) or deviate from the rules which have been set in place.

This is why the European Union has become bogged down so often in processes and discussions and seems remote, bureaucratic and corrupt to ordinary citizens. Many Europeans – particularly the British – don’t understand or are not attracted to a European vision for the future. There are two further lessons to be learnt from this for business. One is that, no matter what happens in Europe, the British provide an important counterbalance to the French and the Germans in a management team, if you want pragmatic solutions to problems. The second is that management must not become so inward looking that it fails to communicate its vision to the rest of the employees.

This article can be found in Pernille Rudlin’s recent book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

Why has Japan not had a populist uprising

John Plender sought in a recent Financial Times article to answer the question of why Japan has not had a populist uprising, as so much of the Western world has. One of the possible factors he mentions – the lack of much immigration – was of course immediately taken up in the comments section by various Brexit supporters.

Weeding through the comments and looking at those from people who are actually Japanese or have lived or live in Japan gave some further possible answers and also prompted me to add a few of my own:

Japan already has a nationalist, nativist, populist government

Shinzo Abe – on course to be the longest serving Prime Minister in post-war Japan – is openly nationalist, elected on a ticket of making Japan not “great” again but “normal” – not just to get the economy growing, but also as in being able to defend itself. He was the first foreign leader to visit Trump after his election.

On the immigration front however, his government has quietly been making all kinds of exceptions to the rules in allowing immigration, in particular sectors that are suffering labour shortages, such as the care sector (elderly and childcare). More Asian immigrants, on company traineeships, have been arriving – although there has been controversy over whether they are just cheap, exploited, temporary labour in disguise.

Different histories of immigration

It is true that Japan has not had any large scale immigration, for more than 2000 years. Some Chinese and Korean immigration happened before and during WWII and this remains controversial to this day as much of it was forced labour. Many ethnic Chinese and Koreans have not taken up Japanese nationality. Koreans in particular have been the targets of occasional abuse from far right groups.

But to see this as a lesson for the UK would be a failure to see the utterly different starting points for the two countries. 98% of the Japanese population is Japanese. Whereas across Europe we have been migrating around each other’s countries for more than 3000 years, and more recently large scale migrations from former colonies and war zones – most countries in Europe have over 10% of the population who are not “native”. If you want to go back to ethnically homogenous nations, then some elaborate and intricate ethnic cleansing will have to happen. I for one will be suspect, as by German definitions, I am an immigrant as my mother was not born in the UK.

The cultural argument

A subtle point was made in one of the FT comments, lost on the Brexiteers perhaps, that because Japan does not have a large immigrant population, immigrants cannot be blamed by Japanese people for any woes they may have. Indeed, one of the strongest cultural characteristics of Japanese people is their urge for self improvement, to the point of blaming themselves or pointing to other’s personal failings, rather than blaming the economy or politicians or the “elite”.

The economic argument – why Donald Trump might be right

Although income inequality is rising in Japan (and surveys show it is the number one concern for Japanese people – whereas in the UK it was immigration and for the US it was terrorism), unemployment remains low. The workforce is shrinking and the population is ageing. Japan leads the world in robotics yet has retained a strong manufacturing base. Real wages have not increase much, rather decreased over the past few decades. The rate of post retirement employment is high.

Initially I was repelled by the bullying way Trump seemed to have forced Ford to rethink its plans to expand manufacturing in Mexico and instead increase production in its Michigan factory, but as another comment in the Financial Times points out, these decisions are hotly contested inside multinationals too. Many managers would rather keep production in their home base, or near the target market if there is sufficient incentive or momentum to do so. The success of Nissan and Toyota factories in the UK shows that the UK could have kept more of its manufacturing base, if we had the management capability and will to do so. Robotics create jobs too, if companies are prepared to invest.

The economic argument part 2 – why Theresa May might be right

One of the factors behind Japan’s relative economic stability and a lack of economic and social disenfranchisement amongst the Japanese “working class” has been the lifetime employment system that still prevails in the larger Japanese companies. In exchange for being multi-skilled generalists, willing to relocate where necessary, Japanese companies offered security of employment right through to retirement and often beyond.

It is generally felt this system – put in place after WWII to deal with labour shortages – has reached the natural end of its life. The number of workers on short term, insecure contracts has been rising steadily. However, I have felt for many years now that it should not be thrown out wholesale in favour of Anglo Saxon shareholder value based capitalism, and despite many adjustments, it still persists.

The downsides of the system have been that while it works in times of economic growth, in times of low growth, when you might want to shrink middle to senior management cohorts, or the shopfloor workforce, you can’t and end up with a large number of expensive, underemployed managers and workers, which are a drain on morale, barriers to change and of course, costly.

Secondly, because people are secure in their jobs, and generalists, there is a lack of clarity about expectations and performance management. Loyalty is rewarded and pay is seniority based rather than performance based. Consequently many Japanese employees have found themselves proving their dedication by working long hours, rather than trying to be as productive as possible in a normal working day. This has resulted in it being almost impossible to have a two career family, as it is just not practical to have children and have both working until late at night every day, however good the childcare provision is. Furthermore, the mental stress caused is clear, as illustrated by the recent suicide of an overworked graduate recruit at Dentsu, the Japanese advertising giant.

Thirdly, Japanese corporate governance has been poor, as the company executives are mostly lifetimers who cover up for each other, and don’t realise when the company is behaving perversely, because they have no experience of other corporate cultures.

The Japanese government response to these pressures is in part to legislate, but mainly to put pressure on Japanese companies themselves to reduce overtime, hire and promote more women and improve their corporate governance.

The view which still persists in Japan is that companies themselves have obligations to society – both to the people they hire and to contribute in terms of taxes and corporate social responsibility and environmental sustainability.

Although I was not happy to be accused of being a “citizen of nowhere” by Theresa May, looking at the context of what she was saying – which was in part about the social obligations global businesspeople have – and the clumsy suggestion from Amber Rudd that companies should tally up their non-native employees, I acknowledge that there is a point to be made that companies in the UK need to take more responsibility for who they hire – British and non-British.

The education argument

The UK’s economy is now 80% services based, but this should not mean that companies should get away with zero hour contracts and pressurising British workers with the threat of using cheaper temporary labour from the EU. They should indeed be offering apprenticeships and job security but also multi-skilling opportunities to counterbalance that. They should help and expect their workers to relocate or retrain them (or as in Japanese factories, spend time on cleaning and maintenance if production has to be ratcheted down) rather than simply shut down and fire.

We need better managers and companies willing to invest in training and technology, but the UK also needs a better educated workforce to begin with. That’s where government does have a role, as all the evidence shows early intervention in children’s education is the most effective in reducing later inequalities. And that’s probably the final factor in Japan’s lack of a populist uprising – a highly skilled, highly educated workforce.

Category: Brexit