Diversity & Inclusion

What is behind the 30% drop since 2016 in Japanese corporate expatriates?

Mitsubishi Electric’s introduction of a system that will allow employees to work virtually in one country, while being based in another was described as an “evening scoop” by the Nikkei newspaper. The Nikkei then went on to position it as being aimed at employees based outside Japan, who can then work in Japan headquarters, thereby enabling Japan HQ to exert a more centripetal force on the rest of the world.

I am not quite sure how much of a scoop this really is, as I already experienced a similar system, along with many other members of “Global” when I worked at Fujitsu in the UK ten years ago – I had an international role but my salary, tax and benefits were all paid as if I was a UK based employee. The UK operation was compensated for this by Japan headquarters.

The solution to Japan’s demographic crisis?

My second doubt about this is whether this is really the solution for Japan’s demographic crisis. Japan needs immigrant workers because of its declining birth rate, in addition to which Japanese companies often talk about the importance of cultural diversity in their corporate headquarters, but nobody seems to want the hassle of actually allowing foreigners into the country to live. Only very specific categories of jobs can add value entirely through remote working – no surprises that Pasona, a Japanese staffing services company, has an offering to cover remote work from overseas – for foreign IT workers. If the aim is to add value to headquarters’ decision making and creativity through diversity, then some face to face, daily interaction is going to be needed.

When I first saw the Nikkei headline, I thought Mitsubishi Electric’s new system was going to be for Japanese managers who need to manage overseas subsidiaries, but would rather do it remotely, than uproot their families to move abroad for five years or go solo or tanshinfunin, as it is known in Japanese. Expatriation is costly for the employer too. This is mentioned in the article, but as a secondary aim.

Or increasing localization?

Many other Japanese companies may be adopting similar systems, or just relying more on local managers to run things – as we noted in a previous article. As a consequence, there has been a 30% drop in the number of Japanese corporate expatriates since 2015/6, according to Toyo Keizai. North America had the smallest drop in numbers (-24%) and Oceania the highest (-43%). The numbers of Japanese corporate expatriates in Europe fell 27% since 2015/6, and the total is about half that of North America. The decline set in before the pandemic, but certainly seems to have been accelerated by the inability to move people around the world, and the discovery that it was possible to oversee, if not hands-on manage, overseas operations remotely.

Toyo Keizai’s data on corporate expatriates relies on self reporting through their surveys, so undoubtedly underreports the true number of expatriates. It is at least a consistent data set, with few anomalies, so the trend seems clear. It only records 6 Japanese expatriates for Mitsubishi Electric in Europe and Africa, and another 7 in the Middle East – the former seems very low.

Mitsubishi Electric operates in more than 40 countries around the world, with overseas sales accounting for 50% of consolidated sales and 40% of consolidated employees (approximately 146,000). 11% of its sales and around 9,500 (6.5%) of its employees are in the Europe, Middle East and Africa region. We had to estimate the 9,500 figure ourselves, as Mitsubishi Electric does not disclose regional breakdowns of its employees. If remote working across country borders really becomes dominant, at least at managerial rather than shopfloor level, then such data will become increasingly meaningless anyway.

Breaking it down for EMEA

Looking at the Toyo Keizai data for individual countries in Europe and the Middle East shows that the only country to show any positive growth in Japanese corporate expatriate numbers since 2016 is the United Arab Emirates. The fall in Japanese expats in the Netherlands (-19%) was not as steep as elsewhere in EMEA (-27% average, -26% for UK, -40% for Belgium ) and seems to be recovering a bit since the pandemic. The number of expats in Germany also fell by only 17% since 2016, having grown and surpassed the UK in 2019/20, but falling steeply since the pandemic began, with no signs of recovery yet.

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“Job type system” not the cure-all for Japanese employee engagement

Fast Retailing (Uniqlo) has caused quite a stir in Japan by announcing that it will raise salaries by up to 40%. It claims this is in order to bring the Japanese salaries more into line with what Uniqlo is paying staff overseas, so that staff can be transferred to and from Japan HQ more easily. Japanese companies have been under pressure from the government for some time to increase salaries and this seems to some extent a typically punchy move by Fast Retailing CEO and founder Yanai-san, who has always favoured being provocative and going against the mainstream.

As any global compensation expert will tell you, it’s not quite as simple as paying people the same for the same job around the world, given the very different living standards and cost of living. Nonetheless, if Japanese companies want to introduce the “job type” system, where the compensation is defined by a job description, rather than a seniority based generalist track with no job description, which has been the tradition in Japan, they are going to have to consider some kind of parity in remuneration, to make it attractive and easy for their employees to move around the world.

As Dr Kawai Kaoru, workplace health scientist, has pointed out in a recent article for Nikkei Business, the reality of the uptake of the “job type system” has not lived up to the media hype. The same names keep coming up – Hitachi, Fujitsu, Astellas, KDDI, Mitsubishi Chemical, Shiseido and Kagome. According to Dr Kawai’s research “an overwhelming number of companies said they had no plans to introduce a job-based system.”

Those who are introducing a job type system are expecting it to re-energise their staff, improving autonomy, empowerment and engagement. Kawai cautions against seeing the job type system as being a cure-all for employee motivation. Her worry is that too much emphasis on the individual may ignore the fact that what really energises employees in their work is a sense of interdependency – that other people rely on them and they can rely on others, in order to get things done.

She points out that the five factors needed for high employee engagement (which I have seen appear in many an employee engagement survey) are

Sufficient resources to do the job
Discretionary power to make decisions, get things done
Being recognised and rewarded for good work
Fairness – being respected and able to express opinions, regardless of age, gender, nationality etc.
Community – that staff members help each other and trust each other

Japanese companies have always been strong on the last point – Dr Kawai and I are both hoping it is not lost in the quest for a more global standard.

Has the time come for Japan’s Nadeshiko Brand to include overseas female employees?

The Japanese Ministry of Economy, Trade and Industry announced in October last year that they are revamping their their Nadeshiko* Brand – the annual selection of Japanese companies that are outstanding in their encouragement of the success of women in the workplace. As well as quantitative questions, this time they are asking more qualitative questions, on areas such as “whether the systems and measures to promote [women’s success in the workplace] are linked to management strategies.” The aim is to evaluate “whether each company has visualized a consistent story whether they are conveying information effectively throughout Japan and overseas”. The background to this change seems to be the increasing pressure on Japanese and other multinationals to be more transparent – for example making more disclosures of information such as the gender pay gap reporting requirement in the UK.

I am wondering whether this evaluation will cover more than the communication of initiatives overseas. Will they also be including their overseas employees in their quantitative questions, and also in the systems and measures? It has been a longstanding bugbear of mine that many Japanese companies publish plenty of information about the diversity of their Japanese workforce, but very little detail about their overseas employees. In the case of Japanese trading companies, they do not publish any figures on the numbers of people that are working at their overseas subsidiaries. It would seem they literally do not count.

When I last took a look at the boards of the largest Japanese companies in the UK, in 2016, it was clear there were fewer women on the boards of Japanese companies in the UK than there were even in Japan. I also found differences in the degree of national diversity – some boards in the UK were all Japanese (and almost all men), and some hardly had any Japanese on the board.

Seven years on, there has undoubtedly been progress, of sorts. The pressures that I pointed to in 2016, such as the stricter demands from UK and other financial regulatory authorities on Japanese financial services companies to have more diverse boards or for Japanese companies who are public sector suppliers (Hitachi, Fujitsu) to be more diverse have worked.

Fujitsu UK proudly points out on its website that it was one of the first companies to report on its gender pay gap, in 2017, since when, there has been a 44% reduction in the median gap to 10% and a 43% reduction in the mean to 9.6%. They have also published their first ever ethnicity pay gap, even though this is not a government mandated requirement. They also have a female Managing Director for the UK, a first I believe. She and the former UK MD and the head of Global Legal (both male) are the three board members – there are no Japanese board directors. In 2016 there were 6 people on the board, all male, one of whom was Japanese. The board in Japan has also undergone an overhaul, as have many Japanese boards, with the governance laws mandating them to appoint external directors. Fujitsu Japan has only two representative directors, both Japanese males, and 6 external directors, two of whom are female and one is an American male (albeit a fluent Japanese speaker and permanent resident in Japan). Fujitsu was a Nadeshiko brand in 2016, but not since.

Daiwa Capital Markets Europe also recently appointed its first ever female CEO – who is dual nationality British/South African. There are nine members of the DCME board in the UK, five of whom are non executive directors and the majority of whom are not Japanese. Of the non-executive directors, 3 are female non-Japanese, 2 are male Japanese. The other three members of the board besides the CEO are one Japanese male in the UK, 1 Japanese male in Japan and one South African/British male in the UK, who is the Chair. The holding company for Daiwa Capital Markets Europe, Daiwa Securities, has been a Nadeshiko brand every year since 2013. Its gender pay gap in the UK is nonetheless quite high for 2021, above the financial institutions average of 32% for the mean, at 38.8% mean, 37.9% median. Perhaps this will change with the new CEO in place.

The services sector has rather different challenges to the automotive manufacturing sector both in Japan and in the UK. In Japan, only Toyota group member Aisin is a Nadeshiko brand in the transportation equipment category. Nissan points out that 92% of its 7,342 employees, across manufacturing, design, parts and sales and marketing in the UK are male. Looking at their gender pay gap numbers, it’s clear that there is a higher proportion of women in bonus attracting, presumably white collar jobs and middle management, and a higher percentage of men than women are in lower paid blue collar jobs. Nonetheless, a gender pay gap of 6.4% median and 8.7% mean was identified. The UK boards of both the manufacturing and the sales and marketing side are 100% non-Japanese in composition, but no female representation. Nissan was named as a Nadeshiko brand in 2017 but not since.

Presumably, as in previous years, the announcement of the FY2022 Nadeshiko brands will be made in March 2023. It will be interesting to see what has changed.

* Nadeshiko is a Japanese flower that is also native to northern Europe – “pink”, of course.

Hitachi expands “job type” system to cover all employees, domestic + overseas

Hitachi has been heading in the direction of unifying its Japan and ex-Japan human resources systems for some years now, so switching all Japan-hired staff to the more Western style “job type” system, away from seniority based promotion, was to be expected. But it is nonetheless a radical step for one of Japan’s biggest companies. If other Japanese companies are able to follow suit, this would help remove one of the most significant hidden barriers to non-Japanese and other “diverse” people being able to rise to more senior roles in the headquarters.

Most Japanese multinationals make a distinction between “proper” staff – hired in Japan, straight from university, with no job descriptions, on a general track which is influenced by seniority and the promise of lifetime employment and possibility to reach the very top of the company – and “contract” staff – those with job descriptions who are usually hired mid-career and have no job security or prospects of promotion. Those employees hired outside Japan are seen as being in the latter category.

Fujitsu has applied the “job type” system to 90% of its Japanese employees from April 2022. NEC is introducing the system to its senior management from April 2023 and expanding to the rest of the Japan hired staff from 2024. NTT finished introducing it to all management staff in 2021/2.

In Hitachi‘s case it became a necessity to do this, because of its major overseas acquisitions of ABB power grids and GlobalLogic, bringing in more than 100,000 overseas employees into the group. As of October 2022 the ratio of non-Japanese in Hitachi’s board of directors was 18% and the company aims to increase this to 30% in the mid to long term.

It’s not surprising that it is Japan’s technology and IT companies that are pioneering this. Such a move is an important precondition for digital transformation – it will make it easier to hire specialists such as AI engineers and data scientists, who would expect higher remuneration than would be available under the old generalist track, seniority based system.

New approaches by Japanese companies to Generation Z

Judging by this article in the Nikkei Business magazine (¥), many of the concerns and values of Japan’s Generation Z work are equally applicable to young people in other countries. However, the adjustments that Japanese companies have made or need to make, to ensure Generation Z’s engagement and retention, reflect some of the unique aspects of Japanese corporate culture.

The article, co-written by female Nikkei journalists, two of whom who are themselves Generation Z, outlines 5 key points of the Generation Z work ethic:

Work is just one aspect of “life” – the company is not at the center of this generation’s life, as it has been for previous generations in Japan. Generation Z are keen to improve their own happiness through self improvement, hobbies and family. So employers should not say “that’s just how it is” but rather try to find new value in work that they are assigning to Gen Z.
They want self actualization and to contribute to society – so an employer needs to find common ground between the employee’s goals and the company’s goals, in order to motivate them.
Time performance – Generation Z are used to picking through mountains of information to get answers, so emphasise the value of producing results efficiently in a short space of time. They want to be trained, and given clear direction and targets. This is often misinterpreted by Japanese bosses as an unwillingness to do any more than is asked and an insistence on going home on time.
They are fearful of failure and look for empathy and sharing of problems. It is important for managers first of all to praise work that they have done well, and then help them improve through advice
They prioritise a healthy working environment and good human relationships. Managers must look to communicate on a frequent, individual level with Gen Z team members and make sure they don’t feel isolated.

Specific examples given of what Japanese companies have done include how juniors at Sumitomo Chemical are encouraged to recommend and review books to executives as part of their training. A junior engineer in the article described his delight at receiving a positive response from a managing executive officer to one of his recommendations.

NEC has online drinks parties – where 4 younger employees and 1 executive participate from their own homes, in casual clothes. The meetings are streamed online and can be viewed by other members of NEC. “Some of the executives wear cute T-shirts and by seeing an unexpected side of executives, young people realise they are not so remote from them,” says the organiser. One of the executives is quoted as saying “I want to create an atmosphere in which young people’s opinions and ideas are positively considered.”

Other companies are experimenting with putting new joiners into teams to work on projects together, rather than having the 1:1 apprentice/master relationships with senior employees that were normal in the past. Training has become much more formalised that the “On the Job Training” offered to previous cohorts. NTT Data is rotating new recruits around various assignments and training courses, three months at a time – which has been the norm in Western companies for graduate recruits.

The pressures on Japanese managers to respond to the challenges of Generation Z means that we at Japan Intercultural Consulting have seen an increase in demand for our leadership courses in Japanese, where we cover topics such as psychological safety and servant leadership.

Hitachi’s new risk management

Up until now, Hitachi’s risk management team was mainly centered on the legal department – which I suspect is probably the case in most Japanese companies. Now Hitachi’s President Keiji Kojima has added the finance department to it, wanting the company to take a more proactive approach to global risks. The aim is to visualize risks – such as the impact of the economic slowdown in Europe due to the Ukraine crisis and soaring component costs due to inflation – and respond quickly.

When Russia invaded Ukraine, GlobalLogic was empowered to act quickly to evacuate 7,200 local employees in the country – and was told that they could put off contacting Japan HQ until later. By the end of April, remote working and overseas bases had been put in place and the operations were back up to 95% level.

Hitachi’s overseas business has expanded recently thanks to the acquisition of US company GlobalLogic and the power grids business of ABB, now Hitachi Energy.

Strengthening the risk management system is one response to this, along with introducing a global standard job description system to the Japanese organisation, aiming to have 30% women and 30% non-Japanese representation ont he board by 2030, aiming for zero carbon by 2050. Five out of the 9 external directors are non-Japanese.

Hitachi has learnt from past failures in overseas expansion, such as the Horizon Nuclear Power project in the UK, and the failure of a joint venture thermal power project in South Africa.

These changes have impacted the way the board operates. Now, when an executive officer reports that a plan has not been achieved, the non-Japanese directors respond “so?” – by which they mean, don’t just report the result, tell me what you are going to do next. A former external director of Hitachi, Harufumi Mochizuki comments in the Nikkei that “thanks to training by foreign directors, the executive officers have acquired a world class management style, and the ability to action, with a sense of speed.”

The next challenge for Hitachi will be to make the best use of the global human resources that it now has thanks to its acquisitions. Only three of Hitachi’s 34 executive officers are non-Japanese. The Nikkei comments that these changes are very much in line with the vision of Mr Nakanishi, the former President and Chairman who died in 2021, for an organisation with world class leaders who can respond quickly to global risks.

UAE and Japanese companies – diversity and decarbonization

A TV series called “Inside Dubai: Playground of the Rich” is currently showing on the BBC in the UK which features British people who have made Dubai their home, who are “soaking up the sun, glamour and tax-free benefits” of Dubai, “but must also follow the rules” of their host country and cope with “the frenetic pace of change.”

“Tax free luxury and oil” is the image most British people have of Dubai – particularly since the pandemic, when many British celebrities went to Dubai on holiday when allowed. They posted photographs of themselves enjoying the sunshine on Instagram with a backdrop of extravagant architecture behind them. But at the same time, there is discomfort that the British in Dubai are behaving in old fashioned colonialist ways, while many people of other ethnicities in Dubai are having a much tougher life. There is also a nervousness about human rights violations, and the strict rules on alcohol, adultery and homosexuality.

This image rather contrasts with the conclusions of a recent report from JETRO saying that Japanese companies were attracted to the Middle East as a place to develop business in renewable energy and decarbonization, with the UAE ranking second behind Saudi Arabia as the country of most interest.

I was already aware that the UAE was the biggest host of Japanese companies in the Middle East. I had visited there a couple of times a few years’ ago to provide cross cultural training to a Japanese bank there and spent some time trying to understand the cultural complexity of a society which has the highest proportion of immigrants in the world.

This knowledge came in useful recently, when I was asked by a Japanese energy company to support them in a diversity and inclusion training in the UAE. This was part of a wider initiative to be more inclusive, to listen to the ideas of all employees, regardless of age, gender or ethnicity, in order to encourage innovation, particularly with regard to decarbonization.

Dubai is currently hosting an Expo which is strongly emphasising ESG in its themes. There is a Programme for People and Planet, which is aimed at the “open exchange of new ideas and innovations,” placing equality, universal respect and human dignity at the centre of human progress.”

In preparation for being an expo host, and to encourage more foreign direct investment, the rulers in the UAE had already identified that a robust legal framework, which was more tolerant of diversity, was going to be necessary. There are now new laws on anti-harassment and anti-discrimination, particularly in the special economic zones, as well as a relaxation of alcohol laws and Islamic personal laws.

So I can now see why Japanese companies are feeling more positive towards the UAE again, both as a place to develop business, but also as country where the legal framework is coming more into line with the acceptance of the diversity that is needed for companies to change and evolve.

This article by Pernille Rudlin was first published in Japanese in the Teikoku News, 9th February 2022

I decided to stop talking about diversity in Japan – Professor Christina Ahmadjian

The new corporate governance code in Japan puts further pressure on Japanese companies to have external, independent directors on their boards. For those companies wanting to be on the new prime market, the code stipulates that a third of directors should be external. Companies are now facing a severe shortage of candidates deemed suitable to fill these roles particularly if companies are also trying try to be as diverse as possible in who is appointed.

The same faces keep popping up, including people such as Professor Christina Ahmadjian of Hitotsubashi University who is currently an external director for four Japanese companies; Japan Exchange Group (the Tokyo and Osaka stock exchanges), Sumitomo Electric Industries, Asahi Group Holdings and NEC . She was also an external director at Mitsubishi Heavy Industries until June of this year.

Her remedy for this shortage of suitable candidates, which she outlined in a recent interview with Nikkei Business, is to hire people from a wider variety of backgrounds. Not just university professors like her, but Japanese women who are working outside Japan, or even having a quota for people under 30 years of age. In her view, even a third may not be enough, because it would mean that the majority are still “salarymen” who have worked their way up the same company all their careers. “The director’s most important role is to appoint and dismiss the CEO. Previously, when I asked a Japanese company what is the difference between the board positions of a managing director (known as joumu in Japan) and a senior managing director (known as senmu), I was told, when a managing director gets older, he becomes a senior managing director. Such a board of directors will not be able to make the top management quit.”

You need people who don’t read the air

External directors need to be able to reject management policies in board discussions. They must also have the mindset that they can quit themselves at any time. You need people who don’t “read the air” the way salarymen directors do.

“Two years ago I decided to stop talking about diversity. I will not give a speech on it and I refuse to be interviewed on it. It doesn’t change no matter how strongly I put the case. If I give a lecture on diversity, people will listen hard and then say “OK, that was good.” I felt it was just entertainment. Japan’s gender diversity is certainly more advanced than before. More companies are introducing maternity leave systems. But why is it so slow. I think “just do it!””

As for diversity in terms of nationality, there are many students who love Japan and want to come to Japan to study and work for a Japanese company. However, after graduating, if they get a job at a Japanese company, after about five years they quit, as they have realised that they can’t sse a future, and their friends at other companies are being promoted faster and have higher salaries. So ofthen they choose to work for a foreign owned company while living in Japan.

1980s uncle management

“Japanese companies are more concerned with their internal talent management than with diversity. So why not hire in Indians and Russians with the necessary IT skills?” Ahmadjian is concerned that what she callls “uncle (ojisan) management” from the 1980s means Japan will not be able to compete globally.

Ahmadjian has lived in Japan for over 20 years, and was herself an office lady at Mitsubishi Electric in the early 1980s. She served tea and wore a uniform. “I really enjoyed it then, but it was a world of old uncles.” “When I asked the top management of a company what is the definition of young, I was told 55 years old. I got them to lower the definition to 50 years’ old.” Japanese-style management may have worked well as a system in the postwar context, but I think it is time to reconsider.”

Top earning foreign executives at Japanese companies in 2021

Seven out of the ten best paid executives in Japan are not Japanese, according to Tokyo Shoko Research. It’s been more than ten years since Japanese companies were obliged to disclose the details of executives earning more than ¥100m (around $900K) and was cited as one of the reasons that Nissan got themselves into such a twist about their CEO Carlos Ghosn’s pay.

No Nissan executives appear in the Top 30 this year, unsurprisingly. The number of executives paid over ¥100m has risen for the first time in two years, and Hitachi has the most – with 15 executives including the British head of the rail division, Alistair Dormer. Dormer is not, however, being paid more than his Japanese boss, Mr Higashihara, although this has happened in the past at companies such as NSG.

The financial group MUFG has 11 executives earning over ¥100m and Mitsui, the trading house conglomerate and Daiwa Securities both have 9. Tokyo Electron and SoftBank both have 8 executives earning over ¥100m. SoftBank’s Simon Segars, British CEO of ARM is the highest paid executive of a Japanese company, earning ¥1,880m (around $17m) and SoftBank’s COO Marcelo Claure is the third highest paid, with SoftBank’s Rajeev Misra, Ronald Fisher, Miyauchi Ken and Goto Yoshimitsu at #6, #7, #12 and #21 respectively.

FANUC, Daikin, Toyota Motor, LIXIL, Sony, ENEOS and Mitsubishi Electric all have 7 executives earning more than ¥100m. I would be surprised if the latter was in the rankings next year, however, given its current difficulties.

Other high earning foreign executives include Christophe Weber at #2 and two other executives at Takeda Pharma, Didier Leroy at Toyota Motor (#4) , Bijoy Mohan at LIXIL (transferred with LIXIL’s Grohe acquisition) and Stefan Kaufman at Olympus.

So if you want to be a high paid foreign executive at a Japanese company, work for a Japanese company that has a high proportion of its business overseas either through organic growth (Toyota) or more likely through acquisition – Hitachi Rail, Takeda, LIXIL, Olympus, SoftBank.

The prime minister of the Japanese business world

We were very sorry to hear of the passing of Nakanishi Hiroaki, Chairman Emeritus of Hitachi. There was a nice tribute to him in the Nikkei Business magazine (JPNS), calling him the prime minister of the Japanese business world, who was not afraid to speak out. Not only was he instrumental in turning around Hitachi, along with Kawamura Takashi, but he was a champion of making sure the voices of women and younger people were heard.

He was highly critical of Keidanren (the Japanese business association)’s resistance to increasing external directors on boards, and urged Japanese companies to pay higher wages to their employees. He was also insistent that if Japanese companies did not tackle environmental problems immediately, they would lose their competitiveness. As the head of Keidanren, he fought for Namba Tomoko of DeNA to become the first female vice president of Keidanren, accusing it of being overconcerned about the size and seniority of companies in its hierarchy, saying that to younger people it had become a fossil. He pushed for targets for women in management, declaring that the Japanese economy would sink if its male oriented society was not changed.

Even as he struggled with his illness, he continued to speak out, unafraid of criticism, and wanted not just his successor at Keidanren, but also Japan as a whole to feel free to express their opinions.

Last updated by Pernille Rudlin at 2023-04-19.

Category: Diversity & Inclusion