Foreign Direct Investment

Japanese companies’ employee numbers shrinking more in Europe than elsewhere

The quarterly survey by Japan’s Ministry of Economy, Trade and Industry reveals that employment in Japanese companies in Europe fell more than other regions in October to December 2020, a reflection of the continued declines in capital investment and sales in the region.

Globally, Japanese companies’ sales improved 3.8% on the previous year, the first increase in 8 quarters, but for Europe there was a 1.8% decline, the tenth consecutive quarterly decrease. Sales in North America fell slightly more, by 2%, but the decline has been more recent – over 5 quarters. Sales in Asia rose 9.3% (and comprise over half of Japanese companies’ sales overseas), the first growth in 8 quarters.

Capital investment declined across the board, by 17.6% – the fifth quarterly consecutive decline. The fall in investment in Europe was 19.6%, greater than North America’s 16.2% drop, but lower than the 23% fall in investment in Asia.

The total number of employees fell globally by 4%, the 7th consecutive quarterly decline, and by 7.9% in Europe, the 4th consecutive quarterly decline. The number of employees only fell by 3.8% in Asia (7th consecutive quarterly decline) and 3% in North America (4th consecutive quarterly decline).

Sectorally, the decline in sales in Europe was mainly in electrical machinery (13.9% drop) and transportation equipment (which includes automotive) with a 2.9% fall. Capital investment in the European transportation equipment sector fell by nearly 40% and there was a 15.4% decline in capital investment in the European electrical machinery sector too. European employee numbers fell 26.5% in electrical machinery and 3.8% in transportation equipment. There were increases in sales, investment and employment for Japanese companies in Europe in the chemical and general purpose machinery sectors, however.

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Top 30 Japanese employers in Europe, Middle East, Africa 2021

The major Japanese employers in Europe, Middle East and Africa employ over 540,000 people, a 1.4%* rise comparing financial year 2018/9 to 2019/20, even though their global employee numbers have shrunk by around 1% over the same period. As in previous years, acquisitions of companies in the region are the main growth drivers.

The top 5 largest employers remain the same – Sumitomo Electric Industries, Yazaki, NTT Data, Fujitsu and Canon. The rest of the top 10 are the same, apart from Hitachi rising from 14 to 9, bumping Toyota Tsusho to number 11.

Exiting the Top 30 are Mitsubishi Corporation, Mitsubishi Electric and Olympus – not so much due to any decline as the growth of the new entrants LIXIL (following its acquisition of Grohe), NEC (acquiring KMD in Denmark and Northgate in UK) and Asahi (having acquired various European beer brands such as Peroni, Fullers and Grolsch).

Which company to work for

We have previously recommended that people wanting to work for a Japanese company should consider not just whether it is growing in the region but also what proportion of its employees are in the region. The greater the proportion, the more influence the region is likely to have in headquarters’ decisions.

The average for proportion of employees in the EMEA region of the top 30 is around 14%. Those with more than a quarter of their global employees in EMEA are NSG (due to its acquisition of Pilkington), Asahi Group (due to the acquisition of the beer brands mentioned above), Asahi Glass (the continuing influence of the 1981 Glaverbel acquisition), Sumitomo Electric Industries (the continuing influence of acquiring Volkswagen Bordnetze in 2006), Toyota Tsusho (acquired French company – mainly operating in Africa – CFAO in 2012).

The companies who score highly both in terms of growth and proportion of employees in the region are Sumitomo Electric Industries, Toyota Tsusho and NTT Data. The latter grew through acquisitions of Dimension Data, Keane and Itelligence but appears to have shrunk its EMEA employees over the 2018/9 to 2019/20 period. This is actually due to Latin America being excluded from the regional total in 2019/20, having been previously included. Dentsu also has nearly a quarter of its employees in EMEA and has grown nearly 50% since 2014/5 due to the acquisition of Aegis Network and subsequent smaller acquisitions, but the numbers are starting to decline as it starts to consolidate and restructure, aiming to cut its overseas roles by 12.5%.

Dentsu does not publish consolidated regional employee numbers, and neither do trading companies such as Mitsubishi Corporation, Toyota Tsusho and Itochu. Some have been inconsistent in publishing details – JT International for example – so we have had to use our best guesses and our own database. Overall the level of transparency in Japanese companies’ reporting on overseas employees has improved tremendously over the six years we have been tracking them, thanks to Japanese companies’ enthusiastic adoption of UN Sustainable Development Goals. Perhaps a lack of transparency on employee details should be a factor to consider in terms of desirability as an employer.

If you’re thinking of working for a Japanese company, a good way to signal that you know what you’re letting yourself in for would be to obtain the certificates from doing the e-learning modules on working in a Japanese company from the leading global Japan focused intercultural training company, Japan Intercultural Consulting.

*If NTT Data is excluded, as the 2018/9 employee numbers for the EMEA region in their annual report included Latin America, but Latin America was not included in the 2019/20 regional employee numbers. Including NTT Data in 2019/20 figures produces a small decline in the regional employee total for the Top 30 of -0.24%.

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Japanese companies in the UK are shrinking – is Brexit to blame?

The number of Japanese companies and their employees in the UK is starting to decline. Given that this is against the trend elsewhere in Europe, it is hard to avoid the conclusion that this is a reaction to Brexit.

Brexit has put up barriers to the UK trading within the Single Market, damaging sectors it used to have a comparative advantage in such as automotive manufacturing and financial services. The UK is now left with its global strength in services such as professional services, IT, design, marketing and education. It remains to be seen how much of this strength was also reliant on being part of the Single Market, in terms of being able to sell those services to the EU and benefit from the freedom of movement of the people providing or benefiting from those services. So far, Japanese companies seem to be happy to continue to access these services by basing their regional head offices in the UK, regardless of Brexit, or through acquiring British companies in the services sector.

The decline is from a high base. The UK has the highest stock of Japanese foreign direct investment, the highest number of employees of Japanese companies, and the most resident Japanese nationals in Europe.

The decline in numbers of Japanese companies in the UK is mainly due to a reduction in Japanese companies in the manufacturing and financial sectors. There has also been a drop in the number employed in automotive manufacturing. On top of this, the main driver of the past few years behind the rising employee and company numbers – big-ticket M&As followed by expansion in employee numbers – has been less of a force more recently.

To understand more about the trends in Japanese companies in the UK in terms of investment and employee numbers, how this compares with Germany, France, the Netherlands and Italy and what this might mean for the UK in future years, please download our report below:

Japanese companies in the UK

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The advantages of investing in smaller countries

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

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

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

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

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

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

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

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

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

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

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

Last updated by Pernille Rudlin at 2023-01-03.

Category: Foreign Direct Investment