Globalization

“Japanese companies are weak at the top” – Horiba’s CEO

I was recently asked what Japanese company’s mission statement I most admired and I said Horiba’s “Omoshiro okashiku” which is translated into English as “Joy and Fun” (but the fun also means quirky, or as Horiba says “interesting” which is what I think many Japanese companies are to Western eyes, and that’s a good thing). I know from reports from our consultants in Germany that this ethos is transmitted to the overseas subsidiaries too. This interview with the President of Horiba in Nikkei Business by Higashi Masaki, the Editor, is so interesting, I have not made a precis, rather with big help from Google Translate, have left it pretty much as is.

——————

Since Horiba Atsushi took office as president, sales have increased more than five times, and overseas employees are now the majority, transforming it into a global company. He has also developed a unique corporate culture, including calling employees “Horibarians” regarding them as part of the family. We asked about Japan’s challenges as seen by companies competing globally in technology development.

(Interviewer: Masaki Higashi, Editor-in-Chief of Nikkei Business)

PROFILE

Atsushi Horiba was born in 1948 in Kyoto Prefecture. After graduating from Konan University Faculty of Science in 1971, he joined Olson Horiba, Inc. of the United States. He then joined HORIBA, Ltd. in 1972. He is also graduated from the Department of Electronic Engineering, Faculty of Engineering, University of California, USA in 1977. After that, he directed the overseas expansion of the group, and after working as a director in 1982 and managing director in 1988, became president in 1992. He has also served as chairman since 2005. He has been in his current position for18 years. He is also the face of the local business community, such as serving as the vice chairman of the Kansai Economic Federation. He is the eldest son of Masao Horiba, the founder of HORIBA, Ltd.

The automobile industry is greatly affected by the new coronavirus.

It was a difficult time for car makers even without the coronavirus. This is because there is a dramatic switch towards “CASE” (Connected, Autonomous, Sharing, Electric). It is necessary to move from the “hard” industry, which competes through productivity gains to steadily manufacture high-quality cars, to the “light” industry, which has become IT (information technology) intensive. What was a simultaneous equation with one variable has now become treble the pain.

HORIBA has the largest share of car exhaust gas inspection equipment in the world. The main business is conventional car-related products.

Electric vehicles will be the mainstream in urban areas. However, the combustion type will not disappear in areas with harsh climates. Regulations will also become stricter. However, it is not a growing market, so I would like to expand the CASE field.

How to secure human resources is very important. In 2015, we acquired a British company called Mira (which supports the development of automobiles). We wanted the excellent R & D unit of about 600 people, but it also had test equipment related to CASE. Mira’s test track has research bases for automobile manufacturers such as Toyota (automobile) and major parts manufacturers, so tests and research can be done together.

The company motto is “Joy and Fun”, but is that feeling the same even with the coronavirus?

Now more than ever is the time to have “joy and fun”. All managers are at a loss now. Even so, we don’t feel so sad because we are working in various fields under this company motto. “Fun” does not mean “funny” but “interesting”. With that idea, we shifted our direction. It’s not absolute, but I feel that this helps us be responsive.

It is necessary to strike a good balance between being extremely advanced in a specific field and expanding the range in order to foster new businesses?

To be honest, I don’t think this is managed properly. But that’s what’s interesting, and it’s made up of the enthusiasm of each unit. Trust is at the base. For example, if you are studying optics, you can think of many people who would be good to consult with within the company.

It is unreasonable to expect people who are developing the products that are profitable now think about what the future needs will be. There is no Superman in the world. In many cases, human resources are crushed in search of Superman.

What kind of human resources are you looking for?

I often say that I don’t want a guy who has a good memory, that is, a guy who just graduated from a good university with good grades. Some of the students who are considered to be excellent in the world outside join us, but from our point of view, they are also “stupid” children (laughs). I often join in on the quiz shows for highly educated people on TV, but they are just competing for memory and have no sense.

What does ‘sense’ mean?

Whether you are interested. That is, whether you can do “joy and fun” However, if only “sharp angled” human resources are hired, the company will collapse. That is the balance.

In order to maximize the breadth of the business, it is necessary to have an organizational structure for that purpose.

Now, the biggest issue is the wall between each department. In a pyramid-type organization, individual departments do their best, but there is no interface to connect the results. But if the organization is flat, it’s not necessary. It’s in a mixed state. Instead, the person above needs to be a Superman who can figure out where and what is going on (laughs).

Is the solid financial structure with an equity ratio of over 50% also a factor that guarantees the realization of “interesting and funny”?

Companies with weak internal reserves will have a hard time during coronavirus. When it was said that it was bad to retain earnings, I thought that retained earnings should definitely be increased. This is to ensure that opportunities for M & A (merger / acquisition) are not missed. If you have to ask the bank for money, it may be too late and the target is acquired by someone else.

What do you see as the challenges facing the Japanese economy now?

We manufacture all the key products such as detectors, filters and electronic boards in-house. The problem with Japan is that we have go outside to get the basic science for these key products. You cannot apply knowledge if you do not have the basic science. Nevertheless, Japanese industry and academia are only doing applied science.

We have R & D units in France, Germany and the United States because the academia of these countries never let go of the basic science. Not only is China accumulating product know-how, but it is also conducting basic research. China is the best-selling market for the latest optical analyzer developed in France. It’s neither Japan nor the United States. We need to be aware of the fact that China is doing this very thoroughly.

It is a worry that China’s technological capabilities are rising rapidly.

Japan has not lost yet. I just don’t know after 4-5 years where we’ll be. They are thinking very clearly about the combination of academia and industry. The winners and losers in a battle of comprehensive strength are becoming clear. How do you get around this? I don’t like the word “niche,” but we’ve survived because we’ve put more people and money into a specialty than a giant company.

The Japanese, and Japanese technology and schools are excellent. However, various regulations and past shackles are in the way. For example, why does the faculty council have personnel rights even at universities? At Tsinghua University in China, the top management is steadily being replaced with excellent human resources. But in Japan, once you get tenure, you stay in academia until retirement. This is such an unfair situation.

Are there any other obstacles to your competitiveness?

If I weren’t Japanese, I would have headquartered in California, USA, and the company would have been three times as large as it is now. Taxes are high and fixed costs are high in Japan. Our main medical base is located in France because of problems with Japanese regulations. We just pay lip service to “deregulation” and in the meantime Japan declines.

Industry-academia-government must think about industrial policy and decide what to make a strength.

Even if the government and others hold meetings to gather the top executives of large companies, they cannot take the plunge because they have a company. When I first became President I was called by the Ministry of International Trade and Industry (currently the Ministry of Economy, Trade and Industry), and when I talked about what I thought, I wasn’t called on again. The people around me just gave textbook answers.

However, the current Ministry of Economy, Trade and Industry is different from that time. What is worrisome is that bureaucrats who are trying to reform in line with our opinion tend to be off the career track.

Do they not want to change?

Perhaps they prioritize their own lives rather than the country. The sense of life or death of officials and politicians of the Meiji era is not there. I’m afraid that there is no sense of crisis about the fact that Japan is buying in more and more technology now.

China’s “brain” is talented people educated in the United States. There is no brain in Japan. People who are active (at the forefront) don’t end up leading government councils. Even if the technology and the times change, Japan still has excellent human resources, but they cannot “overtake” the incumbents. It’s the same with the top executives of large companies.

Because the term of office is fixed, the number of “salarymen” in top management has increased.

There is absolutely no business that will produce results in 6 years [the usual stint as President of a Japanese company] after investing from zero. It just means continual losses.

It takes at least two years for our products to be researched, tested, designed and finalized. It will be five years if the basic research is redone. It will take another 2-3 years to make a profit from it. Many things can be done with technology and machines, but this is useless if you do not develop people as well.

When the top executive who started a growth business retires after six years, and that business is making losses, he is said to be the “worst executive”, and when the next top executive harvests from what his predecessor has sown, he is celebrated as “great”. That shouldn’t be the case.

Don’t avoid developing leaders

What does it take to enable top management to think about things in the long run?

Japan is overwhelmingly strong in terms of both technology and human resources. The only weakness is the top. The United States and China are working hard on how to raise the elite. If we don’t train leaders, society won’t progress. On the other hand, in Japan, “elite” is a forbidden concept. In Japan, both politicians and business owners are a disorderly mob.

Japan is in a very dangerous state now. It has become a bogus democracy. True democracy has competition, and everyone is different. In the United States, they first educate elementary school pupils about how different each person is. But in Japan, it’s like “stop it, you’re annoying the old guy.” The responsibility of the media is also heavy.

It’s rare for a person at the top of a listed company to have a beard.

I nearly died of hepatitis when I was about 35 years old. Until then, I was just being the diligent president’s son. But at that time, I thought this is a turning point and I thought I would live a life where I do what I think is best, no matter what others say. My beard is a proof of that. From then on it became a lot easier.

You don’t know what works and how it works.

It feels like God only knows the future (laughs). However, there is a belief that we will make the best decision at that time by listening directly to the stories of people on the front line. I’ve done my best so I can’t help if it doesn’t work. However, people end up worrying about seeking more than the best.

You end up just wanting the correct answer.

The difficulty of management is that there is no correct answer. Everyone has the illusion that there is a correct answer, but there isn’t. The answer will come.

Side note from the interviewer Higashi Masaki

I don’t know if it’s because Japan has become richer or there is more inequality now, but as Mr. Horiba points out, “how individuals live” rather than the desirable way of organizations such as countries and companies should be has become increasingly the priority. It is important to note that the pursuit of personal well-being can sometimes be inconsistent with the interests of the organization.

For example, there is a tendency for top management to change and quickly write off assets of unprofitable businesses to generate a deficit. Then their predecessor has not made a loss, and the successor is certain to recover in a V shape during his term. The rewards for the two executives may be good, but is the timing as an organization optimal? As the mobility of talent increases, the relationship between individuals and organizations can become more difficult.

For more content like this, subscribe to the free Rudlin Consulting Newsletter. 最新の在欧日系企業の状況については無料の月刊Rudlin Consulting ニューズレターにご登録ください。

Japanese companies need a strong employee brand to attract globally minded employees

I spoke to a group of Japanese managers in London last year on the topic of my last article “I love Japan but I don’t want to work in a Japanese company” – an attitude I have heard from young Europeans who have studied Japanese at university, or worked in Japan for a couple of years on the JET scheme, or simply became fans of Japanese culture through a love of anime and computer games.

They don’t want to work for Japanese companies because they think they won’t have a fun and fulfilling career. They worry that there will be lots of overtime, bureaucracy and an oppressive hierarchy – and that Japanese companies in Europe are mostly dull, engineering sales subsidiaries.

My recommendation to the Japanese managers in the audience was to strengthen the “employee brand” in Europe, to make it more appealing to those young people. Many European veterans of Japanese companies have told me that they like working for Japanese companies because they are different, interesting, quirky, more “human” and long term in orientation rather than the standardised, numbers driven, short termist culture of many Western multinationals. Japanese companies should also offer short term secondments to Japan, so that their non-Japanese graduate hires can build networks and participate in decision-making and so develop their careers.

I realise it is tough for Japanese managers in Europe to ask their Japanese headquarters to adjust their employee brand just to appeal to overseas recruits, when Japan headquarters probably think their priority is to hire the best globally minded Japanese graduates.

So I showed them some research from Japanese recruitment company DISCO’s Caritas Research 2020 survey of Japanese students graduating from foreign and Japanese universities. It illustrates that the needs of Japanese students from foreign universities are similar to those of European students.

Whereas graduates from Japanese universities preferred a job which will provide them a secure lifestyle, would rather work in Japan rather than overseas and to work for one company for a long time, the preference of Japanese graduates of foreign universities was for a job which helped them realise their dreams, paid well, and would prefer to work overseas rather than stay in Japan.

Apart from strengthening the employee brand and offering more attractive career paths, another recommendation I made was that management training was needed for Japanese expatriates in leadership, giving feedback, managing diversity and being inclusive when managing Europeans.

I was of course hoping this would lead to more business for my company, but judging by one of the managers who approached me afterwards, it might not be for the reasons I expected. The managing director said his company was 80% Japanese, but there were big communication gaps between the younger generation and the older, between those who had graduated from foreign universities or lived abroad, and those who had mainly worked, lived and studied in Japan. Clearly Japanese companies are having to adjust to different mindsets amongst Japanese employees too.

A video of Pernille Rudlin’s presentation on this topic is available on the Rudlin Consulting YouTube channel here in English and here in Japanese.

The original version of this article was published in Japanese in the Teikoku Databank News. Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” is available as a paperback and Kindle ebook on Amazon.

“I love Japan but I don’t want to work in a Japanese company”

Japan is more popular than ever amongst young Europeans, who have become familiar with it through anime and manga, or love of Japanese food. Yet “securing human resources” continues to be the key operational challenge for Japanese companies operating in Europe, according to JETRO’s annual survey.

Young people love the playful popular culture of Japan but they assume that this is not going to be the Japan they will experience if they join an engineering and manufacturing oriented Japanese company.

A more serious reason for not wanting to join a Japanese company is the lack of career development opportunities, when it looks like top management reserved for Japanese only. The larger Japanese companies have made efforts to overcome this by having European or global graduate recruitment and training programmes, often involving spending time in Japan.

I suspect it is the medium to small sized Japanese companies who are having the hardest time recruiting the people they need. Their European operations are still basically sales arms of the Japan headquarters. This means when they hire qualified engineers, they are disappointed that the job is more sales than engineering in content.

Japanese companies in Western Europe are most in need of management personnel but are facing already high labour costs. Japanese companies in Central and Eastern Europe are most in need of factory workers and cite the rapid growth of labour costs as their biggest operational challenge. Presumably they are having to compete with better known Western companies who are also facing a tight labour market. The obvious solution is to offer higher salaries, but that of course undermines the economic rationale of have manufacturing in Central and Eastern Europe.

Rather than engage in a price war for scarce management or technical staff, Japanese companies need to offer something different and attractive, which brings us back to the Japanese popular culture loved by young Europeans.

I was surprised recently that the European participants in my seminar who were 15+ year veterans of a Japanese technology company listed “the eccentric, child-like mindset” as one of the positives of working in a Japanese company. My 17-year-old son also noticed this on his first trip to Japan with me last month – and happily joined in by buying a Pokemon Piplup plushy and a Shiba dog pencil case which now have pride of place amongst his philosophy, maths and economics textbooks.

“Strengthening the company’s brand” was the top initiative selected for selling products and services in Europe in the JETRO survey. But this should be less about advertising to customers, and more about having an employee brand that appeals to young people. They will then be able to see a future for themselves where they make, design, manage or sell on behalf of a Japanese company, and have fun at the same time.

A video of Pernille Rudlin’s presentation on this topic is available on the Rudlin Consulting YouTube channel here in English and here in Japanese.

What Japanese expatriates should do if they don’t get on with their local boss

A 28 year old Japanese female writes to the Nikkei Business Online: “I didn’t get along well with my boss when I was posted overseas and ended up with mental health issues and returned to Japan.”

“My boss only cared about a big project that would be of benefit to them, that Japan headquarters had no chance of approving. My boss kept making me do the negotiations and aggressively asking me if it was done yet. I couldn’t get my Japan HQ boss to intervene. I explained as clearly as I could to my boss that Japan headquarters had told me when I was there that there was no chance this project would be adopted. My boss refused to listen and would not even join me in negotiating with Japan HQ.

“I told them there was another project I was working on which was more urgent but my boss told me to prioritize their project. I became stressed and could not go into the office any more. My boss made out that I was the problem and my boss in Japan eventually accepted this and I was returned to Japan. I really cannot accept the way I was treated – or should I just have accepted it? How should I have dealt with this?”

Ueda Junji, formerly of Itochu and President of Family Mart: “First of all, you are still young, so try to see this as a useful experience for the future. You say you had mental health problems, and actually being an expatriate is mentally very stressful. So having experienced this at an early stage should be of help to you later on in your career.

“Secondly, in trying to think what is behind that boss’s behaviour, just seeing it as them wanting to do it entirely for their own ambitions may be too harsh. Managers in any country want to pursue projects that they think are beneficial. And of course if it goes well it may lead to their promotion.”

“On the other hand, you say you had another project which you thought was more urgent, but since you are a member of a team, you have to accept the decision of your boss, if they say another project is higher priority.”

“I wonder whether being told by Japan HQ before you were posted that this project had no chance of being adopted already sowed seeds of distrust in your mind? Then explaining this to your local boss, however carefully, will have got the relationship off to a bad start. They may have seen you as just a spy from headquarters and hard to tolerate.”

“It might have been better to try to see it from the local perspective – Japan headquarters don’t really understand what is going on overseas. Try to be more like an ally to your local boss and come to your own judgement as to whether or not the project is workable. Maybe first of all ask the boss what their aims and objectives are with the project, then get them to explain this again to Japan headquarters and then see how Japan headquarters reacts, before coming to any conclusion.”

Ueda’s somewhat unsympathetic comments may come as a surprise but is an example of the tough love that Japanese bosses can be capable of. It’s reassuring that he was able to see the perspective of the local boss so clearly. It’s also also understandable how a Japanese junior expatriate, whose ultimate career lies back in Japan, will see it as their job just to comply with Japan headquarters rather than ally with the local management.

If you’re a boss to Japanese expatriate employees and/or trying to persuade Japan headquarters to accept your proposal, you may find our online coaching on building relations with Japan HQ a useful resource. More details and registration here.

Are Japanese companies leaving the UK because of Brexit yet?

I asked this question just over a year ago and the answer is still yes and no. To which I would add, it’s more a case that Japanese companies aren’t investing in or coming to the UK as much as they used to, replacing the ones that are leaving or downsizing.

Asia continues to dominate as location for Japanese companies overseas

The number of Japanese companies overseas is, according to Toyo Keizai*, continuing to increase – up 65% from 2008, but the rate of increase has been slowing since 2013. The number of Japanese companies overseas grew 2% from 2018 to 2019, with growth in all regions – higher growth in Africa/Oceania (from a small base) but only 1% growth in Europe compared to 3% in North America and Asia.

63% of Japanese companies overseas are in ex-Japan Asia – up from 62% in 2018 and 69% of the employees of Japanese companies abroad are in Asia. Around 15% of Japanese companies abroad are in Europe and 14% in North America, with both regions having around 11% of employees. As pointed out last year, the obvious factor in why there are proportionately more employees to number of companies in Asia compared to Europe and North America is the greater number of manufacturing operations in Asia, with larger workforces.

The number of UK employees of Japanese companies has fallen for the first time, by 9%

Within Europe, the number of people employed by Japanese companies rose 18% from 2015 to 2019. Those countries where the number of Japanese company employees has fallen are countries where there has been a rise in populism, civic unrest and political risk. UK employee numbers fell 9% 2018-9 (the first decline since at least 2015), Spanish employee numbers fell 19% 2018-9, Hungary’s fell 18%, Turkey’s 10%, Poland and Italy also showed small decreases in employee numbers.

Countries where Japanese employee numbers are growing are the Netherlands (up 11% 2018-9), France (10%), Germany (2%) and the Czech Republic (2%). Employee numbers in Romania doubled from 2018-9 but this is largely due to Toyo Keizai recording employee numbers at Alcedo (acquired by Sumitomo Corporation in 2011) as being 20,284, having been 318 in 2018. The 2018 number is more in line with other available data.

Number of Japanese companies in UK has fallen for first time

The number of Japanese companies in the UK has fallen by 1% 2018-9, from 972 to 966, the first drop since at least 2015, having risen 11% 2015-2018. France also saw a 2% drop in the number of Japanese companies, even though employee numbers are up. Germany attracted a 4% increase in Japanese companies from 2018-9, having risen 13% 2015-8. Netherlands had a 1% increase 2018-9 (13.5% 2015-8) and Italy had a 2% rise in Japanese companies 2018-9, and an increase of 11.8% 2015-8.

It’s hard to work out where Toyo Keizai derives the net drop of 6 Japanese companies in the UK from. Their list of the 7 companies which have closed down in the UK 2019 shows that this was mainly due to reorganization of holding companies or merging of companies rather than full withdrawal from the UK. Of the 8 new Japanese companies in the UK in 2019, 5 were indirect investments into energy companies by Nippon Koei, a civil engineering company and 2 were indirect investments by WDI, a Hong Kong originated Dim Sum chain which is registered in Japan.

Germany now hosts more Japanese automotive companies than the UK

The Japanese automotive sector is of course the sector being most carefully watched for Brexit impact. Japanese automotive manufacturers are continuing to set up overseas – the total number globally has increased 10% in 2019 on 2015. And “despite” the EU-Japan EPA, 15 more Japanese transportation equipment manufacturers set up in Europe in 2019, a 20% cumulative increase on 2015. Of the 15 new companies, 4 are in Germany, 3 in Poland, 2 in Spain, 2 in Portugal, 1 in France, 1 in Italy, 1 in Slovakia and 1 mystery one. This means Germany now hosts more automotive/transportation equipment companies than the UK – 31 to the UK’s 30.

Japanese acquisitions of UK companies reduced in scale and number

Toyo Keizai’s data is reliant on companies filling in their surveys, so tends to underreport and often misses acquisitions. From my database, I estimate 20 British companies were acquired by Japanese companies in 2019-2020, although some of them were indirect acquisitions through acquiring a parent company with a subsidiary in the UK. Dentsu and Sony continued to acquire UK based companies, and other acquisitions were of British companies in software, gaming, hotels, seafood, recruitment, a manufacturer of drives for electric motors and paper wholesale. The scale is far less than in previous years, both in terms of numbers of acquisitions and value of the deals.

Even adding these acquisitions in shows a 3% drop in the number of people employed by Japanese companies in the UK from 2018/9 to 2019/20 according to my database – the first drop since I started tracking these numbers in 2015.

* Toyo Keizai Data Bank: Directory of Japanese Companies Abroad 2020

Japanese business mysteries explained in 5 minutes #3 Antiquated technology

Non-Japanese people who work in Japanese companies are often shocked at how antiquated the IT is in Japanese companies, considering how much Japanese people love new technologies.

Why is this, and will COVID-19 force change?

The next in our series “Japanese Business Mysteries Explained in 5 Minutes”

Surviving the end of lifetime employment in Japan – if you’re an underworked uncle

Plenty of Japanese companies went virtual, scaled back, cancelled or postponed their entrance ceremonies for new graduate recruits this year, because of COVID-19. Hitachi had already cancelled its entrance ceremony, however, and changed it to a Career Kick-off Session (which has also been postponed) to mark the radical departure it has made from lifetime employment and seniority based promotion.

Since its record breaking loss in 2008/9, Hitachi has moved away from simply cutting employee numbers to reduce costs and instead radically altered its business portfolio and introduced a new HR system. President Nakanishi was responding to the often heard concern in the company that “we don’t have any leaders who are effective globally” – a major problem when Hitachi was moving away from being a purely domestic supplier to Japanese energy companies to be more active globally in social infrastructure.

Japan HR as “just one of the regions”

In 2011 Hitachi tore down the 3 distinct layers of its old HR structure – Hitachi HQ’s own HR division, the HR divisions of the Hitachi group companies and the HR divisions of overseas subsidiaries. Now there is a global HR division, 30% of whose employees are non-Japanese. Each region reports into the global HR division, with Japan being one of the regions along with Europe, the Americas, Asia etc. The HR departments of the subsidiaries within those regions report into the appropriate regional HR division. This presumably means the group companies have far less autonomy and Hitachi HQ and Japan are just “one of” the regional or subsidiary divisions.

Hitachi also moved away from the “Shokuno” model much used by Japanese companies – where experience and potential of the employee are the key factors in deciding pay and grade to the “job” model – where each post carries a detailed job description and the pay is determined by the market rate for jobs requiring similar levels of skills and experience.

Toyota goes triangular

Toyota‘s President Akio Toyoda has also begun to have doubts about lifetime employment and seniority based pay. Last year, during the “Spring Offensive” when Japanese company unions negotiation with the directors on base pay, bonuses and conditions, Toyoda said “I have never felt such a distance between us as I felt this time”.

So in 2020 he introduced a new triangular negotiation structure – instead of unions and directors being face to face, he sat three groups around a triangle – the union, the management/executive officers and the board directors. From April of next year the use of evaulations in setting pay and bonuses will become much more widespread and automatic seniority based pay rises will cease. Differentials in bonuses will also become much wider from July of this year.

Get motivated, underworked uncle!

Similar changes are being made at LIXIL, Ajinomoto, Citizen, Sapporo Breweries and Eisai Pharmaceuticals. The end of lifetime employment and seniority based promotion is seen as mainly about trying to deal with the “hatarakanai ojisan” or “underworked uncle” – middle aged men who are in their management position and being paid accordingly largely because of the length of their experience in the company than the value they are adding.

The rest of the Nikkei Business special feature includes a handy worksheet for underworked uncles, to regain their motivation and revive their careers, with some case studies of career changers and encouraging words from recruiters. The recruiters say that middle aged employees are good networkers who can link their company to other companies and look out for new ideas, that they have good communication skills, a learning mindset and are good negotiators. Sounds like they are going to need all of these to succeed in the final 15 years’ of their careers, if they don’t want to end up gazing out of a window.

New leadership needed in Japan – effort and experience no longer enough

Strengthening human resources has become increasingly urgent for Japanese companies since 2017, rapidly catching up with improving profitability as the top management priority, according to a survey from the Japan Management Association.* Other issues such as increasing sales/market share, or introducing new products and services or reviewing the business portfolio are declining by comparison.

Nikkei Business looks at various ways that Japanese companies are dealing with this, including my old employer Mitsubishi Corporation. Their approach does not seem to be that different from 20 or 30 years ago, which is to treat everyone (at least, those hired in Japan) as if they have leadership potential and offer them opportunities accordingly.

Impact of the Ice Age

The concern of companies (over 75% of respondents to a Ministry of Economy Trade and Industry survey in 2017) is particularly around having sufficient leadership and management resources within the next five years. This is not surprising as the cohort that would be entering into senior management are the group that were most affected by the Ice Age of recruitment, when companies drastically cut back their graduate recruitment in the 1990s to 2000s.

New recruits don’t want to be leaders or specialists

But part three of the Nikkei Business special indicates that the roots of this lack of leadership might be in a mismatch between the expectations of the younger generations and their managers too. New recruits are showing less interest in becoming President than in 1999, more interest in senior roles such as board director or General Manager, but interestingly, less interested in become a specialist.

Generational mismatch, again

The qualities of an ideal leader vary between generations too. In 1999 41.3% chose “someone who listens to the views and wishes of their subordinates” as an ideal quality, but this was chosen by only 26.8% in 2019. “Someone who gives directions politely” was the top choice (44.5%) of the 2019 new graduate recruits, but this was chosen by only 32% of new graduate recruits 20 years previously. The 1999 intake were significantly more keen on leaders who were passionate about their work than the 2019 intake, whereas the 2019 intake valued a leader who places importance on private lives, not only work.

Nikkei Business concludes that the type of leader needed has changed over the decades:

1990s – after the economic bubble burst, strong leaders were needed, who were more top down, able to solve problems using their skills and experience. If you tried hard, you succeeded
2000s – with the spread of information technology it became important to gather in information from the gemba – where the work was happening
2010s onwards – employees place importance on diversity. Globalization and digitalization gain pace – the leader’s skills and experience aren’t always relevant. Effort does not always bring results

*Japan Management Association seems to have given up putting anything new in English on its website since 2017.

How a failed merger led Tokyo Electron to a world class HR system

Tokyo Electron originally sold car radios when it was founded in the 1960s, but reinvented itself as a manufacturer of semi conductor making equipment in the 1980s. A failed merger (following objections from anti trust regulators in the US) has led it to reinvent itself again. This time, the reinvention is just as much around management as it is product lines.

In 2013 Tokyo Electron spent a year planning a merger with the US’s Applied Materials. They even had a new name and were planning to put their global headquarters in the Netherlands.

To prepare for the merger, Tokyo Electron reduced its stake in an affiliated trading company, Tokyo Electron Device, and withdrew from the solar cell business. This renewed focus on the core business has led to increased profits and turnover.

Role not potential

One area on which it proved difficult to reach agreement with Applied Materials was how the HR system should be configured. Tokyo Electron was still focused on having lifetime employment and salary boundaries based on potential (the untranslatable Japanese word nouryoku) with actual performance influencing take home pay upwards or downwards each year. This was very different from Applied Materials system of having a transparent relationship between actual job roles and compensation and ensuring the appropriate person was assigned to that role, without much thought for maintaining long term employment.

Howevever when younger Tokyo Electron employees heard about the Applied Materials HR system they had high expectations as they felt frustrated by the traditional Japanese system. Tokyo Electron realised it would have to change its HR system to motivate its younger staff. They recognised, however, that there was a big difference between Japan and the USA, where people job hop frequently in their career.

The new system was introduced worldwide in 2017-8. 6 role categories which were applicable globally were introduced – operations, engineering, sales and marketing, business support, management and executive management – up from three previously: the untranslatable sougoushoku (generalist management), ippanshoku (generalist administration – usually for women) and technical. The number of levels increased from 7 to 20 and they applied to all categories (apart from executive). So someone in a senior business support role at level 8 could be considered to be “doing a highly complex job, with a strong influence over the results of their department” just as much as someone in engineering or sales and marketing.

This might seem vague, but Tsuchii Nobuhito, HR General Manager, justifies it by saying that as the semi conductor business is fast changing, roles need to be kept flexible.

Further changes included making it possible to be promoted in consecutive years. Previously Tokyo Electron employees had to stay in one grade for three years before being considered for the next promotion. Before, the criteria for a job role were evaluated relatively but now there are evaluated by an absolute standard. This is intended to make it more transparent to people where their job role and grade sit within the whole organisation and what their future career path might be.

Inevitable changes as the semiconductor industry globalizes

These changes were inevitable, says Nikkei Business. Japan’s semi conductor industry has hollowed out and most of the customers are overseas. 80% of Tokyo Electron’s sales are outside of Japan and 40% of its employees are overseas. Only around 500 employees in Europe and the Middle East out of 12,500 total. Unsurprisingly, Asia has the largest number – around 2,800. Japan headquarters also has more Asian employees. Nikkei Business interviews one Korean employee in Japan who says she was surprised to have stayed so long. She started as a Chinese/Japanese translator but enjoyed the challenges in her job and stayed on.

Higher than average salaries probably also helped. Tokyo Electron pays an average Y12.7m a year (around US$115K) compared to the industry average of around US$60K. As a result of the new HR system 90% of staff had a pay rise – mainly the younger and middle ranking employees.

Global employee communication

President Kawai has been careful to communicate company strategy and objectives as clearly as possible around the world. He has held 35 employee meetings around the world and also holds smaller discussion meetings with staff to talk about the direction of the semi conductor industry, or whether to continue with M&A activities. He asks them whether the strategic direction is getting through to people, and if it is appropriate for their workplaces.

There are still some issues – how far it is possible to be objective in evaluations, for example. “It will take another 3-5 years before the system really beds in” says Tsuchii. Kawai has set some ambitious targets and is confident there is room for further growth. Whether Tokyo Electron can continue to motivate its staff will be key, says Nikkei Business.

Their website certainly reflects the brand values they aspire to – clear and transparent, with an emphasis on “people, technology, commitment” – although just like every other Japanese technology company, their mission pretty much boils down to “contributing to society through innovative technology”, with added “reliable service and support”.

One of the puzzles of Japanese HR is how employee engagement is so low and yet the employees seem so dedicated and diligent. Kawai at least seems to have found a solution – transparent career paths.

Rudlin Consulting has assisted many European companies acquired by a Japanese parent. Please contact Pernille Rudlin for further details.

3 keys to success in overseas post merger integration according to Suntory

Suntory acquired US company Beam in 2014, since which it jointly developed and launched new gins and whiskeys. Overseas sales are now 42.7% of Suntory’s turnover, compared to 25.2% in 2013 and the merger is generally thought to have been a success, according to the Nikkei Business magazine.

Suntory took on a mountain of debt to buy Beam. Suntory President Niinami Takeshi felt in 2014 that Beam’s attitude was complacent, considering the pressures Suntory was under. They were making personnel decisions without any regard to Suntory’s wishes. Beam may have felt that as Suntory’s spirits business was folded into the new Beam Suntory, this meant Beam had the right to do as it pleased.

The three elements Suntory’s President Niinami felt were crucial to post merger integration were:

1. Parent company should make personnel decisions

Niinami transferred the authority to nominate directors of Beam Suntory to Japan HQ, set up a new compensation committee which he chaired, and sent an internal auditor from Suntory to Beam. The CEO of Beam Suntory at the time, Matt Shattock, was not pleased, but Niinami was firm, saying “we are the owners”. Niinami says this was the biggest reason for the successful merger. He made sure that he also listened to Beam executives and ultimately replaced Shattock with Albert Baladi, seeing him as someone who could drive Beam Suntory’s growth in Asia (and indeed they have just announced they will be making whiskey in India soon).

2. Be based near the customer

Baladi clearly won over Niinami by understanding the importance of the Gemba – the shopfloor, the coalface. Beam Suntory’s headquarters was moved to central Chicago, in a district full of bars and restaurants, from a suburb an hour outside the city. Again, this did not thrill the then CEO Matt Shattock, whose 15 minute drive into work by car turned into a 1.5 hour commute. “It took 2 years to persuade him”, says Niinami.

Being focused on the gemba was not just about the headquarters. Beam previously had frowned upon inefficiencies such as visiting retail outlets frequently to understand what products most matched them. Its emphasis was on short term profits. Niinami changed this by sending several experienced Suntory sales and marketing people to Beam Suntory. One was Takeuchi Jun, who insisted on visiting high class bars and restaurants in Chicago, introducing Beam Suntory products, to increase the fanbase. He was adamant to local employees that sales for home consumption would increase as a result.

Usually, hearing that sales and marketing people from Japan headquarters are coming to an overseas subsidiaries to change the way Western marketing works would make me nervous. Sales and marketing (if it exists at all) are very different in Japan to Western countries, but it seems to have worked. For example, Suntory was able to successfully introduce the Highball Tower machine to bars in the USA – which makes a cocktail of whiskey (in this case Suntory’s Toki) and sparkling water.

3. Return to craftsmanship

Along with gemba, Suntory introduced the Japanese concept of monozukuri. Niinami was shocked that when he visited Jim Beam’s main distillery in Kentucky in 2016, to see that the workers were on strike, angry with management based in the headquarters an hour’s flight away. Bourbon sales were doing well globally, and the management asked the distillery to increase production without anything being changed at the distillery. Temporary staff were taken on with employment terms which the existing workers were unhappy with.

Niinami thought this “monitoring from above” approach was misguided, and removed the factory chief, bringing in the production director from Japan. Distilling space and warehousing were increased with a $500m investment in one year.

Suntory also encouraged joint development of new drinks such as Legent. I noticed in Europe the sake-like gin Roku from Suntory was launched in 2017 (and I’m a big fan). Will they also be moving Beam Suntory in the UK from suburban Uxbridge to somewhere with a night life like Soho?