Category: Globalization

Trump brings back teenage memories – for me and other Europeans

For people of my age, the election of Donald Trump has brought back memories of when Ronald Reagan was elected, thirty five years’ ago.  I remember, as a teenager, the British pop songs and TV programmes that mocked Americans for electing Reagan – a seemingly dumb, war mongering, B movie actor.

I lived in Pennsylvania for half a year just before Reagan’s election, and attended an American high school.  It was a formative experience for me, to see for myself the land of opportunity, where everything seemed new, energetic and plentiful, compared to the recession, high unemployment and riots back in the UK.

Most Europeans, not just the British, have these similarly mixed feelings about the US and the American people – of admiration, resentment and fear.  My parents and grandparents remember the American GIs who were stationed in Europe – to whom they were both grateful for helping liberate Europe – but also resentful of how much wealthier and better fed they seemed than the rest of the population.

I suspect many Japanese people also share these feelings and memories.  However, the American influence on Japan is even stronger, thanks to the long post war occupation, the continuing influence of American popular culture, and the fact that the English taught in Japanese schools is American English.

There is a tendency therefore in Japan for those who do not know other Western cultures, to think that the American communication style will work everywhere. But Europeans are very sensitive to anything that Japanese companies do which seems too obviously American.  If Japanese companies try to manage their overseas operations via their US subsidiaries, resentments rapidly build up in Europe about the top-down, highly controlling American management style.

Japanese expatriates who arrive in Europe after experience in the US become frustrated, because the American “just do it” approach to directing subordinates does not work.  It is not as easy to fire people for incompetence or unwillingness to follow direction in Europe as it is in the USA.  Europeans expect to be consulted about their work and think it is important to raise objections or point out problems to their bosses if there are justifiable concerns.

Even written materials which are too obviously American can cause resistance.  Twice now I have been told by clients that they did not want to roll out e-learning and manuals which had been developed in Japan, using American style English and tone.

American companies are good at persuading Japanese customers that the American way is the globally accepted international standard way and that is true to some extent.  However, the best solution, which we also use at Japan Intercultural Consulting for our training, is to have American core material – so that our customers get the same basic approach around the world –  but allow a great deal of customisation to suit the tastes of specific countries.

Getting this balance right is not easy, but if the effort is not made, stubborn European resistance and rejection will result.

This article was originally published in Japanese in the Teikoku Databank News in 2016. It 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.

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。

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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.

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。

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The annual ritual of picking a cross cultural calendar

Sorting through the various calendars on sale or that were sent to me for promotional purposes I have ended up choosing the same ones as last year – a haiku and ukiyo-e wall calendar because I like to be reminded of the passing seasons, and a desk calendar that has Japanese and European public holidays on it, for practical reasons.

This annual ritual of picking a calendar reminds me of when I was working at Mitsubishi Corporation in London.  We locally hired staff used to fight to grab the desk calendars from Japan left over from mail outs to customers.  They not only had photos of the beautiful artefacts from the Seikado Museum, but could be easily customised so that three months could be viewed at a time, vital for calculating shipping schedules between Japan and Europe.

The publisher of the desk calendar that I chose also shows three months on one page, but I am thinking of suggesting that they further modify their calendar to make it useful to employees of Japanese companies in Europe, by including indicators of the key dates of the Japanese financial year.

Over three quarters of the biggest Japanese companies in Europe run on an April 1st to March 31st financial year in their Japan headquarters.  The dates for reporting results and shareholders’ meetings in Japan are highly predictable and tend to be clustered by industry.  But the annual cycle of proposals and decision making that this sets up, and the midterm plan 3 year cycle that many Japanese companies also adhere to, are not widely understood in Europe.

The majority of European companies run on a calendar year of January to December.  But even when the calendar year is used, the dates of when the results are announced or the Annual General Meeting is held vary from company to company by weeks and even months.

European employees therefore need to be actively reminded of key meetings and decision deadlines in Japan headquarters as they do not instinctively know the rhythm of the April to March financial year and it often does not match the rhythms of the British business year.  In fact one British retailing company acquired a few years’ ago by a Japanese company found it very hard to comply with the Japanese HQ’s request that they submit all their year end accounts by December 31st (in other words the day their financial year ended), so that the Japan HQ could compile the consolidated accounts in time for Japan’s March 31st year end, because this coincided with the UK’s busiest time of year – the Christmas shopping period.

The Japan HQ have in fact changed their financial year to January to December a couple of years’ ago, giving the need to be more global as the reason.  However, when I went back to their British subsidiary last week, and asked them if that helped relieve the pressure, they said they had not really noticed, as the increasingly global nature of their business means they were busy all year round!

This article originally appeared 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.

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。

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Employers need to change to encourage Japan’s milliennials to be mobile

European employers, just as in Japan, are worrying about how to manage and motivate the so-called millennial generation – people who were born between the early 1980s and the early 2000s.

Across the world, one characteristic that unites the millennial generation is, of course, a high use of social media.  There is some evidence that this has led to a more open minded attitude to the rest of the world.  In the UK, the millennial generation is much more pro-European Union and pro-migrant than the older generations.  Millennials are used to building relationships with people they have never met, through mutual interests and hobbies, regardless of their location or nationality or gender.

This has translated into a higher desire than other generations to live, work or study outside their home country. 71% of millennials, regardless of gender, want to work outside their home country during their career, according to a global survey by PwC in 2015.  A multigenerational global survey by PwC in the same year showed that all age groups and genders overwhelmingly agreed that secondment early in a career was also critical.

Yet I have seen surveys of Japanese millennials which show that fewer of them are studying abroad or want to be seconded overseas than previous generations. I expect their concern, which is also the top concern of other nationalities, is what their role will be when they are repatriated to their home country.

I suspect there are also assumptions being made on the employer side about who an expatriate should be and what the role should involve.  I recently met a British academic who had interviewed various Japanese women living in the UK and she found that many of them joined a Japanese company in Japan, in the expectation that they would be posted overseas.  Yet their requests to be seconded were ignored, so they quit their companies and moved abroad themselves.

It seems to me that many of the issues Japanese companies are facing such as attracting and retaining younger people, an ageing workforce or a lack of men or women who can take up global management roles could be resolved by having a more integrated and inclusive approach to job mobility.  It is quite normal for European companies to hire graduates from across Europe, and then rotate them around their operations in different countries.  A few of our larger clients are now rotating their graduates to Japan too.  Global roles do not have to be for 3-5 years in another country – they can be permanent, a few months or indeed a virtual global role.

One of the messages from the campaign for Britain to stay in the European Union – aimed at the millennial generation – is that if the UK leaves the EU, it will be less easy for young British people to study or work in other European countries.  Unfortunately, one other characteristic of the millennial generation is that they are less likely to vote than the more pro-Brexit older generations.

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

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。

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European pride + global standardization = long debates

The European senior management team of a business which had been newly acquired by a Japanese company complained to me about being treated as if Europe was one homogenous country, when in fact they only had offices in 5 very different countries in Europe, with a headquarters in Germany.  “It’s true, we know how to work with each other in Europe – after all Europeans have been living and working together for hundreds of years, but it seems strange that on paper we’re supposed to be a tri-regional structure of Europe, North America and Asia, and yet North America has only two employees and Asia has no regional headquarters, with Taiwan, China, Korea and Japan being managed separately”

This was just a small company, but actually I have seen similar situations in many other much larger Japanese multinationals.  It’s partly that Europeans are very sensitive to their status –and want to be treated on a par with other regional heads – and this means the European definition of regions, with Asia as one region.

But it’s also due to a justifiable concern that if the company is meant to be offering global products and services, it needs to have a well-balanced global structure operating off common platforms, systems and processes.  If the company grows by acquisition, you often end up with very different portfolios of services and products from country to country, incompatible processes and systems and no clear idea of how revenue and costs should be shared across the regions which are contributing to the global offering.

This can cause huge, long running arguments, partly because standardizing trade, production processes and technology are interrelated issues.  Once you decide what products and services are global and what are local, you have the basis for splitting revenue accordingly.  But you have to be careful this does not lead to regional organisations focusing on their local products and services, refusing to participate in global contracts because they make more profit out of local contracts.

Once you know what you are offering globally, you can standardise the technology – such as having all the company’s websites running off the same content management system, or production running off the same platforms or sales and purchasing using the same global accounting system.

Sometimes Japan headquarters has to swallow their pride for the sake of speed and efficiency.  I was impressed that Nomura, when it acquired Lehman Brothers, decided to move their dealing onto the Lehman platform, because they judged it to be technically superior and faster than trying to integrate platforms or shift everyone onto the Japanese system.

Nobody wants to deal with these problems because they are so complex and lead to fights and easy resistance by those claiming that the global standard is not going to work in their markets.  But unfortunately, if you do not deal with these issues soon after an acquisition, they fester and become even more difficult to resolve.

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

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。

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Large, stable employers are important for the health of the community, whatever the country of origin

You may remember, though it feels like a lifetime ago given what has happened since, that the front pages of the British business press in early 2014 were full of debate about whether to welcome or be worried by the US pharmaceutical company Pfizer’s bid to take over AstraZeneca, a UK-Swedish company.  The £63bn bid would have made it the biggest foreign takeover of a British company in history.

Initially the British government wanted to portray the bid as a vote of confidence in what they had done to make Britain an attractive destination for foreign investment.  However, the former CEO of AstraZeneca, Sir David Barnes, said that he was concerned that Pfizer would “act like a praying mantis and suck the lifeblood out of their prey. “ Pfizer wants to move its tax domicile to Britain when it acquires AstraZeneca, to take advantage of the UK’s low corporate tax rate and what is called a “patent box”, which gives tax breaks for research.

If Pfizer want these tax incentives, it should invest in the UK itself, and not attempt to do it via a takeover, Sir David argued.  Pfizer last hit the headlines in the UK when it closed down its 60 year old research facilities in the east of England, with the loss of nearly 2000 jobs, in 2011.  A few years before that it closed R&D sites in Nagoya, Japan and the US.  The reasoning at the time was that research was better outsourced to smaller companies.

I have not heard anyone say that this trend has reversed, yet AstraZeneca committed to investing £500 million in a new research facility and headquarters in Cambridge, which is the main science cluster in the UK.   Pfizer say it would honour this investment, and the jobs that depend on it, for five years at least.

The consensus in the UK seemed to be that given Pfizer’s “accounting led” approach, such commitments may not be worth much.  The US company Kraft also promised it would not cut jobs when it took over one of the UK’s most famous companies, the chocolate manufacturer Cadburys, in 2010, and then shortly after closed down one of its factories.

This does not mean that the UK is hostile to all foreign takeovers, however.  Japanese companies are much more welcome, as they are seen as having long term commitment to their investments.  Takeda’s acquisition of Swiss company Nycomed did lead to job losses but this is seen as inevitable after a merger.*  It is the wholesale closure of a factory or R&D site with major impact on the community around it which troubles people in Europe.

Many of the British researchers laid off by Pfizer in 2011 have found jobs in small start ups, but not everyone can be an entrepreneur or has the personal resilience to go through the trauma of redundancy. When I ask participants in my training what they like about working in a Japanese company, they almost always mention the stability, the long term view and the loyalty of the company to its staff.   Large, stable employers are important for the health of the community, whatever the country of origin.

* Takeda announced it would close its Cambridge Science Park R&D facility in August 2016.  R&D activity will be concentrated in the US and Japan, and the UK will move from global coordination activities to European only.  I wonder how long that will last if the European Medicines Agency moves out of the UK however.

This article originally appeared in Japanese in the Teikoku Databank News on 11th June January 2014 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.

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。

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Japan – into Africa

Many Japanese companies have set up European regional headquarters, largely in the UK, Germany or the Netherlands and use this as a base for consolidating their administrative activities across the region.  Increasingly these days the designated region covered is not just Europe, but EMEA – Europe, Middle East and Africa.  The historical ties that the UK in particular has with Africa and the Middle East, means that it is not only easy to access the Middle East and Africa from London, but also that it is relatively easy to get hold of information about countries in those regions in the UK as there are many expatriates and experts on those countries based in the UK.

One such expert is Professor Sir Paul Collier, a professor of economics at Oxford University, whose speech to a group of Japanese businesspeople in London I attended a while back. Sir Paul had met Shinzo Abe at a G8 meeting, and his speech was largely in support of the recent initiatives by Abe and Japanese businesses to become more involved in Africa, recently reinforced by the TICAD meeting in Nairobi.

He is realistic, however, saying that “I am not going to tell you Africa is wonderful.  Africa is complicated and has a small economy, but it has got significant opportunities.”  The opportunities fall into four main areas – natural resources, the infrastructure needed to exploit those resources, growth in sectors such as electric power, construction, consumer goods and the “e-economy” such as payments by mobile phone.

He also pointed to the specific attractions that Africa would have for Japan.  Firstly that as African growth is very commodity price dependent, and Japan is a big commodity importer, having investments in Africa is a useful “hedge” against commodity price movements.  Secondly, Japan is apparently welcome in Africa.  “Africa is tired of Europe and doesn’t like being told what to do”.  The USA behaves like a colonial power but does not have any money to invest into Africa.  China was hugely popular in Africa 10 years ago, but apparently many African leaders are now feeling frightened of becoming too dependent on China and are trying to push back on deals.

The biggest negative for Japan, in Sir Paul’s opinion, is that culturally, “Africa is Japan upside down.  Japanese society is one of very high trust and very high social cohesion, and Africa isn’t”.   And of course, Africa isn’t one country but 54 countries and the levels of opportunities and risk vary considerably from one country to another.  Sir Paul’s recommendations were to focus on Lagos and Nairobi, with possibly a sub office in Rwanda.  With regard to corruption, the risk is reputational rather than financial, and he recommends having a policy and making it very clear to counterparts what that policy is.

He also reinforced the view that approaching Africa from the UK was a good tactic.  “The UK, public and private sectors, have the knowledge, network and the contacts but not the products that Africa wants.”  Japan has those products, so, teaming up with the British should bring plenty of mutual benefit.

This article originally appeared in Japanese in the Teikoku Databank News on 14th May 2014 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.

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。

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At a stroke, the Brexit vote has increased Japan’s perception of the risk of investing in UK and EU

Japan’s (heartfelt) message to the UK and the EU regarding Brexit surprised many by its directness and the way it was shared publicly.  Not so surprising was the underlying theme, of wanting to maintain arrangements as they are.  As is often said,  business (and particularly Japanese business) hates uncertainty.  Companies and governments desperately want to be kept in the loop of any developments so they can make plans accordingly.  As Japan’s message pleads:  “we request the both [EU and UK] to heed the voices of Japanese businesses to the fullest extent… some Japanese firms may not be able to respond sufficiently to the drastic changes in the business environment that could be caused by BREXIT and they also have difficulty in articulating their requirements publicly”.

As well as this hint that Japan worries it is not listened to, and is not good at putting its case, I also get a whiff of a feeling of betrayal and loss of trust.  “In light of the fact that a number of Japanese businesses, invited by the Government [my italics] in some cases, have invested actively to the UK, which was seen to be a gateway to Europe, and have established value-chains across Europe we strongly request that the UK will consider this fact seriously and respond in a responsible manner to minimise any harmful effects on these businesses.”  Well it made me wince, and I hope it made our government wince too.

Having spent some time working in the regional coordination department of a major Japanese investor in the UK, I know full well how much political and economic risk factors are constantly reviewed and investments made or retracted accordingly by Japanese multinationals.  Softbank is the exception rather than the rule when it comes to appetite for risk amongst Japanese companies.

I know Brexit supporters will immediately counter that Japanese companies are highly unlikely “to cut their noses off to spite their faces” by closing down operations and moving away from the UK when the UK represents an important market for their products.  Furthermore, they will no doubt argue that the much cheaper pound will counterbalance any 10% tariffs if we revert to WTO rules.

Foreign Direct Investment (FDI) matters more than trade in terms of Brexit impact, in my view.  Increased trade volumes are an outcome of FDI in these days of integrated supply chains, not the origin of economic prosperity as they might have been in some mercantilist world of the past.  The voice of every economics teacher I have ever had (from O level to MBA) keeps echoing in my mind: “an export is simply a means to buy an import”.

Foreign Direct Investment (FDI) is an ongoing process, not a one off.  What matters is not just whether any more Japanese companies will invest in the UK (they will, if there’s something alluring in its own right above and beyond being part of the Single Market) but where they will put further investments.

To me, what really matters is the jobs that result from investment in existing operations and the trade that investment generates, not trade on its own.

So with that in mind, here’s my analysis of what a hard Brexit (ie tariff barriers, loss of financial passporting, end to freedom of movement) might mean for our Top 30 Japanese companies in the UK.  We have ranked them according to the number of employees, including employees at any acquisitions and subsidiaries and together they represent nearly 90,000 of the 140,000 or so jobs that Japanese companies directly generate in the UK.

My conclusion in short is that Japanese companies will probably be able to adjust to a hard Brexit better than they might fear, and the direct impact on British jobs might not be so severe, except in the automotive industry, and even then, it will be a longer term impact.

But, 20 out of the Top 30 Japanese companies in the UK are regional headquarters.  If a hard Brexit means that the centre of the action – in terms of regulatory influence, access to a diverse and talented workforce and selling into a large and growing market – shifts to the continent, then those regional headquarters will shift too, and with them will go the purchasing power for all of those services which the UK has become so good at providing – not just financial but legal, consulting, IT, R&D and creative.

If our trade negotiators really can pull off some good deals with the Middle East and Africa, the best defensive countermeasure UK regional headquarters can take is to position themselves as EMEA headquarters.  Many of them already cover not just Europe, but the Middle East, Africa and in the case of IT companies such as Fujitsu, India too. But I worry that this will not be enough, given the relative size of these markets.

  • Technology companies (9 of the Top 30)  such as Fujitsu, Hitachi, Sony, Ricoh, Canon, Fujifilm, Konica Minolta, Olympus and Toshiba have been increasingly moving from B2C to B2B and from products to services in the UK and no longer mass manufacture consumer products in the UK.  Sony’s last manufacturing operation in the UK, in Wales, produces professional audio visual equipment.  The bulk of Sony’s employees are in Sony Music or Sony Computer Entertainment, or in the European sales and marketing operation.  Ricoh’s Telford factory produces 3D printers. Fujifilm’s facility in the UK is nothing to do with cameras – it is a contract drug manufacturer for the biotech industry. Hitachi has shifted away from TVs and other consumer electronics and has its global rail headquarters in the UK, with a rail vehicle assembly manufacturing facility recently opened in Newton Aycliffe, as well as being the owner of Horizon Nuclear Power.

Canon’s European HQ already moved from the Netherlands to the UK a few years ago, and no doubt the Netherlands would like it to move back.  There is a constant tug of war between Germany and the UK for Fujitsu’s regional power centre.  Olympus has Keymed in the UK, but its regional HQ is in Germany. Toshiba splits its regional HQ by business between Germany, Netherlands and the UK but is currently restructuring.  Konica Minolta’s regional HQ is Germany anyway, as is Fujifilm’s. Hitachi (UK HQ) has just acquired an Italian rail company, so could use that as a European Union base.

Prediction: even a hard Brexit might not have that much impact on Japanese technology companies (who are mostly headquartered in Germany anyway), as in the UK their businesses have already moved into high end, high margin, relatively price inelastic segments, drawing on specific local expertise.  Their regional HQs may feel pulled back towards the continent however, particularly in B2B businesses.

  • Automotive companies (7 of out the Top 30) such as Nissan, Honda, Nippon Sheet Glass, Toyota, Yazaki, Denso and Calsonic Kansei all have factories in other parts of the EU or inside the EU customs union (ie Turkey).  Nissan (headquartered in Switzerland) has a factory in Spain, Honda (HQ in the UK) has a factory in Turkey. NSG (acquired UK based Pilkington) makes automotive glass in Finland, Spain, Italy, Poland and Germany.  Toyota (HQ in Belgium) produces vehicles in France, Turkey, Czech Republic and Portugal. Yazaki (HQ in Germany) doesn’t have any factories in the UK anyway (but plenty of sales engineers). Denso (HQ in the Netherlands) has 2 factories in the UK but also in Spain, the Czech Republic, Hungary, Turkey Italy, Poland and Portugal. Calsonic Kansei (UK HQ) also has 2 factories in the UK but also in Spain and Romania.  Nissan, Honda and Toyota all export around 75-80% of what they manufacture in the UK, mostly to the European Union.

Prediction: investment for production of new models will go to factories in the EU.  As much as a consequence of this than any tariffs, production volumes and jobs in vehicle factories will slowly decline in the UK to a level which mainly supplies the UK domestic market, but this may not be a viable production volume so plants may have to close.  Parts manufacturers will cut production and sales engineers in the UK accordingly.  Automotive design, a traditional strength for the UK, may even have to relocate to the continent, to be near to the regional HQs and the main markets.

  • Financial services companies (7 of the Top 30) such as Nomura, Mitsubishi UFJ Financial Group, Mitsui Sumitomo & Aioi Nissay Dowa, Sumitomo Mitsui Financial Group, Mizuho Financial Group, Tokio Marine Holdings and Sompo Holdings are all headquartered in the UK, but all already have other offices in EU countries.  Some already have, and others no doubt will, strengthen their operations in EU, transfer some functions and apply for passporting for other offices.  Amsterdam seems to be a favourite (both MUFG and Mizuho have licensed offices there), both for its regulatory environment and also because of the ease of using English, plus long standing friendly relations between Japan and the Netherlands.  The insurance companies MS&AD, Tokio Marine Holdings and Sompo Holdings have all recently acquired Lloyd’s Underwriters and London is the historic heart of underwriting, so it is hard to imagine their operations in London fading away that much. Swiss Re and Zurich are both headquartered in Switzerland, outside the EU – so life outside the EU is possible in insurance and could be viewed as an escape from burdensome EU capital requirements.

Prediction: UK HQs position themselves as EMEA HQ.  EU functions move to an EU-based capital.  Some reduction in high paying top level jobs in UK.  Back office jobs might stay in UK if sterling stays cheap but there could well be a drift eastwards to Poland or even India.

  • Companies who own major UK brands (5 out of the Top 30) such as the trading company Itochu (who own Kwik Fit), Japan Tobacco (Silk Cut, Mayfair etc), Suntory (Lucozade, Ribena), trading company Mitsubishi Corp (Princes Foods), Mitsubishi Chemical Holdings (Lucite).  Japanese trading companies (Mitsubishi Corp, Mitsui, Sumitomo Corp, Itochu, Marubeni) have always had their regional HQs in London for 100 years+ in some cases and they usually cover Africa and the Middle East from there too. Although they are very traditional, I know, as an ex employee, that the debate never stops about how to structure and where to invest in their global operations, and the political and economic risk that Brexit has introduced may well tip the balance not just away from the UK but away from Europe and back to Asia again.  Furthermore, for certain of their business lines such as chemicals there has always been a strong pull to Germany.  Mitsubishi Chemical Holdings is headquartered in Germany, and although Lucite is in the UK, it is a global business in terms of operations and customers.

Japanese companies tend to be honourable, even sentimental about keeping the operations of brands in the country in which they were born.  Having said that, Japan Tobacco (headquartered in Switzerland) has shut down the last of its former Gallaher UK factories in Northern Ireland recently.  Suntory’s CEO is a Harvard Business School graduate with a correspondingly unsentimental view of business and as Suntory also owns Jim Beam and Orangina, it may not feel that wedded to the UK as a regional base.  Kwik-Fit may seem quintessentially British, but is in fact a market leader in France and the Netherlands too.

Prediction: Japanese companies are getting less sentimental and more globally hardheaded.  They will do what they have to do in search of stable growth.

  • B2B services suppliers – The remaining 2 companies in the Top 30, Dentsu (advertising) and NYK (logistics) have different histories as well as businesses.  Dentsu has been on an acquisition rampage recently, and has formed out of its acquisition of Aegis, the Dentsu Aegis network, headquartered in the UK.  The UK is traditionally strong in terms of advertising and marketing expertise, but again, the industry will have to follow wherever its customers go, so if more Japanese clients shift their headquarters to the European continent, I would expect Dentsu Aegis headcount to follow.  Although advertising, PR and marketing agencies like to claim they can work globally, my experience is that they are not quite so globally integrated as they seem – wherever the client budget is will be where most of the work is being done.

NYK has both shipping and ground logistics arms – both very integrated into the automotive supply chain.  Again, they will have to follow their customers. 

  • Pharmaceutical companies – none of the Japanese pharmaceutical companies employ enough people in the UK to be in the Top 30. The biggest is Astellas, which has its EMEA HQ in the UK, but also a strong R&D and manufacturing operation in the Netherlands.  The well documented concern for pharmaceutical companies is that the European Medicines Agency will move out of the UK with Brexit, probably to Spain, as Spain has plaintively pointed out that it does not host any EU agencies.  Eisai also has a major R&D campus in the UK.  Takeda has already announced it is closing its Cambridge R&D facility.  I would expect a  major negative impact if the EMA moves out of the UK.

Regional headquarters tend to do business with other regional headquarters. If a hard Brexit means Japanese and other multinationals shift their headquarters out of the UK, the negative impact for the UK will be deep and far reaching.

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What will happen to Japan’s supply chains in Europe post Brexit?

I found the lack of understanding of how trade actually works – particularly in regard to the complex supply chains – amongst those campaigning for the UK to leave the EU, really worrying.  The idea that you could, for example, say something was a “German car” which the Germans would be desperate to sell to the UK, when it might have been designed, financed and maybe even built with wire harnesses from the UK – and could be a Japanese brand! This worry is confirmed by an article which recently appeared in the Nikkei Online, by Takanori Sakaguchi, a purchasing consultant.

“To be frank, like most of our readers, I was not expecting the UK to vote to leave the EU.  Sterling plummeting, the Yen strengthening, share prices falling, this scenario was just a simulation”

Sakaguchi thought it would be like the Scottish referendum, with 55% voting to stay.  “Economists warned the economic damage would be unavoidable.  Over half of UK’s exports go to the EU.  The majority of multinationals’ European HQ are in the UK, where business can be conducted in English.”

The writer’s contacts who were expatriates in the UK all said that if the UK left the EU, then the reason for being in the UK would be eradicated.  Employment rights were also protected by being in the EU.

“If the UK left the EU, it will take an extraordinary amount of time and effort to reach free trade agreements with each country.  Furthermore, once it has left the EU, it would take 10 or 20 years before it could return.”

“It is unclear what the 2 year negotiation is going to be like, as there is no precedent.  It is likely, in order to discourage others from leaving, that EU countries will take a tough stance. It is unclear if the UK will be able to avoid immigration inflows and if that will lead to a reduction in unemployment for its own people.”

“There is a 100 million theory in the automotive industry – if 1 country has more than 100m population then should be able to sustain a car industry –  acquiring all parts and technology locally.  Japan and the USA can therefore sustain a home-grown car industry. None of the countries in Europe has a population greater than 100 million, so that was a good reason to create the European Union.  For it to work, there needs to be standardization of legislation, systems, policies and engineering methods.  There is no alternative.”

Short term

“In the short term, there will be a cheaper pound, a fall in asset prices and share prices.  There will be those who try to make use of a cheaper pound to “buy UK”.  For retailers, it will be beneficial.”

“However, currently companies are cutting back on investing in UK capital investment, and will become even more cautious about this if the UK leaves the EU.  It’s likely that those who have invested and have not made their money back, will withdraw.”

Medium term

“Although they may benefit short term from a cheap pound, manufacturers will think about shifting to other countries in order to protect their competitiveness, so in the mid term, jobs will shift.  Companies will also be assessing whether to keep factories and suppliers in the UK.”

“Also there will be new UK-only labour laws, which may mean increased costs – another reason to leave the UK.”

“Supply chain costs to the UK are likely to increase as the main labour supporting it is on the continent, particularly if there is a labour shortage in the UK as well.  It will make manufacturing in the UK even less competitive.”

“Supply chains are also likely to become more complex if the UK starts to implement its own rules and regulations.”

“The key thing about supply chains is that they are a way of spreading the risk in case one part is affected  – as per ASEAN economic cooperation and concerns about tsunami or earthquakes.”

“Yet the UK chose independence and control over any negative economic impact.  It is difficult for supply chains to read what is going on, but surely as any country leaves an economic area, they will adjust their strategy.  This is a never-ending fight between sovereignty and free markets.”

 

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A local solution to breaking the Brexit deadlock

European peopleThe only things we can be sure that the EU referendum was about was that it was a majority vote for leaving the European Union and an endorsement of the main promise offered by the Leavers to “take back control”. However the economically non-damaging options (for example staying in the European Economic Area, the so-called Norway option, which business favours) need the UK to sign up to free movement of people.

My cross cultural professional insight on this being that the French and German leadership are likely to be highly rules/principles – and no exceptions – based about this, as one of the fundamentals of Europe.

So. The bottom line to what I am proposing is – we leave the EU, join the EEA and accept free movement of people between nations but not between regional authorities. We harness the power of Big Data (something the Brexit True Believers like Steve Hilton, Daniel Hannan and Michael Gove – although I doubt he has the faintest idea what that is – should be happy about in their dreams for a digital democratic 21st century nation) to be far more hands on about the movement of people within our country.

I’m thinking that National Insurance numbers should be devolved to a local level. Local communities vote on how many NI numbers they are willing to offer per year, and this should be cross checked against hiring plans, school places, available housing, NHS capacity – and plans/funding made accordingly. There will be no benefits, no school places, no jobs, no housing without an NI number.

It will need an investment in administrative resources to back this up and enforce – it will be like when the national census was first introduced in 1841. And really, the fact that we still only do a national census every 10 years a full 175 years later is quite bizarre in our rapidly changing, globalizing world.

It addresses the issue that the unexpectedly large influx of EU people into the UK since 2004 has been very unevenly distributed, particularly amongst communities that have never really recovered since the 1980s collapse of traditional industries.

It actually may turn out to be unnecessary, as I agree with Jonathan Portes at the National Institute of Economic and Social Research that we might have reached peak immigration anyway. Brexit will certainly help push this trend further. But at least it gives people a sense that they are back in control again.

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