Globalization

Japanese boards in Europe should reflect their customers, employees and community

I have just completed the first phase of research into how diverse the European subsidiary boards of the biggest Japanese companies in Europe are, both in terms of the nationality mix of Japanese and European directors, and also the number of women on the board.

More boards in Japan had women on them than in Europe, which is surprising if you were expecting boards to reflect the employee mix – particularly the pipeline of managers coming through the ranks of an organisation – as there are without doubt more women employees and proportionally more women managers in Japanese companies in Europe than there are in Japan.

The proportion of directors with European nationalities on the board of Japanese subsidiaries varied wildly from none in the case of Toshiba, Sharp and Fast Retailing (the Uniqlo subsidiary in the UK), through to 100% in the case of Asahi Glass, Bridgestone, Canon and Nidec. So national diversity does not seem to be influenced by which industry the company is in. This also means that what to me is the most compelling case for a diverse board, that it should reflect the customers it is serving, is not the key factor I thought it would be.

20 years’ ago, becoming less reliant on Japanese customers abroad as well as in Japan, was the driving force for many Japanese companies embarking on “kokusaika” (“internationalization”). Canon was a pioneer then in appointing Europeans to senior positions in overseas subsidiaries and does as a consequence appear to have fared better than other companies in the consumer electronics sector, both in Japan and in Europe.

The current favoured path to globalization for Japanese companies is through M&A rather than growing international businesses and executives internally, and the major acquisitions of the past decades account for the diverse boards of Asahi Glass (who acquired Glaverbel) and other companies that still have a high proportion of European directors such as Fujitsu (International Computers Ltd), Nomura (Lehman Brothers) and NSG (Pilkington).

There is some sectoral influence. For example, the financial services industry is under intense scrutiny by European regulators who have the power to approve board appointments. They expect directors to have deep understanding and experience of local markets – something which not many Japanese executives can claim.

Both Fujitsu and Hitachi have substantial public sector oriented businesses in the UK (government services, nuclear power and rail) which means that they not only need to meet the diversity requirements of government purchasing but also gain acceptance of the communities in which they operate. For example, the board of a Japan-owned UK utility recently advertised for a director, with a requirement that applicants be a customer of that utility.

For smaller Japanese companies, or those which are just starting in Europe, it is tempting to stick with a small board with just a couple of non-resident Japanese directors, but as boards come under pressure to have greater transparency and better governance in Europe, appointing local directors from the start should lead to better relations with regulators, customers and employees.

(This article first appeared in Japanese in the Teikoku Databank News in December 2015 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.)

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Virtue or vice? “Hear no evil, see no evil, speak no evil” – Japan HQs in the Year of the Monkey

We have decided to celebrate in 2016 – with a series of lunch seminars for clients – the 12^th anniversary of the founding of our company. The excuse is that we have completed the full cycle of the Japanese/Chinese years, back to the Year of the Monkey.

Reflecting on the trends we have seen evolving over the past 12 years for Japanese companies, the most obvious development has been the increase in major acquisitions by Japanese companies of Europe-based multinationals. Most recently, Mitsui Sumitomo Insurance Group acquired UK Lloyd’s underwriters Amlin for £3.5bn and Hitachi has just finalised the acquisition of AnsaldoBreda and Italian company Finmeccanica’s stake in Ansaldo STS, for around €800m.

Both these acquisitions are representative of a structural change I have seen evolving in quite a few Japanese multinationals. Hitachi has moved the global headquarters of its rail business to the UK and it seems the Japanese insurance majors, who have all now acquired underwriting firms based in the UK, are hoping that their acquisitions will act as pivots for further global expansion.

Clearly Japanese companies are not just buying into a market with their acquisitions, but hoping that they have also acquired global management capability. Whereas in the past there were some examples of Japanese companies using their US subsidiaries to manage the global network, it seems now that Europeans are being asked to manage operations in the US and beyond.

This is partly due to another long term trend in Japan, which is the lack of “global jinzai”, particularly at senior management level, to manage overseas growth, but it also reflects the fact that European multinationals are used to managing companies scattered across many countries, in a virtual matrix structure. This means the heads of various business units or functions may not all be physically located in the same headquarters. European managers need to have strong, globally effective professional expertise but also good cross cultural communication skills to be able to manage teams remotely.

Europeans are comfortable with doing this in Europe and to some extent working with the US too. However working with Japan is still a new experience for most of them. They are often baffled by the fact that their professional expertise and remote communication skills are not enough to persuade or win support from Japan headquarters. Managers in Japan headquarters are only used to communicating with people who are physically present in the office. They tend to be generalists, who do not find arguments grounded solely in expert opinion all that convincing.

Unless conscious effort is made to overcome these communication barriers, Japan headquarters maybe behave like the three monkeys, who see no evil, hear no evil and speak no evil. In Japan my understanding is that this is seen as virtuous behaviour. However, in the West this is seen as ignoring problems and misbehaviour until it is too late. I foresee the next twelve years of my business as being about opening eyes, ears and mouths on both sides of the world.

This article originally appeared in Japanese in the Teikoku Databank News on 13th January 2016 and iis in the introduction of “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” by Pernille Rudlin, available on Amazon as a paperback and ebook.

Why Japanese companies are behind in using IT and what they need to do about it

For as long as I’ve been working in or for Japanese companies (25 years…) I’ve been surprised by how behind they are in using IT, considering how much Japanese people love the latest technology, much of it developed by Japanese companies themselves. Like so many paradoxes of Japanese corporate culture, the roots may lie in the post war system of life time employment, generalist track careers and seniority based promotion.

The Nikkei Business magazine cites one example of how, as it puts it, Japanese companies are not just one but three steps behind their Western counterparts. Most Western banks (Barclays, HSBC, RBS, Deutsche Bank, Commerzbank, Societe Generale in Europe) are adopting the highly cost effective blockchain system for settling payments. MUFG is the only Japanese bank to use the system.

The Nikkei recommends 4 countermeasures Japanese companies need to take:

1. Keep replacing top executives

According to an IDC Japan survey, only 15.7% of Japanese presidents and other CXOs think investment in IT is “very important” compared to 75.3% of US executives. Alternatively, as the Nikkei says, if you don’t understand IT, make sure you appoint executives who do.

2. Bring in an external CIO

According to a Japanese Ministry of Economy, Trade and Industry survey, whereas in the US over 70% of IT specialists can be found working in-house in US companies, in Japan, 75% of IT specialists are working at IT vendors.

3. Make your IT systems department a key function

Staff in Japan’s IT departments are ageing. 56.9% of companies in a 2015 survey said the majority of staff in their IT departments were over 40.

4. Use people from outside Japan

Japan’s Recruit Holdings has just started to recruit non-Japanese data scientists by starting up competitions on Kaggle, a data scientist network of over 350,00 people from over 100 countries, in order to make the Recruit brand name better known.

The Suntory revolutionary from Mitsubishi Corporation

Takeshi Niinami is probably the most famous alumnus of my alma mater, Mitsubishi Corporation. Born in 1959 and a graduate of Keio (as so many Mitsubishi ‘gentlemen’ are), he started off in sugar trading and after a Mitsubishi Corp sponsored MBA at Harvard, he was involved with the foundation of the Sodexo joint venture in Japan with MC, and then transferred to and ultimately ran the convenience store chain Lawson, which MC had acquired a majority share in.

He was lured to the family run Suntory in 2014 by the grandson of the founder, Nobutada Saji, and has been shaking the place up ever since, much to the consternation of many employees. The revolution was already underway, as Suntory had already announced its $16bn acquisition of US whisky maker Beam and the year before had acquired the UK brands Lucozade and Ribena from GlaxoSmithKline for $1.35bn and in 2009 acquired Orangina Schweppes for $1.97bn.

A former director who worked with him at Lawsons says “there are people who cannot keep up with him. He keeps coming up with new things, and then says do it within a year”. Niinami believes that Suntory will not be able to function well as a global company if it only promotes from within, so has appointed Vincent Ambrosino, formerly CFO of Pepsico Canada as an Executive Officer of Suntory Holdings, in charge of strategy, finance and accounting. He only joined Beam in 2013 as the CFO so this by Japanese standards was seen as meteoric rise to a top position.

Furthermore, Makiko Ono, one of the rare senior Japanese businesswomen in a major company, who had been involved with various collaborations with foreign companies as executive officer of Suntory Food & Beverages, has transferred to Suntory Holdings, to become the GM of global HR. Around 17 people from Suntory Holdings will be seconded to Beam Suntory, with the aim of improving global mobility. Niinami himself announced that he wants to hire more people from outside the company, “including those who have investment experience who were in trading companies” – hiring in his own image, in other words.

Suntory Holdings mid term plan has highly ambitious double digit targets for turnover and profit. It is unlikely this will be reached organically, says Toyo Keizai magazine. More M&A can be expected. Niinami is not likely to slow down.

What to do about the lack of global jinzai (competence) in Japan

I wholeheartedly agree with the recommendations (particularly the final one) in this Q&A from Professor Hiromi Maenaka of Akita International University, head of Global Studies program, on how Japanese can become more globally competent – summarised by me in English below:

Q: Why are there not many “global jinzai” (globally competent Japanese) in Japan?

A: It’s not just about English ability. At most Japanese schools, teaching focuses on how to answer questions to which there is a clear answer. But if I ask students who have just arrived at university why that answer is correct, they simply say “because I was taught that it was correct.” In real life there are few correct answers. Particularly overseas.

Q: Japanese companies are beginning to realise there is a shortage of global jinzai?

A: As more companies venture overseas, the majority of their production and demand is outside Japan. Acquisitions of and joint ventures with foreign companies have also increased. It has become necessary to work with people who have different nationalities and cultural backgrounds. So Japanese companies have become in urgent and multiple need of global jinzai.

Q: What kind of education is Akita International University providing to develop global jinzai?

A: Our students live alongside foreign students and study abroad on a solo basis. Through this experience, they lose their resistance to thinking and acting for themselves, discussing opinions with other people and making presentations in front of large groups. These are outcomes which companies also value, but there are problems.

Q: What kind of problems?

A: According to HR managers of companies which hire our graduates, compared to universities in the big cities, they seem “hot housed” and “disconnected from the real world”. Even if they are “global jinzai“, they cannot immediately make use of their abilities. I think companies might have to increase their provision of internships to counter this problem.

Q: Isn’t there an increase in opportunities to become “global jinzai” because of collaborations with foreign companies?

A: You have to debate with foreigners if you work with them. The problem for most is that most Japanese people have become used to a way of working whereby you don’t have to put your thoughts into words and feel comfortable in a world where you can communicate through ishin denshin (telepathy).

Q: How should we change?

A: You have to practice being able to say clearly what you think. Americans expect people to say clearly what they are thinking. Even if it is negative. Sometimes you even have to be prepared to have an argument.

Q: This might be bewildering for some people?

A: You have to try to find some common ground. Human emotions and the need to put yourself in someone else’s shoes are the same the world over. Also, the top executives of the company need to make the objective clear. Then employees will have this objective in common and can move forward together. Then both foreigners and Japanese can understand each other and collaborate.

Using Europe as a global pivot

One trend we have noticed in the past few years of observing Japanese companies in Europe is a move away from having global operations either directly managed by Japan HQ or via their US subsidiary. In fact there have been a few cases, usually following a major acquisition of a European company, where the Japan HQ pretty much delegates overseas management functions to the European executive team.

One such example is Asahi Glass. When it decided to set up operations in Brazil in 2013, Japan HQ made a decision to leave local management to their European managers, thereby hoping to avoid the three traps that, according to Nikkei Business, Japanese companies often fall into when entering overseas markets – 1) treating developing markets contemptuously 2) disciminatory hiring and HR practices 3) forcing the “Japanese Way” of doing things. The president of AGC Brazil is Italian – AGC reasoning that they are “both Latin cultures”.

The European team thoroughly investigated the local labour pool and came to the conclusion that there was a severe lack of high level skills, They decided to implement a brand new hiring and training system. Local media publicity attracted applications from 5371 people, which they whittled down to 600 through looking at educational attainment, and then after a written exam, this was further filtered down to 120 candidates.

These 120 candidates were sent on the Brazilian government SENSAI 3 month training scheme. Most continued working, participating in the course from 18:00 to 23:00 at night. Asahi Glass paid the training fees. Many dropped out because of the punishing schedule, and other participants were able to find jobs elsewhere, using the fact that they persisted to the end of the course to enhance their employability. In the end, Asahi Glass hired 33 people – 1% of the original applicants. Even though this may seem ineffecient, they repeated the process 4 times and were able to gather a workforce of 200 people before the factory began operations.

Around 100 of them were then sent to Europe, to factories in Italy, Hungary and France, for around 3 months. In the two years since the factory started operations, hardly anyone has left of their own accord. Some have become managers, and of the original European team of 13, only 7 remain. The Italian president expects that his successor will be Brazilian.

Nikkei Business magazine comments that Japanese companies are not as serious as they should be about hiring and developing people overseas, and that is why they are having problems hiring outside Japan. “Expatriates from Japan do their best, but does Japan HQ really give much priority to HR strategy?”

Fewer women on the boards of Japanese companies in Europe than in Japan

We’ve revised our Top 30 Japanese companies in Europe again. Where possible we have updated the number of employees, which means the Suntory Group is now in the Top 30 along with Konica Minolta (and Kao and Daiichi Sankyo are out). This time we wanted to take a look at the gender and nationality diversity on boards, both in Japan and Europe, and have discovered that there are actually fewer women on the boards of Japanese companies in Europe than in Japan.

Only two out of 19 (10%) of European headquarter boards of Japanese companies have women on them – Astellas and Suntory (the latter including Makiko Ono, an executive in Suntory Japan) and only 3 of the 14 (21%) UK based Japanese companies we looked at (in cases where the European HQ was not in the UK or there were separate European and UK companies in the UK) had women members – Lucite (subsidiary of Mitsubishi Chemical Holding/Mitsubishi Rayon), Komatsu and NTT Data. Komatsu UK’s female director is Keiko Fujiwara, who is the CEO of Komatsu Europe, in Belgium. This contrasts with 13 (43%) out of the Top 30 companies’ boards in Japan having women directors. In case you were wondering, only 6% of FTSE250 companies have no women on them.

4% of the Top 30 Japanese companies in Europe’s board members in Europe and/or the UK are female
6% of the Top 30 Japanese companies in Europe’s board members in Japan are female
8% of the Top 30 Japanese companies in Europe’s board members in Japan are non-Japanese
16% of the board members of the Top 100 listed Japanese companies in Japan are female
19.6% of FTSE250 board members are female

Around 62% of the members of European and UK boards of of the Top 30 Japanese companies are European, on average. Companies whose boards in the UK and Europe only had Japanese directors were Toshiba, Fast Retailing (Uniqlo), Fujifilm and Sharp. Sharp and Toshiba’s troubles are well known. Fast Retailing recently reported struggles in the US market and falling profits in Europe for Uniqlo, Comptoir des Cotonniers and Princess Tam Tam. Fujifilm has made a remarkable transformation from a B2C camera film to a B2B imaging company but the last set of quarterly results, issued last month were deemed “mixed”.

(Note: only main boards, not executive or supervisory boards were analysed, and company secretaries were excluded)

The full chart is here (highlighted means “above average) and can be downloaded here :Top 30 Japanese companies in Europe board diversity Nov 3 2015

Not-so-serious twenty-somethings make the best expats

So says Masato Hikita, director of Headwaters, a consultancy providing services to Japanese SMEs. Headwaters itself sends new graduate recruits off to Vietnam or Dubai for a month or so, to learn how to set up new businesses in foreign countries. The aim is to make them realise that what they assume is common sense in Japan is not necessarily so outside of Japan.

So whilst most Japanese think that “global jinzai” (global human resources) are probably fast track employees in their 30s or above, who speak fluent English, have overseas experience and a willingness to work overseas, Hikita argues that such people are way too good at being excellent in Japan. This means they will take responsibility for pushing forward with projects but also are good at consulting with their colleagues and juniors, are always bright and positive, and serious minded. Unfortunately this has the opposite effect overseas.

When such types go abroad, they want to achieve 100% perfection in their results. However overseas things never go smoothly. The star expat has a lot of pride, so tries their hardest, and puts all the burden on their own shoulders, worrying about how to fulfil headquarters’ expectations. But of course they only end up disappointing headquarters, the more they promise. The headquarters begins to believe that if their ace players can’t win overseas, then maybe they should give up on overseas expansion altogether.

A twenty-something employee will be under less pressure. If they mess up, it’s less of a cost, if they succeed then they’re lucky. Twenty somethings are happy to ask lots of questions, both locally and of Japan headquarters. That way they learn rather than trying to do everything by themselves, and also Japan headquarters become aware of how different things are overseas.

Hikita asked a Japanese person with long overseas experience what kind of employee makes the best expat, and the response was “someone who’s not so serious, who only half listens to what Japan HQ says”. That way, Japan HQ don’t have such high expectations – if 100 is the Japan benchmark, then 50 is good enough.

Finally, and I was relieved to see he did make this point, Japan HQ has to become more globalised itself, by having more non-Japanese employees working there. Again, easier said than done, as I know many European employees of Japanese companies are quite resistant to the idea of working in Japan, assuming that there will be long hours and many stresses on their families. Perhaps the same recipe applies – not so serious twenty somethings might be the place to start!

5 reasons Japanese overseas ventures fail

Around 40% of overseas ventures by Japanese companies result in withdrawal, according to Masato Hikita, director of Headwaters IT consulting company, writing for Diamond business magazine. His clients usually suffer from at least one of the following, he reckons:

No one person with decision making authority

Overseas companies are shocked to hear that Japanese executives don’t actually have executive power. When Japanese companies venture abroad, they usually send the kacho (section chief) out on a scouting expedition, and he talks to people on the ground there who agree that they should collaborate on a project. The local company gets moving quickly, but at this point the Japanese company suddenly grinds to a halt. When asked why, the Japanese company responds that now the bucho (head of department) must visit. And then after that, that the director must visit. At which point the local company wonders why on earth they have to answer the same questions so many times, and decides to start negotiations with someone else.

2. Bringing domestic rivalries overseas

Rather than two Japanese companies fighting to monopolise a market and both end up losing, Hikita recommends that smaller Japanese companies collaborate, particularly in the early phases of raising brand awareness in a new market – for example a joint exhibition stand at a trade fair.

3. Being fooled by a local Japanese “pro”

Just because a Japanese person has lived in another country for 10 years, does not make them an expert in setting up business there. Hikita recommends talking to JETRO or going to local gatherings of Japanese businesspeople to get recommendations.

4. No ‘line in the sand’

According to a Japanese government survey, 90% of Japanese SMEs have not set a bottom line for when they will decide to withdraw from an overseas venture. As Hikita rightly says, from my experience, Japanese companies are happy to make plans for growing a business, but don’t do any planning for what should happen if a business fails. Many say because they have never done something like this before, they don’t know how to judge whether something is a failure. Hikita recommends that nonetheless, through talking to partners and other businesses, some attempt should be made at setting limits, and constantly reviewing status.

5. Overconfidence in the brand

Apparently Japanese companies will assert that the local partner should bear all the costs of marketing, because “we are allowing them to use our brand”. As I’ve mentioned before, a common problem for Japanese companies who are used to everyone in Japan knowing who they are and what they do, without having to make the effort to explain themselves. They are so confident in their brand, they believe they will succeed in the “red ocean” of American and European markets, without realising the true investment required to compete.

Does globalization mean the end of seniority based pay and lifetime employment for Japanese companies?

An HR director at a British multinational recently acquired by a Japanese company told me she was baffled by the response from Japan to her department’s enquiry regarding the company car grade allocation for a group of Japanese expatriate managers being transferred to work in the UK. All they sent back was a list of the managers’ names and their ages, she said.

Of course this is perfectly understandable once you know about the seniority based pay and benefits system in Japanese companies. In European companies, salaries and benefits are based on the job role – how high up the managerial ladder you are and the content of the job – with very little attention paid to age or length of service.

Most of the Japanese subsidiaries I work with in Europe have salary and welfare schemes that are locally appropriate. However there are several aspects of the Japanese HR system which impact employees in Europe, beyond company car grades for expat managers

One aspect is the culture of lifetime employment and the sense of a duty of care for employees. Many Europeans have noticed that Japanese companies are very reluctant to fire even the most poorly performing employee, whether they are European or Japanese. While Europeans are sympathetic to this compassionate stance, they point out it does make performance management for the rest of the team difficult. If poor performers are still on the team, it is demotivating for the other team members.

The other aspect, which is said to be behind Hitachi’s recent announcement that it will end seniority based pay for managers, is that the uniqueness of the Japanese HR system hinders job mobility across borders. Most non-Japanese multinationals try to have an internal vacancy system, where employees in all countries are able to apply for job openings across the world. This necessitates detailed job descriptions, and a certain level of unified grading, so employees can assess which jobs are likely to be open to them.

Europeans find it very confusing that Japanese expatriates are assigned to their offices without any seeming regard for whether they have the right qualifications, skills or experience for the role.

My hope for Japanese companies is that they will send more of their overseas employees to Japan HQ. I suspect the Hitachi announcement, coming as it does after two years of having built up an international database of their employees, is that they too are hoping a more unified system will allow employees to transfer all around the world and not just from Japan, and that this will be based on competency rather than just personal development needs and whose turn it is.

But I have to say I also hope that Japanese companies, if they follow Hitachi’s suit, do not lose their compassion and loyalty towards their employees as they globalize. Despite all the frustrations it brings, Europeans still prefer the long term security of working for a Japanese company.

(This article was originally written in Japanese for 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.)

Category: Globalization