Category: Human resources

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?

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Japanese companies in Europe say Brexit is their biggest worry for 2020

The annual Japan External Trade Relations Organisation (JETRO) survey of Japanese companies in Europe reveals that over 70% of Japanese companies expect their European operations to be profitable for the fifth year running, but  concerns over an economic downturn in the region are higher than in previous years. Brexit came top of the list of management worries – selected by 56.5% of Japanese companies in Europe.

31% say Brexit has had a negative impact on their business so far, and 37.7% are expecting a negative impact in the future. 3.7% felt Brexit has had a positive impact on their business both now and will do in the future. A negative impact was felt by 54% of Japanese companies in the UK both now and in the future, with 2.1% of Japanese companies saying Brexit has had a positive impact and only 0.5% expecting it to have a positive impact in the future.

Brexit

More than half of the 842 companies who responded cited Brexit as their biggest management concern, outstripping the perennial headache of recruiting and retaining employees.  Unsurprisingly the group that was most worried was the manufacturing sector in the UK – but the services sector in Ireland and the UK also ranked Brexit highly as a concern.  Nearly 70% of Japanese companies in Poland and Portugal picked Brexit as a key issue – significantly higher than the average for Japanese companies across Europe.

54% of Germany based Japanese manufacturers chose Brexit as their primary concern, but interestingly, the non-manufacturing sector in Germany was even more concerned by Brexit (59%).  For all groups, the short term disruption from a no deal Brexit was the main reason for concern and the second biggest issue was the future relationship of the UK and the EU.

Japanese companies in the UK were worried about the impact Brexit would have on the UK economy, a cheapening £ making imports more expensive, changes to the UK regulatory and legal environment and exports to non-UK EU.  Japanese companies in non-UK EU countries were most worried about exports to the UK, but also the impact of Brexit on the UK economy and on the EU economy.

Around 90% of Japanese companies were concerned about disruption to logistics and customs processes between EU and UK, considerably higher than concerns about tariffs being imposed (65%).

Japanese companies in the UK focused on freedom of movement of their employees

The worries about UK regulatory and legal changes were mostly focused on changes to the freedom of movement of people between the UK and EU.  Over 50% of Japanese companies in the UK said this was their main concern, particularly those in the services sector.

In terms of countermeasures – 22% said they had either implemented or were implementing their contingency plans – particularly regarding regulatory and legal changes. Compliance with the REACH regulations for the chemicals industry and setting up a new operation were most cited as steps taken. Around 12% of UK based Japanese companies have or are in the middle of reorganising their supply chain and logistics and 4.4% have or are in the middle of reviewing their manufacturing organisation and 2.4% have or are reviewing their R&D structure. The most frequently cited measure taken by Japanese companies in non-UK EU was to secure financial passporting into non-UK EU.

Relocation from UK to EU (but some purchasing functions coming to UK)

In terms of moving out of the UK, the survey found that 3 companies had moved their EU regional HQ completely out of the UK, to Germany, and 10 had partially moved out – 5 to Germany, 3 to the Netherlands and 2 to Luxembourg.  In 2015 19 companies said they wanted to expand their regional coordination function in the UK, compared to only 2 in 2019.  More companies were expanding their regional HQs in Germany, Netherlands, France and Spain.

3 companies had moved their sales coordination out of the UK, to Germany, Czech Republic and Poland, 4 had partially shifted it, to Germany, Italy and the Netherlands. 2 companies had moved all their manufacturing out of the UK – 1 to Poland and one to Japan. 1 had partially moved their manufacturing to Hungary.  Only 1 company had moved their R&D out of the UK, to Switzerland.  4 companies had moved their procurement function from the UK to Czech Republic, Italy, Spain and one company had moved their procurement function to the UK, from Asia.

4  companies are investigating moving their regional HQ from the UK to Germany and Italy, 2 partially moving their HQ to France and Czech Republic. 3 companies are considering moving their sales coordination to Germany and Italy or partially to Germany, France or Belgium.

1 company is considering moving all manufacturing to Japan, and 9 companies are considering partial relocation to Hungary, Germany, Czech Republic, Romania, Japan or elsewhere in Europe. 2 companies are considering wholly or partially moving their R&D to Germany or elsewhere in Europe.

14 companies in the UK are expecting to expand their high value added manufacturing in the UK, down from 25 in 2015 whereas 32 Japanese companies in Germany are expanding their high value added manufacturing.  The Netherlands has become the third main host for Japanese high end manufacturing – 12 are expecting to expand their manufacturing there compared to only 2 in 2015.

12 companies are considering moving their procurement to Poland, Italy, Germany, Spain, the Netherlands, Asia or elsewhere in the EU. 3 companies are considering moving procurement to the UK from the EU, Poland, Portugal.  3 other companies are looking to move their procurement entirely out of Europe to countries such as South Korea or China.

The EPA is encouraging Japanese imports to EU

65.5% of Japanese companies who were importing from Japan to the EU and 53.1% of Japanese companies exporting to Japan from the EU said they were taking advantage of the EPA. Particularly notable were 80% of Japanese companies based in Italy (both importers and exporters) and 70% of Japanese companies in Spain.  62% of UK based Japanese companies were using the EPA to import from Japan (a lower proportion than Italy, Czech Republic, Spain, Poland, Belgium, Netherlands and Germany).

100% of Japanese companies in the logistics/warehousing, plastic components, rubber products sectors say they are using the EPA and over 70% of Japanese companies in the metal products, textiles, automotive parts, wholesalers, food and seafood processing sectors are using the EPA to import from Japan.

Sectors most making use of the EPA to export from the EU to Japan were the logistics/warehousing, automotive parts and wholesale sectors.

Overall, Japanese companies in the EU are importing 32.6% of their parts and raw materials (by value) from Japan, 1.2% up on the previous year – Japanese companies in Germany were importing the highest share of their procurement from Japan by value – 46.6%.  Over 23% of Japanese companies in the EU expect to expand their procurement from Japan, particularly the services sector with 47.8% of wholesale and retail companies saying they will increase their purchases from Japan.

Economic outlook for Europe

Japanese manufacturers are however more pessimistic about prospects for 2020 than they were in 2019,  with 36.7% expecting their profitability to worsen, compared to 26.6% expecting their profitability to improve.  The causes differ from Western Europe to Eastern Europe – manufacturers in Western Europe expect falling  demand to be the key factor whereas in Eastern Europe the primary concern is rising labour costs.

Around a third of Japanese companies are optimistic about the economic prospects in 2020 for the countries they are operating in, which is considerably down on the 57% who were optimistic for 2019 – this pessimism was particularly strong for Western European based manufacturing.

Hiring and retaining workers continues to be a headache for Japanese companies.  This is especially an issue in Central and Eastern Europe and particularly at management level in Western Europe and at factory worker level in Central and Eastern Europe.

Around 50-55% of Japanese companies in Europe have or expect to maintain current employee levels – over a third have or expect to increase their workforce. 16% cut their workforce in the past year but only 11.3% expect to do so in 2020.

Strengthening selling to EU as a region

JETRO also sees evidence that Japanese companies are strengthening their approach to selling to the EU as a region, rather than individual countries.  For the first time in their surveys, “The EU” outstripped Germany and Poland as the market that Japanese companies saw as the most promising for sales.  Maybe this is another – psychological rather than regulatory –  impact of the EPA.

Japanese companies say that strengthening their company’s brand, developing and strengthening the technical skills of their employees (particularly in Eastern Europe) and investing further in research and development are key to increasing sales in Europe.

So, as I have often said, Japanese companies are having to find ways to retain their integrity in a Europe and a world which is also dis-integrating, and Brexit is accelerating that process.

 

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“If we carry on like this, Japan will perish” – Uniqlo’s founder Tadashi Yanai

Tadashi Yanai, founder and president of Fast Retailing (Uniqlo) has some hard hitting words for the Nikkei Business magazine series “Wake Up Japan”:

“Japan is the only country which relies mainly on one big intake of domestic graduate hires for its recruitment. But you have to recruit globally. There is competition around the world to hire people, and Japan is falling behind.  Only hiring Japanese people is pointless.

At the moment Japan just seems to be hiring raw manpower, but we need to hire people with advanced skills, knowledge workers. Yet we are still just hiring Japanese people for this too.

Japan’s executives need to globalize too

Japan is two steps behind in terms of skills, yet we think we are ahead of the game. We don’t know the reality of the wider world outside. This is because executives are not learning and not going outside of Japan.  Executives think they are globalising their companies, but they just send out business unit heads, without actually changing at the executive level. If executives aren’t taking risks, with their own money, it won’t go well.

If you want to hire top non-Japanese, you have to radically change Japan’s HR and reward systems. If you look at compensation, levels in China and Europe are around 2-3 times higher, and around 10 times higher in the USA.

Only non-Japanese who love Japanese culture can put up with Japan’s current HR system

Japanese companies set pay just by looking at other companies in their sector, in Japan. So there is pressure for everyone to toe the line. So if you want good non-Japanese people to join you, you will only attract the ones who love Japanese culture.

The lifetime employment and seniority based promotion systems have become calcified. I think they are good systems, but only if the company is growing. It’s OK if the outcome is lifetime employment and seniority based promotion, but this has become very superficial. If you bring in people from outside Japan, seniority based promotion and lifetime employment will collapse.

For example, if you want to build up strength in robotics and AI, you have to hire top people from Silicon Valley, or India or China and work with them. Seniority based promotion is irrelevant then. If you want to work together, it has to be based on a transparent, fair system.

The need for strong, good values to attract good people

If you want to work with people from all round the world, you have to have strong good values yourself.  This attracts good people. Good companies attract good people.

Japan still behaves like a closed country even though it thinks it isn’t any more, just because more and more tourists are coming here. Real globalization means working alongside non-Japanese people. So you have to build a system that enables this.

So I don’t think of career development as being in 10 year increments, rather as 3 year units.  Talented people can become directors within three years, even if they are graduate recruits.  If you don’t have that kind of system, they will quit.”

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How Japanese companies are revitalising their senior employees

As previously blogged, corporate Japan is facing (for the fourth time) a hidden unemployment/underemployment problem with its middle-senior employees. This time, the view is rather than sideline them or push them out – given Japan’s labour shortage- it would be better to “revitalise” this group.

Nikkei Business magazine’s special feature on ‘the Fifties Problem’ gives some examples of what Japanese companies are doing to help this:

  • Kagome (food manufacturer) – moving from a person based/competency grading system to a job based/duties class based system, rooted in the principles of 1) be at the coalface/gemba, 2) reform from the top executives down 3) be fair
  • Sony – introduced Career Plus (spending 1 day a week in another role, which is publicly advertised in the company), Careerlink (a database where people can register if they would like to work in a new role), Re-Creation Fund (funding for re-training of up to Y100,000/>$1000)
  • SCSK (a Sumitomo Corporation IT services company) – found that 90% of its employees chose to extend their employment into post retirement after the age of 60, once they offered a “continued employment” path from 55. From 60 they switch to a “Senior Permanent” track, with a 5 year contract, where salary is based on the job content and will be increased based on contribution, with increments for specialist expertise. They are currently looking at extending this system to 65+.

This emphasis on re-training and having expertise is indeed leading to more interest in professional learning according to Nikkei Business – and not just for the over 50s. Japan has a very low rate of the working population (25-64) attending educational institutions – only 2.4% compared to 15.8% in the UK, 14.3% in the USA, 6.7% in Germany and 4.6% in France.

As I mentioned in a previous blog post, the UK’s undergraduate “theoretical” rather than applied education system is most similar to Japan.  Now Japan has decided that a generalist education and career is no longer fit for the 21st century, it should be boom time for continuing professional development providers in Japan.

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Fundamentally rethinking Japan’s lifetime employment system

Toyota’s President Aikio Toyoda made the headlines in May 2019 by saying that if there are not more incentives to continue employing people, lifetime employment can no longer be maintained.  Toyota has still been sticking to the seniority based system common to many Japanese companies where the promotion path is to become kacho (team leader) by 40, then bucho (general manager) in the second half of your 40s.  If you drop off this path, there is no return to it.  “Which means that if you are in your 50s, with no people reporting to you and no major work to do, it is hard to be motivated, and yet because your salary is Y12m a year (around $110,000), nobody quits” says an employee in his 40s, in a Nikkei Business magazine special feature.

Hidden unemployment

Up until recently, those in their 50s who were in the production side would be taken away from the production line but now, because of a labour shortage, they need to be kept on the production line.  So from 2012, Toyota introduced new appraisal systems and health policies, so that those in the 50s can also be productive. The lifetime employment problem is more acute with those in office functions. A Toyota source says “up until the Lehman Shock, they could hide somewhere even if they did not have much work to do, but now the “unemployed layer” is becoming more apparent.”

Toyota has already shrunk its board directors down from 55 to 23 and merged several executive level layers into one. It has been in a series of negotiations with the company union on revising the appraisal system and increasing mid-career hires.  Toyota group companies such as Denso, J-TEKT and Aisin are following suit.

“Men in their 50s are inflexible. They are a drag on reform”

Outside Toyota, Hiroaki Nakanishi, now chair of Japanese business federation Keidanren, formerly President of Hitachi has also said that “we have reached a limit to how far a company can run its business on the precondition of lifetime employment”.  Electronics companies who developed staff in the 1980s for their semi conductor business are now finding it hard to switch over to AI and other skillsets. “Men in their 50s are inflexible. They are a drag on reform” says the head of a Japanese manufacturer.

Japanese telecoms company KDDI conducted an internal survey to try to revitalise the rapidly growing “over 50s” segment of its workforce, only to find that most of those in their 50s were happy with staying as they were, and had no interest in becoming more energetic in their work.  It has not been so much of an issue for Japan’s banks, as there was a tradition of employees in their 50s being transferred to clients.  But some clients are beginning to refuse secondees from banks, if they are not adding value.

Fourth time round – a fundamental change is needed

According to Rikkyo University assistant professor Satoshi Tanaka, this is the fourth time round that the middle-senior age group has been a labour issue. The first time was directly after the oil shock in the mid 1970s, the second time was in the mid 1990s, the third was after the Lehman schock. The countermeasure after the oil shock was to second people to sister companies and subsidiaries, the countermeasure in the 1990s was to introduce more performance based HR systems. The Lehman shock aftermath saw more “early retirement” systems (although I saw this being introduced in the 1990s when I was in Japan too) and now the 4th time round, the focus is on how to “revitalise” those in the mid-senior age groups rather than get rid of them, due to Japan’s labour shortage.

Nikkei Business contrasts Japan’s “membership system” with the “job system” of the West. Japan has the three treasures of a company union, seniority based promotion and lifetime employment in contrast to the harsher world of the West, where there are job descriptions, it is easier to fire people and unions are by sector. The consensus fourth time round seems to be that a fundamental rethink of Japan’s HR system is needed.

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Who’s hiring the most Japanese graduate recruits

Japan’s electronics/electrical engineering/IT companies dominate its graduate recruitment scene. Even though Mitsubishi Electric will be hiring fewer graduates in Japan in 2020 than in 2019 (880 down from 920), it is the biggest graduate recruiter in Japan. Fujitsu, at number 2 in Toyo Keizai’s rankings of graduate recruiters, is hiring the same number in 2020 as the previous year (750) as is Panasonic at number 5 (700 for 2020, 700 for 2019) and Sony – 400 for both years.  Hitachi is also maintaining numbers (600 in both years, at #9).  Murata is increasing its recruitment by 30% to 395 and Canon is upping its recruitment to 522 from 495.  NEC is hiring 25% more than last year, from 400 to 500 and NTT Data is hiring 50 more in 2020 (483).  Nidec is the exception, hiring 430, down from 500 the previous year.

By contrast, the megabanks and securities houses are cutting back – SMBC is hiring 600, down 50 from 2019, Mizuho down 150 to 550 and MUFG is almost halving its intake from 951 to 531. Daiwa Securities is cutting back recruitment by over a third to 450. Nomura is also drastically cutting back – hiring only 339 in 220 compared to 627 in 2019.  Mizuho Securities is reducing recruitment by 100 to 250.

The insurance sector is a mixed picture – Tokio Marine is the 7th biggest graduate recruiter in Japan and is increasing its graduate hires to 639 from 592. Mitsui Sumitomo Insurance is cutting its intake from 460 to 440. Aioi Nissay Dowa is also reducing its graduate hiring from 448 to 410.

The automotive sector is also mixed, Honda is increasing its graduates hires by 30 to 557 and Suzuki is hiring 80 more to 530.  Nissan is cutting back by less than 10% from 380 to 350 and Denso is reducing its intake from 451 to 385. No ranking is given for Toyota.

So, for students overseas looking to work for a Japanese company, the electronics/electrical engineering/IT sector looks like the best bet for 2020.

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Japanese education system is most similar to UK in relying on “on the job training”

It’s well known in Japan that entry to good universities is fiercely competitive, and then students mess around for four years, sleeping in lectures, putting more effort into club activities than study. As a consequence, the large employers who recruit hundreds of graduates every year mainly assess applicants on character and potential, and treat new hires as “trainees” to be developed, rather than contributors.

Those graduate recruits then mostly follow a generalist career track, being switched around various businesses, functions and locations.  As you may have noted from other blog posts on the Nikkei Business series “Wake Up Japan”, many Japanese business people feel this system no longer works. So Nikkei Business took a look at the Japanese education and recruitment system, comparing it to the UK, China, France, Germany, South Korea and the USA. It concluded that the only other country out of those six that had a similar university education system to Japan was the UK.

Will the younger generations prefer more applied university degrees?

Initially I was surprised by that conclusion, but then I reflected on the discussions I’ve been having with my son, who is dithering over which university and what courses to apply for, if at all. I admit my prejudice is towards him doing a generalist degree in the social sciences at a good university, and then, once he has a better idea of what he wants to do, doing a more applied post graduate qualification.  There are applied, practice oriented degrees in the UK, but we snobbily assume they are second rate and will not lead to elite careers.

My son and others of his generation may well be rebelling against the idea of a generalist liberal arts degree at a top university, requiring eye wateringly high exam grades at 18 to enter.  He is more tempted by a digital media degree at Leeds University.  I was surprised that such a degree was offered at Leeds, which is one of the top, so-called Russell Group universities in the UK. But actually the curriculum looks fascinating, and is not just about learning coding.  Unsurprisingly, the post graduate employment rate is close to 100%.

Specialist training provided by UK companies, vs generalist track in Japanese companies

The post graduate career outcomes are different between Japan and the UK, however, the Nikkei points out. Whereas Japanese companies expect graduate recruits to stay in the company, receiving generalist “on the job training”, with the result that after 10 years, 44.5% of graduate recruits are still working at that company, the rate is only 31.6% in the UK. British companies train their recruits in more specialist skills, which are transferable to other companies. It’s not mentioned in the Nikkei article, but as I often point out, the UK also has many chartered institutes for various professions, requiring annual professional development, offering exams and qualifications.

French, Swedish and German university degrees are more specialist, teaching applied skills that can be immediately put to use in a company.  I recently spoke with two Spanish AI researchers at a Japanese company in the UK and they confirmed that the Spanish system is also to do an applied, practice oriented first degree, then if you want to explore more general theoretical aspects, to do this as a post graduate degree.The US has both types – applied degrees but also liberal arts degrees that are more generalist. Unsurprisingly, Chinese universities are focused on providing education which fits with the national strategy. They limit university entrance to 1 million people per 1% of GDP growth, so currently with 6% GDP growth, they are admitting 6 million to 7 million students a year.  Korean universities are not well evaluated, so companies look at other grades and experience, such as English language ability tests.

Impact on youth unemployment

There are some downsides to the French system however – Nikkei Business points to how the French youth unemployment rate is still around 20%, compared to 3% in Japan. They speculate that the cause of this is French companies preferring to hire experienced, skilled people, offering little in the way of internal training to support graduate recruits.

Nikkei Business concludes that there are disadvantages and merits in all the systems, and it is not obvious what changes Japan should make. If they are to follow the British path, then more professional development institutes offering training might be one strategy to follow.

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The latest in Nidec President Nagamori’s string of acquisitions – a university

Shigenobu Nagamori, the founder of Nidec is interviewed in the Nikkei Business series on how to “wake up Japan” about his latest acquisition – not a company this time, but a university – Kyoto Gakuen. He feels that Japan has become too brand name obsessed about higher education and that 18 year olds should not have their future decided simply on the basis of their standardised score for the university entry exams.

“You get into university in Japan on rote memorization and exam technique, so when you graduate, you have a rather fake identity, with no real strength, so don’t know how to survive in society.” Nagamori is aiming for a university where “you graduate with fluent English [science graduates do not have to study English at university in Japan] and specialist skills that you can put to immediate use”.  He has changed Kyoto Gakuen’s name to the Kyoto University of Advanced Science.

“Japanese university students aren’t fully formed human beings. They don’t know how to speak for themselves.  They fall asleep in lectures or mess about on their smartphones. This has to change, starting with the teachers.  That’s why I became the chairman of the university. Lectures will be in English.  1/3 of the teachers will be foreign. There will be some students who cannot cope with this, so we will have the same lectures in the evening in Japanese.  We had 600 lecturers apply for 30 positions. The evening supplementary lectures wll be given by post doc students or research students. The lectures will not be 90 minutes of sitting down.  There will be a 45 minute lecture and the rest will be doing experiments. ”

“The administrators become the elite in Japanese companies – hardly any technical specialists become CEO. This is completely different to the USA. We also need to encourage overseas study – and encourage overseas students to come to us – maybe half our students should be from overseas. If they achieve good results, we will fund their fees and living costs. If results fall off, they pay half, if they hit the bottom, they have to pay all of it. That’s what we’re thinking. This might seem extreme, but it’s normal in the USA.”

Most of the rest of the interview is about facing the threat from China.  Nagamori finishes by comparing himself to Konosuke Matsushita, the founder of Panasonic. Matsushita developed his management philosophy, and set up the Matsushita Institute of Government and Management , “but I don’t have any interest in politics, so I want to develop people who can set up businesses in advanced science – kids from poor Asian families who can come here to study, and then go out into the world and start something new.”

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The cause of Japan’s low productivity: 5 generalists doing one specialist’s job

In the Nikkei Business series on how to “wake up Japan”, Senior Chairman and former CEO of Japanese leasing and financial services company Orix Yoshihiko Miyauchi sees three mistakes that have led to  Japan’s “lost three decades”

  • Allowing an asset bubble to develop in Japan the first place
  • Not stabilising the economy after the asset price crash.
  • Not restructuring the Japanese banking system quicker – real restructuring did not happen until the 2000s, 10 years after the crash.

As a result, Japanese companies were “like tiny boats on a big ocean, using all their energy to avoid large waves. Rather than innovate or grow, they focused on cost cutting”, says Miyauchi.

Miyauchi rates Japanese employees very highly – “they have a strong sense of responsibility, and do all they can to fulfil their obligations. But there is a lack of creative thinkers.  There is a problem in the way we develop people – Japanese companies are always developing generalists, when in the future we need to focus intensively on supporting the development of specialists. If you don’t have specialists who are the complete experts, then you cannot achieve high performance. Japanese companies end up having 5 ‘semi professionals’ doing one specialist’s job. ”

“It would be a big shock to change this immediately, so probably Japanese companies will need a hybrid development system with a specialist track and a generalist track.”  I agree, but I have seen that in the past when this is done in Japanese companies, the specialist track is seen as a demotion away from line management.  Japan may need to introduce specialist, professional organisations such as the various chartered institutes we have in the UK, which certify qualifications  and support continuing professional development, to ensure that specialists are less reliant on the prejudices of their company’s HR system for their careers.

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Japan’s lost three decades – what are the causes?

The 1990s were called the Lost Decade in Japan, and then as the economy seemed to stagnate in the 2000s, it became the Lost Two Decades.  Now the Nikkei Business in a recent special series seems to be saying it has been a lost three decades.  Turnover and profitability were growing through to around 1990 when the economic bubble burst.  Then profits fell – although since 2010 they have been growing  again.  The total revenues of Japanese companies (excluding financial services) has been static, with only a small bump upwards around 2005-2008.

Nikkei Business says the lack of growth in turnover is the key problem. Even sales overseas, which were meant to be the growth driver, have not shown much of an upward trend.  According to Nikkei Business the root causes of this lack of growth are:

  1. low investment (1991 capital investment as a percentage of cashflow was 133%, compared to 82.2% in 2018)
  2. low wages (106.5 in 1990 indexed against 100 in 2015, down to 99.6 in 2019)
  3. low efficiency (return on assets was 4.3% in 1990, down to 3.8% in 2018)

It cites Panasonic as an example of #1. Every time profits rose, Panasonic increased its investment, but every time profits shrank, it cut investment back, since 2001.  As for #2, Nikkei Business lists all the major restructurings since 1999 with major Japanese companies, which makes for sobering reading for a country famed for lifetime employment:

  • 1999 – Nissan plan to cut 21,000 from its workforce, closing 5 factories
  • 2008 – Sony announced it would reduced its electronics workforce by 16,000
  • 2009 – Panasonic announced it would cut 15,000 people and 27 factories. Pioneer axed 10,000 jobs.
  • 2010 – All Nippon Airways proposed reducing its workforce by 16,000 as part of its revival plan
  • 2011 – Ricoh announced a mid term plan aiming at reducing its workforce by 10,000
  • 2012 – NEC announced a workforce reduction programme of 10,000 job cuts
  • 2013 – Fujitsu announced it that by axing its semi-conductor business, it would remove 5,000 jobs.
  • 2015 – Toshiba announce it would erduce its workforce by 15,0000
  • 2017 – Mizuho Financial Group announced an administrative work reduction programme targetting 19,000 roles.
  • 2019 – Nissan restructuring to impact 12,500 personnel

The low efficiency seems to be in the service sector, where there has been a lack of economies of scale.  The number of Japanese companies with turnover of over  Y100bn/$1bn doubled from around 40 to 80 from 1980 to 1991, but has not risen much since – apart from a blip in 2008 – after the birth of Japan Post, and is still heavily manufacturing oriented.

I will cover the analysis and suggestions from the rest of series for how Japan can “wake up” in my next blog posts.

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