Human resources

Japanese with foreign MBAs are beginning to change corporate Japan

One swallow does not make a summer, and I am not entirely convinced by Nikkei Business’s assertion that there is an upcoming group of Japanese who did MBAs overseas in the 1990s and 2000s and are now taking over and changing corporate Japan.

The examples cited are:

Minato Koji (University of South California Business School MBA 2003), formerly of Oracle Japan, who was headhunted for a CEO position at Itoki, an office furniture manufacturer
Takahashi Hidehito (Columbia MBA 1992), President of Resonac Holdings (formerly Showa Denko)
Matsuoka Yoko (known as Yoky) who is founder of Yohana, a Panasonic subsidiary – who hasn’t got an MBA, but went out to the USA when younger, to become a tennis pro.

Nikkei Business characterises them as familiar with technology, having learned Western-style management through study abroad, including an understanding of how to take risks, and having had the experience of putting this knowledge into practice at foreign-affiliated companies.

Another example is Morimoto Masaru, now chairman of Showa Aircraft, who gained an MBA at Harvard in 1993 when he was working at Sumitomo Trust Bank. He says that in the 1990s, around 20 people a year were sent to study abroad from Sumitomo Trust Bank. “Large companies were competing to see who could send students.” Students studying abroad surged in the 1990s, reaching 83,000 in 2004.

As I was working in Japan in the 1990s (and was sponsored by my Japanese company, the first ever non-Japanese, to do an MBA at INSEAD, in 1997) I saw this for myself. The issue then was that companies did not know what to do with their newly minted MBAs when they returned. Corporate finance, or maybe send them to the USA, was the usual offer – MBAs were jokingly known as Managing Business in America. Many of the MBAs became frustrated and joined foreign companies – which is exactly what Morimoto (Club Med, Coca Cola), Minato (Sun Microsystems, Oracle), Matsuoka (Google) and Takahashi (GE, GKN) all did.

I do agree, however, that it would be positive for Japanese companies if more Japanese employees and young people studied abroad – so long as Japanese companies can work out what to do with them afterwards – perhaps the new job-type systems will help with this. The Japanese government has just announced that it wants the numbers studying abroad to reach 100,000 a year by 2027. This was achieved before, but even in 2019, before the pandemic hit, there were only 77,953 Japanese students abroad, compared to the record high of 115,146 in 2018.

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“Job type system” not the cure-all for Japanese employee engagement

Fast Retailing (Uniqlo) has caused quite a stir in Japan by announcing that it will raise salaries by up to 40%. It claims this is in order to bring the Japanese salaries more into line with what Uniqlo is paying staff overseas, so that staff can be transferred to and from Japan HQ more easily. Japanese companies have been under pressure from the government for some time to increase salaries and this seems to some extent a typically punchy move by Fast Retailing CEO and founder Yanai-san, who has always favoured being provocative and going against the mainstream.

As any global compensation expert will tell you, it’s not quite as simple as paying people the same for the same job around the world, given the very different living standards and cost of living. Nonetheless, if Japanese companies want to introduce the “job type” system, where the compensation is defined by a job description, rather than a seniority based generalist track with no job description, which has been the tradition in Japan, they are going to have to consider some kind of parity in remuneration, to make it attractive and easy for their employees to move around the world.

As Dr Kawai Kaoru, workplace health scientist, has pointed out in a recent article for Nikkei Business, the reality of the uptake of the “job type system” has not lived up to the media hype. The same names keep coming up – Hitachi, Fujitsu, Astellas, KDDI, Mitsubishi Chemical, Shiseido and Kagome. According to Dr Kawai’s research “an overwhelming number of companies said they had no plans to introduce a job-based system.”

Those who are introducing a job type system are expecting it to re-energise their staff, improving autonomy, empowerment and engagement. Kawai cautions against seeing the job type system as being a cure-all for employee motivation. Her worry is that too much emphasis on the individual may ignore the fact that what really energises employees in their work is a sense of interdependency – that other people rely on them and they can rely on others, in order to get things done.

She points out that the five factors needed for high employee engagement (which I have seen appear in many an employee engagement survey) are

Sufficient resources to do the job
Discretionary power to make decisions, get things done
Being recognised and rewarded for good work
Fairness – being respected and able to express opinions, regardless of age, gender, nationality etc.
Community – that staff members help each other and trust each other

Japanese companies have always been strong on the last point – Dr Kawai and I are both hoping it is not lost in the quest for a more global standard.

Who’s getting the biggest pay rises in Japanese companies in Europe?

If you’re in Hungary, Poland or Romania and you’re working in construction or engineering or in IT for a Japanese company, you’re in luck.

According to a survey by JETRO of Japanese companies in Europe, of the 857 organisations who responded, employees in Romania, Hungary and Poland are seeing pay rises of well over 7.5% to 8.5%, whereas employees in Western European countries such as Italy, Finland and Sweden are getting less than 3%. Those countries with the largest numbers of Japanese companies – Germany, UK, France – are seeing pay rises ranging between 3.5 to 4.5%.

The top three sectors with the highest pay rises were:

2022/23: Construction/Plant/Engineering (6.25%), Communication/IT/Software/Information system/Digital services (5.95%), Rubber products (5.87%)
2023/24: Other manufacturing industries (7.50%), Non-banking financial institutions (7.17%), Non-ferrous metals (6.00%)

These seem to be indicators of where demand is the strongest and therefore competition for employees. We’ve heard quite a few cases of Japanese companies expanding in Romania recently, not only in manufacturing but also IT services and logistics. Hungary has been a hotspot for a while now, particularly in automotive manufacturing.

Top issues for Japanese companies in Europe, Middle East and Africa for 2022/3

The annual survey by JETRO of Japanese multinationals shows that many are struggling to return to pre-COVID levels of profitability. 65% of the 7,000 companies surveyed expect to be profitable by the end of FY 2022 (March 31 2023) but the automotive parts sector is forecasting widening losses.

Expectations for profitability are slightly higher in Europe than the global average and within the region, on a country by country basis, business prospects are overall more positive for Japanese companies in the Netherlands and Germany than for those in France or the UK. On the other hand, due to logistics, procurement and energy costs, 35% of Japanese manufacturers in Eastern Europe are expecting their business prospects to worsen, only just balanced out by the 36% who expect their business prospects to improve. Increasing labour costs and hiring and retention even outweigh the impact of the Ukraine war for Japanese companies in Europe as the key challenge. This is also seen as a challenge in Western Europe, but with more focus on white collar, managerial workers, particularly in Germany and the Netherlands.

More than 70% of Japanese companies in the Netherlands, UK, Germany and UAE are expecting to achieve profitability in FY2022. However only 37.9% of companies in the region expect profits to improve, 11.8% lower than 2020/21. More than half of the Japanese companies based in Finland, Ireland, Italy, Sweden, Czech Republic and Portugal are expecting profits to improve – compared to 46.7% of Japanese companies in the Netherlands, 44.4% in the UK, 38.1% in France, 36.4% in Germany, 35.3% in UAE and 31.1% in South Africa. Manufacturers in the UK, having not recovered as quickly as in the rest of Europe from the pandemic, are now more optimistic about profitability for 2022/23 than other manufacturers in the region.

45% of Japanese companies are expecting to expand their business in their region over the next 1-2 years, but do not expect to return to full pre-COVID levels because of rising costs. One bright spot is increasing investment in the human resources and hospitality sectors, thanks to the lifting of coronavirus restrictions.

Within EMEA, more than 50% are expecting to expand their business in Denmark, Portugal, Switzerland, Italy, Spain, Ireland and Romania. When asked about expanding “functions”, Germany, UK and the Netherlands were the top 3 for expanding sales functions, Germany, Netherlands and Czech Republic for expanding manufacturing and Germany, France, Spain, UK and Belgium were top for R&D. Overall, particularly for the UK, the mood seems to be “keeping things as they are”

Trade

Over 50% of Japanese companies in the UK say that Brexit has had a negative impact on their business, mainly due to (in rank order) increased customs clearance processes, delays and costs of logistics, imposition of tariffs, responding to new UK regulations (eg the CE vs UKCA mark), customers leaving the UK and difficulties in hiring. 40% of Japanese manufacturers in the UK say they are experiencing problems in exporting to the EU.

37.9% of UK based companies say they are using the EU-UK Trade and Cooperation Agreement for their exports to the EU, 12.9% up on the previous year. The main reason given for not using it was that their exports were already tariff free, or did not fall within the agreement. The main challenges in using the TCA were setting up their own internal systems, getting the cooperation of EU based suppliers or customers and interacting with customs. Securing human resources was cited by 50% of the Japanese companies in the UK as a negative impact of Brexit (61.5% for manufacturers), compared to only 9.8% of Japanese companies in the EU saying they were concerned about this as a result of Brexit.

49% of Japanese companies in the EU are using the EU Japan Economic Partnership Agreement for importing from Japan to the EU and 34% are using the agreement to export from the EU to Japan. More than half of Japanese companies in Austria, Italy, Czech Republic, France and Spain are using the EPA to import to the EU. The sectors with the highest use of the EPA are chemicals, wholesale, foods, plastic products and transportation equipment.

Localization of supply chains and staff

60% of Japanese manufacturers globally are expecting to review their supply chains in the future months. Localization of procurement, production and sales is accelerating due to rising raw material and transportation costs and the emergence of supply chain disruption risks. Within Europe, 48.2% of all companies have reviewed their supply chains and 55.5% expect to review them in the coming year.

In Europe, however, there is more interest in localising procurement within the EU than within the country of location. 21.4% of Japanese companies in Western Europe, 32.1% of Japanese companies in Central and Eastern Europe and only 9.5% of Japanese companies in the UK are expecting to increase domestic procurement, whereas 34.3% of Japanese companies in Western Europe and 45.8% of companies in Eastern Europe are expecting to increase their procurement within the EU. No UK companies are expecting to increase their procurement from the EU and no Eastern European Japanese companies are expecting to increase their procurement from the UK either.

Around 20% of European companies are expecting to increase procurement from Japan, but significantly more (around 35%) are expecting to increase procurement from ASEAN countries.

Japanese companies are also planning to reduce the number of expatriate staff sent from Japan, and increase the number of locally hired staff, particularly in Asia. The pandemic has accelerated the ability to manage the business remotely, from Japan. Within EMEA, 28.9% are expecting to increase their Japanese expats to the Netherlands, compared to a 22.1% increase to UAE, 19.3% increase to Germany, 18.1% to the UK and 13.3% to France and 6.6% to South Africa. 13.3% are expecting to reduce the number of Japanese expats in the Netherlands, 12.4% in Germany, 6.4% to the UK, 16.7% to France.

In terms of hiring more local employees, Japanese companies in Germany came top with 44.3% wishing to do so, then South Africa with 39.5%, Netherlands with 38.9%, France with 37.7%, UK with 36.1%, UAE with 35.9%. 10% of Japanese companies in Germany and the Netherlands were planning to reduce local staff numbers, compared to 11.3% in the UK, 9.8% in France, 9.3% in South Africa, and 4.9% in the UAE.

Whereas automation and reduction of the workforce had been a top priority for manufacturers before 2020, while this is still at number 2, the top priority for the next few years is investment in new equipment and new projects. The third highest priority is revising manufacturing location. The reasons underpinning these priorities are the need to optimise production costs, the high cost of labour and the high cost of raw materials.

CSR and supply chains

A third of Japanese multinationals are doing due diligence on human rights in their supply chains, particularly in Europe, where regulations are being introduced. 46.2% of Japanese companies in the UK are already doing due diligence – compared to 42.9% in France, 30.3% in Germany and 23.2% in the Netherlands. Sectors which are particularly concerned with human rights are mining and minerals, plastic products, non ferrous metals, textiles, construction and foods.

42.4% of Japanese multinationals have started taking steps to reduce their carbon emissions, 9% up on the previous year. 20% of Japanese companies are proceeding with “green procurement” for their suppliers. Portugal, Switzerland, Ireland, Austria, Spain and France score particularly highly in terms of taking steps to reduce carbon emission with over 70% of companies in those countries already having done so, compared to 63.6% in South Africa, 58.3% in the UK, 55.2% in the Netherlands, 51.5% in UAE and 50% in Germany.

Actions taken include reducing energy usage, using more electric power, using more renewable or new energy sources, with solar being the most popular. Other actions have included developing new environmentally friendly products, green procurement and revising procurement and logistics. The interest in green investments is at a record high, greater than digital investments or eco friendly transportation or tourism.

Sales

The most promising sales destination for Japanese companies in Europe continues to be Poland, for the fourth year running. Turkey has overtaken Germany for the first time in 7 years and the UK is back in the top 10. Other Eastern European countries in the top 10 are Hungary, Czech Republic and Romania – mainly for their economic growth prospects. The other Western European countries in the top 10 are France, Italy and Spain.

Japanese companies in the UK are showing an increasing focus on the UK domestic market for their sales, with an average of 49.4% of sales to the UK market, 2.4% up on 2021/2, compared to a European average of domestic sales of 37.7%. UK companies are selling on average 16.5% of sales to EU countries, compared to 37.6% of sales to other EU countries (excluding their own country) for Japanese companies located in the EU. Unsurprisingly, Japanese companies in the UK have become more UK oriented since Brexit, as many of the EU sales and coordination functions have shifted from the UK to the EU – and is now potentially stabilising after the sharp decline over 2019/20 to 2021/2

Although the proportion of sales to non-EU Europe (presumably Norway, Switzerland, maybe Turkey) is higher for the UK (16.3%) than for Europe overall (4.4%), there is not much evidence that the UK is being used as a base for sales outside Europe – the proportion of sales to North America (1.7%) or China (1.3%) is actually slightly lower than for the whole of Europe. Sales to Japan have been falling steadily since 2019 (possibly related to Honda Civic sales to Japan). The proportion of sales to “other” countries is higher – 8.5% compared to 6.5%, perhaps showing that some Japanese companies in the UK are indeed Europe, Middle East and Africa headquarters, with sales focused more on the latter regions. ASEAN only accounted for 1% of the 7% of sales to other countries in 2019/20.

Hybrid working and pay rises

European employees of Japanese companies are not returning to the workplace at anything like the rate they are in South West Asia, North West Asia or ASEAN. During 2021, 14.6% of Japanese companies in Europe said that 90% or more of their employees were working at their office or factory and only 29.6% were expecting this to happen in 2022/3 in Europe. In Asia, around 30% of companies said their over 90% of employees were working at the office or factory in 2021 and this is expected to be near to 70% in 2023. This may reflect that there are proportionately more manufacturing companies in Asia than in Europe.

In terms of reviewing management and personnel policies and structure, by far the most popular choice for review was human resource development and training – chosen by 61.6% of Japanese multinationals. Second was reviewing working from home policies, at 35.3%, closely followed by reviewing staff remuneration at 32.3%. The next three topics were all chosen by around 27% of Japanese companies – digitization of workflows, reviewing the expat staff structure and localising management.

Pay rises are highest in emerging markets such as Brazil, India, Mexico, Vietnam and South Africa and in Europe – Hungary, Poland, Romania and Czech Republic – at around 6 to 9% over the past two quarters, whereas despite the high inflation rates, pay is only expected to rise by 2.7% to 4.6% in the Netherlands, Germany, UK, France and UAE.

Update – this article has been added to since the publication of a European focused version of the survey by JETRO in December 2022.

It’s no longer “post off” for Japanese employees in their late 50s

An increasing number of Japanese companies are abolishing the “post off” system, whereby employees are removed from line management around the age of 55, according to the Nikkei. The aim of this system was to restructure the organisation and cut labour costs. Average income fell by around 20% post “post off”. However, as most Japanese employees do not retire until they are 60, this meant 5 years of “digestion” as the Nikkei charmingly puts it, before being finally expelled.

The system dates back to 1986, when the retirement age in Japan was still 55, and a new law was enacted, making it compulsory to allow employees to work until the age of 60 – before they could receive a pension. The concern was that if seniors stayed on in management, it would make it difficult to “refresh” and have a generational change, and labour costs would rise, because of Japan’s seniority based wage system. So the post off system was introduced.

According to a 2022 survey by the HR Research Institute, 29.1% of Japanese companies have introduced a post off system, and the most common cut off ages are 55 for kacho or section chiefs and 58 for General Managers or bucho. Unsurprisingly, this has resulted in a loss of motivation for many employees in their late 50s, as they wait until they can retire.

NEC abolished the post off system in 2021, and around 1,000 managers have returned to their managerial positions and regained their salary levels. “I was evaluated in a visible way and my motivation increased” said one such manager, a software developer, who is now enthusiastic about applying for an extension to her employment, even after she reaches 60. Under the post off system, the manager had to direct her own ex-subordinates by going through her own boss, confusing everyone.

At the same time, NEC has ensured that younger and mid career people do not feel demotivated, by introducing a common evaluation standard for each level of the business, and evaluations are conducted by multiple managers, to ensure the evaluation is more objective.

The laws around retirement have changed in Japan too. In 2013 companies were obliged to offer employment to workers up to the age of 65 and in 2021 this was extended to 70. The need to keep older employees motivated has become even more acute.

Why elite Japanese are “useless” at foreign companies

According to Senoo Teruo, formerly of headhunters Korn Ferry Japan, it is a mistake often made by Japanese people joining foreign companies that they simply try to follow what has been done before by their predecessors. Foreign companies expect you to “find your own way to achieve greater results” – “the level of self reliance and independent, pioneering ability is incomparably higher than that of Japanese companies”. Japanese people who were at elite Japanese companies and fail to understand this are branded as “disappointing and useless.”

Ueda Osamu, Professor at Nagoya University of Commerce, says that in American companies, it’s important to know in advance that the organisation is more military-like and the chain of command is very clear (something we often reference in our Japan Intercultural Consulting training). Hiring is done by direct supervisors in American companies, rather than by the HR department as is the case in Japan. If you don’t get on with your boss, in a Japanese company one or both of you are likely to be transferred elsewhere within the company in a few years, so it is often best to just put up with it, and wait.

However in an American company, because your manager is in charge of personnel affairs, their orders are absolute, and if you fail to produce the expected results, you can be fired. Senoo agrees – “there are far more yes-men in foreign affiliated companies than in Japanese companies… Japanese people think foreign companies are more equal in terms of hierarchy, so it’s OK to argue with superiors when you disagree, but that is a complete misunderstanding. When given an order in an American company, it’s common to respond with “Yes, great! Let’s do it!” – to show at least a positive image, to start with.

Their comments are mostly to do with American companies in Japan, but in my interactions with British companies with operations in Japan, I have certainly seen similar frustrations – particularly around wanting their Japanese employees to be more proactive, and willing to change how things are done.

Hitachi’s new risk management

Up until now, Hitachi’s risk management team was mainly centered on the legal department – which I suspect is probably the case in most Japanese companies. Now Hitachi’s President Keiji Kojima has added the finance department to it, wanting the company to take a more proactive approach to global risks. The aim is to visualize risks – such as the impact of the economic slowdown in Europe due to the Ukraine crisis and soaring component costs due to inflation – and respond quickly.

When Russia invaded Ukraine, GlobalLogic was empowered to act quickly to evacuate 7,200 local employees in the country – and was told that they could put off contacting Japan HQ until later. By the end of April, remote working and overseas bases had been put in place and the operations were back up to 95% level.

Hitachi’s overseas business has expanded recently thanks to the acquisition of US company GlobalLogic and the power grids business of ABB, now Hitachi Energy.

Strengthening the risk management system is one response to this, along with introducing a global standard job description system to the Japanese organisation, aiming to have 30% women and 30% non-Japanese representation ont he board by 2030, aiming for zero carbon by 2050. Five out of the 9 external directors are non-Japanese.

Hitachi has learnt from past failures in overseas expansion, such as the Horizon Nuclear Power project in the UK, and the failure of a joint venture thermal power project in South Africa.

These changes have impacted the way the board operates. Now, when an executive officer reports that a plan has not been achieved, the non-Japanese directors respond “so?” – by which they mean, don’t just report the result, tell me what you are going to do next. A former external director of Hitachi, Harufumi Mochizuki comments in the Nikkei that “thanks to training by foreign directors, the executive officers have acquired a world class management style, and the ability to action, with a sense of speed.”

The next challenge for Hitachi will be to make the best use of the global human resources that it now has thanks to its acquisitions. Only three of Hitachi’s 34 executive officers are non-Japanese. The Nikkei comments that these changes are very much in line with the vision of Mr Nakanishi, the former President and Chairman who died in 2021, for an organisation with world class leaders who can respond quickly to global risks.

Retirement systems in Japan – under revision but but lacking clarity

I am sometimes asked in my training sessions what the retirement age and policy is in Japan, and I usually say something about how it is very similar to the UK, with the government raising the pension age from 60 to 65, and as of April 2021 to 70, and then move swiftly on, because I know the reality is far more complex.

Companies in Japan were meant to offer three options to their employees who have reached 60 – retirement at 65 or “continued employment” meaning flexible working on a yearly contract basis to 65 or dropping the mandated retirement age altogether. Further options have been added in 2021 of offering work to employees as freelancers, and assisting/subsidizing employees to work for not for profit organisations. Continued employment has proved to be the most popular choice amongst Japanese companies.

Trading company retirees “spectacularly well treated”

Diamond Online has taken a look recently at the current retirement policies in trading companies Itochu, Mitsubishi, Toyota Tsusho, Mitsui and Sumitomo Corporation. Japan’s trading companies are well known to have very high salaries compared to other large Japanese companies, earning around Y0.5bn (US$3.7m) in a lifetime, or around Y15m/US$112,000 a year on average. A mandatory retirement system “would be a big blow” to those on high salaries, so some trading companies have abolished a mandatory retirement system, but now there is fierce competition amongst employees for positions under the new system.

Around 20-30% of employees at trading companies stay on after retirement age (around 58) but they are often seconded to subsidiaries. Annual income drops by 30-40%. Mitsubishi Corporation has abolished its retirement age system for senior executives, but after the age of 60, senior executives are being treated like those who are not in managerial posts – offered the option of re-employment on a yearly contract until 65. A more meritocratic system had been introduced in 2019, which has meant that even though people in their 30s can become department managers, (apparently around 10 people have achieved this in 3 years), managers in their late 50s no longer have mandated retirement, so if they are high performers, they can continue to work, in effect causing more competition for top management jobs for those in the ranks below, who are also watching their backs for the younger higher performers.

At Itochu there are fixed retirement ages dependent on position for executive officers – 65 for the president and vice presidents, 62 for managing directors and 60 for executive officers, but no mandatory retirement age otherwise. Sumitomo Corp has a principle of retirement at 60 for managerial positions but no mandatory system. Salaries for post retirement positions are set according to actual duties, rather than the position the person had achieved before retirement.

Mitsui does not disclose any specific ages for retirement (but you bet Mitsui employees all know what they are). Once removed from managerial duties, they will be paid the same salary as employees who are not in managerial positions, and are a similar cohort, through seniority based promotion. Mitsui also has a temporary secondment scheme, where employees in their late 50s are posted back to the Mitsui mothership, and attempts are made to match them to another company for secondment.

Sony’s harsh system

Sony introduced a mandatory retirement age system in 2013, at the time that President Kazuo Hirai restructured the electronics business. Managerial staff at the time accounted for around 40% of all employees, with a high average age and salary. Sony’s retirement system is a harsh system says Diamond Online, that targets all managers below the division manager and downgrades them to regular employees. They cite the case of a general manager who retired from his position at the age of 55 and dropped three ranks as a consequence. His Y13m salary is now Y10m. This reduction was not just because of the drop in rank. Sony has bonuses that are highly influenced by evaluations, and the GM was evaluated very negatively by his new younger bosses. Sony has achieved its original goal of reducing the absolute number of managers and their average age. However the system is now being abolished at several subsidiaries, in favour of a personnel system that is not bound by seniority.

Will a job based system fit Panasonic’s culture?

Panasonic abolished mandatory retirement for managerial positions in 2022 and is intending to introduce a job based personnel system (where salaries are based on job content). The details have not yet been decided, so for the time being, managers who have reached 60 can be re-employed, on annual contract basis, as a part timer, until the age of 65. Diamond Online comments that it is unclear if this job-based system will fit Panasonic’s culture of a membership based organisation, based on seniority and lifetime employment, and whether it will lead to a generational change.

Other electronics companies are more clearcut – for Fujifilm, section chiefs must retire when they reach 55, department managers when they reach 57 and 58 for divisional managers. At Casio, although there is a retirement age system for executives, the actual situation is very flexible, and salaries are not much reduced. At Omron there are exceptions to the retirement age system “because there are no successors.”

The retirement age systems that were introduced 10 or so years ago are now being revised, but where they will end up is still not clear.

Japanese employees don’t want to study or go abroad

Japanese employees don’t want to study or go abroad and don’t like their current employer very much either. But at the same time, very few are considering changing jobs. These were some of the conclusions from a recent Japanese Ministry of Economy, Trade and Industry report (Vision for Human Resources of the Future).

Further depressing conclusions were:

Japan is not attracting highly skilled labour from abroad
The level of employee engagement is one of the lowest in the world
Japanese general managers are earning less than their Thai peers
Japan is bottom of the league with regard to investing in human resources
Japan’s workforce is losing its competitiveness
The number of Japanese people studying abroad is decreasing
The proportion of graduate recruits who do not want to work overseas is increasing
Most senior managers worked their way up the company and tend to be very similar to each other
The number of women in executive and management positions is still very low

Consultant Dr Kawai Kaoru criticises this report in the Nikkei Online, asking what the point of it is, and who it is addressed to. The conclusions are well known, and have appeared in previous reports over the years. If the message is how important it is to invest in your people, surely if this is news to any company, that company is on the road to bankruptcy anyway, she argues.

Kawai thinks the money spent on the 109 page report would have been better used elsewhere. For a start, she thinks the civil service ought to get its own house in order. 50% of the staff at the Ministry of Health, Labour and Welfare are on temporary contracts, and 50% of unemployment counsellors are also on temporary contracts. The civil service is also suffering from low employee engagement. This, and many of the other issues raised above may sound wearily familiar to readers in the UK.

Working from home means you won’t get promoted – in Japan and elsewhere too?

Even before the pandemic, Japanese employees only took around half of their paid leave. I remember 30 years’ ago the company union of my Japanese workplace campaigning every year to get its members to take more than the 10 or 11 days holiday a year they would take out of the 24 or so they were due. In the USA around 70% of paid leave is taken and in Europe it’s closer to 100%.

Professor Hajime Ota of Doshisha University points out that this is partly because in many Western countries, companies must compensate employees for holidays not taken or are required to make employees take holidays – in the financial services industry in the UK for example. Japan is also facing a labour shortage, so people feel under pressure to do overtime instead.

A 2010 survey by the Japan Institute for Labor Policy and Training found that the top reasons for not taking paid leave were: “because it would cause problems for my co-workers”, “because other employees are not taking their annual leave” and “my boss is not happy about me taking leave”. Similarly, a 2005 survey found that people were working overtime because “my boss and co-workers are doing overtime” and “it is difficult to leave the office if others are still working.” So it is basically social pressures – face time overtime – that are at the root of this.

Overtime pay is lower in Japan than elsewhere too – 25% of normal pay as compared to 50% or more in Europe or the USA. Also many Japanese employees are doing “service overtime” where they are not getting paid at all, even though this is supposedly illegal.

Professor Ota says that this shows Japanese employees want the approval of their co-workers and boss rather than extra money for their overtime. People who take all their leave and only work their set hours are looked askance at. So it is understandable that working from home and flexible working, workations and so on are not popular in Japan – unless all employees take it up.

As I have frequently said, and Professor Ota confirms, in many Japanese workplaces there are no clear job descriptions, so it is difficult to evaluate individual performance objectively. The feelings and emotions of the evaluator tend to be more influential. A 2001 survey of 1,406 white collar workers in Japanese and Western companies found that 75% of Western respondents said that they would not give softer evaluations to subordinates just because they were pleasant to work with whereas 29% of Japanese respondents said they would not. Conversely 6% of Western respondents said they may give a softer evaluation to a pleasant subordinate and 20% of Japanese respondents said they would.

Western respondents may well be fooling themselves that they are capable of such objectivity, and Japanese respondents are being more honest. Professor Ota also puts it down to the importance of the “in-group” in Japanese workplaces, and therefore the need to be “close” to your boss in all senses. But this concern that working from home impacts promotion negatively is not confined to Japan – as many recent articles and surveys publicised in the Western media confirm.

Last updated by Pernille Rudlin at 2023-02-08.

Category: Human resources