Human resources - Rudlin Consulting

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

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

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

Impact of the Ice Age

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

New recruits don’t want to be leaders or specialists

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

Generational mismatch, again

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

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

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

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

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Japanese employees want to work for a company that builds you

I’ve just recorded a five minute screencast explaining the mysteries of Japanese corporate hierarchies and job titles. I explain how the “three treasures” of the Japanese post war employment system are beginning to tarnish. Lifetime employment, seniority based promotion and company unions who negotiate base pay and bonuses are all applying to fewer people, or being tweaked to a more performance/competency based system, allowing mid career hiring.

Nikkei Business magazine has just published another article on this too, pointing out that Japanese people’s expectations of what the company should offer are changing as well.

It cites an anonymised case of a 41 year old male IT engineer, who left his electronics employer after 15 years, to work for a logistics company. He was partly worried about the financial performance of the electronics giant, but also felt that with digitization, it was time to apply his skills to a different company.

This might not seem so odd for a European or American employee, but up until recently, in Japan leaving a major company in your 40s would usually suggest you had been pushed out, and it would also have been difficult to find a job of equivalent status in another major employer.

Average time with one employer is shrinking

Data from Japan’s Ministry of Labour shows that the average length of service of males under 50 is beginning to shrink. A survey from RecruitWorks shows that 60% of 35-54 year olds have changed employers at least once. The main reason given, according to a survey from en-japan employment agency, is that they don’t feel any engagement or sense of achievement at their current employer. This is cited more frequently as a reason for quitting than low pay or worries about the future of the company.

Allowing second jobs

Nikkei Business magazine then goes on to examine what various Japanese companies are doing in response to this trend. Mizuho Bank has lifted its ban on employees being able to have a second job elsewhere. Up until recently, it was felt that allowing this would be a security risk as employees had access to confidential client data. Furthermore, it was more complex to manage the pay roll and benefits of employees with multiple employers.

So why did Mizuho change its mind? Partly it was because of the legacy of merging three banks, and the time and cost it has taken to integrate systems, branch networks etc. Mizuho is now looking to reduce its employee total by 19,000 over 2017-2027 so the unspoken contract that there is an obligation to offer lifetime employment has already been broken.

Building new skills – whose responsibility?

But a bigger reason, according to Nikkei Business, is that individual employees’ attitudes towards their company has changed. Rather than expecting to be looked after in terms of pay for life, they are interested in the company as a place where they are offered opportunities to grow, and new skills, so if they need to build those skills and opportunities outside the company, they should be allowed to do so.

Mizuho had become less popular with new graduate recruits recently, and is hoping that by being open to employees working outside the bank, graduates will see Mizuho more favourably again. The take up for applying to do second jobs has been across all age groups – including a 27 year old working for a start up through to a 57 year old working for a recruitment consultancy.

NEC has also been encouraging in-house start ups and set up NEC X to promote new business in Silicon Valley in 2018. Airconditioning manufacturer Daikin allows staff to focus on AI and IoT training and study for 2 years and brings in interns from Tokyo University to work in its operations around the world.

I know I would say this, but one chart that caught my eye in the article was the one showing that Japanese corporate investment in training per head fell , as did the proportion of Japanese companies funding training, after 2008 and has never returned to previous levels in the 10 years since. Japanese employees are getting the message that they cannot depend on their employers for career development.

What Japanese people find most challenging about speaking English: 1 Small Talk

Pernille Rudlin in conversation with Peter Bernstein, MD of PS English, on what Japanese people find most challenging about speaking English.

1. Small Talk

Why a Japanese person would never think to say “what did you get up to at the weekend?”

Which Japanese companies to work for in Europe

We’ve been publishing our top 30 Japanese companies in Europe intermittently for 5 years now. We regularly receive enquiries for recommendations on which Japanese companies to approach as potential employers. We’re not a recruitment consultancy so we don’t have any inside track on what jobs are available (please talk to our friends at Centre People Appointments for more practical assistance), but I would say that size in Europe and growth are important factors to consider.

Relative size in Europe is a key factor

If the European operations of a Japanese company represent a substantial part of their business, then it’s more likely that Europeans will have some influence within the organisation. There will also be more promotion opportunities and career paths than working for a smaller organisation in Europe. For that reason, it’s worth trying to join the organisation in the European/EMEA headquarters.

Companies with a relatively high proportion of their employees in EMEA (25%+) include NSG (Pilkington), Asahi (brewery company recently acquired Grolsch, Peroni, Pilsner Urquell etc brands), NTT Data, Toyota Tsusho (acquired French company CFAO with a big presence in Africa), Asahi Glass, JT International, Konica Minolta.

Has the company been growing?

Not only are growing companies more likely to have job openings, but they are more fun to work for. Japanese companies are still growing their operations in Europe overall. However some have been undergoing substantial restructuring, which has resulted in significant headcount reductions in some countries, and significant growth in others. For example Fujitsu is reducing headcount in the UK and Germany, but growing rapidly in Poland and Portugal.

Companies that have grown the most rapidly in Europe (more than doubling) over the past five years are Nidec, NTT Data and Panasonic.

Working for an acquired company

The rapidly growing companies have mostly expanded through acquisition – for example Dentsu, Nidec, Panasonic (Ficosa, Zetes) and NEC (Northgate Public Services), Toyota Industries (Vanderlande), Hitachi (Ansaldo). Working in those acquired companies might also be an attractive option, as there will be more autonomy, and less domination by Japanese management layers than Japanese subsidiaries which have grown organically.

Companies who score highly in terms of growth and significant European presence are NTT Data (third largest company in Europe) and Dentsu (8th).

In terms of sectoral growth – as well as IT companies that are moving into services and solutions like NTT Data, Konica Minolta and Panasonic – Daikin (# 27) and Mitsubishi Electric (#30) have both grown substantially recently, probably due to expansion of their eco friendly air conditioning businesses.

For new graduates, many of the top 30 have graduate trainee schemes, which would be worth considering if you are looking for a chance to be seconded to Japan.

Top 3 largest Japanese employers in Europe, Middle East and Africa:

1. Sumitomo Electric Wiring

Large numbers of employees in manufacturing, as making automotive wire harnesses is still a fairly manual job. Manufacturing jobs will tend to be in North Africa and Eastern Europe. There are plenty of jobs in design engineering and sales as well, and will be future proof as apparently electric vehicles also require complex wire harnesses to operate.

EMEA headquarters: UK (SEWS-E), Italy (CABIND), Germany (Bordnetze)

No graduate trainee scheme, but this page gives a flavour of the jobs available in the region for SEWS-E https://www.sews-e.com/current-vacancies/

2. Yazaki

Very similar to Sumitomo Electric Wiring in terms of business and jobs but privately owned, so more of a family style corporate culture. Has a YEA!cademy (Yazaki Europe training academy) https://www.yazaki-europe.com/career.html

EMEA headquarters: Germany

3. NTT Data

Owned by Japan’s NTT (formerly Ministry of Post and Telecommunications, now partly privatised). NTT Data has acquired various companies in Europe and elsewhere such as itelligence, Cirquent, Value Team, Intelligroup, and Keane. NTT is in the middle of restructuring and have put a new global headquarters, NTT Limited, in London. NTT Data will be kept as a separate organisation, however.

Lots of training and chances to go to Japan, however recruitment seems more by country/company than centralised and as you can see here https://www.nttdata.com/global/en/careers

EMEA headquarters: UK

If you would like a consultation on working for a Japanese company, then you can book an hour with Pernille Rudlin here.

We also recommend doing the e-learning modules from the leading global intercultural training firm focused on Japanese business – Japan Intercultural Consulting – on working in a Japanese company – each module comes with a certificate – proof that you know what you’re letting yourself in for!

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

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

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

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

Role not potential

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

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

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

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

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

Inevitable changes as the semiconductor industry globalizes

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

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

Global employee communication

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

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

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

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

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

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

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

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

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

1. Parent company should make personnel decisions

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

2. Be based near the customer

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

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

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

3. Return to craftsmanship

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

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

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

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

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.

“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.”

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.

Fundamentally rethinking Japan’s lifetime employment system

Toyota’s President Akio 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.