Category: Japanese business in Europe

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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Japanese corporate integrity in a disintegrating Europe

I’ve made a screencast (12 minutes with captions – ably edited by my son) of my keynote speech at a Dutch Embassy event for Japanese companies on a clipper ship on the Thames last month. It looks at the challenges facing Japanese companies trying to build their employer brands in a disintegrating Europe. I explain how difficult is is for Japanese companies to build ‘virtual trust’ across Europe when they are used to implicit communication, sticking to Japanese processes and working as homogenous, Japanese speaking teams huddled into one office.

I introduce the five competencies Japanese companies and their employees need to build trust across cultures – ability to communicate, understanding mutual interests, respecting European and Japanese processes and regulations, being reliable and accountable and having a shared vision and values.


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TDK President Ishiguro – quietly magnetic

TDK is in our top 30 largest Japanese companies in Europe, with over 7,000 employees – mainly working their factories in the Czech Republic and Hungary. But we’ve never blogged about them before as their senior executives tend to stay rather quiet.  In fact I wonder if that many Europeans are even aware of them as a company, or that they are Japanese.

People of my age will remember TDK cassette tapes.  The company’s origins date back to 1935, when TDK was founded as Tokyo Denki Kagaku Kogyo (Tokyo Electrical Chemical Industries) and they began manufacturing magnetic tapes in the 1950s. TDK has pretty much phased out its magnetic tapes now and instead is focused on sensors, actuators and power electronic components.  It has acquired various companies in these sectors, including EPCOS in Germany, the Lambda Power Division of Invensys in the UK, and Micronas in Switzerland. As a result, more than 90% of its sales and its employees are outside Japan.

Global governance means empowering

The Nikkei recently interviewed TDK’s President since 2016 – Nasunari Ishiguro. Ishiguro is confident that TDK’s approach to global management by having a structure that encourages self-directed action is working well.  “We had to think about how to have effective global governance.  How to be disciplined as a group  but at the same time not impact society in a negative way.”

“It’s not something that a president can do on their own. We have a phrase “functional equality” at TDK, meaning every department should be functionally equivalent.  We thought the word “governance” didn’t really suit our culture.  It’s not about delegating authority – so we use the word “empower” instead.”

“Instead of just providing money, people and technology to group companies and leaving it up to them to get on with it, we encourage stakeholders to become more transparent with each other, in a spirit of give and take, so it is not a centralized organization, but autonomously distributed”

“For example, a subsidiary in China that makes batteries, then makes use of the structure to propose other things that they want to do, rather than being commanded to do things by the President.”

“So we have regional headquarters in China, the USA, Europe and Asia so that group companies can cooperate with each other. So for example, if a lawyer is needed, they can be sent from a regional headquarters, or they can share a finance function.”

TDK garitto philosophy

“We are currently developing a “Day 1″ book that summarizes our philosophy and the values to be shared, such as contribute to society/the industry, ensure trust, keep quality standards etc.  It should be no more than 3-5cm thick. Each group company can freely exercise their discretion in how they adhere to it.”

“All management meetings are in English, and because of “functional equality” each person is equal in the debate. So meetings can take more than 2 hours.  Overseas group officers are to point out problems without hesitation and feel free to give their opinions and voice doubts”

Ishiguro is worried that manufacturing has moved outside of Japan and wants to ensure that TDK’s monozukuri (craftsmanship) is systematized. He has started a “Garitto monozukuri” initiative with the aim of systematizing and conveying manufacturing know-how to future generations.  “Garitto” is Akita dialect (one of TDK’s original factories was in Akita) meaning “with all your might” and “sturdily.”

Equal global people

“We need to have global employee mobility too. The head of global HR is the Germany HR Director. We have established a cross border HR team as an organization that is not bounded by location.  For example the leader of one project is Chinese, and there are Japanese and German people in the team.”

As for a successor, Ishiguro says he doesn’t care what background or nationality someone has, it just needs to be “someone with a spirit of adventure, and a light in their eyes, who is not afraid of change.  We have to change in order to be of use to society.  They need to put out their antenna, even when the way forward is not clear.”

Although Ishiguro has been at TDK all his career, he actually dropped out of university and also spent some time working in Luxembourg, setting up a magnetic tape factory.  Perhaps this is where he got his un-Japanese tolerance of being equals in argument and thrashing out problems. “I’m not a flashy person” he says, “I believe I was asked to be president because I will consolidate our foundations. I think I have revived the company through open debate and steady reforms.”

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I love Japan but I don’t want to work in a Japanese company

I’ve done a screencast (around 11 minutes long) of my talk at the Centre People Appointments HR seminar earlier this year, on why people love Japan, but don’t want to work for a Japanese company, and what Japanese companies can do about it.

If you  want to know more about working in a Japanese company, you can find our Japan Intercultural Consulting e-learning modules on Teachable, starting from £39 https://japan-intercultural-emea.teachable.com/

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No Matsushita in Panasonic

Panasonic is now in the 8th year of Kazuhiro Tsuga’s Presidency but none of the seeds he has sown seem to have blossomed.  The most recent quarterly results, unveiled on July 31st 2019 showed that despite Tsuga’s focus on profit over turnover, operating profit fell by 44% on the previous year, with tunover down 6%.

Of the 5 internal companies, only the Life Solutions business showed a profit. The slowing down of the Chinese economy had an impact but profitability in China was worse than forecast even taking that into account.  It had been designated a growth area and a special company set up to focus on it. The US China trade conflict and decrease in infrastructure investment seem to be at the root of the problem.

The automotive business is also challenging. The joint venture with Tesla for battery supply is still loss making. Another joint venture with Toyota has been set up, but this might be outside the consolidated Panasonic earnings.

A third area of concern is the home appliance business. Although airconditioning and washing machines are selling well in Japan, profits were thin overseas. Panasonic executive Hirokazu Umeda says the price of EL panels fell far more sharply than expected in Europe and Panasonic could not compete on pricing even in Asia. Panasonic is going to shut its TV factory in Mexico and look at OEM and ODM (original display manufacturing) options and withdrawing from the USA and China markets.

As of June 2019, there is no representative of Panasonic’s original founding family on the board, with the retirement of Matsuyuki Matsushita, a grandson of the founder Konosuke Matsushita. Matsuyuki Matsushita’s eldest son is still working at Panasonic however. As to whether he wants him to become a board director “that is up to his effort and ability” says Matsuyuki Matsushita. “Sometimes founding families are involved in management, sometimes they are not involved at all. Which is better is up to the management academics to debate.”

Matsuyuki Matsushita says his father set up to the internal company system so that each division could focus and compete with specialist manufacturers. “The current problems are probably showing the limits of monozukuri (manufacturing or craftsmanship) and the shift from analogue to digital, to services. Panasonic has not shown the answer to this yet.”

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No sacred cows for NEC’s President Niino

I was reminiscing a couple of days’ ago with a Japanese business person about how in the 1990s there was a Silicon Glen in Scotland hosting many Japanese electronics and semiconductor factories, including NEC’s semiconductor plant in Livingston. After the IT bubble burst in 2000, most of these plants disappeared, including NEC’s. Silicon Glen has remade itself, focusing more on software and semiconductor design and development.  NEC has also reinvigorated its presence in the UK with the acquisition of Northgate Public Services in 2018.

NEC is not out of the woods yet, however. In a tough interview in the Nikkei Business, President Niino seems willing to slaughter several sacred cows and even commits to taking responsibility (presumably by resigning) if his revival plan to FY 2020 does not succeed.

He said he was open to merging with rival Fujitsu, even if it meant the NEC name disappeared. I certainly recognised from his descriptions some similar characteristics in the way they operate.

NEC, like Fujitsu, was part of the so-called Den Den Family, where stable, dependable business came from government contracts from what is now NTT. “Customers would make very stringent requests of us and we would always try to respond with the best possible technical solutions, and deliver 100%. This is an important quality, but you cannot survive globally just on this”.

Niino thinks there were many reasons for the halving of NEC’s turnover since 2000.  They had relied on introducing new technology in areas such as semiconductors, PCs and mobile phones, but once these became volume businesses with many newcomers, spending far more on R&D, NEC was no longer able to compete.

Niino is focusing on profit targets rather than turnover and sees NEC’s future strength as being in “safer cities” – using AI and software development rather than hardware. Clearly China will be a major competitor in this, but I guess NEC and other Japanese suppliers will be preferred by many who might view China as a threat.

Niino has brought in an HR director from Microsoft Japan to shake up the HR system.  He has appointed 31 “change agents” and made evaluations more visible, and the distinction between specialists and managers more clear.  Corporate officers on the board have all been asked to step down temporarily and then are being rehired on 1 year contracts. “I won’t be firing them if they don’t meet targets within one year, but if they miss two years’ running, it might be that they are better off working outside NEC”.  As Niino is himself a Corporate Officer, no wonder he has to commit to taking personal responsibility for any failure too.

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Brexit and Japanese jobs in the UK – growing by acquisition or “new” jobs?

Those looking for “despite Brexit” good news may be reassured that employment in the UK by the biggest Japanese companies has grown by 22% since 2014/5, right in line with the growth in Japanese jobs across Europe, Middle East and Africa (EMEA).  About a quarter of the 750,000 people we estimate work for Japanese companies in the region are working in the UK, and so far there is no obvious divergence between the UK and the rest of EMEA in terms of overall job growth.

Big ticket acquisitions are the main driver of Japanese growth in the UK

But as we pointed out in previous posts looking at the trends across Europe, a distinction needs to be made between “new jobs” created in EMEA by Japanese greenfield investment, and investments which are acquisitions of existing jobs.  Eastern Europe is the beneficiary of the former, particularly for the automotive sector, whereas the UK has been the target of the latter with big ticket acquisitions like SoftBank acquiring ARM, Mitsui Sumitomo acquiring Amlin, Sumitomo Rubber acquiring Micheldever, and NEC acquiring Northgate Public Services as well as Outsourcing acquiring various staffing and outsourcing companies.

Where are the “new jobs”?

These acquisitions account for the new entrants to the Top 30 ranking we have compiled below. They push out Fujifilm, Sumitomo Corporation, Japan Tobacco (who shut their factory in Northern Ireland last year) and Toshiba. The original Top 30 in 2014/5 have grown a more modest 10% if the acquisitive newcomers are not included.  One of the highest climbers from the original 2014/5 ranking is the main Japanese creator of new jobs in the UK- Hitachi – in particular via their rail manufacturing and assembly plant at Newton Aycliffe.

There has not been a decline in automotive sector jobs in the UK – yet – however.  In fact quite the reverse – there has been some growth in jobs in all three of the big Japanese car companies. But the trend is clear, as pointed out in previous posts, that even without Brexit, the drift of investment and jobs in the automotive sector is eastwards and to Africa.  It’s easy to see how British people in those areas where Japanese automotive supply chains are active could blame the EU for job losses. Even though there actually weren’t that many EU grants enabling Japanese companies to transfer production from the UK to Eastern Europe – despite the rumours – merely by being members of the Single Market, and having lower labour costs, Eastern European countries are an obvious destination for new manufacturing investment.

Will Japan’s investment in the UK services sector be Brexit proof?

The investment in the UK by Japanese companies over the past three years has largely been through acquisitions in the services sector. This is not surprising, as services are 80% of the UK’s GDP and the UK’s comparative advantage in the region. It is also relatively Brexit proof in the sense that services sector investment will not be directly affected by any supply chain disruptions. Clearly if the UK economy takes a hit from Brexit, however, this will dampen demand for services. There has also been a shift of regional headquarters away from the UK by Panasonic and Sony and others, and of financial services companies, but as yet this has not hit UK jobs.

Eastern Europe has also been attractive to Japanese companies for business process outsourcing. Although Fujitsu is still – just – the top employer in the UK, employee numbers have dropped 29% – and there are now 13,000 people working for its service centres in Poland.  NTT and its subsidiary NTT Data has also shot up the Top 30 both for the UK and the EMEA region – again through acquisitions – and has decided to base its new global ex-Japan headquarters in the UK.

Infrastructure, energy, transport should be the future for Japanese jobs in the UK

The UK’s strength as a global services provider will not disappear overnight, however hard the Brexit. But it’s hard to imagine how the kinds of secure, high quality automotive manufacturing jobs that those who voted for Brexit might have wanted to see return to the UK will come back, however soft the Brexit.  The potential sunlit upland is in infrastructure – energy and transport.  These sectors were needing investment regardless of whether the UK is in or out of the EU and are not so reliant on just in time supply chains across the region. Transport, environment and energy are areas where cooperation and financing on an EU-wide  basis makes business and environmental sense though. But unfortunately Brexit has provided a distraction that has resulted in Hitachi freezing its Horizon nuclear power projects in Wales and Gloucestershire from lack of government financial support, and the recently called review of HS2 must also be giving Hitachi’s rail business and other Japanese executives cause for concern. Risk averse Japanese companies are not going to want to make multi million investments in infrastructure projects in a country which is politically unstable and unreliable.

 

Top 30 Japanese employers in the UK – 2015-8
Rank 2017/8 Rank 2014/5 Company UK employees 2017-8 UK employees 2014/5 % change UK 2014-8
1 1 Fujitsu 8,351              11,694 -29%
2 2 Nissan 8,190                7,440 10%
3 9 Hitachi 7,210                2,747 162%
4 4 Honda 7,062                5,268 34%
5 3 Itochu* 6,737                6,779 -1%
6 14 Dentsu* 4,394                2,127 107%
7 7 Ricoh 3,506                3,331 5%
8 6 Toyota 3,467                3,352 3%
9 5 Sony 3,410                3,777 -10%
10 10 Canon 2,828                2,643 7%
11 8 Mitsubishi Corp* 2,815                3,085 -9%
12 18 NTT 2,569                1,779 44%
13 13 Marubeni 2,549                2,137 19%
14 – Mitsui Sumitomo & Aioi Nissay Dowa 2,384                   305 682%
15 15 Mitsubishi UFJ Financial Goup 2,310                2,100 10%
16 11 Nomura 2,208                2,628 -16%
17 19 Calsonic Kansei 2,189                1,571 39%
18 12 NSG 2,140                2,348 -9%
19 16 Denso 1,986                1,930 3%
20 17 NYK Group 1,911                1,780 7%
21 – Sumitomo Rubber 1,762                     92 1815%
22 – NEC 1,725                   297 481%
23 25 Konica Minolta 1,657                1,278 30%
24 23 Mitsubishi Electric 1,610                1,344 20%
25 – Outsourcing 1,595                     10 15850%
26 22 Olympus 1,589                1,368 16%
27 21 SMFG 1,569                1,372 14%
28 29 Mizuho 1,434                1,060 35%
29 26 Brother Industries 1,411                1,254 13%
30 27 Unipres 1,396                1,095 27%
92,568 76,896 20%
*Estimates for EMEA/Europe as official figures not available
© Rudlin Consulting Ltd If you would like more detailed analyses, by sector or individual companies, please contact pernilledotrudlinatrudlinconsultingdotcom

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Top 30 Japanese companies in Europe – who’s in, who’s out and which countries are benefitting

In my previous post I looked at the growth drivers or otherwise at the top 5 largest Japanese companies in Europe, Middle East and Africa (EMEA) – Yazaki, Sumitomo Electric Industries, NTT Data, Fujitsu and Canon.  Overall employee growth for the largest Japanese companies in the region has been a healthy 22% over three years (see table below). But of the top 5, only NTT Data has beaten this average.

Yazaki and Sumitomo Electric Industries are automotive manufacturers who have consolidated their position as the biggest employers by further greenfield investments in new plants in Moldova, Serbia and Bulgaria over the past three years.

Of the other three, IT services company NTT Data has more than doubled in size over the past three years in the region through acquisitions. Fujitsu, however, has shrunk as it shifts from hardware manufacture and sales to IT services. Canon has grown by 15%, partly through taking on Toshiba Medical Systems.

Toyota group strength in Europe

The rest of the Top 30 shows a similar pattern – the automotive sector growing through greenfield investment in new or expanding plants, with the electronics/ICT sector growing through acquisition, or shrinking through consolidation and moving towards B2B in automotive and medical fields.   Panasonic more than doubled in size in the region, through acquiring Spanish automotive company Ficosa and Belgian technology company Zetes.

Honda’s employee total in EMEA hardly changed over three years, Nissan’s only grew 2% whereas Toyota grew 16% – which shows something about the relative fortunes of those car brands in the region recently.  Toyota will presumably expand further once it fully takes over the joint venture factory with PSA in the Czech Republic.  Other Toyota group companies have also expanded – such as Denso, Toyota Industries and Toyota Tsusho via its French/African trading company CFAO acquired in 2012.

Bridgestone employee numbers have grown 43% partly through acquisitions in France but also expansion and greenfield investment in Eastern Europe and Russia. Japanese automotive glass manufacturers (who also make architectural glass) Asahi Glass grew 33% but Nippon Sheet Glass only expanded its employees by 4% – still recovering from the bad timing and heavy debts of its acquisition of Pilkington Glass in 2006.

Fastest growing, fastest shrinking companies

The fastest growing Japanese employer in the region was electric motor manufacturer Nidec – more than tripling in size over the past three years, having been on a spending spree around the world – with around 25 acquisitions, many of them in Europe, since 2015. Nidec is the only new entrant into the top 30 over the three years, pushing out Fast Retailing (owner of Uniqlo, Comptoir des Cotonniers, Princesse TamTam etc). Fast Retailing grew too, opening new Uniqlo stores in Spain, Belgium, Sweden and the Netherlands in the past couple of years, with further stores to come in Italy and Denmark.

Sony and Ricoh have both shrunk by over 10%, however, with neither making any major acquisitions. Konica Minolta, which grew 25%, acquired various IT services providers in Germany, France, UK and the Czech Republic.  Bubbling under the Top 30, at #31, NEC also grew rapidly, by 47%, after the acquisition of IT services companies like KMD in Denmark and Northgate Public Services in the UK.

European hot spots

Climate change has sparked investments from Mitsubishi Electric and Daikin in European air conditioning manufacturing and alternative energy production.  Mitsubishi Electric has an air conditioning factory in Scotland employing 1000 people and expressed quite clearly its concerns regarding Brexit to a parliamentary committee in 2018 (by the way, I think there must be a typo in the submission, as it says 20% of its UK employees are EEA, which is considerably more than the figure of 13 they state).  In December 2017 it announced it had started production of airconditioners at its new factory in Turkey.

So yes, it’s true that the UK has taken a ‘lion’s share’ of Japanese investment in recent years and therefore Japanese company employment in the EU. I estimate around 160,000 jobs out of 750,000 or so in the region (21%) are in the UK. But this share of investment is largely due to big ticket acquisitions by Japanese companies in the UK (SoftBank/ARM, MS Amlin etc) and also that investment in real estate is counted as “greenfield” investment.

Around a quarter of Japanese jobs in the region are in the automotive sector, and they’re moving eastwards

If we look at greenfield investment, largely in manufacturing, generating thousands of new jobs, with the exception of Hitachi’s rail factory in the UK, this has been going to Eastern Europe, CIS, Turkey and North Africa.  The automotive sector is particularly key. I estimate around 250,000 of the 750,000 or so people employed by Japanese companies in the region are in the automotive sector.  Brexit is giving extra impetus to automotive and other supply chain manufacturing jobs to accelerate their move eastwards.

Top 30 Japanese employers in EMEA 2018
Rank 2018 Rank 2015 Company Total global employees 2017/8 no in EMEA 2017/8 % in EMEA 2017/8 Employee growth 2015-2018
1 1 Sumitomo Electric Industries 255,133 60,537 23.7% 7%
2 2 Yazaki 306,118 57,661 18.8% 19%
3 9 NTT Data 118,000 36,000 30.5% 140%
4 3 Fujitsu 140,365 27,000 19.2% -8%
5 4 Canon 197,776 25,623 13.0% 15%
6 5 Toyota 369,124 22,147 6% 16%
7 18 Panasonic 274,143 21,931 8% 116%
8 13 Bridgestone 142,669 17,510 12.3% 43%
9 10 Asahi Glass 53,224 17,400 33% 19%
10 8 Toyota Tsusho* 56,827 17,000 29.9% 10%
11 7 Nissan 138,910 16,807 12% 2%
12 11 Denso 171,992 16,688 10% 15%
13 6 Ricoh 97,878 16,680 17.0% -10%
14 16 Hitachi 307,275 16,000 5.2% 36%
15 14 JT Group 57,963 15,410 26.6% 27%
16 30 Nidec 107,554 12,917 12% 223%
17 15 NSG 26,957 12,500 46% 4%
18 17 Dentsu* 62,608 12,176 19.4% 11%
19 21 Toyota Industries 61,152 11,837 19.4% 48%
20 12 Sony 117,300 11,730 10.0% -11%
21 19 Konica Minolta 43,299 10,825 25.0% 20%
22 24 Kyocera Group 75,940 10,024 13.2% 40%
23 25 Daikin 70,263 9,227 13.1% 36%
24 20 Honda 215,638 8,591 4.0% 0%
25 23 JTEKT 49589 8,128 16.4% 12%
26 26 TDK 102,883 8,045 7.8% 20%
27 22 Itochu* 102,086 7,382 7.2% -5%
28 27 Olympus 35,124 7,353 20.9% 15%
29 31 Mitsubishi Electric 142,340 7,300 5.1% 46%
30 28 Mitsubishi Corporation 77,476 7,189 9.3% 19%
TOTAL 3,977,606 529,619 13.3% 22%
*based on estimates as official figures not disclosed
pernilledotrudlinatrudlinconsultingdotcom"}">© Rudlin Consulting Ltd 2019

If you would like more detailed analyses, by sector or individual companies, please contact pernilledotrudlinatrudlinconsultingdotcom

Pernille Rudlin’s latest book, Shinrai:Japanese Corporate Integrity in a Disintegrating Europe is available on Amazon.

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The top 5 Japanese companies in Europe, Middle East & Africa all have headquarters in the UK

Over half a million people worked for the 30 largest Japanese employers in Europe, Middle East and Africa (EMEA) in 2018, 22% more than in 2015. Going by the research we have done on the main host countries of the region (Germany, UK, France, Netherlands), this would indicate there are around 750,000 employees of Japanese companies in EMEA.

The top 2 by a large margin are Sumitomo Electric Industries and Yazaki, both making automotive components such as wire harnesses.  They both have multiple manufacturing sites employing thousands of people, mainly in eastern Europe, north Africa and South Africa.

Yazaki‘s EMEA headquarters are in the UK and Germany.  The UK side supervises branches and subsidiaries across Europe, with R&D and customer service centres across the UK and the EMEA region. Yazaki Wiring Technologies European HQ is in Cologne, with subsidiaries in Eastern Europe and Turkey. Yazaki’s EMEA workforce has grown by nearly 20% since 2014/5 with recent greenfield investments  such as a new factory in Serbia and a third plant in Bulgaria.

Sumitomo Electric Industries also has European headquarters in the UK and in Germany (the Bordnetze side of the business). The Sumitomo Electric Wiring Systems operation in the UK originates in the acquisition of Lucas Industries in 1999. There is no longer any manufacturing in the UK but it supervises factories in Germany and Italy, with Sumitomo Wiring Systems Japan directly owning factories in Eastern Europe and Africa. Similarly the German HQ arises from the acquisition of Bordnetze from VW and Siemens in 2006. Sumitomo Electric Industries’ workforce in EMEA has grown 7% in three years, including acquisitions in Germany and a new plant in Moldova.

Sumitomo Electric Industries and Yazaki were the top 1 and 2 in 2014/5, but the third largest Japanese employer in EMEA, NTT Data, was only the 9th largest three years ago.  NTT Data has grown through acquisitions such as Dell’s services business, Everis, MagenTys and Keane. NTT Data EMEA is based in the UK, owning subsidiaries across Europe. Again, there is a split regional HQ, with NTT Data Europe GmbH owning Itelligence – but not for much longer.  The parent company, NTT is undertaking a major restructure of its business, uniting NTT Data EMEA, Everis and itelligence as part of EMEA & Latin America region, moving to a matrix rather than vertical organization. By 2020 NTT intends to have 2 companies under its new NTT Inc holding company for its non-Japanese business – NTT Data and a merged NTT Communications/NTT Security/Dimension Data organisation.  The global headquarters for NTT Inc will not be in Japan but in London.

Dropping down a place from 3 to 4 over the past 3 years is Fujitsu, another Japanese IT major, in the awkward position of being both a supplier and competitor to NTT.  Fujitsu’s presence in Europe originates from its acquisition of the UK’s ICL in 1990 and a joint venture with Siemens, which it later bought out.  Fujitsu’s workforce in EMEA (or EMEIA as it names it, adding in India) has dropped by 8% since 2014/5 and looks to shrink further in 2019 and 2020 with the closure of the last PC manufacturing plant anywhere in Europe, in Augsburg, Germany.  As it shifts to IT services business, its workforce in its global delivery centres and service desks is growing in lower cost but skilled, multilingual countries in the region such as Portugal, South Africa, Poland, Morocco and Russia.

Canon was also pushed down a place to 5 from 4 three years’ ago by NTT Data’s rise, but its workforce in EMEA has grown around 15% over the period. Canon acquired Dutch company Oce in 2009 and Canon Europa is the Netherlands based holding company which owns Canon Europe in the UK, acting as the functional and marketing headquarters for the region.  Canon has grown partly through taking on Toshiba’s medical systems business and also through the acquisition of Sweden based Axis Communications in 2015.

From a UK perspective, whilst it’s reassuring that all of the top five Japanese companies in the region have some kind of regional headquarters in the UK, this does not mean that largest proportion of the jobs they have generated is in the UK.  In manufacturing the drift is eastwards and southwards, and even for IT services, business process outsourcing and support jobs are shifting to Eastern Europe, Portugal, Africa and India. As they all have an EU based alternative headquarters, it is unlikely there will be any change in the HQ structure post Brexit, rather that virtual management teams dispersed across a very broadly defined region will become even more common.

Part 2 of this analysis continues here.

Pernille Rudlin’s latest book, Shinrai:Japanese Corporate Integrity in a Disintegrating Europe is available on Amazon.

 

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The successes and failures of Japan’s era of big overseas acquisitions

The era of Japan’s big overseas acquisitions began with domestic mega M&As in the 1990s according to Nikkei Business magazine.  Following the bursting of Japan’s economic bubble in 1990, a wave of M&As happened in the financial sector, giving birth to Mizuho from Fuji Bank, Daiichi Kangyo and the Industrial Bank of Japan and Sumitomo Bank and Sakura Bank producing SMBC. In the steel sector with NKK merging with Kawasaki Steel and becoming JFE and in the pharmaceuticals sector with Yamanouchi and Fujisawa merged to become Astellas.

The key concept for these M&As in the 1990s was “restructuring” – to rationalise the back office and integrate R&D. Then in the second half of the 2000s came a wave of overseas acquisitions, to counter the business impact of the shrinking, ageing population of Japan by growing overseas but also to benefit from further restructuring and rationalisation.

Mega overseas acquisitions of the 2000s

In 2007 Japan Tobacco acquired the UK’s Gallaher from RJR, becoming the third biggest tobacco company in the world. In 2006 SoftBank acquired Vodafone Japan and then the US company Sprint Nextel, then British ARM Holdings in 2016. Takeda acquired US Millennium Pharmaceuticals in 2008, then Swiss Nycomed in 2011, with the biggest M&A ever by a Japanese company, acquiring Ireland’s Shire in 2019.

“Growing overseas means the development of our human resources has become an urgent necessity” said the President of Takeda in 2006, Yasuchika Hasegawa. Hasegawa  was seen as “an alien from outerspace” for his dry, rational management style, arising from many years working in the USA.  Although Takeda had been the biggest pharmaceutical company in Japan for some years, it only ranked around 17 in the world before its acquisition spree and urgently needed to find new drug development sources. It felt it was lagging competitors.

The need for global management skills

Hasegawa decided to globalise the company internally by recruiting a foreign successor to himself in 2014 – Christophe Weber from GlaxoSmithKline.  Three out of the seven current Takeda directors are not Japanese.

Japan Tobacco‘s managers sent overseas after the Gallaher acquisition found themselves caught between overseas executives determined to defend their patch with rational, logical arguments about productivity, logistics and profitability. After years of painful discussion, it was agreed to close the factory in Northern Ireland.  Even now, says Masamichi Terabatake, the current President of Japan Tobacco, a Japan based executive needs to be prepared to travel around the world regularly to discuss strategy with local executives. “You need to keep global staff motivated. Investment and marketing cannot be left vague, they have to be quantitative so they can be transparently discussed. That’s probably why executives in the West are a bit younger!” he says.

NSG acquired UK’s Pilkington in 2006, becoming heavily indebted to do so. From being very domestic, it became a company whose sales were 80% overseas. Unfortunately this proved to be terrible timing as the automotive and architectural glass market crashed after the Lehman Shock.

Many of the acquirers also struggled because they did not have managers with experience of managing overseas businesses.  As Nikkei Business magazine says, mega M&A means mega complexity for which plenty of preparation and a high level of management know-how, with the ability to spread this know-how horizontally and vertically is needed for success.  It’s still not clear how far Japanese companies have progressed in this.

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