Japanese business in Europe – Rudlin Consulting

Pork for cars and a fog lamp

As the UK-Japan Free Trade Agreement is in its final stages, it seems a good moment to revisit our Top 30 Japanese companies in the UK. Although the headlines seem to be heading towards “pork for cars”, the most important win-win for the UK and Japan should be protecting Japan’s investments in the UK. Japanese companies employ around 170,000 people in the UK by our estimates, and many thousands more indirectly.

The EU-UK deal is still the biggest source of concern for Japanese companies

There is a limit to what the UK-Japan deal can do to protect those investments, however. For Japanese companies in the UK, the EU-UK trade deal is the bigger source of concern. Many of them have their regional headquarters in the UK or have invested in the UK as their base for exporting to the rest of Europe.

The shape (or non-existence) of a UK-EU trade deal will determine not only whether it is worth continuing with manufacturing in the UK for Japanese companies but also whether Japanese companies will continue to coordinate services regionally out of the UK such as finance, legal, IT, HR, engineering, R&D etc. These services account for why the UK has a trade surplus in services exports to Japan – it’s largely due to Japan HQ sending money to their UK based regional operations to fund professional support services needed both for acquisitions and day to day operations.

If the barriers between the UK and the EU to mutual regulatory recognition and movement of people become too high to run European operations from the UK effectively, and as a consequence UK companies are no longer attractive investment targets, Japanese regional HQs and acquisitions will begin to drift to the continent. In fact, they already have started to shift piecemeal to the EU. No amount of bilateral recognition of services and data regulations between the UK and Japan is going to help stem this.

According to our estimates, the number of people employed by Japanese companies in the UK levelled off comparing 2018/9 to 2017/8 – rising by only 0.2% to 170,187, having risen around 6% a year in the previous two years.

Japanese automotive sector dominates Japanese jobs in UK, but is declining

Our Top 30 Japanese employers in the UK employment total has also levelled out at around 94,000 or 55% of the 170,000 people employed by Japanese companies in the UK.

Nissan (#1), Honda (#5) and Toyota (#8) employ around 18,400 – 11% or so of the total. If other Japanese automotive suppliers are added such as Denso (#20) and Unipres (#30), the total number employed is 37,489 (22% of the total employed by Japanese companies), down 2.8% on 2017/8.

Making sure that there are tariff free automotive components from Japan for manufacturing in the UK will help sustain Japanese manufacturing in the UK at least in the short term, if tariffs are imposed on EU automotive imports as part of the UK-Japan FTA or there’s a no deal. But the shift in automotive production to eastern Europe has been going on for some time.

Japanese trading companies growing steadily in the UK but no acquisitions

The UK, or more especially London, has been the commercial and trading location of choice for Japanese companies in Europe for over 100 years. At the heart of this are Japan’s trading companies – Mitsubishi Corporation, Mitsui & Co, Sumitomo Corporation, Itochu, Marubeni and Sojitz. They are still involved in commodity trading but also financing and more recently acquisitions – although there have not been any UK acquisitions since 2017. The most notable recent European acquisition was Mitsubishi Corporation acquiring Dutch energy company Eneco in 2019 for €4.1bn.

Japanese trading companies currently employ around 14,700 people in the UK, and this has grown just under 2% a year over the past couple of years

Japanese financial services holding steady in the UK

The next biggest Japanese sector in the UK is financial services, including MS&AD (#15), MUFG (#16), Nomura (#17), SMFG (#22), Mizuho (#29). It accounts for around 13,000 employees and growth has been around 1% to 2% a year.

All Japanese financial services companies that are impacted by Brexit have set up or strengthened their subsidiaries in the EU, but the scale of these organisations is still far smaller than their UK operations. There may be an issue eventually not so much about the quantity as the quality of these EU subsidiaries for the EU – they will want to see the decision makers based in the EU as a condition for regulatory approval. But as most decisions are ultimately made by multiple people in Japan headquarters, it is not clear how Japanese companies can respond to such a demand. In the meantime, Japanese financial groups are repositioning their London operations as EMEA (Europe, Middle East and Africa) headquarters.

Electronics, ICT and acquisitions

Fujitsu (#3), the pioneer of big acquisitions in the UK (ICL in 1990) is no longer the biggest Japanese employer in the UK, having shrunk its workforce by 38% since 2014/5. Sony (#9) has also cut its workforce by 11% over the past four years. Canon (#12) and Ricoh (#7) have grown by less than 10%, Brother (#28) grew around 15%, Mitsubishi Electric (#27) by 17%. Konica Minolta (#24) has grown over 40% in the past 4 years through acquisitions but seems to be shifting more towards the Czech Republic recently.

NTT (#11) and Hitachi (#2), both with ex Japan global HQ in the UK, have grown 60% and 175% respectively over the past 4 years, partly through acquisitions but also in Hitachi’s case through organic growth, with the investment in the rail manufacturing and assembly plant in Newton Aycliffe.

Other new entrants over the past four years have been through acquisitions too – Outsourcing (#26) in recruitment, Sumitomo Rubber (#19) through its acquisition of Micheldever in 2017 and SoftBank acquiring (and soon to be disposing of) ARM.

A holding pattern until the fog clears

The years of double digit growth and acquisitions by Japanese companies in the UK seems to be coming to an end, or at least is on hold until the picture is clearer after the fog lifts from the UK-EU negotiations and the coronavirus pandemic. The UK-Japan FTA does not clear this fog, but at least lays out a path for the UK, which Japan very much would like it to follow, of reintegrating itself back into the rules based international order, towards joining the CPTPP and continuing to be one of Japan’s closest allies in terms of digital security and strategic interests.

Top 30 Japanese Employers in the UK 2018-9

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Time for a logistics revolution in Europe

(This article was published in Japanese in the Teikoku Databank News 18 months’ ago, but it seems even more relevant now)

Now I am back working in my home office, I have become much more conscious of the activities in the street in front of my office window. Once a week, a massive, noisy refrigerated lorry backs itself up against my house, to deliver food to the Italian restaurant three doors down from me. The lorry comes from a food wholesaler with depots the nearest of which is 300km away.

The reason the lorry parks right outside my house is that there are vehicles blocking the road outside the restaurant, caused by the building works which are converting offices into 50 student apartments. Huge trucks reverse up our 16^th century street, damaging the ancient buildings, in order to deliver 50 sets of kitchen or bathroom units. I realise it is cheaper to deliver 50 bathroom units at once in a big truck, but actually the builders did not need all those units at once, as they were fitting out the apartments in phased batches.

When I heard a loud howling noise just after I woke up at around 6:45 one morning I thought it was from the building site again, but it turned out to be from an even bigger refrigerated lorry making deliveries to a chain restaurant in the square at the end of our street.

Chain restaurants have had a bad year in the UK – shutting down a third of their outlets in some cases. Many of these chains are owned by private equity firms, who saw a way to scale up a small chain of restaurants with a distinctive brand into a much bigger, national chain, and reduce costs through bulk purchasing.

The decline of these chain restaurants is partly to do with the economy, but also that the quality of food deteriorated as they expanded. The cooking had become reheating days’ old readymade ingredients.

The quality of the food and the impact on the environment could be improved by more frequent deliveries, in smaller, eco-friendly trucks. Most trucks in Europe run on diesel, and although diesel produces less CO2 than petrol, a huge concern now across Europe is the air pollution diesel causes. French and British governments are banning petrol and diesel cars (but not trucks) from 2040 as a consequence.

But this will require governments to invest much more in electric vehicle charging points and a revolution in logistics. Cities might need to set up hubs in their outskirts for consolidation of deliveries per customer into smaller electric trucks. Logistics companies will need to work with AI specialists like the British company Prowler, whose software is used in logistics to optimise decision making amongst multiple agents.

I realised Japanese companies could be part of this revolution when I saw in my neighbourhood a small electric truck (Isuzu – partly owned by Itochu) belonging to a British tyre wholesaler (owned by Itochu), quietly make a delivery to the city centre outlet of a UK-wide garage chain (also owned by Itochu).

The original version of this article was published in Japanese in the Teikoku Databank News and can also be found in “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

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Are Japanese companies leaving the UK because of Brexit yet?

I asked this question just over a year ago and the answer is still yes and no. To which I would add, it’s more a case that Japanese companies aren’t investing in or coming to the UK as much as they used to, replacing the ones that are leaving or downsizing.

Asia continues to dominate as location for Japanese companies overseas

The number of Japanese companies overseas is, according to Toyo Keizai*, continuing to increase – up 65% from 2008, but the rate of increase has been slowing since 2013. The number of Japanese companies overseas grew 2% from 2018 to 2019, with growth in all regions – higher growth in Africa/Oceania (from a small base) but only 1% growth in Europe compared to 3% in North America and Asia.

63% of Japanese companies overseas are in ex-Japan Asia – up from 62% in 2018 and 69% of the employees of Japanese companies abroad are in Asia. Around 15% of Japanese companies abroad are in Europe and 14% in North America, with both regions having around 11% of employees. As pointed out last year, the obvious factor in why there are proportionately more employees to number of companies in Asia compared to Europe and North America is the greater number of manufacturing operations in Asia, with larger workforces.

The number of UK employees of Japanese companies has fallen for the first time, by 9%

Within Europe, the number of people employed by Japanese companies rose 18% from 2015 to 2019. Those countries where the number of Japanese company employees has fallen are countries where there has been a rise in populism, civic unrest and political risk. UK employee numbers fell 9% 2018-9 (the first decline since at least 2015), Spanish employee numbers fell 19% 2018-9, Hungary’s fell 18%, Turkey’s 10%, Poland and Italy also showed small decreases in employee numbers.

Countries where Japanese employee numbers are growing are the Netherlands (up 11% 2018-9), France (10%), Germany (2%) and the Czech Republic (2%). Employee numbers in Romania doubled from 2018-9 but this is largely due to Toyo Keizai recording employee numbers at Alcedo (acquired by Sumitomo Corporation in 2011) as being 20,284, having been 318 in 2018. The 2018 number is more in line with other available data.

Number of Japanese companies in UK has fallen for first time

The number of Japanese companies in the UK has fallen by 1% 2018-9, from 972 to 966, the first drop since at least 2015, having risen 11% 2015-2018. France also saw a 2% drop in the number of Japanese companies, even though employee numbers are up. Germany attracted a 4% increase in Japanese companies from 2018-9, having risen 13% 2015-8. Netherlands had a 1% increase 2018-9 (13.5% 2015-8) and Italy had a 2% rise in Japanese companies 2018-9, and an increase of 11.8% 2015-8.

It’s hard to work out where Toyo Keizai derives the net drop of 6 Japanese companies in the UK from. Their list of the 7 companies which have closed down in the UK 2019 shows that this was mainly due to reorganization of holding companies or merging of companies rather than full withdrawal from the UK. Of the 8 new Japanese companies in the UK in 2019, 5 were indirect investments into energy companies by Nippon Koei, a civil engineering company and 2 were indirect investments by WDI, a Hong Kong originated Dim Sum chain which is registered in Japan.

Germany now hosts more Japanese automotive companies than the UK

The Japanese automotive sector is of course the sector being most carefully watched for Brexit impact. Japanese automotive manufacturers are continuing to set up overseas – the total number globally has increased 10% in 2019 on 2015. And “despite” the EU-Japan EPA, 15 more Japanese transportation equipment manufacturers set up in Europe in 2019, a 20% cumulative increase on 2015. Of the 15 new companies, 4 are in Germany, 3 in Poland, 2 in Spain, 2 in Portugal, 1 in France, 1 in Italy, 1 in Slovakia and 1 mystery one. This means Germany now hosts more automotive/transportation equipment companies than the UK – 31 to the UK’s 30.

Japanese acquisitions of UK companies reduced in scale and number

Toyo Keizai’s data is reliant on companies filling in their surveys, so tends to underreport and often misses acquisitions. From my database, I estimate 20 British companies were acquired by Japanese companies in 2019-2020, although some of them were indirect acquisitions through acquiring a parent company with a subsidiary in the UK. Dentsu and Sony continued to acquire UK based companies, and other acquisitions were of British companies in software, gaming, hotels, seafood, recruitment, a manufacturer of drives for electric motors and paper wholesale. The scale is far less than in previous years, both in terms of numbers of acquisitions and value of the deals.

Even adding these acquisitions in shows a 3% drop in the number of people employed by Japanese companies in the UK from 2018/9 to 2019/20 according to my database – the first drop since I started tracking these numbers in 2015.

* Toyo Keizai Data Bank: Directory of Japanese Companies Abroad 2020

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UK’s priority in Japan trade agreement is not increasing exports, it’s protecting Japan’s investments in UK

My view on Brexit was that it was accelerating trends that were already there for Japanese business in Europe, and gave them cover to do things they were already wanting to do.

The COVID-19 pandemic seems set to provide similar cover and if the UK is not careful, this will mean a further withdrawal of Japanese investment from the UK.

Japanese companies are still in search of growth outside the ageing, declining population of the Japanese market, and this includes in Europe. According to Japanese Ministry of Foreign Affairs data, the number of Japanese companies in Europe grew 16% from 2012-2018 and the number of Japanese nationals in Europe also grew over the same period by 12%.

At the same time Japanese companies are very risk averse. Brexit was seen as a risk from around 2013 onwards, and this is reflected in the number of Japanese companies and nationals in UK falling by 11% and 7% respectively over 2012-2018 – the only country in Europe to show such significant decreases. Germany already hosts more Japanese companies than the UK and is catching up in terms of hosting Japanese nationals too.

Although Japan is still more of a manufacturing, exporting nation than the UK is, both the UK and Europe are just as – if not more – important to Japan as a destination for investment than as a market for exports of finished goods. As the DIT itself estimates, around 59% of Japanese exports to the UK are intermediate goods, used in supply chains. So in other words, a large number of Japan’s investments in the UK and the Europe boost Japanese exports to the UK and Europe.

The trends in current Japanese trade and investment in Europe and the UK need to be examined for their impact in the four areas where Japan has influence over the UK economy

1. Existing UK jobs reliant on Japanese companies

The Japanese automotive sector is a key source of existing jobs for the UK as it accounts for around a quarter of the 163,000 people I estimate are employed in the UK by Japanese companies. There was a 3% decline from 2017/8 to 2018/9 in employment in the Japanese automotive sector in the UK, however, whereas employment in Japanese automotive companies grew elsewhere in Europe, particularly in Eastern Europe.

So while zero tariffs on automotive parts from Japan to the UK will help – this might just be trying to hold back the tide. The possibility of tariffs on exports of cars made in the UK to the EU is obviously a concern for Japanese companies too. Maybe sterling will fall far enough or there will be sufficient government subsidies to mitigate this extra cost but ultimately Japanese companies will choose to manufacture where there they can access not just the lowest costs but also a market sufficiently large to ensure full production capacity.

Obviously there is a strong need to focus on electric vehicle development, and the UK has strength in automotive design, but Japanese car manufacturers will be wanting to develop EVs in line with EU regulations and to be able to influence EU regulations – which is easier done from inside the EU than outside.

2. Where the new Japanese jobs are in the UK

Hitachi is the most significant recent contributor to organic job growth in Japanese companies in the UK – largely due to Hitachi Rail. Hitachi has also invested in Horizon Nuclear Power, which is currently “on ice”. Hitachi’s focus is on social infrastructure, and various commitments by UK governments on investing in transportation and energy are key to this. Many other Japanese companies are also interested in social infrastructure business in Europe.

A UK Japan trade agreement can support further job growth by facilitating the export of parts for these industries from Japan. Hitachi has also invested in rail manufacturing in Italy so if there are any tariffs making exports from the UK to the EU uncompetitive, they have an alternative manufacturing location within the EU.

Other Japanese companies that are expanding in the UK include NTT, the ICT/telecommunications giant, who have put their non-Japan global HQ in London and SoftBank, who acquired ARM and committed to expand the workforce. Presumably this is why DIT is emphasizing free data flows between Japan and the UK, which would be welcomed by Japanese ICT companies and Japanese regional headquarter functions based in the UK.

I’m seeing some positive impacts of the EU-Japan EPA on investment elsewhere in Europe. There have been quite a few acquisitions by Japanese companies of food businesses in France for example. Japanese trade statistics show that food and alcohol exports to Japan from Europe have risen after the EPA came into force. If a similar agreement on food, textiles and leather goods to the EU Japan EPA is reached between Japan and the UK as the DIT is asking, there may be similar acquisitions by Japanese companies in the UK – as well as the growth in exports for UK SMEs that the DIT seems to be focusing on. There already have been a few food related acquisitions by Japanese companies in the UK. This might see some increase in new jobs in the UK as a result. But this is marginal compared to the jobs that could be created by Japanese investment in the UK infrastructure sector.

3. UK exports of services to Japan are M&A driven

It seems likely that Japanese companies will continue to use their piled-up cash to acquire – perhaps in Asia initially as it is opening up first after COVID-19. In the past, Japan established companies in the UK as gateway to EU but recent Japanese acquisitions in the UK have been increasingly pure domestic (recruitment, car parking, outsourcing, advertising) or pure global (SoftBank, financial services).

These acquisitions do not necessarily create more jobs, but financial, legal and other services around the acquisitions is, I would guess, a large component of UK services exports to Japan. Allowing UK professionals to operate in Japan is not a key driver – it is more that UK based professionals are supporting Japanese companies in Europe and globally. I even know of one UK based, American owned advertising agency that deals directly with the Japan HQ of a Japanese sports brand on their global campaigns, even though the advertising agency have a Japanese office.

Japanese companies may well buy up more British companies in the near future, as they will be cheap. However, there does seem to be a decline in big ticket acquisitions in the UK – the most recent major European acquisition by a Japanese company that I am aware of is Mitsubishi Corporation acquiring the Dutch Energy company ENECO – my understanding is that Netherlands based services companies mainly supported this.

4. Export of services because of UK as European/EMEA hub

Another element in the UK’s export of services to Japan is that the UK subsidiaries of Japanese companies often perform a regional headquarters function for Japanese firms – and receive management fees for this. Brexit (but also changes in Japanese laws on treatment of offshore profits) has caused some Japanese companies to move their regional HQ from UK (Panasonic, Sony) in a legal and financial sense. But there is still a critical mass of people in the UK working for such companies, because the UK provides marketing, IT, design, engineering, legal, financial, accounting services that are of a high, globally accepted standard.

This is why, as the JETRO survey of 2019 of Japanese companies in Europe pointed out, the biggest regulatory concern of Japanese companies is that the UK or the EU might change regulations regarding the freedom of movement between the UK and EU for their employees. Continuing that regional coordination role requires regional employees to move around the region – or can this all now be done by web conferencing?

The UK is still seen by Japan as an attractive place to send students but also employees for education and development. Japanese students only want short term, under 1 year courses, however and many are looking at cheaper, nearer options. Both students and Japanese professionals would want ease of acquiring visas, including work visas and a safe, stable environment to live in.

UK offensive interests

Looking at the recent DIT paper on the UK-Japan FTA, clearly there are some non-tariff barriers to the UK accessing the Japanese market – as there have been for decades. But my overwhelming impression is that most British companies have not been very proactive in approaching the Japanese market – it’s a big commitment, opening an office in Japan is needed, not just exporting from afar. It’s relatively easy to set up a company in Japan but not so easy to hire the right people. There is a labour shortage, particularly of capable salespeople who are English speakers. This is not something that can be solved in a trade agreement.

A final point regarding the DIT paper’s claim that the UK is a “technology superpower” – not in Japanese eyes I’m afraid – possibly in fintech and there have been some Japanese investments in that sector in the UK. But they’re fairly small scale. Japanese technology companies such as Panasonic are basing their innovation arms in Silicon Valley. The US, China and the EU are more important to Japan than the UK – in many ways.

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Japanese shift to Germany continues

Germany has historically been the main rival to the UK in Europe for Japanese investment. The UK absorbs about 40% of total Japanese investment into the EU but according to the Japanese Ministry of Foreign Affairs, there are actually 50% more Japan originated companies (703) in Germany compared to the UK (471).*

The reason for this discrepancy in numbers may be to do with the difference in the sectors that are investing in Germany and the UK and also the scale of the companies that are being acquired. According to my own research there are more employees on average at Japan affiliated companies in the UK than there are for Japan affiliated companies in Germany.

More Japanese employers in Germany but fewer employees than UK

This may be because the big employers – Japanese car manufacturers – do not have production in Germany – unlike the UK with Nissan, Honda and Toyota. There are plenty of Japanese automotive component manufacturers in Germany, but they tend to be what is known in German as “Mittelstand” or medium sized companies.

Manufacturing represents around 20% of German GDP, similar to Japan. Germany has of course always had a strong reputation for engineering and German cultural values such as risk aversion and process orientation fit well with Japanese corporate mindsets.

Japanese expats in UK mostly in regional HQ and services roles

By contrast, only 11% of the UK’s GDP is derived from manufacturing and 80% of UK GDP is services, particularly financial services such as banking and insurance. This sector accounts for quite a few of the Japanese companies who have multiple subsidiaries in the UK, as well as trading companies, holding companies and services companies providing financing and other functions across Europe.

This might explain why UK has more Japanese residents than Germany – presumably acting as liaison and coordinators with Japan HQ for the region – around 63,000 compared to 46,000 in Germany. However, this number is falling for the UK, and increasing for Germany.

A drop in Japanese students and intra company transferees in UK since 2015

Does this mean that the UK is losing its role as the services centre for the region to Germany? Looking at the detail, it seems the main factor behind the drop in the number of Japanese in the UK is that there are 3,000 fewer Japanese students and academics in the UK compared to a year ago.**

Intra company transferees to the UK fell by 1% from 2015 to 2017 whereas there are now many hundreds more Japanese transferees living in Germany, the Netherlands and Eastern Europe than three years’ ago.

As Japanese manufacturing shifts eastwards in Europe, sales hubs are moving with them

Looking at the recent investments into the UK and Germany, the trends of the past few years still seem to hold. Investments into the UK are in the form of establishing regional holding companies, or M&A in biotech, information technology and services for the UK market such as car parking. Investments into Germany are mainly for the wholesale of electronic components and machinery. Sometimes these are German sales offices for Japanese companies who already have sales or manufacturing in the UK. As manufacturing shifts eastward in Europe, so the sales hubs are moving with them.

Update for 2019-2020

The above article was written for the Teikoku Databank News in October of 2018. Since then, the Ministry of Foreign Affairs has published further data on Japanese nationals resident in Europe and Japanese companies operating in Europe, but unfortunately without the level of detail that was available previously.

The chart below summarises the data available for the UK and Germany – showing the continuing long term trend of an increase in Japanese companies and nationals in Germany, and a decline in Japanese companies and nationals in the UK. Overall across Europe, the number of Japanese companies and nationals has increased in the past five or so years, but more in Eastern Europe recently.

This is reinforced by the data collected by Toyo Keizai of Japanese expatriates working for Japanese companies, which also shows that the increase in Japanese nationals in Germany is primarily in non-manufacturing, with a corresponding decline in Japanese nationals working in non-manufacturing in the UK.

*This is the number of individual incorporated companies in 2018 – if you include all branches, and multiple subsidiaries, the figure is 966 Japanese entities in the UK compared to 1,839 in Germany as of Oct 2018 MOFA report

** Based on later conversations with the British Council, this steep drop in Japanese students coming to the UK may well be to do with changes in visa categories that are being monitored rather than an actual decline – most Japanese students prefer to study abroad for less than a year.

The original version of this article can be found in “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

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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 might be easier via LinkedIn than the official website, which has broken links. https://www.linkedin.com/company/ntt-data/jobs/

EMEA headquarters: UK

We will cover the rest of the top 10 largest Japanese employers in Europe, Middle East and Africa in our next post.

The full top 30 can be downloaded as a pdf from here Top 30 Japanese employers in Europe 2020 Rudlin Consulting.

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It’s not over yet for Honda in the UK

“Don’t be ordinary, Honda” urges a 20 page special feature in Nikkei Business magazine. It points out that Honda occupies a similar space to Sony in Japanese people’s hearts. They both had maverick founders, produced quirky, innovative products for decades, lost their edge and then had to undergo deep restructuring to survive.

The loss of face for Swindon

Part 1 of the special feature starts in Swindon, lamenting that it has come to a point where Honda, “the face of Swindon”, is having to shut down. “Falling European sales and the chaos of Brexit are not the only reasons”. Honda says it is because of the need to respond to the rise of electric vehicles, a recognition that it had not set up the necessary structure in Europe to deal with the EU’s strict environmental regulations and supply electric and hybrid vehicles.

Going it alone made it difficult to innovate

This lack of preparedness may have been because Honda was going it alone, in contrast to Toyota working with Mazda, Suzuki, Subaru and Daihatsu and Nissan’s alliance with Mitsubishi and Renault. Even adding in Honda suppliers like TS Tech, Keihin, Showa, Musashi and Nisshin, its total supply chain sales amount to a tenth of Toyota’s. Toyota’s supply chain includes other large multinationals like Denso, Aisin, Toyota Industries, JTEKT and Toyota Boshoku. R&D expenditure is similarly tiny compared to Toyota’s spend.

Honda is not in Boston Consulting Group’s Top 50 most innovative companies of the world – whereas Toyota is at #37. It’s not even in the top 50 of Japan’s own ranking of most innovative domestic companies. Toyota is at #2, Honda at #105.

Only 70% of Honda’s sales are 4 wheel vehicles however – 13% are motorbikes, 2.2% power products like lawnmower engines and 14.9% is financial services. Honda has been innovating in these areas as well as becoming active in Mobility as a Service, investing in electric vehicle charging, including in the UK and Sweden.

Honda still has roots in the UK

In fact it’s not over for Honda in the UK by any means. Nikkei Business’s special feature takes a nostalgic look at whether Honda can grab back the “speed” and “challenge” spirit that Honda showed in the Isle of Man TT races, illustrated by a headline from the Daily Mirror in 1967 “The Japs are Laps in Front”. It described the 3 times Honda has left Formula One, only to come back again. Honda R&D and Honda Motor Europe are still based in the UK, and Honda has mainly supplied engines to UK based Formula One teams over the years – most recently to Red Bull in Milton Keynes.

The special feature finishes with an interview with Honda’s President Hachigo Takahiro – who was himself posted to the UK during his career. He shows no interest in merging with Toyota or Nissan in order to achieve scale. “We are not thinking about making a bid for Nissan…We are innovative when we face challenges, like we did with Formula One. As for Toyota, we won’t get very friendly, we will have a fight occasionally. Otherwise the Japanese car industry would be very dull. We have different personalities. We should be good rivals, and help Japan rise up. We have no intention of taking Toyota’s money.”

Even if Honda is shutting down its manufacturing in the UK, the hope seems to be that the UK can play a part in recharging its innovative spirit.

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

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

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

Brexit

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The EPA is encouraging Japanese imports to EU

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

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

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

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

Economic outlook for Europe

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

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

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

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

Strengthening selling to EU as a region

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

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

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

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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. You can also find them in my book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

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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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Last updated by Pernille Rudlin at 2020-08-18.