Japanese business in Europe

Pernille Rudlin interviewed on the history of Japanese companies in the UK and Brexit

Pernille Rudlin is in conversation with Tom Hayes of BEERG (Brussels European Employee Relations Group) on how Japanese companies have responded to Brexit, tracing the progress of UK/EU/Japanese trade relations from Margaret Thatcher’s promotion of Britain as a Japanese gateway to the EU in the early 1980’s, through to the present day.

The video and podcast links are as below

BEERG Byte #32 from Derek Mooney on Vimeo.

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The opportunity for Japan to help Europe with its housing shortage

One of the few new Japanese companies to join the Japanese Chamber of Commerce & Industry in the UK in 2020 was Sekisui House. Daiwa House also announced at the end of 2020 that they were going to acquire Dutch modular housing builder Jan Snel.

Both companies cite the housing shortage and scarcity of skills across Europe as a reason for their expansion. We have certainly been suffering from a housing shortage in the UK for many years. When I studied the problem 30 years’ ago at university, I remember being told that one issue was not so much a lack of housing, but a lack of adequate housing. There were and still are a lot of older houses, even dating back to the 19^th century, which are not fit for modern day living.

Another issue which has become more acute is that these houses, even if refurbished, are not where people want to live. We still have an economic north/south divide in the UK, thanks to the decline of industry. Big northern towns and cities have no jobs, but plenty of empty, dilapidated housing. Cities in the south are not building enough new housing for the increase in population. As a result, young people are having to share crowded houses and apartments and cannot afford the mortgage needed to buy anywhere.

Building more new houses in those cities is the obvious solution, except that there is a lack of land on which to do so. There was an attempt to allow old office blocks to be turned into apartments, but this resulted in some very low quality, unhealthy housing.

Land is available in the commuter zones outside London, but this has been protected for many years by a so-called Green Belt, which tries to preserve green fields and woodland. Although this may seem a worthy ecological cause, it has mostly been exploited by the residents of those areas who do not like the idea of new houses and newcomers and a consequent hit to the value of their own homes.

I used to live in one of those areas, near a train station which took me directly into central London in 47 minutes. It was right by the M25 orbital motorway, and there was a constant noise from nearby Heathrow and Gatwick airports. I thought at the time that claiming this was green belt and refusing to build more homes in the area was not only selfish, but a denial of reality.

For the first time in the UK, and possibly in the world, air pollution has been ruled as the cause of death of little girl who had asthma and lived in London. I thought back to our time living in the “green belt” and the air pollution we tolerated there. If Sekisui and Daiwa are going to be able to build housing in those areas, their low carbon technology, with effective air conditioning systems, should be much welcomed.

This article originally appeared in Japanese in the Teikoku Databank News

Top 30 Japanese companies in Poland 2021

Poland and other Eastern European nations are a forgotten economic success story, according to Ruchir Sharma of Morgan Stanley Investment Management in a recent Financial Times opinion piece. The Czech and Slovak Republics, Lithuania, Latvia, Estonia, and Slovenia have all made it into the advanced economies, as defined by the IMF, and have a per capita income of $17,000, with Poland not far behind at a per capita income of $15,000. Hungary is even closer, with per capita income of $16,000 and Romania is also catching up, on $13,000. Quality of institutions and other more subjective factors are included in the IMF criteria, so it may be that if some of these countries are judged to have deteriorated under a populist government, then promotion to the premier division will be delayed.

Sharma argues that consistent long term growth is the key to economic success, and manufacturing prowess lies behind this for Eastern Europe. Poland has grown at an average of 4% a year over the past three decades, without a single year of negative growth. Japanese companies do seem to have been attracted to this economic stability. According to our research, Japanese companies in Poland now employ around 53,000 people, making it the fourth largest base for Japanese company employees in the European region after the UK (176,000), Germany (167,000) and France (75,000).

The largest Japanese employers in Poland are indeed manufacturers such as Sumitomo Electric Industries (Sumitomo Electric Wiring/Bordnetze producing harnesses and Sumitomo Riko producing hoses for the automotive industry) and other automotive suppliers such as NGK Insulators, NSG (automotive glass), Toyota Motor, NSK, Bridgestone and Yazaki.

Beer and cigarette manufacturers also feature – Asahi after their acquisition of Polish beer brands Tyskie and Lech, and Japan Tobacco has a factory in Poland manufacturing Winston and Camel. A further vice, chocolate, is also manufactured by a Japan headquartered company Lotte, via their 2010 acquisition of Wedel.

There are some large services sector employers as well – Fujitsu has around 3,000 employees working in its global delivery centres in Katowice and Łódź. However, we estimate around a third of the 200 Japanese companies in Poland have plants there, compared to 16% of the 1000+ Japanese companies in the UK or Germany.

We may still be missing a few Japanese companies in Poland. There are relatively fewer Japanese expatriates in Poland compared to other countries which host larger numbers of Japanese companies. This may cause some underreporting to database survey companies such as Toyo Keizai, which only records around 130 Japanese companies in Poland, and less than 20,000 employees, compared to our estimates of over 200 companies and 53,000 employees. There is still a tendency by Japanese companies to locate their Japanese expatriates in Germany, to manage Eastern European subsidiaries and branches from there. The Polish investment agency says there are 300 companies in Poland employing over 40,000, in 2019.

Cornel Ban, of the Copenhagen Business School, responded to Sharma’s piece by arguing that a high risk of stagnation in countries such as Poland is “baked in”, if they only rely on low labour costs. There is a lack of investment in training and R&D and that “the multinational manufacturing firms that dominate these countries’ export-led growth regimes have few incentives to relocate significant technical innovation systems in the region.” As far as we can ascertain, there are only a few Japanese companies that are conducting R&D in Poland – Canon Ophthalmic Technologies, Fujitsu‘s FQS in computational chemistry systems and Rigaku in thin films and materials.

PDF DOWNLOAD OF TOP 30 JAPANESE EMPLOYERS IN POLAND 2021

Top 30 Japanese employers in Italy 2021

We’ve just compiled our first ever Top 30 for Japanese employers in Italy (see below for updated 2022 version). We’ve thought for a while that Tōyō Keizai underreported the number of employees in Italy, and that it probably ranked fourth after the UK, Germany and France in terms of numbers employed. Tōyō Keizai records 16,500 employees at 270 companies. We estimate it’s more like 50,000 employees at 350 or so companies. We were also wondering what might be behind the Japanese Ministry of Foreign Affairs data showing a sudden rise from 300 Japanese companies in Italy in 2018 to 425 to 2019.

The answer to both puzzles might lie in the fact that the Hitachi group, which was the largest Japanese employer in Italy, acquired various rail businesses from Ansaldo in 2019 and one of its subsidiaries, Hitachi Chemical, acquired FIAMM in 2020. Hitachi has now dropped one rank, to the second largest Japanese employer in Italy, behind the NTT group, as Hitachi Chemical was acquired by Showa Denko in 2020. Another factor is that the NTT group has also grown substantially in Italy recently, mainly thanks to acquisitions by NTT Data.

Other large Japanese employers in Italy are the result of earlier acquisitions: Denso has some of its major manufacturing operations in Italy, deriving from acquisitions from Magneti Marelli more than 20 years’ ago. Denso Thermal Systems S.p.A. is now the regional headquarters for the air conditioning manufacturing business.

Mitsubishi Electric at #5 acquired Italian firm Climaveneta in 2015. Nidec, the 6th largest Japanese employer in Italy, acquired Ansaldo Sistemi Industriali S.p.A. in 2012. Sumitomo Heavy Industries acquired Lafert (electric motors and drives) in 2018.

So it seems likely the underestimation of Italy lies more in acquisitions unaccounted for than a sudden influx of Japanese greenfield investment.

Half of the Top 30 Japanese employers in Italy are also in the EMEA region top 30, so would be expected to have substantial presence in Italy too. The acquisitions detailed above show that Italy’s strengths, as far as Japanese companies are concerned, are in engineering – particularly rail and air conditioning. Judging by the companies that are only in the Italy Top 30, textiles (Toray) and pharmaceuticals (CBC and Takeda) are still attractive sectors for Japanese investment – and of course food – such as the Princes tomato processing plant, owned by Mitsubishi Corporation.

New 2022 edition

The 2022 Top 30 has just been published – it can be downloaded from our website here.

We can provide more detail on the 85 companies within the Top 30 – each company name in full and employee total per company (a truer indicator of size of the company than turnover in our opinion) for £9.99 – please email us for a PayPal invoice.

UK still number one in Europe for Japanese automotive manufacturing – just

The recent news about Nissan and its Chinese battery manufacturing partner Envision deciding to go ahead with expanding the battery plant in Sunderland, to supply a new electric vehicle model, led me to revisit my researches on trends on the Japanese automotive sector in the Europe, Middle East and Africa region. I had blogged in October 2020 that for the first time in at least five years, according to Toyo Keizai data, there were more Japanese automotive manufacturers in Germany than in the UK.

Toyo Keizai’s new directory came out this April, and adding in their more recent data, it seems that the number of Japanese automotive manufacturers in Germany actually dropped by 11, from 31 to 22. So the UK is back in the top spot. Cross checking this against all data for Japanese companies in Germany, it seems that this is more that those 11 companies switched categories rather than left Germany. Many automotive suppliers of parts supply parts for other industries, so they may have decided that the bulk of their business was no longer automotive, or preferred not to be classified as automotive. There were also falls in the numbers of Japanese automotive manufacturers in Spain, Russia, Poland and Portugal.

The number of people employed by Japanese automotive manufacturers is perhaps a better indicator of general health than self classified numbers of companies. The numbers employed by Japanese automotive manufacturers in the UK has dropped by 12% comparing 2015/6 to 2020/21 and by around 8% over the year 2019/20 to 2020/2021. I only have comparable employee numbers for the rest of the region for the past two years, and these show that there has been a 2% drop employee numbers from 2019/20 to 2020/2021. The only other notable decrease was in France, where employment fell by 11%. The most growth was in Morocco, but only by 3%.

So the UK still has the most employees of Japanese automotive manufacturers in the region, but the number of employees has dropped below 30,000 for the first time in five years. The Czech Republic, Germany and Poland are not far behind in terms of employee numbers, and it’s possible Germany still does have more Japanese automotive related manufacturers than the UK, it’s just that they have chosen not to classify themselves as being in the automotive sector. The closure of Honda Swindon and other suppliers to the Swindon plant this month will probably result in the UK losing its top spot both in terms of employees and companies hosted.

The biggest Japanese automotive employers, apart from the actual car assemblers themselves, are the wire harness suppliers- Yazaki and Sumitomo Electric being the dominant Japan owned companies. Unsurprisingly, they base most of their factories in lower labour cost countries in Eastern Europe and North Africa.

Overall, Japanese automotive manufacturers employ around 280,000 people in the region, not including those in the supply chain who are wholesale/importing rather than manufacturing. So it is no wonder that any investment by them is welcome news, but it may take a little more than the recent Nissan announcement to reverse the trends in the UK and across the region.

Latest Top 30 Japanese companies in UK shows significant divergence

Our latest Top 30 Japanese companies in the UK shows a 1.3% drop overall in employee numbers from 2019 to 2020*, the first fall we have seen in the seven years we have been tracking the Top 30. As most Japanese companies in the UK use an April 1 to March 31 financial year, the fall in employee numbers dates to before COVID-19 pandemic began to have an impact. The small drop masks significant divergences – there were companies whose workforce shrank by over 10% such as Nissan, Honda and Nomura, and also companies which grew significantly, such as NTT and SoftBank.

This tallies with a recent report from Japan’s Ministry of Economy, Trade and Industry (METI) which reported in March 2021 that whereas automotive sector companies have a bleak outlook on the UK market, manufacturers in sectors such as chemicals, pharmaceuticals, electrical machinery and foods are far more positive about future expansion in the UK. According to METI, manufacturers represent around 39% of Japanese companies in the UK, the remainder being in the services and wholesale sectors. Services sectors, particularly IT related, would seem to be positive too from our researches, apart from Fujitsu, which has slipped down a further place to being the 4th largest Japanese employer in the UK, having been the largest for many years previously, to 2017/8.

The 96,000 who work for the Top 30 Japanese companies in the UK represent around 55% of the 176,000 (down from 179,000 the previous year) or so people who work for over a 1,000 Japanese companies in the UK, according to our estimates. The METI survey shows that despite the small drop in the numbers employed by the Top 30, larger companies (defined by METI as having over £600m turnover) will have weathered Brexit far more easily than smaller ones, having the resources and networks to set up agents in the EU, stockpile and open up new logistics and warehousing hubs on the Continent.

Certainly the 50 or so Japanese companies that have withdrawn from the UK over 2019-20 have been smaller in size (under 50 employees) and the larger ones who have shut down operations have usually not withdrawn entirely but rather turned their subsidiaries into branches or merged them with another UK based operation.

As we have said for some years now, Brexit has brought about an acceleration of trends which were happening anyway, and precipitated some long overdue tidying up.

FREE PDF DOWNLOAD OF TOP 30 JAPANESE EMPLOYERS IN THE UK 2021

*2020 defined as the year ending 2020, where most of the year was in 2019, ie April 2019 to March 2020 or January 2019 to December 2019.

Top Japanese companies for CSR in UK

Only around 10% of Japanese companies in the UK mention any charitable donations in their annual reports, and yet according to Toyo Keizai, many of the largest Japanese companies in the UK top the rankings for contributions to corporate social responsibility, measured in Yen.*

Top of the ranking is Honda, which spent Y9.57bn ($87m) on contributing to society in 2019/20. Activities included a national robot contest and the Honda Eco Mileage Challenge – a competition to see how far a car can be driven on a liter of gasoline, as well as beach cleanups. CSR outside Japan is also included, such as Honda’s professional training course in South America, a Dream Riding Program for women in India and tree planting in Inner Mongolia.

Pharmaceutical companies have always been big corporate givers, unsurprisingly. Takeda is the second largest CSR donor in Japan, spending Y8.55bn (a significant increase on previous years) on the Takeda Science Foundation awards, research grants etc as well as volunteer activities. Third is NTT DoCoMo who have created a DoCoMo forest in 49 locations in Japan and provide scholarships for Asian students.

Other companies in the top 50 who also have substantial presence in the UK include Suntory, SECOM, MUFG, Canon, Panasonic, SoftBank, Sony, Aisin, Eisai, Komatsu, Nomura, Hitachi, Mitsubishi Corporation, Nissan, MS&AD, Daikin, SMFG, Mitsubishi Chemical, Fujitsu, Marubeni, Asahi Chemical, Asahi Breweries, Mitsubishi Heavy and Denso.

By contrast, the largest declared donations in money and “in kind” by Japanese companies in the UK are Toyota who donated £1.3m, Dentsu who donated £900,000 (but this might be across the global network) and Ricoh who donated £500m. None of these appear in Toyo Keizai’s rankings.

Honda of the UK donated £24,000 to charities in the UK last year as well as investing in various sustainability initiatives in education and community, safety, environment and diversity and inclusion.

Fujitsu was also a top 50 donor in the UK, along with MS Amlin (part of MS&AD), Sony Music Entertainment and Sony Interactive Entertainment, Mitsubishi Corp via its subsidiary Princes and Eisai.

As for the other big donors in Japan who don’t seem to be giving much in the UK, it’s either because they are but not reporting it, or it’s an opportunity for their employees to encourage them to contribute to UK CSR activities as well as in Japan.

*Toyo Keizai counts both direct contribution to CSR and business activities which have a social purpose.

Top 30 Japanese employers in Germany in 2021 compared to the UK

Germany and the UK are host to a similar number of Japanese companies, and a similar number of people are employed by Japanese companies in both countries. Comparing the 30 largest employers in each country reveals some significant differences however, reflecting their different strengths in services and manufacturing,

The top 30 largest Japanese employers in Germany employ around 99,000 people* – 57% of the total 167,000 people we estimate work for around 970 Japan owned companies in Germany. The UK top 30 employ around 94,000 people, just over half of the 180,000 people we estimate work for over 1100 Japan owned companies in the UK.

So there’s not that much difference in the scale or proportion, however only 12 companies appear both in the Germany and UK Top 30. They are largely the ICT/electronics companies such as Fujitsu, Sony, Ricoh, Canon, Panasonic, Konica Minolta, NTT and NTT Data, who presumably are at a scale which reflects population size and therefore domestic consumer and B2B demand for their products and services.

Outsourcing Inc is in the Top 30 of both, following a recent aggressive programme of acquisitions throughout Europe such such as acquiring Otto Workforce. Similarly NSG appears in both Top 30s as a result of its acquisition of Pilkington Glass in 2006 and Olympus as a result of building on its acquisitions of Keymed and Winter & Ibe several decades ago.

Hitachi only just makes it into the Top 30 for Germany, whereas it is number 2 in the UK, largely thanks to the organic expansion and acquisitions by Hitachi Rail.

The companies that only appear in the UK Top 30 are either in the automotive sector such as Nissan and Honda, in the financial services sector (MS&AD, MUFG, Nomura, SMFG) or the general trading companies and their acquisitions (Itochu, Mitsubishi Corporation, Marubeni). Toyota appears in both Top 30s, although it only has manufacturing in the UK. In Germany its main companies are Toyota Kreditbank and Toyota Gazoo Racing. Dentsu, the advertising agency, is also in the UK Top 30, reflecting the traditional strength of the UK in marketing services, leading to the acquisition of Aegis and many other British agencies and resulting in Dentsu’s global headquarters being located in London.

The companies that only appear in the Germany Top 30 are Sumitomo Electric, which is at number 1 due to the large numbers employed at its factories acquired from Volkswagen and Siemens in 2006, DMG Mori Seiki (another manufacturing acquisition), Lixil (acquired Grohe), JT International (its German factory a legacy of RJ Reynolds owning Hans Neueberg, in turn acquired by JT International), Showa Denko (owns SGL Carbon), and other companies with manufacturing in sectors of traditional strength for Germany such as chemicals, pharmaceuticals and engineering.

So in a way, the UK hosting (at least until July 2021) manufacturing plants for the three major Japanese car brands is more of an anomaly, and the rest of the Japanese investment in the UK reflects the UK’s strengths in services, particularly financial and commercial, as a centre of international trade, whereas Japanese investment in Germany reflects traditional German manufacturing and engineering strengths.

You can download the Top 30 Japanese companies in Germany and in the UK for free below:

The Top 30 is by corporate grouping, so each entry will contain several Japanese companies. In Germany’s case, there are 186 companies in the Top 30 employers. If you would like more detail on which companies appear in each group, their size in terms of employees and their location, please contact us. Prices start from 10c per company, with a 100 euro set up fee.

FREE PDF DOWNLOAD OF TOP 30 JAPANESE EMPLOYERS IN UK 2021

For the 2022 Top 30 Japanese companies in Germany, please see this post.

*This post and the Top 30 Japanese companies in Germany was updated on 25th April 2021.

Japanese companies’ employee numbers shrinking more in Europe than elsewhere

The quarterly survey by Japan’s Ministry of Economy, Trade and Industry reveals that employment in Japanese companies in Europe fell more than other regions in October to December 2020, a reflection of the continued declines in capital investment and sales in the region.

Globally, Japanese companies’ sales improved 3.8% on the previous year, the first increase in 8 quarters, but for Europe there was a 1.8% decline, the tenth consecutive quarterly decrease. Sales in North America fell slightly more, by 2%, but the decline has been more recent – over 5 quarters. Sales in Asia rose 9.3% (and comprise over half of Japanese companies’ sales overseas), the first growth in 8 quarters.

Capital investment declined across the board, by 17.6% – the fifth quarterly consecutive decline. The fall in investment in Europe was 19.6%, greater than North America’s 16.2% drop, but lower than the 23% fall in investment in Asia.

The total number of employees fell globally by 4%, the 7th consecutive quarterly decline, and by 7.9% in Europe, the 4th consecutive quarterly decline. The number of employees only fell by 3.8% in Asia (7th consecutive quarterly decline) and 3% in North America (4th consecutive quarterly decline).

Sectorally, the decline in sales in Europe was mainly in electrical machinery (13.9% drop) and transportation equipment (which includes automotive) with a 2.9% fall. Capital investment in the European transportation equipment sector fell by nearly 40% and there was a 15.4% decline in capital investment in the European electrical machinery sector too. European employee numbers fell 26.5% in electrical machinery and 3.8% in transportation equipment. There were increases in sales, investment and employment for Japanese companies in Europe in the chemical and general purpose machinery sectors, however.

“Almost” no hesitation appointing a Belgian president – Mitsubishi Chemical chairman

Yoshimitsu Kobayashi, chairman of Mitsubishi Chemical was interviewed towards the end of 2020 by Nikkei Business magazine. Mitsubishi Chemical is not in our Top 30 Japanese employers in Europe, as it only employs around 3,200 in the region – mainly via the UK company Lucite International which it acquired in 2008 and other acquisitions in Germany, Italy and Switzerland.

Kobayashi has always been his own man, and somewhat unconventional by Japanese corporate standards, having studied at the Hebrew University of Jerusalem before joining Mitsubishi Chemical in 1974. He is nonetheless a leading light in Japanese business circles and sits on various government and employer bodies.

He was asked if capitalism will change, as there seems to be renewed interest in the kind of stakeholder capitalism that Japanese companies prefer to practise. His view is that Japanese companies should not just say “sampo yoshi” (three way satisfaction for the buyer, seller and society) and be complacent, but have to improve their productivity and capital efficiency, and make a profit.

Asked about the surprise appointment of Belgium-born Jean-Marc Gilson to President of Mitsubishi Chemical, Kobayashi said they had been preparing the ground for some time. Even when he chose the previous president, Ochi, he found it hard to make his mind up. So he set up a nominations committee with external directors with overseas experience. They were tasked with finding the best person globally – but it took five years for this message to get through.

He had “no hesitation – almost no” in appointing a foreign president. Rather, he was more afraid of turning back to the past and appointing a Japanese president. He wanted to make sure that whomever became president understood the “KAITEKI” philosophy that he had been promoting and take a radical approach to zero carbon and reduce reliance on oil and coal. This probably needed an outsider to push this portfolio transformation and improve Mitsubishi Chemical’s market capitalization. “What this company lacks most is the awareness of how to make money. I talked to Mr Gilson about this four or five times over Zoom, as he also had experience in a private equity fund, he explained this point very clearly. I hate to say, but a Japanese president could not give such a presentation.”

“Rather than Gilson’s own performance, I am hoping that by him becoming President, the whole company will up its game. Rather than being told to study English or speak English, wouldn’t you try to speak English of your own accord because the president is foreign?”

He is quite critical of the current Japanese government announcing zero carbon by 2050 without any actual design behind it. “There is no serious discussion at all” and yet per capita GDP in Japan is lower than Singapore, Hong Kong and South Korea.

Category: Japanese business in Europe