Japanese business in Europe

Brexit is already priced in – the failure of British soft power

I’m on what has become an annual business trip this time of year, to Duesseldorf. Just before my flight out of London City Airport, I met with one of our Japanese corporate clients in the City, who told me that they are about to establish their European Union headquarters in the Netherlands. Brexit was not directly mentioned as the reason for this, more that “compliance and regulatory issues” made Amsterdam the preferred choice. The EMEA (Europe, Middle East and Africa HQ) will remain in London. The Amsterdam office will be beefed up and some of the regional functional people are being transferred there from London. This is precisely the sort of gradual drift to the Continent that I fear will follow an actual Brexit – and it is happening already.

Arriving at Duesseldorf airport, I was struck by the clear division at passport control between “EU Citizens/Burger” and “Other Nationalities”. An EU blue path (that made you feel it was a red carpet) took you to a completely separate set of passport officials. In UK airports, the different lanes are side by side, and it’s often quicker to go to the “all passports” queue than wait in the EU queue. There is no mention of us all being “citizens” either in British immigration control. Some Brits may find this willingness to treat us as equal citizens of Germany somewhat troubling from a historical perspective, but I felt rather flattered.

Then on to my hotel, with a huge array of channels including BBC World. But there was no signal for the BBC channel. So I ended up watching some fascinating documentaries on the cultivation and cooking of lotus roots, and Indonesia’s fad for J pop Wotagei dancing on NHK World instead. Japan/NL/Germany soft power 1, British soft power 0.

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Virtue or vice? “Hear no evil, see no evil, speak no evil” – Japan HQs in the Year of the Monkey

We have decided to celebrate in 2016 – with a series of lunch seminars for clients – the 12^th anniversary of the founding of our company. The excuse is that we have completed the full cycle of the Japanese/Chinese years, back to the Year of the Monkey.

Reflecting on the trends we have seen evolving over the past 12 years for Japanese companies, the most obvious development has been the increase in major acquisitions by Japanese companies of Europe-based multinationals. Most recently, Mitsui Sumitomo Insurance Group acquired UK Lloyd’s underwriters Amlin for £3.5bn and Hitachi has just finalised the acquisition of AnsaldoBreda and Italian company Finmeccanica’s stake in Ansaldo STS, for around €800m.

Both these acquisitions are representative of a structural change I have seen evolving in quite a few Japanese multinationals. Hitachi has moved the global headquarters of its rail business to the UK and it seems the Japanese insurance majors, who have all now acquired underwriting firms based in the UK, are hoping that their acquisitions will act as pivots for further global expansion.

Clearly Japanese companies are not just buying into a market with their acquisitions, but hoping that they have also acquired global management capability. Whereas in the past there were some examples of Japanese companies using their US subsidiaries to manage the global network, it seems now that Europeans are being asked to manage operations in the US and beyond.

This is partly due to another long term trend in Japan, which is the lack of “global jinzai”, particularly at senior management level, to manage overseas growth, but it also reflects the fact that European multinationals are used to managing companies scattered across many countries, in a virtual matrix structure. This means the heads of various business units or functions may not all be physically located in the same headquarters. European managers need to have strong, globally effective professional expertise but also good cross cultural communication skills to be able to manage teams remotely.

Europeans are comfortable with doing this in Europe and to some extent working with the US too. However working with Japan is still a new experience for most of them. They are often baffled by the fact that their professional expertise and remote communication skills are not enough to persuade or win support from Japan headquarters. Managers in Japan headquarters are only used to communicating with people who are physically present in the office. They tend to be generalists, who do not find arguments grounded solely in expert opinion all that convincing.

Unless conscious effort is made to overcome these communication barriers, Japan headquarters maybe behave like the three monkeys, who see no evil, hear no evil and speak no evil. In Japan my understanding is that this is seen as virtuous behaviour. However, in the West this is seen as ignoring problems and misbehaviour until it is too late. I foresee the next twelve years of my business as being about opening eyes, ears and mouths on both sides of the world.

This article originally appeared in Japanese in the Teikoku Databank News on 13th January 2016 and iis in the introduction of “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” by Pernille Rudlin, available on Amazon as a paperback and ebook.

Japanese business people want UK to stay in the EU (letter in the Financial Times)

Sir, As a supplier of services to over 70 Japanese companies across Europe, I am not at all surprised that Toyota do not intend to move manufacturing away from the UK in the event of a Brexit (“Toyota will stay even if Britain votes to leave the EU” January 12) The key point to bear in mind is that Toyota’s European headquarters are already in Belgium.

What should be of concern is what will happen to the rest of the major Japanese companies, more than half of whom have their European headquarters in the UK, and how any changes in their location might impact the fact that major share of employees of Japanese companies in Europe and of Japanese investment in Europe has been in the UK.

Judging by the mood of the 200 or so Japanese business people at the UK Japanese Chamber of Commerce New Year party last week, the overwhelming wish is for the UK to stay in the EU.

Japanese business people would much rather their companies were based in the UK, but if the UK is no longer in the EU, the straw poll I took suggests that there will be a gradual drift of European HQs away from the UK – and with it related jobs, investment and taxes – and most importantly, for suppliers like my company, the locus of purchasing decisions will also shift.

Norwich, where my company is based, is two hours away from London but only 1 hour away from Amsterdam, so I am making contingency plans accordingly. I assume I am not alone in this.
Pernille Rudlin
European Representative, Japan Intercultural Consulting
Managing Director, Rudlin Consulting Ltd
Norwich, UK

Why the refugee crisis might mean the end of the EU

When I recently asserted that Britain leaving the EU would result in many multinationals withdrawing their European headquarters from the UK, a British person of Greek origin claimed that the UK would be fine on its own. It would be better off without burdensome EU regulations enforced by a cabal, he said, and the UK is such an innovative country, companies would want to base themselves here whatever our European status.

Given the treatment of Greece by the European institutions recently, I suppose this view is not surprising. There have been many complaints in the UK too about too much European regulation. Often though, as in the case of an EU standard on the amount of noise a lawnmower can emit, these regulations were actually promoted by British officials because they benefited British manufacturers. For manufacturers in general, the comfort in setting up a factory anywhere in the EU is that by meeting these standards, their products will be approved to sell anywhere in the 28 countries of the EU.

If the UK were to leave the EU, it would no longer be able to influence these regulations, and yet would have to abide by them if it wanted to sell its products in its closest and biggest market. Fortunately, for British people like me who are pro-European, the new leader of the opposition Labour Party has just said that he would campaign to stay in the European Union in the forthcoming referendum (likely next year).

It is assumed that the Prime Minister David Cameron, in his negotiations with the EU member states, is trying to weaken the social charter of the European Union, which has brought about protection for employees in terms of working time, holidays, discrimination, etc. The Labour Party, as you can tell by the name, is strongly committed to supporting the rights of working people, so has decided to campaign for staying in the European Union, regardless of the deal Cameron reaches, by committing to reverse any social concessions gained, should Labour get back into power.

One of the key non-negotiables for the core European states such as France or Germany – which actually is one of the main reasons many British citizens oppose the European Union – is the free movement of people. To me, this is why the UK is as innovative as it is. There is plenty of evidence that diversity encourages innovation and London is without doubt one of the most diverse cities in Europe. If you locate your company in the London area, you can access an extraordinary range of nationalities, viewpoints and skills, all with English as the common language.

Unfortunately the current refugee crisis is weakening this commitment to the free movement of people and could even bring about the end of the European Union entirely. Instead of coming up with a coordinated solution, member countries are behaving like they have not remembered the lessons of the two World Wars we are currently commemorating.

This article originally appeared in Japanese in the Teikoku Databank News on 14th October 2015 and also appears in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.

Hiring Japanese speakers

A while ago I thought that my business had expanded sufficiently that I needed to hire someone to support me. However, after three months of recruiting and interviewing, I admit I failed to recruit anyone.

In reflecting on why I have not been able to hire someone, and what I need to do next, I have realised that I am in danger of falling into the same traps that I have often seen Japanese companies in Europe slide into.

The first trap is being attracted to Japanese speakers without considering their skills and your business’s needs more carefully. It’s easy to find Japanese speakers in the UK – there are between 30,000 to 50,000 Japanese people living in the UK now – many are students or expatriates but there are also residents who have settled here, often married to British people.

In addition to this, there are around 6000 members of the Japan Exchange and Teaching programme UK alumni association. These are British or other English speaking nationals who have worked in Japan for 1 to 3 years or more, usually in a school or in local government. Most of them fall in love with Japan as a result, and want to pursue careers where they can continue to have contact with Japan and use their Japanese language ability.

The second trap is to hire Japanese people (usually women) and JET alumni into general office administration roles, somewhat vaguely defined, to cover everything from receptionist to HR to translation work. This often leads to frustration on both sides. Japanese women begin to suspect that they are being treated like second class Office Ladies, and when they complain to their British husbands about the overtime or the menial tasks they are asked to do, their husbands often urge them to raise a grievance dispute with their employer.

JET alumni begin to worry that there is no career progression or professional development. Many of them come to me, asking what they should do, and I always advise – find a profession you feel suited to first, like law or accountancy, and then find a way to connect back to Japan.

In both cases, some of the disappointment can be avoided by having a clear job description and a proper contract, and for the Japanese company to be realistic and open about what kind of expectations both parties should have as to how the job can develop. If possible, they should provide or support training where needed, and remember to revise the job description accordingly, as the employee progresses.

So, to take my own medicine, I need to be more clear and focused on the support skills I need, which is primarily invoicing, chasing payments, paying suppliers and some management accounting (forecasting cash flows etc). This does not require a Japanese speaker, fun though it would be to have a like minded person to work with.

This article was originally written in Japanese for Teikoku Databank News, 1st December 2013 edition. It also appears in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.

5 reasons Japanese overseas ventures fail

Around 40% of overseas ventures by Japanese companies result in withdrawal, according to Masato Hikita, director of Headwaters IT consulting company, writing for Diamond business magazine. His clients usually suffer from at least one of the following, he reckons:

No one person with decision making authority

Overseas companies are shocked to hear that Japanese executives don’t actually have executive power. When Japanese companies venture abroad, they usually send the kacho (section chief) out on a scouting expedition, and he talks to people on the ground there who agree that they should collaborate on a project. The local company gets moving quickly, but at this point the Japanese company suddenly grinds to a halt. When asked why, the Japanese company responds that now the bucho (head of department) must visit. And then after that, that the director must visit. At which point the local company wonders why on earth they have to answer the same questions so many times, and decides to start negotiations with someone else.

2. Bringing domestic rivalries overseas

Rather than two Japanese companies fighting to monopolise a market and both end up losing, Hikita recommends that smaller Japanese companies collaborate, particularly in the early phases of raising brand awareness in a new market – for example a joint exhibition stand at a trade fair.

3. Being fooled by a local Japanese “pro”

Just because a Japanese person has lived in another country for 10 years, does not make them an expert in setting up business there. Hikita recommends talking to JETRO or going to local gatherings of Japanese businesspeople to get recommendations.

4. No ‘line in the sand’

According to a Japanese government survey, 90% of Japanese SMEs have not set a bottom line for when they will decide to withdraw from an overseas venture. As Hikita rightly says, from my experience, Japanese companies are happy to make plans for growing a business, but don’t do any planning for what should happen if a business fails. Many say because they have never done something like this before, they don’t know how to judge whether something is a failure. Hikita recommends that nonetheless, through talking to partners and other businesses, some attempt should be made at setting limits, and constantly reviewing status.

5. Overconfidence in the brand

Apparently Japanese companies will assert that the local partner should bear all the costs of marketing, because “we are allowing them to use our brand”. As I’ve mentioned before, a common problem for Japanese companies who are used to everyone in Japan knowing who they are and what they do, without having to make the effort to explain themselves. They are so confident in their brand, they believe they will succeed in the “red ocean” of American and European markets, without realising the true investment required to compete.

Does globalization mean the end of seniority based pay and lifetime employment for Japanese companies?

An HR director at a British multinational recently acquired by a Japanese company told me she was baffled by the response from Japan to her department’s enquiry regarding the company car grade allocation for a group of Japanese expatriate managers being transferred to work in the UK. All they sent back was a list of the managers’ names and their ages, she said.

Of course this is perfectly understandable once you know about the seniority based pay and benefits system in Japanese companies. In European companies, salaries and benefits are based on the job role – how high up the managerial ladder you are and the content of the job – with very little attention paid to age or length of service.

Most of the Japanese subsidiaries I work with in Europe have salary and welfare schemes that are locally appropriate. However there are several aspects of the Japanese HR system which impact employees in Europe, beyond company car grades for expat managers

One aspect is the culture of lifetime employment and the sense of a duty of care for employees. Many Europeans have noticed that Japanese companies are very reluctant to fire even the most poorly performing employee, whether they are European or Japanese. While Europeans are sympathetic to this compassionate stance, they point out it does make performance management for the rest of the team difficult. If poor performers are still on the team, it is demotivating for the other team members.

The other aspect, which is said to be behind Hitachi’s recent announcement that it will end seniority based pay for managers, is that the uniqueness of the Japanese HR system hinders job mobility across borders. Most non-Japanese multinationals try to have an internal vacancy system, where employees in all countries are able to apply for job openings across the world. This necessitates detailed job descriptions, and a certain level of unified grading, so employees can assess which jobs are likely to be open to them.

Europeans find it very confusing that Japanese expatriates are assigned to their offices without any seeming regard for whether they have the right qualifications, skills or experience for the role.

My hope for Japanese companies is that they will send more of their overseas employees to Japan HQ. I suspect the Hitachi announcement, coming as it does after two years of having built up an international database of their employees, is that they too are hoping a more unified system will allow employees to transfer all around the world and not just from Japan, and that this will be based on competency rather than just personal development needs and whose turn it is.

But I have to say I also hope that Japanese companies, if they follow Hitachi’s suit, do not lose their compassion and loyalty towards their employees as they globalize. Despite all the frustrations it brings, Europeans still prefer the long term security of working for a Japanese company.

(This article was originally written in Japanese for Teikoku Databank News and appears in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.)

Who takes the most paid holidays – Europe and Japan

The announcement in 2015 by the Japanese government that they want to revise the Labour Standards Law to require companies to ensure that workers take their paid leave allowance has attracted a fair amount of attention in European media. Japanese employees are entitled to an average of around 18.5 days a year but typically only take around 9 days.

Japanese employees are admired for the dedication to work shown by the long hours they put in, but many European managers, particularly Germans, worry that overtime is also a sign of poor management, or could lead to health and safety problems if workers do not take time off to “refresh” themselves.

Europeans are much keener than Japanese or Americans to take their full allocation of vacation days. EU legislation mandates that all 28 member countries must by law grant all employees least 4 weeks’ holiday. The implementation of this legislation varies greatly from country to country however.

The French and the Nordic countries are famous in Europe for taking the most holidays. One survey showed that the French take all 30 of the days they are statutorily entitled to (this includes Saturdays). They can add up to a further 22 days of holiday as compensation if they work more than 35 hours a week.

Nordic countries have 25-30 days entitlement, and there is an almost universal summer holiday from early June through to the middle of August when most families disappear to the coast or to an island for the whole of the summer.

In Germany, there is a variation from state to state beyond the statutory minimum of 24 days for workers, because each federal state sets additional public holidays and determines the school vacation periods.

We British like to think of ourselves as the most hardworking of the European nations. Although 28 calendar days are statutorily guaranteed, this can include public holidays. The norm for most companies is to offer 25 days, in addition to the 8 or 9 public holidays. There is a trend now for British companies to offer a menu of employee benefits, which includes the ability to buy and sell days of holiday allowances. Unused holidays can also be carried over to the next year, but there is usually a cap on the number of days.

British school summer holidays are much shorter than in Nordic countries and residential children’s camps are not as commonly used in Europe as in the US, so parents do expect to be able to take at least two weeks’ break in the summer time to holiday with their children.

Consequently, if you are running a pan-European company or team, you have to put mechanisms in place for employees in many different countries to book their holidays well in advance, so that there is sufficient staff cover even during peak holiday times. Furthermore, there are concerns now that even when on holiday, conscientious employees are checking their smartphones for work email. Daimler hit the news headlines recently for implementing a system which auto deletes emails during vacation times, to make sure employees relax properly.

(This article was originally written in Japanese for Teikoku Databank News and also appears in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.)

Hitachi – we’re not heavy, dull or ugly outside Japan

Hitachi is seen as inward looking, conservative and lacking in commercial sense by business people in Japan, but outside Japan it is seen as a motivating place to work, exciting and cool by employees of Hitachi’s overseas subsidiaries such as Hitachi Rail Europe and Hitachi Data Systems, according to Nikkei Business magazine.

Could this help change Hitachi domestically? Currently Hitachi has over 1000 employees with PhDs working for them in Japan, generating many patents, but this technical strength does not seem to be translating into sales. The improvement in profits is largely due to withdrawing from unprofitable businesses such as mobile phones and LCD screens and also the contributions from social innovation business overseas. It is not due to any ground breaking innovation in products or services. It is also seen as being self centred, and not often forming alliances with other companies.

In the rail business however, Hitachi has taken the biggest share of rolling stock orders through to 2019 in the UK. Hitachi first opened an office in the UK for its rail business in 1999, with just one expatriate staffing it. It is now seen as the most powerful train supplier in Europe, according to an executive from Virgin Trains. It has had to completely overhaul its designs however, to cope with the UK’s old fragile railway bridges. Procurement specs for everything from engines, radiators and pumps were reviewed and the body used as much aluminium as possible to lighten the weight. “We were able to use all the expertise we had developed in Japan” says Koji Wagatsuma of Hitachi Rail Europe. “Hitachi’s strength is not just IT, but that we know the operational side of various industries really well”, says Shinya Mitsudomi, CSO of Hitachi Rail Europe.

The other secret of Hitachi Rail’s success is “true delegation”, says the Nikkei. Instead of relying on history and performance within the company, Hitachi has given responsibility to those who know the market best. There is a big difference between the UK and Japanese rail markets, in that the risks taken by the supplier in bids are much greater. It is necessary to guarantee how many people would be needed to run the system per year, and what the lifecycle cost will be.

Alistair Dormer, the CEO, has clearly been a driving force in Hitachi Rail’s success. He likes to hold regular town hall meetings, where he consistently promotes the company’s mission and vision. Ted Yamada, head of HR at Hitachi Rail Europe says “to hire the best people, it’s not just about the remuneration, but to make sure they can get a feel of the kind of company they are working for.” Not only the CEO but also the chairman of Hitachi in Japan, Hiroaki Nakanishi, is a good story teller. As I repeatedly point out in my training sessions, because most Japanese companies are the “family” type, storytelling and parent figures are far more important in giving direction than targets or strategies or policies or structures.

A further feature that Nikkei Business picks up on, is that Hitachi is beginning to pull together virtual company structures, most notably for Hitachi Data Systems. We were moving towards that when I was at Fujitsu – I think IT companies are probably best suited to this kind of organisation – where services have to be provided globally so it makes sense to have teams and hierarchies which span several regions. It does mean a lot of travel to work well – one Hitachi Data Systems director says he has 56 Japan entry stamps on his American passport. Conversely, Japanese engineers travel regularly to the UK and the US.

The feature finishes with an interview with Hiroaki Nakanishi, who comes up with a few punchy quotes. Asked about the impact of Hitachi putting non-Japanese at the top of various regions, he says it has an instant effect on the mindset of the Japanese employees, who now realise that they have to persuade a foreigner of their ideas, so all the “Japanese only” methods they have used in the past will not work. Consequently, decision making and execution have speeded up. Everything in the value chain from marketing to sales, development to production and after sales service have to be overseas. So it’s not possible for Japanese to be seconded abroad and manage everything. Most of the executives are local, non-Japanese. “Before now, Japanese companies would build a factory overseas, but just transfer manufacturing knowhow, and then when it was completed, the head of manufacturing in Japan would fly over and play lots of golf. That’s just no longer feasible.” Since Jack Domme took over at HDS, objectives have been set for individual employees and decision making has become more transparent. HDS is now well regarded by others as a company which would be an enjoyable challenge to work for. “Starting small and growing big is just fooling yourself – there are no dreams or hope in that. People with ambitions will not join such a company” says Nakanishi. “We are still a Japanese company, and so there will be some parts which are difficult for non-Japanese to understand, so not being Japanese might be a bit of a handicap” but maybe no more than Siemens is a German company, or GE is American, Nakanishi adds.

Do companies have a social obligation to train employees?

I was surprised when the Japanese expatriate manager at a Japanese logistics firm told me recently that he thought British logistics was more advanced than logistics in Japan. When I returned to the UK after working in Japan for four years at the end of the 1990s, I remember thinking that there was a real business opportunity for a delivery service in the UK similar to Japan’s takkyubin. This thought came to me as I watched an enormous container lorry reverse very cautiously up the 19^th century narrow alleyway to my London apartment, when all they were delivering was a small armchair. Surely in Japan this would have been delivered in a much smaller van, and within a much shorter time frame, so I would not have had to wait in all day for delivery.

Thanks to the rise of internet shopping (the British are the biggest web shoppers in Europe, apparently) and also the liberalisation of postal services, takkyubin type services like MyHermes have now appeared in the UK. You can book a time slot for next day pick up from your house, online, and the prices are cheaper than taking it to the post office, for heavier items.

I assume that similar services are available from takkyubin companies in Japan, so I suppose what the Japanese logistics manager was referring to was the higher volume end of logistics in the UK – transporting large quantities of car parts across Europe, for example.

Although it is possible to get qualifications and even university degrees in logistics in the UK, all the British employees of the Japanese firm at which the Japanese manager worked were in agreement that expertise in logistics was only really developed through practical experience, over time, rather than learning the latest theories in the classroom. In that sense, they were much more in alignment with Japanese apprenticeship style “on the job” training approaches.

As the Japanese manager himself pointed out, the firm’s employees were very indigenous British. Normally when I do training sessions for Japanese companies in the UK who are in the financial or commercial sectors, more than half the employees are not British.

Maybe for those types of companies, attitude and ability to learn are more important than local market expertise, skills and experience. But for logistics and other traditional, highly skilled industries such as engineering, it is tempting to choose someone who already has the local understanding and the expertise and skills born of experience, rather than train someone up.

Such people are scarce in the UK and the rest of Europe however, and instead we have a stubborn youth unemployment problem, of young people who would rather do physical work, or work outside an office, but have not had the training or experience and cannot find stable jobs.

No wonder then that Hitachi Rail has teamed up with other companies to set up a new University Technical College in the north of England. Apparently they were worried they might have to poach employees from nearby Nissan, otherwise.

This article was originally written in Japanese for Teikoku News and also appears in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.

Category: Japanese business in Europe