Japanese business in Europe

Four differences between Japanese and German approaches to work, communication and customer service

There are well-known similarities between Japan and Germany – they are both manufacturers of exports which are in demand across the world, they have excellent engineering skills and leadership in manufacturing and craftsmanship. Furthermore, both are serious about their work, precise in time keeping and execution of their work, and are reliable and trustworthy.

Many German and Japanese companies are similar – Toyota and Volkswagen, BMW and Honda, Thyssen Krupp and JFE Steel, BASF and Mitsubishi Chemical, Siemens and Hitachi, Leica and Nikon, etc. Both countries recovered after WWII through their hardworking attitudes.

So says Ulrike Schaede, Professor of Japanese Business at the Graduate School of International Relations and Pacific Studies at the University of California, San Diego. However she also sees four fundamental differences, particularly with regard to the average white collar worker.

1. Life priorities

Most Germans (so long as they are not consultants or lawyers or top executives) will leave work somewhere between 5 and 6pm at night, so they can return home to eat dinner with their families or meet friends. However it is almost unheard of for a Japanese salaryman to leave at such a time on a regular basis. Even without counting “service” overtime (unpaid) that most Japanese put in, the average working year is 350 hours longer in Japan than in Germany.

This is because Germans believe that they have a contract which pays them for 40 hours of work a week with their employer and therefore if an employer wants more hours, then they should pay more. If a Germany employee can’t finish all their work on time, then they will either try to work more efficiently, even skipping lunch, or they will blame the employer for giving them too much work to do.

Work life balance in Japan has come to mean how to have better day care facilities so women can work, but in Germany it means a good balance between work and private life for all employees.

2. Process and result

Both Japanese and Germans believe there is a correct way of doing things. Consumers read instructions for the products they have bought and workers obey the rules. But the big difference is that Germans also value the result and getting to the result in the most efficient way. So they are fine if someone finds a quicker way to do something. If too long is taken on a business process, they start to become impatient. in fact they become downright rude. However for the Japanese, the process is just as important as the result. It should always be done the same way by everyone, then no one will feel left out. For a new way to be accepted, everyone has to agree. There is no room for individual initiative.

3. Say what you think

Germans on average are much more direct than most other nationalities. In fact they like to share opinions with others. Japanese people feel “debate”has negative connotations. Schaede says she has found it very hard to have discussions about politics world affairs or business with Japanese people, which to Germans means it is hard to make friends.

4. Customer service

German customer service is the exact opposite of Japanese customer service. Whereas a Japanese server might say ” I am sorry to have kept you waiting”, in Germany the customer expects to have to wait to be served. In fact if you turn up too close to closing time in a shop, you might be refused service. The belief is that shop assistants have rights too – to go home on time. There is no concept that the customer is more important than the employee.

As Schaede says – and as a cross cultural consultant, who am I to disagree – there are two learnings from this. One is the importance of understanding cross cultural differences at a profound level if you are going to do business across borders. The second is that when you have a multicultural team each will have different priorities and different processes to reach a result. These are deep rooted and it will be difficult to bring everyone round to one point of view.

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EMEA CEMEA EMEIA – Japanese regional headquarters in Europe – scope and location

My old employer Fujitsu’s latest attempt to resolve the “European regional headquarters” conundrum that many multinationals face is to create a region called EMEIA – Europe, Middle East, India and Africa. This is partly a reflection of the IT industry (having large outsourcing desktop support operations in India, which in Fujitsu’s case had actually been managed out of the USA operation previously) and also the legacy of the former Fujitsu Siemens global HQ in Germany selling hardware into India.

The EMEIA region will be headed up by Duncan Tait, CEO of Fujitsu UK & Ireland, who has also been made Corporate Senior Vice President in Fujitsu HQ’s new global matrix structure, so this represents a tipping of power back to the UK, having tipped over to Germany previously, with the previous tripartite European structure of C(ontinental) EMEA, UK & Ireland and the Nordics.

I had mentioned previously that there seemed to be a shift towards Japanese companies basing their European or EMEA headquarters in the UK. Some say this could be due to the relative tax structures in the UK being more favourable now than the Netherlands or Germany. My view is that Japanese companies are not quite as hard headed as that, and it is more to do with the favourable business climate (diverse, flexible workforce) and global infrastructure and support services that the UK offers.

I have big worries, therefore, on how any British exit from the EU might ultimately impact Japan’s investment in the UK. UKIP leader Nigel Farage and the Labour Party’s shadow chancellor Ed Balls recently had an exchange on this, with Farage (rightly alas) pointing out that Nissan were very negative on the impact of the UK not joining the euro and yet their factory is still in Sunderland.

For sure, Nissan will not be closing that factory down any time soon – it’s too efficient and the UK market is too important for that. But what I would be worried about if I was in government would be the more hidden ripple effect of headquarter location. It is true for all industries, not just the automotive industry, that the location of a major company’s regional headquarters will also affect its procurement, marketing, financing behaviours and therefore the suppliers around it. Furthermore, the roles needed to run these consolidated functions are the most senior and well paid jobs in an organisation. The economic impact is therefore not just about the size of the directly employed workforce in a factory. If the UK were no longer in the EU, I wonder whether we might not see a slow drift of headquarter functions, and supporting services and people, back to Germany or the Netherlands or Belgium.

Nissan’s European HQ is actually in Switzerland – unusually for a Japanese company – 18 out of the Top 30 Japanese employers in Europe have their regional headquarters or part of their regional headquarters in the UK. Official location may be only half the story however – I know that many Japanese companies are moving towards a more “virtual” regional structure, with top jobs and functions located across Europe. I will examine this further in future postings.

Hitachi’s new President, Toshiaki Higashihara Q&A

As blogged previously, Hitachi announced their new President and COO Toshiaki Higashihara, on January 8th. The Nikkei Business magazine’s Q&A with him in the 20th January edition asked him for his views on how Hitachi was going to grow, and what would change.

Higashihara emphasised “One Hitachi”, bringing together services, products and solutions to address customer needs such as energy saving and improving productivity. The differentiator for Hitachi against Siemens and GE being that in the infrastructure business, Hitachi can also bring ICT skills and solutions around cloud computing and big data.

A sense of speed is needed, he added, and this means that not all decisions should be made in Tokyo headquarters. R&D, purchasing and ICT systems should be looked at in a global context. He also made positive noises about further acquisitions.

What will remain constant is Hitachi’s 100 years of “monozukuri” (making things/craftsmanship) and SQDC: Safety, Quality, Delivery Time and Cost.

It seems Higashihara was close to current President Nakanishi (who becomes Chairman and CEO), as a kohai (protege) and also brings global experience – a masters’ degree in computer science from Boston University and was President of Hitachi Power Europe.

Successes of cross border M&A #6 – Terumo

When Terumo, Japan’s biggest medical device maker bought CaridianBCT from Gambro AB for $2.63bn in 2011, it was expected that the head of Terumo’s BCT unit, Hiroshi Nagumo, would take over as CEO of the new Terumo BCT company. However Nagumo decided to appoint the CEO of CaridianBCT, David Perez, as CEO instead, with Nagumo reporting into him as SVP and GM for Japan. Perezalso became an executive officer on Terumo’s main board and the headquarters of Terumo’s blood management unit was moved to CaridianBCT’s base in Colorado.

Nagumo says he made himself “Number Two” after objectively considering whether he could really perform as “Number One”. At the time Terumo’s total turnover was Y328bn,of which the blood management unit represented around Y25bn. CaridianBCT’s turnover was double that at around Y50bn. A third of the combined company’s sales were to the USA, and around 20% to Japan.

“When I thought about appointing myself as the CEO, and leaving the headquarters in Japan, I realised that I would always end up thinking about the customers that I had known the longest, the doctors in Japan” and that this would be counter to the objective of the acquisition, which was to develop new products and expand market share globally.

In 2012, the sales of the combined company’s blood management business actually fell in Japan, but thanks to growth overseas, the total turnover rose 4.1%.

As Nikkei Business points out in their series on cross border M&A last month, in the past when Japanese multinationals acquired companies overeas, they tended to send in Japanese managers to run them, but this does not work so well if, as in this case, the acquired company is larger than the acquiring company’s own business in that sector. It can lead to the demotivation of the staff in the acquired company and loss of customers.

However Terumo did reshuffle the management, and had a strong sense of how they wanted to proceed after the acquisition. Nagumo had been preparing a project called “Unite” from a year before the acquisition – it aimed to integrate sales, customer service and logistics across the two companies. Terumo fitted itself to CaridianBCT’s structures, except in Asia, where Terumo was stronger than Caridian, so a different structure, where Terumo’s operations there became TerumoBCT’s representative dealers.

It took a year to discuss, and then in 2012 it was announced as a one “fell swoop” integration – “we did not want to take so long that customers became confused” says Nagumo.

Production is taking longer to integrate. Decisions have to be made about what products will be made in the factories in the USA, Japan and Northern Ireland. On the other hand, Terumo’s quality control management has been introduced into Caridian’s operations already. As a result, claims have dropped to a quarter of the level before the acquisition.

Not everything went smoothly – Perez was amazed at the number of meetings deemed necessary by Terumo before a decision was made. At the same time, Terumo was puzzled as to when a decision was made, when it had not been properly “socialised” within the company. “A certain amount of time has to be allowed to understand what is different, culturally”, says Nagumo. In 2013, former Terumo staff will be posted long term to the USA and in 2014, former Caridian staff will be posted to the Japan office.

As a result of the success of the BCT business, Terumo has also moved its artificial heart business to the USA, a unit it purchased from 3M in 1990. As the Nikkei comments – it’s a nice illustration of how to make sure a post merger management structure fits market and customer needs.

If you are being acquired by a Japanese company, you may be interested in Japan Intercultural Consulting’s (represented by Rudlin Consulting in EMEA) post merger integration services.

Successes of Japanese cross border M&A #4 – NTT Communications

Having covered the perceived failures of the Nippon Sheet Glass/Pilkington, Daiichi Sankyo/Ranbaxy and Ricoh/Ikon M&As, Nikkei Business in its December 9th edition then goes on to examine some of the more successful deals by NTT Communications, Kirin Holdings and Terumo.

NTT Communications bought US telecommunications company Verio in 2000 for $5.5bn, just before the dotcom bubble burst, resulting in NTT Communications posting a $5bn loss in 2002. Nikkei Business points out the same assumption was made “that the company would just keep growing as it is” that Nippon Sheet Glass and other Japanese companies made about their acquisitions and that the acquiring company then uses economic crises as an excuse for the acquisition’s failure and the need to shrink it down or cut back, rather than their lack of any plans for worst case scenarios.

NTT Communications went down that route, and did not make any further major acquisitions until 2011, however, they used the intervening years to completely overhaul their M&A strategy. Instead of relying on investment banks and consultants, they decided to build up their own knowhow and insist on planning beforehand how they were going to restructure any business, rather than after the acquisition was made. In the case of Verio, they pulled out of the ISP business and merged the backbone business with NTT Europe, leaving only small-medium enterprise hosting with Verio. This was in order for NTT to strengthen its services to larger customers.

As well as rethinking how to restructure their business, they also decided that future candidates for acquisition would be found by themselves, and analysed inhouse – all aspects from management, services, legal, financial and HR. They listed up over 1000 targets for this process. They saw the need to get back into the acquisition game as the telecommunications market was changing, and there was a need for interconnected large scale data centers, used by multiple customers. NTT Communications felt the only way to put such an infrastructure in place quickly was through acquisition. In 2012 they bought an Indian data center company Netmagic and UK company Gyron Internet, followed by a French web based conferencing system company Arkadin and then in 2013 spent a further $875m on US companies Virtela and Raging Wire. Operating profit has been on the rise since 2011, and sales look to be recovering next year too.

Are Japan and Turkey culturally similar?

Japanese Prime Minister Abe is visiting Turkey again this week, so I thought I would share the article I wrote for the Teikoku Databank News shortly after his previous visit in May:

I decided to use the excuse of the Istanbul location of the annual conference of the Association of Japanese Studies to visit Turkey for the first time this July. This was long overdue for me as not only is Istanbul the place to see where East meets West, straddling as it does Europe and Asia, but I had noticed many of my Japanese clients were expanding their business in Turkey recently. This is confirmed by the fact that bilateral trade between Japan and Turkey rose 25% in 2012, reaching a record $4.6bn, and there are now 120 Japanese companies with offices in Turkey as of 2013.

The day before the conference opened, Toyota started production of its new Corolla model at its Turkey plant. I had dinner that evening with my Turkish business school friend, now heading up a successful private equity firm in Turkey. He was well aware of Toyota’s activities but also expressed some concern over the announcement that a Japanese consortium was going to build a nuclear power plant in Turkey.

If Japanese companies are going to move more into these kinds of infrastructure projects, in Turkey and elsewhere in Europe, then harmonious relationships with consortium partners and local governments will be critical. Judging by the interactions I saw between the Turkish Ambassador to the UK and senior Japanese business people in London recently, relationships are cordial so far, despite rivalry over the 2020 Olympics.

Turkish people I have spoken to who have worked with Japanese people tell me that Japanese and Turkish colleagues communicate well with each other, which is good to hear, although it could mean there is not much business opportunity for my company.

There is some evidence that the Turkish and Japanese languages are historically related. Both are “WYSIWYG” (What You See Is What You Get) languages – pronounced as they are spelt, with each syllable clearly enunciated, unlike English with its deceptive spellings and elisions. Apparently Turkish is also grammatically similar to Japanese, with the verb coming towards the end of the sentence, and plenty of scope for vagueness and distancing or removing the subject from the sentence.

It turns out that Turkish people are more used to the apprenticeship style of learning too, rather than formal, classroom based training – similar to the Japanese “minitsukeru” [literally means “stick on the flesh”] way of learning. Again this may work well in manufacturing environments, but I wonder whether in situations where more peer to peer, management communication is needed, for example between the partners of an infrastructure project, differences in communication and decision making style might not become more apparent. So maybe there will be a business chance for my company there!

This article originally appeared in Japanese in the 14th August 2013 edition of Teikoku Databank News and also appears in Pernille Rudlin’s book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” -available as a paperback and Kindle ebook on Amazon.

UK may drive away Japanese firms if it tries to “be like Norway”

It is likely there will be a referendum in 2016 on whether the UK retains its membership of the European Union or leaves. Charles Grant, of the Centre for European Reform, when he spoke to the Japanese Chamber of Commerce and Industry in the UK this year, predicted that the referendum would result in a vote for the UK to break away.

The British pro-European campaign is not as well funded as the anti-European campaign, and there are plenty of Euro-sceptic politicians of all political persuasions. The British media is also mainly prejudiced against Europe in its coverage.

The arguments for the UK staying in the EU are mostly technical, to do with foreign direct investment and the economic impact, whereas the anti-European campaign can make an emotional appeal, by invoking threats to national sovereignty.

British business people may be generally in favour of continuing as members but I agree with Charles Grant that there is a lack of enthusiasm, and a certain complacency about what will happen if the UK does leave. British businesses think the UK can be like Norway – prosperous, part of some kind of free trade area, but independent. In actual fact, Norway is not as immune as it may seem from EU policies, and yet has no influence over setting those policies.

From my Japanese business perspective, “being like Norway” would be disastrous for the UK. I have seen a slow trend towards consolidation across Europe over the past ten years amongst my seventy or so Japanese clients, with the UK playing an important role as the coordinating European headquarters, drawing on a pool of talented Europeans who can easily move to and from the UK thanks to the open borders within the European Union, either working for the headquarters itself or for professional support services such as lawyers, accountants and consultants.

Japanese companies now employ 437,000 people across Europe, according to JETRO, and the UK is by far the biggest beneficiary, with over 140,000 employees of Japanese companies, compared to Germany with 59,000. Germany still has a strong attraction for Japanese multinationals, however, particularly those which are more engineering oriented. If the UK shut its borders and stopped being an influence in the EU, it’s not hard to imagine Japanese companies shifting their European headquarter functions over to Munich or Düsseldorf – or Amsterdam.

All the Japanese business people resident in the UK with whom I have spoken want Britain to stay in the European Union. However, they are afraid to speak out, for fear that this would seem like foreigners trying to interfere in domestic politics. It is going to be up to British businesspeople like me, whose companies are active across the European Union, to make the case. It cannot just be about jobs for the UK, but also Britain’s image globally, and how it will be damaged by “Little Englander” isolationism. If we do not seem to want to play our part in globalisation, to be influential and proactive, the global players will take their ball elsewhere.

This article was originally published in September 2013 in the Nikkei Weekly. It also appears in Pernille Rudlin’s latest book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

High brand recognition for Japanese companies does not necessarily mean they are well known

When it was first suggested to me that I join Mitsubishi Corporation in the UK, I have to admit I thought it was the car manufacturer, Mitsubishi Motors, despite the fact that I should have known better, having been brought up in Japan and spent a year at a Japanese university.

After a couple of years exporting British chinaware and shoes to Japan for the trading house, I was transferred to Tokyo to work in the building materials sales team. The apartment that my employer found for me had no furniture, as is normal in Japan. So I decided I would buy what I needed at Marui department store, as I had heard they offered credit cards and I did not have enough savings to pay for the necessary bed, sofa and refrigerator.

When I approached the credit card application desk, a look of panic flitted across the clerk’s face – a young, foreign, female was presumably not going to be a good credit risk. I reassured him I could speak Japanese, but he was very concerned whether I could write well enough to fill in the application form.

I took out my Mitsubishi Corporation business card in order to copy down the address, and as soon as he spotted the distinctive three diamond logo, his face lit up. “Mitsubishi Corporation! Can I phone your team leader to check your employment details?” He returned from the call with a huge smile on his face, and tried to make me buy two televisions and a better refrigerator.

The Mitsubishi name worked magic for me once more in my career there. I had stupidly forgotten my passport on a trip to Frankfurt from London. The German border police were not impressed, particularly as I had no other form of ID, not even a driving license or credit card. I suddenly remembered my Mitsubishi security pass.

Again, the atmosphere improved dramatically, and one policeman even tried to make a joke of it – “we will let you through, if you can get us a Shogun!” (as the Pajero sport utility vehicle was known in Europe at the time).

I decided this was not a good moment to explain that Mitsubishi Corporation was not the same company as Mitsubishi Motors, and ruefully remembered how I had made the same mistake myself a few years previously in the job interview. In retrospect, it is intriguing that the Mitsubishi brand instantly evoked trust, even for a German policeman who did not really know what it stood for.

This was twenty years ago, but I suspect this paradox persists for Japanese companies when it comes to recruiting in Europe. There is a generally favourable view of Japanese companies, but nobody is quite sure what they do, and therefore there is a doubt as to whether becoming an employee of a Japanese company is a good career move.

It’s no surprise, therefore, that recently the larger Japanese employers in Europe are indeed putting more effort into broader corporate communications, rather than just product advertising. This is presumably in order to attract the best quality employees.

This article by Pernille Rudlin first appeared in the 10th June 2013 edition of The Nikkei Weekly and also appears in Pernille Rudlin’s book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe”, available as a paperback and Kindle ebook on Amazon.

Europe’s loss of confidence in the food supply chain – can Japan step up?

I used to be able to horrify my British friends by telling them that I have eaten bazashi (horse sashimi) in Japan – they could not believe that I would happily eat horse, and eat it raw. British reactions, however, to the discovery that many readymade burgers and lasagne bought in supermarkets contain horsemeat rather than 100% beef was more about the fear of not knowing what is in our food, rather than disgust at the idea of having inadvertently eaten horse.

Although we don’t eat horsemeat in the UK, we are aware that many of our European neighbours do, and are not as repulsed by the idea as we used to be. What we find really troubling this time is that the supply chains for the food we buy have become so complex that we cannot be sure exactly what the ingredients are and where they have come from.

The British middle classes have become far more interested in good quality, locally sourced food this past decade. Our TV schedules are full of cookery programmes – not quite as many as Japan perhaps – and our restaurants have improved tremendously. Italians and French are famously obsessed by the seasonality and quality of food – but they too have been affected by the horsemeat contamination scandal. In fact the supply chains involved in the scandal seem to go through almost every country in the EU, from the Netherlands to Romania.

Many commentators lay the blame on lower income consumers’ desire to buy food as cheaply as possible, particularly in the current economic climate. The fierce price competition between supermarkets has led to pressures being applied right through the supply chain, and corners being cut in terms of quality checks. Supermarkets have, rightly, refrained from defending themselves by saying they were only trying to provide what consumers want or by blaming suppliers. They realise even the poorest consumer is placing trust in their brand, and does not want to be tricked. So they are taking steps to cut out middlemen between them and the farmers, or to bring meat processing back in house.

Some commentators have pointed out that there are parallels with the US car industry in the 1980s. American car firms were competing on price, so forced their suppliers to cut prices, with a consequent drop in quality. This enabled Japanese car firms, who worked far more collaboratively with their suppliers, to produce high quality vehicles, at reasonable prices, to take market share.

When Japanese car companies entered Europe, they made sure their supply chain followed them in setting up in Europe, or that local suppliers worked as closely with them as their suppliers would in Japan. Japanese car companies have recognised the importance of the brand – it is not just promoting a logo, but whole ethos of responsibility to the customer.

Notably, when there are quality problems, Japanese car firms act as the public face to the customer, apologising and implementing product recalls. The root cause may be a supplier defect, but the supplier is not publicly named. The brand owner takes responsibility for the whole supply chain, and customers do not want to hear the blame being pushed onto someone else.

Japan has had its own food contamination scandals, but on balance, I believe Japanese companies manage their supply chains very well. The test will be how the next wave of Japanese companies in customer facing industries such as retail, airlines and food, who are trying to become global brands, and often buy up European brands in order to do so, will be able to replicate their trusted supply chains successfully in Europe. The beef contamination scandal has put European customers on the alert.

This article by Pernille Rudlin originally appeared in Japanese in the Teikoku Databank News, March 13th, 2013. 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.

Getting to know the Japanese customer

The party trick of a president of a Japanese engineering company I knew was to recite off by heart all the birthdays, universities and family details of his key clients. To him this was a critical part of the long term business relationships he had built up with his clients – something his father, who founded the company – had also done.

This may not be so unusual even for a Western salesman, particularly these days with LinkedIn and Facebook providing so much detail on individuals. I sense, however, that Western companies who supply to Japanese companies are nowhere near equal to Japanese suppliers in their intimate understanding of the Japanese client company as a living entity – its history and its personalities.

Japanese suppliers have an ‘unfair’ advantage in that there is so much published (in Japanese) about Japanese business. Not only are there all the daily and weekly publications of the Nikkei group, to which this newspaper belongs, but, if I can be allowed to mention it, other rival business magazines and daily specialist newspapers. The attention of younger generations may be shifting to digital media, but Japan still has one of the highest readerships of newspapers and magazines in the world.

Japanese blue chips are still so much part of people’s daily lives as lifetime employers, providers of benefits such as accommodation and even spouses – as well as defining one’s status in society – that very few Japanese companies need to worry about what their levels of “brand awareness” are amongst the Japanese populace.

Outside Japan it is entirely different of course. All too often the name is familiar, but when asked exactly what the company provides, the average non-Japanese consumer hesitates. Many Japanese companies are aware that they have a name recognition problem overseas, but are not sure what to do about it and it is often not in their nature, or the nature of their executives to trumpet themselves loudly, especially not in English.

As a result, if you want to supply to a Japanese company inside or outside Japan, you need to understand that the Japanese company does not see the need to explain itself or does not know how to explain itself. It somehow expects you to know. The fact that you are reading this newspaper is a start, but you may also wish to make it a daily habit to search the English version of Nikkei.com as well for customer names and competitor names.

As Japanese companies have been through upheavals since the economic bubble burst in 1990 and the Asian banking crisis in 1997, some understanding of who merged with whom and where the power consequently lies (again, second nature to most Japanese suppliers) needs to be grasped.

It would also be a mistake to imagine that all Japanese companies are alike in their overseas operations. If they expanded overseas by acquisition, they may behave just like a local customer, and the purchasing manager may well be non-Japanese. However, at some point, the Japanese corporate culture will kick in, and identifying those moments when the Japanese way of doing things has taken hold will be key to avoiding unnecessary frustration and misunderstanding.

This article by Pernille Rudlin originally appeared in the Nikkei Weekly. This and other articles are available as an e-book “Omoiyari: 6 Steps to Getting it Right with Japanese Customers”

Category: Japanese business in Europe