Rudlin Consulting

Category: Japanese business in Europe

  • Japanese companies in the UK 7 years on – the new third phase

    Japanese companies in the UK 7 years on – the new third phase

    Executive summary

    In the seven years since the Brexit referendum, the benefits of Japanese long term planning for resilience have become clear. Although employment by Japanese companies in the UK has fallen since 2018/9, this is largely in the automotive sector, triggered by the closure of the Honda Swindon plant. Non-automotive manufacturing employment and investment have stayed steady, but there have been no new manufacturing companies coming to the UK.

    Employment in the wholesale sector has also fallen, as Japanese companies move their European logistics, warehousing and coordination functions to the EU. There has been significant disinvestment from the UK financial sector, but again employment seems to have held steady.

    Germany has almost caught up with the UK as the largest host of Japanese companies in the EU and has overtaken the UK as the largest host of Japanese corporate expatriates.

    Now the smoke and fog of Britain’s departure from the EU, and the pandemic have cleared, a new third phase of Japanese investment is taking shape. It is more focused on geopolitical concerns around climate change, energy, defence and security. The UK is seen as an important partner in this, but needs to ensure that it strengthens its long term policy commitments to these sectors, which require large investments and the support of host communities, as well as collaboration and synchronization with the EU, Africa and the Middle East.

    Contents

    Employment by Japanese companies in the UK grew to 2018/9, then shrank since

    Germany has nearly caught up with the UK as a host of Japanese companies

    More company closures in the UK than in Germany

    A similar number of new Japanese companies opened in the UK and Germany since

    UK still the target of Japanese M&A, but on a smaller scale than before

    Switzerland overtakes the UK as largest net recipient of Japanese investment in Europe

    Manufacturing employment holding steady, apart from the automotive sector 

    Net disinvestment in UK financial services sector, although employment remains steady

    Germany has overtaken the UK become the largest host to Japanese corporate expatriates in Europe

    What does it all mean? An acceleration of trends, new and old

     

    Employment by Japanese companies in the UK grew to 2018/9, then shrank since

    There were 98,000 people employed by Japan owned companies in the UK, according to the Toyo Keizai[1] database published April 2023, compared to 106,000 in 2015/6.

    The Rudlin Consulting database, which includes more companies who have a Japanese owner through acquisition, shows around 160,000 employees for 2021/2, up slightly from 156,000 in 2015/6.

    Both sets of data show that employee numbers reached a peak in 2018/9 and have fallen since. This is a different pattern to what has happened in France and Germany, where the employee numbers peaked in 2020/1, but have fallen since. The Netherlands shows somewhat bumpy growth.

    Looking at the employment data by sector, it seems the shrinkage in employment in the UK is almost entirely due to the decline in the automotive sector, where around 11,000 jobs have been lost in manufacturing and wholesale.

     

    Germany has nearly caught up with the UK as a host of Japanese companies

    Toyo Keizai estimates there were 875 Japanese incorporated subsidiaries in the UK in 2015/6 compared to 764 in Germany. By 2022/3 there were 982 Japanese incorporated subsidiaries in the UK, compared to 975 in Germany.

    Rudlin Consulting estimates also include branches and more subsidiaries acquired through acquisition than Toyo Keizai. As of June 2023, we estimate there are 1,113 Japan owned organisations in Germany, compared to 1,151 in the UK.

     

    More company closures in the UK than in Germany

    48 companies closed in Germany since 2018 and 145 closed in the UK since 2017. The biggest sectoral net loss was in wholesale in the UK. A likely explanation is that many companies were dissolved or turned into branches, once they lost their European wholesale coordination functions, with warehousing and logistics focused more on the EU single market.

    • 26 of the UK closures were in the automotive sector
    • 41 were services
    • 39 were wholesale
    • 27 were manufacturing companies
    • 11 were in the IT sector
    • 9 financial
    • 8 logistics
    • 6 chemicals
    • 4 retail
    • 4 food

    (some companies in multiple categories).

    Many of these closures were due to consolidation and mergers, rather than outright withdrawal from the UK.

    A similar number of new Japanese companies opened in the UK and Germany since 2017

    64 new companies were established in Germany since 2017, compared to 63 new companies in the UK (of which 4 divested or closed since):

    Of the 63 new companies in the UK:

    • 35 were in the services sector
    • 14 in wholesale sector
    • 6 in IT
    • 6 in the financial services sector
    • 3 in manufacturing
    • 3 in energy – storage, renewables, production
    • 1 in logistics (following merger of container businesses of several Japanese companies)
    • 1 in automotive (Highly Marelli, formed from merger with Calsonic Kansei)

    (some companies in multiple categories)

    UK still the target of Japanese M&A, but on a smaller scale than before

    We have tracked 179 companies coming under Japanese ownership in the UK from 2017 to 2023 to date compared to 79 in Germany. These are not exhaustive numbers, and may well reflect a UK bias.

    Furthermore, many of the acquisitions were not made directly of British or German companies, but rather of US or other European headquartered companies, which have subsidiaries in the UK or Germany. There may also be recent acquisitions which have not been identified yet.

    With those caveats in mind, it does seem to be that majority (123 of the 179 UK acquisitions) were made over the three years from 2017-2019, and since then the rate has been more around 25 companies a year or fewer. There seems to be a similar trend in Germany.

    The biggest acquisitions across Europe since 2017 have been:

    • Takeda’s acquisition of Irish pharmaceutical company (London listed) Shire for $64bn in 2019
    • Hitachi’s acquisition of Swiss company ABB’s Power Grids business for $11bn in 2020/2
    • Renesas acquisition of US founded, UK domiciled semiconductor company Dialog in 2021 for $5.9bn
    • Mitsubishi Corporation’s acquisition of Dutch energy company Eneco for $4.4bn
    • Taisho’s acquisition of French pharmaceutical manufacturer UPSA SAS for $1.6n from Bristol-Myers Squibb.
    • Hitachi Rail’s acquisition of Italy’s Ansaldo STS (1.5bn euros) from 2015 to 2019
    • Nidec’s $1.2bn 2017 acquisition of Emerson Electric’s motors, drives and power generation businesses, which included the Welsh drives make Control Techniques and the French motor manufacturer, Leroy-Somer.
    • Toyota Industries’ acquisition of Dutch logistics company Vanderlande for $1.3bn in 2017
    • NEC’s acquisition of Danish IT company KMD in 2018/9 for $1.2bn
    • Fujifilm acquisition of US company Biogen’s Hillerod manufacturing in Denmark for $930m in 2019

    In the past, British companies have often been the target of the largest M&A deals, such as SoftBank acquiring ARM, NSG acquiring Pilkington Glass and various acquisitions in the financial services sector. This preference does not seem to have continued, apart from the Renesas/Dialog deal, although there have been smaller scale acquisitions in sectors such as recruitment and staffing, drives, tyres, food and paper wholesale in the UK.

    Switzerland overtakes the UK as largest net recipient of Japanese investment in Europe

    These big deals have of course had an impact on the flow of investment from Japan into Europe, causing lumpiness in year-to-year totals.

    Switzerland received more cumulative net direct investment from Japan since 2017 than the UK, which was the largest recipient of Japanese investment in Europe in the past. The large inflow into Switzerland in 2019 in the wholesale and retail sector was presumably related to Hitachi’s acquisition of the ABB power grids business. The Netherlands was the third largest recipient and Ireland the fourth largest recipient.

    The net divestment from the UK in 2020 was in the communications sector and may have been related to SoftBank, as much of their investment activities is located in London. There was also net divestment from the services sector in 2018. There were no major divestments by Japanese companies in terms of selling off subsidiaries in that year, so this might represent movement of assets from UK based subsidiaries to EU based subsidiaries as part of companies such as Sony shifting ownership their intellectual property rights.

    In manufacturing, investment in UK electrical machinery, food and chemicals has been greater than the investment in transportation equipment (automotive) and substantially more than in German electrical machinery, food and chemicals manufacturing over the same period.

    Cumulative Japanese direct investment totals for Germany and the UK in since 2017 are: [2]

    Sector Germany UK
    Food manufacturing $0.8bn $9.8bn
    Chemicals & pharmaceuticals manufacturing $3.1bn $7.1bn
    Electrical machinery manufacturing $0.6bn $7.8bn
    Transportation equipment manufacturing $9.3bn $0.8bn
    Communications $0.6bn $45.3bn
    Wholesale and retail $2bn $3.2bn
    Finance and insurance $8.2bn -$2.3bn
    Services $1.2bn -$34.5bn

    As can be seen below, Ireland has had both inflows and outflows in the chemicals and pharmaceuticals manufacturing sector in 2019 and 2020, presumably related to the Takeda/Shire deal. Denmark had an outflow in 2019, which may have been related to the sale by Takeda of two factories in Denmark to Orifarm.

    The data from Japan’s Ministry of Finance needs to be treated with caution, as in many cases (France and financial services sector for example) no data is given, for confidentiality reasons.

    Manufacturing employment holding steady, apart from the automotive sector

    Disinvestment from the UK in the automotive sector in 2019 and 2021 was presumably related to the closure of Honda’s Swindon plant which was announced in February 2019 and finally shut down in July 2021. 20 or so Japanese automotive suppliers also ceased operations in the UK during this period.

    Germany has benefited the most from Japanese investment in the automotive sector – the large inflow in 2019 may be related to Sekisui’s acquisition of Proseat’s European operations – with manufacturing in Germany, Poland and Czech Republic. The UK plant was closed in 2021.

    There may have been some second hand investment in the UK automotive sector which is not reflected in the data. Belgium’s status as the second largest recipient of investment is almost certainly due to Toyota having their European headquarters there. Some of that investment may well then have made its way to Toyota’s plants in the UK.

    The larger inflow of automotive investment into the UK in 2018 may have been related to Nissan starting production of the Juke at Sunderland in 2019 and then the third generation Qashqai.

    Non-automotive manufacturing employment grew to 2019/20 and has held steady since.  Most of the Japanese manufacturers we looked at set up Brexit committees, planned and invested for various scenarios. They must have come to the conclusion that the cost/benefit analyses showed it made more sense to stay put and invest in mitigation measures than to shut down and transfer manufacturing elsewhere.

    Net disinvestment in UK financial services sector, although employment remains steady

    Although the cumulative investment by Japan into in the UK financial sector was negative from 2017 to 2022, according to Rudlin Consulting data, employment in this sector has held relatively steady. It is hard to be certain of this, as two of the three main Japanese banks are branches of the European headquarters in the Netherlands or the Japanese headquarters, so employee numbers are not disclosed.

    Ireland has been a focus for Japanese aircraft leasing and related financing, which may explain why it has benefited most from Japanese financial services sector investment since 2017. For example, in 2020-2022, Japan Investment Adviser subsidiary JP Leasing Services set up a leasing company in Ireland with Airbus, acquiring several aircraft, which may  account for the large investment in 2020.

    Germany has overtaken the UK become the largest host to Japanese corporate expatriates in Europe

    The general trend in Japanese corporate expatriation across EMEA is downward, and does not seem to have picked up after the pandemic, apart from in the Netherlands and the UAE. The shift of Japanese expatriates (largely based around London) is likely to be an indicator of regional headquarter functions shifting to Germany and the Netherlands, particularly in financial services and trading companies, where the density of Japanese expatriate staff is the highest.

    What does it all mean? An acceleration of trends, new and old

    I have, over the past seven years, tried to approach the data I gather on Japanese companies in the UK with an open mind. Nonetheless, I admit to having a Big Theory of Brexit (beyond believing it to be an unnecessary waste of time, effort and resources) which is that it accelerates trends which were already there.

    So the question I wanted to answer, in looking at the data this time, was what trends were showing through, new and old.

    In my history of Mitsubishi Corporation in London, examining how its business developed from 1915,[3] it became apparent that the organization had quite quickly moved from an importer/exporter trading model to a regional coordinator. It was following a well-known model of globalization in business to move from pure export to manufacturing locally and then to some kind of transnational model, with regional centers of excellence.

    Japanese trading companies like Mitsubishi Corporation do not directly manufacture, but often invest in manufacturing, as Mitsubishi Corporation did, in acquiring Princes Foods in the UK in 1989. Primarily though, they are in London because they see it as an important global and regional hub, a good training ground for their rising stars to gather information and influence global policy making.

    Just after Brexit became a reality, I remember attending a large gathering of senior executives of Japanese companies in the UK. The then head of Mitsubishi Corporation in Europe, Middle East and Africa spoke, making it clear that while he thought Brexit was a negative for Japanese business, the company would not be leaving the UK.

    Having worked at Mitsubishi Corporation myself, including in planning and coordination, I instinctively understood this to be about the strategic value that a presence in the UK had for Mitsubishi Corporation, and other zaikai[4] Japanese companies.  Nonetheless I worried that the UK’s strategic value to Japanese companies would diminish by no longer having as much influence in the EU once it was on the outside.

    The only Japanese trading company to have left the UK since 2017 is Sojitz, which is not one of the top five of Mitsubishi Corporation, Mitsui, Sumitomo Corporation, Itochu and Marubeni. It has clearly decided to focus on chemicals trading, and to put that headquarters in Germany, which has traditionally been seen by Japanese companies as the regional leader in chemicals manufacturing.

    Other regional headquarters to have left the UK were part of the earliest phase of globalization – the wholesalers who were importing from Japan. They have moved their regional coordination, warehousing and logistics hubs to the EU – which is why there has been significant growth in employee numbers and expatriate Japanese numbers in the Netherlands. At the same time, the overall drop in the number of Japanese expatriates across the region may well be due to how localized many of the wholesale operations have become in terms of senior management.

    The second phase companies – those who opened manufacturing operations in the UK – have also shifted further out of the UK, and taken their supply chains with them. Consumer electronics manufacturing left some time ago, and the main concern had been for the automotive sector. As the analysis above shows, Germany has had by far the greater share of automotive investment in Europe since 2017, although this may be a one off, due to an acquisition. Some of the investment into Belgium may feed through to the UK via Toyota, however, and both Toyota and Nissan have not shown any signs of leaving the UK yet.

    The third phase, of having regional coordination and centres of excellence, is showing through more strongly now for the UK. Now that the regional coordination which was more to do with supply chains for manufacturers, or logistics and warehousing for importing from Japan has shifted away from the UK, the UK is left with the geopolitically minded, strategic investors, in energy, transportation and telecommunications infrastructure, defence and R&D in biotech and pharmaceuticals and semiconductors.

    These investors are not so influenced by the search for growth overseas which characterized Japanese acquisitions in the UK and elsewhere during the lost three decades of the 1990s to the 2010s. They are driven by geopolitical concerns regarding climate change and reducing dependence on hostile states in sectors such as telecommunications, energy and digital data.

    Despite the current British government’s taboo on mentioning industrial policy, it is clear that many British politicians are aware of this new phase and realise that the UK’s concerns align with Japan’s. There has been an embarrassment of former and current prime ministers and ministers at recent UK-Japan events in London. The exhibition stands at the one I attended, as a non-executive director of a Japanese soft-power initiative, Japan House London, were almost exclusively focused on renewable energy.

    The recent announcement[5] by the Japanese government that they will harmonise Japanese standards for domestically produced defence equipment with US and European standards, to reduce maintenance costs and increase business opportunities for Japanese defence companies is very much in line with this new third phase. The UK, Italy and Japan have merged their fighter jet programmes and are aiming to develop a next generation fighter jet demonstrator by 2027.

    It is not going to be entirely smooth – Japanese trading companies have shown no inclination to disinvest from Russian LNG projects, for example. This will have been the subject of discussions with the Japanese government in terms of impact on Japanese dependency on foreign energy supplies – the Sakhalin 2 project, for example, supplies around 9%  of Japan’s LNG imports.[6]

    In terms of “making Brexit work” – for phase 1 and 2 companies, this ship has sailed as far as traditional import export, manufacturing related trade is concerned. They made all the contingency plans and moved what needed to moved a long time ago. There have been no new Japanese manufacturers setting up in Britain, and it is unlikely this will happen until the UK joins the single market again.

    For phase 3, making Brexit work will be more to do with ensuring that cooperation and synchronisation with the rest of Europe and the UK’s positive influence inside and outside Europe is as strong as possible in the strategic areas of energy, defence, telecommunications and transportation infrastructure and R&D. This will not have the positive populist impact of phase 2 manufacturing projects, which bring thousands of jobs and supply chains in their wake. In fact the impact electorally could be negative, as we have seen with nuclear power, wind farms and high speed rail – there is antagonism towards the disruption to the countryside they cause and the massive investments they require. This is a problem familiar to Japanese companies in their home country too.

    Furthermore, this collaboration is not just about Europe, it needs to bring in the neighbouring continents of Africa and the Middle East. Obviously climate change has to be tackled globally, it cannot be “environmentalism in one country”. Successive Japanese governments have worried about Japan’s energy poverty for decades and this has driven much of the investment, particularly by Japanese trading companies, in overseas energy projects. Trading companies have invested in Africa and the Middle East, often through their regional headquarters in the UK, in renewable energy projects ranging from hydroelectric power generation to solar home systems.

    Japanese companies like working with other Japanese companies, so once a beachhead of investment is established, others in the supply chain and support system will follow – as the UK saw with Japanese car companies in the 1970s and the 1980s. That ecosystem is still strong in the UK and many of the components suppliers can also supply the energy and infrastructure sectors.

    This new third phase of Japanese investment in and via the UK is not going to be attracted by the UK government giving grants to build or re-equip factories, but by it showing a willingness to invest for results which will only be seen in the long term, and to put political energy into building sustainable government policies and community support.

    A pdf of this report can be downloaded here

    Our latest 2023 directories of Japanese companies in the UK are available here.

    [1] https://biz.toyokeizai.net/en/data/service/detail/id=860&academic=1

    [2] https://www.mof.go.jp/english/policy/international_policy/reference/balance_of_payments/ebpfdii.htm

    [3] The History of Mitsubishi Corporation in London: 1915 to Present Day Routledge Advances in Asia-Pacific Business, 2000 https://www.amazon.co.uk/History-Mitsubishi-Corporation-London-Asia-Pacific/dp/0415228727

    [4] Zaikai means the Japanese business and finance community, particularly those companies with power and influence and connections to the political sphere, which are seen as representing Japan in the world.

    [5] https://asia.nikkei.com/Business/Aerospace-Defense-Industries/Japan-to-standardize-arms-with-U.S.-Europe-for-joint-maintenance accessed 22 June 2023

    [6] https://www.reuters.com/business/energy/japans-mitsui-says-no-plans-exit-russias-sakhalin-2-lng-project-2023-06-21/

  • Japanese companies still in Russia

    Japanese companies still in Russia

    I have just become aware of this “Leave Russia” database, from the Kyiv School of Economics, similar to the Yale project, but with more detail, pointing to 168 Japanese companies who have business connections to Russia – 84 are still continuing operations, 10 are pausing investments, 16 scaling back, 42 suspending, 11 have withdrawn and 5 have completed their exit.

    The link is courtesy of Olga Sotnyk, an adviser to the Deputy Prime Minister of Ukraine, in her guest post for Comment is Freed. As she puts it “hundreds of large Western companies continue to operate in Russia, generating profits and paying taxes to the Russian budget, thereby indirectly financing the war in Ukraine. Pragmatic interests are understandable, but the global threat posed by the Russian state today is not just a problem for Ukraine or the region, it is a threat to stability, including economic stability, throughout the world.”

    Some of the biggest still operating in Russia in terms of employees are unsurprisingly the trading companies such as Sojitz, Mitsubishi Corporation and Mitsui, involved in energy projects.

    Some I had not realised were operating in Russia at such a scale were Kuraray, chemicals and textiles manufacturer with 552 employees, advertising agency Hakuhodo with 455 employees, Kintetsu World Express with 429 employees,  A&D – medical instruments, 415 employees and Pioneer (in car audio) 174 employees.

  • UK employment by Japanese automotive companies has fallen 25% over 4 years

    UK employment by Japanese automotive companies has fallen 25% over 4 years

    The statement by Stellantis that it may be forced to shut some of its UK operations if the current local content rules in the Brexit deal continue prompted me to take a look at the current situation for Japanese car companies in the UK.

    As The Economist pointed out recently, Japanese car companies are behind in the race to produce electric vehicles – partly due to being victims of their own successes with hybrid vehicles. But there are signs of change with the new president of Toyota‘s announcement of new EV models and Honda‘s electric vehicle joint venture with Sony. Nissan has been focused on electric vehicles from the start but somewhat distracted with wrangles with Renault post-Ghosn.

    Despite being laggards, Japanese car companies are still very important to the UK economy. Nissan is the largest UK manufacturer of cars and Toyota the third largest. Announcements are expected by Toyota and Nissan soon on what they are going to do with replacement models for their Corolla and Juke respectively, both currently manufactured in the UK, but I have not seen any leaks yet in the Japanese media on what the plans might be for this. As the spokespeople quoted in The Economist say, it would be helpful to longer term planning if the UK could be seen as a stable partner, and had an industrial policy – or at least acknowledge that not having an industrial policy is in its own way an industrial policy.

    The danger is that Japanese car companies and their suppliers just dwindle away in the UK

    Without longer term plans in place, the danger is that Japanese car companies and their suppliers just dwindle away in the UK. The latest data I have compiled shows that employment in the UK by Japanese automotive companies has fallen 25% from 2017/8 to 2021/2 from 43,000 to 32,000. These figures exclude what could be a further 7,500 employees, working for companies which have not yet submitted their UK annual reports for FY2021/2 – Itochu’s subsidiaries Kwik-Fit, Stapleton’s Tyre Services and European Tyre Enterprises, GS Yuasa battery sales and manufacturing, Hitachi Astemo and Highly Marelli.

    Around 4,000 of the jobs lost were from Honda‘s Swindon closure. The remaining 7,000 missing jobs can partly be explained by the closure of other automotive companies:

    1. Akebono (closed 2021)
    2. Alps Alpine (2021)
    3. Calsonic Kansei Sunderland (2020)
    4. CCI Corporation (2020)
    5. Futaba Industrial UK (2019)
    6. Hi-Lex Cable System (2021)
    7. Honda Trading Europe (2022)
    8. Johnan UK (2021)
    9. Kansai Paint Europe (2020)
    10. Keihin Europe (2021)
    11. MC Ionic Solutions (2021)
    12. Mitsuba Europe (2023)
    13. Nichias Europe (2020)
    14. Nichirin UK (2022)
    15. Proseat (2021)
    16. Senju Manufacturing Europe (2019)
    17. Showa UK (2022)
    18. The Colt Car Co (2022)
    19. TMD Friction (2023)
    20. Toyo Denso UK (2023)
    21. Toyoda Gosei (2023)
    22. TS Tech UK (2021)
    23. TT Assembly Systems UK (2021)
    24. UYS (2022)
    25. Yokowo Europe (2023)

    Not all of these were complete closures – some were as the result of a consolidation of subsidiaries.

    Toyota Motor Manufacturing UK’s employment levels have stayed relatively stable over the past 4 years at around 2,700. Nissan Motor Manufacturing of the UK’s total employment numbers have dropped by 20% or 1,600 however, from 7,933 in 2017/8 to 6,335 in 2022/3.

    If we just focus on Japanese companies with production in the UK, there was a 26% decline in employment over 2018-2022 – unsurprisingly close to the overall trend – as around 74% of all Japanese automotive employees in the UK are employed in manufacturing operations.

    Unpicking what is happening overall with Japanese automotive companies in Europe is for another day. What has been on our radar recently is how many Japanese automotive companies such as Toyota group (which includes Suzuki and Isuzu), Nissan and Honda are showing more interest in manufacturing combustion engine models in Africa, particularly Ghana, for CKD, lightweight models and SUVs.

  • Japan’s Nippon Express acquires Austrian logistics company Cargo Partner

    Japan’s Nippon Express acquires Austrian logistics company Cargo Partner

    It has been confirmed that Nippon Express will acquire Austria’s Cargo-Partner (subject to regulatory approvals) for around $743m, according to the Nikkei.  For Nippon Express, this is their biggest acquisition ever, and yet another Japanese corporate originated M&A drive for international diversification and growth, in reaction to Japan’s ageing and shrinking economy.

    Cargo-Partner has 4,000 employees in 40 countries including Europe, USA and Asia, and a turnover of over €2bn. Nippon Express’s turnover is around US$13bn, of which 6.4% is in Europe.  Nippon Express has 73,350 employees in 49 countries, of whom 3,480 are in Europe. It is the only Japanese company to rank in the top 10 largest global freight forwarders. The combined entity will be the fifth largest air cargo carrier in the world.

    The acquisition of Cargo-Partner will particularly expand Nippon Express’s presence in Central and Eastern Europe. Rival NYK Group, which includes Yusen Logistics, is actually larger than Nippon Express in Europe, with 8,360 employees based in the region out of 35,165 globally, 25% of its employees. The total number of NYK Group employees in EMEA grew over 1,000 in the past three years, particularly in countries such as Romania. Nippon Express clearly felt it was underweight in the EMEA region for some time, and has recently expanded its network here to include Slovakia, Serbia, Morocco and Kenya.

    The founder of Cargo-Partner Stefan Krauter will stay on to help with the transition, sitting on the Corporate Supervisory Board and as an advisor to the Corporate Executive Board.  He says he “will be focusing on smart partial integration with the new owners as well as on other matters regarding strategy, M&A and ESG.” I am not sure what “smart partial integration” means, but if it’s anything to do with integrating IT systems, unless Nippon Express is the exception to the rule in the Japanese corporate world, this will be prove to be a very long project, and it might even be worth binning any legacy Japanese systems for whatever Cargo-Partner already has.

  • Japanese companies in “wait and see mode” for 2023 overseas expansion

    Japanese companies in “wait and see mode” for 2023 overseas expansion

    Japanese companies are increasingly in “wait and see” mode with regard to expanding their business overseas, according to a JETRO survey at the end of 2022. Although 43.5% of all those who responded to the survey (3,118) who already had operations outside Japan said they were going to invest further in their global business, this was outstripped by the 49.1% who said they would maintain their investment levels overseas “as is” and 5.2% who said they would reduce or withdraw from overseas business. This compares to 2019 where 66.9% who said they would invest more, 28.5% said they would maintain investment levels and 1.7% who were shrinking or withdrawing from overseas.  This trend is stronger in larger companies than small and medium sized ones. 51% of those respondents who did not have any overseas operations said they were not intending to invest outside Japan in 2022, compared to 40.9% in 2019.

    EU selected by 20.7%, UK by 2.6% for expansion

    Chemicals, foods, electrical machinery and software were the bright spots in terms of overseas expansion.  Top 3 destinations were USA (selected by 29.6%), Vietnam (26.5%) and China (26.4%), with the EU at number 4 (20.7%). The UK was 16th, selected by 2.6%. Product areas most focused on the EU were textiles and clothing and timber products – furniture and pulp.

    Reasons for choosing regions to expand in were primarily around market size and growth potential, that there is a concentration of purchasers there – interestingly there is a clear difference between the USA (most of the sectors being targeted being manufacturing, so presumably Japanese companies B2B sales to other Japanese or US companies) whereas to Vietnam it is non-manufacturing, and more B2C, logistics and construction.

    Onshoring

    13% of respondents with overseas operations have already onshored or are looking at onshoring, particularly in health and beauty products, petrochemical and plastic products and IT equipment and components. Unsurprisingly, the key reason cited by 60% for doing so was the increased cost of manufacturing outside Japan.  Other concerns are the falling yen and the long term the shortage of supplies – however it seems global logistics is becoming easier again.

    Business transformation and hiring non-Japanese employees

    In terms of changing business strategy or business model to deal with global trends, 30.5% said they were already undertaking business transformation, 39% said there was a need to change their strategy or model but they had not done it yet and 26.8% did not see any need for change.

    Those who were transforming their businesses were doing it through acquiring new personnel (both domestic and overseas), or redeploying existing personnel.  51.5% have now hired someone non-Japanese in Japan – the highest level yet.  A shortage of domestic personnel was the top reason for doing so, but not far behind were reasons to do with improving overseas marketing, management and negotiation strength, and also to globalise the HQ.

    33.5% are undertaking digital transformation in 2022, compared to 28% in 2021, particularly in financial services and IT services. Reducing carbon emissions is well advanced in Japan (78.4% of large companies are undertaking zero carbon initiatives) but not so advanced with their overseas supply chains, with 40.6% of large companies having taken any steps and only 11.6% of small and medium sized companies including their overseas supply chains in any initiatives. Japanese customers are more demanding on carbon emission standards than overseas customers – 17% of Japanese have asked for statements of compliance on carbon emissions, but only 12% of overseas customers have done so.

    Only 10% of Japanese companies have been conducting due diligence on human rights, but over 50% intend to do so within the next year. Over 50% of large Japanese companies have been asking for statements of compliance on human rights from their suppliers.

  • Is the UK losing out to the Netherlands as the core of Europe in pharmaceuticals?

    Is the UK losing out to the Netherlands as the core of Europe in pharmaceuticals?

    The new commissioner of the Netherlands Foreign Investment Agency, Hilde van der Meer, was interviewed in the Nikkei newspaper during her visit to Japan in March 2023.  The headline was “becoming the core of Europe with pharmaceuticals” and she outlines in the interview how multinational pharmaceutical companies have opened offices in the Netherlands since the European Medicines Agency moved to Amsterdam after Brexit.

    We took a look at our database and can see that one Japanese pharmaceuticals company, JCR, has recently opened an office in the Netherlands. The other, larger, Japanese pharmaceuticals companies were already in the Netherlands long before the EMA move – such as Astellas, Takeda, Eisai, and Daiichi Sankyo. Chugai does not have operations there – its European HQ is still in the UK – but its parent company, Swiss pharmaceuticals company Roche, does have a subsidiary there. Otsuka opened a company in the Netherlands in 2018, which acts as a Marketing Authorization Holder for the EU and in the same year closed its Otsuka Europe Development and Commercialization operation in the UK. Shionogi also opened a subsidiary in the Netherlands in 2018, and the UK subsidiary became a branch of it at the same time, so this  may also have been a result of the EMA move. Takeda UK also became a branch in 2018 – but more as a result of the acquisition of Shire, and a subsequent global reorganisation.

    This does not seem to have had much impact on the 46 or so Japanese pharmaceuticals and healthcare companies in the UK, however, in terms of numbers employed. We estimate they were employing around 5,000 people in 2022, and this number has grown rather than shrunk since 2016, despite the closure of some smaller companies – Taisho, Anges, Kosei and Summit. Companies which have grown in the UK include Fujifilm Diosynth, now employing over 1,000 people and Eisai, compensating for those which have shrunk their UK presence.

    The UK may have lost some influence, but in terms of scale, it is still substantial.

     

  • What is behind the 30% drop since 2016 in Japanese corporate expatriates?

    What is behind the 30% drop since 2016 in Japanese corporate expatriates?

    Mitsubishi Electric’s introduction of a system that will allow employees to work virtually in one country, while being based in another was described as an “evening scoop” by the Nikkei newspaper. The Nikkei then went on to position it as being aimed at employees based outside Japan, who can then work in Japan headquarters, thereby enabling Japan HQ to exert a more centripetal force on the rest of the world.

    I am not quite sure how much of a scoop this really is, as I already experienced a similar system, along with many other members of “Global” when I worked at Fujitsu in the UK ten years ago – I had an international role but my salary, tax and benefits were all paid as if I was a UK based employee. The UK operation was compensated for this by Japan headquarters.

    The solution to Japan’s demographic crisis?

    My second doubt about this is whether this is really the solution for Japan’s demographic crisis. Japan needs immigrant workers  because of its declining birth rate, in addition to which Japanese companies often talk about the importance of cultural diversity in their corporate headquarters, but nobody seems to want the hassle of actually allowing foreigners into the country to live. Only very specific categories of jobs can add value entirely through remote working – no surprises that Pasona, a Japanese staffing services company, has an offering to cover remote work from overseas – for foreign IT workers. If the aim is to add value to headquarters’ decision making and creativity through diversity, then some face to face, daily interaction is going to be needed.

    When I first saw the Nikkei headline, I thought Mitsubishi Electric’s new system was going to be for Japanese managers who need to manage overseas subsidiaries, but would rather do it remotely, than uproot their families to move abroad for five years or go solo or tanshinfunin, as it is known in Japanese. Expatriation is costly for the employer too. This is mentioned in the article, but as a secondary aim.

    Or increasing localization?

    Many other Japanese companies may be adopting similar systems, or just relying more on local managers to run things – as we noted in a previous article. As a consequence, there has been a 30% drop in the number of Japanese corporate expatriates since 2015/6, according to Toyo Keizai.  North America had the smallest drop in numbers (-24%) and Oceania the highest (-43%). The numbers of Japanese corporate expatriates in Europe fell 27% since 2015/6, and the total is about half that of North America. The decline set in before the pandemic, but certainly seems to have been accelerated by the inability to move people around the world, and the discovery that it was possible to oversee, if not hands-on manage, overseas operations remotely.

    Toyo Keizai’s data on corporate expatriates relies on self reporting through their surveys, so undoubtedly underreports the true number of expatriates. It is at least a consistent data set, with few anomalies, so the trend seems clear. It only records  6 Japanese expatriates for Mitsubishi Electric in Europe and Africa, and another 7 in the Middle East – the former seems very low.

    Mitsubishi Electric operates in more than 40 countries around the world, with overseas sales accounting for 50% of consolidated sales and 40% of consolidated employees (approximately 146,000). 11% of its sales and around 9,500 (6.5%) of its employees are in the Europe, Middle East and Africa region. We had to estimate the 9,500 figure ourselves, as Mitsubishi Electric does not disclose regional breakdowns of its employees. If remote working across country borders really becomes dominant, at least at managerial rather than shopfloor level, then such data will become increasingly meaningless anyway.

    Breaking it down for EMEA

    Looking at the Toyo Keizai data for individual countries in Europe and the Middle East shows that the only country to show any positive growth in Japanese corporate expatriate numbers since 2016 is the United Arab Emirates. The fall in Japanese expats in the Netherlands (-19%) was not as steep as elsewhere in EMEA (-27% average, -26% for UK, -40% for Belgium ) and seems to be recovering a bit since the pandemic. The number of expats in Germany also fell by only 17% since 2016, having grown and surpassed the UK in 2019/20, but falling steeply since the pandemic began, with no signs of recovery yet.

  • Mitsuba appoints liquidator for UK automotive parts business Mitsuba Europe

    Mitsuba appoints liquidator for UK automotive parts business Mitsuba Europe

    Mitsuba, a Japanese manufacturer of automobile parts including electrical components for wiper systems, door mirrors, power window motors, fuel pumps, and pressure regulators, has appointed a liquidator for its UK business, Mitsuba Europe.

    Mitsuba has around 20,000 employees worldwide, of whom 900 are based in Europe, Middle East and Africa. Its biggest operation is its plant in Hungary, employing around 400 people. It also has plants in France, Italy, Morocco, Russia and Turkey and a sales office in Germany.

    Mitsuba Europe in the UK only employed 3 people with a turnover of £364,000 in 2022. Before 2011 it employed 6 people, with a turnover of £18m, but transferred the major part of its business to its subsidiary company in Hungary in 2012.

  • SEGA confirms it is acquiring Finnish Angry Birds company Rovio

    SEGA confirms it is acquiring Finnish Angry Birds company Rovio

    SEGA is acquiring Finnish game maker Rovio for $775m/706m euros. The purpose of the acquisition isn’t so much to add elderly Angry Birds to their portfolio as to utilize Rovio’s live service expertise to bring current and new games to the mobile gaming market. It’s also about SEGA making sure it isn’t too dependent on its still successful but nonetheless rather 20th century cash cow, pachinko machines.

    Rovio had around 546 employees of 58 different nationalities at the end of 2022.  SEGA Sammy has around 1,300 employees in Europe, out of 7,760 globally, according to our estimates – in Bulgaria, France (SEGA acquired Endless series developer Amplitude in 2016), UK (acquisitions of Sports Interactive (2006), The Creative Assembly (2005) and Two Point Studios (2019)) – where the European companies SEGA Europe Ltd and SEGA Publishing Europe Ltd are also based.

    SEGA Sammy Holdings are aiming to have 50% of their sales outside Japan by 2030. To that end, they have set a target of having 900 “culturally diverse” people in their Japan based workforce (around 21%) – which they define as being a foreign national, or having experience of living overseas, or a certain level of foreign language ability.

  • Top 30 Japanese companies in Europe, Middle East and Africa 2022

    Top 30 Japanese companies in Europe, Middle East and Africa 2022

    Our top 30 Japanese companies in Europe, Middle East and Africa for 2022 (download available below) shows that there has been a modest growth in total employee numbers to 593,195,* up around 3% from 575,962 in 2021. We estimate over a million people are employed by Japanese companies in the EMEA region, so around 60% of them are working for these large corporate groups.

    This would be a 2% growth if Honda had not dropped out of the Top 30, thanks  to the closure of its Swindon UK factory, and been replaced with NYK Group. Japanese corporate groups where the number of employees in EMEA declined over the year were largely in the automotive sector – not only Honda – including Nissan (-8%), NSG (-6%) and Denso (-5%).

    Some of the growth in employees  was due to acquisitions, for example Hitachi‘s employees in the region expanded by nearly a third after the acquisition of the ABB Power Grids business. Sony has also grown in EMEA by 27% from 2021 to 2022 – this may be the result of multiple acquisitions, mainly of video game companies in the UK, Netherlands and Finland as well as in the  USA.

    This now means 12% of Hitachi‘s global employees and 11% of Sony’s global employees are in the EMEA region, compared to the top 30 average of 14%. The groups with a significantly higher than average proportion of employees in EMEA tend to be those with large manufacturing presence –

    • NSG (46% of global employees in the region), arising from its acquisition of Pilkington Glass
    • Sumitomo Electric Industries (26%), thanks to the labour intensive wire harness factories it has in Eastern Europe and North Africa
    • Toyota Tsusho, who have a significant presence in Africa since their acquisition of the French company CFAO
    • Asahi Glass

    Japan Tobacco, with 38% of its global employees in the EMEA region, has entered the top 10 of the largest Japanese corporate groups, up from number 16 – not necessarily from any expansion, but more due to the fact that previous employee estimates were our own, and proved to be an underestimate, judging by figures that are now given on the website for Europe and the Middle East.  It has not announced anything further about its operations in Russia, where it employs around 4,000 people, other than a suspension of investment.

    Recruit and Asahi also have more than 30% of their global employees in the EMEA – Recruit through its acquisition of USG People as well as Glassdoor and Indeed and Asahi through its acquisitions of various beer brands such as Grolsch and Peroni.

    The corporate groups that have expanded the most in the region since 2014/5 are Hitachi (262%), NTT (157%) and Panasonic (89%). Those groups which have contracted the most are Honda (-55%),  Asahi (-30%), Fujitsu  (-25%) , Nissan (-22%) and Ricoh (-15%).

    Click on this link for a pdf download of the Top 30 Japanese Companies in EMEA 2022

    *This number has been updated to reflect the inclusion of Mitsubishi Electric in the Top 30 (17 April 2023) and the inclusion of NYK Group (16th May 2023)