Surviving the end of lifetime employment in Japan – if you’re an underworked uncle

Plenty of Japanese companies went virtual, scaled back, cancelled or postponed their entrance ceremonies for new graduate recruits this year, because of COVID-19. Hitachi had already cancelled its entrance ceremony, however, and changed it to a Career Kick-off Session (which has also been postponed) to mark the radical departure it has made from lifetime employment and seniority based promotion.

Since its record breaking loss in 2008/9, Hitachi has moved away from simply cutting employee numbers to reduce costs and instead radically altered its business portfolio and introduced a new HR system. President Nakanishi was responding to the often heard concern in the company that “we don’t have any leaders who are effective globally”  – a major problem when Hitachi was moving away from being a purely domestic supplier to Japanese energy companies to be more active globally in social infrastructure.

Japan HR as “just one of the regions”

In 2011 Hitachi tore down the 3 distinct layers of its old HR structure  – Hitachi HQ’s own HR division, the HR divisions of the Hitachi group companies and the HR divisions of overseas subsidiaries. Now there is a global HR division, 30% of whose employees are non-Japanese.  Each region reports into the global HR division, with Japan being one of the regions along with Europe, the Americas, Asia etc. The HR departments of the subsidiaries within those regions report into the appropriate regional HR division.  This presumably means the group companies have far less autonomy and Hitachi HQ and Japan are just “one of” the regional or subsidiary divisions.

Hitachi also moved away from the “Shokuno” model much used by Japanese companies – where experience and potential of the employee are the key factors in deciding pay and grade to the “job” model – where each post carries a detailed job description and the pay is determined by the market rate for jobs requiring similar levels of skills and experience.

Toyota goes triangular

Toyota‘s President Akio Toyoda has also begun to have doubts about lifetime employment and seniority based pay. Last year, during the “Spring Offensive” when Japanese company unions negotiation with the directors on base pay, bonuses and conditions, Toyoda said “I have never felt such a distance between us as I felt this time”.

So in 2020 he introduced a new triangular negotiation structure – instead of unions and directors being face to face, he sat three groups around a triangle – the union, the management/executive officers and the board directors. From April of next year the use of evaulations in setting pay and bonuses will become much more widespread and automatic seniority based pay rises will cease. Differentials in bonuses will also become much wider from July of this year.

Get motivated, underworked uncle!

Similar changes are being made at LIXIL, Ajinomoto, Citizen, Sapporo Breweries and Eisai Pharmaceuticals. The end of lifetime employment and seniority based promotion is seen as mainly about trying to deal with the “hatarakanai ojisan” or “underworked uncle” – middle aged men who are in their management position and being paid accordingly largely because of the length of their experience in the company than the value they are adding.

The rest of the Nikkei Business special feature includes a handy worksheet for underworked uncles, to regain their motivation and revive their careers, with some case studies of career changers and encouraging words from recruiters.  The recruiters say that middle aged employees are good networkers who can link their company to other companies and look out for new ideas, that they have good communication skills, a learning mindset and are good negotiators. Sounds like they are going to need all of these to succeed in the final 15 years’ of their careers, if they don’t want to end up gazing out of a window.

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New leadership needed in Japan – effort and experience no longer enough

Strengthening human resources has become  increasingly urgent for Japanese companies since 2017, rapidly catching up with improving profitability as the top management priority, according to a survey from the Japan Management Association.* Other issues such as increasing sales/market share, or introducing new products and services or reviewing the business portfolio are declining by comparison.

Nikkei Business looks at various ways that Japanese companies are dealing with this, including my old employer Mitsubishi Corporation. Their approach does not seem to be that different from 20 or 30 years ago, which is to treat everyone (at least, those hired in Japan) as if they have leadership potential and offer them opportunities accordingly.

Impact of the Ice Age

The concern of companies (over 75% of respondents to a Ministry of Economy Trade and Industry survey  in 2017)  is particularly around having sufficient leadership and management resources within the next five years. This is not surprising as the cohort that would be entering into senior management are the group that were most affected by the Ice Age of recruitment, when companies drastically cut back their graduate recruitment in the 1990s to 2000s.

New recruits don’t want to be leaders or specialists

But part three of the Nikkei Business special indicates that the roots of this lack of leadership might be in a mismatch between the expectations of the younger generations and their managers too. New recruits are showing less interest in becoming President than in 1999, more interest in senior roles such as board director or General Manager, but interestingly, less interested in become a specialist.

Generational mismatch, again

The qualities of an ideal leader vary between generations too. In 1999 41.3% chose “someone who listens to the views and wishes of their subordinates” as an ideal quality, but this was chosen by only 26.8% in 2019. “Someone who gives directions politely” was the top choice (44.5%) of the 2019 new graduate recruits, but this was chosen by only 32% of new graduate recruits 20 years previously.  The 1999 intake were significantly more keen on leaders who were passionate about their work than the 2019 intake, whereas the 2019 intake valued a leader who places importance on private lives, not only work.

Nikkei Business concludes that the type of leader needed has changed over the decades:

  • 1990s – after the economic bubble burst, strong leaders were needed, who were more top down, able to solve problems using their skills and experience. If you tried hard, you succeeded
  • 2000s – with the spread of information technology it became important to gather in information from the gemba – where the work was happening
  • 2010s onwards – employees place importance on diversity. Globalization and digitalization gain pace – the leader’s skills and experience aren’t always relevant. Effort does not always bring results

*Japan Management Association seems to have given up putting anything new in English on its website since 2017.

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Japanese employees want to work for a company that builds you

I’ve just recorded a five minute screencast explaining the mysteries of Japanese corporate hierarchies and job titles. I explain how the “three treasures” of the Japanese post war employment system are beginning to tarnish. Lifetime employment, seniority based promotion and company unions who negotiate base pay and bonuses are all applying to fewer people, or being tweaked to a more performance/competency based system, allowing mid career hiring.

Nikkei Business magazine has just published another article on this too, pointing out that Japanese people’s expectations of what the company should offer are changing as well.

It cites an anonymised case of a 41 year old male IT engineer, who left his electronics employer after 15 years, to work for a logistics company. He was partly worried about the financial performance of the electronics giant, but also felt that with digitization, it was time to apply his skills to a different company.

This might not seem so odd for a European or American employee, but up until recently, in Japan leaving a major company in your 40s would usually suggest you had been pushed out, and it would also have been difficult to find a job of equivalent status in another major employer.

Average time with one employer is shrinking

Data from Japan’s Ministry of Labour shows that the average length of service of males under 50 is beginning to shrink.  A survey from RecruitWorks shows that 60% of 35-54 year olds have changed employers at least once. The main reason given, according to a survey from en-japan employment agency, is that they don’t feel any engagement or sense of achievement at their current employer. This is cited more frequently as a reason for quitting than low pay or worries about the future of the company.

Allowing second jobs

Nikkei Business magazine then goes on to examine what various Japanese companies are doing in response to this trend. Mizuho Bank has lifted its ban on employees being able to have a second job elsewhere. Up until recently, it was felt that allowing this would be a security risk as employees had access to confidential client data. Furthermore, it was more complex to manage the pay roll and benefits of employees with multiple employers.

So why did Mizuho change its mind? Partly it was because of the legacy of merging three banks, and the time and cost it has taken to integrate systems, branch networks etc. Mizuho is now looking to reduce its employee total by 19,000 over 2017-2027 so the unspoken contract that there is an obligation to offer lifetime employment has already been broken.

Building new skills – whose responsibility?

But a bigger reason, according to Nikkei Business, is that individual employees’ attitudes towards their company has changed. Rather than expecting to be looked after in terms of pay for life, they are interested in the company as a place where they are offered opportunities to grow, and new skills, so if they need to build those skills and opportunities outside the company, they should be allowed to do so.

Mizuho had become less popular with new graduate recruits recently, and is hoping that by being open to employees working outside the bank, graduates will see Mizuho more favourably again.  The take up for applying to do second jobs has been across all age groups – including a 27 year old working for a start up through to a 57 year old working for a recruitment consultancy.

NEC has also been encouraging in-house start ups and set up NEC X to promote new business in Silicon Valley in 2018. Airconditioning manufacturer Daikin allows staff to focus on AI and IoT training and study  for 2 years and brings in interns from Tokyo University to work in its operations around the world.

I know I would say this, but one chart that caught my eye in the article was the one showing that Japanese corporate investment in training per head fell , as did the proportion of Japanese companies funding training, after 2008 and has never returned to previous levels in the 10 years since.  Japanese employees are getting the message that they cannot depend on their employers for career development.

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What’s going on, Panasonic?

The front cover of the January 27 2020 edition of Nikkei Business, one of Japan’s leading business magazines, must have made their PR department’s hearts sink. どうなってる？Panasonic (dounatteru? -” what’s going on?” maybe even “what the hell is going on?” depending on tone of voice) it says in stark letters across a simple blue cover.  The inside is not much more cheering.

Culture change has nothing to do with me

It talks about the change in corporate culture that new internal companies like Connected Solutions are bringing about, but notes that there are plenty of veteran employees who think it has nothing to do with them, don’t want a culture change or suspect it will only last as long as the “returnee” President of Connected Solutions, Higuchi Yasuyuki, lasts.

Panasonic’s President Tsuga Kazuhiro has been in post for nearly 8 years. The usual term for Panasonic (and most other Blue Chip Japanese company) presidents is 6-7 years, so there must be a thought that he will not be president for much longer.  Nikkei Business  closes its interview with him by asking about this.  Tsuga says he hoped to step down at the centenary of Panasonic’s founding, in 2018, but “I wasn’t good at quitting”.

The Nikkei opens its interview with him by asking him about the forecast Panasonic has made for the current financial year, that both turnover and profits will be down on the previous year.

No regrets on shift to B2B and automotive

Tsuga admits that he had aimed to increase turnover and raise operating profit to 5% of turnover, but blames about 80% of the decline on US-China trade friction which damaged the profitability of Panasonic’s operations in China. The EV battery venture with Tesla is also not at full operational strength.

Tsuga maintains he was right to shift Panasonic to business to business sectors, including automotive, despite the current problems facing the automotive industry.  He describes the problems popping up in the various sectors he expected to generate stable growth as a game of “whack a mole”.

Panasonic is not an ordinary company

Nikkei Business points out that Panasonic seems to be going against Western business orthodoxy, that companies should specialise in what they are good at and cut out any remaining businesses. Tsuga says that is because Panasonic is not an ordinary company. “We persist in staying close to the every day lives of our customers… that is our strength.”

“We will continue to have an integrated, comprehensive strength and we need to have a model for our future business otherwise we cannot explain “why Panasonic?”.  People might say they cannot understand our model very easily but I don’t think it’s necessary for it to be that easily understood. We’ve been going for 100 years, if we fall over in the next 10 or 20 years that’s a problem. We have to change into the right shape to deal with the changing times. ”

Bringing in outsiders

This why Panasonic has been proactive in bringing in outsiders, says Tsuga. When Matsushita Konosuke first set up Panasonic, there was a shortage of top quality employees. “Now Panasonic has grown to a point where it attracts people from the top universities, but this means there is a certain uniformity to the type of employee working here.”

Tsuga has high hopes for the team headed up by Matsuoka Yoko, known as Yoky, who joined Panasonic from Google in 2019. “She starts from thinking about “koto” (situations) rather than “mono” (things). I have an image of Yoky being the centre of starting up various venture companies together. To create internal companies that people want to acquire or partner with.”

Other outsiders who have recently joined Panasonic include Baba Wataru, who used to be CIO at SAP Japan, and Eiichi Katayama as Chief Strategy Officer who used to head up the research division at Merrill Lynch Japan Securities.

Tsuga also reduced the number of Corporate Executive Officers from 49 to 16 – including Katayama and Higuchi – so no wonder Panasonic old timers feel sore  – outsiders are taking up increasingly scarce senior level jobs.

4 diseases impeding growth

Nikkei Business points to four “diseases” which have prevented Panasonic from growing. One is that the strategy and business model were not based on market needs, but what Panasonic’s product manufacturers wanted to do.  This is a very common issue for Japanese manufacturing companies.

The second problem was a lack of funds for investment – a lot of capital was expended on absorbing Sanyo, and yet turnover did not increase, so there was a lack of free cash flow for big investments that were needed in automotive (although they did acquire Ficosa and Zetes in Europe).

Again, like many Japanese companies, Panasonic had a silo organisation – with big vertical walls between each business, making having an overall strategy for developing Internet of Things business in sectors such as air conditioning very difficult – the Life Solutions company (focused on lighting, energy, housing) and the Appliance company (household appliances, airconditioners) kept bumping up against each other.

And the fourth problem is that to try and fix this, Panasonic kept reorganising itself, but this in turn weakened Panasonic’s ability to deliver.

Turning the “tap water philosophy”

The final part of the Nikkei Business special feature looks at what other companies have done to turn themselves round – Microsoft, Siemens, Sony and Hitachi. It concludes that consistency of strategy over several generations of CEOs is necessary.  It looks as though Tsuga, by hanging on, has adopted this approach.

Nikkei Business quotes the founder of Panasonic, Matsushita Konosuke, as saying that in a changing society, new value cannot be created just by imitating the master’s methods, which were based on what is known in Panasonic as the “tap water philosophy“. New value shoud be created by absorbing this philosophy and updating it to improve people’s lives as they are currently lived.

 

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Open seminars in London and Manchester: Working effectively with Japanese colleagues, clients and partners

We’ve just set the spring dates for our perennially popular (now in their 17th year!) Japan Intercultural Consulting “Working Effectively with Japanese Colleagues, Partners and Clients” open seminars in London and Manchester and our “Communicating, Managing and Marketing in Europe” (seminar conducted in Japanese) .

We hope to see you there, and if your colleagues work with Japanese people, or you have Japanese colleagues working with you in Europe, please let them know too.

We are looking forward to another chance to share mutual experiences and insights on Japanese and European collaboration.

Further details on Eventbrite https://lnkd.in/etcgvQH

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Which Japanese companies to work for in Europe

We’ve been publishing our top 30 Japanese companies in Europe intermittently for 5 years now.  We regularly receive enquiries for recommendations on which Japanese companies to approach as potential employers.  We’re not a recruitment consultancy so we don’t have any inside track on what jobs are available (please talk to our friends at Centre People Appointments for more practical assistance), but I would say that size in Europe and growth are important factors to consider.

Relative size in Europe is a key factor

If the European operations of a Japanese company represent a substantial part of their business, then it’s more likely that Europeans will have some influence within the organisation. There will also be more promotion opportunities and career paths than working for a smaller organisation in Europe. For that reason, it’s worth trying to join the organisation in the European/EMEA headquarters.

Companies with a relatively high proportion of their employees in EMEA (25%+) include NSG (Pilkington), Asahi (brewery company recently acquired Grolsch, Peroni, Pilsner Urquell etc brands), NTT Data, Toyota Tsusho (acquired French company CFAO with a big presence in Africa), Asahi Glass, JT International, Konica Minolta.

Has the company been growing?

Not only are growing companies more likely to have job openings, but they are more fun to work for. Japanese companies are still growing their operations in Europe overall.  However some have been undergoing substantial restructuring, which has resulted in significant headcount reductions in some countries, and significant growth in others. For example Fujitsu is reducing headcount in the UK and Germany, but growing rapidly in Poland and Portugal.

Companies that have grown the most rapidly in Europe (more than doubling) over the past five years are Nidec, NTT Data and Panasonic.

Working for an acquired company

The rapidly growing companies have mostly expanded through acquisition – for example Dentsu, Nidec, Panasonic (Ficosa, Zetes) and NEC (Northgate Public Services), Toyota Industries (Vanderlande), Hitachi (Ansaldo).  Working in those acquired companies might also be an attractive option, as there will be more autonomy, and less domination by Japanese management layers than Japanese subsidiaries which have grown organically.

Companies who score highly in terms of growth and significant European presence are NTT Data (third largest company in Europe) and Dentsu (8th).

In terms of sectoral growth – as well as IT companies that are moving into services and solutions like NTT Data, Konica Minolta and Panasonic – Daikin (# 27) and Mitsubishi Electric (#30) have both grown substantially recently, probably due to expansion of their eco friendly air conditioning businesses.

For new graduates, many of the top 30 have graduate trainee schemes, which would be worth considering if you are looking for a chance to be seconded to Japan.

Top 3 largest Japanese employers in Europe, Middle East and Africa:

1. Sumitomo Electric Wiring

Large numbers of employees in manufacturing, as making automotive wire harnesses is still a fairly manual job. Manufacturing jobs will tend to be in North Africa and Eastern Europe. There are plenty of jobs in design engineering and sales as well, and will be future proof as apparently electric vehicles also require complex wire harnesses to operate.

EMEA headquarters: UK (SEWS-E), Italy (CABIND), Germany (Bordnetze)

No graduate trainee scheme, but this page gives a flavour of the jobs available in the region for SEWS-E https://www.sews-e.com/current-vacancies/

2.  Yazaki

Very similar to Sumitomo Electric Wiring in terms of business and jobs but privately owned, so more of a family style corporate culture. Has a YEA!cademy (Yazaki Europe training academy) https://www.yazaki-europe.com/career.html

EMEA headquarters: Germany

3. NTT Data

Owned by Japan’s NTT (formerly Ministry of Post and Telecommunications, now partly privatised).  NTT Data has acquired various companies in Europe and elsewhere such as itelligence, Cirquent, Value Team, Intelligroup, and Keane. NTT is in the middle of restructuring and have put a new global headquarters, NTT Limited, in London. NTT Data will be kept as a separate organisation, however.

Lots of training and chances to go to Japan, however recruitment seems more by country/company than centralised and might be easier via LinkedIn than the official website, which has broken links. https://www.linkedin.com/company/ntt-data/jobs/

EMEA headquarters: UK

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

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

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It’s not over yet for Honda in the UK

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

The loss of face for Swindon

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

Going it alone made it difficult to innovate

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

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

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

Honda still has roots in the UK

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

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

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

 

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How a failed merger led Tokyo Electron to world class HR

Tokyo Electron originally sold car radios when it was founded in the 1960s, but reinvented itself as a manufacturer of semi conductor making equipment in the 1980s. A failed merger (following objections from anti trust regulators in the US) has led it to reinvent itself again. This time, the reinvention is just as much around management as it is product lines.

In 2013 Tokyo Electron spent a year planning a merger with the US’s Applied Materials. They even had a new name and were planning to put their global headquarters in the Netherlands.

To prepare for the merger, Tokyo Electron reduced its stake in an affiliated trading company, Tokyo Electron Device, and withdrew from the solar cell business.  This renewed focus on the core business has led to increased profits and turnover.

Role not potential

One area on which it proved difficult to reach agreement with Applied Materials was how the HR system should be configured. Tokyo Electron was still focused on having lifetime employment and salary boundaries based on potential (the untranslatable Japanese word nouryoku) with actual performance influencing take home pay upwards or downwards each year. This was very different from Applied Materials system of having a transparent relationship between actual job roles and compensation and ensuring the appropriate person was assigned to that role, without much thought for maintaining long term employment.

Howevever when younger Tokyo Electron employees heard about the Applied Materials HR system they had high expectations as they felt frustrated by the traditional Japanese system. Tokyo Electron realised it would have to change its HR system to motivate its younger staff.  They recognised, however, that there was a big difference between Japan and the USA, where people job hop frequently in their career.

The new system was introduced worldwide in 2017-8.  6 role categories which were applicable globally were introduced – operations, engineering, sales and marketing, business support, management and executive management – up from three previously: the untranslatable sougoushoku (generalist management), ippanshoku (generalist administration – usually for women) and technical. The number of levels increased from 7 to 20 and they applied to all categories (apart from executive). So someone in a senior business support role at level 8 could be considered to be “doing a highly complex job, with a strong influence over the results of their department” just as much as someone in engineering or sales and marketing.

This might seem vague, but Tsuchii Nobuhito, HR General Manager, justifies it by saying that as the semi conductor business is fast changing, roles need to be kept flexible.

Further changes included making it possible to be promoted in consecutive years. Previously Tokyo Electron employees had to stay in one grade for three years before being considered for the next promotion.  Before, the criteria for a job role were evaluated relatively but now there are evaluated by an absolute standard.  This is intended to make it more transparent to people where their job role and grade sit within the whole organisation and what their future career path might be.

Inevitable changes as the semiconductor industry globalizes

These changes were inevitable, says  Nikkei Business.  Japan’s semi conductor industry has hollowed out and most of the customers are overseas. 80% of Tokyo Electron’s sales are outside of Japan and 40% of its employees are overseas. Only around 500 employees in Europe and the Middle East out of 12,500 total.  Unsurprisingly, Asia has the largest number – around 2,800. Japan headquarters also has more Asian employees.  Nikkei Business interviews one Korean employee in Japan who says she was surprised to have stayed so long. She started as a Chinese/Japanese translator but enjoyed the challenges in her job and stayed on.

Higher than average salaries probably also helped. Tokyo Electron pays an average Y12.7m a year (around US$115K) compared to the industry average of around US$60K. As a result of the new HR system 90% of staff had a pay rise – mainly the younger and middle ranking employees.

Global employee communication

President Kawai has been careful to communicate company strategy and objectives as clearly as possible around the world. He has held 35 employee meetings around the world and also holds smaller discussion meetings with staff to talk about the direction of the semi conductor industry, or whether to continue with M&A activities.   He asks them whether the strategic direction is getting through to people, and if it is appropriate for their workplaces.

There are still some issues – how far it is possible to be objective in evaluations, for example.  “It will take another 3-5 years before the system really beds in” says Tsuchii.  Kawai has set some ambitious targets and is confident there is room for further growth.  Whether Tokyo Electron can continue to motivate its staff will be key, says Nikkei Business.

Their website certainly reflects the brand values they aspire to – clear and transparent, with an emphasis on “people, technology, commitment” – although just like every other Japanese technology company, their mission pretty much boils down to “contributing to society through innovative technology”, with added “reliable service and support”.

One of the puzzles of Japanese HR is how employee engagement is so low and yet the employees seem so dedicated and diligent. Kawai at least seems to have found a solution – transparent career paths.

 

 

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3 keys to success in overseas post merger integration according to Suntory

Suntory acquired US company Beam in 2014, since which it jointly developed and launched new gins and whiskeys. Overseas sales are now 42.7% of Suntory’s turnover, compared to 25.2% in 2013 and the merger is generally thought to have been a success, according to the Nikkei Business magazine.

Suntory took on a mountain of debt to buy Beam. Suntory President  Niinami Takeshi felt in 2014 that Beam’s attitude was complacent, considering the pressures Suntory was under. They were making personnel decisions without any regard to Suntory’s wishes.  Beam may have felt that as Suntory’s spirits business was folded into the new Beam Suntory, this meant Beam had the right to do as it pleased.

The three elements Suntory’s President Niinami felt were crucial to post merger integration were:

1. Parent company should make personnel decisions

Niinami transferred the authority to nominate directors of Beam Suntory to Japan HQ, set up a new compensation committee which he chaired, and sent an internal auditor from Suntory to Beam.  The CEO of Beam Suntory at the time, Matt Shattock, was not pleased, but Niinami was firm, saying “we are the owners”.   Niinami says this was the biggest reason for the successful merger.  He made sure that he also listened to Beam executives and ultimately replaced Shattock with Albert Baladi, seeing him as someone who could drive Beam Suntory’s growth in Asia (and indeed they have just announced they will be making whiskey in India soon).

2. Be based near the customer

Baladi clearly won over Niinami by understanding the importance of the Gemba – the shopfloor, the coalface. Beam Suntory’s headquarters was moved to central Chicago, in a district full of bars and restaurants, from a suburb an hour outside the city.  Again, this did not thrill the then CEO Matt Shattock, whose 15 minute drive into work by car turned into a 1.5 hour commute. “It took 2 years to persuade him”, says Niinami.

Being focused on the gemba was not just about the headquarters. Beam previously had frowned upon inefficiencies such as visiting retail outlets frequently to understand what products most matched them. Its emphasis was on short term profits. Niinami changed this by sending several experienced Suntory sales and marketing people to Beam Suntory.  One was Takeuchi Jun, who insisted on visiting high class bars and restaurants in Chicago, introducing Beam Suntory products, to increase the fanbase. He was adamant to local employees that sales for home consumption would increase as a result.

Usually, hearing that sales and marketing people from Japan headquarters are coming to an overseas subsidiaries to change the way Western marketing works would make me nervous. Sales and marketing (if it exists at all) are very different in Japan to Western countries, but it seems to have worked. For example, Suntory was able to successfully introduce the Highball Tower machine to bars in the USA – which makes a cocktail of whiskey (in this case Suntory’s Toki) and sparkling water.

3. Return to craftsmanship

Along with gemba, Suntory introduced the Japanese concept of monozukuri. Niinami was shocked that when he visited Jim Beam’s main distillery in Kentucky in 2016, to see that the workers were on strike, angry with management based in the headquarters an hour’s flight away.  Bourbon sales were doing well globally, and the management asked the distillery to increase production without anything being changed at the distillery. Temporary staff were taken on with employment terms which the existing workers were unhappy with.

Niinami thought this “monitoring from above” approach was misguided, and removed the factory chief, bringing in the production director from Japan. Distilling space and warehousing were increased with a $500m investment in one year.

Suntory also encouraged joint development of new drinks such as Legent.  I noticed in Europe the sake-like gin Roku from Suntory was launched in 2017 (and I’m a big fan).  Will they also be moving Beam Suntory in the UK from suburban Uxbridge to somewhere with a night life like Soho?

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