Japanese Business Blog - Rudlin Consulting

Ukraine – winning the digital communication war

A week before Russia invaded Ukraine, I received an email from two Ukrainians working for a Japanese technology company in Lviv, enquiring about the training I do, and asking for a meeting. I was aware even then of rising tensions in the region, but thought it best to respond as I would normally do, and we arranged an online meeting for the next week.

Unsurprisingly, the meeting was cancelled. When I replied to their cancellation email by asking them what we could do to help, they said “keep telling people what is happening here.” They had already grasped the importance of communication in 21^st century warfare.

I have to confess I had not paid much attention to what was happening in Ukraine up until then in terms of my own business. I had been aware of the Maidan uprising and the Russian invasion of Crimea in 2014, especially as I knew that the brother of the Ukrainian HR manager at one of my Japanese clients had been fighting in the Ukrainian army.

I assumed Japanese investment in Ukraine would be limited, and mostly automotive related, but the contact from the Japanese technology company alerted me to the fact that there was a technology cluster in Lviv, with many IT related companies and technology start-ups. Indeed Hitachi, through their recent acquisition of American software engineering services provider GlobalLogic, turned out to have over 7,000 employees in Ukraine.

The reasons for this boom in IT related services in Ukraine become clear on reading the latest JETRO survey of Japanese companies in Europe. This showed that Japanese corporate interest in investing in digital transformation technology is second only to their interest in investing in carbon reduction technology in Europe.

37% of Japanese companies in Europe are already using digital technologies. This rises to over 50% in the case of Japanese companies in central and Eastern Europe, where it is possible to find digitally skilled employees at a lower cost than in the West.

The impact of a digitally sophisticated population is certainly being felt in the current war. Not only have Russian websites been hacked, but it seems to us in Western Europe that Ukraine is winning the social media communication war at least. In between the harrowing footage of bombing and killing, we have been in awe of the dark humour and cheerful bravery in the videos Ukrainians are sharing of their farmers removing tanks with tractors and mines with their bare hands, while still smoking a cigarette.

The communication skills of Ukrainians and in particular their President Zelensky, help Europeans, with our own memories of wars, dictators and invasions, to empathise with them. In the UK, one of our TV channels has been showing the comedy series that Zelensky appeared in, as a history teacher who was elected President. The storyline shows how he won popular support, after one of his young students filmed his passionate and swear laden anti-corruption speech on their smartphone and posted it on Facebook.

This article was originally published in Japanese in the Teikoku Databank News on 13th April 2022

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Rhymes from history – the Japanese Business Mission to Britain – 100 years’ ago

I’ve been researching the visit of the Japanese Businessmen’s Mission to Britain, which ended a hundred years’ ago, to see if there are any parallels with today.

The visit took place around the time that the Anglo-Japanese Alliance of 1902 became defunct, superseded by the Four Power Treaty of the Washington Conference between Japan, the UK, the USA and France. The conference ended in February 1922, but it was not until the treaty was ratified in August 1923 that the Alliance was officially terminated.

The alliance was originally directed against Russian expansionism in the Far East, and latterly to deal with the threat from Germany, but by 1921 Britain no longer feared Russia, and Germany had been defeated in WWI. Instead, Britain wanted to maintain close relations with the United States, which had a more hostile attitude towards Japan and saw potential conflicts of interest in the Pacific region and China.

The mission, led by Dan Takuma, visited the United States, Britain and France from October 1921 to February 1922, deliberately coinciding with the Washington Conference. There was some confusion in Britain over what to call the mission – sometimes it was referred to as an industrial mission, sometimes as a commercial mission, but it seems from accounts of the speeches that many of the British hosts were well aware that there was also a diplomatic agenda.

Japan had become a net exporter and a creditor nation as a result of WWI, deeply involved in the international economy. Shibusawa Eiichi felt that this was the moment for Japan to strengthen its global influence, by ensuring its economic and social infrastructure was up to the level of a developed nation.

As a consequence, the members of the zaikai (powerful business people) on the mission showed as much interest in British labour relations, the cooperative movement and the Federation of British Industries as visiting shipyards and factories or discussing tariffs and trademarks. They also were keen to understand Britain’s transportation infrastructure. After their tour of Britain, they went to France to inspect the newly formed International Chamber of Commerce.

There was plenty of talk during the dinners and lunches for the mission, hosted by British businessmen, of keeping open doors in trade. However, it was clear the British were beginning to see Japan as a competitor in its colonies, particularly in cotton goods. Dr Dan responded to this by saying that the competition for both Japan and Britain would be China.

The Japanese mission was worried that the end of the Anglo-Japanese alliance might therefore lead to more trade barriers, as well as harm Japan’s global standing, as the alliance had been proof of Japan’s creditworthiness.

It seems they were right to be worried. Once the Great Depression hit in 1929, the US became more protectionist. In 1932, Britain implemented the Imperial Preference tariff policy, of home producers first, empire producers second, and foreign producers last – the same year that Dan Takuma was assassinated.

This article was originally published in Japanese in the Teikoku Databank News on 9th March 2022

77% of Japanese companies in Europe say the Ukraine war has had a negative impact on their business

77% of Japanese companies in Europe have had their business negatively impacted by the war in Ukraine, according to a survey conducted by JETRO in September 2022. The manufacturing industry was particularly hard hit, at 83.7% and Japanese companies in Belgium (92.5%), France (87.5%) and Spain (86.2%) had the highest proportion of all countries reporting a negative impact. This may be linked to the industries most expressing concern about negative impacts – food, automobiles/motorcycles and electrical and electronic equipment. France is host to a number of Japanese food related companies and Belgium is the European headquarters of Toyota and other related automotive companies.

The main negative impacts were an increase in energy price, an increase in raw material and resource price and confusion and congestion of logistics.

The main responses to negative impacts of the invasion of Ukraine were “passing on price rises to customers” (50.5%) and diversifying procurement sources (27.5%). Manufacturers were also increasing inventory more than they were trying to find new customers.

More general concerns were rising and persistently high costs, including energy, and the extension of the frontiers of the war, the use of nuclear weapons and attacks on nuclear power plants, as well as any increase or prolongation of uncertainty about the future – when the war would end, when it would be possible to resume business with Russia.

It’s no longer “post off” for Japanese employees in their late 50s

An increasing number of Japanese companies are abolishing the “post off” system, whereby employees are removed from line management around the age of 55, according to the Nikkei. The aim of this system was to restructure the organisation and cut labour costs. Average income fell by around 20% post “post off”. However, as most Japanese employees do not retire until they are 60, this meant 5 years of “digestion” as the Nikkei charmingly puts it, before being finally expelled.

The system dates back to 1986, when the retirement age in Japan was still 55, and a new law was enacted, making it compulsory to allow employees to work until the age of 60 – before they could receive a pension. The concern was that if seniors stayed on in management, it would make it difficult to “refresh” and have a generational change, and labour costs would rise, because of Japan’s seniority based wage system. So the post off system was introduced.

According to a 2022 survey by the HR Research Institute, 29.1% of Japanese companies have introduced a post off system, and the most common cut off ages are 55 for kacho or section chiefs and 58 for General Managers or bucho. Unsurprisingly, this has resulted in a loss of motivation for many employees in their late 50s, as they wait until they can retire.

NEC abolished the post off system in 2021, and around 1,000 managers have returned to their managerial positions and regained their salary levels. “I was evaluated in a visible way and my motivation increased” said one such manager, a software developer, who is now enthusiastic about applying for an extension to her employment, even after she reaches 60. Under the post off system, the manager had to direct her own ex-subordinates by going through her own boss, confusing everyone.

At the same time, NEC has ensured that younger and mid career people do not feel demotivated, by introducing a common evaluation standard for each level of the business, and evaluations are conducted by multiple managers, to ensure the evaluation is more objective.

The laws around retirement have changed in Japan too. In 2013 companies were obliged to offer employment to workers up to the age of 65 and in 2021 this was extended to 70. The need to keep older employees motivated has become even more acute.

Telecoms takeover of Japan’s top CSR rankings

Comparing the top ranked Japanese companies for Corporate Social Responsibility (CSR) in Toyo Keizai’s 2022 rankings* with the 2007 rankings shows how the Japanese corporate landscape has changed. The three telecoms companies – NTT, NTT DoCoMo and KDDI – have taken over the top 3 positions. In 2007 the top 3 positions went to the heavy engineering and electronics companies Toshiba, Hitachi and Canon. Sharp, Panasonic. Fujifilm and Sony also made appearances over the years, as did automotive companies such as Denso, Toyota and Nissan.

The woes of Toshiba, Hitachi, Sharp and Nissan over the past 15 years are well documented but although Toshiba and Hitachi are in the 2022 top 50, Nissan and Sharp are at 437 and 179 respectively. Canon, Panasonic, Fujifilm and Sony are still in the top 50 along with other electronics and IT companies such as Fujitsu, NEC, Omron, Mitsubishi Electric and Seiko Epson. Denso and Toyota are all still in the top 50 along with other automotive companies such as Aisin, Bridgestone, Isuzu and Honda. Despite being tobacco or drinks companies, JTI is ranked at 7, down from #4, Suntory is at #8, one down from #7 in 2021, Asahi at 28, up from #33 and Kirin at #31, down from #10.

A Japanese trading company (shosha) has entered the top 10 for the first time. Mitsui has shot up from #64 in 2021 to #4 – all the more remarkable as it used to be seen as one of the more hardcore traditionalists of the 5 big shosha. The second highest ranked shosha is Itochu, up to #22 from #37. Sumitomo Corporation is at #40, down from #26 and Mitsubishi Corporation is at #45 up from #58. Marubeni is somewhat lagging the other shosha at #112, up from #143. Toyo Keizai singled out Mitsui’s distributed power supply project, using solar power and storage batteries for non-electrified areas of India and use of carbon offsets through a company owned forest as contributing to its high ranking.

Some of the companies whose rankings have fallen considerably include Nidec (down from 67 to 174, scoring low on environment) and Recruit, down from #62 to 172, also scoring low on environment and Ricoh, down from #47 to #217, with a lower score in HR.

*500 companies ranked by scores out of 600 for finance (300), HR (100), governance (100) and environment (100).

Why elite Japanese are “useless” at foreign companies

According to Senoo Teruo, formerly of headhunters Korn Ferry Japan, it is a mistake often made by Japanese people joining foreign companies that they simply try to follow what has been done before by their predecessors. Foreign companies expect you to “find your own way to achieve greater results” – “the level of self reliance and independent, pioneering ability is incomparably higher than that of Japanese companies”. Japanese people who were at elite Japanese companies and fail to understand this are branded as “disappointing and useless.”

Ueda Osamu, Professor at Nagoya University of Commerce, says that in American companies, it’s important to know in advance that the organisation is more military-like and the chain of command is very clear (something we often reference in our Japan Intercultural Consulting training). Hiring is done by direct supervisors in American companies, rather than by the HR department as is the case in Japan. If you don’t get on with your boss, in a Japanese company one or both of you are likely to be transferred elsewhere within the company in a few years, so it is often best to just put up with it, and wait.

However in an American company, because your manager is in charge of personnel affairs, their orders are absolute, and if you fail to produce the expected results, you can be fired. Senoo agrees – “there are far more yes-men in foreign affiliated companies than in Japanese companies… Japanese people think foreign companies are more equal in terms of hierarchy, so it’s OK to argue with superiors when you disagree, but that is a complete misunderstanding. When given an order in an American company, it’s common to respond with “Yes, great! Let’s do it!” – to show at least a positive image, to start with.

Their comments are mostly to do with American companies in Japan, but in my interactions with British companies with operations in Japan, I have certainly seen similar frustrations – particularly around wanting their Japanese employees to be more proactive, and willing to change how things are done.

Continued fall in UK employment by Japanese companies

Around a half of the 1,100 or so Japanese companies in the UK have filed their annual reports for the financial year 2021/2. Most paint a positive picture of recovery from the pandemic and resilience to any impact from Brexit. However, the employee totals show a more worrying trend emerging.

Overall, the total number employed by those Japanese companies in the UK who have reported their results has fallen by 8% over the past year. This is an acceleration of a decline which started three years ago – employee numbers had fallen 3% the previous year, and 2% the year before that. This was preceded by a couple of years of growth from 2016/7 to 2018/9. Projected, this suggests that the number of people employed by Japanese companies in the UK will fall to 158,000 by the end of the financial year 2021/2, below the 161,000 that were employed by Japanese companies in 2016/7 and a 14,000 drop on the numbers employed in 2020/1.

A number of factors might be behind this rise to 2018/9, followed by a fall, and more recently a sharp fall. It could be that Japanese companies continued to invest in growing their UK businesses, until the likely Brexit deal became clearer towards the end of 2019, and then the impact of Brexit played out after 31 January 2020 through to when the transition arrangements ended on December 31 2020.

It could also be that Japanese companies laid off people during the pandemic (although the decline in employment started before early 2020 in some sectors) and then were hit further by the Great Resignation in the past year.

It is certainly partly due to the impact of Honda closing its Swindon factory in July 2021. That meant the loss of nearly 3,000 jobs and it looks likely a further 5,000 jobs will have been lost in the automotive sector over the past year – many of which were dependent on Honda. The decline in employment in the automotive sector began in 2018/9, a year or two before other sectors began to lose jobs.

So what about the 6,000 jobs that look to be disappearing in other sectors? Finance seems to have stayed steady, even growing slightly, employing around 14,000 people, but non-financial services, after years of high growth, are beginning to show a decline, maybe by 1,000 or so to around 55,000.

Wholesale (not including automotive), having grown strongly to 2019 has dropped around 5,000 or so jobs in the past couple of years, employing around 38,000 people. This could be reflection of the change in structure of Japanese wholesalers in Europe, who have moved their EU logistics and warehousing to the continent. There are also another 1,000 or so jobs likely to be lost in non-automotive manufacturing sectors.

We have not been able to publish a final Top 30 UK for 2020/2021 of the largest Japanese corporate groups, as there are still outstanding annual reports due to be filed at Companies House for NTT and NEC. Taking both of those groups out, it seems the biggest employers are cutting back, deliberately or through passivity, on their employee numbers in the UK. The decline represents around 5,000 jobs, 5% of the 97,000 who were employed by the big corporate groups in 2019/20, and it seems likely the total will fall further in 2021/2022. This is not just because of the Honda Swindon closure feeding through, but also from factoring in the 700 or so fewer staff at SoftBank-owned ARM, down from the 3,700 peak a year or so ago, when it fulfilled its 2016 promise to double its workforce in the UK.

The key question, particularly for Brexit watchers, is whether this decline in employment by Japanese companies in the UK is also occurring in the rest of the region. The Top 30 Japanese companies in Europe, Middle East and Africa employed around 577,000 people as of the annual reports for the year ending 2022. The data for Yazaki is yet to come in, but for the remaining 29 companies (which includes Honda), there was a 2% increase in employees in the region. Without the loss of 4,500 jobs at Honda UK companies, this would have been a 3% increase. So while EMEA has seen gradual growth in numbers employed by Japanese companies in the past couple of years, the UK has seen an accelerated decline.

New approaches by Japanese companies to Generation Z

Judging by this article in the Nikkei Business magazine (¥), many of the concerns and values of Japan’s Generation Z work are equally applicable to young people in other countries. However, the adjustments that Japanese companies have made or need to make, to ensure Generation Z’s engagement and retention, reflect some of the unique aspects of Japanese corporate culture.

The article, co-written by female Nikkei journalists, two of whom who are themselves Generation Z, outlines 5 key points of the Generation Z work ethic:

Work is just one aspect of “life” – the company is not at the center of this generation’s life, as it has been for previous generations in Japan. Generation Z are keen to improve their own happiness through self improvement, hobbies and family. So employers should not say “that’s just how it is” but rather try to find new value in work that they are assigning to Gen Z.
They want self actualization and to contribute to society – so an employer needs to find common ground between the employee’s goals and the company’s goals, in order to motivate them.
Time performance – Generation Z are used to picking through mountains of information to get answers, so emphasise the value of producing results efficiently in a short space of time. They want to be trained, and given clear direction and targets. This is often misinterpreted by Japanese bosses as an unwillingness to do any more than is asked and an insistence on going home on time.
They are fearful of failure and look for empathy and sharing of problems. It is important for managers first of all to praise work that they have done well, and then help them improve through advice
They prioritise a healthy working environment and good human relationships. Managers must look to communicate on a frequent, individual level with Gen Z team members and make sure they don’t feel isolated.

Specific examples given of what Japanese companies have done include how juniors at Sumitomo Chemical are encouraged to recommend and review books to executives as part of their training. A junior engineer in the article described his delight at receiving a positive response from a managing executive officer to one of his recommendations.

NEC has online drinks parties – where 4 younger employees and 1 executive participate from their own homes, in casual clothes. The meetings are streamed online and can be viewed by other members of NEC. “Some of the executives wear cute T-shirts and by seeing an unexpected side of executives, young people realise they are not so remote from them,” says the organiser. One of the executives is quoted as saying “I want to create an atmosphere in which young people’s opinions and ideas are positively considered.”

Other companies are experimenting with putting new joiners into teams to work on projects together, rather than having the 1:1 apprentice/master relationships with senior employees that were normal in the past. Training has become much more formalised that the “On the Job Training” offered to previous cohorts. NTT Data is rotating new recruits around various assignments and training courses, three months at a time – which has been the norm in Western companies for graduate recruits.

The pressures on Japanese managers to respond to the challenges of Generation Z means that we at Japan Intercultural Consulting have seen an increase in demand for our leadership courses in Japanese, where we cover topics such as psychological safety and servant leadership.

Hitachi’s new risk management

Up until now, Hitachi’s risk management team was mainly centered on the legal department – which I suspect is probably the case in most Japanese companies. Now Hitachi’s President Keiji Kojima has added the finance department to it, wanting the company to take a more proactive approach to global risks. The aim is to visualize risks – such as the impact of the economic slowdown in Europe due to the Ukraine crisis and soaring component costs due to inflation – and respond quickly.

When Russia invaded Ukraine, GlobalLogic was empowered to act quickly to evacuate 7,200 local employees in the country – and was told that they could put off contacting Japan HQ until later. By the end of April, remote working and overseas bases had been put in place and the operations were back up to 95% level.

Hitachi’s overseas business has expanded recently thanks to the acquisition of US company GlobalLogic and the power grids business of ABB, now Hitachi Energy.

Strengthening the risk management system is one response to this, along with introducing a global standard job description system to the Japanese organisation, aiming to have 30% women and 30% non-Japanese representation ont he board by 2030, aiming for zero carbon by 2050. Five out of the 9 external directors are non-Japanese.

Hitachi has learnt from past failures in overseas expansion, such as the Horizon Nuclear Power project in the UK, and the failure of a joint venture thermal power project in South Africa.

These changes have impacted the way the board operates. Now, when an executive officer reports that a plan has not been achieved, the non-Japanese directors respond “so?” – by which they mean, don’t just report the result, tell me what you are going to do next. A former external director of Hitachi, Harufumi Mochizuki comments in the Nikkei that “thanks to training by foreign directors, the executive officers have acquired a world class management style, and the ability to action, with a sense of speed.”

The next challenge for Hitachi will be to make the best use of the global human resources that it now has thanks to its acquisitions. Only three of Hitachi’s 34 executive officers are non-Japanese. The Nikkei comments that these changes are very much in line with the vision of Mr Nakanishi, the former President and Chairman who died in 2021, for an organisation with world class leaders who can respond quickly to global risks.

The inside story on how Mitsubishi Chemical selected a non-Japanese president

“Many Japanese executives are unable to think critically”, says Hashimoto Takayuki, an external director (ex IBM Japan) and chairman of the nomination committee of Mitsubishi Chemical Holdings, in a recent interview with Diamond Online.

“There is no right answer to how to manage a business now” he adds. The traditional Japanese model of low-cost, high quality, on-time delivery, based on conventional mass production methods is no longer sufficient. “There is a need for management that resolves conflicts, balancing social and economic benefits, such as carbon neutrality.” So it is not enough for a President or CEO to just have the traditional ability to sell as well as a top sales person or have a great track record as a factory manager.

Japanese people are not very good at managing subsidiaries acquired overseas

“Broadly speaking, the president has three duties. The first is the corporate branding of the company – the “purpose” that is attracting so much attention recently. The second is portfolio management – business consolidation. An appropriate business structure has to be built, in line with trends such as ESG. The third is global governance. Japanese people are not very good at managing subsidiaries acquired overseas, but it is an essential skill for a global company.”

“I believe that people who are future presidents/CEOS will need to be educated within a special track in the company, as a profession, much as you would with marketing or sales. They need to have assignments which will stretch them, such as developing an overseas business from scratch, or rebuilding a poorly perfoming subsidiary.

This is why the top person from within was not selected to become the President, because they had not been educated in management. There were many excellent performers heading up business divisions, but whether they can become President is another matter.

We asked a headhunter to produce a long list of candidates to be President – there were more than 30, including people from outside Japan. The shortlist had 4 people from outside the company, outside Japan, and 3 people who were in-house candidates.

Why an external, non-Japanese candidate was selected

“Mr Gilson gave a good impression of deep understanding of Mitsubishi Chemical’s vision of KAITEKI management. Other people wanted to change this vision as soon as possible, but that was not the kind of successor we were seeking. Also, external candidates may want to bring in a team they are familiar with, but Mr Gilson clearly said he would prioritise teamwork with the current management members.”

Furthermore, during the interview, Mr Gilson summarized his business improvement ideas in a proposal of 2 sides of an A4 and presented them. The proposal was accurate, but above all, it showed a passionate intent.

There were some concerns, as Jean Marc Gilson‘s previous company (Roquette Freres) had sales of several hundred billion yen, compared to Mitsubishi Chemical sales of nearly 4 trillion yen.

Avoiding backlash

“I expected a certain amount of backlash within the company, but I’ve heard that actually there was a more welcoming atmosphere amongst the younger employees. After all, the younger the person, the stronger the desire for change.

Having the former chairman of Mitsubishi Chemical (and the person who came up with the KAITEKI vision), Yoshimitsu Kobayashi on the nomination committee was also a big factor. It was the first time Mitsubishi Chemical appointed a president through a nomination committee, so there was a risk that a decision made solely by people with no experience of Mitsubishi Chemical would not be seen as valid.

Mr Hashimoto still thinks that it is best if the President has been developed within the company, but it takes time to reform internal systems and culture. If this is not worked on right now, the company will never change.