Record number of immigrants working in Japan, but unhappily?

It hit the headlines in Japan recently when the proportion of immigrants there rose above 2% of the population for the first time. For comparison, the average across the EU of people living in a country who were not born there is 13%. 40% of Londoners were not born in the UK. Much of the increase in Japan is in younger workers coming from Asian countries such as the Philippines and Vietnam, with new visa categories for highly skilled engineers or to care for the elderly. Chinese nationality residents are the largest group, as they were 10 years’ ago, but only represent around 25% of foreign residents now.  According to a special feature in the Nikkei Business magazine, in 2008 Chinese people made up around 45% of foreigners in Japan and there was also proportionately a much larger group of Brazilian residents (often Japanese ethnicity Brazilians working in car factories).  In 2016 Japan had the fourth largest number of new foreign residents, after Germany, USA and the UK.

Around 40% of companies in Japan surveyed by the JRI say they are currently employing non-Japanese, a further 4.5% say they have non-Japanese as temporary workers and 12.7% say they hired non-Japanese workers in the past. The biggest reason by far given by Japanese companies for hiring non-Japanese workers is that they were not able to hire Japanese (50%)  with other reasons being “to liven up the organisation” (15.8%) and “because foreigners work hard” (13.1%).

Japanese companies say the main issues they have with hiring foreign employees are communication difficulties, that employees who they train are only allowed to stay for  a fixed period and that there is a large variety in the quality of foreign employees.

But as the Nikkei Business special feature points out, many foreign workers are not happy either. Japan only ranks number 32 of 33 (Brazil is bottom) in terms of countries where people would like to work, according to a survey by HSBC. The main reasons for the low ranking are that Japan is seen as a closed society, that it is difficult to settle permanently there, that pay is low, worklife balance is bad and the educational environment for children is not good.

The Nikkei Business feature tries to end on a positive note, pointing out that this influx of foreign workers is a $27bn business opportunity for Japan – helping the new immigrants with accommodation, banking, living essentials and education.

 

 

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No Matsushita in Panasonic

Panasonic is now in the 8th year of Kazuhiro Tsuga’s Presidency but none of the seeds he has sown seem to have blossomed.  The most recent quarterly results, unveiled on July 31st 2019 showed that despite Tsuga’s focus on profit over turnover, operating profit fell by 44% on the previous year, with tunover down 6%.

Of the 5 internal companies, only the Life Solutions business showed a profit. The slowing down of the Chinese economy had an impact but profitability in China was worse than forecast even taking that into account.  It had been designated a growth area and a special company set up to focus on it. The US China trade conflict and decrease in infrastructure investment seem to be at the root of the problem.

The automotive business is also challenging. The joint venture with Tesla for battery supply is still loss making. Another joint venture with Toyota has been set up, but this might be outside the consolidated Panasonic earnings.

A third area of concern is the home appliance business. Although airconditioning and washing machines are selling well in Japan, profits were thin overseas. Panasonic executive Hirokazu Umeda says the price of EL panels fell far more sharply than expected in Europe and Panasonic could not compete on pricing even in Asia. Panasonic is going to shut its TV factory in Mexico and look at OEM and ODM (original display manufacturing) options and withdrawing from the USA and China markets.

As of June 2019, there is no representative of Panasonic’s original founding family on the board, with the retirement of Matsuyuki Matsushita, a grandson of the founder Konosuke Matsushita. Matsuyuki Matsushita’s eldest son is still working at Panasonic however. As to whether he wants him to become a board director “that is up to his effort and ability” says Matsuyuki Matsushita. “Sometimes founding families are involved in management, sometimes they are not involved at all. Which is better is up to the management academics to debate.”

Matsuyuki Matsushita says his father set up to the internal company system so that each division could focus and compete with specialist manufacturers. “The current problems are probably showing the limits of monozukuri (manufacturing or craftsmanship) and the shift from analogue to digital, to services. Panasonic has not shown the answer to this yet.”

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No sacred cows for NEC’s President Niino

I was reminiscing a couple of days’ ago with a Japanese business person about how in the 1990s there was a Silicon Glen in Scotland hosting many Japanese electronics and semiconductor factories, including NEC’s semiconductor plant in Livingston. After the IT bubble burst in 2000, most of these plants disappeared, including NEC’s. Silicon Glen has remade itself, focusing more on software and semiconductor design and development.  NEC has also reinvigorated its presence in the UK with the acquisition of Northgate Public Services in 2018.

NEC is not out of the woods yet, however. In a tough interview in the Nikkei Business, President Niino seems willing to slaughter several sacred cows and even commits to taking responsibility (presumably by resigning) if his revival plan to FY 2020 does not succeed.

He said he was open to merging with rival Fujitsu, even if it meant the NEC name disappeared. I certainly recognised from his descriptions some similar characteristics in the way they operate.

NEC, like Fujitsu, was part of the so-called Den Den Family, where stable, dependable business came from government contracts from what is now NTT. “Customers would make very stringent requests of us and we would always try to respond with the best possible technical solutions, and deliver 100%. This is an important quality, but you cannot survive globally just on this”.

Niino thinks there were many reasons for the halving of NEC’s turnover since 2000.  They had relied on introducing new technology in areas such as semiconductors, PCs and mobile phones, but once these became volume businesses with many newcomers, spending far more on R&D, NEC was no longer able to compete.

Niino is focusing on profit targets rather than turnover and sees NEC’s future strength as being in “safer cities” – using AI and software development rather than hardware. Clearly China will be a major competitor in this, but I guess NEC and other Japanese suppliers will be preferred by many who might view China as a threat.

Niino has brought in an HR director from Microsoft Japan to shake up the HR system.  He has appointed 31 “change agents” and made evaluations more visible, and the distinction between specialists and managers more clear.  Corporate officers on the board have all been asked to step down temporarily and then are being rehired on 1 year contracts. “I won’t be firing them if they don’t meet targets within one year, but if they miss two years’ running, it might be that they are better off working outside NEC”.  As Niino is himself a Corporate Officer, no wonder he has to commit to taking personal responsibility for any failure too.

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Mitsui tells employees – come and go as you please

I remember when I left Mitsubishi Corporation 2o (!) years’ ago, I was surprised how friendly some of my most senior Japanese sponsors continued to be towards me.  One of them explained to me that he thought Mitsubishi Corporation should think like McKinsey and view employees who leave as “alumni” who might one day come back and work there again, or end up as business partners or customers.

It was very far sighted, and I often joke that he was right in that Mitsubishi Corporation does seem to have become a McKinsey with a venture capital/investment arm attached. Mitsubishi’s arch rival Mitsui Bussan also seems to have gone down this path, according to an article in the Nikkei Business magazine recently.

They have set up a separate office called Moon Creative Lab in Tokyo and Palo Alto to look for new business opportunities in the IoT and AI sectors, inviting ideas from their 44,000 employees around the world. Mitsui also hosts networking events, inviting alumni who head up start ups in Japan such as atama plus, Shippio, Nature, Sansan and B Platz.

Mitsui continues to be popular with top Japanese graduates but they only hire around 130 a year, compared to over 200 at the end of the Bubble Era. They have also found that their retention rate has worsened in recent years.  Luring alumni back in to create businesses that are not in its traditional sectors is seen as one way to move away from its dependency on resource and commodities businesses. For example, Yusuke Tamura, who was a graduate hire in the metals division in 2004 but left in 2014.  He  started up a fashion brand as CEO but parted ways with the founding partner.  He returned to Mitsui in 2016 and is now working on the restructuring of Mitsui’s catering business.

Mitsui was always characterised as being more about “people” than Mitsubishi, who was more about “organisation”. The idea was that to get things done at Mitsui, it was about who you knew, whereas Mitsubishi worked in a more organisation driven way.  So Mitsui is making use of who they know outside the company as much as inside – and maybe even outside Japan?

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If the nail sticks out too much, you can’t hammer it down

One of my least favourite and most used expressions about Japan is “the nail which sticks out gets hammered down”.  It does however have its use in explaining Japanese risk aversion when it comes to individuals going against the group. Of course many successful business people did well precisely because they were not conformists – and Japan is no exception to this.  Tadashi Saegusa, now senior chairman of Misumi and Yoshimitsu Kobayashi, chairman of Mitsubishi Chemicals are both nails which stuck out, despite their senior status in the Japanese business world.

In a conversation moderated by Nikkei Business magazine, Kobayashi talks about how he did not join Mitsubishi Chemical until the age of 28, having spent some time in post graduate study, including in Israel.  He therefore missed the usual graduate entry scheme. “I was an outsider from the start” he says. Saegusa initially joined a predecessor company of what is now Mitsui Chemical but then left to join the Boston Consulting Group – the first person to be recruited by them in Japan.

Japan has become complacent

Both worry that Japan has become complacent during the 30 years of the Heisei era.  Japan’s GDP has stayed flat, whereas the USA’s GDP has doubled during that time, says Kobayashi. 7 of the world’s top 10 companies were Japanese in 1989 (mostly Japanese banks) whereas not one of them is in the top 10 now. Kobayashi worries that Japanese people are not aware of how this seems from the outside – citing a survey that shows that 83% of young Japanese people are satisfied with the current situation.

Saegusa agrees that there is no sense of crisis in Japanese companies and of understanding what is lacking. For 27 years people have been told not to spend money or invest, which is the same as saying “don’t challenge the status quo”.  “Everyone is in the same situation in Japan, so we’re rotting from the inside, if we don’t challenge ourselves.”

It can’t just be about the art of manufacturing, it’s how you design the business too

Even in basic research, China is top, and Japan is somewhere between 4th or 10th depending on the survey, says Kobayashi. “Yes Japan still leads in some sectors globally, but starting with semi conductors, there are many areas where it has lost share. How long can Japan keep its share of the carbon fibre business when Taiwan and South Korea are chasing it? It’s just a question of time.  It can’t just be about monozukuri (craftsmanship, manufacturing ability). It’s how you design the business itself.”

Saegusa believes that such a large gap has opened up with the US in some sectors that it’s too late to catch up. “But Japan has just let this situation drag on. You can do something when a company still has life left in it, but when there is no money or resources left, then it’s too late. You have to look at the worst case scenario and focus the business, showing a path to survival, before it happens.  That is what a leader needs to do.”

Only 10-20% of people in a group will take action

“Only 10-20% of people will actually take action in any large group of people” says Kobayashi. So many Japanese companies are still sitting on their cash, despite Abenomics. “Companies and their managers have lost the will to fight and just want to avoid doing anything extreme. They’ve lost speed and dynamism.”

“If you look at the US in the 1990s, it was revived by venture capitalists, university researchers and professional managers who would trigger changes. If you took a risk as an individual and succeeded, you would earn big money.  But Japanese companies put priority on balance and are group oriented – it’s difficult to develop professionals. If you try to become a professional, you get slapped down. Everyone turned into salarymen, who would not take risks. That’s why we we’ve ended up not being able to develop managers.”

The age of the individual and platformers

Kobayashi believes this model worked in times of high growth and mass production. But now in the age of the individual, it is the platformers like Google, Amazon, Facebook and Apple who are using new cultures and innovations as triggers. “Japanese businesses do not realise what a handicap their culture is.”

Japanese companies have become too big, says Saegusa. “There is not that ‘create, build and sell’ mentality you get in the US. Bloated companies don’t give rise to leaders, rather to people who are good at pulling everything together.”

See your predecessors as war criminals

When he was working at Mitsubishi Chemicals, Kobayashi would say “see your predecessors as war criminals” (senpai wa senpan 先輩は戦犯). “If your predecessor did something wrong, you have to say so and do something about it, otherwise it won’t change. And when you become a senior manager, you have to be prepared to be treated like a war criminal.”

“A nail which sticks out too much cannot be hammered down” says Saegusa, noting that Kobayashi is rooted in a strong sense of values. “But such people are rare, even though they are needed right now.”  When Saegusa left his Mitsui group company, he was seen as an outsider but now more and more people say that his life choices were the right ones. “If organisations treasure outsiders, they will find the old order breaks apart – but they may fear this kind of revolution.”

When Kobayashi was running Mitsubishi Chemical, he appointed a CTO, CIO and CMO from outside the organisation. “I felt that we could not develop such people inside the company. Now I am an external director of Toshiba, and we appointed a CEO from outside the organisation. Japan will have to change its corporate governance radically in the next five years to deal with the fast pace of change globally.  If you make use of an external perspective early on, then you can deal more effectively with changes such as more vocal shareholders.”

Mitsui and Mitsubishi must lead the change away from big company disease

Saegusa worries that it might take 20 or 30 years more, to reach an absolute bottom, before Japanese people understand what their fundamental strengths are.  Large groups like Mitsui and Mitsubishi must take responsibility for leading the change away from “big company disease”.  “We have the information resources to know that we are losing on a global level.”

“It’s not over for Japan. I also think Japanese people can be great, but we need to reflect on what has happened and realise we have become complacent. We have been totally defeated these past 30 years, but if we can work together to find out spirit to fight back, we can be a strong country once again”, says Kobayashi.

This dialogue seems in strange contrast to the kind of articles we read in the Western press in recent years saying that while Japan is not Number One any more, there are so many good things about the country in terms of civility and a general good standard of living. And this is reflected in how Japan has become such a popular tourist destination.  I suppose we recognise there are worse models than becoming a gently stagnating, ageing society where people are polite and kind to each other.

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Brexit and Japanese jobs in the UK – growing by acquisition or “new” jobs?

Those looking for “despite Brexit” good news may be reassured that employment in the UK by the biggest Japanese companies has grown by 22% since 2014/5, right in line with the growth in Japanese jobs across Europe, Middle East and Africa (EMEA).  About a quarter of the 750,000 people we estimate work for Japanese companies in the region are working in the UK, and so far there is no obvious divergence between the UK and the rest of EMEA in terms of overall job growth.

Big ticket acquisitions are the main driver of Japanese growth in the UK

But as we pointed out in previous posts looking at the trends across Europe, a distinction needs to be made between “new jobs” created in EMEA by Japanese greenfield investment, and investments which are acquisitions of existing jobs.  Eastern Europe is the beneficiary of the former, particularly for the automotive sector, whereas the UK has been the target of the latter with big ticket acquisitions like SoftBank acquiring ARM, Mitsui Sumitomo acquiring Amlin, Sumitomo Rubber acquiring Micheldever, and NEC acquiring Northgate Public Services as well as Outsourcing acquiring various staffing and outsourcing companies.

Where are the “new jobs”?

These acquisitions account for the new entrants to the Top 30 ranking we have compiled below. They push out Fujifilm, Sumitomo Corporation, Japan Tobacco (who shut their factory in Northern Ireland last year) and Toshiba. The original Top 30 in 2014/5 have grown a more modest 10% if the acquisitive newcomers are not included.  One of the highest climbers from the original 2014/5 ranking is the main Japanese creator of new jobs in the UK- Hitachi – in particular via their rail manufacturing and assembly plant at Newton Aycliffe.

There has not been a decline in automotive sector jobs in the UK – yet – however.  In fact quite the reverse – there has been some growth in jobs in all three of the big Japanese car companies. But the trend is clear, as pointed out in previous posts, that even without Brexit, the drift of investment and jobs in the automotive sector is eastwards and to Africa.  It’s easy to see how British people in those areas where Japanese automotive supply chains are active could blame the EU for job losses. Even though there actually weren’t that many EU grants enabling Japanese companies to transfer production from the UK to Eastern Europe – despite the rumours – merely by being members of the Single Market, and having lower labour costs, Eastern European countries are an obvious destination for new manufacturing investment.

Will Japan’s investment in the UK services sector be Brexit proof?

The investment in the UK by Japanese companies over the past three years has largely been through acquisitions in the services sector. This is not surprising, as services are 80% of the UK’s GDP and the UK’s comparative advantage in the region. It is also relatively Brexit proof in the sense that services sector investment will not be directly affected by any supply chain disruptions. Clearly if the UK economy takes a hit from Brexit, however, this will dampen demand for services. There has also been a shift of regional headquarters away from the UK by Panasonic and Sony and others, and of financial services companies, but as yet this has not hit UK jobs.

Eastern Europe has also been attractive to Japanese companies for business process outsourcing. Although Fujitsu is still – just – the top employer in the UK, employee numbers have dropped 29% – and there are now 13,000 people working for its service centres in Poland.  NTT and its subsidiary NTT Data has also shot up the Top 30 both for the UK and the EMEA region – again through acquisitions – and has decided to base its new global ex-Japan headquarters in the UK.

Infrastructure, energy, transport should be the future for Japanese jobs in the UK

The UK’s strength as a global services provider will not disappear overnight, however hard the Brexit. But it’s hard to imagine how the kinds of secure, high quality automotive manufacturing jobs that those who voted for Brexit might have wanted to see return to the UK will come back, however soft the Brexit.  The potential sunlit upland is in infrastructure – energy and transport.  These sectors were needing investment regardless of whether the UK is in or out of the EU and are not so reliant on just in time supply chains across the region. Transport, environment and energy are areas where cooperation and financing on an EU-wide  basis makes business and environmental sense though. But unfortunately Brexit has provided a distraction that has resulted in Hitachi freezing its Horizon nuclear power projects in Wales and Gloucestershire from lack of government financial support, and the recently called review of HS2 must also be giving Hitachi’s rail business and other Japanese executives cause for concern. Risk averse Japanese companies are not going to want to make multi million investments in infrastructure projects in a country which is politically unstable and unreliable.

 

Top 30 Japanese employers in the UK – 2015-8
Rank 2017/8 Rank 2014/5 Company UK employees 2017-8 UK employees 2014/5 % change UK 2014-8
1 1 Fujitsu 8,351              11,694 -29%
2 2 Nissan 8,190                7,440 10%
3 9 Hitachi 7,210                2,747 162%
4 4 Honda 7,062                5,268 34%
5 3 Itochu* 6,737                6,779 -1%
6 14 Dentsu* 4,394                2,127 107%
7 7 Ricoh 3,506                3,331 5%
8 6 Toyota 3,467                3,352 3%
9 5 Sony 3,410                3,777 -10%
10 10 Canon 2,828                2,643 7%
11 8 Mitsubishi Corp* 2,815                3,085 -9%
12 18 NTT 2,569                1,779 44%
13 13 Marubeni 2,549                2,137 19%
14 – Mitsui Sumitomo & Aioi Nissay Dowa 2,384                   305 682%
15 15 Mitsubishi UFJ Financial Goup 2,310                2,100 10%
16 11 Nomura 2,208                2,628 -16%
17 19 Calsonic Kansei 2,189                1,571 39%
18 12 NSG 2,140                2,348 -9%
19 16 Denso 1,986                1,930 3%
20 17 NYK Group 1,911                1,780 7%
21 – Sumitomo Rubber 1,762                     92 1815%
22 – NEC 1,725                   297 481%
23 25 Konica Minolta 1,657                1,278 30%
24 23 Mitsubishi Electric 1,610                1,344 20%
25 – Outsourcing 1,595                     10 15850%
26 22 Olympus 1,589                1,368 16%
27 21 SMFG 1,569                1,372 14%
28 29 Mizuho 1,434                1,060 35%
29 26 Brother Industries 1,411                1,254 13%
30 27 Unipres 1,396                1,095 27%
92,568 76,896 20%
*Estimates for EMEA/Europe as official figures not available
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Top 30 Japanese companies in Europe – who’s in, who’s out and which countries are benefitting

In my previous post I looked at the growth drivers or otherwise at the top 5 largest Japanese companies in Europe, Middle East and Africa (EMEA) – Yazaki, Sumitomo Electric Industries, NTT Data, Fujitsu and Canon.  Overall employee growth for the largest Japanese companies in the region has been a healthy 22% over three years (see table below). But of the top 5, only NTT Data has beaten this average.

Yazaki and Sumitomo Electric Industries are automotive manufacturers who have consolidated their position as the biggest employers by further greenfield investments in new plants in Moldova, Serbia and Bulgaria over the past three years.

Of the other three, IT services company NTT Data has more than doubled in size over the past three years in the region through acquisitions. Fujitsu, however, has shrunk as it shifts from hardware manufacture and sales to IT services. Canon has grown by 15%, partly through taking on Toshiba Medical Systems.

Toyota group strength in Europe

The rest of the Top 30 shows a similar pattern – the automotive sector growing through greenfield investment in new or expanding plants, with the electronics/ICT sector growing through acquisition, or shrinking through consolidation and moving towards B2B in automotive and medical fields.   Panasonic more than doubled in size in the region, through acquiring Spanish automotive company Ficosa and Belgian technology company Zetes.

Honda’s employee total in EMEA hardly changed over three years, Nissan’s only grew 2% whereas Toyota grew 16% – which shows something about the relative fortunes of those car brands in the region recently.  Toyota will presumably expand further once it fully takes over the joint venture factory with PSA in the Czech Republic.  Other Toyota group companies have also expanded – such as Denso, Toyota Industries and Toyota Tsusho via its French/African trading company CFAO acquired in 2012.

Bridgestone employee numbers have grown 43% partly through acquisitions in France but also expansion and greenfield investment in Eastern Europe and Russia. Japanese automotive glass manufacturers (who also make architectural glass) Asahi Glass grew 33% but Nippon Sheet Glass only expanded its employees by 4% – still recovering from the bad timing and heavy debts of its acquisition of Pilkington Glass in 2006.

Fastest growing, fastest shrinking companies

The fastest growing Japanese employer in the region was electric motor manufacturer Nidec – more than tripling in size over the past three years, having been on a spending spree around the world – with around 25 acquisitions, many of them in Europe, since 2015. Nidec is the only new entrant into the top 30 over the three years, pushing out Fast Retailing (owner of Uniqlo, Comptoir des Cotonniers, Princesse TamTam etc). Fast Retailing grew too, opening new Uniqlo stores in Spain, Belgium, Sweden and the Netherlands in the past couple of years, with further stores to come in Italy and Denmark.

Sony and Ricoh have both shrunk by over 10%, however, with neither making any major acquisitions. Konica Minolta, which grew 25%, acquired various IT services providers in Germany, France, UK and the Czech Republic.  Bubbling under the Top 30, at #31, NEC also grew rapidly, by 47%, after the acquisition of IT services companies like KMD in Denmark and Northgate Public Services in the UK.

European hot spots

Climate change has sparked investments from Mitsubishi Electric and Daikin in European air conditioning manufacturing and alternative energy production.  Mitsubishi Electric has an air conditioning factory in Scotland employing 1000 people and expressed quite clearly its concerns regarding Brexit to a parliamentary committee in 2018 (by the way, I think there must be a typo in the submission, as it says 20% of its UK employees are EEA, which is considerably more than the figure of 13 they state).  In December 2017 it announced it had started production of airconditioners at its new factory in Turkey.

So yes, it’s true that the UK has taken a ‘lion’s share’ of Japanese investment in recent years and therefore Japanese company employment in the EU. I estimate around 160,000 jobs out of 750,000 or so in the region (21%) are in the UK. But this share of investment is largely due to big ticket acquisitions by Japanese companies in the UK (SoftBank/ARM, MS Amlin etc) and also that investment in real estate is counted as “greenfield” investment.

Around a quarter of Japanese jobs in the region are in the automotive sector, and they’re moving eastwards

If we look at greenfield investment, largely in manufacturing, generating thousands of new jobs, with the exception of Hitachi’s rail factory in the UK, this has been going to Eastern Europe, CIS, Turkey and North Africa.  The automotive sector is particularly key. I estimate around 250,000 of the 750,000 or so people employed by Japanese companies in the region are in the automotive sector.  Brexit is giving extra impetus to automotive and other supply chain manufacturing jobs to accelerate their move eastwards.

Top 30 Japanese employers in EMEA 2018
Rank 2018 Rank 2015 Company Total global employees 2017/8 no in EMEA 2017/8 % in EMEA 2017/8 Employee growth 2015-2018
1 1 Sumitomo Electric Industries 255,133 60,537 23.7% 7%
2 2 Yazaki 306,118 57,661 18.8% 19%
3 9 NTT Data 118,000 36,000 30.5% 140%
4 3 Fujitsu 140,365 27,000 19.2% -8%
5 4 Canon 197,776 25,623 13.0% 15%
6 5 Toyota 369,124 22,147 6% 16%
7 18 Panasonic 274,143 21,931 8% 116%
8 13 Bridgestone 142,669 17,510 12.3% 43%
9 10 Asahi Glass 53,224 17,400 33% 19%
10 8 Toyota Tsusho* 56,827 17,000 29.9% 10%
11 7 Nissan 138,910 16,807 12% 2%
12 11 Denso 171,992 16,688 10% 15%
13 6 Ricoh 97,878 16,680 17.0% -10%
14 16 Hitachi 307,275 16,000 5.2% 36%
15 14 JT Group 57,963 15,410 26.6% 27%
16 30 Nidec 107,554 12,917 12% 223%
17 15 NSG 26,957 12,500 46% 4%
18 17 Dentsu* 62,608 12,176 19.4% 11%
19 21 Toyota Industries 61,152 11,837 19.4% 48%
20 12 Sony 117,300 11,730 10.0% -11%
21 19 Konica Minolta 43,299 10,825 25.0% 20%
22 24 Kyocera Group 75,940 10,024 13.2% 40%
23 25 Daikin 70,263 9,227 13.1% 36%
24 20 Honda 215,638 8,591 4.0% 0%
25 23 JTEKT 49589 8,128 16.4% 12%
26 26 TDK 102,883 8,045 7.8% 20%
27 22 Itochu* 102,086 7,382 7.2% -5%
28 27 Olympus 35,124 7,353 20.9% 15%
29 31 Mitsubishi Electric 142,340 7,300 5.1% 46%
30 28 Mitsubishi Corporation 77,476 7,189 9.3% 19%
TOTAL 3,977,606 529,619 13.3% 22%
*based on estimates as official figures not disclosed
pernilledotrudlinatrudlinconsultingdotcom"}">© Rudlin Consulting Ltd 2019

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Pernille Rudlin’s latest book, Shinrai:Japanese Corporate Integrity in a Disintegrating Europe is available on Amazon.

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The top 5 Japanese companies in Europe, Middle East & Africa all have headquarters in the UK

Over half a million people worked for the 30 largest Japanese employers in Europe, Middle East and Africa (EMEA) in 2018, 22% more than in 2015. Going by the research we have done on the main host countries of the region (Germany, UK, France, Netherlands), this would indicate there are around 750,000 employees of Japanese companies in EMEA.

The top 2 by a large margin are Sumitomo Electric Industries and Yazaki, both making automotive components such as wire harnesses.  They both have multiple manufacturing sites employing thousands of people, mainly in eastern Europe, north Africa and South Africa.

Yazaki‘s EMEA headquarters are in the UK and Germany.  The UK side supervises branches and subsidiaries across Europe, with R&D and customer service centres across the UK and the EMEA region. Yazaki Wiring Technologies European HQ is in Cologne, with subsidiaries in Eastern Europe and Turkey. Yazaki’s EMEA workforce has grown by nearly 20% since 2014/5 with recent greenfield investments  such as a new factory in Serbia and a third plant in Bulgaria.

Sumitomo Electric Industries also has European headquarters in the UK and in Germany (the Bordnetze side of the business). The Sumitomo Electric Wiring Systems operation in the UK originates in the acquisition of Lucas Industries in 1999. There is no longer any manufacturing in the UK but it supervises factories in Germany and Italy, with Sumitomo Wiring Systems Japan directly owning factories in Eastern Europe and Africa. Similarly the German HQ arises from the acquisition of Bordnetze from VW and Siemens in 2006. Sumitomo Electric Industries’ workforce in EMEA has grown 7% in three years, including acquisitions in Germany and a new plant in Moldova.

Sumitomo Electric Industries and Yazaki were the top 1 and 2 in 2014/5, but the third largest Japanese employer in EMEA, NTT Data, was only the 9th largest three years ago.  NTT Data has grown through acquisitions such as Dell’s services business, Everis, MagenTys and Keane. NTT Data EMEA is based in the UK, owning subsidiaries across Europe. Again, there is a split regional HQ, with NTT Data Europe GmbH owning Itelligence – but not for much longer.  The parent company, NTT is undertaking a major restructure of its business, uniting NTT Data EMEA, Everis and itelligence as part of EMEA & Latin America region, moving to a matrix rather than vertical organization. By 2020 NTT intends to have 2 companies under its new NTT Inc holding company for its non-Japanese business – NTT Data and a merged NTT Communications/NTT Security/Dimension Data organisation.  The global headquarters for NTT Inc will not be in Japan but in London.

Dropping down a place from 3 to 4 over the past 3 years is Fujitsu, another Japanese IT major, in the awkward position of being both a supplier and competitor to NTT.  Fujitsu’s presence in Europe originates from its acquisition of the UK’s ICL in 1990 and a joint venture with Siemens, which it later bought out.  Fujitsu’s workforce in EMEA (or EMEIA as it names it, adding in India) has dropped by 8% since 2014/5 and looks to shrink further in 2019 and 2020 with the closure of the last PC manufacturing plant anywhere in Europe, in Augsburg, Germany.  As it shifts to IT services business, its workforce in its global delivery centres and service desks is growing in lower cost but skilled, multilingual countries in the region such as Portugal, South Africa, Poland, Morocco and Russia.

Canon was also pushed down a place to 5 from 4 three years’ ago by NTT Data’s rise, but its workforce in EMEA has grown around 15% over the period. Canon acquired Dutch company Oce in 2009 and Canon Europa is the Netherlands based holding company which owns Canon Europe in the UK, acting as the functional and marketing headquarters for the region.  Canon has grown partly through taking on Toshiba’s medical systems business and also through the acquisition of Sweden based Axis Communications in 2015.

From a UK perspective, whilst it’s reassuring that all of the top five Japanese companies in the region have some kind of regional headquarters in the UK, this does not mean that largest proportion of the jobs they have generated is in the UK.  In manufacturing the drift is eastwards and southwards, and even for IT services, business process outsourcing and support jobs are shifting to Eastern Europe, Portugal, Africa and India. As they all have an EU based alternative headquarters, it is unlikely there will be any change in the HQ structure post Brexit, rather that virtual management teams dispersed across a very broadly defined region will become even more common.

Part 2 of this analysis continues here.

Pernille Rudlin’s latest book, Shinrai:Japanese Corporate Integrity in a Disintegrating Europe is available on Amazon.

 

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Is Sharp still a Japanese treasure?

Sharp Corporation Chairman and President Tai Jeng-wu was the second in command at Taiwan’s Hon Hai when it acquired Sharp in 2016.  His cost cutting organisational reforms have turned the company’s results around in a “V” shaped recovery.  He is now hurrying ahead with restructuring the business portfolio.  In an interview with Nikkei Business he says Sharp is “Japan’s treasure” and is at pains to point out how influenced he has been by Japanese teachers in the past.  Japan and Taiwan continue to have good relations (reinforced by a common threat of China, hinted at in this interview with the dig at unfair competition from state owned companies), and many Taiwanese speak excellent Japanese.

He says that unlike Carlos Ghosn, he did not arrive at Sharp with a posse of executives.  He feels that the reforms are still only half way but he wants to work alongside Sharp employees – rather than a top down imposed change.

Asked what was the problem at Sharp, he said “it is not for me to say, but I suppose the crisis occurred when there were problems with management in the 2010s – when people who have only had experience in one particular technical area or business become president.  You need to have a general overview to be a top executive, so when there was a crisis they were unable to respond. How I fixed the $2.5bn loss was to cut costs by around $1.7bn and then cut back investments and with some transient profits, we were back in the black.”

Don’t be a big fish

“You have to develop people step by step.  When I started at Sharp, I said when announcing my strategy that “Sharp should not be a big fish, but should aim to be a fast swimming fish”. So I kept asking every day for things to speed up.  I set some rules for developing successors.  I lowered the limit requiring presidential approval to Y3m ($27,000).  That was to ensure I would be aware of all the company’s problems. I then increased the limit to Y20m ($184,000) in 2018 when I put the CEO structure in place and this year I increased the limit to Y100m.”

“I will stay on as chairman of Sharp until March 2022.  My wife and family want me back in Taiwan though. All the time from 2016 I have been looking for a successor.  I even asked a Japanese consultant to help, but I cannot find one.   I want the successor to be Japanese – it doesn’t matter if it’s an internal or external appointment. Maybe it could be someone from Hon Hai even.  They should be able to manage in the current harsh environment, covering a wide range of businesses and find synergy with Hon Hai.  It is the second criterion that makes finding the right person difficult.”

Japanese managers became bureaucrats

“It used to be that Japanese management of factories and businesses were strong, and my teachers were all Japanese. But then Japan went into a recession and the founder managers all disappeared, and managers became bureaucrats. That is why management strength declined.  Japan is now only strong in parts and materials. ”

Sharp’s employee levels are back to the same as before the management crisis.  “There were two early retirement drives during the crisis, and a lot of good people left.  Those who remained when I joined the company in 2016 were one of three types – highly capable and loyal, those who couldn’t find another place to go and those where were waiting to be pushed. I actually never cut employees. In fact we need to increase our employees – we had some influxes from when we took over Toshiba’s PC business and other M&A.”

“I am not a god, I just improved everything step by step”

“I renegotiated the contracts for solar battery procurement and saved around $100m. I have also brought the Sharp brand back in house for the US TV production business.  A brand is like a person’s name. Selling it is wrong. During the crisis Sharp sold off its precious buildings for $188m and then spent $30m on out of date computing.   I am not a god, I just improved everything step by step. I was taught to do Horenso (keeping bosses in the loop) and check everything thoroughly, not just sign off easily by Japanese teachers.”

I am now promoting management based on data, and a shift to B2B (business to business). B2C (consumer) business is currently 65% of our turnover, I want to make it 50/50. The structure of trade in B2C is unfair – companies like ours in a free trade country have to compete with state owned companies who don’t have to invest or write off so much. That is why Japan’s IT/electronic companies’ share is falling – it’s a structural problem.   In B2B it is a fairer fight. W have built a good ecosysytem over many years, so we have a good chance.

A Rising Sun Alliance of Japanese electronics companies

“I think there should be a Rising Sun Alliance of Japanese companies. There are a lot of Japanese electronics manufacturers but I don’t see that they will merge -t here is too much pride. I do have to be careful as Hon Hai is not a Japanese company. I am reflecting every day on how to manage employees. If I am criticised, it is not just my, but Taiwan’s pride at stake.”

“Sharp will last over 100 years.  It is a treasure of Japan. I would like the brand to last another 100 years. I come to the office every day before 7:00am and give a bow to the statues of the founders in the front entrance. Sharp is a treasure to me too.”

Nikkei Business comments that there is no doubting his sincerity and dedication – apparently he lives in a single man’s dormitory and walks round the factory at 5am in the morning thinking about Sharp.  He is at pains to seem almost more Japanese than the Japanese in this. But, the Nikkei wonders, will this be enough to succeed in the new territory for him and Sharp of B2B platform business.

 

 

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The successes and failures of Japan’s era of big overseas acquisitions

The era of Japan’s big overseas acquisitions began with domestic mega M&As in the 1990s according to Nikkei Business magazine.  Following the bursting of Japan’s economic bubble in 1990, a wave of M&As happened in the financial sector, giving birth to Mizuho from Fuji Bank, Daiichi Kangyo and the Industrial Bank of Japan and Sumitomo Bank and Sakura Bank producing SMBC. In the steel sector with NKK merging with Kawasaki Steel and becoming JFE and in the pharmaceuticals sector with Yamanouchi and Fujisawa merged to become Astellas.

The key concept for these M&As in the 1990s was “restructuring” – to rationalise the back office and integrate R&D. Then in the second half of the 2000s came a wave of overseas acquisitions, to counter the business impact of the shrinking, ageing population of Japan by growing overseas but also to benefit from further restructuring and rationalisation.

Mega overseas acquisitions of the 2000s

In 2007 Japan Tobacco acquired the UK’s Gallaher from RJR, becoming the third biggest tobacco company in the world. In 2006 SoftBank acquired Vodafone Japan and then the US company Sprint Nextel, then British ARM Holdings in 2016. Takeda acquired US Millennium Pharmaceuticals in 2008, then Swiss Nycomed in 2011, with the biggest M&A ever by a Japanese company, acquiring Ireland’s Shire in 2019.

“Growing overseas means the development of our human resources has become an urgent necessity” said the President of Takeda in 2006, Yasuchika Hasegawa. Hasegawa  was seen as “an alien from outerspace” for his dry, rational management style, arising from many years working in the USA.  Although Takeda had been the biggest pharmaceutical company in Japan for some years, it only ranked around 17 in the world before its acquisition spree and urgently needed to find new drug development sources. It felt it was lagging competitors.

The need for global management skills

Hasegawa decided to globalise the company internally by recruiting a foreign successor to himself in 2014 – Christophe Weber from GlaxoSmithKline.  Three out of the seven current Takeda directors are not Japanese.

Japan Tobacco‘s managers sent overseas after the Gallaher acquisition found themselves caught between overseas executives determined to defend their patch with rational, logical arguments about productivity, logistics and profitability. After years of painful discussion, it was agreed to close the factory in Northern Ireland.  Even now, says Masamichi Terabatake, the current President of Japan Tobacco, a Japan based executive needs to be prepared to travel around the world regularly to discuss strategy with local executives. “You need to keep global staff motivated. Investment and marketing cannot be left vague, they have to be quantitative so they can be transparently discussed. That’s probably why executives in the West are a bit younger!” he says.

NSG acquired UK’s Pilkington in 2006, becoming heavily indebted to do so. From being very domestic, it became a company whose sales were 80% overseas. Unfortunately this proved to be terrible timing as the automotive and architectural glass market crashed after the Lehman Shock.

Many of the acquirers also struggled because they did not have managers with experience of managing overseas businesses.  As Nikkei Business magazine says, mega M&A means mega complexity for which plenty of preparation and a high level of management know-how, with the ability to spread this know-how horizontally and vertically is needed for success.  It’s still not clear how far Japanese companies have progressed in this.

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