Japanese Business Blog - Rudlin Consulting

The latest in Nidec President Nagamori’s string of acquisitions – a university

Shigenobu Nagamori, the founder of Nidec is interviewed in the Nikkei Business series on how to “wake up Japan” about his latest acquisition – not a company this time, but a university – Kyoto Gakuen. He feels that Japan has become too brand name obsessed about higher education and that 18 year olds should not have their future decided simply on the basis of their standardised score for the university entry exams.

“You get into university in Japan on rote memorization and exam technique, so when you graduate, you have a rather fake identity, with no real strength, so don’t know how to survive in society.” Nagamori is aiming for a university where “you graduate with fluent English [science graduates do not have to study English at university in Japan] and specialist skills that you can put to immediate use”. He has changed Kyoto Gakuen’s name to the Kyoto University of Advanced Science.

“Japanese university students aren’t fully formed human beings. They don’t know how to speak for themselves. They fall asleep in lectures or mess about on their smartphones. This has to change, starting with the teachers. That’s why I became the chairman of the university. Lectures will be in English. 1/3 of the teachers will be foreign. There will be some students who cannot cope with this, so we will have the same lectures in the evening in Japanese. We had 600 lecturers apply for 30 positions. The evening supplementary lectures wll be given by post doc students or research students. The lectures will not be 90 minutes of sitting down. There will be a 45 minute lecture and the rest will be doing experiments. ”

“The administrators become the elite in Japanese companies – hardly any technical specialists become CEO. This is completely different to the USA. We also need to encourage overseas study – and encourage overseas students to come to us – maybe half our students should be from overseas. If they achieve good results, we will fund their fees and living costs. If results fall off, they pay half, if they hit the bottom, they have to pay all of it. That’s what we’re thinking. This might seem extreme, but it’s normal in the USA.”

Most of the rest of the interview is about facing the threat from China. Nagamori finishes by comparing himself to Konosuke Matsushita, the founder of Panasonic. Matsushita developed his management philosophy, and set up the Matsushita Institute of Government and Management , “but I don’t have any interest in politics, so I want to develop people who can set up businesses in advanced science – kids from poor Asian families who can come here to study, and then go out into the world and start something new.”

For more content like this, subscribe to the free Rudlin Consulting Newsletter. 最新の在欧日系企業の状況については無料の月刊Rudlin Consulting ニューズレターにご登録ください。

The cause of Japan’s low productivity: 5 generalists doing one specialist’s job

In the Nikkei Business series on how to “wake up Japan”, Senior Chairman and former CEO of Japanese leasing and financial services company Orix Yoshihiko Miyauchi sees three mistakes that have led to Japan’s “lost three decades”

Allowing an asset bubble to develop in Japan the first place
Not stabilising the economy after the asset price crash.
Not restructuring the Japanese banking system quicker – real restructuring did not happen until the 2000s, 10 years after the crash.

As a result, Japanese companies were “like tiny boats on a big ocean, using all their energy to avoid large waves. Rather than innovate or grow, they focused on cost cutting”, says Miyauchi.

Miyauchi rates Japanese employees very highly – “they have a strong sense of responsibility, and do all they can to fulfil their obligations. But there is a lack of creative thinkers. There is a problem in the way we develop people – Japanese companies are always developing generalists, when in the future we need to focus intensively on supporting the development of specialists. If you don’t have specialists who are the complete experts, then you cannot achieve high performance. Japanese companies end up having 5 ‘semi professionals’ doing one specialist’s job. ”

“It would be a big shock to change this immediately, so probably Japanese companies will need a hybrid development system with a specialist track and a generalist track.” I agree, but I have seen that in the past when this is done in Japanese companies, the specialist track is seen as a demotion away from line management. Japan may need to introduce specialist, professional organisations such as the various chartered institutes we have in the UK, which certify qualifications and support continuing professional development, to ensure that specialists are less reliant on the prejudices of their company’s HR system for their careers.

Japan’s lost three decades – what are the causes?

The 1990s were called the Lost Decade in Japan, and then as the economy seemed to stagnate in the 2000s, it became the Lost Two Decades. Now the Nikkei Business in a recent special series seems to be saying it has been a lost three decades. Turnover and profitability were growing through to around 1990 when the economic bubble burst. Then profits fell – although since 2010 they have been growing again. The total revenues of Japanese companies (excluding financial services) has been static, with only a small bump upwards around 2005-2008.

Nikkei Business says the lack of growth in turnover is the key problem. Even sales overseas, which were meant to be the growth driver, have not shown much of an upward trend. According to Nikkei Business the root causes of this lack of growth are:

low investment (1991 capital investment as a percentage of cashflow was 133%, compared to 82.2% in 2018)
low wages (106.5 in 1990 indexed against 100 in 2015, down to 99.6 in 2019)
low efficiency (return on assets was 4.3% in 1990, down to 3.8% in 2018)

It cites Panasonic as an example of #1. Every time profits rose, Panasonic increased its investment, but every time profits shrank, it cut investment back, since 2001. As for #2, Nikkei Business lists all the major restructurings since 1999 with major Japanese companies, which makes for sobering reading for a country famed for lifetime employment:

1999 – Nissan plan to cut 21,000 from its workforce, closing 5 factories
2008 – Sony announced it would reduced its electronics workforce by 16,000
2009 – Panasonic announced it would cut 15,000 people and 27 factories. Pioneer axed 10,000 jobs.
2010 – All Nippon Airways proposed reducing its workforce by 16,000 as part of its revival plan
2011 – Ricoh announced a mid term plan aiming at reducing its workforce by 10,000
2012 – NEC announced a workforce reduction programme of 10,000 job cuts
2013 – Fujitsu announced it that by axing its semi-conductor business, it would remove 5,000 jobs.
2015 – Toshiba announce it would erduce its workforce by 15,0000
2017 – Mizuho Financial Group announced an administrative work reduction programme targetting 19,000 roles.
2019 – Nissan restructuring to impact 12,500 personnel

The low efficiency seems to be in the service sector, where there has been a lack of economies of scale. The number of Japanese companies with turnover of over Y100bn/$1bn doubled from around 40 to 80 from 1980 to 1991, but has not risen much since – apart from a blip in 2008 – after the birth of Japan Post, and is still heavily manufacturing oriented.

I will cover the analysis and suggestions from the rest of series for how Japan can “wake up” in my next blog posts.

Brexit update for Japanese companies

I’ve been avoiding writing about Brexit this past few months, partly because I felt I had nothing more to say. Similarly, Japanese companies have stopped issuing warnings. Many have already made and even implemented their plans for a worst-case scenario of a hard or no deal Brexit. I hear they have also been advised by the Japanese government to leave the talking to diplomats and politicians.

Companies in the UK have also gone silent. Some because they have been told by the Johnson regime that if they speak out, they will jeopardise government contracts. In financial services – Japanese firms included – alternative, approved EU entities have been set up. There is even the chance of making some money on the chaos that will probably arise in the currency, bond and stock markets.

It is still impossible to make any confident predictions about what will happen. Maybe it is true that Boris Johnson will, at the very last minute, blame the EU for not offering a fresh deal, then ask the EU for an extension to Article 50 in order to have a general election. He would be hoping to fight this on a populist campaign and win a more substantial majority. Then he can ask the EU for a new deal, confident as Mrs May was not, that he has a majority in parliament to approve it – or a no deal if the EU will not offer any concessions.

The problem is that the deal offered to Mrs May was as good as could be expected given her red lines of an end to the freedom of movement of people, no jurisdiction over the UK by the European Court of Justice and no customs union with the EU. It is hard to imagine a Johnson government erasing any of those red lines.

Johnson’s main aim appears to be to remove the Northern Ireland border “backstop” that in effect keeps Northern Ireland inside the EU if no solution to keeping the border open with the Republic of Ireland is found. Perhaps there could be a fudge whereby the backstop is removed from the Withdrawal Agreement and put into the Political Declaration – meaning it is to be negotiated later – which would probably also require a longer transition period than the current two years.

So Japanese companies in the UK may find that after a tumultuous few months, the UK remains in a transition period for several years – technically not in the EU, but all conditions remaining the same, while negotiations drag on, ending in a hard Brexit.

In which case what Japanese companies have already done remains the best solution – manufacturers adjust supply chains to circumvent the UK, financial services companies keep most of their staff in the UK but have substantial presence in the EU too. And those Japanese IT, infrastructure and outsourcing companies who have recently been investing in the UK should stay quiet, in the hope of getting government contracts to assist with whatever new systems Brexit brings.

This article by Pernille Rudlin originally appeared in Japanese in the Teikoku Databank News, 11 September 2019

Japanese corporate integrity in a disintegrating Europe

I’ve made a screencast (12 minutes with captions – ably edited by my son) of my keynote speech at a Dutch Embassy event for Japanese companies on a clipper ship on the Thames last month. It looks at the challenges facing Japanese companies trying to build their employer brands in a disintegrating Europe. I explain how difficult is is for Japanese companies to build ‘virtual trust’ across Europe when they are used to implicit communication, sticking to Japanese processes and working as homogenous, Japanese speaking teams huddled into one office.

I introduce the five competencies Japanese companies and their employees need to build trust across cultures – ability to communicate, understanding mutual interests, respecting European and Japanese processes and regulations, being reliable and accountable and having a shared vision and values. You can also find them in my book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

Myth 1. Young Japanese aren’t loyal to their employers

“They just use the company as a stepping stone”

Japanese companies have been worrying for a while now that young people are job hopping far more than previous generations. A Mynavi survey shows that only 22% of graduate recruits starting work in 2019 said they would be interested in staying at their company until retirement, 8% for over 10 years, 10% 6 to 10 years, 15% 4-5 years, 22% up to 3 years and 24% were “not sure”.

According to Nikkei Business, in their special feature on the myths of why young people quit, the reality is that because young Japanese people like the company they chose, they can’t bear to watch it decline. The Nikkei gives an example of an anonymous new graduate recruit who left her company after 3 years. She had studied abroad, had good language and communication skills and a strong interest in human resources. She thought working for a Japanese manufacturer had a romantic appeal, and the HR department wooed her heavily. Her reasons for quitting were that the general manager level was resistant to change, and when a new President took over, the direction of the company turned 180 degrees, making her worry about the lack of corporate governance.

Myth 2 Young Japanese lack perseverance

“They immediately complain when work gets tough”

The Nikkei points to a survey of managers of people in their 20s and early 30s which discovered that most managers thought that a much higher proportion of their team were proactive and willing to take up challenges than were not.

If anything, it’s the bosses who do not persevere, says Nikkei Business. They cite a young employee who quit a major insurance company in 2019 after 4 years who said that he was was highly motivated by tough challenges. He had looked forward to putting his energies into sales, but was repelled by how his boss – who took no responsibility and only thought about promotion – was so well evaluated.

Myth 3 Young Japanese quit because their pay is too low

“They prioritise pay because they are worried about their future”

A survey by Japan Net Bank in 2017 showed that 21% of 18-25 year olds did not expect to earn more than their parents over their lifetime, and 43% thought it was unlikely that they would do so.

Nikkei Business comments that the key concern of young Japanese employees is whether their job has meaning, and is of value. It quotes a young bank employee who thought that by working for a regional bank, he could support local businesses. However he did not see the point of the products he was selling and his request to transfer to a different department was refused. So he quit after 7 years.

Myth 4 Young Japanese quit out of youthful impetuosity

“They don’t have any responsibilities, so they quit on impulse”

It is true that Japanese are marrying later than before (75% of men are unmarried at 29, over 60% of women), so family responsibilities do not weigh so heavily on people in their 20s. “If I think about my future, I care more about how I am valued outside of the company than inside” says one high flier who quit a very prestigious trading company job. He had hoped to use his corporate finance and accounting skills and venture capital experience to help people in emerging markets. However he was placed in a division which did not make use of his expertise and was unexpectedly asked to transfer to another area.

Myth 5 Young Japanese quit because of too much overtime

“They want to have an easy life and hate overtime”

“I’m happy to do overtime, if I feel it’s adding value to the world” says a young Japanese rising star who quit her company after 2 years. She thought the company seemed very diverse and liked the way board level directors were involved in recruitment. However after an exhausting worklife, she felt she would be better in a job where she really felt she was contributing to society.

It’s hard to see any major cultural difference or something uniquely Japanese about this mismatch. I have vague memories of similar frustrations and worries when I was a young person thinking about joining a big multinational organisation after university 30+ years’ ago.

The dangers of going for the obvious solutions

The second part of this feature goes on to look at what Japanese companies could do to improve retention, and points out that the tactics that are usually proposed may be mistaken.

For example, thinking that there should be more 1:1 meetings between younger staff and their bosses could just increase frustration, if nothing is done as a result of the meetings. Having a system whereby young staff can request transfers is also pointless if the transfer is not approved, and often the dissatisfactions continue even in the new role. Internal commendations can also feel hollow, mentors often fail to turn up for mentoring meetings and simple pay rises don’t address key concerns about personal development either. Talking up the bright future of the company can also seem like just so much hot air.

More innovative approaches to retention

Nikkei Business recommends more innovative approaches, to address the fundamental reasons young people leave their companies. They point out that even good contributors, or employees who were reasonably happy in their work quit their employers, for reasons which are more to do with wanting to expand horizons, develop specialist knowledge or skills, or to have a job which better fits their lifestyle.

One recommended approach is to transfer young people abroad, or to more challenging environments. I would add a note of caution here, which is that I have often seen young people enjoying the freedom and challenge of living abroad, and then not wanting to return to their traditional Japan HQ, and quitting. Nikkei Business also suggests an “intermediate” mentor – closer to the junior employee in age and seniority, who acts as a go-between with the more senior mentor. Finally they recommend using AI to understand the motivations and fit of the person with various job roles.

I would add to this that Japanese companies might need to consider setting up continuing professional development associations similar to the ones we have in the UK – whereby members advance through a professional hierarchy through self study and examinations, in professions such as HR, accounting, finance, IT etc. Then, even if the company cannot offer them roles which have an instant career development impact, young employees can gain satisfaction from developing their knowledge and skills, supported by their employer.

Japanese companies need to add professional accountability to their corporate governance

[playht_player width=”100%” height=”175″ voice=”Lily”]When the topic of meaningless meetings in Japanese companies comes up in my training workshops, I often tell the story of how I once had to attend a meeting in the Japanese headquarters of the company I was working for, as the representative of the corporate planning department, on a topic I knew nothing about. I was told to read the ringisho and not say anything, except for “ryōkai” (understood, agreed) at the end. “It was two hours of my life I will never get back. The two people in charge of setting up a loss-making factory simply read out the ringisho (circular memo for making a decision) line by line and then asked for approval to write off several hundred million yen. This had been approved already, so obviously we just said yes. I still don’t know to this day what the meeting was for – perhaps it was a kind of punishment”.

Japanese companies have internal accountability

On reflection, I think it was about ensuring internal accountability – to give an account of decisions made, actions taken and the reasons behind them. Most Japanese companies have these kinds of mechanisms for internal accountability and their executives are also expected to be accountable to Japanese society for any failures, hence the succession of shazai (deep bowing to apologise) rituals we have seen recently.

There is a missing piece though, both in the recent Japanese corporate scandals and also the sexual harassment revelations in the Western media and entertainment industry, which is professional accountability. As Japanese companies globalize and diversify their workforce, I believe they will have to add this piece to their corporate governance and compliance systems.

A wide range of professions in the West, from traditional professions such as law, medicine and accountancy through to newer professions such as HR, banking or engineering all have associations to which professionals are expected to belong if they want to practice. They sign up to a set of ethics and regulations and are expected to take exams in order to progress through a series of grades and also undertake a certain number of hours of professional development every year.

Professional qualifications help diversity

Although it has proven tricky to get mutual recognition across countries of professional qualifications, it does help companies build a diverse workforce because they can be “blind” to the gender, age, disability or ethnicity of the person they are hiring, if they have the necessary professional qualifications.

Japanese companies will find it easier to ensure accountability internally and externally when they operate overseas if they employ professionals. Employees who have professional accountability know they will lose their professional status if they do not abide by ethical and regulatory standards, and this gives them the strength to resist any unethical pressure that is put on them by their bosses or customers.

Ensuring accountability is a two-way process, however. Although employees will be accountable internally and to their professional association, their bosses will still be accountable internally and externally for their subordinates’ behaviour. This means that bosses must enable an environment of trust, achievable targets and adequate resources.

This article appears in Pernille Rudlin’s latest book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

I love Japan but I don’t want to work in a Japanese company

I’ve done a screencast (around 11 minutes long) of my talk at the Centre People Appointments HR seminar earlier this year, on why people love Japan, but don’t want to work for a Japanese company, and what Japanese companies can do about it.

If you want to know more about working in a Japanese company, you can find our Japan Intercultural Consulting e-learning modules on Teachable, starting from £39 https://japan-intercultural-emea.teachable.com/

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.

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.