Japanese Business Blog - Rudlin Consulting

A no deal Brexit will put the boot in for Japanese companies in the UK

My first job at Mitsubishi Corporation was exporting British made shoes from companies like Trickers and Crockett & Jones to Japan. They are high end shoes anyway, and Japanese tariffs of 30% on shoe imports certainly pushed them even further upmarket. So when I was in Japan last month I was happy to see that one of our customers still had its Trading Post flagship shop in Aoyama, despite the so-called two lost decades in terms of economic growth. They must be one of the few businesses enjoying the fact that Brexit delays have improved their profit margins. Thanks to the new EU-Japan Economic Partnership Agreement, tariffs on European shoe exports to Japan were reduced to 21% from February of this year. They will eventually be eliminated over the next 10 years.

Trickers and Crockett & Jones are presumably shipping out shoes to Japan as fast as they can make them while the UK’s membership of the EU lasts. Although Japan has entered discussions with the UK on a trade deal, they have made it clear that they are not going to concede as much as they did to the EU, and leather goods is one of the categories they are going to use as a bargaining weapon.

No roll over is bad for British shoes, cheese and booze

So a no deal Brexit or a Brexit before a UK-Japan free trade agreement is struck is bad news for the UK shoe industry, (and British cheese makers and whisky distillers will also miss out on the EPA’s tariff reductions). But not rolling over the EU-Japan EPA in to a UK-Japan trade agreement as soon as the UK leaves the EU will only have a small direct impact on both economies. According to a JETRO survey of over 3,000 Japanese companies, from March of this year, only 8.6% import from the UK, compared to 24.1% importing from Western Europe (excluding the UK) 66.2% from China and 24.2% from the USA.

Conversely, 22% of Japanese companies export to the UK, compared to 35% exporting to non-UK Western Europe, 49.6% to the USA and 59% to China. It’s obvious from these figures why the US-China trade war is more concerning to Japan than Brexit.

You could argue that a UK-Japan free trade agreement would improve those percentages, but that’s an awful lot of shoes, cheese and booze to make any impact. Furthermore, a lot of the imports and exports between the UK and Japan may be EU related, rather than purely bilateral. Think car parts from Japan to build cars for European consumers, or UK generated professional services for a Japanese EU headquarters and its European subsidiaries.

But no deal with the EU is even more of a headache for Japanese companies in the UK

Japanese companies that have a presence in the UK (just under 10% of the companies surveyed) have made it very clear that a No (UK-EU) Deal Brexit would be a disaster for them – far more than the UK no longer being part of the EU-Japan EPA. As frequently pointed out, they invested in the UK as a gateway to the rest of Europe.

45% of the turnover of Japanese companies in the UK is sales to Europe according to figures from the annual reports of the 200 or so who give regional breakdowns of sales. The range is anywhere from close to 0% for companies selling everything from lighting to metal pressing to seeds just to the UK, through to 100% – largely automotive parts manufacturers who export almost all of their production to Europe, or at least sell it via their European headquarters in continental Europe.

Many of those who are focused on domestic UK sales are importing from Japan, China and Asia, or are at the end of a complex supply chain stretching across Europe. Some are not involved in trade of goods at all – for example NTT Data and Building Design Partnership. The latter is one of the many of the services sector companies that have recently become Japan-owned via acquisition. NTT is aiming to grow its UK government business after Brexit, but if the UK economy tanks thanks to a no deal, it may have to wait a while. A JETRO survey last year highlighted that a UK economic slump because of Brexit was at the top of the list of concerns for Japanese companies in the UK and the rest of the EU, even more than changes in regulation or currency fluctuations.

The UK looks to lose its crown as the top European destination for Japanese acquisitions

Japanese acquisitions of British companies continued after the referendum, but the 2019 JETRO survey shows that it is likely the UK will lose its crown as the top destination in the EU for Japanese foreign direct investment. Non-UK Western Europe is in the top five destinations for expanding business for manufacturing textiles, clothing, foods, petrochemicals/plastics, electrical machinery, electronic components, fine engineering and also specialist services. The UK does not feature at all in the top five of any of these sectors.

The UK’s service sector functions as a gateway to Europe is still the biggest influence on Japanese investment – the UK is a top 20 destination for expanding services such as regional coordination(#9), logistics (#13), R&D (#14), sales (#15) and localisation (#17), as well as high value added manufacturing (#17). However, non-UK Western Europe ranks higher and is in the top 10 destinations for all of these categories.

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Brexit yanks the lid off some stinky realities for Japanese business in the UK

My least favourite Japanese expression is “kusai mono ni futa” – when it stinks, put a lid on it. It is at the root of many Japanese corporate governance scandals. Mistakes are made or problems surface and instead of exposing them and causing loss of face all round, they are swept under the carpet, in the hope that they will somehow magically disappear. But of course stinky things with lids on just get stinkier.

On the face of it, there was nothing stinky about Japanese companies in the UK. The very fact that the UK was such an easy place to do business – on a European and global scale – lulled Japanese companies into complacency. Japanese expatriates like living in the UK, particularly around London, where the vast majority of Japanese business people are based. A couple of years’ traineeship in London is also a great incentive to lure scarce young English speaking Japanese into your graduate recruitment scheme.

Brexit exposed complacency about profitability in the UK

Over 125 Japanese companies in the UK are the European headquarters, employing over 25,000 people (of the 160,000 UK employees in total who work for 1000 Japanese companies), with a combined turnover of over £40bn. Much of that turnover derived from management fees from Japan headquarters, dividends from European subsidiaries or royalties from intellectual property, so the profitability or otherwise of the UK business itself was not so exposed.

Profitability in manufacturing is far more obvious. Nissan, Honda and Toyota’s factories in the UK had high levels of productivity – they had to be to win the right to make each new model. But Honda never managed to sell enough of its cars in Europe for Swindon to reach full capacity. The car industry is going through a shift away from petrol and diesel to electric. Japanese manufacturers like to be near their key markets to develop new models, and for electric vehicles, China is a far bigger and more promising market than Europe. The supply chains for electric vehicles are more developed and close knit in their Japan base.

Brexit yanked the lid off some stinky realities. As the JETRO annual survey on business conditions for Japanese companies in Europe details, 60% of UK based Japanese companies predicted the future impact of Brexit on their business would be negative, and 25% said it had had a negative impact already. Most cited the threat to the supply chain of customs duties and customs procedures or divergence in regulations being introduced as their top concerns.

Over 90% of Japanese companies could withdraw their European headquarters from the UK because of Brexit

61% said that they had already decided to relocate/withdraw or had already relocated or withdrawn certain functions from their regional headquarters in the UK and another 32% are considering it – mostly as a partial relocation to another EU member state. As is well known, Panasonic and Sony have already done this. It was not just the threat of Brexit disrupting invoicing and customs clearance, but also in response as much to the new Japanese tax haven law. The UK’s lowering of the corporation tax rate of 17% to show Global Britain was still open for business meant revenue from dividends and royalties received in the UK would be considered as tax avoidance by the Japanese tax authorities.

More than two thirds of Japanese companies could withdraw their European sales functions from the UK

29% of Japanese companies in the UK have decided to relocate/withdraw or have already relocated/withdrawn their sales functions and a further 38% are considering doing so. Sharp Electronics has moved their inventory to Sharp in France along with responsibility for logistics and warehousing. Various automotive sector companies have moved customer accounts and product lines to Germany.

Moving sales or regional headquarter functions out of the UK does not have an immediate impact on jobs in the UK. In fact labour shortage is cited as the top concern for Japanese companies across Europe. So they are likely to try to hang on to the employees they have, and the regional management will just operate in a much more virtual way – Sharp says its UK base will still have an executive/board level responsibility for Europe, as that is where its European executives are currently based. For now.

Nearly two-thirds of Japanese manufacturers are withdrawing or considering withdrawing manufacturing from the UK

33% of Japanese manufacturers have decided to relocate or withdraw or have relocated or withdrawn their manufacturing from the UK and 30% are considering doing so. This may seem surprisingly low given the fuss made over the car companies and their supply chains being impacted by Brexit. But actually most Japanese manufacturers have alternative plants in Europe they can use if necessary. Those who do not are usually manufacturing highly specialised products that are less supply chain time critical, or for UK sales only or that they are presumably confident they can sell across Europe no matter what barriers there are.

No deal preparations

The JETRO survey did not specify the type of Brexit when asking Japanese companies in Europe in general about relocation or withdrawal plans, but did ask if any countermeasures had been taken for a no deal Brexit. Just over 10% of all Japanese companies – in the UK and Europe – had already made plans or were currently making plans. A further 15% of Japanese companies in the UK were intending to plan for no deal but only 4% of non UK EU companies were intending to plan (this was as of October 2018). The most popular countermeasure was stockpiling (21%), followed by reorganising functions within the company group (10%).

Financial services already prepared for all possibilities

All the Japanese financial services companies that would be affected by Brexit have already put their plans into action – most now have licenses for the UK and obtained financial passporting or licenses in the EU as necessary. Again, having to take a hard, cold look at their European operations has taken the lid off some long standing whiffy problems, particularly for Nomura, which looks like it will be shutting down its global wholesale side in London entirely.

No rollover and then there were none

Stockpiling as the main countermeasure for a no deal Brexit assumes that eventually a deal will be reached, before the stocks run out. But such deals take time. The EU-Japan European Partnership Agreement (EPA) started in 2013, finalised at the end of 2017, signed off in July 2018, and was in force from February 2019. Known as cars for cheese – it was actually meant to promote food and car exports both ways. Japan has already been promoting European wines and cheeses in its supermarkets and announced the first shipment of fully farmed tuna to Europe under the EPA agreement.

Similarly, reduction on tariffs on cars and car parts was meant to protect Japanese branded manufacturing in Europe (because they could easily import Japan manufactured parts) and help European car manufacturers export more cars to Japan.

Hard stinky cheese

If a no deal Brexit happens, although Japan started talks with the UK about rolling over the EPA, it has stated this would not be a cut and paste job. Japan is clear that it expects more concessions from the UK than in the EU deal – including cheese and cars. So British cheese makers may find their exports to Japan have a longer time to ripen than they were planning, in the event of a no deal.

Fewer Japanese in the UK, but more are making it their permanent home – thanks to Brexit?

The UK is still overwhelmingly the most popular place for Japanese residents in the EU to live, according to Japan’s Ministry of Foreign Affairs. There are nearly 63,000 Japanese nationals living in the UK, compared to 46,000 in the next most popular country, Germany. The Japanese community in the UK has shrunk by 6% since 2014, however, whereas Germany’s Japanese community has grown by 22% over the same period.

In fact all other major EU countries have more Japanese people living in them than four years’ ago. It is only the UK that has shown a net fall in numbers. The Netherlands has had the biggest proportionate rise in Japanese residents since 2014 – 41% from 6,532 to 9,223.

On the face of it this would seem to be a Brexit related shift. The Netherlands and Germany have been the most popular alternative bases for shifting headquarters and sales staff to, away from the UK, as we noted in a previous post.

UK loss of global prestige as a destination for media and diplomats

But looking more closely at the different categories used by the Ministry of Foreign Affairs for classifying Japanese nationals reveals some other non-business factors too. The biggest proportional decrease is in Japanese people in the government related category – a 44% fall from 1,286 to 722. In a further indication of the UK’s drop in global prestige perhaps, the number of media related Japanese nationals has dropped 26% from 371 to 273. The largest drop in numbers is in the academic/student category – down nearly 7,000 from 20,000 in 2014 – peaking at 21,000 in 2015 and declining since.

Japanese students also put off by hostile environment

The fall in student/academic numbers is worrying, as this is a good source of income for UK universities. When we looked at this a year ago, we noted that Japanese students are still studying in Europe – just more in Germany or France. Or, like one participant in my seminar yesterday, they’ve realised they can learn English by studying in Asian universities – which are cheaper and nearer to Japan.

Talking to Japanese specialist recruiters, it may also be that the UK’s “hostile environment” has made it more difficult for Japanese students to stay on in the UK after graduating, to find a job. The 27% increase in permanent residents who have Japanese nationality over the past 4 years suggests that Brexit and visa worries may have caused a large number (nearly 22,000 now) of Japanese resident in the UK to take the leap of acknowledging that they are going to stay in the UK permanently and need to make sure their status is secure.

Chipping away at the three treasures of Japanese HR

Several Japanese blue chip companies have announced some quite radical changes to their HR systems, just in time for the new Reiwa era. The so called three treasures of lifetime employment, seniority based pay and a company union have been looking a little tarnished for some years now. They seem a legacy not even of the Heisei era but of the post war Showa era of a booming economy and a need to retain a young workforce.

Hitachi had shown the way four years ago (as described in our blog post at the time), abolishing seniority based pay for its managers and replacing it with pay based on job roles. They have made further waves recently with the announcement of the first ever Hitachi subsidiary President to be in their forties. The newly formed Hitachi Global Life Solutions will be led by Jun Taniguchi, born in 1972.

Hitachi claim that this new system is needed for the company to be truly global and able to appoint and transfer managers around the world, regardless of where they were recruited. Beer and soft drink manufacturer Asahi Group Holdings has also been shifting to global standards. Around half their employees are non-Japanese, as a result of their acquisitions of European brands such as Peroni, Grolsch and Fullers. They have said their Presidents and CEOs will be evaluated on return on equity from now on, and given the boot if it is not maintained above 13%.

Japanese megabank MUFG says it will reduce new hires in Japan by 45% to 530 next spring, and will cut the 6000 employees in its Tokyo headquarters by half. Not all Japanese HR traditions are being thrown out of the window, however, as the surplus 3000 will not be made redundant, but rather redeployed to sales functions or sent overseas to areas where MUFG is expanding like the USA and Asia (but not it seems, Europe). MUFG is automating the functions that these staff performed, as well as cutting many of its retail branches in Japan. It will instead be beefing up its overseas compliance and digital payment systems divisions.

Some Japanese politicians and commentators have said that the “rei” of Reiwa sounds rather cold, as it can sometimes mean “order” or “command”. It also, when combined with the radical for water, becomes a character meaning chilly or freezing. It certainly feels like some icy winds will be blasting through Japanese cosy HR traditions in the new era.

Being reasonable in Europe

The UK government has twice now invoked the concept of “reasonable” in its negotiations with the European Union over Brexit. It’s vital that Japanese managers working in the UK understand this concept of “reasonable”, as it forms the basis of arbitration when there are disputes between companies and also grievances between employer and employee.

In August 2018, when visiting Japan, Dr Liam Fox the UK secretary of state for international trade urged Japan and other partners to talk to the EU and say “Britain has made you a fair and reasonable offer” and “if you reject that offer, and we end up with no deal, that would be to everybody’s detriment – the EU, the UK and our trading partners.”

Professor Anna Wierzbicka ‘s chapter “Being Reasonable” in her book “English: Meaning and Culture” points out that when British use “reasonable” in the way Dr Fox has, there is an implied value judgement, of the other side being “unreasonable” as in “silly”, “extreme” or “reckless”. Professor Wierzbicka was born and educated in Poland, and now lives in Australia, so has an informed but objective perspective on how this differs from the French and German equivalents. As Michel Barnier, European Chief Negotiator for the EU is French, his natural inclination will be to translate “reasonable” into “raisonnable”, which means to be sensible and capable of being reasoned with. Sabine Weyand, his deputy, is German. The definition of the German word for “reason”, Vernunft, includes the concept of “order” – that there is a correct process. “Reasonable” does not exist in the negative in French and is only used once in the French civil code and not at all in German law.

The more recent use of “reasonable” was by Geoffrey Cox, the UK attorney-general. He was proposing a system of arbitration to allow the UK to escape from the backstop plan for the Northern Ireland border by having arbitration independent of the European Court of Justice, which would judge whether the UK had made “reasonable” efforts to find alternatives if the talks had irretrievably broken down between the UK and the EU. International law however prefers to stick to “good faith”, “best endeavours” and binding assurances.

At this point most ordinary businesspeople want to give up in despair. Unless you are a lawyer, it becomes very hard to comprehend. Nonetheless, as businesspeople we do need to grasp the concept in order to manage and do business in the UK. So I hope my explanation of “reasonable” will help: When trying to persuade an employee to do something, such as overtime, or negotiating with a business partner, “reasonable” means three things if they are British. 1. You explained the reasons behind your request in a way that was easy to understand. 2. The request is not damagingly extreme (for example too expensive or too cheap a price) 3. The reasons were rational, logical, sensible. If they respond with “that seems reasonable” to your request, you have succeeded.

This article was originally published in Japanese in the Teikoku Databank News on 10th April 2019 and also appears in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.

Are Japanese companies leaving the UK because of Brexit?

I’m afraid the answer to this question is yes, and no. Bits of Japanese companies are leaving. What will be left in the long run is some kind of UK-based training ground for Japanese companies’ star recruits to learn global management, with a local sales workforce attached.

I’ve come back from a recent trip to Japan clutching the brand new Toyo Keizai directory of Japanese companies overseas, which provides the data to dig into this question more deeply. It provides some clues as to whether, for example, Honda ending production in Europe is in part due to the EU-Japan Economic Partnership Agreement reducing tariffs to zero on cars and car parts imported from Japan. If that was the case, there might be a general shift of automotive production away from the EU.

Asia is far more important to Japan than Europe

The number of Japanese companies overseas has increased 58% from 2008 to 2018, according to the Toyo Keizai data, to 31,574. The true number will be bigger, as I know from my researches into the UK, there are many Japanese companies that Toyo Keizai has not managed to track down, or who maybe just don’t respond to their surveys. 62% of Japanese companies overseas are in Asia (excluding Japan obviously), 15% in Europe, 14% in North America, 5% in Latin America, 2% in Oceania, 1% in Africa and 1% in the Middle East.

If you look at it by employee number, the proportion is roughly the same – 68% in Asia, 11% in Europe, 11.8% in North America, 6.6% in Latin America, 1.5% in Oceania, 0.7% in Africa, 0.4% in the Middle East. An obvious factor in why there are proportionately more employees to number of companies in Asia and Latin America is the greater number of manufacturing operations in those regions.

So already we see Europe represents 11-15% of the business of Japanese multinationals, and those companies are relatively less likely to be manufacturing operations than in Asia or Latin America.

The number of Japanese companies in Europe has increased 35% in ten years

Japanese companies have not been pulling out of Europe, however. There was a 35% increase in the number of companies in Europe 2008-2018, so not far off the average global increase of 37%. The biggest growth was in Latin America – 47%, then the Middle East (45%) and Africa (43%) – but from a small base. The number of companies in Asia grew 38% and only 30% in North America.

Growth in the number of Japanese companies overseas has been more muted in the past 4 years – a 7.9% increase 2015-2018. But the increase in the number of Japanese companies in Europe was above average – at 12.5%. The increases in companies in Asia (7.6%) and Latin America (5.6%) were below average – so there was a boom in Japanese investment in developing countries during the 2008-2014 period, but this died down in the past 4 years.

Japanese automotive manufacturers are not pulling out of Europe – quite the reverse

So how about investment in automotive manufacturing – the sector that has made the most noise in Brexit UK? The number of Japanese companies overseas in the “transportation machinery manufacturing” category that Toyo Keizai uses (which presumably corresponds to automotive manufacturing) rose 6% 2015-2018, so significantly slower growth than overall. Again, Europe showed above average growth of 13%, but only represents 10% of transportation machinery manufacturers overseas operations. Over 64% of automotive manufacturer sites are in ex-Japan Asia. So although Japanese automotive companies are not pulling out of Europe – rather the reverse – the major part of Japanese automotive investment is and continues to be in Asia. So no surprises really that Honda and others are choosing to focus on Asia for electric vehicle development – that is where the largest ecosystems and supply chains are based.

UK is still has the most automotive manufacturers in Europe, but is not getting any new investment

How about the UK in all of this? The UK had and continues to have the largest number of automotive related manufacturers in Europe, according to Toyo Keizai – 32 in 2015 (out of 192 in Europe) and 30 in 2018 (out of 217). I haven’t been able to identify both of the companies that have withdrawn from the UK, but one is almost certainly Keihin, 41% owned by Honda, who shut down production of vehicle engine management systems and climate control systems in the UK in 2014-5 and shifted production to the Czech Republic. The other might be more to do with renaming and consolidation rather than withdrawal of manufacturing.

Keihin’s move is clearly “pre-Brexit” but what is obvious is that the UK is not getting any new investment in the automotive sector since Brexit. Of the 29 new automotive manufacturing operations started in Europe in 2015-2018, 8 were in Germany, 4 in France, 4 in Slovakia, 3 in Spain, 3 in Italy, 3 in Hungary and 2 in the Czech Republic but none in the UK. Germany, France and the Czech Republic are now not far behind the UK in the number of automotive production sites that they host.

So the idea that the zero tariffs on cars and car part imports from Japan which would eventually arise from the EU-Japan Economic Partnership has meant that it is no longer attractive to manufacture cars and car parts in the UK or the rest of the EU also does not seem to hold – yet. In fact I was surprised to see that Western Europe has held up well against the cheaper Eastern European countries.

UK employees of Japanese companies up 20% on 2015, mainly due to acquisitions

Generally, the number of Japanese companies in the UK is still rising – 972 in 2018 according to Toyo Keizai, 11.1% up on 2015. The other countries in the top 5 – Germany, Netherlands, France and Italy are all hosting more Japanese companies too, and the numbers have grown slightly faster than in the UK, by between 11.8% to 13.5% over the past 4 years.

Many of the new Japanese in companies in the UK over the past few years have been acquisitions in biotech/pharma, high tech, outsourcing/staffing, automotive services and new arrivals have been in fintech, or investment/holding companies.

So what about the companies that have said they are leaving the UK because of Brexit, such as Panasonic and Sony? Well, rather like Keihin, they are not actually leaving the UK, just moving some functions, in this case the regional headquarters functions rather than manufacturing, to the Netherlands or Germany. This kind of “leaving” – turning what were incorporated subsidiaries into branches, has emerged in other Japanese companies too, as one reaction to Brexit. Invoicing, tax on sales, royalties etc will all be taken care of by the regional headquarters, and the UK branch will be funded by management fees.

So although the numbers employed by Japanese companies in the UK continue to rise (by 20% since 2015), this is more the result of acquisition of existing staff, rather than the creation of large numbers of new jobs that greenfield manufacturing investment brings.

During my trip to Japan last week I met with Leo Lewis, Financial Times Tokyo Correspondent, and it is to him that I owe the insight that Japanese companies will never leave the UK completely, as it is too attractive an incentive to their highflyers, to be able to promise a couple of years early in their career to learn the ropes of global business in the UK. But bits will nonetheless leave, as the recent news about Nomura’s restructuring shows.

Why Germans are happier than the Japanese

Japanese people need to take longer holidays, is the answer to why Germans are happier than the Japanese, according to Japanese freelance journalist Toru Kumagai in his new book “Why do Germans feel rich on only Y2.9m (£20,000) a year?”

Japanese people see shopping as a leisure activity that they can do in just a few hours or a day for pleasure or stress release, and are too busy working. Germans can take holidays as they please, and will take 2 or 3 weeks off work at a time.

When Germans go on holiday, they will go to the seaside or countryside, with their family. In a recent insurance company survey, “sunshine and nature” was seen as the most attractive element of a holiday. Kumagai points out that as a Northern European country, Germany does not get as many hours of sunshine as Portugal or Southern France. So holidays are an important moment to refresh and recharge.

I’ve often thought that golf continues to be popular in Japan because it provides distant horizons and greenery. Respectable research in the West has shown a link between greenspace and mental health, although the causality is not yet clear. Although there is a lack of greenspace in Japanese cities, Japanese are good at taking mini breaks that let them refresh and recharge in natural surroundings, such as hiking in the mountains and staying in hot spring resorts.

Compared to Germany, there are far more advertisements and TV commercials aimed at selling something new and leading edge – whether it’s smartphones, beer or sweets, Kumagai notes. Japanese throw away old things even if they are still usable, as their homes are overflowing with new purchases. Whereas according to Kumagai, Germans will treasure old items and are used to buying second hand items. They are also very environmentally conscious and one of the major recycling nations of the world.

Kumagai also points the finger at the overservicing of customers in Japan, placing burdens on employees. He quickly adds that he doesn’t want German bad customer service to be imported into Japan, but just that Japan has gone too far in trying to please. For example, when you buy bread rolls in Japan, each one is put in a separate bag, and then all the bags put in another bag. If this kind of overservicing and customer expectations were reduced, Japanese workers could take longer holidays, Kumagai suggests.

Japanese consumers need to accept that a delivery might take a day longer, so more people can take Sundays off, or that delivery time windows will not be quite so narrow. Customers in Germany get thrown out of the shop when it’s closing time, but not in Japan.

I watched Spirited Away for the second time recently, which made me more aware of the environmental message in it – such as the river spirit spewing up old bicycles and trash. I also realised the Shinto element was a strong motif – the idea of spirits in natural things and the need to simplify life by not being unnecessarily greedy and accumulative. Much has been written, often snide, about the Shinto influence on Marie Kondo’s “spark joy” approach to decluttering, but as Kumagai says, Japan could benefit from a richer spiritual life if it went back to those Shinto ways (and also Buddhist) of not demanding so much and enduring so much in terms of long hours of work.

Hitachi acquisition of ABB power grid business is a “Black Ship” to push globalization

It’s been 10 years since Hitachi made its record breaking loss and Takashi Kawamura became Chairman and President. Kawamura was chairman when Hitachi decided to buy Horizon Nuclear Power in the UK in 2012, and he now says he was one of the more cautious faction. “Costs pile up long before you’ve even produced one kilowatt of energy so I made it clear that we needed to set various points at which we will decide whether to proceed or not with the project”. Takashi Kawamura is now chairman of Tokyo Electric Power, so has not managed to escape the nuclear power industry despite his cautiousness.

Hiroaki Nakanishi lasted 4 years as President from 2010 to 2014, when Toshiaki Higashihara, also interviewed in the same Nikkei article, became President. Higashihara has not only frozen the Horizon project but acquired Swiss company ABB’s power grid business in 2018. “Globalization has not been achieved yet” for Hitachi he believes. He tells employees that the ABB acquisition is a Black Ship he has invited in, just like the foreign pressure to open up Japan in the Meiji Revolution, to change Hitachi and push globalization further.

Hitachi is shifting more into services and believes it has the right product and solution mix to for the “Internet of Things”. Sales may not grow much – for services business the point is to improve profitability, rather than sales volume, Higashihara points out.

Kawamura also says the old ways, of life time employment and being a generalist have to come to an end. Hitachi offered retraining for people employed in the businesses he shut down or spun out, like the semi conductor business, but many of them had expected to stay at Hitachi all their life, and not to have to find work elsewhere.

Higashihara goes on to say the next leader needs to be able to manage globally, in particular, to be able to communicate, across generations, nationalities, sexuality and gender. “If they seem to have the right balance of qualities, it would not be a surprise if it was a foreigner” who succeeds him. That is likely to be soon, as Higashihara has been president for 5 years now, and 6 years is usually considered to be the maximum for Presidents in companies such as Hitachi. Maybe the Black Ship has brought some potential candidates with it, or Hitachi Rail’s former CEO Alistair Dormer, now Representative Executive Officer, Executive Vice President and Executive Officer of Hitachi Ltd is being lined up for the job.

The fourth industrial revolution should not be mercantilized

UK is the birthplace of innovation and will not sink, despite Brexit, says Toru Sugawara, the deputy editor of the Nikkei Business magazine – Japan’s equivalent of The Economist (only with more business, less economy).

He acknowledges that Brexit is casting a shadow on the world economy, and that the problems will not end just with an extension, as the negotiations will drag on, unless the result of the referendum is reversed.

He points to how employment remains buoyant in the UK, despite GDP growth being the lowest in 6 years, and says that this could be because immigration from the EU is decreasing – which was one of the reasons people voted to leave. He does not mention that net immigration has not dropped, as more people are coming from non-EU countries. So unless you believe that EU immigrants only have jobs which UK natives could do, and non-EU immigrants only do jobs that UK natives couldn’t do…

He believes the UK’s resilience derives from an inner strength which helped it to lead the industrial revolution as the “birthplace of innovation.” Because the UK has worldclass universities “UK research levels are extremely high. Even if they leave the EU, there are researchers who want to learn from the UK” – according to an engineer from a major Japanese electronics company.

The UK is similar to Japan, Sugawara notes, in that neither was able to match Silicon Valley in terms of being able to turn innovations into world changing businesses. He thinks the UK is changing, however, dating from when the British Business Bank launched in 2014, bringing together various funds for startups and small businesses and also the introduction of the regulatory sandbox, to allow new kinds of financial services to test their products.

Venture capital funding in the UK in 2018 was $7.9bn, double that of Germany or France (although what he doesn’t say is that this was down from a high of $8.1bn the previous year, and that Germany and France seem to be catching up) . Dr Yuri Okina of the Japan Research Institute points out that the UK’s strength is that as well as having the world’s financial centre, there is a rich source of accountants, lawyers, consultants and other specialists who support an ecosystem for new business.

If this network could be boosted further, then the UK could lead the 4th wave of the industrial revolution, asserts Sugawara. He warns that Japan, who puts its funds into propping up zombie companies, with regulatory systems that impede new industries from growing, will get left behind. “That’s the bigger worry” he concludes.

So he seems to be turning an encouraging pat on the back for the UK into a kick up the backside for Japan. What he says is not going to be news to many Japanese companies, who have reacted to the difficulties they face in Japan by investing in the UK (and elsewhere in Europe). Sugawara mentions SoftBank‘s acquisition of the UK’s ARM, but there have been plenty of other less spectacular investments. Much of it has to do with CASE (Connected, Autonomous, Shared, Electric) in the automotive industry – Sony Innovation has invested in What3Words (a geocoding system) – also invested in by Daimler. Itochu has invested in Hiyacar and I realise now that its acquisition of UK car repair chain KwikFit probably also fits into this automotive services play. Similarly Sumitomo Corporation has invested in the Nordic parking company Q-Park and Sweden’s car sharing service Aimo. Japan’s Park24 acquiring National Car Parks in the UK is probably also looking to a CASE future. Panasonic acquired Spanish automotive systems and parts company Ficosa in 2017.

So really, it’s not about any one country leading the fourth industrial revolution – it will be collaborative and global by its very nature. Both Japan and the UK need to keep their doors as wide open as possible to let everyone get on the ride.

Japanese acquisitions in the European recruitment industry

The two newest entrants in the rankings that my company compiles of the biggest Japanese employers in the UK are both recruitment agencies – Trust Tech and Outsourcing. Both companies have acquired several recruitment agencies in the UK – as well as in Germany, Netherlands and Poland – over the past 4 years.

This is bringing back memories for me of 13 years’ ago when I acted as consultant to another Japanese recruitment agency, who had acquired several companies in the UK and Eastern Europe. They asked me to find ways in which these companies could cooperate and collaborate with each other, to enable a more integrated structure and strategy in Europe.

I quickly found, however, that each recruitment market in Europe was very local, with their own customs, laws and regulations. The Japanese company ultimately withdrew from Europe, as it had itself been acquired by a bigger Japanese recruitment company and its strategic focus became much more domestic oriented.

It is not clear what the strategic intention of the Japanese recruitment companies in expanding in Europe is this time, beyond growth in turnover. They mention providing manufacturing and IT staff to Japanese customers who have operations overseas, but I’m guessing this is more likely to be in Asia than Europe.

Japanese manufacturing in Europe is moving eastwards, so having a presence in Poland, Czech Republic or Slovakia may well be useful in assisting Japanese companies there.

As for the UK, there is a shortage of people with engineering and IT skills and this looks set to worsen, thanks to Brexit potentially restricting rights of EU citizens to live and work in the UK. The number of people coming to the UK from the EU has already fallen dramatically, causing labour shortages in healthcare, construction and food processing sectors.

Apart from the impact of Brexit, the main change in the UK recruitment sector in the past decade is the increase in regulation and compliance. The reason that Japanese recruitment companies suddenly find themselves amongst the biggest Japanese employers in the UK is that temporary workers are now considered under law as employees of the staffing agency, and have rights accordingly to pensions and other benefits. Staffing agencies must therefore comply with UK legislation such as reporting on the gender pay gap and complying with the EU’s General Data Protection Regulation.

Industry experts say that recruitment in Europe is no longer about just sourcing candidates and placing them. Labour shortages and pressures to hire people with more diverse backgrounds mean that recruiters have to be more innovative and better at gaining insights from data, to help their customers revise job roles, benefits and salaries to make themselves more attractive.

This means being as close as possible to the customer and the local pool of potential recruits. I am not sure therefore, how Japanese companies can add value to this sector in Europe, or indeed learn from it. So maybe their acquisitions are just about growing revenue, after all.

The original version of this article was published in Japanese in the Teikoku Databank News and can be found in “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.