Japanese Business Blog - Rudlin Consulting

Nidec’s Nagamori on the root causes of Japanese corporate scandals.

The founder and President of Nidec Corp, Shigenobu Nagamori has been high profile in the Japanese media (again). As well as a long interview in Diamond magazine about why all 57 of his acquisitions (many in Europe) have been a success, he gives some punchy analysis in his final column for the Nikkei Business magazine on what the root causes of the succession of scandals coming out of corporate Japan.

“It is the top management’s fault if bad news does not reach them. If there is something wrong with the production process or sloppiness in quality control, this is a matter of life or death for a manufacturer. That such important information is not being communicated is because the management is not going to the genba (where the action is) and seeing what is going on for themselves.

4 root causes of scandals at the genba

Nare (becoming used to something) Thinking that a certain level of irregularity won’t be a problem, getting accustomed to it.
Amae (being indulged) – believing that you won’t get found out anyway
Tiredness – when the cost price seems to have reached rock bottom or kaizen has been continuing for a while
Takotsubo (octopus pot – for more uses of this analogy, see our post on octopus appointments) – silos where a problem in one unit is hidden and not communicated to other units

This happens because managers are not ensuring a sense of urgency in the genba. This doesn’t mean they have to keep pressurising employees. They should be making frequent efforts to strengthen and pull up the genba. That’s why they should enter the genba themselves and see for themselves what is going on in R&D and manufacturing, sales. This will naturally lead to a sense of urgency.

Of course managers set targets, but if they don’t know the genba, then these are just words, and feel very distant to the genba.

The need for “hands on”, “micromanagement” and “making responsible without giving away responsibility”

Hands on means the genba solves problems with the management alongside. Not just throwing problems at them.

Micromanagement is that managers make decisions about all the issues in the genba. When I acquire a company that is in trouble, in order to reconstruct it, I check purchasing for even 1 yen. Some people say this will undermine the ability to think for themselves but it’s quite the opposite. It is to make the employees think, come up with suggestions and work alongside managers to review it. Not just get told, in a one way fashion.

“Making responsible without giving away responsibility” means that I delegate authority, but I don’t just leave people up to it. Otherwise the genba logic just becomes stronger and they fail to see what is appropriate overall. So delegate, but regularly check, very thoroughly.

The importance of developing generalists

It’s also important to develop executives. Although there is a tendency in Japan at the moment to reject generalists, it’s no good if someone only knows one business area and has no idea about other parts of the business. While people are young, they should experience management in different divisions in order to become proper executives.

That’s why I am always visiting our subsidiaries around the world. We have 300 companies and over 100,000 employees so I can’t do this by myself. So I get other people like our CSO (Chief Sales Officer) to travel around too. I am visiting somewhere pretty much every week. If managers had this attitude, the morale of the genba will also improve. You cannot take it easy.

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Increased pressure felt by Japanese to speak English at work

36.3% of Japanese people responding to a Nikkei Business survey in November 2017 say that they have felt a dramatic increase in the need to communicate with non-Japanese people at work or because of work in the past few years. A further 32.1% have felt a gradual increase.

Only 18.9% say that English has become or may become the official or unofficial corporate language, however. 39.2% say there is a connection between performance and being able to speak English and a whopping 82.4% say they feel the need to improve their English speaking ability. The main reasons chosen for feeling this way are:

be able to do my job better (>70%)
improve my relationship network (>40%)
increase my career choices (>40%)
be able to work overseas (>30%)
improve my performance evaluations (<10%)
look as if I’m high potential (<10%)

The article makes an interesting point that those Japanese over 50 are actually quite good at English, often having worked overseas or been involved in export related jobs and benefitted from corporate budgets for English classes. Those in their 20s take it for granted that they need to be able to speak a good level of English, as this was important when they were on the graduate recruitment circuit.

So the generation that is suffering the most are those in their 30s and 40s, who did not have a chance to work overseas or study overseas in the Lost Decades of the 1990s and 2000s and also suffered from budget cutbacks on language training.

The positives and negatives for investors of local pride and identity

I was working in Catalonia just before the referendum there in 2017 and shortly after that I was in the North Rhine -Westphalia area in Germany, where people were still digesting the results of the German elections. These trips, as well as the impact of Brexit in the UK, have made me aware of how important local – not just national – identities are for businesses to thrive.

The majority of Japanese companies based in Spain are in the Catalonia region, and this choice of location is not surprising as Catalonia has been one of the most prosperous and industrialized areas of the country, offering easy land access to France and several international ports. It turns out that one of the factors behind the Catalan independence movement is a resentment amongst the people of the region that their taxes are being transferred to prop up poorer parts of Spain.

The freedom of capital, labour, goods and services in the European single market creates competition between not just countries but also regions within those countries to attract investment from business. The European Union tries to prevent this turning into a “race to the bottom” in terms of cost of labour, tax rates and cost of capital by having tough regulations on labour standards, cracking down on tax avoidance and limiting how far member governments can subsidise business investment.

Before 2008 the system seemed to work well – labour flowed to the more prosperous parts of the EU where there were job shortages and capital flowed from those regions (and from Japan) to regions where the cost of labour was lower.

In a free market, this should have eventually led to an equalization of living standards across the European Union. However, the Lehman Shock, combined with the influx of new member countries from Eastern Europe meant that capital flows returned to the safer havens of Western and Northern Europe and workers in southern and eastern Europe left their home towns to find work elsewhere in greater numbers than before.

The tension this caused is particularly apparent in Germany. The anti-immigrant Alternativ fur Deutschland had very little support in the recent elections in the prosperous North Rhine-Westphalia region – which has one the highest concentration of Japanese companies in Europe. But it had strong support in former communist eastern Germany, where the continuing gap in living standards with the west causes resentment, fuelled by worries that immigrants from other eastern European countries are further eroding wages.

For Japanese companies considering investment in Europe, local sensitivities add another layer of complexity in choosing a company to acquire or a locational base. However, if Japanese companies show strong local commitment, the local employees will respond with equal loyalty and commitment too. This is very clear in the pride and loyalty of employees at Japanese automotive plants which have been operating for over 25 years in some of most deprived parts of the UK, who have expressed their determination to succeed despite Brexit.

This article was originally published in Japanese in the Teikoku Databank News on 8th November 2017 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.

Profitability of Japanese companies in the UK lags rest of EU, pessimistic about 2018

The lag between the UK’s growth rate and the rest of the world noted by Christine Lagarde today has also been felt by Japanese companies in the UK. According to the recently published JETRO survey on business conditions of Japanese companies in Europe, whereas the percentage of Japanese companies in the EU reporting profitability has increased year on year, reaching 75% overall this year, this breaks down into 71.6% for UK companies and 76.6% for other EU countries. This might only be a 5% gap, but business sentiment is also taking a hit – with the UK coming second from bottom amongst EU countries in terms of expectations of profit growth for 2017-8, beaten only by the Czech Republic.

As for Brexit contengency plans, of the 952 responses received, 245 were from UK based companies. Around 25% of these said they were currently reviewing or considering a review of their location in the UK. Of these, 60% are reviewing the relocation of their sales functions, and 50% looking to review the location of their regional headquarters functions and 20% are looking to relocate manufacturing. Over 80% said they were preparing or considering preparing to partly relocate to another EU country, and 20% were looking to completely relocate. The top 2 countries cited as potential relocation destinations were Germany (23 responses) and the Netherlands (6 responses).

Nearly half of UK based Japanese companies were expecting a negative impact on their business from Brexit, citing customs tariffs, securing human resources and changes to regulations and legislation as their main areas of concern.

On a more positive note, the new Economic Partnership Agreement between Japan and the EU is seen as being a major advantage for their business by over half the respondents, particularly for companies based in Central and Eastern Europe. Even UK based Japanese companies did not see as much merit in a UK-Japan EPA however. The most selected reason for welcoming the EU-Japan EPA was “tariff reduction or abolition for imports from Japan” – which is mostly in the automotive sector, so I guess this means more imports to Central and Eastern Europe of Japanese cars and automotive components can be expected.

The biggest operational challenge was seen as securing human resources – for more than half of the companies based in Germany, the UK, the Netherlands and Central and Eastern Europe, again echoing recent news about labour shortages in the UK – both in terms of skills and incoming EU migration. Labour shortages outstripped last year’s biggest operational challenge of “European political and social conditions” – but the latter challenge did not fade away and in fact concerns strengthened slightly, thanks to worries in Spain regarding Catalonian independence, and in the UK regarding Brexit negotiations.

Over half of respondents expected to expand their business, over 70% in the case of Japanese companies in Italy and Poland. So, happy days if you’re an automotive sector worker in Poland.

Giving feedback is not just a language issue

There has been a marked increase in the number of clients asking me to provide training for Japanese expatriate managers in Europe on giving feedback and performance appraisals. I’d like to think this is because our marketing is having an impact – but on talking to the HR departments of our customers, it seems they have become aware of an increasing number of workplace conflicts between Japanese managers and their teams.

European employee dissatisfaction with Japanese managers’ feedback style is not a new issue. Complaints usually include that no feedback is given, or only negative or quantitative feedback. I usually explain that giving feedback is not as embedded in Japanese workplace culture as in Europe. Also, Japanese employees are used to working collaboratively as a team rather than having individual performance evaluated. The best employees are deemed to be the ones who look to improve themselves without having to be told.

I remember when I was working in Japan in the 1990s, many Japanese companies started introducing seika shugi (performance based systems) but often not very successfully. Evaluating individuals ended up destroying the collaborative, knowledge sharing work environment that is one of the strengths of the Japanese workplace.

The Japan HQ appraisal systems that have developed since the 1990s are much more quantitative than European systems. The manager gives numerical scores not just for performance and achievement of objectives, but also of behaviours, mindsets and competences. In Europe, we usually just give qualitative assessments of the latter, such as “meets expectations” or “exceeds expectations” or “below expectations”.

I suppose the Japanese quantitative approach seems more objective, and less personal. Numbers can be analysed across the whole company, and are not subject to interpretation or language barriers.

European managers use qualitative appraisals to stimulate a dialogue about what expectations they have for each individual and then come to an agreement on development opportunities for individual employees in terms of support that they need from the manager, training needs and potential career paths.

The norms of the workplace are rooted in our educational systems

My experience of the Japanese education system is that exams are of factual knowledge and knowing how to do something, often using multiple choice tests. Such exams assume there are clear right and wrong answers.

European education focuses more on critical thinking and understanding the reasons behind something. Exams are essay based, even in science. Scores are partly on getting the facts or the methodology right, but also on the quality of your arguments and the evidence you bring to prove your point.

Consequently, European employees do not unquestioningly accept numerical scores for individual behaviours, mindset and competences. They expect a manager to set clear expectations, give regular feedback and then be able to explain, with evidence, why the employee has met or not met them when challenged. The millennial generation is particularly demanding in this respect. No wonder Japanese managers need training on this – it’s not just a language issue.

This article was originally published in Japanese in the Teikoku Databank News 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.

Japanese companies should put their hard Brexit contingency plans into action now

“Don’t give up on expressing your concerns to the British government, but also start putting your contingency plans into action now” was the response from Haruki Hayashi, CEO of Europe & Africa for Mitsubishi Corporation to a question at the end of a lunch seminar in London I attended earlier this month, along with 150 mostly Japanese business people. The question had been “if we won’t know until October 2018 the likely shape of the agreement between the UK and the EU, won’t it be too late to put our contingency plans into action by then, in time for March 2019?”.

To another question regarding the possibility of a second referendum, Hayashi responded – “however desirable, might it not have the same result? And aren’t the British too proud to have a second referendum?”

Hayashi’s speech was a geo-political, economic and risk analysis of the impact of Brexit. He started by hinting that the meeting between Ambassador to the UK Tsuruoka (who was present at the lunch) and the Japanese Chamber of Commerce and Industry in the UK (JCCI UK) that morning had been encouraging – that the ambassador said Theresa May’s visit to Japan had been fruitful in the sense of being a reaffirmation of a common vision on security, economic issues and global partnership and also that there was clear agreement that the EU Japan agreement would be the basis for a quick agreement between UK and Japan.

But then he shared a classic Mitsubishi Corporation political (including security, business environment) risk versus economic impact matrix, plotting the key countries in the EU along with Japan. Unsurprisingly, he predicted the UK economic impact to decline and political risk to increase from its current position clustered with France, Germany, Japan, Italy, Spain and Poland.

“London is the UK”- and up until now, the UK was the EU for Japanese expats

Nonetheless, from Japan’s perspective, the UK is currently so dominant in terms of Japanese presence in the EU, it will take a while for this to unwind. I hadn’t realised quite how dominant in terms of where Japanese themselves are located – there are around 207,000 Japanese living in the EU, and around a third of those are in the UK, with 90% of those in England and over half in London. “London is the UK for Japanese” said Hayashi. There are around 1000 Japanese companies in the UK, around a third of them are members of the JCCI UK. This represents 15% of the 6465 Japanese companies in the EU, which is not far from the 16% of EU GDP that the UK economy represents or the 13% of the population of the EU that the UK represents.

But as I have blogged elsewhere, it is the size and function of these Japanese companies, and also I now realise the density of the Japanese expatriates in them, which is where the UK has been dominant – many of the Japanese companies in the UK are the regional headquarters, and most of their Japanese expatriates are located there.

The UK also took the lion’s share of Japanese investment into the UK. Hayashi pointed out here was a big increase in Japanese acquisitions in the UK from 2010, particularly in 2016, with Mitsui Sumitomo Insurance acquiring Amlin and Softbank acquiring ARM (although I see the latter as an investment rather than an acquisition in the sense of integrating or accessing a market).

Japan’s soft power – more British visit Japan than Japanese visit the UK

Japan’s soft power in the UK is very apparent too – Hayashi listed up all the British brands that aren’t Japanese, but are Japanese influenced, like Yo! Sushi, Wagamama, Wasabi, Itsu and Superdry. And I can testify to his point that the Mitsubishi Corporation sponsored Hokusai exhibition at the British Museum was completely sold out. More British people now visit Japan than Japanese visit the UK – the cross over being in 2011 – 292,000 visited Japan last year, 75% of whom were tourists, whereas Japanese visitors have been at a fairly stable 220,000 to 240,000 a year to the UK. And British tourists spend more than Chinese tourists – because they stay longer and spend more on accommodation.

Japan’s voice is being heard more than a few years’ ago

Hayashi pointed out how the share of global GDP has shifted over the decades from the traditional West to China and India, and that EU integration seems to be losing pace. Japan can take leadership, to continue to support globalization and rebuild it to include China and Russia. Hayashi says he was initially rather embarrassed at the coverage his comments about Brexit got in the Guardian newspaper, but now he thinks it was fair, and that as British people do read the newspapers, it’s important for Japanese companies to have their voices heard in the media – for which they need to have a focused message. “Write to UK ministers about your concerns. Don’t give up. Start now”.

Pernille Rudlin interviewed by BBC on UK trade delegation to Japan and Brexit

Pernille Rudlin is interviewed by BBC World Service Business Matters on Theresa May’s trade delegation visit to Japan and the likelihood of being able to get any kind of commitment to a trade deal. You can hear it or download it here There’s a clip in the introductory news headlines and the actual piece starts 6 mins 38 seconds in on the podcast, 3 minutes 50 seconds in if you are listening to the streaming version.

Japanese overseas subsidiaries in Europe: M&A boom equals more employees, less capital investment?

Recent statistics on Japanese companies’ activities in Europe show an overall positive picture – growth in employee numbers but declines in capital investment. Could this be a reflection of the ongoing Japanese overseas acquisition boom?

Sales of Japanese overseas subsidiaries in the 1st quarter of 2017 were up 7.9% overall on the previous year and at similar levels in Europe, but growth in North America was 4.3% up on the previous year. Asia represents nearly 50% of Japanese subsidiaries abroad, and sales grew 8.8% on the previous year, according to figures from Japan’s Ministry of Economy Trade, and Industry.

However capital investment declined again, by 13.6% (12 consecutive quarters of decreases) particularly in Europe (40.9% decline – the first decrease in 5 quarters) and ASEAN countries. Capital investment in North America was only down 0.8% but even this was the first decrease for three quarters.

Nonetheless, the number of employees increased 1.9% globally, and by 4.9% in Europe, the 15th consecutive quarterly increase. Growth was less in Asia (1.3%) and North America 2.9%).

This may reflect a long term shift of Japanese companies in Europe towards more service oriented, and therefore people intensive businesses, away from capital intensive manufacturing.

However, figures from the Japan Automobile Manufacturers’ Association show that automakers in Europe are still expanding production (by 7%), although below the peak levels of 2007 and 2008. 17% more cars were imported from Japan than the previous year, but Japanese car manufacturers also purchased record numbers of EU made components.

Exports of Japanese cars manufactured in Europe fell 17%, representing around 20% of Japanese production in Europe. These exports went (in order of size) to North America (24%), Latin America (10%), Middle East (10%), Africa (8%), Oceania (8%) and Asia (6%) – presumably including Japan, and the Honda Civic that Boris Johnson drove when he recently visited Japan, citing it as an example of “fantastic” British exports to Japan.

Japanese car manufacturers now operate 14 plants in seven EU countries – 4 in the UK, 3 in Spain, 2 in Portugal, 2 in Poland, 1 in Hungary, 1 in France and 1 in the Czech Republic. The major capital investments in 2016 were made by Nissan in the UK and Spain and Toyota in Poland.

Is it worth the effort to learn Japanese?

When people hear that I speak Japanese they usually say “how amazing – you must be so clever” and “you must be in demand for all sorts of jobs”. Actually I learnt Japanese the stupid way, which was to live in Japan as a child, and go to a Japanese school. And as for being in demand, I find that most companies do not want a Japanese specialist as a full time employee.

Think vocation before language ability

So I recommend to Japanese speakers that they think about what profession or industry they want to be in first, and then look for ways to incorporate their language skills. Most companies rightly put a priority on people’s technical or interpersonal skills rather than a specific language ability.

Avoid jobs which might use your language, but there’s no career path

It’s true that Japanese companies and people who supply services to them outside of Japan often hire Japanese speakers – but this can end in frustration if the Japanese speaker is simply given a nebulous role as a translator/customer liaison/interpreter with no clear career path.

Once a week Japanese lessons lead to frustration if you want to be fluent

Non-Japanese people working in Japanese companies often ask me if it’s worth learning Japanese themselves. I always say yes, although I warn them that they may get very frustrated if they expect a lesson a week to lead to fluency. Once they discover the three different ways of writing and multiple levels of politeness, not to mention the countless ways of counting, it’s very easy to give up in despair.

I’ve also been asked a few times if it’s true that Japanese colleagues dislike it if you speak Japanese, because it means that you know what they’re saying even though you’re not “one of them” and can’t be trusted with secrets.

This seems paranoid to me and certainly I’ve never experienced anything but relief from Japanese colleagues who realise that they don’t have to struggle to explain themselves to me in English.

Japanese is like skiing

What can cause mistrust however is reaching an intermediate level, where you think you understand what is going on (but maybe don’t), and inadvertently say the wrong thing or say something in an offensive way, because your language skills aren’t quite as good as you thought. Your Japanese colleagues assumed your Japanese was good enough to rely on you, but now you’ve let them down.

It’s a bit like skiing – the most dangerous level is the intermediate level. At the beginner level you might fall over a lot but you are unlikely to be going at speeds or off piste so it won’t kill you. But if you become overconfident, and attempt something risky without the advanced skills necessary, you may well end up in hospital.

The occasional mistake is forgiven

The occasional mistake is usually forgiven, however. Once – in a hurry – I sent an email to a customer saying “thank you for your response” using the Japanese word “henji/返事” for “response” but I failed to notice that for some reason it had auto corrected to a different “henji” – “変事” – which means “strange thing.” It probably helped that I was young and also had – up to then – been efficient and polite. My customers just thought it was very funny.

Even a weekly lesson will help you understand Japanese culture

Even though rapid fluency in Japanese is pretty impossible with just a lesson a week, I nonetheless think Japanese companies should fund employees’ efforts to learn Japanese. There is more and more evidence to show that learning another language helps you understand the culture and even unconsciously adapt the way you behave – how you analyse and react to situations.

For example, the Japanese language is “selfless”, which is a core Japanese value too. A typical English sentence has a “Subject, Verb, Object” construction. “I love you” for example. But in Japanese there is often no subject, and even no object. You just say “love”, and the context provides all the clues. This is another Japanese communication trait – to be “high context” – to understand what is not being said, and be sensitive to the context.

Japanese companies value multilingual people even if Japanese is not one of their languages

Having multilingual employees is a benefit not just because they may understand Japanese corporate cultures better. Recent research in neuroscience shows that multilingual people’s brains operate differently. For example, they make more rational decisions if they are functioning in a non-primary language. Working in another language reduces loss aversion, so people become better at assessing risks and benefits.

My observation, having worked with hundreds of Japanese companies in Europe over the past 12 years is that they tend to hire proportionately more multilingual employees than domestic European companies do. Perhaps they instinctively realise that multilingual people – even if Japanese is not one of their languages – are more likely to have the abilities to manage complexity and problem solve that they are looking for.

What to do if you want to work for a Japanese company

· Just speaking Japanese is not enough – at least for long term career fulfilment (on both sides). So think about your vocation – what you will love doing professionally – first. Then look for ways to develop or incorporate your language skills.

· If you want to improve or learn Japanese well enough for it to be of use in a Japanese company, you need to immerse yourself as much as possible. If you can’t go and live in Japan, then make sure you take the opportunity of someone like LinguaLift’s services to do something every day to expose yourself to the Japanese language.

· Even if you can’t reach a professional level of Japanese, don’t despair – just the fact that you made an effort will impress a Japanese employer, and give you some clues into Japanese culture, which will help you be effective in the Japanese workplace.

· If you’re multilingual in other languages as well, apply to the regional headquarters of Japanese companies – that’s where they need people with all kinds of linguistic and cross cultural communication talent to coordinate their business overseas. And if working in Japan is one of your goals, they may well be open to transferring you to their Japan headquarters. Then you’ll get good at Japanese – fast!

You can also try some of Japan Intercultural Consulting’s online modules – the certificates of completion will prove to a Japanese company that you know what you are getting into!

Size matters when choosing a Japanese company

Whether you’re looking to work for or supply to a Japanese company, size matters. The most obvious reason being, as bank robber Willie Sutton apparently never said, “that’s where the money is”. That’s why we started our Top 30 Japanese Employers rankings – we’ve found them useful in understanding our customer base and the likely concerns of participants in our seminars.

We use the number of employees as a proxy for size rather than turnover or profit, and although there is a degree of correlation between employee numbers globally and in Europe and overall profit, there are some exceptions.

Toyo Keizai have recently listed up the companies* who made the biggest cumulative profit in the past 10 years and it’s absolutely no surprise that Toyota, one of the biggest companies in Japan and #9 amongst Japanese companies in Europe, made a whopping Y11 trillion ($99bn) cumulative profit from 2007 to 2017, far outstripping NTT and NTT Docomo at #2 and #3 who made less than half that amount. NTT and NTT Docomo are not in our Top 30 Japanese companies in Europe, although another group company, NTT Data, is.

However NTT and NTT Docomo never made a loss, whereas Toyota did go into the red – with a loss of $.8.6bn in 2008/9. Honda, who has had a tough time in Europe (and is #23 in our rankings), has also never made a loss, and accumulated a $36bn profit over the decade. Nissan, who made a loss but was famously turned round by Carlos Ghosn, is 10th largest in Europe in our rankings and has the 6th largest cumulative profit.

I was surprised to see my old employer Mitsubishi Corporation at #5, as they too had some rough patches particularly with losses in the commodity side, but clearly overall the Japanese trading companies have been very profitable, despite their death being heralded every decade – Mitsui is at #9, Itochu at #11, Sumitomo Corp at #14 and Marubeni at #21.

Unsurprisingly, almost none of the Japanese electronics companies feature in the top 30, apart from Canon at #10 and Mitsubishi Electric at #25. Other industries in the top 50 most profitable are automotive (Denso, Bridgestone) and pharmaceutical (Takeda, Astellas) related, and also heavily domestic businesses such as telecommunications (KDDI, SoftBank as well as NTT mentioned above), rail and retail (7&I, Fast Retailing).

Two of the largest Japanese companies in Europe – Fujitsu and Hitachi – are at #69 and #70 – Hitachi’s cumulative profit was heavily dented by the historic loss of $8bn in 2008/9. The largest company in the Europe and Africa region – Sumitomo Electric Industries (due to its labour intensive automotive manufacturing operations) is at #38, with a $6bn cumulative profit.

*Excludes banks, insurance and other financial services companies