Japanese Business Blog - Rudlin Consulting

What Dentsu’s woes tell us about Japan’s advertising industry and beyond

A British former advertising executive once told me that he and his counterparts in other ad agencies in Tokyo regularly held FUD drinking sessions where the D stood for Dentsu and the F and the U, well… But it does seem as if Dentsu’s iron grip on Japan’s marketing and advertising industry is coming to an end.

Dentsu is Japan’s largest advertising agency and has also recently entered our Top 30 Japanese companies in the UK thanks to the acquisition spree it has been on, consolidating multiple purchases of agencies in the UK and elsewhere into Dentsu Aegis Network, headquartered in London.

So dominant is Dentsu in advertising spend (although its rival Hakuhodo is traditionally stronger in magazine advertising) that you rarely get much critical coverage about it in the Japanese media. Critical analyses are starting to appear now though, following the suicide of Matsuri Takahashi in 2015 from overwork and then revelations in the Financial Times (clearly undeterred by being owned by the Nikkei group) of Dentsu overcharging clients for digital advertising, both leading to the resignation of the President Tadashi Ishii in December 2016.

“Corporate culture at Dentsu is like the military”

Shinichiro Kaneda in the Nikkei Business takes a look at whether the culture of Dentsu has changed since, in the May 8^th edition of the magazine. “The corporate culture is like the military” according to Takahashi’s mother. Kaneda says yelling can still be heard coming from the “sermon room” as one meeting room was known, for small mistakes or a lapse by junior staff. New graduate hires have been threatened with the tonsure if they do not reach the peak of Mount Fuji in the top group during the new staff orientation programme.

This military culture is necessary to Dentsu says Kaneda, because it is based on Dentsu’s unique position with regard to its clients. “What the head of the advertising section of a client says is an order which must be obeyed” says a former executive. “Even if they give two contradictory orders, you have to comply with both.”

Crush new graduates’ pride

But the new graduate hires have all come from elite universities like Tokyo. “People who think logically want to answer back. So Dentsu have to, at the outset, crush graduate hires’ pride and personality. That way, they will just fall in line with what other people tell them to do”.

Takahashi was a graduate of Tokyo and suffered when she found herself being sucked into this culture. Dentsu bears responsibility for not changing this culture, but behind it is a wider problem across the whole of the business sector of Japan, says Kaneda.

A wider problem across Japan’s business sector

Dentsu’s clients are major companies with advertising budgets in the millions of dollars. The head of the advertising section reports straight into the top executives of the company. Requests from clients bypass Dentsu’s own sales force and go straight to the business units and in some cases to Dentsu’s top executives. Everybody gets copied in and it becomes a “stamp rally” and if even one person opposes it, then the plan is overturned,” says a Dentsu insider.

This affects the shop-floor at Dentsu who are forever urgently redrafting proposals while at the same time having to keep an eye on costs.

The media is also very demanding. TV stations try to sell advertising as a package of both late night spots and peak time spots which Dentsu has to persuade its clients with large budgets to swallow.

When economic times were better, money flowed around and budgets and manpower were generous. Results were measured with a few qualitative surveys.

But now the Japanese economy is stagnant and with digitalization, large budgets covering everything are being subject to the scalpel and foreign companies in particular are asking for a much greater level of detail.

Traditional mass media is less influential and internet advertising is not only cheaper but results can be measured quantitatively.

Militaristic approaches do not work in this kind of situation. “It has exposed the contradictions of the Japanese workplace” says a Dentsu executive.

In order to keep up profits and save the face of the advertising departments of clients, Dentsu keeps offering advertising services that they claim will sell, but then the results are measured quantitatively, and if targets are not made, harsh treatment is handed out. This is particularly true of digital advertising.

“Dentsu is a warning to Japanese companies who do not look at what is happening at the ground level, and just pursue profit” says Kaneda.

How Dentsu compares to Hakuhodo

Former Hakuhodo (the second largest ad agency in Japan after Dentsu) employee and now author of many books, Nakagawa Junichiro, was interviewed in the Toyo Keizai magazine regarding the “super elite” of Dentsu and Hakuhodo. “they are neither a normal company nor are they media. They do anything that is related to communication. They have both made a lot of money and the employees are paid well. Yet they because they do not make their internal workings transparent, it is not clear what kind of companies they really are.”

“They will say yes to whatever the client asks for. The employees are simply a mass of corporate slaves. There are lots of internal organisations going by foreign sounding names or numbers. For example, one local government was told their account was being looked after by the #13 section but then this section split off and changed its name. This happens almost on a daily basis to meet client needs.”

“The human networks are complicated. For example if a magazine says it wants to write about Company A, the PR department of Company A will ask Hakuhodo if the magazine is respectable or just trying to blackmail them into taking advertising. Hakuhodo will ask one of its sub contractors who know this area well. But it’s not always so clear what the sub contractor’s own interests might be.”

Political campaigning

Both Hakuhodo and Dentsu run campaigns for political parties – usually Dentsu for the LDP, the centre right party that has been in power during most of the post war period and Hakuhodo for the DPJ (now the Democratic Party). Since the election has moved onto the internet, the amount of money following around has become greater. All kinds of media are now being used from videos to animated graphics and Dentsu and Hakuhodo try to offer the full range.

Learning to bow

Shazai press conferences (where executives have to bow in apology for some misdemeanour) are also good business. A rehearsal generally is charged at Y1m to Y2m ($9000-$18000) – the agency role play being journalists, they create various scenarios and make a recording of it and guide executives on what to say. “I am pretty sure you can see Dentsu’s influence on Sarah Casanova, the President of McDonalds Japan’s apology, if you look at the way she behaved the first time compared to the second time” says Nakagawa.

The amount the agencies earn from one client can be significant. In 1996 when Hakuhodo won both the Nissan and the Mazda accounts, their turnover rose by Y130bn. “So it’s tough on your career if you lose accounts like that. Retaining clients by being totally devoted to them becomes key and the sales executives are seen as the elite. Although at Hakuhodo the creatives are the elite, and the salaries are about 70% of Dentsu’s, but still pretty good. What’s true of both agencies is that sense that you cannot do anything in your own organisation or by yourself, you are nothing without the agency.” So meetings tend to be full of people, and so as not to anger the client, instead of creating the trend, you tend to go with the flow.

Nakagawa left Hakuhodo because “when I started working on the Amazon account, I realised I had become a typical agency salaryman who simply supports the career of some middle aged guy at the client’s, who I don’t even like.”

Overtime is a problem not just in the advertising agencies

“Overtime is a problem for all Japanese companies” not just advertising agencies. “People take the “customer is god” idea too much too heart. Both Dentsu and Hakuhodo try to achieve over 90% for their clients. If they stop doing that then maybe overtime will disappear.”

“Dentsu is not that strong in the digital space. There’s still things they need to learn. They are good with TV for the World Cup and the Olympics, but they are being beaten on digital. The specialist shops are stronger. Unfortunately, with digital you can always keep adjusting and improving so the work never ends”

“Advertising executives are remote from real life. They only hang out with the top few percent of income earners. They are all graduates of top universities. But they are not that corrupt.”

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。

“Everyone has responsibility, but nobody can take responsibility” – the roots of nemawashi

One of the most practised concepts in Japanese business is nemawashi, often described as “Japanese style consensus building”. Sometimes explanations go further, getting into the word’s literal meaning- to dig around the roots of a tree in preparation for transplantation. When I talk about nemawashi in my training sessions, I try to create a more vivid image by pointing out that if you want to transplant a mature tree, just yanking the tree out of the ground by the trunk will kill it. The metaphor holds if the goal is to transplant a new idea in a Japanese company. If you were approach whoever you think has the decision making authority (‘the trunk’) and obtain only their approval, it is likely the decision would die in implementation, because you did not get the understanding or agreement of all the other people likely to be affected or interested (the roots).

Europeans do consensus too…

Europeans from consensus oriented national cultures like those of the Netherlands and Sweden, respond to this lesson by saying “well of course, we would always do this kind of consensus building anyway, it’s common sense.” In the Netherlands, consensus-based decision making is known as the polder model. Polders are low lying tracts of reclaimed land protected from the sea by dykes. In the past, all Dutch, regardless of whether they were peasants or noblemen, whether they lived on or near the polders, had to reach a consensus on how to protect them, and everyone had to be involved in carrying out the plan, otherwise all would suffer. Nowadays the word describes the kind of political consensus reached between government, the unions and business to adjust wages or social benefits or environmental protection.

…but it’s differently interpreted

Both Dutch and Japanese would therefore say they have a long history of consensus based decision making, but a study published in the Journal of Management Studies* concludes that “the concept of consensus is interpreted quite differently by Japanese and Dutch managers.” In Japanese companies, nemawashi is carried out through a series of informal, often one-on-one discussions, so that there is already a consensus when the meeting to discuss the “transplantation” is held. The meeting, then, is more about formally recognising the decision. In Dutch companies, the consensus is reached during a meeting, often through quite heated debate. Also, the Japanese managers demand a more complete consensus, whereby all agree, including other departments, whereas Dutch “appreciate the process of trying to reach consensus, but when a difference of opinion persists, the decision is taken by someone”.

This someone would therefore be expected to take responsibility for the decision, if things were to go wrong. In Japan, the view is that a comprehensive consensus is necessary to avoid putting the decision maker and the company at risk, and to preserve harmony and the employee loyalty. Given the time and care taken to get such a comprehensive consensus in Japan, once a decision is made, there is no turning back. To the Dutch, this is symptomatic of Japanese companies, where “everyone has responsibility, but nobody can take responsibility”.

*Comprehensiveness versus Pragmatism: Consensus at the Japanese-Dutch Interface, Niels G. Noorderhaven, Jos Benders and Arjan B. Keizer, Journal of Management Studies, 2007

This article by Pernille Rudlin originally appeared in the Nikkei Weekly. This and other articles are available as an e-book “Omoiyari: 6 Steps to Getting it Right with Japanese Customers”

April – a time for cleaning and renewal in Japan and Europe

Japanese people living in northern Europe tell me they miss the distinctive four seasons of Japan. At first this seems a strange thing to say to most Europeans, as we believe we have four distinct seasons too. But it is true that changes in the season are far less predictable than in Japan, and from autumn through to spring there can be a succession of indistinguishable grey, wet, cold days.

Spring has come earlier than normal this year thanks to an unusually warm winter. The daffodils and crocuses are already beginning to bloom in the parks where I walk my dog and this weekend my husband and I remarked how busy and energised the town seemed. Although the end of season sales are still dragging on, the new spring stock is in, with fresh, lighter colours in the window. The bright sunshine pushed me outdoors to clean the outside of our windows of the winter grime and my husband has nearly finished repainting the kitchen.

Spring cleaning vs the Big Clean

We call this “spring cleaning” in the UK – similar to the Osoji (Big Cleaning) that happens in Japan for the New Year. We don’t do much cleaning around New Year partly because the days are so short – getting dark by 4pm with the sun rising as late as 8am at the end of December. Even in the daylight hours it is too gloomy to see the dirt.

Spring is also a time of rebirth and renewal in the Christian calendar. From February 10^th to March 24^th this year is a period called Lent, when you are meant to give up vices such as drinking alcohol or smoking or eating favourite foods such as chocolate. This is a way of remembering the 40 days that Jesus spent fasting in the desert and is supposed to be a spiritual preparation for Easter (the weekend of 26^th and 27^th March this year), which commemorates the death and resurrection of Jesus. These dates change from year to year – Easter and Lent in 2017 will be three weeks later than 2016.

Pre-Christian origins of Easter

Actually the word “Easter” has pre-Christian origins – deriving from an old Germanic word for dawn. According to the 8^th century historian, Bede, there was a northern European pagan goddess of dawn, Eostre, whose symbol was a hare or rabbit – which is thought to be why so many Easter decorations feature rabbits. Another symbol of Easter, the egg, either made from chocolate or painted hen’s eggs, is also pre-Christian, when people gave each other eggs as gifts around the time of the spring equinox.

A time for cleansing and renewal in Japan and Europe

So, while the financial year of April 1^st to March 31^st is not as universal in Europe as it is in Japan, and our academic year actually starts in September/October, March and April are still a good time to renew and refresh the company. The rhythms of a cleansing and preparation period in February and March, followed by a new lease of life in April have deep roots in the European psyche.

This article was originally published in the Teikoku Databank News in March 2016 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.

Amsterdam is first choice for Japanese companies’ regional HQ in Europe post Brexit

“When the UK leaves the EU, it is the strongest candidate for regional headquarters” says one Japanese manufacturer about Amsterdam, in the Nikkei Business magazine. Since the UK said it would leave the Single Market, Japanese companies have started their search for new regional HQ locations. Although Frankfurt and Zurich are also in the game, Amsterdam is seen as particularly strong.

There are many pluses: low taxes, and various regimes to suit different businesses. The logistics infrastructure is robust and it is easy to access the other main economies in Europe from there. Additionally, the lifestyle is congenial for Japanese people.

A priority for Japanese companies is the financial infrastructure. “If we are physically close to our financial services suppliers, then we can easily exchange information and opinions” says the manufacturer. Of Japan’s megabanks, Bank of Tokyo-Mitsubishi UFJ and Mizuho have regional coordinating operations in Amsterdam. There is a possibility that Sumitomo Mitsui Banking Corporation will also move its European coordination activities to Amsterdam.

However, Japanese companies who are looking at moving their base to Amsterdam have one increasing headache, which is the uncertainty of the Dutch political situation. In a survey from 2016 (ie before the election where Wilders’ Party for Freedom did not do as well as feared) of the members of the Japanese Chamber of Commerce in the Netherlands, political, economic and social environment came second as an increasing area of concern, after worries about employment (being able to hire or bring in Japanese employees, tax, pensions and ability to lay off workers). The third biggest area of concern was for expatriate visas and the process of obtaining ID cards. 4th was the legal and regulatory framework – obtaining permits, approvals, meeting standards and whether those standards are appropriate.

There is a concern that if the Netherlands cracks down on immigration, it will be difficult to hire a diverse labour force – one of the UK’s traditional strengths and attractions for Japanese companies.

Top 30 Japanese companies in Europe 2021

FREE DOWNLOAD

Send download link to:

Chinese students in West, Japan, don’t want to return to China

“Don’t bother telling a Chinese person to stick to a schedule” said Ke Long (of the Fujitsu Research Institute) in his opening remarks to a Japanese business lunch I regularly attend – confirming Prof Erin Meyer’s conclusions covered in our previous post on Chinese and Japanese attitudes to time keeping.

He was only 5 minutes late in finishing, but I don’t think anyone minded as his talk was thoroughly entertaining in fluent and only lightly accented Japanese – funny and revealing. Although he warned us he would not stick to the slides in the handout, he did in fact manage to cover all the key points, interlaced with many amusing stories.

He was born and brought up in Nanjing, which as he pointed out, did not have a happy history with Japan. So in 1983 when he was graduating from high school, he had no interest in Japan and had in fact applied to study English literature at the local university. He thought there had been a mistake when he received a letter saying he had been awarded a place to read Japanese. It turned out that the Chinese government, in an effort to prepare enough interpreters for a major Japanese government mission in three years, had cut all English, French and German courses and replaced them with Japanese courses.

He then wanted to study at Nagoya University in Japan, but struggled to get a passport. He was called in time and time again by officials who asked him why he wanted to go to Japan and what he was intending to do after his studies there. “You must not give the real answer, of course. So I said I wanted to study for the sake of my mother country and that I would return immediately. Neither were true.”

He was told to apply for a private university first before trying for more prestigious state universities like Nagoya. So he ended up at Aichi university, thinking that as it was named after the prefecture, which was bigger than Nagoya city, it should be correspondingly better, not knowing a well known dictum in Japan that the larger sounding the name, the worse the university.

To his amazement, he discovered that the entire Economics faculty were Marxists. “This is what I have escaped from!” he protested.

His insights on China, the US, Japan and the UK in his talk were:

He highlighted greater inequality in the US compared to Japan and how it has increased rapidly. The top 1% wealthiest in the USA had 280 times more wealth in 2010 than the median, compared to the previous peak of 190x in 2004. He said on his regular trips to the US he is invited to houses of wealthy Americans, where 30 servants are not uncommon. Whereas the President of Fujitsu lives an ordinary life in a standard Japanese family house.
Chinese people are so suspicious of the quality of goods they can buy in China that they prefer to import the exact same product, made in China, from Japan.
China had a population bonus which explained its phenomenal growth, but this is ending. The male/female imbalance – particularly the fact that there are 30 million more males under the age of 20, is storing up trouble, socially and economically. The population is declining and ageing.
China has to increase its Total Factor Productivity as a result, which means more innovation, but China is not there yet (despite spanking both Japan and US in supercomputing recently).
His view on why American share prices are booming is that it is not Trump’s policies or that American companies are so wonderful, rather that Chinese money is pouring into American equities. It’s not going to Europe or offshore. Chinese diaspora funds are channelling the money from Chinese banks, even though China is trying impose tight controls on outward flows of money – since December 2016 investment in overseas properties and financial products has been banned. Presumably this will hit the UK property market too. Hundreds of regional bank officials have been arrested recently as the central government tries to crack down.
Although relations between China and Japan have their tense moments, it was not likely that China would ever attack Japan as its sea and air forces are not sufficient. Its army is huge but largely manned by young only children, whose commitment to fighting Ke doubts. Furthermore army leaders are highly corrupt and wealthy.
He thinks China would like to continue with friendly relations with the UK, as a counterbalance to the US. There is unlikely to be a trade war, but what should worry China and Japan is what to do about North Korea. It’s about time Japanese politicians stopped worrying about rightist kindergartens “amusing though it is” and came up with a strategic foreign policy.
He does not fear a China economic collapse, but points to the slow pace of reform, particularly in the over investment in capital by state companies and the continuing stumble of the zombie companies. The fear in China is that reforming these companies will lead to unemployment, and China is not like Japan in terms of how it reacts to this. There are riots, with local government officials’ cars set on fire, he says.
As for the wave since 2010 of Chinese students studying abroad in the UK and elsewhere, he says this is quite different to previous waves. The UK government will be dismayed to learn that there is no intention on the part of the Chinese students to return to China. This is education with the intent of immigration. Their parents also no longer want their children to come back to China and become civil servants as in the past, given the crack down on corruption going on. Many came to the West as children, studying at private schools, and have developed a taste for the Western life.

Trust, scheduling and decision making – the differences between China and Japan

“Japanese people are punctilious about time keeping and the detail of their work, loyal and don’t complain. From a non-Japanese perspective, this conscientiousness, loyalty and perfectionism are something to be respected”. So says Kurasawa Misa in an interview with Erin Meyer, professor at my old business school INSEAD in the Toyo Keizai online.

Meyer has recently published a book based on her 17 years of interviews with business people from around 55 different countries, which condenses her findings into 8 different cultural maps. We have 19 at Japan Intercultural Consulting, and see a lot of similarity in her work with our dimensions and cultural maps, which is comforting.

Kurasawa: Are Japanese people particularly difficult to work with from a Western perspective?

Meyer: Certainly Westerners find it challenging to do business with Japanese people. One reason is that Japanese people are not very emotionally expressive. Also they are not particularly troubled by silence or vagueness. You often hear that when Westerners give a presentation to a Japanese company, it ends in puzzlement. The Japanese audience sits quietly with no response or eye contact. This is confusing for Westerners.

I have had similar experiences. I have asked at the end of a presentation if there are any questions and no one raised their hands, so I went back to my seat. Then a Japanese colleague said to me “Erin, there was a person who wanted to ask a question. Do you mind if I find out?” So he stood up and said “Professor Meyer’s lecture has ended, but are there any questions?” No one raised their hand, so he looked across the audience and then asked one particular audience member – “I think you have a question?” and indeed that person asked a particularly important question. Then, in the same way, various other questions were asked. Afterwards I asked him how he knew which people wanted to ask questions and he said “their eyes were shining”.

I thought I should try this so asked his advice. He said “Japanese people do not make as much eye contact as Americans. So when you ask if there are any questions, most people don’t look at you but look elsewhere. But amongst the audience were people who were looking at you steadily. Those people probably have shining eyes.”

Sure enough, the next time I made a presentation I saw one woman was watching me the whole time, and when I asked if she had a question, she nodded.

Kurasawa: That’s a very ‘Japanese’ way of expressing intention isn’t it?

Meyer: Japanese people send messages in all kinds of ways, and this is the Japanese communication style. If you are not aware of it, you cannot do business in Japan. It will just end with “they don’t talk, they don’t ask questions.” You have to make the effort.

On the other hand, when Japanese people work in a different culture, they have to realise that not raising their hands to ask a question will be interpreted as a lack of passion, or that a message did not get through, or that the Japanese person just doesn’t care.

Kurasawa: In your book, Chinese people are often relatively close to Japanese in the positioning. Yet to Japanese people, there are big differences in the Chinese national culture and way of doing business?

It’s true that when you look at the culture maps, Japan and China are very close. Both have hierarchical organisations, both do not say directly what they mean but still manage to communicate their intentions. However if you directly compare China and Japan you can see some big differences.

For example, I visited China a few months ago and saw a surprisingly big difference in attitudes to planning between Japan and China. Japanese are very punctual and plan everything down to the last minute. On the other hand, in China there are regular changes to schedules. The timing and location of the seminar will keep changing right down to the last minute and the speakers and the participants will also keep changing. However it all works out in the end. Chinese people are very flexible about change.

So it is a very different experience for Americans visiting Asia when it comes to Japan and China. With Japan the scheduling starts months in advance right down to where the dinner will be held. My most recent seminar there started at 10:03 and even then someone said “this is later than planned”! I was very surprised. When you have this kind of experience, you cannot really say “Asian” meaning Japanese and Chinese together.

Kurasawa: So what should Japanese people bear in mind if they are doing business with Chinese or Korean people?

Meyer: If you look at the culture maps, there are three areas in which China and Korea are different from Japan. For example in decision making Japan is one of the countries of the world which most values consensus, whereas in Korea and China there are strong top down tendencies. So in Japan decision taking takes a long time but the decision is almost always executed as planned. Whereas in Korea and particularly in China, not much time is taken to make a decision, but it often changes.

So Japanese people in China often feel unhappy that they are not involved in a decision and that Chinese business-people are not very “professional”. This is not the case, but Chinese people feel that they want to get their products to the market faster than anyone else so prize speed and flexibility.

The second area is around scheduling. Japanese people are very precise about timing and want everything to go according to the plan. Chinese and Korean people are much more flexible about time.

Attitudes towards trust also vary. For Japanese people, the basis of trust is a high quality of work and products, to be on time. For China and Korea, emotional ties are the guarantee of trust.

Kurasawa: So even when countries are geographically close, there are some important differences?

Meyer: That’s the key point. From previous research into diplomats, I saw a surprising result – the highest failure rate in being posted overseas – in terms of not becoming accustomed to the culture or lifestyle and returning home early – was among American diplomats posted to the UK.

From an American perspective, you would think it would be much harder to live Japan where the culture is completely different than in the UK where at least you can speak your own language. It seems that if you feel culturally close to a country, you don’t bother to learn the culture so much and are not so flexible and open. Then you start as a result to feel stress from the differences and become depressed.

Japan, China and Korea are the same. For example, when a Japanese person is working with a Korean person, they may not make a positive effort to understand their culture. So when a Korean person behaves in a way that is different to what they were expecting they simply think they are inefficient, and feel stress. If their counterpart was Australian, they would just understand it as a cultural difference and be more open-minded in their reaction.

What is most important in multicultural or bi-cultural environments is the small differences. Above all you need to recognise that your counterpart’s culture is different. If you think that people are the same everywhere you will end up judging everything by your own country’s cultural values.

Kurasawa: It’s important to take steps towards the other culture, but some people feel it’s too much trouble if it’s only you making the effort

Meyer: In order to get the results you want, you have to show you understand the other person’s culture, and adjust your own attitude. I often get asked “should I stick to who I am, or prioritise being flexible?” In other words “should I focus on doing it the Japanese way or totally adjust to the other people I am working with?” For those who want to produce results in a global environment, the answer is you have to do both.

Global leaders have a foot in both camps. They know how to ask questions of Indian colleagues in a way that will get the right answer. They know how to communicate effectively with British people that they work with.

But there are not many executives who make this effort. In future, the leaders of global companies will have to understand deeply the way business is done in each country, and be flexible in the way they approach how they do things.

Why “service” has different meanings in Japanese and English

A Japanese entrepreneur told me that his friends tried to discourage him from setting up a services company, because – they said – “Japanese customers won’t pay for service”. He said this in Japanese, and I assumed he meant “services” in the plural, which in English means work that would be included in the “service sector” of the economy, in other words not the agricultural or manufacturing sectors.

That really struck a chord with me, as I also sell “services” – namely consulting and training – to Japanese companies and I have occasionally noticed that Japanese people seem reluctant to pay for what we do. Despite this I have had a profitable business for over 15 years, probably because my actual client contacts at those Japanese companies are usually Europeans, and Europeans are much more accustomed to pay for consulting and training.

Transcribing and translating service

There is a translation issue here, because If in English, we use “service” without the “a” or use “the” instead – for example “pay for service”, or “how was the service?” we mean customer service. So I think that is where the confusion lies. Maybe what the entrepreneur’s friends were saying is that Japanese customers are not prepared to pay additionally for customer service. It is assumed in Japan that good customer service is automatic, and part of what you are already paying for.

How a concept is translated into another language often provides a clue as to how that concept is viewed in that culture. Particularly with Japanese, if the word only exists in katakana (a syllabic alphabet used for transcription of foreign language words), that may mean that concept does not really exist in Japan. Furthermore, the transcription into katakana of “service” (サービス sa-bisu) in Japanese not only means “service” in English, but has an additional meaning of being “a free thing”.

Solutions preferred to service in Europe

How to charge for a service is more complicated than charging for a product. It is a mixture of the hours involved and the expertise being bought. Recently, a potential customer told me that my company’s training was 50% more expensive than another supplier (whose main business was a language school). I said that this was the price we charged to customers in a similar situation to them and it was fair value for the expertise we had. I knew the language school would not have that expertise and indeed the customer ultimately chose us, despite our higher cost.

Above all, customers in Europe are willing to pay for services which solve a problem they have. So just telling them how high quality something is or how expert you are or how many hours it takes is not enough. This is why sales people for B2B services companies in Europe first of all try to build up trust with customers so they will tell them what their problems are. And also why it is more fashionable to use the word “solution” rather than “service” – this word implies they are getting an integrated product and service, which will fix their problem.

This article was originally published in Japanese 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.

For more on Japanese companies as customers, see Pernille Rudlin’s book “Omoiyari: 6 Steps to Getting it Right with Japanese Customers”

Japanese investors in UK considering shifting operations to Asia, the Americas post Brexit

Although over half of the of the 10,508 Japanese companies surveyed by the Teikoku Databank thought Brexit would have a negative impact on the Japanese economy, it is a salutary reminder that not only the UK but also the EU are just a small corner of the Japanese corporate environment that only 9.2% had business in the UK or other EU countries. A tiny 1.9% had actually set up sales arms or local subsidiaries, with 7.5% having collaborative agreements or importing/exporting from the EU or some other indirect business. Unsurprisingly, the larger the company, the more likely they were to be active in Europe. Manufacturers and wholesalers were dominant, but financial services companies represented the top direct investors.

Of the companies surveyed,

35.9% had business with Germany
31.5% with the UK
23.3% with France
21.4% with Italy
11.9% with Spain, 11.9% with the Netherlands

Of those who were in Europe and considering moving operations, the top choices for destination were:

2.9%　to Asia
EU (undecided/unspecified) 1.6%
Italy 1.5%
UK 1.3% (despite Brexit)
Germany 1.2%

Of those who had directly invested in the UK, 12.8% of those who were looking to move operations were considering elsewhere in the EU (Unspecified EU, Germany, France being the most cited) but Asia and the Americas were also mentioned as frequently as Germany or France.

51.3% of the companies who responded felt that Brexit would have a negative impact on the Japanese economy, although over 60% felt that it would have not much impact on their own company, with only 9.4% saying it would have a negative effect. However 46.2% of those who had direct investments in the UK said there would be a negative impact.

Hardly any respondents (less than 1%) said Brexit would have a positive impact on the Japanese economy or their industry and only 2.6% of those companies with direct investments in the UK said it would have a positive effect on their own company.

In other words, large numbers chose “don’t know” or “no effect” as their response.

The Teikoku Databank concludes that the EU is likely to be dominated by Germany and France in the future and the non-Eurozone EU countries are going to find it hard without the UK as a member. There are counterwinds to free trade and a concern that Brexit will lead to other countries leaving the EU. “The EU is nice as an ideal, but there are too many contradictions in terms of the varying levels of political and economic development” says one canned goods wholesaler.

Brexit rebalancing for Japan’s automotive companies

Record UK car production for 2016 was reflected in the 2% increase in employment by the largest Japanese automotive companies in the UK on the previous year. The fall investment in the UK automotive sector from £2.5bn to £1.66bn tells the other side of the story, which is that employment growth for Europe and Africa overall for those companies was greater than in the UK – at 7% – the main contributor being Yazaki opening plants in Morocco and Bulgaria.

As Mike Hawes of the Society of Motor Manufacturers and Traders puts it “Any imposition of tariffs is “an absolute red line for the industry” that would throw the future of some plants into doubt. “It would be very hard to overcome that level of additional cost, given plants operate on pretty wafer-thin margins.” Factories would not close overnight, he added, “but the potential is for death by a thousand cuts” as the manufacture of new models was moved abroad. “If you produce three or four models and you lose one, then inherently your competitiveness is affected.”

The Japanese automotive sector account for 7 of our Top 30 Japanese employers in the UK (if you count Pilkington, which manufactures a mix of automotive and construction glass). Globally these seven companies (Honda, Toyota, Nissan, Calsonic Kansei, NSG Pilkington, Denso, Yazaki) employ over a million people, around 10% of which are in the Europe and Africa region and around 2% (23,000) in the UK.

According to our analysis of last year, a rebalancing may well already be under way. It looks like Nissan and its suppliers (Calsonic Kansei and Yazaki) had a good year in 2016 in terms of employment and production levels – but Calsonic Kansei has made investments in plants in Spain and Russia over the past couple of years, where Nissan has other factories. Toyota and its supplier Denso reduced their employment levels in the UK in 2016 – in line with the decrease in production at Toyota. The big growth story in Europe & Africa in terms of employment and investment was Yazaki, who added 150 employees to its design and sales operations in the UK, but this was dwarfed by the additional 10,000 employees in the region generated by opening plants in Morocco and Bulgaria.

Honda, Calsonic Kansei and NSG have their regional headquarters in the UK. Honda‘s UK employment and production levels grew (whereas employment shrank in the region overall) and they have publicly declared that their UK factory will be a global supply hub (80% of its production is exported to the EU). However, relative to the to the other 6 companies they have a smaller presence in the Europe & Africa region – the only other production facility being a factory in Turkey – which at least has the advantage of being in a customs union with the EU.

Japanese companies in the UK

FREE DOWNLOAD

Send download link to:

I confirm that I have read and agree to the Privacy Policy.

I would like to subscribe to the free monthly Rudlin Consulting newsletter on Japanese companies in Europe. Rudlin Consultingの在欧日系企業についての最新リサーチとレポートを掲載した無料月間ニュースレターに登録したい。

4 keys to improving Japanese women’s productivity

David Atkinson, a former Goldman Sachs Japan partner who now runs Konishi Decorative Arts & Crafts in Tokyo, regularly features in the Japanese media, most recently in an article in the Toyo Keizai about why Japanese women’s productivity is so low. He argued that the usual reason given, that women are poorly paid because they are in part time, temporary or short term contract jobs is simply pointing to the effect rather than the cause of low productivity. Women’s low rates of pay reflects their low productivity. This is because women are not given high value added work to do and their potential is poorly evaluated. He argues that Japanese women’s productivity needs to improve because

1) they receive as much welfare as men do, so should contribute equally to the funding of that welfare

2) a declining population means those in work need to be as productive as possible to support the increasingly elderly, non-working population

3) Japan’s resistance to immigration as a means of increasing the working population means that the only alternatives are either to cut welfare or increase productivity.

The journalist who interviewed Atkinson, Renge Jibu, in a follow up article, recommended the 4 following actions for Japanese management:

Make clear the costs of hiring and developing employees, by analysing the status of male and female employees with the same level of education and training 5, 10 or 20 years on. They might find that women who they thought had left to raise a family are now in similar jobs in other companies or have joined a start up where they saw more opportunities. This represents a cost to the company in terms of the loss of investment in initially hiring and training them.
Recognise that there is a loss of opportunity in giving easier work to women with the same potential as men. Giving women employees less productive work is a cost. It’s like having a new computer and yet never connecting to the internet to do your work.
If you realise that you are not making good use of your female employees, give them more difficult, higher value adding work to do. Japanese companies are good at reassigning people rather than firing them. One major company reassigned its female administrators to sales roles when they were no longer needed thanks to office automation and was surprised to find that their sales results improved far more than they expected, so gave even more work to those women who showed willing. They are now one of the most highly rated for gender diversity in management.
The reason women often don’t want to do difficult work is the result of many years of being treated differently to men – and this should be recognised. It takes a change of attitude on both sides to make a difference.