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Why has Japan not had a populist uprising

John Plender sought in a recent Financial Times article to answer the question of why Japan has not had a populist uprising, as so much of the Western world has. One of the possible factors he mentions – the lack of much immigration – was of course immediately taken up in the comments section by various Brexit supporters.

Weeding through the comments and looking at those from people who are actually Japanese or have lived or live in Japan gave some further possible answers and also prompted me to add a few of my own:

Japan already has a nationalist, nativist, populist government

Shinzo Abe – on course to be the longest serving Prime Minister in post-war Japan – is openly nationalist, elected on a ticket of making Japan not “great” again but “normal” – not just to get the economy growing, but also as in being able to defend itself. He was the first foreign leader to visit Trump after his election.

On the immigration front however, his government has quietly been making all kinds of exceptions to the rules in allowing immigration, in particular sectors that are suffering labour shortages, such as the care sector (elderly and childcare). More Asian immigrants, on company traineeships, have been arriving – although there has been controversy over whether they are just cheap, exploited, temporary labour in disguise.

Different histories of immigration

It is true that Japan has not had any large scale immigration, for more than 2000 years. Some Chinese and Korean immigration happened before and during WWII and this remains controversial to this day as much of it was forced labour. Many ethnic Chinese and Koreans have not taken up Japanese nationality. Koreans in particular have been the targets of occasional abuse from far right groups.

But to see this as a lesson for the UK would be a failure to see the utterly different starting points for the two countries. 98% of the Japanese population is Japanese. Whereas across Europe we have been migrating around each other’s countries for more than 3000 years, and more recently large scale migrations from former colonies and war zones – most countries in Europe have over 10% of the population who are not “native”. If you want to go back to ethnically homogenous nations, then some elaborate and intricate ethnic cleansing will have to happen. I for one will be suspect, as by German definitions, I am an immigrant as my mother was not born in the UK.

The cultural argument

A subtle point was made in one of the FT comments, lost on the Brexiteers perhaps, that because Japan does not have a large immigrant population, immigrants cannot be blamed by Japanese people for any woes they may have. Indeed, one of the strongest cultural characteristics of Japanese people is their urge for self improvement, to the point of blaming themselves or pointing to other’s personal failings, rather than blaming the economy or politicians or the “elite”.

The economic argument – why Donald Trump might be right

Although income inequality is rising in Japan (and surveys show it is the number one concern for Japanese people – whereas in the UK it was immigration and for the US it was terrorism), unemployment remains low. The workforce is shrinking and the population is ageing. Japan leads the world in robotics yet has retained a strong manufacturing base. Real wages have not increase much, rather decreased over the past few decades. The rate of post retirement employment is high.

Initially I was repelled by the bullying way Trump seemed to have forced Ford to rethink its plans to expand manufacturing in Mexico and instead increase production in its Michigan factory, but as another comment in the Financial Times points out, these decisions are hotly contested inside multinationals too. Many managers would rather keep production in their home base, or near the target market if there is sufficient incentive or momentum to do so. The success of Nissan and Toyota factories in the UK shows that the UK could have kept more of its manufacturing base, if we had the management capability and will to do so. Robotics create jobs too, if companies are prepared to invest.

The economic argument part 2 – why Theresa May might be right

One of the factors behind Japan’s relative economic stability and a lack of economic and social disenfranchisement amongst the Japanese “working class” has been the lifetime employment system that still prevails in the larger Japanese companies. In exchange for being multi-skilled generalists, willing to relocate where necessary, Japanese companies offered security of employment right through to retirement and often beyond.

It is generally felt this system – put in place after WWII to deal with labour shortages – has reached the natural end of its life. The number of workers on short term, insecure contracts has been rising steadily. However, I have felt for many years now that it should not be thrown out wholesale in favour of Anglo Saxon shareholder value based capitalism, and despite many adjustments, it still persists.

The downsides of the system have been that while it works in times of economic growth, in times of low growth, when you might want to shrink middle to senior management cohorts, or the shopfloor workforce, you can’t and end up with a large number of expensive, underemployed managers and workers, which are a drain on morale, barriers to change and of course, costly.

Secondly, because people are secure in their jobs, and generalists, there is a lack of clarity about expectations and performance management. Loyalty is rewarded and pay is seniority based rather than performance based. Consequently many Japanese employees have found themselves proving their dedication by working long hours, rather than trying to be as productive as possible in a normal working day. This has resulted in it being almost impossible to have a two career family, as it is just not practical to have children and have both working until late at night every day, however good the childcare provision is. Furthermore, the mental stress caused is clear, as illustrated by the recent suicide of an overworked graduate recruit at Dentsu, the Japanese advertising giant.

Thirdly, Japanese corporate governance has been poor, as the company executives are mostly lifetimers who cover up for each other, and don’t realise when the company is behaving perversely, because they have no experience of other corporate cultures.

The Japanese government response to these pressures is in part to legislate, but mainly to put pressure on Japanese companies themselves to reduce overtime, hire and promote more women and improve their corporate governance.

The view which still persists in Japan is that companies themselves have obligations to society – both to the people they hire and to contribute in terms of taxes and corporate social responsibility and environmental sustainability.

Although I was not happy to be accused of being a “citizen of nowhere” by Theresa May, looking at the context of what she was saying – which was in part about the social obligations global businesspeople have – and the clumsy suggestion from Amber Rudd that companies should tally up their non-native employees, I acknowledge that there is a point to be made that companies in the UK need to take more responsibility for who they hire – British and non-British.

The education argument

The UK’s economy is now 80% services based, but this should not mean that companies should get away with zero hour contracts and pressurising British workers with the threat of using cheaper temporary labour from the EU. They should indeed be offering apprenticeships and job security but also multi-skilling opportunities to counterbalance that. They should help and expect their workers to relocate or retrain them (or as in Japanese factories, spend time on cleaning and maintenance if production has to be ratcheted down) rather than simply shut down and fire.

We need better managers and companies willing to invest in training and technology, but the UK also needs a better educated workforce to begin with. That’s where government does have a role, as all the evidence shows early intervention in children’s education is the most effective in reducing later inequalities. And that’s probably the final factor in Japan’s lack of a populist uprising – a highly skilled, highly educated workforce.

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Overcoming British negativity

According to a FT/ICSA Boardroom Bellwether poll in 2015, only 7% of UK companies were willing to speak out in favour of the UK staying in the European Union, even though two thirds believed leaving the EU would be damaging for them. Of course the Greek crisis made it difficult to say anything positive about Europe, but I also think the British have a strong preference for talking negatively rather than positively, when asked to make a commitment to something, particularly if they feel there are plenty of downsides to getting involved.

Then, like the British professor of economics I met recently – who not only forecast the 2008 Lehman shock but also advised the UK against joining the euro – we can say, smugly, “I told you so”, when things go wrong. This apparent wisdom does not, however, take into account what might have happened if we British had got involved. Maybe the Eurozone would have been better structured and managed, or a more balanced approach taken to Greece’s membership conditions and current difficulties if the UK had participated, not only to point out the problems, but find solutions.

I’ve noticed when working in European teams that British pragmatism acts as a good counterbalance to French rhetoric and German methodological rigour. Both Japanese and American managers are united however, in finding the British urge to be upfront about all the likely problems and obstacles, without suggesting any solutions, very frustrating.

Americans want to “just do it” and are not interested in the past, whereas the British look to history and their own experience, so as not to repeat mistakes. A Japanese manager who had become used to the American management style said to me recently “how do I motivate British staff? In the US, my team will do as I ask, because I can promise them a bonus or threaten to fire them if they don’t do it, but the British team don’t seem to be so motivated by money, and they know it’s a lot harder to fire them here than in the US.”

Some British employees are of course motivated by money, particularly in the financial sector, but for most British workers the motivation is more around self-fulfilment, a chance to put their expertise and experience into practice, to make a difference. So if they believe that they will not be able to do something, they won’t even try, as they know how demotivating and humiliating failure will be.

I discussed with the Japanese manager the concept of “jinji wo tsukushite, tenmei wo matsu” (do all that is humanly possible, then wait for the heavens to decide) – that Japanese also have a sense of fatalism, but that does not preclude doing whatever you can to make something work. I described this conversation to a senior British executive, and she started smiling ruefully. It turned out she had insisted to a Japanese boss that a particular course of action was not feasible. He had persuaded her (I expect through appealing to her expertise and experience) and so she eventually went ahead, and to her surprise, she succeeded.

This article was originally published in Japanese in the Teikoku Bank News on 12 August 2015 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.

Why people from Osaka like their bread really thick sliced

I’ve blogged before about the importance of knowing the regional differences in Japan, particularly the rivalry between Tokyo/Kanto region and Osaka (the second largest metropolitan area) and other cities in the Kansai region, if you want to understand the corporate culture of a Japanese company. This is a translation and precis of a recent Diamond Online article by Yuki Takahashi, which further explains the Osaka culture, using variations on the untranslatable Japanese word 濃い(koi) – which can mean “strong”, “thick”, “close”, “deep”, “dense”, “dark”:

As Takahashi says, Japanese people think they know Osaka, because so many of the celebrities on TV come from the city. Yet, according to one Japanese woman “it’s kind of scary” – and she says when she goes to Osaka on a business trip, she prefers to stay in nearby Kyoto.

Osaka people like to get close and personal

One man in his 30s said when he was running a cafe for a chain, customers were always sticking their noses into conversations, wanting to know what your birthday was and what you liked. “Next thing I knew, they’d brought me some cheese for my birthday. When they go on holiday there were even customers who’d bring souvenirs back for the cafe”. Another Osaka man says “it’s the kind of place where if you’re having a drink at the bar, some old granny you’ve never met will start a conversation with you”.

Osaka has the lowest suicide rate in Japan

Japan’s overall suicde rate is 14.7 per 100,000 population. The worst rate is Akita Prefecture, at 26.8. Osaka’s low rate may well be connected to the above point.

Osaka banter

People who are not from Osaka just crumple into embarassed silence when Osaka shop assistants say things like “here’s your million yen change!”, whereas Osaka people will snap right back with a joke.

Osaka food is also strong and thick…

Osaka is famous for its takoyaki (octopus balls) and okonomiyaki (savoury pancake) but according to Yuki Takahashi, curry is the iconic food. It arrived first in Osaka, in the 19th century, and Osaka people loved to make a thick strong curry “roux” to go with Japanese rice. Vermont Curry, one of the most famous curry roux brands, comes from Osaka.

…and its bread is too

Japanese like to eat something called “shokupan” – literally “eating bread” – a thick cut soft white bread, particularly toasted for breakfast. But apparently a standard shokupan loaf is cut into 4 slices for the Kansai region, increasing to 6 slices on average across the country and as many as 8 slices north of the Kanto region.

High bicycle density = high accident rate

Apparently bicycle related accidents are 30.1% of all road accidents in Osaka, compared to 18.4% nationwide and the number of bicycle related deaths is also the highest in Osaka. The main cause is ignoring traffic lights.

Osaka is now trying to lure its sons and daughters back, from Tokyo, promising a better lifestyle – shorter working hours and less commuting, as it is more possible to live in central Osaka than in Tokyo. I used to live in the Kansai area myself, between Osaka and Kobe, and I have to admit, I still find Osaka a bit scarily “in your face”, and if I were to live in Japan again, would choose the more cosmopolitan and laid back Kobe.

The annual ritual of picking a cross cultural calendar

Sorting through the various calendars on sale or that were sent to me for promotional purposes I have ended up choosing the same ones as last year – a haiku and ukiyo-e wall calendar because I like to be reminded of the passing seasons, and a desk calendar that has Japanese and European public holidays on it, for practical reasons.

This annual ritual of picking a calendar reminds me of when I was working at Mitsubishi Corporation in London. We locally hired staff used to fight to grab the desk calendars from Japan left over from mail outs to customers. They not only had photos of the beautiful artefacts from the Seikado Museum, but could be easily customised so that three months could be viewed at a time, vital for calculating shipping schedules between Japan and Europe.

The publisher of the desk calendar that I chose also shows three months on one page, but I am thinking of suggesting that they further modify their calendar to make it useful to employees of Japanese companies in Europe, by including indicators of the key dates of the Japanese financial year.

Over three quarters of the biggest Japanese companies in Europe run on an April 1st to March 31st financial year in their Japan headquarters. The dates for reporting results and shareholders’ meetings in Japan are highly predictable and tend to be clustered by industry. But the annual cycle of proposals and decision making that this sets up, and the midterm plan 3 year cycle that many Japanese companies also adhere to, are not widely understood in Europe.

The majority of European companies run on a calendar year of January to December. But even when the calendar year is used, the dates of when the results are announced or the Annual General Meeting is held vary from company to company by weeks and even months.

European employees therefore need to be actively reminded of key meetings and decision deadlines in Japan headquarters as they do not instinctively know the rhythm of the April to March financial year and it often does not match the rhythms of the British business year. In fact one British retailing company acquired a few years’ ago by a Japanese company found it very hard to comply with the Japanese HQ’s request that they submit all their year end accounts by December 31st (in other words the day their financial year ended), so that the Japan HQ could compile the consolidated accounts in time for Japan’s March 31st year end, because this coincided with the UK’s busiest time of year – the Christmas shopping period.

The Japan HQ have in fact changed their financial year to January to December a couple of years’ ago, giving the need to be more global as the reason. However, when I went back to their British subsidiary last week, and asked them if that helped relieve the pressure, they said they had not really noticed, as the increasingly global nature of their business means they were busy all year round!

This article originally appeared 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.

The European love of argument

I was looking at my diaries from when I was 11 years’ old and living in Japan, and was amused to see that I had written in them that my burning ambition was to be a politician. Quite a few of the people I knew at university have become politicians, so I suppose on reflection this was not an impossible dream for me.

I then wondered why I did not try to realise this ambition. I think it is because I really don’t like confrontation and I take it too personally. This might be rooted in my childhood in Japan – Japanese schools do not offer as many opportunities to debate as they do in the UK. But I also spent my teenage years in British schools, where, like many schools in the UK and Europe, there were plenty of opportunities to become good at arguing, such as school debating societies and public speaking competitions.

By the time I reached university, I preferred to watch rather than participate in debates. I still enjoyed writing logical, reasoned essays, which are the core of a liberal arts education in Europe, but I did not want to become a journalist either.

Journalism and politics in the UK are very “adversarial” – always insisting that there are two opposed sides to every story and trying to set up a confrontation or show who is to blame. Journalists claim this is a necessary approach, to get to the truth.

However, a common way that politicians and journalists try to dominate the other is by using what are known as “ad hominem” attacks – a Latin phrase which is used in English, meaning “to the man”. In other words, they try to undermine the validity of the other person’s argument by attacking the personal characteristics of the opponent.

This is not considered a good debating technique, as it is not actually addressing the facts or logic behind the viewpoint or idea being expressed. People try to avoid this kind of technique in the workplace, as it would be seen as discriminatory. Plenty of arguments do take place however, about the definitions, logic, theories, profitability and justifications behind taking various business decisions.

This does not seem to work well with the traditional Japanese approach, which is more Confucian and “ascriptive”. It’s not seen as unfair to assume that someone is more likely to be right because they have a higher status. To the European question of “why?” a Japanese person senses a personal attack and a questioning of authority.

Surprisingly, the nation which is most famous for philosophical rhetoric – France – has an education system which, like Japan, discourages questioning of teachers and therefore of superiors in the workplace. But then France is also famous for its strikes and bloody revolutions. Perhaps this is why in many Northern European workplaces, debate is considered to be “healthy”. Japanese managers in Europe need to be prepared to argue their case logically to ensure good employee relations.

This article can be found in “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” available as a paperback and Kindle ebook on Amazon.

The story of Japanese companies in the UK continues to be the story of the UK economy overall in 2016

The number of people employed in the UK by the biggest Japanese companies in the UK rose by around 1% to 76,103 in 2016 – representing over half of the 140,000 or so the Japanese Embassy to the UK estimates are employed overall in the UK by Japanese companies.

Just as 80% of the UK economy is services, so too with Japanese companies in the UK. Although Nissan, Toyota and Honda attract most of the headlines thanks to Brexit – understandably as they represent around 15,000 of the 76,000 jobs – the vast majority of the rest are in the services sector.

Even Sony has only one small factory left in the UK, making high end audio visual equipment and employing less than 100 people. The rest of 3000 or so jobs are in Sony Interactive Entertainment, music and film & TV or in marketing.

Fujitsu is still the biggest Japanese employer in the UK but the gap with Nissan at #2 is narrowing, as Fujitsu have reduced their headcount by over 15% in the past year or so. Although Fujitsu is still seen as an IT & telecomms manufacturer in Japan, in the UK it is largely an IT services company.

Trading company Itochu may be a surprise at #3, but this is largely due to its ownership of tyre fitting chain KwikFit.

The Hitachi group of companies (#7) has grown by 17% over the year – thanks in part to expansion at Hitachi Rail and Horizon Nuclear Power – but the bulk of its employees continue to be at consumer loans company Hitachi Capital.

Dentsu Aegis Network, part of the Dentsu advertising agency, has continued to acquire across the UK and Europe, resulting in a 21% increase in headcount. Other notable increases thanks to acquisitions include Mitsui Sumitomo & Aioi Nissay Dowa acquiring Lloyds underwriters Amlin and of course Softbank, a new entrant to the top 30, with its acquisition of ARM.

The story of Japanese companies in the UK continues to be the story of the UK economy overall – a trend which will no doubt continue in 2017, with Japanese banks already strengthening and relocating to their other European Union based operations, or threatening to do so.

Customised reports, profiles and other research on the Top 30 largest Japanese companies in Europe, Middle East and Africa are available – please contact pernillerudlinrudlinconsultingcom for further details.

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The tragic limitations to Japan’s lifetime employment system

Since the suicide of a young female employee at advertising giant Dentsu in December 2015 was deemed to be due to overwork, there has been a rash of articles in the Japanese media asking whether it’s time to change Japan’s lifetime employee “seishain” (regular or proper staff) system (previously blogged about here).

Nikkei Business described the main characteristics of the seishain system as:

No job role boundaries
Long work hours
Pay increases based on seniority

Which results in:

Strict terms of employment, so when there is an an economic downturn, the employee can be reassigned
Seishain as fixed costs, so it is difficult to transfer over non-regular staff into the system
Seishain not being hired into a role, but into the company, so you do not have transferable skills which will enable you to work elsewhere
Irrational human resource allocation because of features of the system such as retirement from line management at 55
Difficulties in utilising seishain who have household or elderly care duties
A reduction in pension and health insurance benefits because of transferring to a smaller company from a larger company
The risk of losing the element of salary that was based on seniority if you change employers
A lack of workers shifting from dying industries to growth sectors

There is still a big pay gap between seishain and non-seishain, and yet the real average pay of all employees in Japan has fallen since 2005 (with 2002 as the base=100, 2015 = 95).

30% of Japanese men and 10% of Japanese women work more than 49 hours a week, compared to 17% in the USA, 18% in the UK for men/6% for women, 16% of German men/4% German women, 15% of French men and 6% of women and 10% of Swedish men and 4% of Swedish women.

The percentage is even higher for Japanese seishain – 40% of men, 20% of women.

A Nikkei internet survey of 1343 Japanese employees revealed that the biggest reason (70%) for overtime was that there was such a volume of work. Just under 40% said there was a lack of people to do the work. Other reasons were that there were particular features of their work requiring overtime, that there were too many meetings, that it was expected of them, that it was difficult to go home if others were working and the least popular reason was “in order to increase pay”.

But as one of the participants said in one of my seminars last week – Japanese employees are very expert at stretching their work out so that overtime becomes necessary. The urge for 100% perfection in the tiniest details is also a root cause I would say.

There are signs of change – some companies have started paying part timers and contract workers exactly the same as seishain and many companies are trying to improve productivity and reduce working hours.

Prime Minister Abe announced in September a Council for the Realization of Work Style Reform – to tackle 9 areas – listed here – in an attempt to address the limitations of the lifetime employment system. Interesting to see that “the issue of the acceptance of foreign personnel” is #9.

Employers need to change to encourage Japan’s milliennials to be mobile

European employers, just as in Japan, are worrying about how to manage and motivate the so-called millennial generation – people who were born between the early 1980s and the early 2000s.

Across the world, one characteristic that unites the millennial generation is, of course, a high use of social media. There is some evidence that this has led to a more open minded attitude to the rest of the world. In the UK, the millennial generation is much more pro-European Union and pro-migrant than the older generations. Millennials are used to building relationships with people they have never met, through mutual interests and hobbies, regardless of their location or nationality or gender.

This has translated into a higher desire than other generations to live, work or study outside their home country. 71% of millennials, regardless of gender, want to work outside their home country during their career, according to a global survey by PwC in 2015. A multigenerational global survey by PwC in the same year showed that all age groups and genders overwhelmingly agreed that secondment early in a career was also critical.

Yet I have seen surveys of Japanese millennials which show that fewer of them are studying abroad or want to be seconded overseas than previous generations. I expect their concern, which is also the top concern of other nationalities, is what their role will be when they are repatriated to their home country.

I suspect there are also assumptions being made on the employer side about who an expatriate should be and what the role should involve. I recently met a British academic who had interviewed various Japanese women living in the UK and she found that many of them joined a Japanese company in Japan, in the expectation that they would be posted overseas. Yet their requests to be seconded were ignored, so they quit their companies and moved abroad themselves.

It seems to me that many of the issues Japanese companies are facing such as attracting and retaining younger people, an ageing workforce or a lack of men or women who can take up global management roles could be resolved by having a more integrated and inclusive approach to job mobility. It is quite normal for European companies to hire graduates from across Europe, and then rotate them around their operations in different countries. A few of our larger clients are now rotating their graduates to Japan too. Global roles do not have to be for 3-5 years in another country – they can be permanent, a few months or indeed a virtual global role.

One of the messages from the campaign for Britain to stay in the European Union – aimed at the millennial generation – is that if the UK leaves the EU, it will be less easy for young British people to study or work in other European countries. Unfortunately, one other characteristic of the millennial generation is that they are less likely to vote than the more pro-Brexit older generations.

This article originally appeared in Japanese in the Teikoku Databank News and also is in Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.

Why Nissan matters more to the UK than the UK matters to Nissan

It will be interesting to see how far Ghosn’s well documented ruthlessness and unsentimentality which he demonstrated in turning around Nissan in Japan will come to the fore in next month’s decision about where to invest for the new Qashqai, because really, to Nissan, the UK is not as important as a market or a manufacturing base as the UK might like to think. Plus, Ghosn has now got Mitsubishi Motors to worry about as well.

Here’s some figures to illustrate:

UK based employees represent around 5% of Nissan’s global workforce
UK based production represents around 10% of Nissan’s global production and around 70% of its European production (the rest is manufactured in Spain and Russia).
Car sales in the UK market represent around 3% of Nissan’s total units sold worldwide. Europe & Russia represent around 15% of total units sold. So the UK market is about 20% of Nissan’s Europe & Russia regional sales.

From the UK perspective:

Nissan is the third largest Japanese employer in the UK, with around 8000 employees – not only in the Sunderland factory but also several hundred working in design at Nissan Technical Centre Europe in Cranfield (ultimately registered in Belgium so that should make a quick getaway easier) and a design centre in London
Nissan is the 8th largest Japanese employer in Europe – around 16,000 employees in total – so around half are in the UK. However the European regional headquarters is in Switzerland, to which the UK factory sells all its production. The operational headquarters and holding company for the rest of Europe is based in France.
Nissan Sunderland’s plant accounts for nearly 1/3 of the UK’s car production. 80% of it is ultimately exported, 76% to Europe.

And of course there’s the supply chain and the jobs it provides – the UK car industry likes to say it supports around 800,000 jobs.

Calsonic Kansei is a supplier to Nissan, and is also in our Top 30 Japanese companies in the UK, employing over 1300 people – with factories in Llanelli and Sunderland – and Spain. Nissan has a substantial stake in Calsonic Kansei, but the cosy mutually supportive supply chains of 20 years’ ago have long disappeared, thanks in part to Ghosn. So it’s not hard to see Calsonic Kansei and others responding as quickly as they can to any shifts in location of demand.

It’s legendary in Japan that when a Nissan employee went to Ghosn to beg him not to axe one of the suppliers totally dependent on Nissan because it was headed up by a member of their own family, Ghosn responded “which is it to be? That Nissan collapses or your uncle’s company collapses?”

For how complex and tough life is these days in the global automotive supply chain, this comment in the Financial Times recently was very revealing:

“We manufacture part of one component for the Nissan Qashqai. We purchase raw materials from Taiwan, we manufacture in the UK in a Japanese owned factory. Our customer is in Germany, where our product is bonded together with products from other countries. Our customer’s customer is in France, where the bonded component is integrated into a car component. The component is shipped to Sunderland and becomes a part of a “British” car.

How Mrs May and her merry band are going to sort this mess out is beyond me, and I suspect beyond them.

The development time lines for the most basic of automotive components is two to three years, which means that we are already “post Brexit” for new business development. How do I persuade customers to invest in new product development with us when nobody has a clue on what basis I might sell eventually sell my product to them, and given rules of origin, in some cases on what basis they might sell their product to their customer. We have good relationships with our customers, but at the end of the day they are running their business for their benefit and may well decide its just not worth the uncertainty and risk.”

Carlos Ghosn is “reassured” by Theresa May saying that the British government would be “extremely cautious” in maintaining Nissan’s Sunderland UK factory’s competitiveness. But he may nonetheless think some rebalancing is in order.

European pride + global standardization = long debates

The European senior management team of a business which had been newly acquired by a Japanese company complained to me about being treated as if Europe was one homogenous country, when in fact they only had offices in 5 very different countries in Europe, with a headquarters in Germany. “It’s true, we know how to work with each other in Europe – after all Europeans have been living and working together for hundreds of years, but it seems strange that on paper we’re supposed to be a tri-regional structure of Europe, North America and Asia, and yet North America has only two employees and Asia has no regional headquarters, with Taiwan, China, Korea and Japan being managed separately”

This was just a small company, but actually I have seen similar situations in many other much larger Japanese multinationals. It’s partly that Europeans are very sensitive to their status –and want to be treated on a par with other regional heads – and this means the European definition of regions, with Asia as one region.

But it’s also due to a justifiable concern that if the company is meant to be offering global products and services, it needs to have a well-balanced global structure operating off common platforms, systems and processes. If the company grows by acquisition, you often end up with very different portfolios of services and products from country to country, incompatible processes and systems and no clear idea of how revenue and costs should be shared across the regions which are contributing to the global offering.

This can cause huge, long running arguments, partly because standardizing trade, production processes and technology are interrelated issues. Once you decide what products and services are global and what are local, you have the basis for splitting revenue accordingly. But you have to be careful this does not lead to regional organisations focusing on their local products and services, refusing to participate in global contracts because they make more profit out of local contracts.

Once you know what you are offering globally, you can standardise the technology – such as having all the company’s websites running off the same content management system, or production running off the same platforms or sales and purchasing using the same global accounting system.

Sometimes Japan headquarters has to swallow their pride for the sake of speed and efficiency. I was impressed that Nomura, when it acquired Lehman Brothers, decided to move their dealing onto the Lehman platform, because they judged it to be technically superior and faster than trying to integrate platforms or shift everyone onto the Japanese system.

Nobody wants to deal with these problems because they are so complex and lead to fights and easy resistance by those claiming that the global standard is not going to work in their markets. But unfortunately, if you do not deal with these issues soon after an acquisition, they fester and become even more difficult to resolve.

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