Japanese Business Blog - Rudlin Consulting

British pragmatism, Scottish independence and Brexit

By the time you read this, Scotland may have chosen to become independent from the rest of Britain. In that case, as we say in English, “the heart has ruled the head.” The opinion polls a week before the vote show it is very close, with many undecideds – those whose heads say “no” to independence, but whose hearts are excited by “yes” to becoming a separate nation again, in charge of its own destiny, after 300 years of union with the UK.

Businesses, Scottish and English, have finally started speaking out, mostly for the “No Thanks” side of the campaign, but “no” is not very appealing word and the reasons for “no” can sound like scaremongering. The future is uncertain for an independent Scotland. Not only will difficult negotiations start on whether and how Scotland will be able to keep the sterling pound as its currency, but also negotiations will have to begin with the European Union as to whether and how soon Scotland can become a member nation.

The UK is also less than a year away from a General Election in May 2015, which the Conservative Party is fighting on a promise of a referendum of the UK’s membership of the EU. The UK Independence Party, which supports leaving the EU, has done very well in recent local and European elections, so it is a real possibility that if the Conservatives form the next government, the British people will vote to leave the European Union.

It must seem odd to Japanese business people that British citizens would willingly vote for actions which might undermine the political and economic stability that has made the UK such an attractive destination for foreign investment. But it is that very history of stability that seems to give Scottish and other British people the confidence that somehow everything will be all right. We pride ourselves on being pragmatic, and that we will somehow “muddle through”. Businesses are making contingency plans for Scottish independence and no doubt for any Brexit too.

Edinburgh, the capital of Scotland, is the second financial city in the UK after London, but even the Royal Bank of Scotland says it is considering moving its headquarters to England if Scotland becomes independent. The other major sector in Scotland, the oil industry, has been unnerved by threats of nationalization should the Nationalists gain power. All sectors are worried that corporate taxes may have to rise to fund the Nationalists’ progressive policies or else that Scotland’s creditworthiness will be affected.

Unsurprisingly, Japanese companies (and other non-UK companies) have not spoken out on the issue, as this would be counterproductive, but as many Japanese banks, construction and engineering firms have invested in social infrastructure projects in Scotland and the rest of the UK, the hope must be that even if Scottish hearts win the vote for independence, the famously “canny”, rational Scottish heads will prevail afterwards and British pragmatism will also avoid too much upheaval in the coming years of renegotiations with the EU.

This article was originally published in Japanese in the Teikoku Databank News on 1 October 2014 and also appears Pernille Rudlin’s new book “Shinrai: Japanese Corporate Integrity in a Disintegrating Europe” – available as a paperback and Kindle ebook on Amazon.

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。

Has Hitachi opened Pandora’s Box with the ending of seniority based pay?

Hitachi’s announcement on 26th September 2014 that it would be abolishing seniority based pay and promotion for management positions in Japan has caused quite a stir in Japanese business circles.

One HR consultant likened it to opening Pandora’s Box, as it may spread to non-managerial ranks, other industries and may even herald the end of lifetime employment. Both Nikkei Business and Diamond magazines have linked the announcement to Hitachi’s Global HR Management strategy and the database that Hitachi have been developing for the past two years of 250,000 employees, inside and outside Japan. 50,000 management positions in Japan and overseas are now measured by the same standards. These tools and an evaluation system means that with the abolition of seniority based pay, changes can be made to globalize compensation.

The abolition will affect 11,000 management positions in Japan – those people who are at the kacho (team leader) level and above. From October this year, no distinction will be made between function and grade status pay, and there will instead be one “role and results” pay scheme. Under the old scheme, around 70% of pay was determined by the employee’s length of service in the company.

Hitachi want to ensure that they can hire and retain high performers, regardless of nationality, including as mid-career hires. This is deemed necessary if they are going to reach their target of 50% of sales overseas by 2015, compared to the 41% level reached in 2012. The new pay scheme will therefore eventually apply to all management positions in the Hitachi group, not just in Japan headquarters.

According to the Nikkei, this change to the HR system has its roots in the difficulties Takashi Kawamura, chairman of Hitachi until 31 March 2014, experienced since 2009 when as President he started to weed out businesses he felt did not fit the “social innovation” portfolio. “Westerners place emphasis on their skills and expertise, so even if the company changes, they will follow the business that they have been working in. But Japanese people want to stay with the company, even if the business they are working on is devolved elsewhere… As Japan globalises, the relationship between the company and its employees, and employees’ thinking will also change.”

As Diamond magazine points out, this is a drastic transformation from the “family style” traditional Japanese company image that Hitachi used to have. It was known that Hitachi did not pay particularly high salaries, but that its benefits were very generous, and that it would provide a secure and stable environment for employees. It was always very serious about its HR strategies, and seen as a front runner for innovations in Japanese HR systems. So the abolition of seniority based pay is potentially “epoch making”, with implications far beyond Hitachi itself. It is rumoured that Sony and Panasonic are also looking at changing their pay schemes in a similar way.

The abolition of seniority based pay will impact other sacred cows of the traditional Japanese HR system. For example, there will no longer be “Beh-ah” (short for Base Up) negotiations, whereby the same basic pay rise is applied across the workforce, so no more “spring offensive” – the ritual negotiations between the company union and management for the annual pay increase. As a consequence, the raison d’être of the company union itself may be under threat. Lifetime employment will become even more thinly upheld, as people are more able to move from company to company without worrying about losing seniority based entitlements and it will be easier then for companies to get rid of people.

Hajime Yamazaki, guest researcher at the Rakuten Research Institute for the Economy (who has himself changed employers 12 times since joining Mitsubishi Corp in 1981) makes three recommendations to Japanese employees:

Review your lifeplan
Not just in terms of when you retire, but think about potential instability of income when you are still working. It might be best to increase the amount you save.
Take more risks in your job.
If your compensation is going to be based on results, then you have to take a “no risk, no reward” view of your work.
Regularly think about changing employers
Yamazaki is not saying Japanese employees should all start quitting their jobs, but that you should constantly be reviewing your skills and experiences to see if they would help you get a job in another company.

“For a business person with ability and motivation, the end of seniority based pay means there will be many opportunities in the road ahead,” says Yamazaki.

Four differences between Japanese and German approaches to work, communication and customer service

There are well-known similarities between Japan and Germany – they are both manufacturers of exports which are in demand across the world, they have excellent engineering skills and leadership in manufacturing and craftsmanship. Furthermore, both are serious about their work, precise in time keeping and execution of their work, and are reliable and trustworthy.

Many German and Japanese companies are similar – Toyota and Volkswagen, BMW and Honda, Thyssen Krupp and JFE Steel, BASF and Mitsubishi Chemical, Siemens and Hitachi, Leica and Nikon, etc. Both countries recovered after WWII through their hardworking attitudes.

So says Ulrike Schaede, Professor of Japanese Business at the Graduate School of International Relations and Pacific Studies at the University of California, San Diego. However she also sees four fundamental differences, particularly with regard to the average white collar worker.

1. Life priorities

Most Germans (so long as they are not consultants or lawyers or top executives) will leave work somewhere between 5 and 6pm at night, so they can return home to eat dinner with their families or meet friends. However it is almost unheard of for a Japanese salaryman to leave at such a time on a regular basis. Even without counting “service” overtime (unpaid) that most Japanese put in, the average working year is 350 hours longer in Japan than in Germany.

This is because Germans believe that they have a contract which pays them for 40 hours of work a week with their employer and therefore if an employer wants more hours, then they should pay more. If a Germany employee can’t finish all their work on time, then they will either try to work more efficiently, even skipping lunch, or they will blame the employer for giving them too much work to do.

Work life balance in Japan has come to mean how to have better day care facilities so women can work, but in Germany it means a good balance between work and private life for all employees.

2. Process and result

Both Japanese and Germans believe there is a correct way of doing things. Consumers read instructions for the products they have bought and workers obey the rules. But the big difference is that Germans also value the result and getting to the result in the most efficient way. So they are fine if someone finds a quicker way to do something. If too long is taken on a business process, they start to become impatient. in fact they become downright rude. However for the Japanese, the process is just as important as the result. It should always be done the same way by everyone, then no one will feel left out. For a new way to be accepted, everyone has to agree. There is no room for individual initiative.

3. Say what you think

Germans on average are much more direct than most other nationalities. In fact they like to share opinions with others. Japanese people feel “debate”has negative connotations. Schaede says she has found it very hard to have discussions about politics world affairs or business with Japanese people, which to Germans means it is hard to make friends.

4. Customer service

German customer service is the exact opposite of Japanese customer service. Whereas a Japanese server might say ” I am sorry to have kept you waiting”, in Germany the customer expects to have to wait to be served. In fact if you turn up too close to closing time in a shop, you might be refused service. The belief is that shop assistants have rights too – to go home on time. There is no concept that the customer is more important than the employee.

As Schaede says – and as a cross cultural consultant, who am I to disagree – there are two learnings from this. One is the importance of understanding cross cultural differences at a profound level if you are going to do business across borders. The second is that when you have a multicultural team each will have different priorities and different processes to reach a result. These are deep rooted and it will be difficult to bring everyone round to one point of view.

Mitsubishi Heavy Industries – feminise and foreign-ise to stop being fossilised

The cover story for the Nikkei Business magazine (JPNS) for October 20th 2014 is somewhat doom and gloom,claiming that Mitsubishi Heavy Industries’ reforms were too slow, and it’s now in the last chance saloon. The four part special includes an interview with the president, Shunichi Miyanaga, who has been leading the reforms and also a handy checklist so you can make sure your Japanese company hasn’t also become fossilised like MHI. One of the items on the list is whether “You have lots of Japanese expatriate staff, and the local hires view them as the secret police”

The online counterpart to Nikkei Business also has an interview with Christina Ahmadjian, an American who has lived in Japan for 17 years and is now a professor at Hitotsubashi University, who was appointed as an external, or “outside” as they say in Japan,director of MHI in 2012. She’s also on the board of Eisai, the Japanese pharmaceuticals company. Needless to say, she speaks fluent Japanese – and was also an “accidental Office Lady” in her past, at Mitsubishi Electric.

She termed MHI “super-Japanese” for its slow decision making and initially did not want to take up the role. Her friends cautioned her, saying there are plenty of other Japanese companies who are more advanced in their reforms that she should consider. However the then President and chairman took her presentation to the board very seriously, which led her to decide to “try it for a year, and quit if it didn’t work out”.

She continues this un-Japanese attitude by regularly asking in board meetings “who is accountable” and asks for specific commitments from anyone who uses the typical Japanese vague term “kento shimasu” (we will study this further). She also insists that strategic rather than technology related subjects are discussed in the board meetings.

President Miyanaga has also changed the board meetings, through reorganising the company into four domains, and decreasing the representatives accordingly to the board, which has allowed for smoother discussions. Ahmadjian says she is surprised by the speed at which Miyanaga has moved, and also how careful he is to share all information with her, including on any M&A activities. Previously, Japanese companies had been reluctant to involve external directors as they were concerned that confidential matters would be leaked.

Nonetheless, MHI is still slow compared to the foreign competition, she says. MHI is beginning to appoint non-Japanese to senior positions overseas but there is a lack of candidates internally. It’s not always the case that it is easier to get rid of people in foreign companies, she argues – in Europe the unions can be very strong and she suggests that some Japanese companies are using legal barriers as an excuse not to restructure, and are in fact “zombie” companies.

“I am a watch dog, making sure MHI do not slack off on their reforms” she concludes.

Marketing in Japan the Kit Kat way

At my last workplace it became a custom in our global marketing team for anyone visiting Japan to bring back the latest Kit Kat flavour – green tea, cherry blossom and even edamame (soy bean) flavour. As a mainly British team, we found it bizarre to see what seemed to us an iconic British brand become so utterly Japanese.

Of course the Kit Kat brand is actually owned by a Swiss company, Nestle. The President of Nestle Japan, Kozo Takaoka, turns out to be the person who instigated the campaign, turning Kit Kat into a premium brand, to the surprise of the Swiss headquarters. The editor of Nikkei Business Kenji Tamura asked Takaoka in a recent interview if this meant European marketing was not as advanced as Japanese believed.

Takaoka’s response is that Nestle HQ itself is beginning to wonder if marketing has become bloated. The marketing costs for Nescafe, for example, cover 100 countries and 100 flavours of Nescafe. Advertising is still effective in developing countries, but no longer in matured markets. TV advertising and celebrity endorsement worked in Japan during the period of rapid economic growth, but this method is no longer persuasive, Takaoka believes.

“Marketing is the management of the company” says Takaoka, because to manage a company you have to innovate to produce new value and work out how to get that to the customer. “Up until now this kind of marketing was lacking in Japan. We have continued with the developing country model. We don’t seem to be able to escape from that model – that we just need to make products and then advertise them” – words that will resonate with my former marketing team colleagues I suspect.

Lessons from the Netherlands for Womenomics in Japan

The Netherlands has the largest proportion of part time workers who are women amongst the 34 OECD countries – 61.1% compared to 36.2% in Japan, which is ranked 7th. The employment rate for women is 69.6% (6th out of 34) in the Netherlands, compared to 63.2% (#15) in Japan.

One major difference between the two countries which helps account for this is that in the Netherlands, women can change from full time to part time work with the same employer without losing any of their benefits as permanent full time members of staff.

The Nikkei Business magazine describes days in the lives of several Dutch women, who have high profile, senior jobs, but work 4 days a week and pick their children up from school on their bicycles. It points out that if Abenomics is really to achieve its goal of 30% of managerial positions to be occupied by women by 2020, the whole of Japan is going to have to be much more flexible in its working arrangements, otherwise “it’s just building castles in the sky”.

The Dutch work the fewest hours in the OECD, but average salaries are higher than Japan, showing that they are highly productive. Dutch cannot understand the Japanese concept of “service overtime” (doing unpaid overtime to show loyalty to the company).

There is also very little in the way of Japanese style seniority based pay. The same pay for the same work has deep roots in Dutch society.

Part time employment boomed in the 1950s in the Netherlands to enable young childless women to work in a time of labour shortage. In the 1970s, with deindustrialization, part time work became more common in the service sector. However women were meant to stay at home to look after the children. The turning point came in the early 1980s. After the oil shock, the Netherlands lost industrial competitiveness, and there was negative GDP growth, but wages did not fall, known as the Dutch Disease. The Wassenaar Agreement of 1982 between employers’ organisations and the unions exchanged wage restraint for increasing part time work and shorter hours and thereby reducing unemployment and inflation. This also had the consequence of enabling women to take up employment.

There was a gap in benefits for part time and full time employees, just as in Japan now, but from the 1990s the concept of equal pay for equal work was promoted. Furthermore, the Working Hours Adjustment Law of 2000 means that employees have the right to adjust what working hours they will do in agreement with their bosses, eliminating “service overtime”.

The Dutch government has also invested heavily in childcare provision, but as the Nikkei Business magazine says, the biggest difference with Japan is the role that men play. It is much more acceptable in Dutch society for men to choose their working pattern based on childcare needs. The norm is for 2 working parents to do 1.5 of a full time job. And of course working from home is much more accepted than in Japan. “Without an environment where men can participate in childcare, childcare services and a revision of working hours, there is no way Japanese women will be working more than they currently do. It has taken the Dutch 30 years to change their labour market, and this raises questions for Japan” concludes Nikkei Business.

The 4 types of Japanese expat manager

Susumu Okamura, a veteran of Daiichi Life, DIAM in the US, UBS Global Asset Management and a Columbia MBA alumnus, believes experience of secondment to another company is a must for survival in the global economy. Thanks, however, to ‘Naoki Hanzawa’ (a TV series in Japan about a heroic salaryman banker), being seconded to another company has a thoroughly bad image in Japan. However in global companies, where spin off companies are multiplying, being seconded has become part of management development.

Foreign business people are particularly enthusiastic about being sent to manage acquisitions or struggling subsidiaries. They see it as a valuable chance to put their ideas into action and do things their own way, says Okamura.

Okamura views joining your first company as a second birth, with being seconded to another company as a third rebirth, but unfortunately many Japanese managers do not see it that way. Okamura sees four types of secondees:

The depressive – who has dropped off the elite track of the headquarters, so becomes disillusioned and loses his spark. However they are often given an important role in the subsidiary company, so they are the worst kind of boss for the employees of the subsidiary.
The look backer – who wants to make headquarters regret pushing him out by producing great financial results. Tries harder than the depressive, but his aggressive, inflexible management style can warp the subsidiary
The phlegmatist – has the same laid back style wherever he goes. Works steadily, doesn’t try to change anything.
Mindset changer – is thrilled at the chance to start a new chapter in a new organisation, pursuing new dreams

As Okamura says, in traditional Japanese companies, secondment damages your chances of becoming a top executive in the headquarters. “But I want to ask instead, is it really fun to stay in the headquarters? What are you learning which is of value in the marketplace? Do you think that value will still hold in 10 years’ time?”

“We are in the middle of a diversity boom. However, unfortunately in many cases, the foreigners, women, mid-career hires and the disabled that are hired all end up being ‘dyed the same colour’. It’s not obvious why diversity was such a reason for hiring people. But being seconded is different – there is an unshakeable diversity to having to become part of a different corporate culture.”

You need to know Japan to be a globally effective Japanese manager

Foreign companies in Japan are known as gaishikei (foreign capital managed) and Japanese who choose to work in them are often suspected of being “lone wolves” who are motivated by money. However recently some Japanese managers who have worked in gaishi joined Japanese companies later in their careers, such as Hikaru Adachi, recently interviewed in Diamond magazine. He was born in Austin, Texas, went to Hitotsubashi University and then worked for P&G, Booz Allen, Roland Berger etc before joining Japanese clothing company World and starting up a group called Gaishikei Leaders.

He says he decided to work for a Japanese company because he is so concerned that Japan is being marginalized on the world stage, and to counter this, economic leadership is needed, for which global minded managers are required.

He joined a gaishi initially in order to learn as much as possible, as quickly as possible. Although he found performance reviews tricky as he would tend to be naturally humble about what he did or did not achieve, compared to the boasting from other employees about their successes, he felt that his honesty eventually won through, and people came to trust him.

Gaishi managers have experience that purely Japanese managers lack:

Experience of having worked with foreign employees who speak a diverse group of languages, particularly English – knowing how to write emails, documents, run meetings. This cannot be achieved by only working with Japanese speakers, who are used to the non-verbal, telepathic way of Japanese corporate communication.
To have a standpoint that is not pivoting on Japan. For example, corporate cultures or customs which work fine when it is just Japanese working together, but in a global market or working with non-Japanese, they are hard to understand, or cause major problems.
Systems which are based from the outset on being global, such as HR, evaluations, finance and information systems. It’s not sufficient just to adjust Japan HQ systems for global use.

Japanese who have worked abroad with Japanese companies may be able to get enough experience in the first category, but for the second and third aspects, gaishikei managers will have the edge. Particularly on 3. he points out that with Japan’s particularly Japanese systems and structures, it is difficultto get experience in hiring and developing high quality non-Japanese staff.

He stresses he is not saying Japanese companies are inferior to gaishi, rather that Japanese managers lack the necessary self awareness about Japan’s history, culture, politics and economics to be able to represent it effectively in the global world.

Japanese firms might gain from looking to outsiders for insights

At the beginning of our training sessions with Japanese expatriate managers, I describe to them the positives and challenges Europeans say they face when working in Japanese companies. If I have already done similar sessions with Europeans in that company, then I also highlight those aspects which are specific to the company or were give a particular emphasis.

You can probably guess what the common positives and challenges are. The European employees usually say they find their Japanese colleagues are polite/friendly/calm, take a long-term view and have a high degree of commitment to their jobs and the company. The challenges that they find are communication problems centering on indirect/direct communication styles and attitudes to conflict, and also the long-winded, nontransparent decision making processes.

It is often said that Japanese people are more than usually curious about how they are perceived by other cultures. Certainly my list of common positives and negatives arouses great interest among Japanese participants. However, when I try to turn it into a debate about the company’s culture – asking questions like, “Do you think your company is more or less nemawashi (consensus based decision making) oriented than other Japanese companies in your industry?” – there is hesitation, a few tentative comments, and then thoughtful silence. It is almost as if such questions had never been considered before.

As lifetime employment has been so prevalent in these large companies, and still is for the majority of employees, the opportunity to compare the company you chose to join at the age of 22 with another company only arises once – during the graduate recruitment process. Because this a career-long commitment, both the graduates and the companies put a great deal of effort into the process of finding out whether there is a good fit between the candidate and the company culture.

But the actual nuts and bolts of working in a company – how decisions are made, attitudes to process, risk, hierarchy and so on – are not made so explicit, because the candidates have never worked in a company before and have no way of identifying these characteristics. If you are going to stay at the company for the rest of your career, then you just accept that “this is the way things are done around here.”

Now that more Japanese people are changing employers, and mergers between companies are increasing, it is surely time to be more aware of these differences, so that adjustments can be made by employees and companies.

Some insights will of course come from the job hoppers themselves, but it might also be time for Japanese companies to lose their allergy to using outside consultants. As a consultant myself, I would say this, but consultants who have worked with a range of companies probably have the best overall view of how Japanese companies differ from each other.

As the British writer Rudyard Kipling famously put it, regarding English insularity, “And what should they know of England, who only England know?”

This article by Pernille Rudlin originally appeared in the The Nikkei Weekly

Monozukuri still has merit, but smarter marketing a must

I’m a big fan of Japanese monozukuri (“the art of making things ie manufacturing) and said so in a letter published in the Financial Times recently. It attracts criticism for causing Japan’s economy to be too reliant on exports, and there are worries about how an aging population can supply enough workers to man the shopfloor. But I really think Japan should “stick to its guns” in this regard.

Here in the UK we are suffering the effects of having moved too far away from manufacturing. We’ve ended up with a society where everyone thinks they should be highly paid knowledge workers or celebrities. We have failed to give enough status and dignity to making things.

A diverse society like the UK needs a full range of jobs to stay healthy. I am not saying this out of a patronising assumption that manufacturing jobs are necessary for the unskilled and uneducated in society and that such people are somehow not fit for anything else. There seems to be a fundamental human need to see tangible results from our labours.

Besides, a career in manufacturing requires far more than dexterous fingers these days – thanks to Japanese techniques such as just-in-time delivery, visualisation, root cause analysis, multi-skilling and so on, anyone wanting to succeed in manufacturing has to be computer literate, have an understanding of logistics and be capable of rigorous problem solving.

It is noticeable in this recession that many manufacturers have struck deals with their workers on pay cuts or working time reductions. rather than resorting to mass redundancies. There is a high cost to training a fresh set of employees when the economy picks up, so it makes more sense to retain the current workforce.

In fact it is knowledge work that has proved to be more vulnerable than expected. I know of many bankers, accountants and lawyers who have been made redundant, thanks to our British economy based on trading of over-hyped assets such as houses and fancy financial instruments. Ironically, many of them are now turning to “manual” work; cookery, gardening, farming, starting a vineyard and so on.

One problem I have noticed with monozukuri, however, is the assumption that making lovely things is somehow enough. At a seminar I facilitated recently, several senior salespeople, in electronics, sanitary ware and banking, all noted that their Japanese companies did not seem to have any understanding of the basics of marketing, particularly in the current highly competitive climate. “My bank doesn’t even have a pitch book!” the banker told me. I pretended to know what he meant, and later found out that this is a fundamental marketing tool for any Western investment bank – containing all the profiles and experience of the proposed team.

In the past, Japanese companies could rely upon relationships and their reputation for quality to sell their products and services. Now they need to think long and hard about differentiation and value added. Why do we make this product and not that one? What makes our product or service better or different? Should we be making this product at all? When they have answered these questions, their sales people can sell more convincingly, and the Japanese economy can pick up again.

This article by Pernille Rudlin originally appeared in the Nikkei Weekly.