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www.mercer.com
Breaking Down Borders Doing business in Japan Tsuyoshi Komori Steven Brown
1Mercer
Today’s speakers
Tsuyoshi Komori Senior Partner Japan Market Leader
[email protected] +81 5354 2035
Steven Brown Principal, Retirement, Risk and Finance Consulting Japan
[email protected] +81 5354 2038
2Mercer
Trends in HR practices
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Topics for discussion
Talent issues
Macro view on Japan
Labor legislation
5 Key factors in M&A
Macro view on Japan 12345
4Mercer
Macro environment for companies in Japan
Economics & Geopolitics Market & Client
Business process & Infrastructure
People & Talent Base
Companies in Japan
Let us understand the ongoing reality in the Japanese economy
5Mercer
Economics & Geopolitics
Diversification and complication of hegemony
– Emerging giants– Power of U.S. / Europe– Natural resource scarcity
Trust for “Japan Inc.” has been weakening
– Two decades-long “down”– Financial collapse risk– Political leadership issue
6Mercer
Market & Client
Domestic market - Shrink– Quantitative shrink– Qualitative complication– Trap of vicious cycle
Overseas market - Tough– Expansion / fragmentation of
geo-coverage– Competition with local
companies in each market
7Mercer
Business process & Infrastructure
Increasing burden from rule adoptions
– Governance, control– Compliance– Accounting rule change
“Differential” of a unit of mistake huge…
– IT-enabled world– Global linkage of money– Media attacks
8Mercer
People & Talent Base
Shrink of the workforce– Low birth-rate and rapidly
aging society– Under-developed diversity– Inflexible labour market
Country-wide deterioration of the talent pipeline
– Lack of basics at home– Outdated school education– Difficulty in talent
development at companies
9Mercer
Challenges or opportunities?
Cannot just stay inside Japan, if the company wants to grow further
Expanding in overseas market critical, but not that easy
General public not really ready to go global – Still debating…
For Japanese companies…
From global portfolio viewpoint, Japanese market is still large
Diligent and sincere workforce can be a good asset within the firm
Technological assets can be better leveraged outside Japan
If looked from outside…
Talent issues 12345
11Mercer
Key characteristics of Japanese talent market
On average, people want to work for large, well-known, stable Japanese companies
Backed by inflexible labor law, the turnover rate of a workforce is generally low
Unemployment rate is higher in younger generation - Next generation talent pipeline at risk
English literacy is high, but difficult to find English speakers who are competent in business settings
Core talents can still find a way to change their career, necessitating the retention measures
12Mercer
Opportunities
If you can invest in brand development successfully, talent will look at you
If you develop people’s qualities, a low turnover rate culture will be an asset for you
If you can customize your global talent development programs, you can grow juniors
If you can leverage your global career path opportunities, you can attract core talents
Enforcing English-based communication is in fact easier in non- Japanese organizations
Trends in HR practices 12345
14Mercer
HR programs (3Ps*)
Trend to shift from seniority-based promotion system to objective, position-based system
Aligned to it, “pay-for-performance” program has been pursued in many companies
Some negative sentiment exist among the general public toward the “westernized” systems
Culture still appreciates stability in pay (incl. in-effect fixed portion of annual bonus)
Overall, average Japanese person is slowly becoming ready to live with different protocols
* Position, Performance, Pay
15Mercer
Retirement & pension benefits
Given that many people prefer stable economic lives over entrepreneurship, retirement & pension programs are important
Trend has been from Defined Benefit (DB) to Defined Contribution (DC) to improve the sustainability of the programs
Still many companies keep sponsoring DB programs. A hybrid, DC + Cash Balance (CB), is also becoming gradually popular
Language barriers and complex legislation around retirement benefits are the practical challenges for foreign companies
16Mercer
Other benefits
Basic health insurance has been run by the government (NHI*), theoretically enabling 100% coverage for all nationals
The financial sustainability of the NHI system has been at risk, especially due to the heavy burden of aging society
Because the basic medical needs are covered by NHI, the benefit programs mostly focus on group insurance to supplement the health / life issues
Recent trend is to assess the strategy for self-managed Health Insurance Association (HIA). In some cases, having your own HIA is meaningful
* National Health Insurance
17Mercer
Opportunities
HR practices have become increasingly open for change from traditional Japanese model
People look for stability – Not only conservative for downside but also not that greedy for upside
You do not have to pay CEOs and senior executives the same as in U.S. / Europe
If managed well, retirement benefits can be a powerful tool to attract and retain people
As NHI’s financial situation deteriorates, self-managed HIA will increase its strategic implication
Labor legislation 12345
19Mercer
Labour legislation - Key issues to remember
You cannot fire people easily, if they are “regular” employees (under-performance often cannot be a legally convincing reason)
Labor law in fact allows the firing of an employee, but the process is not defined. This makes firing issue resolutions dependent on case laws
Inflexible “exit” has driven companies to use contract-based staff, as they are legally OK to terminate when the contract matures
Ruling Democratic Party is basically against the practice to use contract staff – Base trend is to protect the employees further
20Mercer
Labour unions
Labor unions often have significant presence in organizations in Japan, both in Japanese companies and in MNCs’ subsidiaries
When making any changes to the HR programs and benefits for non-exempt employees, companies need to negotiate with unions
Discussions with unions often takes a long time. It is not uncommon to see a newly developed HR program suspended due to unions’ disagreement
On the other hand, most of the unions are not as aggressive or offensive in nature as we see in other parts of the world
21Mercer
Opportunities
As labor-related legislation is complicated and ambiguous, once you learn how to deal with them, this will be a competitive advantage
Hiring a lawyer as an employee was very costly in the past, but thanks to a downturn in the economy, you can afford to hire them
If you can build a good relationship with the labor union, they may in fact be your partner to jointly run the company
Key factors in M&A 12345
23Mercer
Typical issues when doing M&A in Japan
Even if you are a buyer, you cannot expect to just enforce your standards post-deal
Often the seller will request you to keep the existing employment arrangements intact
A labor-union-free organization may form one in the wake of the deal
People will often look for the principle of “merger of equals” in any type of deal
People are extra-sensitive to being forced to work in a new regime
24Mercer
Opportunities
If you are good at communication and change management, you can still benefit greatly from a Japanese organization
Once Japanese people become positive to a new employer, their commitment can be tremendous – Remember, people even worked too hard and died for their companies in the past
If the acquisition process is managed well, you may in fact acquire the full technological advantage of a Japanese company
As the ruling party is in favor of employees, your commitment to their employment will be viewed positively by the government
25Mercer
All in all…
The Japanese economy is not growing rapidly
Many challenges to doing business in Japan
But you can still devise your way to address them
Once you get over these, Japan is an attractive market
Mercer is here to help you succeed!
Questions?
27Mercer
For more information on regional strategies Risks and opportunities
Visit our Breaking Down Borders website to access articles, points of view, podcasts and more information on investing in Japan
www.mercer.com/breakingdownborders
28Mercer
Future markets in the Breaking down Borders webcast series
When: Webcasts will begin at the following times:
Delhi – 11:30 am Bangkok – 1:00 pm Shanghai, Hong Kong, Singapore – 2:00 pm Seoul, Tokyo – 3:00 pm Sydney – 4:00 pm
www.mercer.com/breakingdownborders
Doing business in India Held
Doing business in Japan 26 November
Doing business in China 2 December
Doing business in Korea 16 December
Additional markets will be added in 2011
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