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Breaking Down BordersDoing business in JapanTsuyoshi KomoriSteven Brown                          www.mercer.com
Today’s speakers    Tsuyoshi Komori              Steven Brown    Senior Partner               Principal, Retirement, Risk ...
Topics for discussion         1     Macro view on Japan         2     Talent issues         3     Trends in HR practices  ...
1Macro view on Japan   2                      3                      4                      5
Macro environment for companies in Japan Let us understand the ongoing reality in the Japanese economy           Economics...
Economics & Geopolitics                           Diversification and                            complication of hegemony...
Market & Client                   Domestic market - Shrink                     – Quantitative shrink                     ...
Business process & Infrastructure                                 Increasing burden from rule                            ...
People & Talent Base                        Shrink of the workforce                          – Low birth-rate and rapidly...
Challenges or opportunities?For Japanese companies…           If looked from outside… Cannot just stay inside          F...
Talent issues   1                2                3                4                5
Key characteristics of Japanese talent market    On average, people want to work for large, well-known, stable     Japane...
Opportunities    If you can invest in brand development successfully, talent will     look at you    If you develop peop...
Trends in HR practices   1                         2                         3                         4                  ...
HR programs (3Ps*)    Trend to shift from seniority-based promotion system to objective,     position-based system    Al...
Retirement & pension benefits    Given that many people prefer stable economic lives over     entrepreneurship, retiremen...
Other benefits    Basic health insurance has been run by the government (NHI*),     theoretically enabling 100% coverage ...
Opportunities    HR practices have become increasingly open for change from     traditional Japanese model    People loo...
Labor legislation   1                    2                    3                    4                    5
Labour legislation - Key issues to remember    You cannot fire people easily, if they are “regular” employees     (under-...
Labour unions    Labor unions often have significant presence in organizations in     Japan, both in Japanese companies a...
Opportunities    As labor-related legislation is complicated and ambiguous, once     you learn how to deal with them, thi...
Key factors in M&A   1                     2                     3                     4                     5
Typical issues when doing M&A in Japan    Even if you are a buyer, you cannot expect to just enforce your     standards p...
Opportunities    If you are good at communication and change management, you     can still benefit greatly from a Japanes...
All in all…    The Japanese economy is not growing rapidly    Many challenges to doing business in Japan    But you can st...
Questions?
For more information on regional strategiesRisks and opportunitiesVisit our Breaking Down Borderswebsite to access article...
Future markets in the Breaking down Borders webcast series Doing business in India   Held                                ...
www.mercer.com
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Mercer bdb doing_business_in_japan_nov_2010

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Transcript of "Mercer bdb doing_business_in_japan_nov_2010"

  1. 1. Breaking Down BordersDoing business in JapanTsuyoshi KomoriSteven Brown www.mercer.com
  2. 2. Today’s speakers Tsuyoshi Komori Steven Brown Senior Partner Principal, Retirement, Risk and Japan Market Leader Finance Consulting Japan tsuyoshi.komori@mercer.com stevenE.brown@mercer.com +81 5354 2035 +81 5354 2038Mercer 1
  3. 3. Topics for discussion 1 Macro view on Japan 2 Talent issues 3 Trends in HR practices 4 Labor legislation 5 Key factors in M&AMercer 2
  4. 4. 1Macro view on Japan 2 3 4 5
  5. 5. Macro environment for companies in Japan Let us understand the ongoing reality in the Japanese economy Economics & Market & Client Geopolitics Companies in Japan Business process People & & Infrastructure Talent BaseMercer 4
  6. 6. 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 issueMercer 5
  7. 7. 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 marketMercer 6
  8. 8. 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 attacksMercer 7
  9. 9. 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 companiesMercer 8
  10. 10. Challenges or opportunities?For Japanese companies… If looked from outside… Cannot just stay inside  From global portfolio Japan, if the company wants viewpoint, Japanese market to grow further is still large Expanding in overseas  Diligent and sincere market critical, but not that workforce can be a good easy asset within the firm General public not really  Technological assets can be ready to go global – Still better leveraged outside debating… JapanMercer 9
  11. 11. Talent issues 1 2 3 4 5
  12. 12. 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 measuresMercer 11
  13. 13. 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 organizationsMercer 12
  14. 14. Trends in HR practices 1 2 3 4 5
  15. 15. 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 protocolsMercer * Position, Performance, Pay 14
  16. 16. 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 companiesMercer 15
  17. 17. 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 meaningfulMercer * National Health Insurance 16
  18. 18. 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 implicationMercer 17
  19. 19. Labor legislation 1 2 3 4 5
  20. 20. 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 furtherMercer 19
  21. 21. 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 worldMercer 20
  22. 22. 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 companyMercer 21
  23. 23. Key factors in M&A 1 2 3 4 5
  24. 24. 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 regimeMercer 23
  25. 25. 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 governmentMercer 24
  26. 26. 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!Mercer 25
  27. 27. Questions?
  28. 28. For more information on regional strategiesRisks and opportunitiesVisit our Breaking Down Borderswebsite to access articles, points ofview, podcasts and more information oninvesting in Japanwww.mercer.com/breakingdownbordersMercer 27
  29. 29. Future markets in the Breaking down Borders webcast series Doing business in India Held When: Webcasts will begin at Doing business in Japan the following times: 26 November Delhi – 11:30 am Doing business in China Bangkok – 1:00 pm 2 December Shanghai, Hong Kong, Singapore – 2:00 pm Doing business in Korea Seoul, Tokyo – 3:00 pm 16 December Sydney – 4:00 pmAdditional markets will be added in 2011www.mercer.com/breakingdownbordersMercer 28
  30. 30. www.mercer.com
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