1. Breaking Down Borders
Doing business in Japan
Tsuyoshi Komori
Steven Brown
www.mercer.com

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 2038
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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&A
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4. 1
Macro view on Japan 2
3
4
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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 Base
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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 issue
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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 market
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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 attacks
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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– Outdated school education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 companies
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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… Japan
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11. Talent issues 1
2
3
4
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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 measures
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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 organizations
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14. Trends in HR practices 1
2
3
4
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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 protocols
Mercer * Position, Performance, Pay 14

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 companies
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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 meaningful
Mercer * National Health Insurance 16

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 implication
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19. Labor legislation 1
2
3
4
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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 further
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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 world
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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 company
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23. Key factors in M&A 1
2
3
4
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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
regime
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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 government
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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!
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27. Questions?

28. 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
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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 pm
Additional markets will be added in 2011
www.mercer.com/breakingdownborders
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30. www.mercer.com