Japan - Resurgence or Relapse?
Q. How are you seeing the talent and rewards landscape in Japan evolve against the backdrop of
increasing talent competition and growing workforce cost?
A. Driven by the need to motivate a younger generation and to acquire skills from external
sources, some firms in Japan have taken a proactive interest in studying pay practices in markets outside of Japan for their
potential applicability in the domestic market. Some firms have been the target of poaching from foreign firms in Japan that
often operate a global pay for performance model. The chance to work in a pay for performance environment has been attractive
to some segments of capable Japanese executives/staff that relish the potential upside of this model and are willing to risk
the consequences of non-performance.Whilst it is likely to be a slow process for Japanese firms to embrace and implement a pay
for performance practice within Japan, their ability to understand such pay practices is becoming mandatory for managing
their overseas human capital.Some firms have also started to transfer top overseas talent to the head office in Japan to play
a greater strategic role in the management of their company. This move has led to some awkward situations with firms having to
accommodate the compensation of such talent alongside their Japanese peers. Furthermore, language has presented a significant
challenge in allowing for the full and meaningful participation of such overseas staff in the Japanese headquarters.
Q. With increasing growth, Japan Inc. has seen a growing demand for a multi-cultural workforce. How has
the talent strategy for the firms changed to attract and retain such talent? Has there been a change in the
organizations’ culture to accommodate the global population? (If yes, how has HR done this?)
A. Preparing an environment in Japan where a multicultural workforce will feel fully engaged
and be able to make a meaningful contribution continues to be a challenge for many firms. Even at the most fundamental level,
such as communication, the challenges remain. A number of firms have mandated that all conversations within the firm are to
be conducted in english which is a small but significant step Some firms have experimented with a “one firm, two
compensation & benefits model”, especially in cases where it was necessary to acquire talent possessing skills that
could not be developed organically within a required timeframe. The results have been mixed, since, to some extent there
inevitably will be overlaps in capabilities/functions of staff that are compensated differently from each other.With respect
to overseas offices/subsidiaries, Japanese firms have been seen to take a more conscious and proactive stance in
understanding the issues related to maintaining an engaged workforce. It has been observed that some firms have consciously
reduced the number of Japanese expats and have appointed non-Japanese country management. In successful cases, this would be
undertaken simultaneously with a considerable enhancement in communication channels with relevant head office functions,
which in some cases involves the temporary assignment of overseas staff to the head office.
Q. Japan has been seeing a sharp ageing of its population. In light of this, how are firms managing the
growing concerns around building a continuous workforce? Also, has there been a shift in focus on pension and health reform
trends?
A. The Japanese demographic dilemma – low birth rates and aging population – leading to a
disproportionate skew towards older workers has been perceived with varying degrees of concern by affected parties. There is
naturally much anxiety that the national pension system will not be able to meet the needs of people in their retirement years
– especially the younger generation when they reach retirement age. Partly in response to this situation, the age from which
individuals become eligible to collect payouts from the national pension program is set to rise gradually. This has led to
legislation requiring firms to offer employment to their staff that aligns with this delay in pension payout eligibility.
Firms have been seeking advice on how to comply with this requirement without raising their fixed compensation costs, as more
senior workers normally command higher wages.Some industries, in which foreign firms typically hired only experienced staff
(i.e., very limited or no hiring of new graduates), now face the consequences of this practice, namely that the age
distribution of their workforce is heavily skewed towards the higher range of ages. In many cases, such firms are unable to
switch strategies to hire new graduates as they do not have the programs to develop such raw talent, or find that their
business model does not readily support such investments. As a result, there is a potential risk that when the group of most
senior employees do retire, there will be a shortage of executives to succeed them. Although firms continue to struggle with
this issue, some firms have begun to consider the deployment of global talent to these potential vacancies, wherever
feasible.
Q. Japan, as a country, has faced several calamities and has always bounced back stronger. Resilience is a very
inherent part of the Japanese character. How have firms managed to emulate this culture into the organizational workforce and
drive growth?
A.Many observers of Japan have attributed the ability of the Japanese to overcome
adversity/crises to a cultural foundation in solidarity combined with a general ability and willingness to seek out and take
in external ideas and to adapt them to existing circumstances. One could also say that it usually takes a crisis to drive
change in Japan. In relatively recent times, such “crises” have included the humanitarian disaster wrought by the
East Japan Earthquake and ensuing nuclear disaster in March 2011, and the financial decline instigated by the bursting of the
economic bubble in the 90’s. In the case of the former, much has already been covered in the media about the courage,
solidarity and relative calm demonstrated by the Japanese people in the face of this horrific catastrophe, and does not
require further commentary here. In the case of the latter, i.e., the “lost decade” (although one could argue that
it was considerably longer than a decade), it has taken the country an unexpectedly long time to recover. There were few
examples from outside of Japan on which inspiration was drawn for a solution (in fact, in the more recent global economic
crisis of 2008, the US and EU have taken to study the Japanese example to help guide them in devising solutions). It is
notable that the hardships of this period did not lead to any major political upheavals (except for a very orderly and
temporary change in government leadership) or any other disturbances that significantly challenged the socioeconomic
stability of the country. This stability gave Japan the time to take measured steps (admittedly, many of which were not
necessarily effective) to find a way out of the quandary. The emergence of the Abe administration and “Abenomics”
has given the people hope that Japan may find its way back to financial prosperity.At the commercial level as well, there has
been a re-emergence of vitality at many firms which, combined with the solidarity of its workers (particularly in the home
market), is driving a renewed vigor to look outside for both ideas and markets. The heightened sense of urgency to deal with
business challenges such as the demographic issues (age, diversity, etc.) and their business implications is driving necessary
change in many aspects of the Japanese organization including the management, development and deployment of human capital.
The renewed efforts of the Japanese commercial sector in deepening their penetration of the global marketplace while
strengthening corporate governance of their far-flung portfolios will no doubt pay considerable dividends in the future.
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