Internationalizing Japan Inc

As Japan’s domestic market continues to shrink, local companies are increasingly under pressure to diversify their workforces while exploring markets abroad.

When Michael Woodford was fired in 2011 after just two weeks as Olympus’ first non-Japanese CEO, the subsequent scandal set off debates not only about corporate governance and whistleblower laws in Japan, but also about the homogeneity of the country’s corporate workforces.

Some even speculated that Woodford was only promoted to the position in the camera and medical imaging equipment maker because he would be easy to control. Since then, Sony and Nippon Sheet Glass have both witnessed the departure of foreign heads, leaving only a couple of major Japanese companies with non-Japanese executives at the helm.

As the global economy becomes more and more competitive, many are wondering if Japan’s ethnocentricity is a hindrance to its economic recovery. And even though Prime Minister Shinzo Abe is examining ways to deal with problems triggered by Japan’s rapidly graying population, successfully integrating different cultures into the workforce is far more complex than simply allowing more professionals from abroad into the country (one suggestion for dealing with the shrinking population).
“Japan is 15 years behind,” says Janelle Sasaki, who co-founded the diversity and inclusion (D&I) program at Ernst & Young with Nancy Ngou, a partner at the international accountancy firm. In her office, with its view of Tokyo Tower, Sasaki explains how she became an expert in helping companies become more multinational.

As a Japanese-American growing up in California, she was exposed to a range of cultures from an early age and explored the subject during college. “I met students from all over the world and saw the power of diversity in the classroom because everyone had different ideas and perspectives and solutions,” she says.

Sasaki moved to Japan in 2011, starting up a diversity and inclusion practice for the company where she worked at the time. “It was a real challenge,” she says. “I got a lot of resistance from companies and there were a lot of inclusion issues around using English, which creates challenges around global communication.”

She has grown her D&I network in Japan to include managers from more than 100 businesses. Since starting up the program at Ernst & Young a year ago, she has seen significant changes in the marketplace, influenced, in part, by Abenomics, the prime minister’s set of policies to reinvigorate the economy. In addition, she says, Japan’s diminishing workforce is compelling companies to look further afield for staff.

So what happens when Japanese companies do decide to internationalize their teams? “There are a lot of companies that are trying to globalize,” says Club Member Ngou. “They’re trying to hire more international students. It could be someone who is Japanese but went to school overseas, or someone who is foreign but can speak Japanese. But then you have this phenomenon where people come into the company expecting to have a more international experience, but companies are forgetting to change their culture from within. There are some companies that are trying to adopt English as their common business language. This is a great start but it’s a very different thing—language versus the culture.”

One Japanese company that has made headlines for its so-called “Englishnization” policy is e-commerce giant Rakuten. In 2010, CEO and Club Member Hiroshi Mikitani announced that all employees would conduct business in English and pass language competency tests or risk being fired. Earlier this year, the firm revealed that employee scores on the Test of English for International Communication (TOEIC) had dramatically improved. Some Japanese companies have criticized Rakuten’s approach. Honda’s chief executive, Takanobu Ito, went so far as to call it “stupid,” while others, like clothier Uniqlo, have followed suit.

“In order for Japanese companies to make international expansion successful, it is crucial to develop talent that can engage in global markets,” explains Noriko Ushiyama, manager of Rakuten’s diversity and inclusion section. “This is changing the way we define the necessary qualities of our workforce.”

While Rakuten has been aggressively expanding its global operations, its policy of hiring more foreign staff and building an all-English work environment hasn’t been without its challenges. “We sometimes run into internal organizational resistance to change,” says Ushiyama. “This can arise from language differences and even unconscious internal prejudices. It has been encouraging, however, to see how individuals and the organization learn from these issues and adapt to change to become a stronger team.”

Other Japanese companies are implementing a more cautious approach to globalizing their offices, according to Member Bryan Norton, chair of the American Chamber of Commerce in Japan’s globalization committee. “The foreign worker population in Germany is about 16 percent, in the US it is about 8 percent, while Japan is way behind at about 1.7 percent,” he says. “In our research, one important thing we found was that Japanese companies with less than 1,000 employees have learned how to integrate foreigners into their workforces in Japan, while companies [with] over 5,000 employees rarely hire foreigners.

“Many Japanese companies had previously been reluctant to change their business methods in order to integrate fully into the global supply chain, but now they are coming to terms with beginning a period of globalizing their corporate structures. One example is Panasonic, which has said it will hire 75 percent of its new staff outside of Japan. They will do this cautiously though, first hire abroad, see how things go and then bring selected workers to Japan.”
As Sasaki and Ngou point out, this type of trend will demand a change in Japan’s corporate culture to one more international and welcoming to staff transferred from overseas. They say that Japanese companies could learn from foreign companies in Japan already successfully managing diverse workforces.

Matthew Romaine co-founded web-based translation company Gengo in Japan in 2008. “In our Tokyo office, approximately 60 percent of our staff are non-Japanese,” he says. “However, we’re very conscious about the fact that a nationality on paper may not necessarily reflect the individual’s emotional language or culture they identify with.”

Romaine, who joined the Club earlier this year, says communication can be a hurdle in multinational offices. “Some cultures emphasize the silence between words more than others, and, therefore, some opinions may not get expressed as promptly,” he says.

Fellow Member Emily leRoux, a director at the British-based recruitment firm Michael Page in Tokyo, expresses a similar sentiment. Her duties include finding talent for multinational firms looking to establish themselves in Japan and running a program that aims to improve diversity in the company.

“Fifty percent of our staff are Japanese, with the remaining 50 percent coming from all over the world,” she says during a tour of the Michael Page offices. Recruiters from 18 different countries sit at rows of desks, tapping away on keyboards and talking to clients on the phone. “Over the last year, we have invested heavily in interpreters and translators to ensure smoother communication,” says leRoux. “While most of our staff can speak English, we have made it our policy that all in-house correspondence is presented in Japanese first and English second.”

LeRoux admits that her first year in the Tokyo office was far from plain sailing. “There was this feeling of ‘We do it the Japanese way.’ People are very anxious that you are going to come in and change everything. Non-Japanese have to work hard to fit into the culture to prevent the local team from simply shutting down,” she says.

Diversity and inclusion experts agree that any business on a globalization path, whether it’s a multinational launching in Japan or a local firm looking to hire more foreign workers, should be ready to compromise.

“From Japan’s point of view, their current challenge is work-style innovation,” says Sasaki. “This is a big buzzword at the moment. This includes things like how to reduce long working hours, how to improve flexibility and measure it. As for foreigners, we don’t have to change our values or who we are, but we do need to change our work style in order to fit into the culture here. In my own experience, I have had to deal with leaders here who are risk averse. You have to show them the business cases over and over. They want to see what their competitors are doing. They want to see data to drive decisions. I also had to start to listen more. I’m from Silicon Valley and communication is aggressive there. So I had to take a backseat when I came here, as listening is often valued more than speaking.”

A successful integration of cultures at a company has a multitude of benefits, according to Ngou. “When a company hires a diverse talent and when people feel a sense of support and acceptance, that leads to higher employee engagement. This drives productivity and this, in turn, drives innovation,” she says. “Ultimately, this leads to business profits.”

Romaine is acutely aware of the advantages of running a team of different nationalities. “Perhaps the most obvious advantage of a diverse workforce is competitive advantage: where access to differing and broad perspectives can be tapped when making decisions,” he says. “This is especially useful depending on a company’s stage, such as when a difficult challenge needs out-of-the-box thinking.”
Japan Inc must just decide how much it is willing to embrace internationalism in the pursuit of business success.

Words: Annemarie Luck
Photo: Benjamin Parks