Labor challenges for Japan

by Glen S. Fukushima

Since the end of the Cold War — symbolized by the collapse of the Berlin Wall on Nov. 9, 1989 — “globalization” has become the world’s most controversial subject. But what does “globalization” mean?

For corporate management, the key elements of globalization include the following: (1) the need to prioritize and allocate scarce resources strategically in the face of fading political boundaries and expanding market opportunities around the world; (2) demand-side factors, including the need for companies to respond quickly and effectively to heightened consumer and user requirements; (3) supply-side factors, including competitors’ accelerating pace of mergers, consolidations, joint ventures and strategic alliances; (4) government policies, especially liberalization and deregulation; (5) rapid technological advances, especially in information technology; and (6) changes in the labor market.

Although much attention has been devoted to the political, economic and technological aspects of globalization, relatively little serious attention has been given to the “soft,” human dimensions of the subject. In many ways, however, the globalization of the workforce is profoundly important, both as a cause and as an effect of globalization. That is, globalization is leading to rapid changes in the labor market, but these changes themselves are in turn accelerating globalization.

The globalization of the workforce is manifested in at least three areas: mobility, diversity and specialization.

Regarding mobility, there is increasingly a divergence between the citizenship of an employee, the nationality of the company for which he or she works, and the geographical location of the job. For example, we see more and more cases such as the following: a French citizen who works in the Singapore office of an American company. Global companies are increasingly hiring and assigning personnel based on the individual’s abilities rather than on the country of his or her passport.

Second, the global competition for scarce talent is leading to greater diversity in the workforce. This multiculturalism is certainly evident in Silicon Valley, where a high percentage of the workforce, including engineers, are originally from outside the United States — including India, China, Vietnam, Cambodia, Russia, Israel, Mexico, etc. The most successful Silicon Valley firms have found effective ways to manage this diverse workforce and to derive the maximum benefit for the firm, employees and shareholders. Of course, this diversity also extends to gender, age, sexual preference and other features.

The third impact of globalization on the workforce is specialization. Global competition is forcing companies to become even more focused on their core competencies. In Japan, many companies followed the “convoy system,” in which the government encouraged companies to mimic each other and to minimize their differences. But market forces are now forcing Japanese companies to shed businesses that are uncompetitive or unprofitable and to focus on their core competencies. As a result, Japanese companies are increasingly recognizing the need for their employees to develop their skills as professionals — e.g., in finance, marketing, production, personnel — rather than merely following the cookie-cutter approach of being a “general manager of X Company.” Without enhancing the professional ability of each employee, companies will not be able to survive the increasingly fierce competition in world markets.

This rapid globalization of the labor market is having a significant impact on the workforce in Japan, according to Sakie Tachibana Fukushima, managing director of Korn/Ferry International, the world’s largest executive search firm. In her new book, “Ureru Jinzai” (“The Marketable Executive”), she writes, “Globalization and IT are forcing Japan to change. In order to survive in the increasingly competitive global marketplace, Japanese companies need to hire individuals who have overseas experience, people who have IT expertise, and non-Japanese nationals. Japanese companies — which up to now have pursued ‘jimaeshugi’ (total self-reliance on personnel issues) and ‘jinzai sakokushugi’ (seclusion policy regarding personnel) — are finally starting to think strategically about human resource issues.”

Thinking strategically about these issues will most likely lead Japanese political and business leaders to conclude that a revision of the country’s immigration laws are needed to allow for more foreign workers at all levels of the economy. Given the demographic trends of a low birthrate and rapidly aging society, without such a change the country is likely to suffer from a serious shortage of qualified workers who can contribute to the future growth of the economy. Even now, Japan’s legal system, employment practices, cultural insularity and limited use of English are depriving Japan of valuable workforce talent.

At the highest corporate levels, it is interesting that a growing number of American and European multinationals are inviting foreign executives to join their boards of directors in order to provide global perspectives. In recent years, Japanese executives have been in high demand. For instance, IBM’s board includes Minoru Makihara, chairman of Mitsubishi Corporation; ABB’s board includes Yotaro Kobayashi, chairman of Fuji Xerox; the boards of General Motors and Electrolux include Nobuyuki Idei, chairman of Sony; and until recently the board of my company, Arthur D. Little, included Masamoto Yashiro, the former chairman of Citibank Japan and current president of Shinsei Bank.

Although a small handful of Japanese companies have recently begun to invite non-Japanese nationals to sit on their boards of directors or on newly created international advisory boards, the practice is far from widespread. And those who do serve are often not given either access to the company’s information or the ability to influence board decisions in the same manner as foreign board members of American and European companies. This is unfortunate, since by doing so Japanese companies are depriving themselves of valuable expertise and advice that they could put to good corporate use.

Whether on the level of blue-collar workers, white-collar professionals or executives in the corporate boardroom, it will be interesting to see how Japan copes with the globalization of the labor market. How Japan deals with these new challenges of workforce mobility, diversity and specialization will help shape Japanese society and competitiveness in the 21st century.