Doing business in Japan information
by Venture Japan
In the previous section on deciding whether to recruit a Japanese or expatriate for your Japanese subsidiary company President, I mentioned that using a head hunter to recruit foreign executives already doing business in Japan may find a great candidate who will accept an aggressively performance related salary that many Japanese executives may refuse to consider. Lets now look at the general issue of recruiting Japanese employees (whether using a head hunter or otherwise), their salary expectations and how you can structure your Japanese employees' salaries to be cash efficient.
Despite those myths of the Japanese market it is possible to do 'more with less' in Japan - the key is having the right Japanese subsidiary team and despite the cost of head hunter fees in Japan (typically 25% - 35% in Tokyo), using a head hunter is likely to be the fastest way to assemble the team unless you first employ a good local 'insider' who can bring a team with him/her.
The Japanese market is fundamentally the same as any other market you compete in - in Japan, as elsewhere, the most successful businesses are those that have a highly motivated, intelligent, aggressive, totally committed, well led and coordinated team selling and supporting a quality product or service for a company that they truly identify with. The challenge you have with your Japanese subsidiary is the same you have with any other foreign subsidiary you operate - how to take what is most likely a cross-cultural team of people operating in one part of the world and meld them into a front-line force that is prepared to do whatever it takes to ensure the success of a parent company that is far removed, both geographically and culturally, and to do it without breaking the bank?
For the past 60 years, Japanese education has focused on producing a well-educated, well-informed and knowledgeable work-force that will work together as a team to produce high-quality products time-after-time-after-time. A current (April 2004) TV ad by one of Tokyo's numerous 'cram schools' emphasizes Japan's tendency to teach 'one correct answer to each question' (or '5 + 5 = 10") as opposed to Western schools that tend to teach 'multiple possible questions to each answer' (or '? + ? = 10'). One result of Japan's education system is that individual Japanese tend to be very comfortable operating as an extremely capable and quality-conscious team member, with well-defined objectives, but often lack the questioning ability of effective and innovative individual leaders.
In fact, many Japanese do not like situations where they must make an individual assessment and decision (one of the reasons there will always seem to be twice as many people on the Japanese customer's side of the table when you go into business meetings here) and tend to be more comfortable making decisions as a group after several iterations. Americans and Europeans often feel constrained in an iterating 'decide-by-committee' situation and prefer to make individual decisions and assessments. If your subsidiary President can create a transparent cultural interface between the way that Japanese people and customers are most comfortable doing business and the way you and your financial backers (whether angel investors, venture capitalists or the public markets) demand you perform your business, you will succeed and your Japanese subsidiary will become the star of your global portfolio.
An early test of the quality of that cultural interface will be moving your Japanese subsidiary employees (including the President) to performance-related salary packages. Japanese companies have traditionally paid their employees a 'divide-by-12' salary plus bonuses with 1/12th of annual salary paid on the 25th of each month and semi-annual 'summer' and 'winter' bonuses traditionally equivalent to 3-months salary (each) paid in June and December. In recent years Japan's economic recession had caused the summer and winter bonuses, especially at smaller companies such as the one where my (Japanese) father-in-law is a salesman, to reduce and many companies were paying their junior employees just 1 month salary in each bonus with some paying no bonus at all. As of today (July 22, 2004) that has begun to change though; Japan's economy is recovering more rapidly than expected and summer 2004 bonuses are reportedly back to near record levels with some companies paying as much as ¥1million (US$9,260) summer bonus to each employee.
To Japanese employees that do receive summer and winter bonuses, especially at larger companies, the bonuses have become almost institutionalized and, though the bonuses are linked to the company's overall performance (no profits = no bonus), they are not linked to individual employee performance. An indication of the almost institutionalized nature of these Japanese employee bonuses is that until recently, Japan's welfare (state) insurance contribution rates were significantly less on bonuses than on regular monthly salary. Also, many Japanese mortgages are structured with relatively low monthly payments and larger summer and winter payments.
Many Japanese companies make little distinction between salespeople and other employees, so the 'guaranteed' bonuses are also paid to many Japanese salespeople (for example my father-in-law). Unlike US or European sales organizations, where individual offices carry regional revenue targets but an individual salesperson's salary is dependent on his/her individual performance, a Japanese company does not typically assign individual revenue targets but simply assigns revenue targets at the 'area' or regional level. Individual salespeople may have some percentage of their salary linked to their individual performance but it will typically be very small. If they do have a more substantial performance-related component to their salary, it will most likely be linked to the performance of their area or region and will anyway be unlikely to account for more than 10% - 20% of their annual pay. Most other employees have no direct performance-related component in their compensation.
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