doing business in Japan


Executive search Japan - Japanese or expatriate?

3.  executive search Japan - Japanese or expatriate?

In the previous section discussing the recruitment of your Japanese company President, I mentioned that the right person can make business in Japan generate 30% or more of your global profits and that this is a key officer position in your global corporate structure. So when starting business in Japan, should you recruit a Japanese or expatriate executive for the subsidiary President position?

In my 13 years doing business in Japan, I have seen many foreign companies go through a painful subsidiary President 'hire and fire' cycle (which for some seems to be never-ending) as follows:

  1. initially a head-office executive manages the Japanese subsidiary, but the relocation costs are high (even with the steady decline in rental values a central Tokyo Western-style family apartment still costs $6,000 - $20,000 per month at the high end and fees at English-speaking schools are $30,000/year and up) and revenues do not seem to be growing as expected,
  2. after a year or so (sometimes much longer), someone at head-office says "We need our Japanese subsidiary to be more like domestic Japanese companies!" so the head-office executive is replaced with a locally recruited Japanese President who demands a very high guaranteed salary "..because of the risk involved working with a foreign company.." and subsequently recruits many of his former employees, also on high guaranteed salaries, to create a Japanese organization,
  3. after another year or two (again sometimes much longer), nobody at the head-office understands what is happening at the Japanese subsidiary, Japanese business expenses have rocketed (especially entertainment expenses), profits "..will still take a couple of years to materialize because this is Japan you know.." (read those myths of the Japanese market to find out more about that one!) and somebody back at head-office finally realizes that "Hey! What we really need is a Japanese subsidiary that interacts internally with the same sense of urgency that we have over here but presents a Japanese image to the local market!!' and promptly one of the head-office executives is relocated back to Japan to straighten things out!

A major US software company that has been doing business in Japan for the past 15 years just completed yet another iteration of the above cycle in summer 2003!

"..many Japanese think that Carlos Ghosn, the Frenchman President of Nissan, is Japan's most successful executive.."

"This is Japan - only a Japanese national can possibly understand the Japanese market, Japanese business culture and etiquette etc. and so you must recruit a Japanese national as your subsidiary President, whatever the cost - right?" Not necessarily. Your Japanese subsidiary President does not need to be a Japanese national and in fact many Japanese think that Carlos Ghosn, the Frenchman President of Nissan who has instilled new life, hope and success into that company, is Japan's most successful executive at this time.

Your subsidiary President must be business-savvy, must be able to appreciate the uniqueness of the Japanese culture and how the Japanese think but just as important, he/she needs to understand your industry, your culture, your way of driving business forward and getting results, your business objectives, your priorities and how you think. If not, he/she will require such constant management and guidance that you will soon feel that you may as well move to Japan and do the job yourself!

The biggest problems in subsidiary management tend to occur as a result of cultural mismatches - there are many Japanese executives who are excellent managers of a purely domestic Japanese company but find it very difficult to interface between the quarterly focused results pressure of a US or European parent (especially a parent in the run-up to an IPO) and the half-annual cycles of Japanese customers. A further cultural problem can arise because your Japanese customers will be far less forgiving of mistakes made by a Japanese executive than of an expatriate, which will make a Japanese executive more risk averse and less likely to drive results under pressure than an expatriate executive.

There are of course many excellent bilingual Japanese executives. If you are fortunate, your executive search firm or other head hunter may be able to recruit a Japanese executive that has a strong track record with companies of your size in your industry and has spent several years doing business at an executive level in Europe or the US. Unfortunately there are also many bilingual Japanese executives who, were it not for their English ability, would never be considered for any executive position. Do not make the common mistake of confusing language ability with business and commercial ability. Amongst others, I knew a Japanese who used his perfect English to convince a US company's executives that he would grow their already profitable Japanese company to a $50m per year business within a year. During that year the key subsidiary salespeople resigned, the salary costs of the subsidiary soared and revenues dived to the floor. Then the Japanese executive resigned with no notice to take up a 'more rewarding opportunity' with another US company!

One other source of good candidates to manage your Japanese subsidiary company is US and European executives who are already doing business in Japan. A benefit of hiring such people is that they have already acclimatized to the Japanese culture and are usually bilingual. Such foreigners often come to Japan as expatriates with large foreign companies but stay on to made a lifelong commitment here. Although relatively few in number, the cost of recruiting such executives will be far less than the cost of relocating a head-office executive and his family here and also less than recruiting a Japanese. Also, such executives are more likely to readily accept more aggressively performance related compensation packages which many Japanese executives tend to be averse to, especially as the economy rapidly recovers and the general impression among many executives is that "the good times are back".

4.  recruitment Japan - search for employees >>

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