Professional Documents
Culture Documents
International Staffing
International Recruitment
Ethnocentric approach
Polycentric approach
Regiocentric approach
Geocentric approach
HRM in Europe
HRM in Japan
HRM in Africa
Current environment
Japan has a population of 126 million, of which the labor force constitutes 68 million (54 percent). The
female share of the workforce is 41 percent. The education level is high with 43 percent of the age
group in 1996 being tertiary students, of which almost half (44 percent) are female. The average
growth rate of the population 1980-1997 is only 0.5 percent, the total fertility rate (births per woman) is
merely 1.4 percent and the life expectancy is 80 years. This has contributed to a rapidly aging
population pyramid. Japan has a total GDP of almost US$42 billion but its average annual growth
during 1990-1997 was only 1.5 percent, making this period a prolonged recession. It has a highly
advanced economy where agriculture only amounts to 2 percent of GDP but services account for 60
percent and industry 38 percent. Its major industries are motor vehicles, electronic machinery and
consumer electronic equipment. Electric machinery and non-electronic machinery are major exports
(Far Eastern Economic Review, 1999).
Japan's economy finally began to show signs of a recovery in 1999. Promoted by giant government
stimulus packages, the economy surged ahead at an annualized 7.9 percent in the first three months
of the year. However, other signs were more negative, as the unemployment rate increased in June to
an all-time high level of 4.9 percent. Land prices continued to fall, and capital expenditure and
demand for loans remained low, as firms trimmed excess capacity instead of investing in new plants
and equipment. Restructuring of Japan's financial sector started in late 1998 and continued in 1999
with massive mergers. These reorganizations were expected to increase efficiency. However, the
most dramatic changes came in the form of foreign companies buying the control of Japanese
companies, massive restructuring resulting in lay-offs of tens of thousands of workers and ``big bang''
deregulation opening up the protected financial sector to foreign firms (Far Eastern Economic Review,
1999). Traditional practices Hiring of workers and managers into entry-level positions directly out of
college is common. Pay rises and promotions are automatic. In the wage system
based on seniority (nenko-joretsu), status and seniority are tied to length of service, rather than to job
duties or merit. Shushin koyo is the lifetime employment system. Participation by coworkers in afterhours gatherings to foster harmony and cooperation is generally expected. Workers take responsibility
and then accept blame, to protect their superiors from loss of face. Although subordinates know that
they can influence decisions, the ultimate decision comes from the top. Japanese managers make an
active commitment to preserve harmony, through intricate social rituals like gift giving, bowing to
superiors, and using honorific language to show deference. They keep their opinions to themselves,
rarely expressing true feelings (honne), instead voicing tatamae feelings, revised to harmonize with
those of the group. Japanese managers humbly decline to take credit for personal achievements,
even when credit is due. They cooperate with their coworkers in every way they can to complete their
tasks without involving their boss in any mistakes and problems along the way. Every group member
is responsible for lending a hand in achieving the objectives of the group (Engholm, 1991).
Operationally, workers belong to production teams with fluid job assignments. They often gain a broad
perspective on production by being rotated through different departments. Such investments in
breadth of skill and overall understanding of the production process are justified by the strong lifetime
employment guarantees bonding workers to their companies and allowing the skilled and experienced
production workers to contribute to management decisions (Doeringer et al., 1998).
Changing HR practices
Sources of change
The breakdown of the keiretsu (interfirm network) system of crossshareholding and preferential
trading among member corporations of a business group (Gerlach, 1992) has badly hurt the safety
net of supporting the long-term growth strategy of Japanese firms and their ability to protect
employees from downside market risks (Lincoln et al., 1996). Deregulation is another force for
change. It has made Japanese markets more accessible to competitors, foreign as well as domestic.
In heretofore protected industries like financial services, distribution and agriculture few firms are
prepared for the onslaught of competition and uncertainty (Lincoln and Nakata, 1997). The aging
population also has clear implications for corporate human resource practice. With an aging
workforce, the permanent employment and seniority system burdens firms with rising numbers of
higher-paid and less productive workers. Previously, these systems were more suitable to employers,
since the steep seniority escalator resulted in less payment for the relatively young workforce and the
permanent employment norm reduced the uncertainties and costs of high staff turnover. Finally, the
transition to a service economy combined with socio-cultural and socio-economic changes has had a
profound effect on Japan's employment institutions. Although leading-edge manufacturers are still
competitive, their
contribution to Japanese domestic employment and income is shrinking, in favor of the emerging
service sector as the next great engine of jobs and wealth. Employment practices of sales and service
firms are different from those of manufacturing. Their younger workforce is more mobile, less
committed to work and the firm. Furthermore, since the organization of work in service firms is less
team based, individual performance is more easily evaluated. Accordingly, occupational skills are
valued over firm-specific skills, so that broad job experience becomes the main driver of wages and
performance rather than loyalty to one employer (Debroux, 1997; Lincoln and Nakata, 1997;
Ornatowski, 1998). Gender issues are rapidly surfacing in the Japanese traditionally male dominated
corporate world. Japanese women, long locked in the crouch of teaserving office ladies or contract
workers performing low-skilled work on the assembly line, are standing up (Kenney et al., 1998).
Professional young women are flocking to new high-tech ventures, where gender does not seem to
matter much. Such opportunities have been increasing steadily over the past few years and the Equal
Opportunity Law, passed in 1985, which ``requested'' employers to ``make efforts'' not to discriminate,
was recently revised to make discrimination illegal. Seku-hara, Japanese slang for sexual
harassment, has become a buzzword feared in many a corporate and government office. Needless to
say, there are no female directors on Japanese boards of major corporations. This is not likely to
change in the near future due to entrenched cultural values and institutional practices (Bostock and
Stoney, 1997).
Lifetime employment
Traditionally, this type of employment refers to core employees, leaving out temporary workers,
incentive to continually invest in training and it does not risk the loss of its investment or proprietary
knowledge. The consequence is that both parties, the firm as well as the employees, have a long-term
stake in the development and success of each other (Lincoln and Nakata, 1997).
Recently, growing numbers of companies are explicitly weighting ability and performance over tenure
and age in salary decision. Since the early 1990s, some companies have developed a system of job
ability-based wages focusing individual worker performance over one year compared with goals set at
the beginning. This new system is quite close to a true performance-based pay system. It has been
termed ``annual salary system'' (nen posei) and has been introduced by about 10 percent of large
companies. This system is primarily used for managers and general managers, not for lower level
employees. The monetary benefits to employees, if any at all, are typically small (Debroux, 1997;
Lincoln and Nakata, 1997; Ornatowski, 1998).
The attempt to shift from nenko to performance pay illustrates the dilemma companies face.
Managers worry that the resulting inequities will destroy morale and cohesion. Furthermore, most
companies would not like to see younger people supervise older ones. Also, there are fears that
individual merit pay will ruin the Japanese system of team-based production, where stronger team
members assist weaker ones for the good of the performance of the team as a whole (Lincoln and
Nakata, 1997).
The continuities in the Japanese employment systems are as striking as the changes, especially
when one considers the depth and length of the economic recession. Based on data from 1,618 firms,
Morishima (1995) identifies three different types of attitudes and actions of firms toward employment
system reform. One group of companies tries to change their wage system from seniority based to
performance based and these firms try at the same time to use the external labor market to recruit
workers. Although they represent the highly publicized trend away from traditional Japanese
employment practices, these companies only make up 10.8 percent of the sample. Most firms (56.8
percent) have retained the traditional employment system representing the majority force of continuity.
A third group (32.4 percent) shows a mixed picture consisting of firms that are reforming the wage
system, while maintaining long-term employment practices. These findings highlight the striking
resilience of traditional practices as well as some important changes. Other surveys indicate a similar
pattern (Thelen and Kume, 1999).
Technological changes have revealed some of the limits of traditional practices based on senioritybased wages and on-the-job training. The basic assumption of the traditional system was that workers
would become ever more valuable to the company, as they acquired more experience on the job,
justifying their steadily increasing wages. However, recent rapid technological developments have
surpassed the skills of many experienced workers. The need to fill this gap has increased the
competition among firms for promising young workers, not so much because of their relatively lower
wages, but because of their adaptability to new technology. Furthermore, increasing competition in
product markets requires breakthrough innovations more than incremental adjustments in product
development, the latter associated with onthe- job training. Breakthrough innovations may require
more flexible staff policies based on external labor markets rather than internal experienced-based
systems of skill formation. These observations suggest that the changes in Japanese traditional
managerial practices are but partial adjustments to adapt to a new market context rather than a
genuine transformation of the entire employment and wage system (Thelen and Kume, 1999).
Labor relations
The Japanese enterprise based unions (kigyo-nai kumiai) have had a conciliatory attitude in salary
negotiations in favor of a strong stance on job security for their members. Unions would guarantee
cooperative behavior by their members, in exchange for appropriate behavior by companies and the
integration into the firms' training, wage setting, and redundancy systems. Furthermore, firms could
rely on the role of organized business as a last resort defender, if the union did not fulfil its side of the
agreement. This balance has now changed with the concurrent weakening of the traditional trade
unions, business associations and keiretsu networks. Currently, both sides are less able than before
to guarantee that the other side will be well behaved, even worrying that the other side would have an
incentive to leave the relationship. Middle managers are the targets of the nuufratto delayering
process and they feel a growing need to defend their interests. However, the Trade Union Law only
recognizes unions as representing the interests of the employers. Short of official recognition, more
groups may form inside the companies to defend the interest of the core white-collar employees and
their implicit non-lay-off contract. The system of company-based unions may be severely undermined
if such groups extend outside companies to become horizontal regional or national white-collar
unions. Also non-union employee representation may pose a threat to the traditional enterprise-based
unions. Japanese firms have devoted great effort to develop participation in management by using
non-union representation practices innovatively and effectively to structure and expand employee
representation in decision making. There are two types of employee associations. Approximately
onethird are voice-oriented organizations, while the remaining two-thirds focus on recreational
activities. Voice-oriented employee associations frequently discuss industrial planning and working
conditions with management, and managers typically appreciate their functions of aggregating and
communicating views of employees (Sato, 1997). These aspects of non-union employee
representation have been largely ignored in the literature but are vital to understand contemporary
labor relations in Japan.
Conclusions
There are broad and striking changes sweeping the Japanese employment system. How fundamental
or reversible they are is more difficult to evaluate.
No matter whether it regards performance pay, the elimination of management titles, or reductions of
the workforce, the change of HR practices in Japanese companies seems to be slow and incremental,
carefully avoiding abrupt or traumatic breaks with the past. Japanese managers have a strong sense
of corporate obligation to provide jobs, income and security. The rather cautious reforms of Japanese
corporations undertaken so far could be targeted at influencing the expectations of the workforce and
the community, preparing people for the steady stream of fine adjustment that will eventually end the
traditional Japanese employment system. However, that is far from a safe conclusion. The uncertainty
of Japanese managers of what is the best long-term course of action is genuine. Assuming that the
economic recovery takes hold, a considerable stabilization of Japanese HR practices can be
expected, although at a higher level of market-oriented flexibility (Lincoln and Nakata, 1997). More
future changes can be expected in the nenko, seniority-based salary system than in the shushin koyo,
the lifetime employment regime. In a recovering economy, also Japanese labor relations may be
affected by many changing environmental forces such as the internationalization of the economy, the
rapidly aging population, the acceleration of technological innovations, changes in the values of the
younger generation, etc. However, it is also dangerous to over-emphasize the pace of current
developments. A safe conclusion is that the main characteristics of Japan's industrial relations will
most probably be maintained in the coming decade (Ishida, 1999).
http://www.whatishumanresource.com/hrm-in-japan