David Lammy recently hosted a UK Japan Private Business Roundtable ahead of an economic visit to Japan. The FT article covering this event quoted: "Bilateral trade between the two nations is worth £27bn, with more than 1,000 Japanese companies operating in the UK and supporting 160,000 jobs, according to the British government."
Japanese investment is indeed crucial for the UK economy not least given the added value of their long-term investment into skills, education and apprenticeships. It is good to see the British Government prioritising this economic partnership. Having worked with many Japanese subsidiaries in the UK/post M&As, as well as with UK SMEs and executives on high-level projects in Japan, it is clear that in addition to the economic value, these partnerships also bring cross-cultural awareness, country-to-country goodwill and grassroots understanding, which often leads to life-long connections. However, underneath the diplomatic ‘isn’t this a great relationship and how similar the UK and Japan are’, the ‘on the ground’ aspects are not always easy, especially if the trust has not been built up.
From my over 30 years of experience of working with Japan, I’ve observed that exceptionally high levels of trust are needed by the Japanese to allow any type of collaborative relationship other than a standard arm’s length HQ/subsidiary relationship or long-term sustainable business for UK companies there. That trust building involves creating a shared understanding of and respect for the differences in communications, processes and business environments.
Different Business Environments
The business environments between Japan and the UK are very different (long-term versus short-term alongside widely different views on company governance, staff progression, renumeration, CEO and managerial responsibilities, relationships with clients, differences in B2B marketing to name but a few) and the business communications and processes differ widely too. I hesitate to use the word ‘culture’ here as it either gets misrepresented and discarded as a ‘soft’ aspect that people can learn ‘on the job’ or is seen as something superficial that is covered by overly focussing on etiquette related aspects.
Anyone familiar with the ‘iceberg’ model of culture above will know that that it is the invisible ‘under water’ aspects that really count when needing to really understand a different culture and the aspects I outlined previously (long term versus short term etc.) all belong in this part of the iceberg. I’ve worked with numerous companies including post M&As (incoming from Japan) where core understanding of the ‘differences in business beliefs and processes’ is not there, resulting in frustrations and at times, bad business outcomes. I have written a few articles for Forbes Japan about how the different contexts manifest in reality using some real-life case studies such as Tokyo Metro and Sony as well as an article about what Japanese companies need to know about the UK business environment and how they can make use of certain Japanese businesses processes to form better working relationships. I also want to outline 2 case study observations below, to highlight my points of how developing this understanding can lead to better business outcomes.
Case Study 1
A Japanese company went through an M&A consultancy firm to buy out a British company and it all was going very well- all logistical aspects of the merger worked although the British side did comment that it seemed the Japanese had not done their due diligence on what they were buying and the motivation for the M&A was different to what the UK side expected. This was probably due to the long-term more holistic nature of Japanese business. Initially the Japanese were quite hands off but eventually, they started to get more involved, sent over executives and proposed a change to the bonus structure of the top executives in the UK, essentially reducing their stock options. In Japan, historically, CEOs and executives earn less than CEOs in countries such as the US and the UK, that operate to a shareholder model of corporate governance, and where CEO salaries are linked to huge bonuses and stock options. Despite executive pay increasing in Japan with more links to performance, there still is a social stigma of people openly earning more than others. I have seen situations where companies prefer to give small pay rises to everyone at the executive level instead of raising the salary of just one person, regardless of whether their performance deserved it. Despite many Japanese companies introducing performance related pay, there can still be issues with this as it goes against their historical seniority-based pay system and culturally doesn’t fit with a culture where people are not supposed to be rewarded for standing out individually and being seen to earn hugely more than everyone else.
Obviously, enacting such a change to this structure in the UK will displease UK executives and given the propensity of Western staff to move jobs more easily than the Japanese, could potentially cause Western executives to move jobs. In the case of this particular M&A, it was unclear as to whether this pay structure had been discussed within the M&A negotiations, as this situation could have been possibly avoided by making sure the Japanese acquirers understood its potential impact at a pre-M&A discussion stage or, if it was part of their long-term plan, to share this with the UK side explicitly. However, since trust is notoriously difficult to build up during M&A negotiations and due diligence of such important aspects was not done, this probably resulted in the Japanese company not disclosing this from the outset. However, the UK acquirees made a good decision in inviting us to run a series of in-house sessions and organise culturally appropriate events to show respect for the Japanese when they visited and start important conversations on a people-to-people level.
Case Study 2
I recently created management training for the Japanese and local staff of a Japanese subsidiary in the UK, who had been here for nearly 100 years (the company not the staff of course). At the first presentation I did where I introduced the differences in business communications/processes, it became clear that despite huge amounts of goodwill, there had not been real conversations or awareness outside of possibly the C level suite about how the differences in business processes were impacting upon high level decision making, team communications, productivity, HQ subsidiary relations and ultimately job satisfaction. Local staff were unaware of the pressures on Japanese ex-pats to report things back to HQ and didn't understand the demands of Japanese consensual decision-making/risk avoidance. There were real differences between the attitudes towards client relationships, resulting in stress for the Japanese staff, who were being asked by the UK side to communicate aspects to customers that were culturally unacceptable in Japanese business, where business relationships are normally put above profit.
Due to the nature of the Japanese ex-pat experience (Japanese managers are normally told they have to go overseas instead of selecting it as a career choice and this secondment normally lasts for about 3 years), Japanese ex-pats can essentially spend a year learning the ropes and the final year getting ready for the next assignment leaving them only a year to effectively operate effectively within a very different business environment. Much of a Japanese ex-pat job role still involves reporting back to HQ, adding onto the work burden during their assignment. Japanese ex-pats don’t always get the relevant training about how to actually operate in a different work environment, especially as it is quite common for Japanese companies to not devolve global decision-making outside of HQ. Senior local staff in Japanese subsidiaries can sometimes feel like they have no buy-in to high level decisions.
In this case, many of these issues were brought into the open leading to some very valuable conversation within cross-cultural teams, through on-going training, through 1:1 mentoring and breakfast sessions I am delivering. They are heading towards better relationships and higher levels of trust.
Benefits of raising awareness
The benefits of raising awareness and discussing strategies are clear not least from a staff retention, job satisfaction and productivity perspective. Most people we work with genuinely want to understand the differences and discover possible strategies to bridge the gap and many of the brilliant executives we also work with are capable of creating very creative solutions that help to navigate these inevitable clashes. However, this only happens effectively once they are a) aware of the differences and the underlying cultural dimensions b) understand the realistic nature of the business processes that correspond to their organisation and c) are willing to build up trust by being respectful of these differences and adapt where needed and where possible, create hybrid ways of operating.
We at EWI can support you with that, using our unique mixture of case studies and academic research alongside our 25 years plus experience of working with both Anglo/European and Japanese organisations.
Comments