The Journal The Authority on Global Business in Japan

That Japan’s workforce is shrinking is well documented. In fact, it’s one of the most frequently discussed topics related to business and government policy these days. But fewer workers does not necessarily mean that job openings are plentiful, or that all companies are clamoring to fill seats. Economic factors mean that many companies need to streamline their operations. This is especially true of smaller foreign-owned businesses looking to find their footing in Japan.

But when it comes to cutting staff, those accustomed to doing business in the United States must tread carefully. What is acceptable practice back home may not go over well here, and the backlash can have disastrous consequences for the company. How can this employment minefield be crossed safely? The ACCJ Journal talked to experts in team building as well as corporate and government affairs to find out.

“The big difference here in Japan, as opposed to the United States, is the philosophy of lifelong employment,” said Timothy Langley, president and representative director at public affairs and management consultancy Langley Esquire.

“This is a vestige of the recent past—and actually no longer exists in law—but the philosophy is deeply felt by employees. In other words, when an individual finishes college and joins a company, they do it with the intention of this being a one-time deal: joining a great company and remaining there for life.”

Langley says part of this foundation is based on the logistics of finding a job in Japan—especially the shukatsu system, which does not exist in the United States. Shukatsu is when soon-to-be graduates go through a year-long process of visiting companies, dressed in business attire and carrying a brief­case containing nothing but their résumé, to fish for the best job.

“This is a big deal. It’s in the newspapers, it’s on people’s calen­dars, parents are looking forward to it,” he said. “And when you make that important decision, you have the intention to be there for the rest of your life.”

“Here’s your bin liner, Sunshine. Now security will escort you from the building. Out you go.” While this scenario plays out regularly in the United States, it would be judged very harshly and felt unfair in Japan. Losing face is bad anywhere, but particu­larly so here, said Dr. Greg Story, president of Dale Carnegie Training Japan.

“Poor performance, making mistakes, missing deadlines, producing lousy quality work, and not being accountable are not cause for being fired in Japan—unless you are on a very big salary,” he added. “The law is designed to protect the little guy against the corporation.”

This is where the seishain, or permanent employee classifi­cation, comes into play. It’s a kind of guarantee that your situation in the company will not drastically change unless you seriously screw up or are fired for cause. “You are not employed under the terms and conditions that specifically define your job,” explained Langley. “As a permanent employee, you do whatever they tell you to do, or what you’re trained to do.” Compare this with a contractor, who is hired for specialized skills and may work from year to year without guarantee of long-term employment.

“In most jurisdictions in the United States, there is an ability for companies to cut staff at the drop of a hat. These are at-will jurisdictions,” Langley continued. “‘At will’ means that you work for the company at their discretion and they can let you go for no reason with 30 days’ notice. This is usually delivered in the form of a ‘pink slip’ when you go into work on a Friday. This is not only viewed poorly from the Japanese perspective, but it is an illegal tactic here. Even with cause, pink-slipping is not the way to achieve that objective.”

The biggest obstacle, as he sees it, is the seishain system. “If you have seishain and you need to reduce headcount, you must have cause or go through a voluntary resignation process. In this process, you need to universally offer employees a get-out quick package, hoping that only the number you need to cut will take the offer. The problem is that it’s most often the good people who take that offer and leave you to find another job—and, once again, you are strapped with the worst performers.”

Taking a common US approach to reducing headcount can quickly undermine your efforts in Japan. While a Friday-morning pink slip might be accepted as just part of life in the United States, it won’t go over well here.

“When people are cut, after having gone through the process of shukatsu, it is really a social shock!” said Langley. “People get damaged by that psychologically; their career and résumé are diminished and, as a consequence, a lot of people say, ‘This is not the gig we signed up for.’”

It can also kill the morale of the remaining staff.

“As soon as you start firing people, the trust is gone, and all the rhetoric in the world won’t put Humpty Dumpty back together again,” said Story. “People are pragmatic. In wartime, you feel lucky when the guy next to you takes a bullet and you don’t get killed. Getting fired is a bit like that—you missed the bullet this time but you are still terrified of getting the next bullet.

“Disengaged people do not produce innovations, go the extra mile, or care too much about making things better for the customer. The outside competition is forgotten and the compe­tition for survival internally is all they focus on. The reputation of the company suffers, and likely candidates give you a wide berth. The better people who can easily find jobs, jump ship, and arm your competitors with talent. All you are left with are the average, the mediocre, and the truly terrible.”

Morio Sotsu, public policy consultant in the Public Affairs Division of Vector, Inc., explained the situation in terms of Japanese culture.

“We must take into account a particular situation of Japan. Everything related to employment—whether it is a de jure [by law] or de facto [in fact] rule, including a part of social security or higher education system—is connected and builds up an entire ecosystem of ‘Japonica-type employment.’ So, [by law] whatever actions you plan to take must be analyzed carefully to determine chain reactions and long-term effects,” he said.

“When a huge and interconnected system is transformed, the changes must be gradual and piece by piece. But still unwanted cracks will appear.”

But, it can also be an opportunity if handled properly.

“If your service or product is a solution for those cracks, a big business opportunity is within your reach, as long as you follow rigorously related political discussions and utilize them as a tailwind,” Sotsu said.

When the time comes to reduce headcount, it is important to heed Sotsu’s call to take the local situation into account. But as Story points out, that can be difficult when orders are coming from overseas.

“Being driven hard by headquarters to cut numbers is a recipe for disaster in Japan. This is a different culture, and getting those wearing green eye shades back at HQ to stop sharpening their pencils and taking the short-term view borders on the impossible,” he said.

“But if things are going badly, then everyone knows that. You can appeal to their nobler callings and ask them to quit for the common good. If it is done in that way, and if the money is reasonable, they will take a package and go. In today’s environ­ment, there are plenty of jobs to be found, so they aren’t going to land in Siberia.

“We are on the verge of entering a new age of job mobility which will be led by the much-in-demand youth, who will shortly discover they can be free agents—like in sports—and command a premium to join and stay with a company.”

Reducing headcount is a must at different points in a business’s life. Just remember Sotsu’s advice: “Japonica-type employment comprises a variety of rules, which may be de jure, de facto, or mere perception. They may also be of a different scale—national, industrial, or individual—for each company. If you are planning to start new business related to this strange world and are looking for support from policymakers, it’s better to seek an expert’s advice.

Christopher Bryan Jones is Editor-in-Chief of The ACCJ Journal. Originally from Birmingham, Alabama, he has lived in Japan since 1997.
We must take into account a particular situation of Japan. Everything related to employment . . . is connected and builds up an entire ecosystem.