China in Transition

Why Japanese Firms are Unpopular

Chi Hung KWAN
Consulting Fellow, RIETI

China's WTO accession has been followed by an influx of Japanese investment. In addition to utilizing China's abundant labor to expand exports, Japanese companies have focused more and more on China's domestic market and research and development. The success of such investment will increasingly depend on the ability of Japanese companies to attract the best talent, but unfortunately they seem to lag far behind foreign companies in this respect.

In fact, a recent poll of the most attractive employers for Chinese clearly shows that Japanese companies are not popular among university students (table) . According to this survey, conducted by China, 33 of the top 50 companies are foreign-affiliated, but there are only three Japanese firms among them - Sony (ranking 17th), Matsushita Electric (32nd) and Toyota Motor Corp. (46th). Even among the foreign companies on the list, U.S firms such as IBM, Microsoft, Procter & Gamble, General Electric and Motorola monopolize the top spots, while Sony, which fares the best of the Japanese corporations at 11th place, could not even beat Samsung of South Korea, which ranks 8th.

According to the survey, university students in China are more concerned about their future career prospects rather than starting salaries when looking for jobs. Lack of promotion opportunities is the reason why university graduates hesitate to join Japanese companies. So long as China remains a production base for exports, Japanese companies can make up for this handicap by introducing advanced production systems. However, once investment progresses to a stage where the local market is to be tapped, there will be a continuous increase in such work as cultivating markets and collecting proceeds that can be handled far more efficiently by local managers than by managers dispatched from headquarters.

In promoting localization, Japanese firms should make better use of the so-called NECs, or Nippon-Educated Chinese, who understand business cultures in both Japan and China. However, under the current circumstances, while there is an increase in the number of NECs being hired, in most cases their work is limited to translation or making travel arrangements, and there is little opportunity for them to demonstrate their full capabilities. I often hear from Chinese corporate managers that when they hold business talks with Western firms, often everyone can speak Chinese, while when the negotiations are with Japanese companies, there is invariably only one person who can do so - the interpreter. Also, in most cases, senior managers are dispatched from headquarters in Japan and are replaced every two or three years. In contrast, locally hired Chinese employees are rarely promoted beyond section head.

Although we are beginning to see efforts to correct this situation, little progress has been made because the brightest people do not come to work at Japanese firms in the first place, making it difficult to delegate authority to local managers. Furthermore, the Japanese personnel system, which is characterized by life-time employment and seniority rule, looks like a traditional state-enterprise in China in the eyes of most Chinese, who prefer a more ability-based system. This, too, is making it hard to transfer authority from Japanese employees dispatched from the head office to local managers.

When drawing up their personnel strategies, Japanese companies should learn from their Western counterparts. For example, Microsoft Research, which is located in Zhongguancun in Beijing, has a long-term personnel strategy that starts with providing students of such top universities as Beijing and Tsinghua free access to a computer corner set up for them. The best among these students are then given scholarships, or sent to study overseas. Upon their return, they are hired by Microsoft and are eventually promoted to senior posts, including directorships on the head company's board. This is not simply a promise - it has already been implemented and there are many successful examples.

In comparison, Japanese firms are still only taking haphazard measures. If Japanese companies are serious about making inroads into the Chinese market, they must swiftly localize management through the better utilization of "NECs."

Table : Popular employers in China as seen by university students
foreign-owned firms
1 --- Haier
2 1 IBM
3 2 Microsoft
4 --- Legend
5 3 Procter & Gamble
6 4 General Electric
7 5 Motorola
8 --- Huawei
9 --- China Mobile Communications
10 6 Siemens
11 --- TCL
12 --- China Telecom
13 7 Intel
14 8 Samsung
15 9 Nokia
16 10 Hewlett-Packard
17 11 Sony
18 12 Coca-Cola
19 13 Dell
20 --- China Unicom
21 14 Wal-Mart
22 --- Bank of China
23 15 Unilever
24 16 PricewaterhouseCoopers
25 17 HSBC
26 18 Citibank
27 19 McKinsey & Co.
28 20 Shanghai Volkswagen
29 21 Bell
30 --- Changhong Electric
31 22 Cisco Systems
32 23 Matsushita Electric
33 --- FAW Group
34 --- China Vanke Co.
35 24 Nestle
36 --- ZTE Corp.
37 25 LG Electronics
38 --- Sinopec Corp.
39 26 Shell
40 27 Amway
41 --- People's Bank of China
42 28 Ogilvy
43 29 Johnson & Johnson
44 30 Philips
45 --- Wahaha
46 31 Toyota Motor Corp.
47 32 BenQ
48 --- Digital China
49 33 Oracle
50 --- Hisense Group

( Source) Survey by (in Chinese language only)

April 2, 2003

April 2, 2003