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The U.S._Japanese HR Culture Clash

November 1, 1992
Related Topics: Global Business Issues, The HR Profession, Featured Article
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Shortly after Susan Stehlik joined the New York branch of Japan's Nippon Credit Bank Ltd. as senior manager of personnel and public relations, she was asked to draw up a two-year plan for managing the human resources department. Having worked as a human resources executive for several U.S. companies, she expected her supervisors to evaluate her proposal and either approve or revise it. Instead, to her surprise, they asked her to seek advice and input from her subordinates in several departments.

Stehlik's experience illustrates a blending of U.S. and Japanese business practices: Nippon was using Japanese shared decision-making—called ringi—to implement a written human resources management policy, which is a distinctly American phenomenon. The incident also shows how differently Japanese firms approach human resources management. In contrast with U.S. firms, in which leadership and direction tend to come from upper management, Japanese managers attempt to foster consensus on business decisions.

Human resources management is becoming a vital part of globalization for Japanese corporations. Because of the surge in Japanese direct investment in the U.S. during the last few years, the number of U.S. workers employed by Japanese subsidiaries in the U.S. also is increasing. Japanese direct investment in the U.S. is growing at an average rate of 35% a year, from approximately $5 billion in 1980 to $85 billion today, according to the U.S. Commerce Department's Bureau of Economic Analysis.

HR experts estimate that Japanese subsidiaries employ 350,000 U.S. nationals, and predict that the number could grow to one million by the year 2000. From banks to high-tech firms to massive manufacturing operations, Japanese multinationals hire greater percentages of U.S. nationals, as they gradually become assimilated into the local economies.

"There's no question that there has been a concentrated effort among Japanese firms here to increase the localization of the work force," says Alan Parter, president of Parter International Inc., a New York City-based consulting firm that advises companies on good corporate citizenship. Like other multinationals that are doing business in the U.S., he says, "these companies realize that to succeed, they need to become more American."

A greater proportion of the employees of large manufacturing operations tend to be local residents, while organizations in the service sector tend to have more Japanese expatriates on staff. At some of the Japanese automobile factories in the U.S., for example, more than 95% of the employees are U.S. nationals. In Japanese banks, on the other hand, generally only 25% to 40% of the employees are U.S. nationals.

At the heart of these changes is human resources management. Because Japanese companies traditionally approach personnel management differently from their U.S. counterparts, virtually all of them are finding that they must make changes to adjust to the U.S. business environment. Some pattern their human resources policies closely after U.S. models, while others retain many Japanese elements. But for many of these companies, HR management is in a state of flux, because they're still maturing as multinationals and only now are building a global work force.

Consequently, assimilation hasn't been easy. Some Japanese companies have drawn criticism for the way they handle employees who are U.S. nationals. Numerous sexual- and racial-discrimination suits have been filed against Japanese firms operating in the U.S. Another complaint is that the companies refuse to promote U.S. nationals to senior positions (See "Japan's Response to Allegations of Discrimination.)

In response to such criticism, many Japanese government officials and executives are promoting good corporate citizenship as a way to ease tension between the U.S. and Japan. The term is used broadly to include HR management practices as well as community involvement and philanthropic donations. Because personnel management is one of the most visible aspects of a corporation, it can contribute to—or detract from—the company's image.

Japanese firms emphasize the team.
Historically, the Japanese corporation has played a societal role that is different from that of the U.S. corporation, in that it supplies lifetime employment and social welfare for its employees. Although the tradition is changing, HR experts estimate that as many as 80% of the workers in Japan are given lifetime employment. In addition, many Japanese companies provide housing and social activities for their workers, as well as day care and assistance in planning their children's education.

In Japanese firms, the emphasis is on the corporate team rather than on individual performance. Business decisions, for example, are made through consensus building, or nemawashi. Loyalty, rather than individual initiative, is rewarded by Japanese companies.

"The Japanese human resources system is based on the assumption that employees have a strong loyalty to the company, so that even if they aren't paid high wages in their younger days, they'll work hard, because they know their future will be protected," says Yasahuru Yoneda, senior vice president for strategic planning at the New York City branch of the Industrial Bank of Japan. He says such long-term loyalty is difficult to cultivate among U.S. workers, who are accustomed to greater career mobility.

Many Japanese companies recognize the critical role of HR management in building their international business. "As a global bank, we need to have the best human resources we can throughout the world," says Yoneda, adding, "Among all the departments, human resources is the most important for the bank." Indeed, many Japanese corporate leaders do a stint in HR administration on their way to the top in their companies.

But Japanese companies see HR management less as a specialty or profession than as an important skill for all departments. "They don't really see HR as a science. They see it as something everyone needs to know for good management," says Michael E. Pilnick, who for four years was manager of training and development at Secaucus, New Jersey-based Matsushita Electric Company of America, and now is manager of training and development at Edison, New Jersey-based Sea-Land Inc.

U.S.-based Japanese subsidiaries frequently hire U.S. human resources professionals because they need seasoned local HR managers to be pathfinders or ambassadors between the Japanese headquarters and the local work force. These managers also must interpret the labyrinth of personnel laws in the U.S. Japanese companies face far greater legal constraints on human resources policies here, driving many of them to develop written policies for the first time.

"Things aren't done in writing in Japanese companies, but we're encouraging them to have written policies on personnel issues," says Barbara Fox, assistant director for corporate affairs at the Japan Society in New York. But developing formal HR policies can be tedious. At Tokai Bank Ltd. of New York City, for example, just getting an employee handbook written and approved took 16 months.

Still, Japanese companies often are reluctant to turn over personnel decisions to local HR managers. A number of human resources executives here say that they have less authority than they would in a U.S. company. "In many Japanese companies, the human resources manager is given virtually no authority. In many cases, I end up going to the headquarters in Japan for approval," says Terry Myers, senior vice president of personnel at New York City-based Tokai Bank Ltd., a subsidiary of Tokai Bank. HR managers at many other U.S. subsidiaries of Japanese companies frequently must clear decisions, such as those related to hiring, with the headquarters in Japan.

The Japanese hire for attitude.
In recruiting employees, Japanese companies often seek a much broader background than U.S. employers do. Because positions in Japanese firms are far less specialized than in their U.S. counterparts, Japanese managers often don't write formal job descriptions. Some human resources executives say Japanese firms prefer to hire an employee who is team-oriented rather than experienced. At Nissan Motor Manufacturing Corp. U.S.A., for example, a cooperative attitude is one of the most important qualifications for workers.

Demonstrated commitment to one's company also is desirable, but not always easy to find in the volatile U.S. job market. "If the prospective employee has jumped around to several different companies, it may not look good to a Japanese employer, whereas a U.S. company may think that such movement is promising because it shows the person has gained experience," says Ken Blenis, marketing manager at the San Francisco branch of Persona International, an executive search firm owned by Tokyo-based Temporary Center.

In interviewing job candidates, Japanese recruiters typically ask personal questions, such as marital status, age, hobbies and family background. They must eliminate such questions, however, to comply with U.S. antidiscrimination laws. "In many ways, a company looks at an employee's personality as much as it looks at his or her character as a professional. What's most important is whether he or she can fit in as a member of the company," explains Kaz Sugiura, who is executive director of the San Francisco-based Japanese Chamber of Commerce of Northern California.

Japanese pay plan is based on loyalty.
One of those areas in which Japanese companies differ most from their U.S. counterparts is in their compensation policies. "Japanese employees are paid on the basis of their loyalty to the company, whereas if someone is hired at a U.S. company to be a manager of real estate, the employee is paid for that job, whether he or she has had 10 years of experience or 25," explains Susan Schenkel-Savitt, a partner in the New York City office of Epstein, Becker & Green, a law firm specializing in human resources cases.

In Japanese companies, the gap between the lowest and highest salaries is far narrower than in the U.S., and managers typically don't receive such benefits as company cars, stock options or even their own offices. Pay scales are more rigid and offer little reward for individual initiative. In many Japanese companies, a bonus simply is a portion of the salary that's withheld and later paid out in a large installment.

Others may pay 75% of the base salary in regular wages and require the employee to bill the remaining salary in overtime hours. Given their long work hours, Japanese managers' overtime billings frequently raise their actual earnings to as much as 150% of the original salary.

In many Japanese companies, the HR manager is given virtually no authority. I often en up going to headquarters in Japan to get approvals.

Lifetime employment traditionally has been a major incentive for Japanese employees. U.S. nationals, by contrast, are highly mobile, carving out individualized career paths. The promise of long-term employment isn't a sufficient incentive for U.S. nationals, who are accustomed to pay based on merit.

To attract top managerial talent in the U.S. marketplace, some Japanese companies have started to offer compensation packages that are more generous, even if it means paying above the company's salary scale. At Fujisawa USA Inc., a pharmaceutical company based in Deerfield, Illinois, executives are offered a company car, an allowance for personal investment planning, a health club membership, and year-end bonuses that are tied to company profits. "We decided that to attract and retain the best U.S. managers, we needed to be competitive [in salaries and benefits]," says John Fowler, assistant to the chairman at Fujisawa.

Japanese companies don't like making individuals into star players, but they're realizing that in certain areas, they have to attract the best U.S. talent, according to Michiko Ito, a partner in the New York City office of the law firm Morrison & Foerster, which has represented several Japanese corporations in labor matters.

Recently, for example, a major Japanese company had to sweeten a benefits package to lure a senior U.S. executive. Persuaded by SpencerStuart, the executive search firm it hired to negotiate the deal, the Japanese company raised its vacation package from its standard one week to four weeks. "We thought their vacation offer would break the deal," recalls SpencerStuart director Davis Hawkins.

The Japanese broaden employee skills.
Japanese manufacturers have drawn praise for their training programs. "We spend a great amount of time and resources training our employees—much more than any company I've ever been associated with," says Bucky Kahl, director of human resources at Nissan Motor Manufacturing Corporation U.S.A., located in Smyrna, Tennessee.

At the Nissan plant, for example, prospective employees begin training even before they're hired. They undergo a 48-hour, non-paid, pretraining program to ensure that they can handle industrial work. Completion of that training, says Kahl, also demonstrates an employee's commitment to his or her prospective employer.

Companies tend to rotate employees through several different areas of operation, which not only builds worker expertise but also alleviates burnout. And rather than lay off workers during slow times, Japanese manufacturers put them through additional training to continue building their skills.

"After a Japanese company hires employees, it usually trains them to be generalists. Even though a person may have been hired as an accountant, three or four years later, the company may retrain him or her for a transfer into the sales department," Sugiura explains.

On the other hand, in the service sector and in managerial positions, Japanese companies frequently offer less formal training than their U.S. competitors do. "The Japanese feel training happens largely on the job, whereas U.S. workers require classroom training," says Stehlik. She says that, at Nippon Credit Bank, the entry-level training program is only two weeks long, compared with six months for U.S. banks.

At Nippon Credit Bank, the entry-level training program is only two weeks long—compared with the standard six months for U.S. banks.

According to Pilnick, Matsushita Electric Company of America spent only about one-fiftieth as much on training compared with top U.S. manufacturers. "There's probably less spent on formal training, but they tend to use a lot of cross-training on the job," he says.

U.S. employee reaction to employment at Japanese companies tends to differ sharply between hourly workers and management-level staff. Many managers who were born and raised in the U.S. say that they feel constrained by the Japanese decision-making process, which rewards consensus rather than individual initiative.

By contrast, U.S. factory workers often praise the Japanese management style because it gives them greater input in the manufacturing process. Nissan Motor Manufacturing Corporation USA, for example, uses a participatory management style, which brings its line workers into all decisions that concern production.

In addition, at many U.S.-based Japanese plants, autoworkers are allowed to shut down the entire assembly line if they see a defect. Hourly workers "really are the winners in a Japanese environment," says Pilnick.

Compared with hourly workers, U.S. managers have less authority in Japanese companies than they would in U.S.-based firms, because decisions are reached only through extensive consultation with colleagues and even subordinates. In some cases, say human resources executives, U.S. managers may become frustrated because they're hired at a high salary and a senior position, but lack the authority they would have had in a U.S.-based company.

The Japanese value seniority.
The promotions and raises in Japanese companies traditionally are based on such characteristics as seniority, age, gender and marital status. The rationale for the system is that workers are rewarded for their loyalty.

Japanese workers are promoted along with others of their age and rank. Japanese managers, on the other hand, have found that such a strategy doesn't work as an incentive to U.S. workers, who are driven by salary and career advancement, not by lifetime employment. "In Japan, many of the older employees who aren't working as hard as the younger generation earn more money. That's accepted in the Japanese environment, but it doesn't work here," says Yoneda.

Annual performance reviews are superfluous for managers in Japanese companies. "In a Japanese organization, people work such long hours together that everyone knows where they stand. They don't feel the need to sit down for a performance review once a year," explains Hawkins.

U.S. human resources managers, however, are encouraging Japanese organizations to conduct more thorough evaluations, develop standard evaluation forms and document evaluations. At Nissan Motor Manufacturing Corporation USA, for example, employees who are being considered for promotion are evaluated not only by their supervisors but also by their peers.

Because of the expectation of loyalty between the company and the employee, terminating employees is difficult for Japanese companies. The task becomes even more difficult in the U.S. because the companies fear that fired employees might sue the company.

At one company, for example, it took almost five months just to authorize the firing of a receptionist. "Ninety percent of Japanese companies here say they're afraid to terminate employees," says Ito.

Although Japanese managers continue to express frustration in what they perceive to be disloyalty and opportunism on the part of U.S. employees, who change jobs far more often than the Japanese, they're changing their practices so they can retain talented U.S. nationals. Some Japanese companies are starting to promote their local U.S. employees, instead of simply bringing in Japanese expatriates.

At the Nippon Credit Bank, for example, 70% of local employees have been promoted. And at Nissan Motor Manufacturing USA, line managers are encouraged to apply for manager positions. Clearly, savvy human resources management is a critical factor in the globalization of Japanese companies. Their success in building an international business depends on their ability to effectively manage and develop a truly global work force. Says Kahl, "Fair treatment, teamwork and development of our people—those are our global personnel management principles. But tailoring them to the local situation is the job of the human resources department."

Personnel Journal, November 1992, Vol. 71, No.11, pp. 30-38.

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