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Nagisa Inoue: How to help foreign talent work in Japan Inc.

New HR policies are needed to make the most of non-Japanese hires

Foreigners struggle to break into Japan's inward-looking labor market.

Japanese businesses realize they need young foreigners to make their management more cosmopolitan and more effective in bringing fresh ideas to the global marketplace, but graduates from other nations often struggle when they join Japanese companies.

There are many reasons for this, but one that stands out is that many entry-level professionals coming to Japan are disappointed by the low pay, their menial tasks and the glacial pace of promotion.

The overall number of foreigners working in Japan is rising rapidly -- from an estimated 486,000 in 2008 to 1.28 million in 2017, according to figures published in January.

DIFFERENT WORLDS The challenge for Japan Inc. is that foreigners live in a different labor market from Japanese, as has been noted in research by Harald Conrad of the University of Sheffield and Hendrik Meyer-Ohle of the National University of Singapore.

Most students in Japan, even at the country's most elite institutions, are looking only for jobs in Japan. They are the product of a secluded environment, have little understanding of the world beyond the shores of the archipelago, and generally are not functional in a foreign language.

Moreover, they are happy to stay in Japan. Thus, almost the only competitors for Japanese graduates are Japanese companies and the central government bureaucracy. Foreign multinationals -- which are core employers in Singapore and Hong Kong, for example -- are bit players. Consequently, if a particular Japanese corporation is seen as the best employer in the country, it can count on getting the pick of the crop in terms of new hires regardless of where it stands in the international league tables.

But when seeking to bring in entry-level foreigners, Japanese companies are dealing with potential recruits who are not limiting themselves to Japan. They have the skill set to find jobs on several continents.

Unsurprisingly, then, the vast majority of professionals in Japan's leading corporations are Japanese nationals. Nikkei HR Labo estimates that foreigners make up just 0.6% of full-time employees at major Japanese companies, and not all of them are on a management track.

The entire human resources system of Japan Inc. still functions on the assumption that hard-working young graduates will be brought in, socialized over several years into the corporate culture of their employer, and stay with the company for decades. They will often first be assigned duties for which they are overqualified but which form part of their apprenticeship to internalize the hierarchical nature of the company. Gradually some will be selected for advancement, but for a decade or more they will move in lockstep on a slow-moving escalator.

This approach is not intrinsically bad. No one would argue that Toyota is inferior to Ford or General Motors, nor does anyone who has traveled on Japan Railway trains doubt that they are first-rate.

The difficulty for Japan Inc., however, is that foreigners seeking a job in Japan are by definition adventurous personalities. They want a challenge and expect to be well-rewarded if they succeed -- not only financially but also in terms of greater responsibilities. Otherwise they would have taken the easy path and stayed in their home countries.

I noticed during my career at Goldman Sachs that we hired many foreigners who had studied in Japan or were already living in the country. They knew an American investment bank did not offer the almost certain life-time employment of a Japanese institution, but they chose greater risk in exchange for the fast upward path available at Wall Street companies.

NO QUICK FIX There is no easy solution for Japanese businesses seeking to recruit foreign talent. Changing the entire HR system rapidly is not feasible, especially as it is thoroughly intertwined with the broader labor market and with the ethos of Japanese companies and universities.

Nevertheless, attracting and retaining foreign talent is critical to the future of the Japanese economy. CEOs and other senior executives should see this as a priority. In order to achieve this, C-suite leaders must first figure out where foreign talent would be the most useful. The answer will depend on the specific features of a company and industry.

Companies could start with information technology. Corporate Japan is, on average, behind the curve in this area. To stay up to date in IT, it is imperative to be open to the world, flexible and aggressive -- traits that are not nurtured much in Japan. In many cases, it may be best to create an IT unit that is sufficiently tied to the rest of the corporation to be effective but has enough autonomy to attract both ambitious foreigners and Japanese who want something different from the secure but slow-moving Japan Inc. In some sectors, it might be project finance or research and development that can take the lead. These departments can serve as an agent for change for the entire corporation. It will be slow, but that is better than standing still.

Nagisa Inoue is a former Goldman Sachs managing director. She graduated from Hitotsubashi University in 1993. After joining Goldman Sachs Japan, she was promoted to managing director in 2010 and retired from the company in 2016. She lives in Tokyo.

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