Terrie's Take 968 - Off-shoring for Small Companies in Japan - What's Possible? Ebiz news from Japan

Mon Nov 5 15:57:20 JST 2018

* * * * * * * * TERRIE'S TAKE - BY TERRIE LLOYD * * * * * *
A weekly roundup of news & information from Terrie Lloyd, a long-term
technology and media entrepreneur living in Japan.
(http://www.terrielloyd.com)

General Edition Sunday, Nov 04, 2018, Issue No. 968

- What's New -- Off-shoring for Small Companies in Japan - What's Possible?
- News -- Government's Olympics contribution already JPY22.5bn over budget
- Upcoming Events
- Corrections/Feedback
- Travel Picks -- Toyosu Fishmarket Opens Indigo in Tokushima
- News Credits

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+++ Off-shoring for Small Companies in Japan - What's Possible?

Finally, after years of continual downwards adjustment, wage earners
in Japan are seeing some improvement in the salaries they take home
every month. In September, the media reported that the May-June-July
period saw real wages rise at the fastest clip in more than 20 years,
by around 0.4% (4.8% annualized). This marks a major change in
attitude by employers, who up until now have resisted pay increases
even to the point of losing staff, and is most likely the start of a
long-term trend.

While this is great news for long-suffering employees, it is a clear
signal to company owners that they need to come up with better
strategies to not only contain costs, but also to deal with the severe
labor shortages that nudged wages up in the first place. Competition
for workers is an inescapable trend and is of course why PM Abe's
government has introduced 5-10 year guest worker visas. Although
frankly the new category visas are more about patching the immediate
need to produce food and care for old folk than it is about helping
ordinary companies. An earlier immigration effort by the government to
attract higher skilled workers to Japan was an abysmal failure, and
bright young graduates from developing countries, who anyway learn
English as their preferred second language, continue to be far more
drawn to moving to the USA instead. And so the government has lowered
its sights to laborers.

If you are a company owner or manager in Japan, what do you do to deal
with the worker shortage? There are really only three options: i)
Automate with robots and software, ii) reorganize the business so that
you don't need so many workers (e.g., convert to a self-service
operation - something that many hotels, restaurants, and supermarkets
are doing, OR, dabble in the gig economy), or iii) move part of your
business off-shore to a developing country. Of these choices, the most
attractive way to reduce dependence on staff appears to lie with
artificial intelligence (AI), as once a service is turned on, it costs
almost nothing to run and "works" 24x7. But as Google Translate
reminds us daily, while capabilities are improving, it will be at
least another ten years before AI is really good enough to serve
querulous human customers.

[Article continues below...]

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[...Article continues]

Option Two, reorganization, is probably the most popular approach for
managers right now, because when it works, it works spectacularly.
Think of the new self-service expressway toll booths that are now so
prevalent. Our guess is that the Japan Highway Corporation has reduced
its manpower costs by thousands of people a month (millions of
dollars) by this simple move. But perhaps more exciting than toll
collectors are the new gig-economy companies, like Uber, Crowdworks,
and Lancers, which tap students, retired folk, moonlighters, and
others who are happy to only be paid for active tasks done, not for
idle time waiting between those tasks.

>From our point of view, Option Three, to relocate some processes
overseas, has been largely ignored by Small to Medium sized
Enterprises (SMEs) in Japan because of the values and habits of those
who run those companies. Firstly, they like to see their staff and
assets in front of them, where they can be comfortable knowing that
the staff really are working hard. Secondly, language is a huge
hurdle, and having foreign staff overseas who you have to communicate
to in English, or Chinese, or Vietnamese, or whatever takes the
personal communication out of the hands of the owners. Thirdly, there
is the fear of the unknown. Who are the people we're hiring? How do we
know we can trust them? Can we trust the people that they in turn
hire?

But while these are hurdles for locals, these issues also represent a
competitive opportunity for those non-Japanese who choose to take the
risk of initial investment and trial-and-error learning. Which types
of companies would most benefit from moving part of their operations
to a developing country? At least the service sectors of recruiting,
software development, user support, accounting, consulting, design,
publishing, marketing, would qualify.

As an example of off-shoring offering a competitive advantage, look at
the task of candidate prospecting within Japanese recruiting
companies. The highest paying jobs in Japan, and thus those offering
recruiters the highest commissions, are for bilinguals in foreign
firms or Japanese multinationals. Therefore, having a remote worker
call a prospect in English offers two significant advantages. Firstly
it confirms that the person is in fact able to comprehend English, and
secondly, it offers the prospector a ploy for bypassing phone
answering gatekeepers - because everyone knows that an incoming
English-language call is probably from an important overseas customer.
Remember that each candidate successfully recruited this way is worth
millions of yen per placement - not a bad return on effort made.

Another example of successful off-shoring can be found in job roles
that are not Japanese-language dependent, such as design, systems
management, and software development. To make off-shoring work, you
need to have some of the Japan-side employees, and especially the
project/product manager, to have bilingual skills (or access to a
bilingual assistant), but this could be just one person spread between
two teams of 20-50 domestic and foreign staff. Indian software
companies have long used a well-paid bilingual central project manager
to leverage the efforts of 50-100 engineers back home and a few
Japanese-only sales staff in Japan.

The most popular locations for setting up an operation to off-shore to
depends on whether you're looking for cost savings or better skills.
In order of preference for Japanese firms are: Vietnam, India, and the
Philippines. China's Dalian used to be another popular location, but
as the rents and salaries have quintupled there in the last 15 years,
many Japanese firms have given up on China and moved their operations
back home or to Vietnam.

If you're looking for access to specialized skills, where pricing is
similar to Japan but the capabilities are superior, then we've had
good luck working with individuals and vendors in western economies
that are already quite decentralized. This of course is the same
premise offered by Upwork and other international task-driven sites.
Popular locations include the USA (remote locations), Australia, New
Zealand, and pockets where Japanese expats can be found, such as
Bangkok, London, Los Angeles, Shanghai, etc.

What does it cost to set up an off-shoring operation designed to slash
costs? Here are some low-end numbers to whet your appetite:
a) India (secondary city, not Mumbai or others)
- Marketing and authoring staff with a degree and 3-5 years of
experience - around JPY400/hour = JPY65,000/month
- Software engineering staff with a degree and 3 years of experience -
around JPY120,000/month

b) Vietnam (HCMC, Hanoi)
- Software engineering staff with degree and 2+ years of experience -
around JPY80,000~JPY100,000/month
- Same, but with Japanese ability - around JPY120,000/month and likely
to have lower level of technical ability

c) Philippines (secondary city, not Manila)
- Contact (help desk) staff, with a degree and 5+ years of experience
- around JPY40,000~JPY60,000/month
- Software engineering staff with a degree and 2+ years of experience
- around JPY80,000~JPY140,000/month

Although price differentials are the primary motivation for most
companies to off-shore, the secret to successful off-shoring is to be
able to hire the right senior manager to oversee the effort. Not only
does this person have to be creative, entrepreneurial, and an
inspiring leader, they also need to be communicative and honest - not
easy virtues to find in a single person, and a good reason why
Japanese firms tend to send one of their own people out to the
off-shoring site to kick things off first.

...The information janitors/

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+++ NEWS

New guest worker visas for 40,000 in first year

The government's budget committee is hammering out the final wording
for a new immigration bill to be submitted to the Diet early 2019,
which will create a guest worker regime similar to some other
countries (e.g., Germany). The new program will set an upper target of
40,000 people for the first year, and most of the slots are expected
to be filled by work trainees already in the country. The new bill
will provide the trainees a stay of up to 5 extra years if they don't
have basic language skills and job tests, and up to 10 years if they
do. More importantly, if they do qualify for the longer stay, they
will also be allowed to bring their families. ***Ed: As we have
already commented in previous takes, there is no word on whether the
new visa holders and their families will really be kicked out of the
country after the 10 years are up. We suspect that the government will
create a bridge to proper residency, after checking whether or not the
electorate will put up with the immigration flow.** (Source: TT
commentary from mainichi.jp, Nov 03, 2018)

https://mainichi.jp/english/articles/20181103/p2a/00m/0na/004000c

Mitsubishi parent bails out aircraft making subsidiary

While Honda did a great job of getting its executive jet to the market
in 2015 (10 years after its debut), the maker of the first Japanese
passenger jet, Mitsubishi Aircraft Corporation can't say the same
thing. The company has just had to receive a JPY170bn (US$1.5bn)
bail-out as well as a write off of JPY50bn in loans, by parent
Mitsubishi Heavy Industries (who no doubt are getting the money from
Mitsubishi Bank). The company is now 7 years behind schedule in
delivering its 92-seat Mitsubishi Regional Jet, mostly because of
stricter weight regulations taking effect in the USA, and the
subsequent need to redesign the aircraft. ***Ed: When you see a
stubborn commitment by a bedrock Japanese corporation to a project
like this, you can't help wondering if they are somehow tied in with
the overall company's military ambitions, where perhaps this aircraft
is an essential part of the overall strategy and infrastructure? If
so, follow the money...** (Source: TT commentary from cnn.com, Oct 31,
2018)

https://edition.cnn.com/2018/10/31/business/mitsubishi-heavy-industries-jet/index.html

Government's Olympics contribution already JPY22.5bn over budget

There are 3 bodies contributing the financing for the Tokyo Olympic
Games in 2020. They are the Tokyo Metropolitan Government with a
contribution of JPY600bn, the games organizing committee for JPY600bn,
and the central government for JPY150bn. Apparently the central
government number has already exceeded JPY172.5 billion, kicking off
yet another debate about what the money is being spent on. In fact, as
part of this discussion, the government has now said that actually it
plans to spend about JPY800bn (!!!) on the games - where the JPY150bn
contribution was only for immediately relevant projects. Secondary
projects such as burying power lines underground on race routes and
hundreds of other initiatives are expected to account for the other
JPY650bn. ***Ed: We predicted in TT-725 that the Tokyo olympics would
be far more expensive than anyone was prepared to admit. This is not
just a failure by the Japanese, but an ongoing trend that both the
London and Rio Olympics also suffered from.** (Source: TT commentary
from japantimes.co.jp, Oct 30, 2018)

http://bit.ly/2OoRsjl
http://bit.ly/2mfmLPA [Terrie's Take outlining overspending on prior Olympics]

Panasonic’s battery business with Tesla about to become profitable

After investing more than JPY200bn on battery production inside
Tesla's Gigafactory, the Japanese firm has said that the company will
soon start running cash positive on the tie-up. The company is
apparently already profiting from battery sales for the S and X
models, but is still in the red with the Model 3. Apparently Panasonic
has 11 production lines running at the Nevada facility, and will
shortly increase this to 13 lines. (Source: TT commentary from
the-japan-news.com, Nov 02, 2018)

http://bit.ly/2Qo8TTe

Rakuten chooses KDDI as infrastructure partner

None of the 3 major telecom companies (DoCoMo, KDDI, and Softbank)
particularly like Rakuten, because in April the company won a 4G
licence and will eventually become a competitor. However, in the end,
money counts, and thus KDDI has agreed to allow Rakuten to use its
infrastructure while the online shopping conglomerate builds out its
own infrastructure. As the CEO of KDDI said, its "Better than having
them join DoCoMo." The two companies are trying to paint the deal as a
win-win, with KDDI looking to roll out its "au Pay" service to
Rakuten's 1.2m online stores. However, the reality is that Rakuten has
it's own financial services and solutions and the partnership will
probably only last until Rakuten builds it's own mobile network over
the next 2-3 years at a reported cost of JPY1trn. ***Ed: Rakuten is
not a sharing-type company, and both firms know this full well.**

https://s.nikkei.com/2zqntlz

NOTE: Broken links
Some online news sources remove their articles after just a few days of
posting them, thus breaking our links -- we apologize for the inconvenience.

***------------------------****-------------------------***

+++ UPCOMING EVENTS

No upcoming events this week.

***------------------------****-------------------------***

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***------------------------****-------------------------***

+++ CORRECTIONS/FEEDBACK

None this week.

***------------------------****-------------------------***

+++ TRAVEL DESTINATIONS PICKS

=> Toyosu Fish Market
Tokyo's successor to Tsukiji is open for business

Tokyo's new wholesale Toyosu Fish Market started trading on Thursday
October 11th, with over 600 merchants making the move 2.3 km from
their historical Tsukiji Market home, in operation for 83 years. The
much loved tuna auction viewings are now available from a
purpose-built observation deck.

The facilities at Toyosu are spacious, cutting-edge and easy to access
– stark contrast to the ageing, cramped and limited facilities at
Tsukiji. The former site was never designed to handle the swathes of
tourists that came en masse in the dead of night hoping to catch a
glimpse of its famous tuna auctions – something that caused friction
in latter years which Toyosu Fish Market hopes to address.

The auction viewing experience at Toyosu has obviously changed
significantly to that which Tsukiji became famous for, where tourists
and photographers often found themselves in close proximity to tuna
fish, brushing elbows with market vendors, and obstructing the turret
forklift trucks whizzing to and fro. Toyosu Fish Market loses that
original charm, but provides better access, hygiene and safety. It
swaps out chaos for order, and decaying facilities for a
state-of-the-art setup. This benefits both visitors and workers.

http://bit.ly/2PBrCNS

=> Nishi-Awa, Tokushima
Natural adventures in the mountainous countryside

Nishi-Awa is a sprawling, mountainous region in northwest Tokushima.
It shares a border with all three of Shikoku’s remaining prefectures
and boasts specialties unique to the area like indigo production and
high-quality silk crafts. The harmonic blend of unbridled nature and
human-made attractions makes this nook of Japan well worth
exploration.

The rushing water that carves down Mount Tsurugi and spills into the
Anabuki River is famous as the clearest in Shikoku. The thundering
cascade of Naru Waterfall after a day of rain shows why Nishi-Awa’s
fields are often flooded, creating an abundance of a plant called
Indigofera tinctoria, or “true indigo.” Starting in the Edo period,
people fermented these plants to bring out the dye within. Visitors
can now try their hand at many traditional crafts including indigo
dyeing at Udatsu Old Street, a memory of the past lovingly preserved.

http://bit.ly/2D1lDv5

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+++ ABOUT US

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Written by: Terrie Lloyd (terrie.lloyd at japaninc.com)

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