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Human Resource Management in Japan

Philippe Debroux

Introduction

Recent decades have seen important changes in the HRM practices of advanced economies. A fundamental change has been the rise in performance-related appraisal and compensation systems. Another significant development has been the adoption under different names of the concept of a flexible firm (Atkinson, 1985) that has led to the rise of atypical (for example, part-time, temporary or dispatched) employment patterns. The widespread emergence of those trends in the main economies suggests that some form of convergence in employment practices is at work.

This chapter analyzes these developments in the specific case of Japan. Considered as trend-setting and inspirational examples in the 1970s and 1980s Japanese human resource management (HRM) architecture, policies and practices, that is, the ideas of what should be considered as legitimate, effective and efficient, have been challenged during the last two decades.

Changing values, work and lifestyles impose changes in the very concept of “company” in the minds of the employees. The internal labor market linked to a seniority-based pay system is put in question with important consequences on the recruitment, training, appraisal and reward policies and practices. Characterized by their high level of workforce homogeneity Japanese companies must manage a more diversified labor force, including an increasingly large number of women and foreigners. An ageing population calls for different career patterns for both elder and younger employees. The emergence of product modularization in an open technology era threatens the integrated product system and requires a transformation in the philosophy and practices of knowledge management. The shift toward a shareholders’ value-centered corporate governance shakes the delicate balance between employees and investors in the traditional stakeholders’ system.

Historical Development in Human Resource Development

Stable Corporate Governance and Industrial Relations

After World War II corporate governance in large companies was characterized by stable shareholding and criteria of performance privileging a long-term, growth-oriented strategy. This facilitated the adoption of a HRM system that offered long-term guarantees for the permanent employees and seniority-based pay. In the early post-war period, industrial relations were marred by disputes. It changed with the emergence of in-house unions that have been pillars of the employment system up until now. They played a key role in the diffusion of information between labor and management, and they were instrumental in the acceptance of new technologies.

Dynamics of the Internal Labor Market

New graduates were recruited with a long-term perspective, and most managers up to the top of the hierarchy were rising up from their ranks. As a result, work and training patterns could be adopted by which labor could also take on a productive function by working together with management with a long-term focus. Cross-fertilization of interconnected networks favored the creation and flow of knowledge embedded in each employee’s mind. The planning and implementation of operations were not strictly hierarchically structured, and rotation was frequently practiced for both white- and blue-collar workers. Workers were expected to cope with needed changes or problems and it required constantly upgraded problem-solving capabilities (Fujimoto, 2007).

Japanese companies never assumed that longer tenure necessarily implies higher productivity. For that reason the training needs were constantly monitored and appraised during the entire career in order to get a close fit between the employees’ individual needs and the needs of the organization (Salmon, 2003). The rationale has always been that the investment in skills would not be sunk even if workers switched to a different type of job (Koike, 1994). In the line of what Becker (1964) argued, higher productivity was believed to correlate to company-specific skills. Since the mid-1960s, On-the Job Training (OJT) and Off-the Job Training (OFF-JT) have been available and methods of job enlargement and enrichment have been widely applied, especially at the shop-floor level.

Broad-based Performance Evaluation and Reward

The motivation of employees required an incentive mode that allows individuals to commit fully to the teamwork process without fear of losing compensation. The basic wage developed as a mix of person-related and job-related elements. To that was added age and merit-based elements. The person-related payment was determined by position in the hierarchy and was based upon seniority and past merit. In the skill-grading system that became dominant in the 1970s, merit is taken into account in pay and promotion but with an indirect relationship between compensation and job allocation (Aoki, 1988). The job-related elements were determined by a job evaluation system. But since the job descriptions were vague and since assignments were broadly defined, jobs have tended to be evaluated on the basis of employees’ skills and experiences in a broad sense. Continuous evaluations assessed potential ability, based on adaptability to technical changes as well as soft skills such as loyalty and teamwork ability.

Overall the wages differential has remained small up until now but the speed of promotion and, thus, the level of remuneration, always varied. Up until the last decade a large number of average performers could expect to be promoted to middle management while outstanding employees could aim to fill positions where they could enjoy a much higher wage and improved fringe benefits, such as golf membership, during the later stage of their career. Conversely, under-performing employees could be confined to activities that would not lead to a promising career, or could be relegated to minor subsidiaries or related companies. Therefore, the seniority wages was considered as an incentive mechanism closely linked to the internal labor system (Lazear, 1979).

Japanese-style Flexicurity: Balance of Power, Culture and Rationality

Welfare corporatism and the absence of a large external labor market made permanent employees dependent on their employers. They faced pressure to act in accordance with management wishes, lest they would lose their status and fall into the category of the unprotected peripheral workforce. Companies were always legally authorized to unilaterally change the working conditions, including the place and type of work (Araki, 2002). Lifetime employment was never based on any explicit contractual promise and neither was it a fiduciary duty on the part of the company. But an employment relationship was deemed to be continuous. The legal doctrine and court precedent since the 1950s concludes that an employer would only be found to have just cause for termination if all less drastic alternatives had been ruled out (Araki, 2002). Therefore, management was in command, although there was to some extent an effective balance of power with the state intervention.

HRM policies and practices were rationalized according to ethical and cultural principles insisting on social harmony and collective efforts (Sugimoto, 2010). Bargaining power favored management but it could be argued that Japanese companies nevertheless became organizations where trust that induced genuinely loyal sentiments could develop (Matanle, 2003). In such a context lifetime employment grew into much more than just an agreement between the parties where separate interests were based on individualistic utilitarian assumptions. It became a social norm enjoying large societal legitimacy.

Long-term employment and the ideals of welfare corporatism were always shared beyond the circle of the large companies. But stress was put on market rationality to justify the creation of dual labor markets. High pay and cooperative long-term work arrangements with permanent employees always went along with the use of buffer-type contingent labor having much less access to fringe benefits and working for lower wages without job guarantees, as well as a wide wage gap between large and small companies. Institutional structures, patriarchal gender norms and stereotypes limited women’s position in the labor market. Like the non-regular workers, they were considered as a buffer, ancillary type of workforce, kept at the lower end of the job market, and considered as not worthy of much investment in training up until the end of the 1980s (Sugimoto, 2010).

Key Factors Determining HRM Practices and Policies

Macroeconomic and Business Changes

The decline in stocks and land prices, weak internal demand, and excess capacity led to stagnation in the 1990s and a shaky economic growth pattern since then. A more shareholders’ driven corporate governance concurs to a continuous decline of the share of profit going to labor since the 1990s (Sueki, 2009). The focus on core competences and divestment of activities has made redundant many employees. Product modularization has favored outsourcing and rendered many workers’ skills and experience obsolete.

In order to answer to short-term product development and changes in demand companies cannot rely only on company-specific skills. It requires both the presence of specialized people on short notice and a higher numerical and financial flexibility pushing for utilization of atypical workers.

Shift Toward Performance-driven HRM

From the 1980s the performance element in appraisal and reward increased but the link between age/tenure and merit was not cut. It largely remained unchanged under the skill-based classifications, based on the assumption of employees “being capable of doing” because of supposedly mastered skills. This led to the introduction of performance-related pay (PRP) and appraisal systems in the 1990s (seikashugi) that put a focus on work-related skills with performance appraisal linked to demonstrations of their mastering.

The person-related pay element determined by rank and based on seniority and past merit is fast disappearing. Age and tenure-based pay and promotion components have by now been removed or drastically reduced in many companies. Annual pay rises are not a given anymore at all stages of the career. Managers promoted through seniority but without having subordinates and not having real responsibilities are becoming a thing of the past (Salmon, 2003). The job-related wage element of the pay of managerial and non-managerial personnel reflects more strictly defined job classes or roles. Companies are not adopting a purely occupation-based pay system (shokumukyu) and the tendency is rather more to shift away from this approach. The ability-/skill-based element of pay (shokunokyu) still counts but it is incorporated into individual competency frameworks. The job component consists of a fixed amount and a further one where roles and competency frameworks linked to performance are increasingly important (MHLW, 2010).

Some companies propose to their new employees the option of renouncing their retirement lump sum in exchange for a higher salary. The objectives are to increase work mobility and to respond to the desire of both parties to develop more contingent work relationships. At the same time, the performance element in the determination of the retirement lump sum has significantly increased for managers (Meyer-Ohle, 2009). Unions have always considered the bonus as part of regular pay but it is comparatively easier to negotiate its variation than in the case of salary. A minority of listed companies have removed it altogether for managerial personnel. In most cases, one part of the bonus is still paid twice a year as a certain multiple of base pay but the remaining part is based on individual performance leading to larger differences than before.

Remaining Importance of the Labor Market Logic

Internal equity is of utmost importance in a system based on the internal labor market. Wage differentials increased in the last 15 years but they remain limited by international standards even for managers (MHLW, 2009b). External benchmarking is increasingly important because there is now a sizeable external labor market for managerial jobs. But companies are reluctant to rely too much on the external labor market to determine pay, lest it proves to disrupt their long-term-oriented HRM policy. To control labor cost and create incentives they prefer to introduce a pay component linked to companies’ performance connected to the evolution of the markets for raw materials, semi-finished products and the financial markets (Nakata and Miyazaki, 2011). Stock options are increasingly used for managers and non-managers but they are not significant incentive tools so far in most companies.

Toward a New Legal Basis of Flexicurity

Since the 1980s the power of companies has been broadened to deal more flexibly with working conditions and the category of workers themselves. At the same time, policy makers have tried to keep the balance with job stability and social fairness. Since 2003 the judicial doctrine against unjust dismissal is incorporated into the Labor Standards Law (Wolff, 2010). Some laws have reinforced the workers’ rights in line with changing social values. The Whistleblower Protection Law (2004) prohibits the dismissal of whistleblowers in the public interest. The law responds to the need for a greater opening of companies to society. Likewise, the new amendment of 2006 to the Equal Employment Opportunity Law (EEOL) 1986 strengthens the rights of women at work, including dismissals attributable to direct and indirect discrimination (Nakakubo, 2007).

Conversely, the Company Law Reform Bill (2006) allows more flexibility to develop differentiated HR policies at departments and smaller units’ levels and reinforces the pressure from the financial markets. The Law for Dispatch Workers enacted in 1985 increased the opportunity to offer and utilize short-term employment contracts. The scope was enlarged in 2003 to all types of jobs, including in manufacturing (Hisano, 2007). The Labor Standards Law contains since 1998 an amendment introducing a discretionary work scheme defining work time by reference to the tasks that are completed rather than the hours worked. It allows companies to control their overtime budgets while responding to the needs for accommodating diverse life- and working-styles and allows them to satisfy the demand for short-term and specific expertise. Since 2003 the legal maximum limit for an employment contract is three years instead of one. It provides the opportunity to make strategic, medium-term recruitment of skilled workers while partly externalizing the costs of training (Wolff, 2010).

At the same time companies also gradually curtail the allowances and services that are associated with traditional welfare corporatism.

Keeping and Creating Competitive Advantages in a Globalized World

Since the 1990s Japanese companies have tried to keep research and development (R&D) and production value-added in Japan while investing abroad. It is argued that to create products with unique features long-term relationships with internal and external partners and cultivation of broad integrative skills and problem-solving abilities have to remain at the center of HRM strategy (Itami, 2011). On the one hand, it calls for keeping the internal labor market logic. On the other hand, responses to short-term product development and to the need for access to world knowledge, as well as needing to master intangible assets such as branding and intellectual property rights, requires a more diverse workforce.

Companies continue to mostly recruit new graduates and to devote important resources to the selection process and subsequent training. At the same time, since the 1990s they have applied the concept of “employment portfolio” combining long- and short-term employment (Nikkeiren, 1995). High performance working systems (HPWSs) based on concepts of employability, engagement, empowerment and individual performance, are adopted for the core employees. It goes with the utilization of specialists for specific tasks and projects, and atypical workers for the routine and standardized jobs. Specialists can be recruited from the outside and can be managed flexibly thanks to the discretionary work scheme. But since the 1990s companies also started to nurture a pool of professional managers with technical and/or management backgrounds (Salmon, 2003). They are given the opportunity to progress in the hierarchy while specializing, and are rewarded accordingly.

Changes in Knowledge Management

The traditional concept of knowledge management where knowledge is built through intensive personal interactions among members (Nonaka and Takeuchi, 1995) is put in question. The high level of institutionalization of personal relationships is a strength but also a weakness because of the difficulties in integrating outsiders. Moreover, it may be simultaneously jeopardized by the growing external mobility of the managerial and technical personnel and by the lower inter-department mobility that reduces personal contacts. This problem is compounded by the fear of losing the embedded knowledge of the older generation that will retire in a few years’ time (Hentschel and Haghirian, 2011). All those factors are conducive to the shift toward more codified knowledge, as in documents and databases, which would be more easily accessible to outsiders in Japan and abroad.

Evolution of Corporate Culture: Toward a Clash of Values

The sustained ability to compete on the basis of quality and responsiveness to customers’ specialized needs was often associated to a value system engrained in Japanese culture. The principles of loyalty, commitment, discipline and a strong work ethic that are inculcated during the induction period in a company are parts of this tradition. For instance, the “five S” principles applied in the workplace (seiri, seiton, seiso, seiketsu, shitsuke) are said to be embodied in the moral fabric of Japanese society, whose values are claimed to be influenced by Confucianism, Buddhism and Shintoism (Hirschmeyer and Yui, 2006).

Based on this mindset, the employment patterns have provided social anchors as well as ideals to be strived for by everybody. The societal legitimacy of the concept of company as a “community of fate” has been internalized for a long time. As a consequence, large companies are still widely expected to continue to recruit a large number of new graduates every year and to provide long-term job guarantee and career opportunities. Responsibility toward permanent employees continues to be thought to extend beyond the mere respect of contracts. Top managers are expected to make personal financial sacrifices in case of downturn. Lay-off may be unavoidable at times but it is still considered as a managerial failure and should remain a measure of last resort, not something that can be done for economic convenience.

This mindset increasingly clashes with the spirit of the reforms of the corporate governance and HRM systems during the last two decades where emphasis is put on shareholders’ value, individual performance and equality of opportunity rather than on outcome. Conversely, concern about social exclusion and perceived growing inequality has been expressed since the last decade. It is thought that letting differences in income grow too much may lead to a point at which the sense of community is endangered, be it at the levels of the country, the neighborhood or the company (Sugimoto, 2010). Those two contradictory trends put management into a double bind. Companies have to motivate ambitious managers who are eager to be rewarded according to their merits but growing feelings of insecurity must also be taken into consideration in the HRM reforms.

Relative Decline of the Union Pillar

The last decade has seen the decline of the unionization rate, dropping below 18 per cent in 2009 (MHLW, 2010a). Individualization of contracts and diversification of status limits the effects of collective bargaining. Workers with skills in demand do not need the unions’ protection. They are more concerned by their career and employability. Unions have been unable to gain wage increases and their contribution to improvement of employment conditions has been small.

Their strategy during the yearly “Spring Offensive” has shifted toward security of employment since then. However, it is becoming difficult to do so with senior workers with obsolete skills (Nitta, 2009). A shift toward occupation-based unions should be a normal development in view of the growing specialization and higher work mobility. However, so far the development is still limited by the slow rise of external labor markets for many jobs (DeBroux, 2003). It is important for the unions to enroll the non-permanent workers (MHLW, 2010). Although unionization level is still low their potential of growth is not negligible in a period of fluidity of work patterns and status where all workers share concern on access to skills, pay, and pension.

It is to be pointed out, however, that no trend toward an anti-union “unitarism” has emerged. In most large companies they remain an important partner. It had always been said that Japan had a kind of corporatism without labor (Shinoda, 1997). Unions now intend to play a more important role in long-term policy in the tripartite system with employers and government representatives in order to redesign the workplace environment (Nitta, 2009).

Key Challenges facing HRM

Adoption of Diversity Management

Large companies diversify the ports of entry to broaden talent mix but still tend to recruit in the same institutions. Management remains mostly composed from Japanese graduates from a limited number of Japanese universities. Japanese companies cannot remain competitive without attracting qualified people from outside Japan. But optimizing the talent of non-Japanese human resources is still difficult, including those in foreign subsidiaries (Brannen, 2011). Moreover, except for a small number of high-potential employees they often do not yet offer a working environment permitting average women to pursue a career while creating a family. Work–life balance schemes are adopted but the male breadwinner family model is not significantly put into question. It continues to reinforce the lifetime career pattern of male employment and to perpetuate the under-utilization of female talents.

Necessary Reconsideration of Career Patterns

Despite the trend toward specialization too many workers still have generalist-type career patterns. Fewer promotion opportunities are offered, and companies struggle to respond to the career and reward expectations. The removal of the seniority elements renders irrelevant the reward system according to which the higher salary (that could be below their individual productivity) that employees receive in the second part of their career compensates the lower salary (lower than their individual productivity) that they receive during the first part of the career (Lazear, 1979). As a result, in absence of a large external labor market companies run the risk of ending up with employees feeling trapped. This may explain why the level of engagement is lower than that in US companies (Gallup Business Journal, 2013) that offer less job stability. Trapped workers may not only be less productive but they can impede the recruitment of better employees with a higher level of engagement.

New Basis for Management Legitimacy

Japanese employees were always likely to look on their managers as people who had (starting from school) performed better in a meritocratic system (Sugimoto, 2010). So far, employees have accepted their positions in a hierarchy that they acknowledge to be legitimate. As a result they have always willingly acted in accordance with prescribed roles rather than having engaged in a struggle to alter the distribution of power and rewards. This legitimacy is now put into question with management coming from different origins, companies casually terminating relationships and employees accordingly thinking about their individual careers and employability in priority. It could end up with conflicts and a breakdown of cooperation if managers take for granted the legitimacy of the hierarchical social order. Different career and reward expectations require new practices and instruments backed up by different sets of values to reach the right level of engagement and trust that companies expect.

Coping with an Ageing Society

Following Lazear’s (1979) assumption, if the retirement age is set correctly the wage sum for the whole career is equal to the marginal product. Companies were able to keep the rationale of their pay policy despite retirement age moving up from 55 to 60 during the last 30 years. But the planned lift of the entitlement age for public pension to 65 years old makes it more challenging. It is all the more true because the flexibility companies’ now enjoy to select the elder workers whose skills fit with companies’ needs is bound to disappear with the new regulations (Conrad, 2009). From April 2013, employers will be obliged to keep all workers until they reach 61 years of age. The retirement age will gradually increase and, by the end of March 2025, companies will have to keep their workers until they reach 64 years of age (MHLW, 2013).

The cost implications are important but it also creates a moral dilemma. Early retirement is costly and transfers are more difficult because of the loosening of relationships between companies. It pushes for an acceleration of changes in the appraisal and pay system. Because it includes the possibility of a significant wage reduction even retrenchment senior workers consider such policies to be a breach of the psychological contract. It obliges companies to devise training programs in order to make some of the workers more employable and to utilize more extensively and much earlier outplacement services.

Integration of the Atypical Workers

There is an increased vagueness in the horizontal division of labor and in the emergence of sub-categorization of employees. The non-permanent employees cannot be necessarily considered anymore as buffer-type human power. Companies need skilled, “core” non-permanent employees for a growing array of tasks. However, although they are expected to acquire the same skills and demonstrate the same level of teamwork as permanent employees the gap in remuneration and fringe benefits is wide. Besides the issue of social fairness, it could lead to a moral hazard in teamwork and cause deterioration in organizational efficiency.

Clash of Work Values in a Westernized HRM System

In the HPWS engagement is expected from core employees and not purely utilitarian personal calculation. But the objective is not to reproduce the community of fate. High engagement does not exclude mobility. Linked to employability it is a crucial element of HR cross-fertilization. However, this way of thinking fits with the mindset of a culture where public and private concerns are neatly separated. It may create mistrust and feelings of betrayal in Japan where professional relationships are expected to extend beyond functional purposes. Likewise, self-development and autonomy have always been promoted in Japanese companies but it is in well-defined hierarchically organized frameworks and with subtle social control influencing behavior and attitudes. Teamwork dynamics with empowerment in flat hierarchical structures presuppose a pro-active management of conflicts and an acceptance of diversity of opinion. But “impatience with rule” and high discretion in work organization is still difficult to conciliate with the traditional deep respect for hierarchy and a mindset where humility and self-restraint are considered as virtues.

Role and Importance of Business–HR Partnership

The HR manager is almost never a member of the board of directors but the HR department always played a strategic and integrative role. The HR department is in charge of recruitment and selection and is a key partner in devising strategic HR planning and in designing various HR processes and programs. So, it is directly involved in inter-department transfers of personnel and, through monitoring the rotation system, it always actively participated in career development. Up until the end of the 1990s skill development was done basically under the HR department’s aegis. However, while powerful, the corporate HR department was always in close contact with line managers. The line managers were in charge of intra-department moves, of recruitment of non-permanent workers, and moreover, in the selection of expatriates. The HRM corporate department plays only a small role in this respect and in the overall management of foreign operations.

Key Changes in the HR Function

A Response to Career Individualization

The HR function is under pressure to bring financially measurable results. Alignment with investors’ interests makes companies reluctant to invest in HR development if return in the short term is uncertain. Moreover, self-development training is bound to become more important in the years to come with the emphasis on employees’ self-reliance in career development. Conversely, the needs for assisting systems will increase concurrently. As a result, corporate HR departments move from a management of employees’ promotions toward management of individual careers. Companies proceed to an earlier selection of the fast track group. The HR department role is to increase the capability and capacity of the elite members. It has to devise and monitor employability schemes and participate in career design. The role of the HR department will thus be to enhance both the value of the employees and the value of the organization. This is important in order to respond to individual career needs but also to select and nurture future leaders. So, involvement in executive training and coaching is bound to grow furthermore in importance.

Needs for More Sophisticated Service-Related Expertise

The evolution toward profit centers that are line- and department-based reinforces the role of line managers in providing career support, coaching and mentoring but also their role in recruiting permanent and non-permanent employees. But corporate HR plays a growing role as provider of internal customer service. Implementing HR practices (from recruitment to integration) reflecting the larger diversity of human capital in terms of status, career patterns and training needs requires specialized expertise. Corporate HR can provide a career evaluation and consulting service for one specific unit, as well as consequently designing custom-made training programs. HR departments are now being installed with information equipment that facilitates interactive learning under a more codified knowledge management system. At the same time the corporate HR integrative role is also growing with the need of binding together company structures that are submitted to increasingly strong centrifugal forces (MHLW, 2009a).

Changes in the Following Five Years

Responses to the Diversification of Career Patterns

The decentralization of HRM along with cash-flow-based and profit performance at the line and department levels pushes for more recruitment flexibility according to specific needs. Overall permanent employment is unlikely to rise and systematization of the management of the hybrid permanent and non-permanent employees is a priority. Already there are more employees recruited under conditions of no transfer away from their living area, performing only certain types of work, or with shorter and more flexible working hours while having the status of permanent employees (MHLW, 2010). Nowadays, such policies concern mainly female employees but they attract the interest of an increasing number of male employees. As a result, a broadening and deepening of the concept of life–work balance can be expected in the years to come.

It is advocated that the treatment of some segments of non-permanent workers should also move toward a kind of role/competency-based system in order to facilitate their integration into the organization. Some of them should even be incorporated into the permanent group if they have appropriate potential to adapt in a long-term perspective (Nakata and Miyazaki, 2011).

Adaptation of Performance-Based Systems to the Japanese Context

PRP systems directly linked to outcome are credited for boosting performance and creating new dynamics. But in focusing on quantitative outcome and neglecting the fact that they depend most often on uncontrollable factors by individuals they are also accused of being inflexible and of destroying trust. They encourage employees to eschew extra tasks and challenging goals in order to protect their own arena of job responsibilities and circumvent the risks of a bad evaluation. Moreover, in discouraging altruistic behaviors they impose narrow concepts of organizational learning and knowledge creation (Takahashi, 2004).

Companies are likely to shift to holistic systems that are considered to be more consistent with Japanese HRM traditions of performance and fairness. Performance appraisal is increasingly based not only on the results of performance attained but also on the process of demonstrating abilities that contributed to the performance (Nakamura, 2006).

It is pointed out that adoption of a knowledge management system completely based on low-context communication could be detrimental to the organizations (Hentschel and Haghirian, 2011). Maintaining the constant formal and informal exchange of knowledge inside the entire organization is necessary in order to retain the meaning of the communication. In what the Japanese call genbashugi (field presence) the middle managers are in constant personal touch with their subordinates. They play a key role in nurturing the talent of the younger generations and encouraging knowledge creation. This could be lost if they were just becoming transmission links between the field and top management under narrowly defined management by objectives (MBO) schemes.

The Need for Cross-Cultural Skills

The task to come is to extend the knowledge management philosophy outside of Japan. It requires the mastering of cross-cultural communications in view of the persisting cleavage of corporate values and beliefs. Therefore, they have to develop suitable cross-culture training programs and design international HR recruitment and career development policy and practices suitable to non-Japanese people (Brannen, 2011). But they also have to train their Japanese managers so that they can optimize their global relational capital capabilities and select their dispatched personnel abroad in taking account of that factor.

Talent Management

More explicit career fast tracks have already been created that single out certain employees for elite development as soon as they are recruited. It can be expected that many companies introduce remuneration and promotion systems that increase the opportunities for younger employees to enter into positions of responsibility.

Core employees can expect long-term employment security but with greater uncertainty concerning remuneration and advancement. The trend toward professionalization is likely to accelerate in the line of what NEC (Meyer-Ohle, 2009) and Nissan (Gupta and Muthukumar, 2011) are doing. Some employees will be given the opportunity to nurture higher specialized capabilities and their treatment will be furthermore upgraded in the organization.

With employability and empowerment higher mobility of managerial and technical resources can be expected. It remains to be seen how companies will utilize HRM as competitive advantage to attract and retain the best employees. Recruitment policy used to be based on name value but it becomes difficult for companies to stick to relatively uniform employment practices. They need to devise new, attractive working conditions and career opportunities in order to position themselves as employers of choice.

Conclusion

Japanese companies’ HRM approaches are increasingly consistent with flexible, high-performance work systems (HPWS). A more strategic role for HRM managers and HRM departments is emerging. Growing professionalization and career diversification are important steps toward a departure from the internal labor market logic. Isomorphism is fading away. Even in the same industry companies adopt differentiated HRM practices. Different kinds of occupational rules and human resource practices are adopted that are based on new forms of labor contract, recruitment practices or career formation patterns that are increasingly of disruptive types. It can be argued that the companies are liable in the longer term to put into question the traditional social contracts and labor stratifications.

However, so far, the changes toward Japanese-style “flexicurity” have proceeded in a typically orderly manner. Most companies continue to stick to the traditional corporate governance model with boards composed from managers promoted from the inside. The tenets of the stakeholder model remain in place, albeit with more emphasis on Return on Equity (ROE) and Return on Investment (ROI). Therefore, it may be too early to tell that the specificity of the Japanese HRM and employment institutions and practices is over, despite their transformations. Considering the entrenchment of the HRM practices within Japanese society (Matanle, 2003), and their interdependence with other managerial practices, notably related to the production process and knowledge management, market-oriented reforms have to be conciliated with organization-driven systems.

The pragmatic approach of Japanese companies concerning PRP systems and other quantitative appraisal methods is typical of their concern for keeping the management system stable. They do not want to replace the secured worker with the unsecured, frightened one. They want to nurture a talented elite group of professional managers who have a high level of engagement but they do not want mercenaries.

Nevertheless, it is true that contradictions and dysfunctions appear not only in the organization but also at the societal level. The basis of welfare corporatism is now largely obsolete. The schemes are costly and they absorb important resources but they do not fit with the needs of the new generations. Still they have not yet found how to replace them with appropriate incentives.

Business structures, institutional frameworks and a number of socio-cultural attributes remain important constraints. As a result some human resources are still neglected or not utilized optimally, notably foreigners and women but also Japanese people with a different mindset. The vicious circle impeding the full integration of women in the HR system is particularly disastrous for companies and society.

Likewise, the internal labor market has proved not only to be less efficient than before but also to have external, maligned societal effects. Not only does it create legions of trapped employees with low engagement but it is also instrumental in creating “lost generations” of people who, because they have not been recruited as permanent workers just after graduation, are denied access to training in the first stage of their professional life and are likely to have difficulties in finding jobs in good conditions for the rest of their lives. The problem is compounded by the absence in Japan of vocational schools of the kind found in Germany. However, the legitimacy of the internal labor market is such and it still fits so well with the integrated production model that Japanese companies want to preserve as a basis of sustainable competitive advantages that it can only be reformed very gradually.

This last point is symptomatic of the elusive character and the unpredictability of the process and outcome of the reforms. Japanese companies are looking for practices and policies that ideally combine effectiveness, efficiency and fairness. It cannot be denied that there is a dynamics at work but reforms reveal to be a zigzagging, lengthy and difficult process.

Useful Websites

The Japan Institute for Labour Policy and Training: www.jil.go.jp

Japan Management Association: www.jma.or.jp

Japanese Trade Union Confederation (JTUC—Rengo): www.jtuc-rengo

Nihon Keidanren: www.keidanren.or.jp

Works Institute: www.works-i.com

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