TT-457 -- Labor costs comparison, ebiz news from Japan

* * * * * * * * * T E R R I E 'S T A K E * * * * * * *
A weekly roundup of news & information from Terrie Lloyd.

General Edition Sunday, February 17, 2008 Issue No. 457


- What's new
- News
- Candidate roundup/Vacancies
- Upcoming events
- Corrections/Feedback
- News credits

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On the last day of January this year, the Ministry of Labor
announced that the average monthly pay (overtime and
bonuses included) in Japan fell 0.7% over the same period
in 2007, to JPY330,212 (US$3,086). After adjustment for
inflation, this was the second decline in 3 years.

The drop was attributed to the travails of Japan's small-
to medium-sized enterprises (SMEs), which employ more than
80% of the working population. Many of these smaller
companies are cutting back, and overtime and bonuses in
particular are suffering. Actually, if you took the
overtime and bonuses out of an average worker's JPY330K
pay, you'd find that they're getting just JPY249,771
(US$2,334) -- which doesn't leave much room for rent, food,
utilities, transport, and the other basics of urban life.

The Ministry's figures also stated that there are now
32,722,000 full-time workers in the work force, and
11,541,000 part-timers. Thanks to the "dankai" (baby
boomer) retirements this year and next, the number of
full-timers will drop by another 4m-5m people. Some of
these retirees will be rehired at even cheaper rates
(usually 50% of their full-time salary) as advisers or
part-timers -- thus further contributing to a fall in
average salaries over the next two years.

We find it interesting that in this nation of traditionally
lifetime employment, that by 2010, less than half the
overall workforce will be in a full-time stable job.

[Continued below...]

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[...Article continues]

This move from full-time to something less stable seems to
be an inexorable process. Although the domestic media have
recently been hyping the fact that more companies are
hiring people full-time so as to not lose them in the
current tight job market, don't be fooled -- the statistics
tell a different story. Instead, over the last year, the
employment of full-timers only increased by 0.9%, while
that of part-timers increased by 4%.

In case you were wondering, the average hourly wage for
part-timers in December 2007 was JPY977 (US$9.13), down
around 0.5% over the same period a year earlier.

Since we know that salaries haven't moved much in Japan
over the last 10 years, only by a few percentage points,
while the rest of Asia (indeed, the world) has enjoyed
significant growth of their economies, we wondered: a) are
Japanese workers now getting a lot less than other nations,
and b) is the massive salary difference between Japan and
other nations in Asia still as compelling an argument for
off-shoring as it used to be?

It would be kind of interesting if Japan by virtue of its
inertia had become the new "low-cost" production center
for products and services.

Perhaps due to oversimplification by the media, most people
think of the average income in a given country as the GDP
(PPP) figure. This is calculated by such august entities as
the World Bank, the CIA, and others, and takes the total
output of all goods and services (PPP -- Purchasing Power
Parity) per capita and divides them by the population of
the country.

Using numbers from Wikipedia, we find that in 2005, Japan
had an average GDP (PPP) income of US$32,550 and was Number
20 on the list of 179 countries (World Bank figure). By
2007, CIA estimates had the number at US$33,800 and Japan
had slipped to Number 26 in the rankings. So it appears
that Japan is indeed gradually falling behind.

The problem with GDP-oriented income numbers is that they
don't take into account local costs of living, the labor
participation rate, nor do they break out those jobs that
are actually usable by those of us wanting to off-shore
part of our business. Vegetable vendors in Vietnam for
example, are not of as much immediate interest as
database developers in Delhi or Dalian.

There are a couple of really good web sites that now give
in-depth global salary information by using the same
methodology that made such a popular service
for ranking websites -- aggregation of visitor-supplied
data. The two sites are: and The Worldsalaries people have
obviously done their homework (maybe they did data entry in
India?) and quote many official sources for their numbers.

We also like the Payscale site, because it has data for
pretty much every country and across a wide variety of
jobs. However, for non-English speaking countries the
response rate is lower, and this is probably one of
the inherent weaknesses of such data aggregation sites.
None-the-less, the Japan data is based on a meaningful
700+ entries, and the India data on more than 21,000.
So it does provide a useful base line.

What we found is that globally, Japan still holds a
relatively good standing in terms of average income versus
countries that could be conceived as competitors.

Average wages income:
["Disp." means disposable income]

2005 Disp. Gross
US (US$) 31,410 42,028
JP (US$) 25,184 29,882
UK (US$) 24,612 32,602
KR (US$) 23,180 26,440
CN (US$) 7,392 7,947 (2004, Urban)
IN (US$) n.a. 1,361 (2005, Delhi)

However, as we pointed out before, vegetable vendors are a
hard job category to move off-shore, so we decided to focus
on something that is already widely practiced in
off-shoring -- software development. In this case, our
salary comparison is for a junior software engineers with
1-3 years experience. When we get time in the future, we'll
cover manufacturing positions as well.

Average junior software engineer income:
["RM" means Romania]

2005 Net
US (US$) 49,692
UK (US$) 33,624
JP (US$) 20,760
CN (US$) 12,900
RM (US$) 15,906
IN (US$) 6,932

This table is quite interesting, because it shows that
Japan is actually significantly cheaper than its
traditional competitors in the software space, and that for
conventional off-shoring locations, only India still really
offers a notable wage difference.

Since China is one of the few countries that has citizens
capable of handling the Japanese written language, it would
appear to be the ideal place to conduct software
off-shoring operations. But in reality China has never
really taken off as a software development center (data
entry is a different story). The reason appears to be that
China itself has a shortage of internationally capable
software engineers, and this has pushed up wage
expectations there -- to double that of Indian wages. The
US$8K difference between China and Japan means that for
most Japan-based firms, there is not enough incentive to
undertake the infrastructure and personnel investments
needed to get started there. India on the other hand is an
order of magnitude more attractive.

Of course, salary comparisons like this are extremely
generalized and the data sources are limited. The final
prices you will pay for software developers depend on
whether you employ them yourself or work through a vendor
who is taking a margin. Then there are the issues of
talent, speed, quality, logistics, etc. Like most things,
unless you are an adventurous manager, outsourcing is
usually only viable for larger firms who can take advantage
of the economies of scale.

There are exceptions, though, and here in Tokyo we're
seeing more smaller operators who have made the supply
chain investment and who can offer small-lot Indian and
Chinese off-shoring. Web site production companies and
specialists in CRM systems particularly come to mind.

In the meantime, though, if the current salary trends
persist for another 5 years, Japan looks as though it will
continue getting cheaper in comparison with other locations
and could thereby regain some of its labor competitiveness.

...The information janitors/


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+++ NEWS

- Wheat prices soar
- GDP surprise good or not?
- 20m one-seg handsets shipped
- IB's about to cut more jobs?
- Osaka solar energy plant slated

-> Wheat prices soar

One wonders if the Bush government really understands the
far-reaching consequences of its unilateral decision-making
-- such as the incentivization of agricultural growers to
switch out of other grains and into corn for ethanol. As a
result of that one decision, perhaps laudable at the time,
coupled with floods and droughts in other wheat growing
countries around the world, we now have a perfect storm and
grain prices are soaring. The Ministry of Agriculture has
decided it has to pass on the full weight of wheat prices
to flour millers, and thus flour wholesale prices will soar
30% from this month. ***Ed: This is the largest increase
since 1973, and is obviously going to affect everyone from
Tonkatsu, Soy, and Udon makers to bread and pastry
bakers.** (Source: TT commentary from, Feb
15, 2008)

-> GDP surprise good or not?

There were lots of grins at the Bank of Japan and
government last week when it was announced that preliminary
data for for Oct-Dec 2007 shows that Japan's GDP increased
to a very respectable 3.6%, annualized. Taken into
perspective, this represents an overall annual GDP growth
of 2%. ***Ed: The question is, was the Q3 number just a
blip or a recovery, or a matter of overly optimistic early
data? The stock market certainly responded positively,
however, analysts fear that the credit problems in the USA
are only just now hitting China, and that these will
translate into weaker growth ahead for Japanese equipment
and plant manufacturers -- which is where most of the
growth last quarter came from. Also, let's not forget that
the Japanese government usually changes its preliminary
estimates in subsequent announcements -- so we wouldn't be
surprised if it gets adjusted downwards.** (Source: TT
commentary from, Feb 15, 2008)

-> 20m one-seg handsets shipped

While one-seg might have seemed a one-hit wonder, handset
makers have clearly decided that the capability is a
must-have feature in most of their new cell phones. The
Telecommunications Carriers Association has announced that
20m one-seg equipped cell phones have been shipped since
the service launched just under 2 years ago (April 1,
2006). ***Ed: For more on one-seg, see our past newsletter
TT447,** (Source: TT
commentary from, Feb 14, 2008)

-> IB's about to cut more jobs?

The subprime problems that investment banks (IB's) are
going through in the USA are reaching Japan. Bloomberg says
that Morgan Stanley will cut up to 40 jobs at its real
estate securitization business. Morgan Stanley employs
1,600 people in Japan. Merrill Lynch closed its property
financing team a week ago, with a loss of 11 jobs, and
Nikko Citi is said to be looking at layoffs up up to 10%
of its 1,700 employees. ***Ed: We think there is more to
go. As the credit problems in the States spread to the auto
and credit card finance sectors, the belt tightening in the
States will have to be shared here as well.** (Source: TT
commentary from, Feb 13, 2008)

-> Osaka solar energy plant slated

The Nikkei reports that the Kansai Electric Power Company
(KEPCO) is planning to build a 10MW electricity generation
plant powered by Sharp Corp. solar cells. The new plant is
likely to be built on reclaimed Osaka Prefectural
Government land, located strategically near a new Sharp
solar cell production plant which is also due to open in
2009. ***Ed: Not sure if this is a sign of commitment by
KEPCO to solar energy, or a hand-out for Sharp...?**
(Source: TT commentary from, Feb 15, 2008)

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


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