Technology Recruiting is Booming in Japan
By John Dodd Thanks to Japan's worst economic slowdown in more than 50 years, 870,000 people lost jobs due to corporate bankruptcies and lay-offs last year, according to the Japanese Statistics Bureau and Statistics Center. One result is that for the first time Japanese are starting to look en masse at foreign companies for jobs. But the volume and breadth of candidates is overwhelming human resource managers. One HR manager says he interviewed more than 700 people last year. The beneficiaries of this chaos are recruiters who understand foreign companies' needs and can act as intermediaries. Computing Japan Magazine talked to 12 recruiters and executive search firms specializing in the information technologies sector and came up with an interesting picture of just what is happening in Japan. Needless to say, regardless of the recession, business for IT recruiters is booming. Nobody really knows how big the recruiting industry is in Japan, and certainly not in the foreign sector. Although the Japanese Ministry of Labor has authorized about 2,000 recruiting licenses for Japan as a whole, probably less than 1% of these are held by foreign consultants. Also, with many companies operating outside the licensing system, it is very hard to pin down the size of the market. Just how big? The Japanese government estimates about 1% of Japan's working population of 70 million, or about 700,000 people, works for foreign or foreign-affiliated companies. Of these, Computing Japan estimates that there are about 100,000 employees working on a daily basis with computers, either as users or as technical people (Editor note: number calculated from computer shipments over a four-year period to foreign companies). Our research for this article leads us to believe that approximately 20% of this group are in management and/or engineering. It is this select group of 20,000 people/positions that is the main focus of an estimated 300 to 500 recruiting companies. Figure 1: Estimate of people placed in foreign companies annually
All of the major international-executive search firms are represented in Japan, such as Egon Zehnder, Heidrick & Struggles, Korn Ferry, Ray & Berndtson, Russell Reynolds, and Spencer Stuart. These companies are typically handling bucho- class candidates up to president level and place three to five people per month. At the other end of the spectrum there are more than 200 independent full-time consultants and perhaps more than a 1,000 part-time ones, who between them may place 50 to 100 people per month. However, locally owned firms that are well established and typically have 10 to 20 consultants make up the majority of placements. These include such companies as Access Technology Japan, Aegis Enterprises, Oak Associates, Pacifica Consultants, TMT and Veritas. Almost all of the large and successful recruiters servicing the foreign market are foreign owned and run. The major exception is the largest recruiter in the foreign market, IMCA. Founded by President Seiro Takehara in 1967, IMCA has more than 60 consultants servicing 240 foreign companies in addition to more than 1,700 Japanese companies. More than 70% of IMCA's business is finding software and communications engineers. Last year the firm placed more than 1,000 people with major foreign companies such as Microsoft, Oracle and Sun Microsystems. Recruit, Japan's largest recruiter, says its subsidiary company, Recruit ABLIC, does business with about 300 foreign companies. About 30% of its work comes from large, foreign companies. What's hot in 1998 The action in the information-technology job market is being dictated by three major trends right now. The first and most obvious is the recession that is hurting personal computer manufacturing. However, at the same time, there has been a surge of activity in the industries of telecommunications, networks and software, especially enterprise resource planning and financial engineering. The second is because of the wave of mergers and acquisitions activity in the PC manufacturing (e.g. Compaq and DEC) and telecommunications industries, both locally and internationally. This corporate merging is creating an influx of people into the market place looking for jobs. The third major trend is the Big Bang deregulation of the financial markets. Popular belief is that new players are poised to pounce and flood the market. But Roger Marshall of Ray & Berndtson thinks the local players are responsible for much of the demand. "Most of the action is happening because there is a realignment of companies already in Japan," Marshall says. He adds, "Foreign companies, especially finance and software companies, are strengthening their management and specialist teams to be better positioned as the investor stream starts to open up." The jobs in hottest demand for 1998 are those for bilingual engineers of all kinds. Everybody wants them, and in volumes of hundreds per month. Though most employers prefer Japanese nationals, foreigners with strong Japanese and IT skills are finding ready acceptance. IMCA's Takehara says, "Recently Japanese- speaking Chinese and Korean students who have been studying here for some time have become very popular as job candidates." On opportunities for foreigners, Markus Leach, president of Aegis Enterprises, observes, "The finance industry is still taking foreign-network and applications-support engineers who do not speak Japanese - but they must be highly experienced." At the high-end, a large number of companies, especially US start-ups, are looking for country managers. The US economy is booming right now and many IT companies are expanding into Japan. As Oak Associates' Kerry O'Shea says, "A good number of these companies have studied successful businesses and know that if they can accept a couple of percent in Japanese revenue for the first two to three years, then they can look forward to 10 to 15%-plus of world-wide revenue over time." Where to find candidates Private databases, word-of-mouth, networking at parties, career fairs, working clubs, membership lists, studying corporate literature and websites are all standard tools of the trade for finding candidates. Not many companies use cold calling to find candidates, but there are exceptions. Thomas Nevins, president of TMT Ltd., says, "We believe in working the telephone. There are a lot of companies who say you can do recruiting on contacts alone, but I don't believe it. Waiting is no way to do business." Of course ethics is an issue with how you "work the telephone," and it is very important for credibility in this small market. Paul Levine, president of Access Technology Japan, says, "Some companies pose as customers and get the names of engineers this way. While they may classify it as 'research', it's highly unethical and gives us all a bad name." TMT's Nevins concurs and adds, "Those same recruiters think nothing of taking a person out of a customer's company, or using information gained through a client to the one-sided advantage of the recruiter. But eventually they get known for that and the behavior boomerangs back on them." In terms of who to target for active recruiting, most of the companies we spoke to concentrate on the major Japanese trading companies, or sogo shosha, and smaller software houses. However, the sources are becoming more diverse. "Amazingly, even Japanese bureaucrats have been contacting us recently for jobs. They are seeing that things just aren't going to change and are realizing that US companies can offer very competitive opportunities, especially at the high end," says IMCA's Takehara. Another traditional source is universities. The natural preference of almost every recruiter is a Japanese employee who graduated from high school in Japan and from university in the United States. MBAs and MSCs are in particular demand, although the actual university doesn't seem to matter. Among the Japanese universities, Keio is most popular with western companies thanks to programs by Professor Bob Tobin and his colleagues teaching both business and English. Keio sees itself as the "Stanford of Japan" and actively seeks native Japanese to return to study there. Other Japanese universities that are well regarded are Waseda and Hitosubashi, while Todai graduates are seen as already being committed to a government career. New trends One new source of candidates is those employees bailing from newly merged companies, in particular the Compaq/DEC tie-up, which recruiters report is creating a strong flow of qualified candidates. Another source is from larger Japanese companies that are having publicized financial problems, such as ASCII Corp. Of course, with all the negative press about Japan's economy, many people are becoming open to working for a foreign company. But since foreign companies are such an unknown quantity, most Japanese need the prompting of a friend to help them take the next step. Korn Ferry's Stephen Romaine says, "We get lots of referrals from past placements as well as people already in foreign companies whose friends are considering the move." But popularity has a price, again as Romaine notes, "Recently, rather than not having enough candidates we are getting flooded. The number of direct approaches we get these days is almost unmanageable. We are implementing a sophisticated Internet registration and assessment system called FutureStep in the US. It's a great system, and very confidential. But as yet, we are not planning a localized version of the system." "These days people are interested," says Access Technology Japan's Levine. "We had a guy, literally a rocket scientist, who was doing satellite design with Toshiba, move to a small pre-IPO start-up from the US. He was very interested in stock options, and he wanted to help build something from scratch." Another story is about a high-level software engineer who had studied until he was in his mid-30's. A slightly eccentric genius, the candidate was approached by a major Japanese bank and a much smaller US one. As Levine tells the story, "This guy had researched the Japanese bank and turned them down because he thought their position was too risky. He thought the foreign bank was safer. I remember thinking at the time that this must have been the first time in recent history that someone turned down a prestigious Japanese organization for a foreign one on the basis of safety!" What recruiters think you should be paying The going rate for recruiting services is 35% of the first year's remuneration, which includes all base pay and anticipated incentives. Some companies also charge a retainer, particularly for difficult searches at president or country manager level. While the charge to the client is standardized in the industry, the packages that candidates are being offered vary dramatically. This is largely a function of micro-trends in each industry, the industry itself (for example, Finance pays more than everyone else) and the urgency of need. Recruiters quote figures that range from \3.5 to \4 million for an entry-level position and through to \30 million for a senior manager. One thing that is clear is that salaries have come down about 20% from 1997 due to the greater number of candidates in the market. The ideal candidate is typically bilingual, has an MBA or technical degree, has a minimum of three to five years of experience in the industry, and is about 30- to 40-years old (except for the country manager where the average is 40 to 45). Because of the expectations of Japanese customers, most companies are seeking men for senior positions. However, women are finding ready acceptance in marketing and more recently technical sales positions. Figure 2: Composite IT salary table
Note: "N.A." means that that this position is not sufficiently related to the IT business to be included. The consensus is that stock options are highly effective in attracting quality candidates. "Most US companies offer employees a stock option program that this is perceived as a major point of leverage over European competitors who typically do not," Heidrick & Struggles' Meg Ambrose says. The licensing issue After the World War II, the government introduced a highly restrictive licensing system for recruiters that essentially prevented private recruiting and therefore protected the country's core industries from labor disruption. That had the effect of reducing job mobility rates in Japan to one of the lowest in the world. However, with the relaxation of market regulations in the 1980s and the arrival of foreign companies, a gray market of specialists catering to the personnel needs of those companies sprang up. For some years, this group of recruiters was nothing more than a nuisance to the government because the average Japanese would not work for a foreign company. With the recession, however, suddenly foreign companies are becoming highly attractive and mobility in the workforce has become an issue. Reports from the Ministry of Labor are that there will be legislative changes for the entire economy, not just for the foreign sector, which will allow private recruiters to operate more freely. Instead of defining what recruiters can do, which guaranteed that the previous legislation became dated very quickly, the new rules will say what they can't do. But until the new legislation arrives, does the government condone recruiting in the foreign sector or not? And what about the hundreds who don't even bother with licensing? Well it seems the Labor Ministry knows very well that there are a lot of unlicensed operators and that recruiting is happening outside the defined areas. As one source told us, "Several times in the past a competitor has tried to spike our operation by reporting us to the authorities. However, we have been in the industry for some time and are known to be ethical. Therefore, after the obligatory visit from the ministry, the matter was forgotten." Another source told us the story of how he had just introduced a candidate to a client when the recruiter's father unexpectedly passed away in the US. Several months later he returned to Japan only to find out that the client had hired the candidate directly. A court case ensued, during which it came out that the recruiter was not licensed. However, the recruiter won because no action about the licensing was taken. War stories Most recruiting is business as usual, but by the very nature of the business, recruiters do get to see a wide range of humanity resulting in some interesting war stories. Like the IT recruiter who was asked by a client to recruit a whole flight crew of air stewardesses. Or the recruiter who received an application from a chauffeur seeking a derivatives trading position. The chauffeur, who was not a perfect speller, thought he was applying for a position as a driver, not derivatives. James Yellowlees, president of Pacifica Consultants, says, "Some interesting trends are happening in the real estate market right now. Most people don't understand how complicated it is, however. Every piece of land has its twists and turns and, often, there is underworld involvement. Foreign firms try to bring in "experts" who are often shocked at what they have to deal with. These firms need qualified Japanese, or non-Japanese who are fluent in Japanese and familiar with local conditions, to understand the extent of potential problems. They may have to be prepared to deal with strong-arm tactics. Predictably these people are difficult to come by." Ray & Berndtson's Marshall recalls an incident from some years ago. "I had a candidate for president of a major US company's Japanese subsidiary. He came from a Japanese conglomerate, the client loved him, and everything was going great until he announced to his employer that he was leaving. Then things started getting rough. First his boss took his resignation and put it in the drawer, saying, 'We'll pretend we never saw this.' Then his company kept him in the boardroom for 8 hours a day for days on end. They paraded practically everyone in the company that he knew, but he held fast. Then a member of the board called at his house on a Sunday morning asking his wife in full view of the neighbors, Is everything all right at home?' Finally they brought his 70-year-old mother in and had her beg him to stay. At that point he gave in, but we had a last meeting where I made it clear that he couldn't expect the company to trust him after that. He realized I was right and took the job. As far as I know he is still with the new company and doing great." The future The Japanese press has been making some play of the "U-turn" of Japanese who are jumping back into Japanese firms after acquiring expertise in foreign companies. This is a two-edged sword in that it is bringing quality people into foreign companies as a career move. Of course it also means a hemorrhaging of senior talent back to Japanese competitors. "The most exciting thing to happen to us recently is being retained by a major Japanese financial institution to find a CEO for their investment banking operations," says Ray & Berendtson's Marshall. "As far as we know, this is an industry first. It is highly likely that the candidate will come from a foreign company. The door may even be open for foreigners..." Interesting times indeed... Finding a good recruiter Computing Japan polled 12 recruiting companies and asked them who are their strongest competitors. From individual responses we compiled the following list of recruiters and consultants who have strong reputations for quality work. This is not a complete list and we apologize in advance if we have left anyone off. Figure 3: Recruiters Mentioned
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