Culture shock

Digging in for the long term

JAPANESE firms were among the first to open factories in China. Deng Xiaoping personally petitioned Sony's boss, Akio Morita, a few weeks after opening the Chinese economy 30 years ago, in a secret meeting arranged by Henry Kissinger. But having at first helped to develop a poor China, Japanese manufacturers now struggle to operate in a wealthier one.

A series of labour disputes in recent weeks has shut down numerous Japanese factories and disrupted production. Among the victims are Toyota and Honda, hit by a shortage of parts because of stoppages at suppliers. Mitsumi Electric resumed production on July 3rd after a strike affected its electronic-parts factory. Subsidiaries of Nippon Sheet Glass and others have also faced unrest. In 2005 companies suffered anti-Japanese rioting over historical grievances; today the issues are pay and working conditions.

Companies from all countries have difficulties managing their Chinese workforces, as indeed do Chinese companies themselves. Wages have been rising at 10-15% annually, but recently workers have begun to demand even heftier increases. The labour-market troubles are an aspect of China's shift from being the world's workshop to its shopping mall: as employees demand and get higher incomes, the country's attractiveness as a manufacturing base ebbs but its appeal as a consumer market grows.

Yet the unrest affects Japanese firms in particular because of the increasing technical sophistication of Chinese manufacturing, and Japanese firms' insular management practices. In the past Japanese firms used their Chinese factories for inexpensive parts or labour-intensive assembly. But in recent years they have taken on higher-value work, which demands more skilled staff—and more pay. However, since 2008 wages at Japanese-owned factories in China have lagged those in other foreign-owned ones, notes Nobuko Sanui of Keidanren, Japan's business lobby.

What's more, the Japanese management style is in some ways poorly suited to working with a Chinese labour force. Japanese firms tend to export their business practices along with their executives, to disastrous effect. Japanese firms rely on employee loyalty, docility and sacrifice—rarities in some other work cultures, especially modern China's. Their just-in-time production system is amazingly efficient but leaves them vulnerable to disruption. Japanese firms have tried to be as penny-pinching on pay in their foreign operations as they have at home.

Chinese staff presume that a manager is empowered to make decisions and can do so quickly. But in reality, Japanese executives have little autonomy and must wait for orders from Tokyo, which are usually slow in coming because of Japan's consensus-based decision-making. As a result, Japanese subsidiaries in China have trouble preventing small disputes from escalating, explains Mineo Tominaga of Japan Management Association Consultants—as the troubles of Japan's carmakers show.

Companies are responding in three ways. One is to increase pay. Honda has mollified strikers with raises of up to 24%. The second is to change their management practices, in particular to promote local managers. Komatsu, which makes heavy equipment, intends to have Chinese managers lead all 16 of its local subsidiaries by 2012, from only one today. Third, firms with labour-intensive work have been shifting it to cheaper Asian countries like Vietnam, Thailand and Cambodia. Uniqlo, a clothier, plans to reduce its proportion of Chinese-made garments from 90% to 65% in the next three to five years.

Japanese bosses say they are not put off by the recent troubles: they are used to strikes and big pay demands by now; and at least the Chinese market for their products is still growing strongly, whereas Japan's is shrinking. China is now Japan's largest trading partner, accounting for almost a quarter of its exports. This makes it worthwhile persevering despite all the labour troubles, and making more of an effort to adapt to local customs.