Relevancy of the Japanese Model of Human Resource Management in the Contemporary Business Environment
By late 1980s, most Japanese firms had gained competitive advantages over their European and American counterparts in related industries (Price 2011). In fact, some observers predicted that the Japanese economy will overtake the US economy as the world’s leading economy by the 21st century. Success in Japanese economy was attributed to its distinct human resource management style also called the Japanese model of management (Price 2011). However, by 1990s, everything changed after the Japanese economy began declining. Consequently, perception about Japanese HRM changed. Since 1990s, many Japanese management practices have been criticized for being unsuitable and outdated for contemporary business.
However, the tendency to perceive Japanese HRM practices as inapplicable in modern business overlooks important changes which have taken place in the Japanese business environment over the last 20 years. In fact, Japanese organizations have responded to the challenging economic circumstances by making significant changes to various existing management practices which are also relevant to the contemporary business (Price 2011). That is, although some of the Japanese management practices might be inapplicable in the modern business, others are up-to-date thus applicable in the contemporary economy. This paper provides such assessment.
HRM Systems in Context
The Japanese model of management originated from the institutional settlements which were established in the country after the World War II (Debroux 2003). In turn, the Japanese business landscape led to various features in the management. Most Japanese management practices emphasized collective over individualist principles and long-term over short-term goals.
The Japanese Business Landscape
Mutual shareholding; Japanese firms have cross shareholding with the firms and banks within the same keirestu (group of firms) and selected suppliers (Debroux 2003). Such management style supported stable growth by preventing interference by outside shareholders. It also assists in diversification or risk sharing. This is one of the effective mechanisms of mutual controls among member firms which are also common among modern firms.
A long-Term Approach
The Japanese model of management emphasizes on the long-term approach as opposed to short-term. According to Baker and Powell (2005), this approach enables firms to improve productivity and expand market share while favoring long-term over short-term gain. Such approach is applicable both to Japanese and contemporary business. Most modern firms prefer short-term gains simply because its (short-term) funds are less expensive than long-term funds. However, from Baker and Powell’s (2005) point of view, other modern firms use long-term funds which assist firms to avoid the increase in short-term interest rates by locking their cost of funds. Whenever firms lock in more long-term funds, such firms protect themselves from risks resulting from credit shutoff either due to the firm’s bad financial conditions or due to general economic condition. In other words, both Japanese and modern firms use the long-term approach because it prevents firms from potential risks.
Japanese model of management requires managers to consider members of keiretsu, suppliers, and employees’ interests, rather than those of shareholders. Such practice provides the context of Japanese firms’ management practices including the three pillars of Japanese HRM; Lifetime employment or the shushin koyo, seniority wages (nenko joretsu), and enterprise unionism (kigyo kumiai) (Baker & Powell 2005). For instance, most Japanese companies recruited their employees (mostly men) only from Japanese universities because they expected that such employees will work for those firms for their (workers) entire career. Such approach is not relevant to today’s economy. This is because firms are subject to labor costs increase as employees grow old and that such employees are not able to adjust to the developing modern technology.
Under the current challenges brought by changing technology, firms cannot survive by recruiting only one gender (male) or only graduates. Although firms still prefer conducting mass recruitment from higher learning institutions, such people are mostly trained as non-regular and mid-career workers. As opposed to Japanese firms, most firms in the modern business are seeking mid-career and non-regular workers from both gender those who have readymade abilities and skills to enable the firms minimize training costs and counter challenges resulting from the rapidly changing technology (Baker & Powell 2005). Therefore, lifetime employment approach is not applicable to modern business.
Seniority wages, promotion, and reward practices; such practices in Japanese firms were tied to lifetime employment program (Baker & Powell 2005). The practice is irrelevant in the contemporary business because of the ever increasing competition and domestic market. This explains why most firms in modern business prefer appointing part-time or non-regular workers. According to Baker and Powell (2005), most employers have realized that, the seniority-based wage approach is unsuitable thereby making such approach irrelevant in modern business.
However, it is worthy noting that, large Japanese firms have also encountered challenges resulting from the increasing competition thus they are engaged in cost-cutting practices. Some observers argue that, the increasing competition in global and domestic market has made it challenging for Japanese to sustain the seniority-based wages (Baker & Powell 2005). Nonetheless, this practice was only common to a few leading firms. Therefore, just like firms in contemporary business, most Japanese companies currently do not use the seniority-based wages system.
Enterprise unionism; all employees except the HR manager were represented by a single union (Lawler & Hundley 2008). Moreover, the union related well with management to avoid interrupting the firms’ operations. According to Lawler and Hundley (2008), unions within Japanese firms created strong ties between employees and the firm, motivated employees to compete for promotions which determined the distribution of wages, and contributed to employee commitment. Such roles of unions are not applicable in modern firms unions. As opposed to Japanese labor unions, unions in the modern business promote legislations affecting wages and working conditions (Lawler & Hundley 2008). In most cases, unions in contemporary business lead demonstrations against the firm thereby negatively affecting the operations. Therefore, employee unions in Japanese model of management promoted cooperation, unions in modern business involve in constant conflicts.
Contingencies for Success
However, the success of employment and organizational approaches depended on various factors including the company-specific skills. In most cases, employees’ skills were suited to the incremental innovations which enabled Japanese corporate to perform better than foreign competitors (Lawler & Hundley 2008). However, firm-specific skills are not suitable for modern firms because they (modern firms) experience knowledge intensive and fast-changing technologies. In contemporary business, specialists acknowledge creative ideas or knowledge which does not depend on the length of training within a firm, but are important drivers of the firms’ competitive strength (Lawler & Hundley 2008). Long-term firm-specific skill development might prevent flexible and swift response to new opportunities. Although training employees on skills which are specific for a particular firm is critical for modern firms, factors such as increased competition and aging of the population have reduced the efficiency of the Japanese HRM practices.
Changes in Employment Practices and Employment
To properly assess the relevancy of Japanese HRM practices in the contemporary economy, it is also important to consider some of the changes which have taken place in Japanese work life and economy. There are three major developments which have occurred on employment and employment practices. These include the rise in non-regular employment, introduction of performance-related pay, and increase in off-shoring of the production processes to South East and to China in mid-1990s.
The Increase in Non-regular Employment
Survey shows that the share of non-regular employment in Japan has increased from 20 % in mid-1990s to about 35 % over the last five years (Anami & Komiya 2011). The common types of non-regular employment in Japan are part-time, and arubaito, various groups with fixed-term contracts, and agency workers. Full-time workers in Japan work for 35 hours per week. Similarly, full-time employees work for between 35 and 40 hours per week in the modern economy (Stewart, 2011). The rise in non-regular employment in Japan has resulted from the shift in manufacturing to service industries has. Therefore, the Japanese HRM practices have changed over time thus becoming relevant to modern economy.
Introduction of Performance-related pay
Most firms in Japan faced challenging economic conditions in the 1990s and 2000s. Such conditions forced most of them to introduce performance-rated pay from 1999 to strengthen their efficiency (Anami & Komiya 2011). Similarly, most firms in the modern economy evaluate their employees based on the performance and ability implying that employee assessment practices used in Japan economy are relevant in the modern business.
Off-Shoring
The third development in Japanese management practice is off-shoring. From 1990s to 2000s, Japanese international organizations moved parts of their production out of the country partly in search of the market and the need to shift Japan behind any tariff barriers which might be developed by the European Union (EU) or any other union (Anami & Komiya 2011). However, to some areas the move was motivated by low wages, and plentiful labor among other benefits. In other words, just like majority of firms in the modern economy, Japanese global companies moved from being export-based to being global coordinators of production.
In conclusion, the common perception is that, the Japanese HRM practices (Japanese model of management) do not constitute a relevant model in a contemporary business environment. That is partly due to practices such as firm-specific skills, recruitment from a particular gender, seniority-based wages, and lifetime employment among other management practices. However, decline in economic growth lead to various structure developments similar to those adapted in the modern business environment. Such developments include performance-related pay and non-regular employment among other changes. These management practices can be applied in the contemporary business.
Bibliography
Anami, T., & Komiya, F. (2011). Labour law in Japan. The Netherlands, Kluwer Law International, Alphen aan den Rijn.
Baker, H. K., & Powell, G. E. (2005). Understanding Financial Management a Practical Guide. Blackwell Pub, Oxford.
Debroux, P. (2003). Human resource management in Japan: changes and uncertainties; a new human resource management system fitting to the global economy. Ashgate, Aldershot [u.a.].
Lawler, J. J., & Hundley, G. S. (2008). The global diffusion of human resource practices: institutional and cultural limits. Emerald JAI, Bingley, UK.
Price, A. (2011). Human resource management. Cengage Learning EMEA, Andover.
Stewart, A. (2011). Stewart’s guide to employment law. Federation Press, Annandale, N.S.W.
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