IMD: Skill shortages in Japan

Shinzo Abe

Shinzo Abe, Premierminister Japan.

Lausanne – Recent findings from IMD’s 2013 World Competitiveness Yearbook (WCY) reveal dramatic gaps in Japan’s educational system and business needs.

By IMD Research Fellow Suzanne Rosselet

Out of 60 economies worldwide, Japan is ranked 35th for “an educational system that meets the needs of a competitive economy”, 52nd for its university education, and 49th for its management education. The particularly low ranking for higher education places Japan as the only developed nation in a group of countries consisting of Ukraine, Argentina, China and Venezuela. Digging deeper into the data reveals yet more telling stories: Japan ranks third to last for language skills, second to last for English proficiency, and 52nd for the number of Japanese students studying abroad. Historically known for its conservative rote learning and old-school memorization, the Japanese educational system is not preparing students for today’s global knowledge economy in which an innovative and open mindset is increasingly essential.

The government’s “Abenomics” policies, named after current Prime Minister Shinzo Abe, have focused primarily on aggressive monetary easing and a fiscal stimulus package aimed at reversing nearly two decades of economic stagnation and deflation. But these are only two of the three major policies, called “arrows” by Mr. Abe, to revive the sluggish economy. The third arrow targets long-term economic performance and national competitiveness via structural reforms to sustain economic growth. Key components of this “growth strategy” include closing the gender gap, fostering global talents, and reforming the labor market to introduce greater flexibility in hiring and firing practices. This brief article will focus on the first two of these.

The female brain drain
The participation of Japanese women in the workplace is a dismally low 42%. This helps explain the wide gender gap that keeps women out of top corporate positions (there are only 1.3% of women on corporate boards in Japan) and leading government roles (women occupy a paltry 13.4% of seats in Japan’s parliament). The major causes include cultural stereotypes, lack of child-care facilities, discriminatory tax laws, pay discrimination and a dearth of role models. These “lost working women” come at a high price for the Japanese economy, where many highly educated women opt out of work after getting married or having children. There are also costs for society, which is aging fast and has one of the lowest fertility rates in the world (1.41) with a record decline of births last year. All this is spurring the Japanese government to take initiatives to stop the female brain drain, such as encouraging businesses to hire and retain women, promote maternity leave and provide child-care facilities.

Seeking globally-minded managers
One step toward developing more global talent in Japan would be to transform university education by adopting higher international standards. According to the Shanghai 2013 Academic Ranking of World Universities (ARWU), no Japanese universities rank in the top 20, although two, the University of Tokyo (21st) and Kyoto University (26th), are just outside. With a low emphasis on creativity and innovation in the classroom, and rigid language and cultural barriers, Japanese companies are finding it hard to hire local managers who have the necessary skills to compete in international markets. Facing weak economic growth and domestic demand, companies have no choice but to “go global” and diversify into foreign markets. But the growing shortage of competent senior executives will hold Japanese companies back from successful internationalization. Again, the data is telling: Japan is the only developed nation in the 2013 WCY that ranks near the bottom (51st out of 60) for “the availability of competent senior managers.”

At the same time, strict immigration laws and the integration challenges facing foreign expatriates put the onus on developing local skills. The best solution would be to nurture local talent and cast a wider recruitment net to include more women. However, nurturing talent doesn’t only start at an early age but includes life-long learning that spans international exchanges, language skills and acceptance of cultural diversity. Japan performs poorly in each of these areas, especially for the “international experience of senior managers”, for which the country ranks third to last in the 2013 WCY.

Developing the global mindset of local executives can be achieved in a variety of ways:

  • Partnerships and exchanges with foreign companies to accelerate the two-way transfer of knowledge and management practices.
  • Experiencing a multi-cultural learning environment through international executive education programs.
  • Revising corporate remuneration policies to encourage managers to accept positions abroad.
  • Reforming universities to develop more global talents and encouraging cultural exchange programs.
  • Encouraging English proficiency (among other languages) in the school system and corporate world.
  • Opening up the corporate sector to more global competition and appointing foreign executives to top management positions.

Given Japan’s cutting-edge technologies and strong emphasis on business R&D, it’s a shame not to see this prowess being accompanied by similar managerial excellence. Without a global mindset and intimate knowledge of foreign markets, Japanese companies may find that their “go-global strategy” is doomed to disappoint. Being a Japanese company in Japan is one thing, but succeeding abroad requires a host of soft skills and diversity that define the global leaders of the future. (IMD/mc/hfu)

Dr. Suzanne Rosselet
is a Research Fellow at IMD specialized in world competitiveness. She holds a degree in economics from Stanford University and previously served as Deputy Director of IMD’s World Competitiveness Center.

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