"Nearshoring" – Japan's Next Trend in HR Efficiency?

In May, The Chapman Consulting Group co-hosted a total of four networking meetings for our community of HR and Talent Leaders in Tokyo. The meetings were kindly hosted at the Japan Headquarters of Google, Citrix, Marsh and Ralph Lauren.

In each of these groups, the Leaders discussed ways in which the gathering and reporting of data is changing the way that Japan HR Heads are able to analyse business metrics, as well as improving the way in which people and talent are managed in multinational organisations. Discussions focused on the advent of ‘big data,’ but also covered other general uses of advanced processes and systems.

By far the most interesting discussion point raised was the advent of ‘nearshoring,’ sometimes referred to as ‘near-sourcing.’ Until now, the trend has been ‘offshoring’ or ‘hubbing’ particular HR tasks and specialisations to lower-cost locations outside of Japan, such as China, the Philippines, India or Malaysia. Naturally this was not solely for the benefit of Japan — with regionalisation, many companies are looking to create efficiencies by handling tasks across Asia Pacific from one regional Centre of Excellence, thereby reducing headcount in high-cost locations such as Japan.

However, Japan doesn’t always fit into these models. For many matters, Japanese language skills are required, and it can be very difficult to hire native-level Japanese speakers in some of these locations, particularly where other competitor companies are fighting over the same small pool of talent. Even when Japanese language skills are not required, there is a great cultural bias in Japan towards expecting 100% accuracy in all matters and at all times. Of course it is almost impossible for offshored functions to reach these expectations, and as a result, Japan is often cast in the role of the ‘difficult customer.’

Some creative companies are opting for a new strategy — rather than offshoring these functions, why not ‘nearshore’ them in a hub within Japan, but in a low-cost location away from the main cities of Tokyo, Osaka and Nagoya? By positioning certain operations in less urban locations such as Kyushu, Chugoku, Shikoku, Hokkaido or Okinawa, companies can tap into a much more cost-effective pool of native-level Japanese speaking talent. Indeed, the business case for this gets stronger as the salaries in so-called ‘low cost’ locations, such as China, get higher and higher.

This trend is still relatively new, and early adopters have experienced some difficulties in finding the right level of talent in these 2nd and 3rd tier locations in Japan. Nevertheless, the costs involved in training up and retaining a local workforce are a small price to pay when compared with the attrition rates that we see in other hot talent locations in Asia. In these ‘new’ locations, employee turnover rates remain relatively low, and salary inflation relatively flat, so it becomes a much more predictable and sustainable solution to invest in a five year strategy in Japan, rather than trying to do the same in China, only to readjust budgets every year because of unexpected increases in annual costs.

So, when you next find yourself assessing how to reduce HR costs in Japan, why not think about…. Japan?

Here’s what people are saying…

“It was great to see evidence of the cultural shift from data extraction to business analytics across industries.” – Tatiana Kotrusova, IBM

“The HR roundtable is evolving year by year with HR experts from various fields, and the meeting today was very informative and valuable.” – Kazumi Kitazumi, Perkin Elmer

“I knew ‘big data’ analysis as a business language, but I was extremely excited about the potential application to the HR area. It was a really insightful and inspiring session.” – Keisuke Suzuki, Philip Morris

“I had a two-part great takeaway from this meeting: the need to be vigilant against ‘big data’ requests or strategies from HQ that might not reflect reality on the ground in the regions; but also the opportunity to get ahead of HQ’s curve and back up one’s strategies with hard data–before we get asked!”– Michael J. Case, Salesforce.com

“It was a great gathering, and it was good to see how other companies are using data to influence, strategise, and partner with their business. I am looking forward to the next event.” – Evan Yamasaki, State Street