Choosing a Representative in Japan: Expat or Local Hire?
As the Japanese energy market evolves, we’re seeing an increase in the number of multinational firms investing in the country, and setting up a local entity and creating a direct presence. Making a move to set up a local office is a big decision, and shows commitment and intent to be active long-term.
Companies need to find the right balance between engagement with local stakeholders and alignment with plans set by global HQ that has made this decision and investment. This often leads to a challenging conundrum on whether to send an expat to Japan or hire a local as the in-country director or representative.
Factors to keep in mind
Some high-level pros and cons for taking the expat route:
Pros:
- A known voice is reporting back to HQ, speaks the internal language and understands how to navigate the company, gain approvals and investment, etc.
- Bringing a true expert from an advanced market can be attractive for business partners, and also for purposes of talent attraction.
- As a non-Japanese, there’s more room to bend the rules and take a different approach to the business.
Cons:
- Language and cultural barriers. Since Japan is a highly homogenous country, even an expat with a high level of language and cultural understanding will be seen as an outsider.
- Communication gaps with business partners, and failure to ‘read the air’ in Japanese business can render the company to be a second choice, and then face a struggle to penetrate the market.
- Risk of creating an image of a lack of commitment to Japan’s market.
On the surface it seems companies that prioritize internal communication and alignment would take an expat route, while those who put local partnerships at the forefront of their wishlist would invest in a local hire. However, the situation is often more complex.
Maturity of your specific market
The Japanese energy industry has historically learnt from overseas markets and then adapted to its own needs. Post-Fukushima (March 2011) the country has leaned heavily on European players for the solar boom; the liberalization of the power retail business was modeled closely on the UK market; and offshore wind is currently looking to leverage European expertise, etc. This can lead to a window of opportunity for a foreign firm to bring new value to the market. However, once the business becomes localized, Japanese firms will hold a clear advantage.
A good example is the solar business. At the start of the FIT era, European firms flooded the market and created a value chain largely outside of Japanese circles. Foreign developers built projects with foreign EPCs, financed by overseas investors. Once Japanese firms gained experience in structuring finance for MW-sized solar projects, and gained the necessary engineering expertise, they became increasingly competitive.
Currently, with a proven, de-risked business model, large Japanese firms with access to powerful offtakers and abundant cheap capital have a stronger business plan and value proposition than many of the foreign players that were dominant before.
On the other hand, areas where business models are not yet proven and not yet derisked will see a high level of interest for Japanese companies to partner with and learn from foreign players from more mature markets. The BESS (Battery Energy Storage) space is a good example of this.
The current Japanese market is heavily dependent on subsidies from METI. Local players are typically developing small (<2MW) projects, both to learn how to monetize and operate this asset class, and also because Japanese banks are not willing to provide project financing since they also lack an understanding of how to scrutinize and de-risk such projects.
Simply put, bringing experts from overseas holds higher value in immature markets. However, it’s also important to ensure that this person holds genuine, valuable market knowledge that will be seen as a strategic asset by local industry partners.
Image of commitment: are you coming or going?
As we’ve written in this column previously, the Japanese tend to value stability; whether this be for a consortium partner, a technology vendor, or an employer. Seeing a clear, long term vision for the local business and commitment is key to winning business and talent here.
The message to the market is very different based on the timing of when a company decides to put an expat in the top position at the local firm.
Sending an expat from Day 1, with a newly established entity is fine, providing that two clear criteria are met. Firstly, that person brings real experience and value to the market. Secondly, this person is seen as a temporary solution: their mission is to hire a local Japanese leadership team to develop a succession pipeline and thus take over the role once their expatriate assignment is over.
Successfully making this transition to a local hire after the first expat sends a message to the market that the company has gained a strong foothold, has identified clear growth potential and is comfortable in giving autonomy to the local entity.
On the other hand, assigning an expat to the role that was previously occupied by a local leader sends a message that HQ has serious questions about the local market, and are considering whether to continue investing or start making an exit. We can already see examples of this in the offshore wind sector as subsequent bid rounds increase in competitiveness, in supply chain complexity and material costs increase.
Representative or other key leadership position?
Consider also the vertical hierarchy of Japanese corporations. In a meeting with multiple stakeholders, business cards are exchanged, and a hierarchy of who is who – and who should be talking to whom – is established very quickly. This is reflected in the seating arrangements and meeting flow. If your business is reliant on close partnerships with local Japanese companies, then having a local hire as country representative can ensure smooth communication and trust.
Sending an expatriate in another key role – Project Director, Technical Director, Commercial Manager, etc – allows HQ to have their own person with home market values in place without trading this in for a show of commitment to the local market.
Key points when looking at hiring a local representative:
- Agility. Many Japanese leaders come from large, well-structured organizations with clear processes and manners of doing business. Test to see how many different environments your prospective leader has been in, and how quickly they’ve adapted. Even those who worked for one company their whole career may have gained agility via secondments and overseas assignments.
- Decision-making ability. Beware of decision-making by consensus and distributed accountability. Screen for risks taken, examples of your candidate making a decision against the majority, starting a new initiative on the side, etc.
- Managing up. A ‘yes man’ is only acceptable when business is good enough not to see their flaws. During your interview process, challenge your candidate to criticize your firm; and to come up with a Japan-specific strategy that includes pitching to you regarding the investment that they’ll need from HQ in order to achieve their goals.
Andrew Statter is Partner and Head of Titan GreenTech, a Tokyo-based human capital and executive search firm with a focus on renewable energy and clean technology markets. Titan supports global companies with Japan market entry, as well as scale-up and key hiring.
This article originally appeared in a Japan NRG Weekly report. Japan NRG is a one-stop platform that delivers both intelligence and analysis on energy and electricity markets in Japan.
