What makes hiring in Japan so challenging?

Clareza Partners | Article

Summary: Many global companies struggle in hiring experienced high-performing talent for their key positions. This is mainly due to limited number of talent in the job market who have the skills and experience global companies typically require. To overcome such challenges, companies should stop looking for unicorns and look beyond permanent hire.

If you are a global company facing difficulties in hiring an experienced high-performing talent in Japan, you are not alone.

Although the Japanese economy is said to have been stagnant for the past several decades, with the world's third largest GDP and a population of over 120 million people as of 2023, Japan still remains to be one of the most important markets for many industries. However, not a few global companies have failed to enter or expand their business in the Japanese market, with one of the main reasons being the difficulties in recruiting high-quality, or even qualified, talent.

What makes hiring in Japan so challenging?

One of the reasons is that very few people are fluent in English. While figures vary by survey, approximately 90% of population in Japan does not speak English. According to a survey by local research firm, only 2.2% of workers are capable of using English for business. Japan is ranked #80 among 111 countries in 2022 EF English Proficiency Index, with a continuing downward trend from #30 of 70 in 2015, and #53 of 100 in 2019. Since global companies usually require English fluency for their key positions, they will inevitably have to seek for talent from a significantly smaller pool. This becomes even more challenging if the company is looking for talent who has a specialized niche skill.

Another reason is the culture and mentality of lifetime employment. Although the need for change has been voiced for years, the practice of joining a company as a new graduate and staying in the same company until retirement, is still widely prevalent in the market. Traditional Japanese firms offer employment stability, and HR programs and practices such as promotion, paid leaves, and pension plans are typically designed to favor employees with longer years of service. As a result, Japanese workers are averse to the risk of changing their employer, especially once they have stayed in a firm for more than 10 years.

According to a survey by the government, 54% of workers never changed jobs in their career. In addition, 3 out of 4 workers who have changed jobs are below age 35. This means that workers over age 35 rarely change jobs, making it difficult for companies to hire experienced talent in the labor market.

The challenge is not only about finding a candidate for the position, but also the financial burden of hiring. Recruitment agency fees in Japan is typically 30%-40% of annual pay, and it could cost more in the case of talent with high-demand skills. This is expensive compared to other countries where the norm is usually in the range of 15%-25%. Such high cost of recruitment, combined with the difficulties of conducting redundancy when the candidate they hired was not a good fit, natually discourage companies from making offers to candidates who they don't necessarily feel are ideal. As a result, companies continue to search within the limited talent pool, hoping to find someone they can be more confident in making an offer.

What could companies do to overcome these challenges?

The first thing they can do is to stop looking for unicorns. Companies need to recognize that the size of talent pool is much smaller than they think, and aim to find the best talent in the pool instead of looking for an ideal candidate. In doing so, it would be helpful to identify what skills and competencies are essential for the position. Generally speaking, competencies related to personality and values (e.g. leadership), as well as language / communication skills tend to take longer time to acquire compared to technical skills such as industry knowledge. Companies may decide to develop such technical skills after employment.

Another approach companies should consider is to look beyond permanent hire. As described in our article Why Interim Talent is a win-win for employers and workers, the COVID-19 pandemic has led an increasing number of people with skills and experience of high market value, to reevaluate what they want from work and from life, creating a large pool of workers willing to work in a more flexible manner. Companies can access such talented workers by hiring them as Interim Talent, and once they spend a few months in interim roles, some may actually decide to stay on as permanent employees if they are given an offer.

In many industries, talent is key in determining a company's competitiveness. Given the uniqueness of language, culture, and business practices in Japan, recruiting local talent for key positions is a fundamental factor for companies to succeed in the Japanese market. If you are a global company facing difficulties in hiring an experienced high-performing talent in Japan, it may be time to consider a different approach.

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