[ Nippon Keidanren ] [ Policy ]

Summary of Position Paper 2004
on Management and Human Resources

Creating Higher Added Value, Utilizing Diverse Human Resources

- Employers' Sense of Duty and Aspirations are the Key -

December 2003

Committee on Management and Labor Policy
Nippon Keidanren
(Japan Business Federation)


The need to respond to the wrenching changes in business environment, including the globalization of economic activity, has been forcing socioeconomic reform in Japan, which the public and private sectors have attempted to carry out even though the economy is still suffering the aftereffects of the bubble economy's collapse. What we need most today is to shift from passive to proactive reform: further steps must be taken to generate new demand and create new industries and jobs. Even issues like demographic change or environmental problems should be seen as business opportunities. Possibilities for solutions will emerge if we take an active approach by creating new industries.

We should become a true trading nation. Japan's postwar recovery and economic growth were built on exports, as the country adopted and refined materials and technologies from abroad and used these to manufacture goods for export. As a trading nation, we should not stop there; now it is our turn to put our capital and the technologies we developed to use elsewhere, to manufacture goods not just in Japan but all over the world. We can thus contribute to global wealth creation; at the same time, earned profits returned to Japan will finish the capital for developing further innovations. To that end, people with different values and ideas, working together, can generate original ideas. This means not only nurturing different kinds of people at home but also welcoming others from elsewhere, and having everyone work together productively. That is the new human resources strategy needed by enterprises and by the country.

The funds from which enterprises pay wages come from the added value they have created. In other words, companies practicing value-added management pay their employees wages commensurate to their contributions and generate appropriate profits. Devising and implementing a strategy for boosting added value, to ensure the enterprise's survival and prosperity, is a matter of strong interest to labor and management alike. We hope that issues like this will be discussed constructively in the upcoming spring wage negotiations.

Part 1 Corporate Management

1. The Business Climate

The Japanese economy has recently shown encouraging signs. However, deflation, marked by a continuing drop in price levels, is still with us. With prices falling, corporate sales and profits drop in nominal terms. Unless enterprises can post higher sales increases, generate more profits or boost productivity, they have no choice but to cut jobs or pay lower wages. With the continuing deflationary trend of the economic environment, all industries and enterprises must strive to boost added value.

In future, Japan should aim to become a trading nation. In other words, we should invest capital and technology abroad, to further expand the cycle of contributing to global wealth creation and at the same time repatriating earned profits to furnish the assets for developing further innovations. To become a true trading nation we must actively participate in free trade, by not simply concentrating on exports but buying more from abroad and promoting more direct investment by Japan abroad and by foreign interests within Japan.

2. Strengthening International Competitiveness

Notwithstanding deflation, many companies are making steady progress. Some traits they share in common are that they continue making their operations more efficient by cutting costs, and that they have a good idea of customer needs and come up with creative goods and services in timely fashion. Enterprises that can do this on a global scale are successes. Given the progress made in information technology, this is a goal that any company, regardless of size, can aim for, and enterprises should work hard to make it a reality.

In order to survive in the age of economic globalization, Japan must become more open and use domestic and foreign resources - in the form of people, goods, capital and information - to revitalize the domestic economy and produce industries and enterprises that can hold their own in the international marketplace. Promoting internationalization from within will help make Japan more competitive globally.

Japanese industries, not only in manufacturing but also in intellectual property fields and service industries, must become more competitive to promote globalization at home. The key to this lies in technologists and white-collar workers. A technologist is defined as "a worker who applies creativity by combining knowledge and technology." Technologists are the source of industrial countries' competitiveness. Employers must nurture technologists and create a new management framework under which their abilities can be used productively. The spread of information technology has generated profound changes in the white-collar workplace. White-collar workers are now expected to concentrate on creating value or drawing up plans to do so. Management must improve white-collar productivity and create organizational structures that will yield greater results. Review of policy measures such as the system of labor laws will be necessary, as will the change in the mindset and attitudes of employers toward this type of work.

Small and medium-size enterprises must play a major role in revitalizing the economy. Their most pressing problems are difficulty in obtaining capital and personnel. SMEs needing to reform their management from the viewpoint of human resources and funding should be offered better support measures and advisory services. As far as capital is concerned, lending services to SMEs by private sector financial concerns should be strengthened and the government should enact policies supporting the efforts of the private sector in this direction. SMEs should make their own efforts to secure the personnel they need, but we believe one of the reasons they have so much difficulty hiring employees, and especially new school graduates, is students' lack of information and knowledge about working conditions there. Internships would be a good way of familiarizing young people with working in an SME. Furthermore, it would be useful to have a nationwide framework for local governments or others to introduce specialists in finance or technology as advisors to SMEs. In improving competitiveness, they should make better use of the resources they already have, through alliances with other companies or industries.

In order to revitalize local economies, the special structural reform zone system and support for industry clusters should be used to emphasize regional areas' strengths and special features, and help form new businesses and attract more enterprises and human resources there. It is also important to further promote closer cooperation between industry and local universities. In October 2003, the government created a regional revitalization council headed by the prime minister, whose basic concept calls for regional areas to think and act for themselves, with the government providing support for their ideas and actions. Local economies, and particularly local enterprises, should see this as a major opportunity and become actively involved to revitalize economic activity.

Part 2 Employment, Human Resources Development, Labor Relations

1. Creating and Expanding Employment

Employment-related indexes remain stagnant. Jobs are one of the major reasons why workers and the general public are worried about the future; eliminating this worry is key to full-fledged economic recovery. To allay concerns about employment, new jobs must be produced through the creation of new industries. Economic growth has tapered off, the birthrate is falling and the population is aging. In the future, the greatest prospects for employment maintenance and expansion in domestic industry will lie in service-related areas, for example personal or business services. Many new jobs are expected to be created in these fields, and even more could materialize if regulatory reform were effected.

The rapid increase in unemployment or casual employment of young workers is starting to have a profound impact on the economy. Employment measures for young people should pay due attention to providing opportunities for appropriate career development and training of human resources for the future. School education and job training are closely connected with human resources training for young people; administrative and education authorities and enterprises should work together in locally-based employment-related operations such as job referral, employment counseling and vocational training, and institute measures to make internships an integral and effective part of overall education.

2. Personnel Administration Promoting Diversity in Employment

The principal aim of corporate personnel administration in the 21st century will be to create diverse and highly adaptable structures. The growing diversity of hiring and employment types will be important not just for creating and expanding employment and efficient management of labor costs, but also for building creative organizations for the sake of enterprises' survival and growth.

The Japan Business Federation has consistently advocated deregulation of the labor market, in order to promote diversity of employment types. Regulation in this area has been gradually loosened, and the Labor Standards Law, the Worker Dispatching Law and the Employment Stabilization Law were revised during 2003. The changes made to these laws are intended to allow the labor market to function more smoothly, but further deregulation is needed.

Diversity should be encouraged as a way of coping with the shrinking labor force. Employers must make renewed efforts to offer diverse employment alternatives meeting the varied needs of working people and tap the labor of young people, women, seniors, persons with disabilities and non-Japanese.

Enterprises will need a management strategy that will allow them to remain competitive in global markets by generating dynamism and enhancing access to markets through attracting a diverse labor force. The basis for this approach is a strategy for taking advantage of diversity. Enterprise competitiveness will increasingly be determined by the quality and capabilities of each company's work force. With an eye on changes in the labor market from now on, management and labor in individual enterprises should make more vigorous efforts to fine-tune their own employment portfolios.

3. Wage Issues

In a deflationary climate, enterprises must manage total labor costs based on value-added productivity more carefully than ever before. Labor's share must be managed appropriately by labor and management. In other words, the labor cost increase rate must be kept within the range of the rate of increase of value-added productivity; otherwise, labor's share will increase. If the value-added productivity increase rate falls into the negative range, enterprises must be prepared to cut labor costs. Maintaining and creating employment remains the most important issue for labor and management, and that is another reason why labor cost levels must be managed appropriately.

In order to maintain employees' morale and boost the enterprise's overall productivity, wage system reforms are necessary. For example, shift rigid labor cost administration to labor costs reflecting performance; adjust wage levels, which are high by international standards, to more appropriate levels allowing enterprises to remain competitive internationally; change from a seniority-based wage system to one that rewards ability, results and degree of contribution to the enterprise; or adopt a multi-track pay system to replace uniform wage administration. In particular, multi-track systems based on work and role characteristics that are the most appropriate for specific companies' business and organizational structures will probably become the dominant wage systems.

4. Human Resources Development

At the primary and secondary levels, children should acquire scholastic ability that will serve as the foundation for future studies and be taught the basic social rules of morality, responsibility and independence. At the university and graduate school level, students should be trained, based on what they have learned at the primary and secondary stages, to develop specialized abilities and personal qualities enabling them to contribute to society.

Corporate employees must develop sophisticate judgment and problem-solving skills based on a broader perspective than before. Young people who will lead society in the future, especially, should be able not only to make a decisions about and solve assigned problems, they also need the creativity and reformist approach to create new business models that take an 'outside the box' approach, and early opportunities to test themselves. Along with basic training and improved practical training consisting mainly of OJT , enterprises need to provide a variety of training support measures focusing on individual employees' abilities and aptitudes.

5. Toward a Sustainable Social Security System

A grand design is needed to allow overall social security reforms to be carried out as a package, along with fundamental fiscal and taxation system reform. Some functions of the existing social security systems overlap, calling for thorough rationalization. Meanwhile, to foster greater public understanding, individuals should be informed of the benefits they can expect and the contributions they must bear. Clarifying the functions of the public system will encourage citizens to set their own goals for self-help.

6. Labor-Management Relations

The issues to be negotiated and discussed at the upcoming labor talks will continue to center on the survival of enterprises and maintenance of employment, which will be discussed in depth. The primary topic of discussion for management and labor will be thorough control of total labor costs in accordance with individual enterprises' value-added productivity. Another matter up for discussion is bringing wages to appropriate levels and moving away from seniority-based pay. A third matter to be discussed is a shift to multi-track wage administration based on employees' work or roles. The disadvantages inherent in wages linked to personal characteristics such as age or length of service should be eliminated to make the most of a diverse labor force, improve worker motivation and boost productivity. New wage systems based on ability, performance and degree of contribution are needed.

Accordingly, uniform base wage increases are out of the question, and management and labor may also discuss revising wage systems, by eliminating salary components based on personal characteristics, abolishing or cutting back on the annual increment system, and even lowering base wages. Sharing of the fruits of short-term performance improvements should be done by paying employees bonuses.

In today's rapidly changing business environment, it is important to maintain and further develop a positive labor-management climate centering on relations between the two sides in individual enterprises. From now on, management and labor in individual enterprises must work together to raise productivity and effect various changes for the sake of the company's survival. In that sense, labor relations in individual enterprises will become even more important regardless of whether the enterprise in question has a labor union, and the two sides should hold discussions on a broad range of issues, covering changes in the business environment and management issues. Spring labor talks should be transformed into consultations where management and labor discuss measures to ensure corporate survival and improve competitiveness.

Part 3 Employers in the Future

1. Corporate Management

Equal in importance to strengthening international competitiveness is the need for enterprises to adhere to corporate ethics. Corporate acts running against the spirit of compliance are a major risk for enterprises. All enterprises should be aware that careful observance of corporate ethics indicates respect for social responsibility and is part of risk management at the same time.

A series of unprecedented industrial accidents occurred over the past year in particular. For enterprises these accidents are not merely a matter of safety lapses or failure to observe regulations. In fact, they should be a warning to employers that workers' ability and experience in the field are declining. The situation demands a change of attitude on the part of senior management, without which no fundamental solution can be found.

2. The Duty and Role of Employers

Management and labor are a stabilizing force in society. Dialogue and cooperation between the two sides, at the enterprise, industry, regional and national center level, play an important role in ensuring economic and social stability, and also contribute to building new labor-management relations. "Dynamism and creativity born from diversity" are the sources of the energy needed to restore Japan's vitality and appeal. Labor and management should work together to show the way in these new times.

Enterprises do not merely exist for the purpose of generating profits through fair competition; they must also be socially useful. In the 21st century, we should be seeking spiritual richness in addition to material affluence. Employers in such an age are expected to create new values, win trust, and have the willpower to impart vitality to society through corporate activities. Corporate management supported by such lofty aspirations will contribute to the nation and to society and lead the way to creating a vibrant and appealing country. Realizing this aspiration necessitates the strong leadership of employers, who must at the same time be prepared to listen humbly and sincerely to corporate stakeholders.

Home Page in English