INC.: One of the things we have heard is that smaller Japanese growth companies, as a rule, seem to have a much more difficult time recruiting talented managers than their American counterparts do. Is that true?
NAGAMORI: Yes. For a growing company in Japan, it's not easy to recruit people as you do in the United States. It's not easy, because of the limited labor mobility in Japan, and because competent human resources tend to spend their whole lives working for the same big companies. This is changing, but not all that fast.
In the case of our company, for example: Over the past 10 years, we have been growing at a pace of 60% to 100% per year. This means that we will inevitably run short of human resources. We want to grow our company; want to push the growth. We try to scout competent people as fast as possible, but we can't seem to keep up with the growth of the company. So this is a big headache for us.
KATO: Labor mobility has begun to speed up in Japan, but only in the past few years. Our country went through long years of turbulence after the war, and people wanted to have stable jobs in big and stable companies. In this decade, however, the traditional managerial system of lifelong employment and seniority-based wages has been gradually breaking down. There is now an increasing tendency among elite students, who once had eyes only for companies of 1-billion yen capitalization, to jump into venture business companies. The trend is only a couple of years old, but I think it will increase.
INC.: I think the Japanese may have a false sense that somehow every brilliant MIT engineer is just pounding the doors to get into Alpha Micro. What about the human resource problem in the States?
CORTESE: Well, there are some differences. Most of the technically educated people in our marketplace look for security in the industry as opposed to the company. They assume that they can transfer their skills easily from one company to another. So we operate with some advantage in that respect.
But the negative side of this shows up very quickly: If you believe you can transfer easily, you do. We have less trouble finding people than you Japanese do. But we have a second problem that it appears you don't face: Our people leave us almost as quickly as we can recruit them.
Our industry, for example, operates on a 30% per year turnover. You all know the value of continuity in technical development and support. We lose that. So, I believe that as you gain in your labor-market mobility, you will face a whole new challenge, which is finding methods for maintaining and retaining your people. In our industry, we attract people by giving them equity participation. We retain them by giving them both equity participation and special incentives for performance. We break our own internal rules to keep the really key contributors, but this causes people to leave who view themselves as equal in terms of skills but less rewarded. So we are in a constant battle to find people, as you are; trying to keep them, having them leave, trying to find other people.
Perhaps the only advantage we have in this area is that Americans are not as sensitive to the size of the company. In fact, I would say they are more interested in joining smaller companies. They perceive that there is less discipline, that creativity is better accepted; or, second, they think that they can participate in an equity sense and gain significant independence in a relatively short business life in a small company. They cannot get this in a large company. Last, they perceive that they can move to senior positions much more quickly, because there is a flatter hierarchy to move up in. In a larger company, there are many more levels in which they must put in their time.
But let me ask the Japanese a question. Do you have the tools to retain and attract your people that we have in our smaller companies? Equity? Financial markets giving multiples to stock valuation? Bonuses, and so on? Are those available to you? And are they effective? And do you use them?
NAGAMORI: First, I think there is a basic difference between the United States and Japan that we have to consider. In the United States, the emphasis is on monetary incentives. Not in Japan. Of course, deep in their minds, people may want more money. But they don't ask for it. Money is secondary to prestige.
I will tell you a story. A certain student was interested in joining our company. But then he told us that his mother wanted him to join a company that was being publicized in TV commercials. So he chose Toyota. Is he designing Toyota motorcars? No, no. He is working as a service engineer in a local city. He is nearly a salesman. But the mother is proud: He is working for the great Toyota. She can spread it around the neighborhood that her son works for Toyota. The neighborhood is impressed: "Oh, your son works for Toyota!" So, if a Japanese mother feels she has a good son, she wants him to join a company with high visibility and prestige. Generally speaking, someone who has graduated from a top-notch university wants to join the very top company, which means the very large company in Japan. That's the easy way to high social status.
Yes, we have employee equity in our company, and we encourage the employees to own it. But, remember, some of our employees don't even have any idea what stocks and equity are; they are not interested in that sort of thing as an incentive. So even if we publicize stock options as an attraction, it doesn't have much of an effect as yet.
So, how do we recruit? We tell them our company is growing. We stress the point: "Our company is still small, but it's going to become a big company; and when it does, you are going to get the promotion." We tell them, "If you join Hitachi or Toshiba, you may not go to the very top. But if you join our company, maybe you will become the very top executive; maybe you'll enjoy an even higher status than your colleague who joined Hitachi or Toshiba."
