- Email: [email protected]
The impact of Japanese plants on local labour markets
0024-6301/91 $5.00 + .OO 0 1991 Pergamon Press plc
Long Range Planning, Vol. 24, No. 6, pp. 53 to 59, 1991 Printed in Great Britain
53
The Impact of Japanese Plants on Local Labour Markets Graham Sewell and Christina
Yu
Japanese direct investment is assuming an increasing importance in the U.K. economy, especially in the manufacturing sector where Japanese management and manufacturing techniques have aroused particular interest. Untilrecently this investment in manufacturing has been primarily restricted to plants of an assembly-based nature and Japanese companies have sought out labour markets which best satisfy the needs of this type of operation. However, early signs are appearing which suggest that new Japanese manufacturing investment is becoming increasingly sophisticated. In the light of this emergent trend, this paper uses recent research to draw attention to the labour market problems that are likely to occur as the skill requirements of Japanese employers increase. The paper then concludes by discussing strategies which individual firms should adopt to protect themselves from any consequent labour market disruption.
The importance ofJapanese direct investment in the U.K. has been steadily increasing. Of the OECD countries, the U.K. was only second to the U.S. as the biggest recipient of investment from Japan in cash terms between the period 1951-1988.’ However, its impact has not been evenly felt throughout the country, especially in the manufacturing sector, where research has shown that much of the investment has been geographically concentrated in peripheral regions as Japanese firms have consciously sought out locations where the labour market satisfies the specific requirements of their assembly-based manufacturing operations.2 Until recently, evidence in support of the above characterization ofJapanese investment in the U.K. has been strong. However, recent developments suggest that some qualitative changes in the nature of Japanese investment are occurring which are likely to result in the emergence of a much more complex pattern of location. The announcements by Japanese companies of large-scale investment in high added-value manufacturing and engineering
plants in the U.K. indicate that their labour market needs will change as they seek to attract a work force which has a significantly more highly skilled profile. This paper seeks to assess the likely impact that emergent trends in Japanese direct investment will have in local labour markets, especially with respect to the changing demand for skilled labour. This assessment is based on our recent empirical research which has examined the local labour market effects of the pay and appraisal policies of existing Japanese transplants. We then go on to examine the local labour market scenario that is likely to accompany Japanese manufacturing investment of a high added-value nature. Finally, the paper concludes with suggestions which relate to the development of a human resource strategy which will equip firms that are likely to be affected by the labour market impact ofJapanese inward investment to attract and retain skilled workers.
The Nature in the U.K.
Investment
Although work on the impact of Japanese direct investment in the U.K. is extensive, a number ofkey points can be identified which continue to inform much of the wider debate on this matter.
fr
Although the U.K. has been the largest recipient of Japanese investment in cash terms of all the European Community members between 1951-1987, during a similar period the value of investment originating from other countries, most notably that from the U.S. and other EC members, has been much higher.
*
The nature of Japanese manufacturing investment has been characterized as that of the ‘screwdriver’ plant-those assembling components but undertaking little high added-value engineering activities.
*
There is a well delineated geographical pattern of Japanese investment, with financial services
Graham Sewell is a lecturer in the School of Management,
UMIST. Formerly he was a research associate at Cardiff Business School. Christina Yu was a post-graduate student at Cardiff Business School. She now works as a management consultant in Hong Kong.
of Japanese
54
Long Range
Planning
Vol. 24
generally being located in and around East while manufacturing has sought field sites in peripheral regions.
December the South out green
Japanese-owned firms compare unfavourably with those in other foreign and domestically-owned installations. Indeed, Figure 1 shows Japanese companies to be right at the bottom of the U.K. pay league. However, the results of a recent survey of Japanese plants in the U.K. conducted by Cardiff Business School4 suggest that the aggregate nature of the Census belies a much more complex pattern of reward. Table 1 shows the make up of our sample, comparing sector by regional location. As might be expected, manufacturing operations are almost exclusively confined to the North, Wales and Scotland.
Much of the research concerning the impact of Japanese investment in the U.K. has focused on their approaches to management and manufacturing and the extent to which, either through direct effects or through emulation, they might have a disproportionately large influence on British management thinking-the so-called ‘Japanization’ of British industry.’ Key areas of specific interest have been those of human resource management, the development of novel manufacturing techniques and technologies such as just-in-time, and the management of relationships with sub-contractors and component suppliers. However, little work has been conducted which has examined the impact of Japanese direct investment on local labour markets.
Japanese Investment Labour markets At the U.K. Employment
Figure 2 presents our respondents’ assessments of their wage levels in relation to their sector and their regional location. The sectoral comparison places 40 per cent of respondents in the average category with 55 per cent in the above average category. Similarly, the regional comparison indicates relatively high pay40 per cent average and 52.5 per cent above average. This picture was consistent across the sample, showing little significant variation between sectors, although the two companies claiming to be in the top 10 per cent of payers were both in manufacturing.
and Local
aggregate level, the 1986 Census of seems to indicate that pay levels in
Rest of EC m
Figure 1. U.K. manufacturing Production) Table 1. Sample composition London Manufacturing Services Marketing Finance Column total (%)
1991
m
Manual Workers
All Domestic
US
Non-Manual Workers
sector wage levels by nationality
by regional South-East 1 7 11
location Midlands
All Foreign
of ownership
(Sotrrce: 1986 Census of
and sector North 5
Wales 4
Scotland 2
2
2 (2:)
(i79.5)
(1 Z.5)
(1:)
(52)
Row total (%) 12 10 16 2
(30) (25) (40) (5)
40 (100) (100)
The Impact
of Japanese
Plants
55
n 10
0
Top 10%
m
Figure
2.
Relative
Top 30%
30-50%
Compared with Sector
wage rates of Japanese
m
firms compared
The apparent poor pay performance of Japaneseowned firms when compared with other firms at the U.K. level, especially with respect to manual work, can be explained in terms of the relatively lowskilled profiles of the assembly-oriented work forces employed in their manufacturing installations. This feature acts in combination with the generally lower wage levels to be found in the regions in which they are located to give a misleading picture of their payment practices at the national and sectoral aggregate levels. Our survey’s findings relating to the pay regimes within Japanese-owned plants are supported by a number of specific examples. Using labour market intelligence provided by Job Centres we were able to compare the rates at several plants with local sectoral pay norms. Thus, in the Cardiff area the going rate in May 1990 for production workers in the electronics industry was between A4160 to L5980 p.a. This contrasts with an entry level of A7021 p.a. offered by Matsushita for assembly workers in their Cardiff television plant for the pay year July 1989-June 1990.5 The Cardiff experience is repeated elsewhere in South Wales. For example, the going rate for unskilled assemblers in the electronics industry in the Cynon Valley during May 1990 was only around A4000 p.a. in smaller firms (although one larger locally-owned company offered A6240). This was significantly below the L6214-A6594 p.a. offered to their lowest grades (clerks, labourers, packers and production operators) by Hitatchi at their plant Hirwaun in the pay year April 1989-March 1990.6 Finally, and in contrast
Average
to the South Wales pattern,
Below Average
Don’t Know
Compared with Region
to regional
and sectoral
averages
(n = 40)
in the South West, Toshiba adopts a slightly different approach to comparative wage levels at its television assembly plant. Here the company policy appears to be to pay new recruits wages at or near the local labour markets minimums-all adult appointed on Grade 1, employees are initially receiving a salary of between L5350-L5725.6 This compares with a reported labour market minimum of around L5500 for unskilled manufacturing workers during 1990. Despite this low entry-level wage system, Toshiba quickly develops employees along the lines of its own internal labour market. Thus, after 2-year continuous service the grading and pay structure at Toshiba allows employees to climb the pay ladder so that rates rapidly approach and, in most cases, overtake local sectoral averages. For example, after 4 years service an individual who had entered as an unskilled assembly worker could earn up to E7935 as a ‘senior member’ of an assembly team. This compares with the-normal local labour market figure of L6500 for assembly workers in the electronics industry. In the case of manufacturing it seems that, in terms of its implications for labour market equilibrium, the effects of the dual tendencies of bettering local and sectoral pay norms have not been particularly pronounced thus far. This can be accounted for by two related explanations. First, the numbers ofjobs involved have still been small in absolute and relative terms, and second, the labour markets that the Japanese have sought out have been well equipped to satisfy the recruitment requirements of assembly-oriented manufacturing. The combination of relatively high unemployment levels, low female activity rates and generally loose labour markets that were characteristic of regions like South Wales, the North East and Scotland were able
56
Long
Range
Planning
Vol. 24
December
to provide the necessary work forces to satisfy the labour demands of new inward investment without too much disruption to the operation of existing companies. In the context of labour markets like these where wage levels remain relatively inelastic in the face of an increase in demand then even the premium wage rates offered by Japanese firms will have little direct effect on competition for employees as firms are able to draw on the large pool of potential replacements.
The Changing Manufacturing
Pattern of Japanese Investment
In choosing Burnaston in Derbyshire and Swindon in Wiltshire respectively as the sites for significant investment, both Toyota and Honda have signalled a qualitative change in the nature of Japanese investment in the U.K. The new transplants recently announced extend beyond the notion of a simple ‘screwdriver’ operation as they incorporate sophisticated manufacturing and engineering features. Furthermore, the siting of these plants in relatively prosperous areas of the country, even in the face of stiff competition from other regions, has diverged from the normal pattern of Japanese manufacturing investment. Clearly, the heightened skill requirements of a more sophisticated manufacturing operation have mediated in these locational decisions.
1991
The Impact of Japanese Investment: Implications for the Future Three general points emerge ties in Burnaston.
from Toyota’s
activi-
*
The nature of future manufacturing investment-be it directed towards existing plants or ‘green field’ sites-is increasingly likely to operate on a sophisticated engineering basis.
*
As a key corollary of the move towards greater manufacturing complexity, so the skills profile of the work force in Japanese owned plants will continue to shift towards the higher end of the scale.
A As the emphasis
moves towards higher-skilled employment so labour market considerations will change as inward investors seek out locations which can satisfy the more sophisticated labour force needs.
we asked a In the light of these considerations, number of engineering firms in the East Midlands what labour market effects they anticipated as a result of the arrival of the Toyota. All the firms saw Toyota as a future competitor in the labour market with the most frequently expressed concern being the likely difficulty in replacing ‘poached’ skilled workers. For a number of reasons, it is likely that this concern is well founded: *
The East Midlands is a fairly tight labour market, especially with respect to skills.
A The The choice of Burnaston by Toyota provides a particularly interesting example. Unlike Honda, who have a connection with Swindon through Rover, Burnaston is a genuine ‘green field’ site located in an area of the country (the East Midlands) which exhibits a relatively tight labour market and has little or no previous experience of a Japanese manufacturing presence. The total investment package at Burnaston is likely to be of the value of k700m with a capacity to produce 200,000 medium-sized cars annually and in addition to component assembly, production facilities will include body panel stamping, body welding, plastic injection moulding, and a paint shop with engines being supplied from a new plant located in Shotton, North Wales.’
Although it is too early to say conclusively that these recent events point to a clearly distinguishable new trend, a new agenda is emerging which concerns the continuing impact that more sophisticated Japanese direct investment will have. In the context of this, our focus is centred on the consequences for local labour markets of continuing Japanese investment in the U.K. and the strategic responses that firms should adopt to accommodate and ameliorate any disruption that may be caused.
U.K.‘s work force is poorly trained by comparison with the standards of our competitors. For example, the U.K. Government spends the least on training out of its EC partners’ and Figure 3 shows a virtual ‘missing generation’ of skilled workers as the number of recruits receiving training from engineering firms has declined in the 198Os, a trend which has inevitably led to severe labour market shortages, especially in the more prosperous regions of the country.’
*
The now famous experience of Nissan in Washington where 24,000 people applied for 400 initial jobs and where trained apprentices were willing to give up their existing employment and take unskilled jobs in the new plant indicates that Japanese firms are perceived as offering desirable employment with good prospects.
*
As has been previously demonstrated, Japanese firms are willing to offer pay and employment conditions which compare favourably with competitors in the local labour market.
*
The appearance of a major plant like the one that Toyota will build at Burnaston is often accompanied by the arrival of a host of sub-contractors and suppliers,2 thus adding an extra dimension to the overall demand for labour.
The fear of existing
employers
is that the combin-
The Impact
“70
71
72
73
74
75
l
Figure
3. Number
of engineering
76
77
78 79 Year
Craft Trainees
recruits
receiving
ation of these factors will create disruption and disequilibrium in the labour market and lead to inflationary pressure on wages as they have to compete to attract and retain employees from a limited pool of skilled labour. Given that the U.K. has proved to be such a popular destination for Japanese direct investment, it is likely that the experience of Burnaston will be repeated elsewhere. It is our view that managers of companies which are at risk must develop strategies which strengthen their long-term ability to withstand the labour market disruption associated with investment of this scale and nature.
Japanese Direct Investment: Developing a Strategic Response Faced with an increased demand for skilled workers and a tightening labour market, it is essential that managers develop a human resource strategy which addresses these problems by emphasizing the recruitment, development, and retention of the work force. In particular, attention must be paid to those workers who are most difficult to replace, namely the highly skilled. We propose that this strategic process should focus on three key areas which are identified below. (1) Pay and Conditions Of primary concern when considering a pay and conditions strategy in this context should be the need to avoid entering into a inflationary wage spiral whereby existing firms have to push up wage rates in order compete with an often more powerful newcomer to avoid loosing key staff. Having said this, given the propensity for Japanese firms to at
80
81
82
83
84
of Japanese
85
86
57
Plants
87
+ Technician Trainees
basis training
(Source:
EITB,
1989)
least equal, if not better, local and sectoral pay norms then the process of bidding up wages to some degree seems unavoidable. However, this is not the only area where indigenous firms can compete and there are opportunities for the development of a remuneration and conditions package which moves away from traditional concepts of reward. Indeed, employment in Japanese firms is often perceived as being desirable by many prospective workers because, as our survey found, they offer an attractive overall remuneration and conditions package. Thus existing firms should examine their overall pay and conditions position and see if they can make any changes which will constitute an attractive proposition for its existing or prospective work force. Recent developments in major U.K. manufacturing companies indicate that established attitudes toward payment and reward are already changing. Like many employers. Jaguar, Ford and Phillips have replaced the weekly wage packet with a salary system for their production workers. However, they have extended the changes so that the salaries are established on the basis of annual individual performance appraisals. Although the introduction of performance-related pay may be among the most obvious changes in introducing an integrated approach to reward, there are a number of other possibilities to consider. These include: a reduction of the dependency on overtime to make up basic wages to an acceptable level; profit-sharing schemes or employee share-ownership schemes; and a reappraisal of non-monetary benefits like health care, child care and holiday packages. (2) Recruitment One of the
and Training most damaging
outcomes
of
the
58
Long Range
Planning
Vol. 24
December
own company,
recession of she early 1980s was massive reduction in employer-financed training. The tendency for training to be seen as an unnecessary or unaffordable luxury in a time of crisis, or to be solely the responsibility of government, has created a virtual vacuum of skilled workers in the 20-30 age range. This effective shrinkage of the skilled labour resource has also been exacerbated by the demographic effects of an ageing population.‘” In the light of these events the first action for managers should be to recognize the strategic role of training and develop a management climate where an appreciation of the wider training needs of their individual companies is to the fore. Once these conditions have been established alternatives to the traditional form of training and recruitment can be considered.
managers can develop the skills of the work force within the company. This reduces the company’s vulnerability to poaching from competitors as the skills are less transferable, being specific to a particular manufacturing situation and internal organization. Indeed, to develop an internal labour market it is essential to have a supportive employment structure. For example, it is common for Japanese companies to have a matrix hierarchy were individuals can advance within their own grade or between grades as they acquire skills, flexibility, responsibility, etc. Table 2 shows an example of this type of hierarchy with its corresponding pay structure as used by Toshiba in its Plymouth plant. This matrix structure allows any worker to make progress in the internal labour market by one level per year within grades while progression up the grading structure is based on an annual review of performance and skills appraisal. Indeed, the current production manager has achieved her position after joining the company as a Grade 1 assembly worker.
One of the most forward-thinking attempts to counter the problem of the short supply of appropriately skilled workers has been pioneered by both British Telecom and Peugeot. They have introduced a novel approach to training which involves the creation of ‘mature apprenticeships’.5 In the case of Peugeot, these apprenticeships are explicitly seen as a means of offering training to members of the work force who, for whatever reason, had missed out on the opportunity earlier in their careers. Importantly, to increase the take-up rate, trainees are able retain their previous pay levels and are also eligible for any pay awards or improvements in conditions that may be offered to the general work force during the training period. In line with contemporary thinking Peugeot seeks to provide its apprentices with a wide ranging training regime encompassing a multiplicity of skills where the mature apprenticeship is seen as only part of a continuous process of employee development. However, these skills are fairly specific to the individual requirements of the company, a point which takes us on to the third area of strategic focus.
An example of an internal labour market in development has been investigated during recent Since the mid-1980s. a large related research.” British-owned motor components manufacturer has been revamping the traditional employment structure of its South Wales plant. Before restructuring its grading system, employees who had entered the work force at unskilled levels were barred from advancing to skilled grades which were reserved exclusively for those who had served the traditional craft apprenticeship. Now advancement on merit to craft grades is open to any employee through an internal apprenticeship scheme. Furthermore, the company has increased the odds of employee retention by closely tailoring the apprenticeships to suit its own specific skill requirements. Early reports suggest that this programme is already reaping rewards in terms of employee retention and commitment.
(3) The Development ofan Internal Labour Market The use of internal labour markets has been forwarded as a partial explanation for the success of Japanese manufacturing companies.” In this sense, an internal labour markets exist where an employer regularly fills vacancies from the extant labour force, usually through the use of redeployment or upgrading. By using training regimes which are specifically geared to the individual needs of their Table 2. Toshiba’s Rates Level 0 1 2 3 4 5 Source:
f f f f f f
Plymouth
Conclusions Implications Although
this
Plant Pay Structure
1
2
3
5831 6135 6240
6438 6790 7168 7232 7294 7356
7560 7489 7808 7881 7936 8018
IDS Report 570, June 1990.
1991
Grade 4 8246 8246 8518 8599 8649 8747
and Strategic for Management paper
focuses
and Annual
Pay
5
6
7
8873 8873 8962 9051 9142 9233
9374 9374 9468 9563 9658 9734
9908 10,007 10,108 10,209 IO,31 1
on
the
impact
of
The Impact Japanese direct investment on local labour markets, it must be said that any investment on a similar scale as we have seen emanating from Japan is likely to have a significant impact on any local labour market, regardless of its national origins. However, as we have indicated above, the particular payment practices ofJapanese firms suggest that the impact of any future investment from that country is likely to lead to pressure on local pay norms and the possibility of a wages spiral as existing firms struggle to attract and retain staff. This is of special concern as Japanese firms extend their activities in the U.K. to encompass high value-added manufacturing and seek out labour markets which can provide the necessary skills. Beyond attempting to develop an awareness of the likely local labour market effects of future Japanese direct investment, we have been concerned in much of this paper with suggesting a possible course of action for managers who will have to cope with the adverse effects of this phenomenon. In the light of these suggestions, the wider implications for managers can be summarized as follows. A Although future Japanese direct investment is likely to cause disequilibrium and disruption in local labour markets, firms can and should develop a strategic position which will help protect them from this situation. *
*
Given that changes in the nature of Japanese investment mean that any labour market pressure will be felt most in the grades that are already problematic to recruit, any strategic approach should be aimed at the initial recruitment, development and retention of skilled workers. There are a number of approaches to human resource management, many of which emulate Japanese practices, that can be employed as part of such a strategy. These include the development of new approaches to pay and reward, a more active involvement it training and the introduction of a an internal labour market to increase internal job mobility.
It is our view that employers
should not attempt
to
of Japanese
Plants
59
second guess the locational decisions of Japanese companies, anticipate future investment patterns, and then develop a position along the suggested lines in an ad hoc manner-the sheer long-term nature of changes which need to be wrought would preclude this approach. Rather, we would wish to draw to the attention of managers the likely impact of future Japanese investment so that they can incorporate a far-sighted approach to recruitment, training, and remuneration into an overall business strategy which will not only protect companies from the adverse effects that would stem from competing with Japanese transplants at the local labour market level, but also help to establish and consolidate competitiveness in the international arena.
References (1) Anglo-Japanese
Economic Institute, Britain and Japan: An Economic Briefing. Available from the AJEI, Morley House, London Wl R 5AD (1989).
(2) J. Morris, The who, why, and where, of Japanese manufacturing investment in the U.K., industrial Relations Journal. 19 (1). 3140 (1988).
(3)
N. Oliver and B. Wilkinson, The Japanization of British Industry, Blackwell, Oxford (1989).
(4)
C. Yu and B. Wilkinson, Pay and Appraisal in Japanese Companies in Britain, Cardiff Business School. Jaoanese Management Research Unit Working Paper No. 4 (1989).
(5)
Income Data Services, Report 556, November (1989).
(6)
Income Data Services, Report 548, July (1989).
(7) J. Morris, N. Oliver and B. Wilkinson, The Implications of Toyota’s Derbyshire Investment for Land Reauirements. Report prepared for Derbyshire County Council, August (1989). (8) Financial Times, p. 13, 31 May (1990). (9)
Engineering Industry Training Board, British Engineering: Employment. Training and Education, Stockport (1989).
(10)
P. Johnson, Our ageing population-The implication for business and government, Long Range Planning, 23 (2). 55-62 (1990).
(11)
D. Marsden. The End of Economic Man? Wheatsheaf, Brighton (1986).
(12)
T. Rutherford, Production reorganisation and local labour markets, PhD Thesis, University of Wales (1991).
Long Range Planning, Vol. 24, No. 6, pp. 53 to 59, 1991 Printed in Great Britain
53
The Impact of Japanese Plants on Local Labour Markets Graham Sewell and Christina
Yu
Japanese direct investment is assuming an increasing importance in the U.K. economy, especially in the manufacturing sector where Japanese management and manufacturing techniques have aroused particular interest. Untilrecently this investment in manufacturing has been primarily restricted to plants of an assembly-based nature and Japanese companies have sought out labour markets which best satisfy the needs of this type of operation. However, early signs are appearing which suggest that new Japanese manufacturing investment is becoming increasingly sophisticated. In the light of this emergent trend, this paper uses recent research to draw attention to the labour market problems that are likely to occur as the skill requirements of Japanese employers increase. The paper then concludes by discussing strategies which individual firms should adopt to protect themselves from any consequent labour market disruption.
The importance ofJapanese direct investment in the U.K. has been steadily increasing. Of the OECD countries, the U.K. was only second to the U.S. as the biggest recipient of investment from Japan in cash terms between the period 1951-1988.’ However, its impact has not been evenly felt throughout the country, especially in the manufacturing sector, where research has shown that much of the investment has been geographically concentrated in peripheral regions as Japanese firms have consciously sought out locations where the labour market satisfies the specific requirements of their assembly-based manufacturing operations.2 Until recently, evidence in support of the above characterization ofJapanese investment in the U.K. has been strong. However, recent developments suggest that some qualitative changes in the nature of Japanese investment are occurring which are likely to result in the emergence of a much more complex pattern of location. The announcements by Japanese companies of large-scale investment in high added-value manufacturing and engineering
plants in the U.K. indicate that their labour market needs will change as they seek to attract a work force which has a significantly more highly skilled profile. This paper seeks to assess the likely impact that emergent trends in Japanese direct investment will have in local labour markets, especially with respect to the changing demand for skilled labour. This assessment is based on our recent empirical research which has examined the local labour market effects of the pay and appraisal policies of existing Japanese transplants. We then go on to examine the local labour market scenario that is likely to accompany Japanese manufacturing investment of a high added-value nature. Finally, the paper concludes with suggestions which relate to the development of a human resource strategy which will equip firms that are likely to be affected by the labour market impact ofJapanese inward investment to attract and retain skilled workers.
The Nature in the U.K.
Investment
Although work on the impact of Japanese direct investment in the U.K. is extensive, a number ofkey points can be identified which continue to inform much of the wider debate on this matter.
fr
Although the U.K. has been the largest recipient of Japanese investment in cash terms of all the European Community members between 1951-1987, during a similar period the value of investment originating from other countries, most notably that from the U.S. and other EC members, has been much higher.
*
The nature of Japanese manufacturing investment has been characterized as that of the ‘screwdriver’ plant-those assembling components but undertaking little high added-value engineering activities.
*
There is a well delineated geographical pattern of Japanese investment, with financial services
Graham Sewell is a lecturer in the School of Management,
UMIST. Formerly he was a research associate at Cardiff Business School. Christina Yu was a post-graduate student at Cardiff Business School. She now works as a management consultant in Hong Kong.
of Japanese
54
Long Range
Planning
Vol. 24
generally being located in and around East while manufacturing has sought field sites in peripheral regions.
December the South out green
Japanese-owned firms compare unfavourably with those in other foreign and domestically-owned installations. Indeed, Figure 1 shows Japanese companies to be right at the bottom of the U.K. pay league. However, the results of a recent survey of Japanese plants in the U.K. conducted by Cardiff Business School4 suggest that the aggregate nature of the Census belies a much more complex pattern of reward. Table 1 shows the make up of our sample, comparing sector by regional location. As might be expected, manufacturing operations are almost exclusively confined to the North, Wales and Scotland.
Much of the research concerning the impact of Japanese investment in the U.K. has focused on their approaches to management and manufacturing and the extent to which, either through direct effects or through emulation, they might have a disproportionately large influence on British management thinking-the so-called ‘Japanization’ of British industry.’ Key areas of specific interest have been those of human resource management, the development of novel manufacturing techniques and technologies such as just-in-time, and the management of relationships with sub-contractors and component suppliers. However, little work has been conducted which has examined the impact of Japanese direct investment on local labour markets.
Japanese Investment Labour markets At the U.K. Employment
Figure 2 presents our respondents’ assessments of their wage levels in relation to their sector and their regional location. The sectoral comparison places 40 per cent of respondents in the average category with 55 per cent in the above average category. Similarly, the regional comparison indicates relatively high pay40 per cent average and 52.5 per cent above average. This picture was consistent across the sample, showing little significant variation between sectors, although the two companies claiming to be in the top 10 per cent of payers were both in manufacturing.
and Local
aggregate level, the 1986 Census of seems to indicate that pay levels in
Rest of EC m
Figure 1. U.K. manufacturing Production) Table 1. Sample composition London Manufacturing Services Marketing Finance Column total (%)
1991
m
Manual Workers
All Domestic
US
Non-Manual Workers
sector wage levels by nationality
by regional South-East 1 7 11
location Midlands
All Foreign
of ownership
(Sotrrce: 1986 Census of
and sector North 5
Wales 4
Scotland 2
2
2 (2:)
(i79.5)
(1 Z.5)
(1:)
(52)
Row total (%) 12 10 16 2
(30) (25) (40) (5)
40 (100) (100)
The Impact
of Japanese
Plants
55
n 10
0
Top 10%
m
Figure
2.
Relative
Top 30%
30-50%
Compared with Sector
wage rates of Japanese
m
firms compared
The apparent poor pay performance of Japaneseowned firms when compared with other firms at the U.K. level, especially with respect to manual work, can be explained in terms of the relatively lowskilled profiles of the assembly-oriented work forces employed in their manufacturing installations. This feature acts in combination with the generally lower wage levels to be found in the regions in which they are located to give a misleading picture of their payment practices at the national and sectoral aggregate levels. Our survey’s findings relating to the pay regimes within Japanese-owned plants are supported by a number of specific examples. Using labour market intelligence provided by Job Centres we were able to compare the rates at several plants with local sectoral pay norms. Thus, in the Cardiff area the going rate in May 1990 for production workers in the electronics industry was between A4160 to L5980 p.a. This contrasts with an entry level of A7021 p.a. offered by Matsushita for assembly workers in their Cardiff television plant for the pay year July 1989-June 1990.5 The Cardiff experience is repeated elsewhere in South Wales. For example, the going rate for unskilled assemblers in the electronics industry in the Cynon Valley during May 1990 was only around A4000 p.a. in smaller firms (although one larger locally-owned company offered A6240). This was significantly below the L6214-A6594 p.a. offered to their lowest grades (clerks, labourers, packers and production operators) by Hitatchi at their plant Hirwaun in the pay year April 1989-March 1990.6 Finally, and in contrast
Average
to the South Wales pattern,
Below Average
Don’t Know
Compared with Region
to regional
and sectoral
averages
(n = 40)
in the South West, Toshiba adopts a slightly different approach to comparative wage levels at its television assembly plant. Here the company policy appears to be to pay new recruits wages at or near the local labour markets minimums-all adult appointed on Grade 1, employees are initially receiving a salary of between L5350-L5725.6 This compares with a reported labour market minimum of around L5500 for unskilled manufacturing workers during 1990. Despite this low entry-level wage system, Toshiba quickly develops employees along the lines of its own internal labour market. Thus, after 2-year continuous service the grading and pay structure at Toshiba allows employees to climb the pay ladder so that rates rapidly approach and, in most cases, overtake local sectoral averages. For example, after 4 years service an individual who had entered as an unskilled assembly worker could earn up to E7935 as a ‘senior member’ of an assembly team. This compares with the-normal local labour market figure of L6500 for assembly workers in the electronics industry. In the case of manufacturing it seems that, in terms of its implications for labour market equilibrium, the effects of the dual tendencies of bettering local and sectoral pay norms have not been particularly pronounced thus far. This can be accounted for by two related explanations. First, the numbers ofjobs involved have still been small in absolute and relative terms, and second, the labour markets that the Japanese have sought out have been well equipped to satisfy the recruitment requirements of assembly-oriented manufacturing. The combination of relatively high unemployment levels, low female activity rates and generally loose labour markets that were characteristic of regions like South Wales, the North East and Scotland were able
56
Long
Range
Planning
Vol. 24
December
to provide the necessary work forces to satisfy the labour demands of new inward investment without too much disruption to the operation of existing companies. In the context of labour markets like these where wage levels remain relatively inelastic in the face of an increase in demand then even the premium wage rates offered by Japanese firms will have little direct effect on competition for employees as firms are able to draw on the large pool of potential replacements.
The Changing Manufacturing
Pattern of Japanese Investment
In choosing Burnaston in Derbyshire and Swindon in Wiltshire respectively as the sites for significant investment, both Toyota and Honda have signalled a qualitative change in the nature of Japanese investment in the U.K. The new transplants recently announced extend beyond the notion of a simple ‘screwdriver’ operation as they incorporate sophisticated manufacturing and engineering features. Furthermore, the siting of these plants in relatively prosperous areas of the country, even in the face of stiff competition from other regions, has diverged from the normal pattern of Japanese manufacturing investment. Clearly, the heightened skill requirements of a more sophisticated manufacturing operation have mediated in these locational decisions.
1991
The Impact of Japanese Investment: Implications for the Future Three general points emerge ties in Burnaston.
from Toyota’s
activi-
*
The nature of future manufacturing investment-be it directed towards existing plants or ‘green field’ sites-is increasingly likely to operate on a sophisticated engineering basis.
*
As a key corollary of the move towards greater manufacturing complexity, so the skills profile of the work force in Japanese owned plants will continue to shift towards the higher end of the scale.
A As the emphasis
moves towards higher-skilled employment so labour market considerations will change as inward investors seek out locations which can satisfy the more sophisticated labour force needs.
we asked a In the light of these considerations, number of engineering firms in the East Midlands what labour market effects they anticipated as a result of the arrival of the Toyota. All the firms saw Toyota as a future competitor in the labour market with the most frequently expressed concern being the likely difficulty in replacing ‘poached’ skilled workers. For a number of reasons, it is likely that this concern is well founded: *
The East Midlands is a fairly tight labour market, especially with respect to skills.
A The The choice of Burnaston by Toyota provides a particularly interesting example. Unlike Honda, who have a connection with Swindon through Rover, Burnaston is a genuine ‘green field’ site located in an area of the country (the East Midlands) which exhibits a relatively tight labour market and has little or no previous experience of a Japanese manufacturing presence. The total investment package at Burnaston is likely to be of the value of k700m with a capacity to produce 200,000 medium-sized cars annually and in addition to component assembly, production facilities will include body panel stamping, body welding, plastic injection moulding, and a paint shop with engines being supplied from a new plant located in Shotton, North Wales.’
Although it is too early to say conclusively that these recent events point to a clearly distinguishable new trend, a new agenda is emerging which concerns the continuing impact that more sophisticated Japanese direct investment will have. In the context of this, our focus is centred on the consequences for local labour markets of continuing Japanese investment in the U.K. and the strategic responses that firms should adopt to accommodate and ameliorate any disruption that may be caused.
U.K.‘s work force is poorly trained by comparison with the standards of our competitors. For example, the U.K. Government spends the least on training out of its EC partners’ and Figure 3 shows a virtual ‘missing generation’ of skilled workers as the number of recruits receiving training from engineering firms has declined in the 198Os, a trend which has inevitably led to severe labour market shortages, especially in the more prosperous regions of the country.’
*
The now famous experience of Nissan in Washington where 24,000 people applied for 400 initial jobs and where trained apprentices were willing to give up their existing employment and take unskilled jobs in the new plant indicates that Japanese firms are perceived as offering desirable employment with good prospects.
*
As has been previously demonstrated, Japanese firms are willing to offer pay and employment conditions which compare favourably with competitors in the local labour market.
*
The appearance of a major plant like the one that Toyota will build at Burnaston is often accompanied by the arrival of a host of sub-contractors and suppliers,2 thus adding an extra dimension to the overall demand for labour.
The fear of existing
employers
is that the combin-
The Impact
“70
71
72
73
74
75
l
Figure
3. Number
of engineering
76
77
78 79 Year
Craft Trainees
recruits
receiving
ation of these factors will create disruption and disequilibrium in the labour market and lead to inflationary pressure on wages as they have to compete to attract and retain employees from a limited pool of skilled labour. Given that the U.K. has proved to be such a popular destination for Japanese direct investment, it is likely that the experience of Burnaston will be repeated elsewhere. It is our view that managers of companies which are at risk must develop strategies which strengthen their long-term ability to withstand the labour market disruption associated with investment of this scale and nature.
Japanese Direct Investment: Developing a Strategic Response Faced with an increased demand for skilled workers and a tightening labour market, it is essential that managers develop a human resource strategy which addresses these problems by emphasizing the recruitment, development, and retention of the work force. In particular, attention must be paid to those workers who are most difficult to replace, namely the highly skilled. We propose that this strategic process should focus on three key areas which are identified below. (1) Pay and Conditions Of primary concern when considering a pay and conditions strategy in this context should be the need to avoid entering into a inflationary wage spiral whereby existing firms have to push up wage rates in order compete with an often more powerful newcomer to avoid loosing key staff. Having said this, given the propensity for Japanese firms to at
80
81
82
83
84
of Japanese
85
86
57
Plants
87
+ Technician Trainees
basis training
(Source:
EITB,
1989)
least equal, if not better, local and sectoral pay norms then the process of bidding up wages to some degree seems unavoidable. However, this is not the only area where indigenous firms can compete and there are opportunities for the development of a remuneration and conditions package which moves away from traditional concepts of reward. Indeed, employment in Japanese firms is often perceived as being desirable by many prospective workers because, as our survey found, they offer an attractive overall remuneration and conditions package. Thus existing firms should examine their overall pay and conditions position and see if they can make any changes which will constitute an attractive proposition for its existing or prospective work force. Recent developments in major U.K. manufacturing companies indicate that established attitudes toward payment and reward are already changing. Like many employers. Jaguar, Ford and Phillips have replaced the weekly wage packet with a salary system for their production workers. However, they have extended the changes so that the salaries are established on the basis of annual individual performance appraisals. Although the introduction of performance-related pay may be among the most obvious changes in introducing an integrated approach to reward, there are a number of other possibilities to consider. These include: a reduction of the dependency on overtime to make up basic wages to an acceptable level; profit-sharing schemes or employee share-ownership schemes; and a reappraisal of non-monetary benefits like health care, child care and holiday packages. (2) Recruitment One of the
and Training most damaging
outcomes
of
the
58
Long Range
Planning
Vol. 24
December
own company,
recession of she early 1980s was massive reduction in employer-financed training. The tendency for training to be seen as an unnecessary or unaffordable luxury in a time of crisis, or to be solely the responsibility of government, has created a virtual vacuum of skilled workers in the 20-30 age range. This effective shrinkage of the skilled labour resource has also been exacerbated by the demographic effects of an ageing population.‘” In the light of these events the first action for managers should be to recognize the strategic role of training and develop a management climate where an appreciation of the wider training needs of their individual companies is to the fore. Once these conditions have been established alternatives to the traditional form of training and recruitment can be considered.
managers can develop the skills of the work force within the company. This reduces the company’s vulnerability to poaching from competitors as the skills are less transferable, being specific to a particular manufacturing situation and internal organization. Indeed, to develop an internal labour market it is essential to have a supportive employment structure. For example, it is common for Japanese companies to have a matrix hierarchy were individuals can advance within their own grade or between grades as they acquire skills, flexibility, responsibility, etc. Table 2 shows an example of this type of hierarchy with its corresponding pay structure as used by Toshiba in its Plymouth plant. This matrix structure allows any worker to make progress in the internal labour market by one level per year within grades while progression up the grading structure is based on an annual review of performance and skills appraisal. Indeed, the current production manager has achieved her position after joining the company as a Grade 1 assembly worker.
One of the most forward-thinking attempts to counter the problem of the short supply of appropriately skilled workers has been pioneered by both British Telecom and Peugeot. They have introduced a novel approach to training which involves the creation of ‘mature apprenticeships’.5 In the case of Peugeot, these apprenticeships are explicitly seen as a means of offering training to members of the work force who, for whatever reason, had missed out on the opportunity earlier in their careers. Importantly, to increase the take-up rate, trainees are able retain their previous pay levels and are also eligible for any pay awards or improvements in conditions that may be offered to the general work force during the training period. In line with contemporary thinking Peugeot seeks to provide its apprentices with a wide ranging training regime encompassing a multiplicity of skills where the mature apprenticeship is seen as only part of a continuous process of employee development. However, these skills are fairly specific to the individual requirements of the company, a point which takes us on to the third area of strategic focus.
An example of an internal labour market in development has been investigated during recent Since the mid-1980s. a large related research.” British-owned motor components manufacturer has been revamping the traditional employment structure of its South Wales plant. Before restructuring its grading system, employees who had entered the work force at unskilled levels were barred from advancing to skilled grades which were reserved exclusively for those who had served the traditional craft apprenticeship. Now advancement on merit to craft grades is open to any employee through an internal apprenticeship scheme. Furthermore, the company has increased the odds of employee retention by closely tailoring the apprenticeships to suit its own specific skill requirements. Early reports suggest that this programme is already reaping rewards in terms of employee retention and commitment.
(3) The Development ofan Internal Labour Market The use of internal labour markets has been forwarded as a partial explanation for the success of Japanese manufacturing companies.” In this sense, an internal labour markets exist where an employer regularly fills vacancies from the extant labour force, usually through the use of redeployment or upgrading. By using training regimes which are specifically geared to the individual needs of their Table 2. Toshiba’s Rates Level 0 1 2 3 4 5 Source:
f f f f f f
Plymouth
Conclusions Implications Although
this
Plant Pay Structure
1
2
3
5831 6135 6240
6438 6790 7168 7232 7294 7356
7560 7489 7808 7881 7936 8018
IDS Report 570, June 1990.
1991
Grade 4 8246 8246 8518 8599 8649 8747
and Strategic for Management paper
focuses
and Annual
Pay
5
6
7
8873 8873 8962 9051 9142 9233
9374 9374 9468 9563 9658 9734
9908 10,007 10,108 10,209 IO,31 1
on
the
impact
of
The Impact Japanese direct investment on local labour markets, it must be said that any investment on a similar scale as we have seen emanating from Japan is likely to have a significant impact on any local labour market, regardless of its national origins. However, as we have indicated above, the particular payment practices ofJapanese firms suggest that the impact of any future investment from that country is likely to lead to pressure on local pay norms and the possibility of a wages spiral as existing firms struggle to attract and retain staff. This is of special concern as Japanese firms extend their activities in the U.K. to encompass high value-added manufacturing and seek out labour markets which can provide the necessary skills. Beyond attempting to develop an awareness of the likely local labour market effects of future Japanese direct investment, we have been concerned in much of this paper with suggesting a possible course of action for managers who will have to cope with the adverse effects of this phenomenon. In the light of these suggestions, the wider implications for managers can be summarized as follows. A Although future Japanese direct investment is likely to cause disequilibrium and disruption in local labour markets, firms can and should develop a strategic position which will help protect them from this situation. *
*
Given that changes in the nature of Japanese investment mean that any labour market pressure will be felt most in the grades that are already problematic to recruit, any strategic approach should be aimed at the initial recruitment, development and retention of skilled workers. There are a number of approaches to human resource management, many of which emulate Japanese practices, that can be employed as part of such a strategy. These include the development of new approaches to pay and reward, a more active involvement it training and the introduction of a an internal labour market to increase internal job mobility.
It is our view that employers
should not attempt
to
of Japanese
Plants
59
second guess the locational decisions of Japanese companies, anticipate future investment patterns, and then develop a position along the suggested lines in an ad hoc manner-the sheer long-term nature of changes which need to be wrought would preclude this approach. Rather, we would wish to draw to the attention of managers the likely impact of future Japanese investment so that they can incorporate a far-sighted approach to recruitment, training, and remuneration into an overall business strategy which will not only protect companies from the adverse effects that would stem from competing with Japanese transplants at the local labour market level, but also help to establish and consolidate competitiveness in the international arena.
References (1) Anglo-Japanese
Economic Institute, Britain and Japan: An Economic Briefing. Available from the AJEI, Morley House, London Wl R 5AD (1989).
(2) J. Morris, The who, why, and where, of Japanese manufacturing investment in the U.K., industrial Relations Journal. 19 (1). 3140 (1988).
(3)
N. Oliver and B. Wilkinson, The Japanization of British Industry, Blackwell, Oxford (1989).
(4)
C. Yu and B. Wilkinson, Pay and Appraisal in Japanese Companies in Britain, Cardiff Business School. Jaoanese Management Research Unit Working Paper No. 4 (1989).
(5)
Income Data Services, Report 556, November (1989).
(6)
Income Data Services, Report 548, July (1989).
(7) J. Morris, N. Oliver and B. Wilkinson, The Implications of Toyota’s Derbyshire Investment for Land Reauirements. Report prepared for Derbyshire County Council, August (1989). (8) Financial Times, p. 13, 31 May (1990). (9)
Engineering Industry Training Board, British Engineering: Employment. Training and Education, Stockport (1989).
(10)
P. Johnson, Our ageing population-The implication for business and government, Long Range Planning, 23 (2). 55-62 (1990).
(11)
D. Marsden. The End of Economic Man? Wheatsheaf, Brighton (1986).
(12)
T. Rutherford, Production reorganisation and local labour markets, PhD Thesis, University of Wales (1991).