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Asian Business & Management

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Introduction

The manner of realizing benefits and employment rights within labour laws and social security determines the employment relationship between employers and employees (Florida & Kenney 1991). Current research attempts to recognize uniformity in employee relations practices in Japanese companies, explain latest changes, as well as analyze major change-driving factors. The study is grounded on and supported with previous academic researches retrieved from such sources as academic journals, books, scientific reports, and case studies.

Three-pillar system of employee relationships at Japanese companies

Japan is a country famous for its national culture that puts great emphasis on such values as respect, hard work, harmony and cooperation at work. Namely Japanese national culture determines employment relationships system, which is based on strong family-like relationships at work (Sano 1993).  Furthermore, family relations at work are seen in the way men get favoured over women, as women are considered to be house-keepers, who take care of children, families, and their working husbands. Yet, employee relationships system is based on three pillars of life-time employment, seniority-based reward and promotion, and enterprise-based union (Lincoln & Nakata 1997).

Life-time employment

Life-time employment concept emerged at medium and large size companies in 1960s, when economic conditions flourished. The concept put forward that once a person got employment at a company, he/she would be employed with the same company until retirement. Even though an employee would become unnecessary to a company, the company would never quit the him/her due to established long-time company-employee relationship. Outstanding success of Japanese companies has been attributed to their adapting to life-time employment (Wataake 2000).  Furthermore, the concept received high level of support from government agencies, employers and employees themselves, as well as labour unions. In order to become highly performing and trained employees, they would need to get necessary skills and learn organizational know-hows without changing their jobs. Consequently, while providing substantial training and long-term learning for its employees, a given company gets an advantage of adding strength to its operations with in-house nurtured professionals (Sano 1993).

Seniority-based rewards and promotions

Remuneration system at Japanese companies is largely determined by employment duration, age and education background rather than by work performance.  Nenko system, under which an employee is promoted in connection to his/her proximity to the retirement age, quite matches Japanese culture and economy (Araki 2005). Nenko seniority wage system is considered with personal qualifications, as well as secure remunerations for employees, whose expenditures grow for family extension or aging reasons. According to Araki (2005), enterprises that employ traditional wage system have failed to implement flexibility due to high costs associated with Nenko system wage levels. However, majority of the companies have not yet realized the advantages of productivity under seniority-wage system, where younger employees are underpaid when compared against their senior co-workers (Salmon 2004).

Enterprise unions

There was a strong dedication from enterprise-based unions in regard to employees’ security in the period from 1955 to 1974. Although many labour unions associate themselves with various enterprises, most of the unions still work within single company (Sano 1993).  In the companies, where labour unions take a strong hold, decision making powers over rate settlements or strikes still are endowed to labour unions. All of the possible actions ever taken by white or blue collar workers are yet organized by enterprise-based labour unions. There are two major benefits, the pillars that were reinforced after the World War II, that provide regular employees with privileges of life-time employment within a company, and remuneration based upon the length of service at the given company. Yet, greater employment security and increase in remunerations are still required from enterprises by older workers. Labour unions at Japanese companies gather meetings arbitrarily disregarding employees’ occupation or skills and considering only the company. Consequently, labour unions organized in this way are not dominated by companies, but rather employees driven (Salmon 2004).

Recent changes in employee relationships in Japan

Yet, there were many changes in employee relationships in Japan since the oil crisis in 1970s. Numerous companies have undertaken cost cutting initiatives to become competitive in their markets. Consequently, these changes in employers’ attitudes caused reaction from employees and labour unions during post-war period (Lincoln & Nakata 1997). The following section of the paper discusses changes within employment relations in Japan in light of oil second world war, labour market conditions and oil crises in 1970s.

3.1 Life-time employment reduction

Since long-run recession in 1990s, there was a discussion of life-time employment system that caused increase in labour costs associated with payments to employees, who were incapable of meeting developments of new technologies and raising work standards (Morishima 2001). Numerous companies, including Kyocera (Hanami 2006), were forced to recruit more time-workers, who were competent in specialized skills, to perform necessary jobs. Thus, number of companies, disregarding their size, had to decrease its life-time work employment opportunities for new hires through selecting mid-career workers rather than new graduates. Hiring trained mid-career workers for non-clerical positions meant less costs associated with teaching them peculiarities of clerical work. Instead, companies concentrated on hiring the staff that was used to handling complex and specialized operations, thus creating greater competitive advantage (Morishima 2001).

3.2 Wage system

Wage system at Japanese companies has been determined primarily by the length of an employee’s service at the company that is believed to show his/her experience. Nevertheless, many Japanese companies come to the conclusion that employees should be paid according to their job performance. Yet, employee job performance should be,  in this case, evaluated on such classification criteria as the physical burden for specific job, skills and educations, practical knowledge and experience, as well as psychological burden and leadership level of job supervision (Rose & Kumar2007).

More Japanese companies are realizing that seniority-base payment system is unsuitable and are becoming interested in hiring non-regular workers rather than signing life-time contracts. Thus, with performance-related pay system in the companies, young university graduates with only, for example, two seniority years of experience would receive higher base-pays than high-school graduate employees with more ten to fifteen years of seniority. Under performance-based pay system, it is often suggested that university graduates are more classified and trained than high-school graduates. Nevertheless, under traditional for Japanese companies Nenko seniority-based systems, older high school graduates would earn more than professionally suited university graduates with only two years of seniority experience (Dalton & Benson 2002).

The new performance-based system suggests employees being evaluated once a year with the aim to set their base wage. However, the evaluation result often serves as determinant of bonuses for employees, while under old traditional Nenko system performance appraisals were held twice per year (Aoki 1990).  Thus, the old system was considered as a drain on management, while within the new performance-based system managers became responsible for interviewing their subordinates. Whereas under Nenko seniority-based system, managers did not have to interview the subordinates, under newly accepted performance-based system, subordinates are able to receive feedback and appraisal either during the interview with managers or via computer (Salmon 2004).

3.3 Flexible working

Perceptions as well as the roles of non-regular workers at Japanese have been continuously changing. Earlier it was considered that only some of blue-collar jobs could be performed by flexible part-time workers. However, in reality these blue-collar part-time workers started to perform more specialized jobs in providing trainings and occupying high responsibility areas (Saka 2002).

Starting from early 1990s, there were misleading media reports giving information that employment security could be easily lost due to demise of life-time employment practices. Yet, the reality is that the share of non-regular employment for fixed term or for the term the job project needs to be done is increasing, while regular employment practices are shrinking. Nevertheless, the employment of ordinary employees that work under traditional system has not been altered providing that the management has been balancing the regular work force needs and the need to hire non-regular part-time employees (Fujimoto & Nakata 2007).

Major change-driving factors

There are number of national cultural factors that drive the change within employment relationships on the enterprise level. They include global competition, decline in union strength, aging population, and national culture.

Global competition

The economy of Japan is quite similar to the economy of western countries, such as the United States or the United Kingdom. The major factor that describes Japan’s economy is its ability to compete in both international and domestic markets (Suzuki 2008), which provided Japan with competitive advantage over other countries and helped develop a competition model. Since the model of corporate management and economic development was successful in Japan, it was believed that it could be accepted and could work for the economic development of other nations, too (Hamani 2006).

The government of Japan started some fundamental but radical reforms to attract foreign investors to the country. It is now constantly improving accounting reporting laws, accounting principles, corporate and bankruptcy laws in an attempt to make investments into Japan more attractive for foreign investors, since the government expects Japan to become more competitive in foreign and domestic markets (Araki 2005).

Decline in strength of labour unions

During 1980s, due to loss of some members, trade and labour unions lost its previous influence, leading to weakening of seniority-base pay systems, direct communication channels, as well as the whole collective bargaining mechanism. Since there was substantial growth in service industry, significant changes in industrial structures, and considerable increase in part-time workers number (Watanabe 2003), labour and trade unions were unable to attract members, while led to the failure of collective bargaining in Japan.

Aging population

Japan’s labour market faces such detrimental issues as increasing rate of unemployment, aging of working population, declining birth rate. All these factors put a threat to labour market, since, for example, with aging population and continuous decline of working people might hinder the support for the old as well as the young Japan’s population (Saka 2002).

The worries over aging of population as well as future price for social and economic structure are rising, as Japan is only fourth country after Italy, Greece, and Sweden facing the harsh severity of the issues (Hanami 2006). Usually declining rate of population growth and increasing rate of aging population are thought to create pressure among the workforce in future affecting the supply and demand for domestic manpower and stipulate the need for the both skilled and unskilled labour force from overseas countries. Yet, such developments may greatly differ at company levels (Mourdoukoutas & Papadimitriou 1998).

National culture

Another significant factor that affects employment relationship practices in Japan is its national culture.

Employment relationships and work culture in Japan are greatly influenced by religion, society, and widespread beliefs and principles (Suzuki 2008). Since national culture is the grounding basis for work-related and company-based regulations, it is important to understand how Japanese companies have integrated cultural values into employment relationships on company level (Saka 2002).

 The influence of national culture becomes obvious, when considering the relationships between customers, managers, and workers in daily operations. In addition, specific companies’ cultures are subjects to changes and environment dependent factors that companies may face. The environment dependent factors may include any variable from age of workforce, life cycle, level of technology, and any other internal aspect that may cause the company to create internal change in order to adapt to external environment of business. Yet, the dependent factors are vital in determining employment relationship practices (Fujimoto & Nakata 2007).

Conclusion

Current paper asserts there have been numerous changes in traditional three pillar system of employment relationship in Japan in recent decades. All of the elements – life-time employment, seniority-based pay system, and enterprise-level labour and trade unions – have undergone changes since the post-war period. The changes included shift to more flexible working, performance-based wage system, as well as decreased influence of labour unions upon companies. Employment relationships in Japan are yet determined and shaped by national culture, increased global competition, declined strength of unions, and increase in aging population number.

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