Japanese brain drain - Case study of Taiwan & Korea
The world has witnessed human resource flow as a driving force of economic development in many countries. Of the desire to upgrade their living standard in a better environment, migration is a key route to get rid of poverty. And the term “American dream” is referring to people who have strong aspirations to pursue a better opportunity for education and work with their commitment to hard-working. Indeed, the average male migrant can earn more than 5-6 times higher in the US compared to their home country.
While many studies focus on the mobility from developing countries to developed ones in terms of income migration or education migration, there is little attention to the reverse phenomenon from developed countries to developing ones. Recruitment records illustrate that a number of Japanese high-skilled workers have been hired by Korean and Taiwanese companies, which partly contributed to the transfer of technological knowledge in the region.
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● Japanese human resources policy
Japanese firms provide lifetime employment and wage seniority that offer stability over one’s career. But it also imposes a mandatory retirement age to ensure the circulation of human resources. Even though Japan is facing a shortage of labor with the rapidly aging population, the basic structure of the working system has not changed yet.
Due to the mandatory retirement, Japanese workers have little choice in the domestic job market and their opportunity is limited when they reach the middle-age stage. Therefore, they decided to search for overseas job opportunities to sustain their future career and financial security. (Kang & Sato and Ueki, 2017)
● The shift in Japan industrial and economic structure
Japan has been developing its domestic core heavy industry since the 1950s, with massive assistance from the bank affiliated with the government. Particularly, the Ministry of International Trade and Industry supported and encouraged the development of the electronics industry through the connection with the banking system providing an easy funding mechanism.
However, in the early 1990s, the burst of bubble in Japanese real estate market caused tremendous damage to the economy. The country lost confidence in economic development and began moving toward neoliberal economic policies instead of the traditional industrial concentration, fading away the advantage of Japanese-style financial capitalism. (Tabata, 2012)
Additionally, the oil crisis followed by the Yen appreciation after Plaza Accord in 1985 caused production costs in the leading export industry to go upward. The economy of Japan fell into recession, and its domestic financial market needed liberalization with the revision in the foreign exchange law to help Japan get rid of the economic downturn and find new opportunities outside of Japan. Greater FDI was made in that period to maintain profit and cost by using a cheaper labor force, resulting in further independence of companies from governmental regulation with the progress of foreign activities and the outflow of capital to build manufacturing bases in developing countries.
Because of the restructuring of the relationship between firms and state and the mobility of capital movement, various Japanese firms began to transfer their industrial and technological operation to other neighboring developing countries such as Taiwan or Korea at that time. Conversely, overseas enterprises in these countries also seized an opportunity to actively attract and select appropriate Japanese high-skilled workers for their technological absorption strategy.
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Kabu (2008) describes three approaches to technology transfer to Korea from Japan: Japanese companies have dispatched technicians to Korean companies, Korean companies have dispatched trainees to Japanese companies, and Japanese engineers have joined Korean companies.
It is noteworthy that Korean firms had the strategy of aiming for some electronics industry being in a business downturn in Japan to acquire technology capabilities and its human resources. When Japanese electronics companies started to lose their comparative advantage in their leading-edge technology in the 1990s due to the combination of consecutive economic decline (the Lost Decade) and shrinking market share to other rising technological powers, they conducted job cuts of many technical employees regardless of their previous superior performance when lacking newly accomplished results.
Jumping at the chance, many Korean companies took advantage to recruit these workers, who are masterfully grasping much important information about materials, equipment, and methodology used in Japanese technology. As Korean conglomerates such as Samsung and LG did during the first decline in the FPD industry in 1993-94, they hired Japanese engineers who had been left redundant and set up R&D centers in Japan to benefit from the circulation of human resources that the downturn released. Then they waited until the next recession to launch the strike by accumulating huge investments in 1995-96 (Matthew, 2005). This campaign led to the absorption of Japanese high-skilled workers to move into Korean firms, which indirectly introduced technology transfer with many experimental experiences from Japan.
More interestingly, it is witnessed that Korean companies have focused on re-developing technologies that Japanese companies have abandoned and improving manufacturing quality for commercialization. For instance, Korean companies had been searching for Japanese engineers involved in the business of producing television cathode ray tubes (CRTs) when Japanese firms shut down their tube TV production line in the early 2000s. As a result, Japanese engineers with a high level of seniority in the industry became more engaged in Korean companies' activities and moved to Korea with their technical knowledge.
In the interview conducted with Mr. B, a retired expert in television display technology who joined a major Korean electronics manufacturer from a Japanese firm, Mr.B admitted that the abandonment of display technology in Japanese companies forced him to transfer his career to Korea, where his technical knowledge was still applicable (Fukagawa, 2012).
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While Korean companies have attempted to seek Japanese expertise through many unofficial tactics and confidential contracts with employees, Taiwanese firms have accepted high-skilled workers from Japan in a more disclosure way with mutual consensus amid the spiraling competition between Japan and Korea in the high-tech industry.
Globalization trends have boosted the transnational mobility of high-skilled workers from Japan to Taiwan since the 2000s, as many Japanese technical specialists have been accepted in Taiwan to hold key manufacturing positions in Taiwanese firms. This flow of mobility is observable in the above-mentioned high-tech industry, particularly the Thin Film Transistor-Liquid Crystal Display (TFT-LCD) industry due to Japan's economic crisis and unprofitable business model.
TFT-LCD is a technology-intensive industry that requires about US$700 million in equipment investment per plant. Technology innovation in the TFT-LCD industry is extremely rapid; therefore, manufacturers have to raise funds from the capital market continuously and inject vast amounts of money into production capacity and technology upgrades.
By the 1990s Japanese consumer-electronics giants had become the world’s leading TFT-LCD manufacturers when they had succeeded in developing the world’s first mass production of LCD technology. Entering its period of economic prosperity, major Japanese electronics manufacturers raised an abundant amount of funds from the capital market to upgrade their corporate and production scale. However, along with the financial crisis after the collapse of the bubble economy in 1991, the electronics manufacturers were falling into a trap of paying off their enormous debt and could not afford to invest in new equipment, making the Japanese LCD industry confronted with pressure to be caught up in innovations by its Korean counterparts.
Subsequently, although both Japanese and Korean companies suffered from the 1997 Asian economic downturn, Korean TFT-LCD manufacturers could expand their share of the global market with a low-cost strategy and diminishing value of the won, from 16.5% to 26.5% of TFT-LCD market in 1997-98. Acknowledging the threat posed by its Korean rivalry, Japanese electronics manufacturers actively began transferring TFT-LCD-related technology to their Taiwanese counterparts. Various technology license agreements between Japan and Taiwan allow the diffusion of innovation to the TFT-LCD industry into Taiwan. Specifically, Acer Display Technology introduced 3.5 generation TFT-LCD technology from IBM Japan in 1998, and later adopted Multi-domain Vertical Alignment (MVA) technology from Fujitsu, marking a breakthrough in large-scale TFT-LCD production in 2000. From 2000 to 2003, in particular, competition between Japanese LCD-related firms and their Korean counterparts accelerated the technology transfer to Taiwan, and it simultaneously brought Japanese technical experts to Taiwan to work as either a consultant, supervisors, or even formal employees. (Wang, The Secret of the Development, pp. 187-205)
According to statistics from Taiwan’s Council on Economic Planning and Development (CEPD), Japanese firms have actively promoted FDI in Taiwan, which includes a large number of Japanese expatriate employees working in Taiwan with capital outflow. While Japanese firms’ new direct investment has been generally flat, averaging only 200 to 300 cases per year in the late 2000s and the number of Japanese branch offices or joint ventures in Taiwan has remained unchanged, the number of Japanese specialist personnel accepting assignments in Taiwan is increasing rapidly from 2004. This implies human resources mobility through the process of internal recruitment of Japanese engineers into Taiwanese firms.
Furthermore, in the past two decades, because of expensive labor, a lack of flexibility in organizational control, and tight fundraising, the Japanese TFT-LCD industry has been confronted with a serious operating crisis. The issue of the lifetime employment system and postponements in corporate structural reform have crippled the large-scale TFT-LCD business in Japan, leading to the draining of Japanese talent. Because the major electronics companies have been unable to make generous investments in equipment, the supply chain for large-scale TFT-LCD productions has gradually shifted from Japan to Taiwan.
As a result, large-scale TFT-LCD businesses have nearly disappeared in Japan, except Sharp still largely engaging in the business. Under these circumstances, many experienced Japanese engineers and retired executives from major Japanese electronics companies have no choice but to work in Taiwanese TFT-LCD firms.
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In general, the transnational mobility of workers tends to occur from developing countries to developed ones since it has more push factors and the high-rewarded dynamics of the foreign labor market. Thus, to alter this mainstream mobility flow, countries with lower economic status have to incentivize overseas high-skilled workers with better working and living standards compared to their hometowns. This playbook has helped Taiwanese and Korean enterprises to successfully attract Japanese specialists that play an important role in the development of the high-tech industry in these countries.
First, high salaries and extended work opportunities are the prerequisites of job transfer. Korean and Taiwanese TFT-LCD manufacturers usually offer extremely high salaries when recruiting Japanese technical personnel. For example, they offer annual salaries ranging from $300,000 to $400,000 to Japanese technical personnel or executives, who are earning perhaps only one-third of the given income at major Japanese electronics manufacturers (Tabata, 2012). And of course, the higher amount of wage corresponds with higher responsibility and roles in the companies, as they are expected to have progressive performance such as project leader introducing new business or consultant of technology management and innovation.
Secondly, firms in Taiwan and Korea try to arrange a smooth work environment with little language barrier. They would hire Japanese-speaking assistants and interpreters for both sides to understand and have efficient communication. But to be able to interpret technical terminologies and business conversation, Japanese high-skilled workers are provided with a local language course to mitigate daily constraints.
Third, support for daily amenities in terms of accommodation and transportation is well-prepared for high-skilled workers from Japan. Housing and cars are provided for both business and private purposes to alleviate pressure on daily basis problems. Besides, large companies even included grants for children's educational expenditure of these Japanese expatriates, as it creates the mental security that technical personnel can concentrate more on their work and services.
Conclusion
In the past two decades, Taiwanese and Korean firms have taken advantage of the crisis and expansion of global capitalism - the Japanese economic bubble and the growing globalization trend, to attract high-skilled workers from Japan with their empirical knowledge in technological know-how. Also, Taiwanese and Korean ventures had imported Japanese human resources effectively, learning their manufacturing technologies face-to-face from Japanese engineers that in turn helped to foster innovation and create their next-generation high-tech domestic industry, even though they had different approaches to internalizing the brain drain from Japan.
The outflow mobility of Japanese high-skilled workers highlights the convergence of the Japanese financial crisis, stagnated human resources policies, and the rise of Asian superpowers, which has triggered the technology transfer movement from Japan to its neighboring countries such as Korea and Taiwan. On top of that, this phenomenon appears as a wake-up call for Japanese policymakers to transform its high-tech electronics industry in a more flexible way that could secure the loyalty of their senior talents.
Reference:
Kang, Sato & Ueki, “Mobility of Highly Skilled Retirees from Japan to the Republic of Korea and Taiwan”, ERIA Discussion Paper Series, February 2017, Access date: 2023/02/05
https://www.eria.org/ERIA-DP-2016-31.pdf
Kazuhiro Asakawa, “Metanational Learning in TFT-LCD Industry: An Organizing Framework”, RIETI Discussion Paper, April 2007, Access date: 2023/02/05
https://www.rieti.go.jp/jp/publications/dp/07e029.pdf
Hiroshi Fukagawa, “A study on the Role of Japanese Engineers in Korean Industrial Innovation”, Kyushu University Institutional Repository, 2012, Access date: 2023/02/05
https://catalog.lib.kyushu-u.ac.jp/opac_download_md/4738310/11_p019.pdf
Mayumi Tabata, “The Absorption of Japanese Engineers into Taiwan’s TFT-LCD Industry”, Asian Survey, 2012, Access date: 2023/02/05
Takayoshi Kabu (2008). "Technology Transfer to Korean Companies by Japanese Engineers", Korean Economic Studies, Vol. 7, edited by Hiroshi Fukagawa, Kyushu University
Changes in Relations between Japan and Korea in the IT Industry: Focusing on Components, Materials, and Manufacturing Equipment for Semiconductors and FPDs
https://catalog.lib.kyushu-u.ac.jp/opac_download_md/4772426/19_p049.pdf
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