Harnessing the True Potential of Individuals

Japan’s startup ecosystem has been built on a bull run for the past decade. The number of deals in 2013 has doubled, and investments have increased tenfold, reaching JPY 850 billion in 2023, indicating a stark increase in the average deal sizes. Since 2018, 12 companies have had valuations superior to JPY 100 billion when they’ve gone public. What key factors do you attribute to this decade-long bull run, and how do you expect those metrics to evolve over the next two years?

In terms of investments, smart devices clearly became an important channel. The emergence of smart devices has really changed the game, and the engineering capabilities of companies have uplifted. In fact, it would be fair to say that the players have changed. With the introduction of new applications, news is now much more available to users of smart devices, and this has created opportunities for a greater spread of new businesses.

The next theme will be software as a service. The reason why Japan’s startup market has been so successful for the past ten years has been because there have been some strong themes for investment along with a strong urge from the Japanese government to push support for startups. Major companies finally realized that they could make profitability, but in order to innovate, collaborations with startups were necessary.

You mentioned the idea of diversification of themes. Japan has obviously historically had a series of advantages. In specific fields, we have seen big diversification all the way to energy and aerospace. When you look at Japan today, and you consider the strengths of startup hubs across the world, what areas do you think are the most interesting to your company?

There are two areas. One is a non-verbal cross-border. Another is entertainment, specifically content such as anime and games. This is, of course, from a global perspective, so speaking from a domestic perspective, there is a big enough market for software as a service and digitalization.

Japan is facing huge challenges with its current demographic shift. It is the oldest country in the world, and with a declining population, it is estimated that there will be an 11 million worker deficit by 2040. How has this demographic shift influenced your business, and to what extent do you think Japanese companies will need to look overseas to secure long-term success?

As you mentioned, the Japanese population is declining, with 2008 being the peak year. Now, the working population is increasing. The driving force behind this increase in the working population is women, who traditionally stayed at home in Japan and took care of children, but this situation has now changed with strong support from the Japanese government, such as their provision of nursing care support and nursery facilities. Companies are also now providing more childcare support. In addition to an increased number of women entering the workplace, we are also now seeing more and more seniors working, and this is because of Japan’s unique lifetime employment and seniority system. Traditionally, 60 years old was the retirement age, but that has now been increased to 65. However, companies are now recommending that employees remain in their 70s based on government suggestions.

Foreign workers have been augmenting the Japanese employment system, but this still only accounts for about 3%, so there is still room for growth. With the combination of women, seniors, and foreign workers, the working population in Japan is on the rise.

With all of this being said, the population of Japan is declining, and that is a fact we cannot escape, so there will be limits to our business in the market. With that in mind, we are now focusing on DX and the introduction of digital technologies. Another strategy is through business process outsourcing (BPO), which we call cross-technological BPOs. Finally, with the foreign workforce, we can mitigate some of the effects of the population decline.

Human resources are vitally important, so it is crucial that we nurture the personnel so workforces can be more efficient. We are actively partnering with other companies and global multi-vendors, working with companies like Salesforce, ServiceNow, Infosis, and BPO services that we provide to companies such as Microsoft. In particular, with Microsoft, we are nurturing female engineers in the Asian market. There is a very limited number of women in the engineering field, so we are pushing our concept of “Code without Barriers.”

Conventionally, with BPOs, companies outsource the operation side but not the system side. Now, there is a move towards integrating the operations with the system and then outsourcing it. We want to comprehensively provide the service from the upstream to the downstream, from digital system provisions to operations.

The trajectory of Pasona is quite interesting, starting with staffing and then moving to end-to-end digital solutions. The truth is that while Japan is at the forefront of aging populations, it is by no means the only country experiencing this dilemma. It is expected that by 2060, there will be at least 20 other countries with negative fertility rates, and 90% of the Western world is expected not to be able to sustain population levels. This has led a lot of journalists to argue that Japanese enterprises have a unique advantage in developing solutions tailored to aging societies. Do you agree with this argument? If you look at Pasona’s own services and product portfolio, which do you believe have the potential to scale to global markets, providing solutions to other nations?

Although if you generalize, the situation is the same, I think it is apparent that the experience will differ from country to country. Japan is unique with its own seniority and lifetime employment system, whereas, in Europe, the system is more job-oriented. It is only recently that the Japanese lifetime employment system has become more liquid with more job options.

Working culture will also differ depending on the nation. In Japan, more than half of people aged above 70 years old are willing to continue working, whereas in Europe, it is very different. Japan used to be focused on both children and working together, as women would balance work life and home life with dual pillars established to support women. However, now, with the aging population, there is more need for nursing care to take care of parents. With child care, there is a goal that once they reach a certain age, they are let go into the world to find their own way, but with nursing care, the goal isn’t clear since it is often there until a person dies. Additionally, there is added pressure on children if all four parents require nursing care.

The biggest challenge is creating a working environment that could be done jointly with elderly care. Having a completely different mindset and establishing such a scheme will become important at some point in the future, and I think that once Japan does so, it can become a model case for the rest of the world. This, however, requires government action as well, particularly in terms of reshaping legislation, and we as a company are not enough to force this change.

You mentioned the increasing need to use technology to find solutions to the declining population. With the population decline, we are also seeing an apparent issue where not only is there a shortage of workers, but increasingly, there is a shortage of specialized workers, particularly with the aging population retiring from industries, leaving a lack of skill inheritance. Additionally, it is necessary to invest in upskilling and reskilling employees to stay ahead of the latest technological developments. What kind of services does Pasona offer to train the workforce of the future?

We provide training programs as a digital education curriculum by working together with vendors and partners. Microsoft is a good example where we jointly provide a human resources capacity-building program and then provide that service to customers. Another is with a company called Surplus, a listed company, where we provide certified reliability leaders (CRL) training services where office workers can become engineers. This is a very viable business for us.

At the beginning of the interview, we mentioned the importance of bringing foreign workers into the Japanese employment system. Last year, the number of foreign workers coming to Japan was around 1.8 million. However, Japan can be a tricky country to navigate and find a job, with workers often finding it difficult to adjust to the culture, language, and lifestyle. What support services does your company offer to help foreign workers? How can you help foreign workers adjust to life here in Japan?

Recently, the numbers reached 2 million. Language is the biggest barrier. However, there are increasing numbers of Asian workers coming to Japan who have more of an affinity towards the Japanese language and culture. It has also been pointed out that the JPY depreciation is now having more of a positive impact. The issue is now the fact that salaries have not really increased for around a decade now. As part of our service, we focus on foreign students in Japan and try to support them with employment opportunities across Japan. While many foreign students want to work in Japan, less than half are able to find the right job, so we provide business matching and seminars to teach Japanese work and business culture.

Pasona has been dispatched by the Japanese national government and local governments to provide seminars at Japanese companies to let them know what is required to accept foreign workers.

It is interesting that Pasona has been able to integrate various different services and solutions around one central theme, which is workforce creation. We’ve talked about your staffing and recruitment services, but your firm has increasingly invested in business process outsourcing, both in a very traditional sense, such as outsourcing headcounts, accounting, and customer relationship centers in other regions, but you’ve also gone beyond that. You provide IT consulting services as well as services relating to what you refer to as “business re-engineering,” where you help your clients identify how to optimize workflows. If we divide your business into recruitment, business process outsourcing, and consulting, what synergies are you able to create, and how do those synergies end up being a bonus for your customers?

We first started as a staffing agency, providing talented individuals to companies. Through our work with various companies, we have accumulated knowledge of business operations, which in turn has led to the establishment of BPO services.

Commonly, in Western countries, businesses tend to stick to their core business, and they externally outsource other lines of business. In Japan, this is different, and companies still try to retain all of their businesses in-house. I think this comes down to Japanese companies being afraid to outsource to a non-related third-party vendor. Instead, they often create a group company within, thus keeping the operations in-house. The advantage of Pasona is that we are already affiliated with companies through our staffing activities. This means that companies feel comfortable to delegate work to our company.

In Japan, there are BPO-specialized companies, but they are short on staff, so we provide staff to other BPO companies. Our core competency is our bountiful experience in staffing, together with the understanding we have gained about business operations. With the BPO services, we are essentially a triple threat, putting our company in a unique position in the market. Staffing is a red ocean market, but once it comes to BPO, the seating costs are higher, so there are fewer competitors.

Your company is very active with M&As and BPOs. Could you explain to us the rationale behind some of your recent acquisitions, and are you looking to conduct similar activities in the future?

The acquisitions really came down to getting the timing right, and with Kanden Joinus, they have kept their BPO department within the Pasona group company. Over the past few years, we have acquired over 60 BPO companies and temporary staffing companies, both small and large, which has enlarged our presence.

The solutions your company offers are very broad, from IT and manufacturing to healthcare and specialized roles. Looking to the future, which of these areas are you seeing the most demand in?

Currently, since Japanese companies are not actively outsourcing business, we are trying to change the environment by more actively acquiring BPO companies so that we can centralize the work. At the same time, we are also looking to provide more high-level holistic services.

We are working together with Panasonic on creating a joint venture relating to IP management BPO services. This is where we are reliant on Panasonic’s know-how, and through this venture, we hope to expand our own capabilities in specialized fields. As for supply chain and procurement services, we have a joint company together with Hitachi, Panasonic, and Infosis, and we are looking to expand this to a global scale.

Pasona doesn’t just focus on the domestic market, and we know that you have provisions in over 30 countries, including the US, Singapore, Malaysia, Vietnam, and many more. Which countries have the highest demand for your services, and are there any new markets where you see great potential for your business?

We are strengthening our presence in the Asian and ASEAN regions, and the biggest sales growth is seen in both ASEAN and India. The company’s approach is to recruit and train ASEAN people, and this is done in order to pique their interest and introduce them to Japanese jobs. This is a plus for Japan, considering the shortage of manpower. Our strengths are our eight locations in India, Vietnam, and Indonesia. In Indonesia, we have seven locations, and in Vietnam, we have five. Having multiple offices across the nation helps us strengthen our recruitment services.

If you look at the staffing and recruitment model, you have two key stakeholders. One is the clients of companies that provide workforces, and the other is the actual people you are going to be providing. When we talk about those overseas markets, including India, how do you reconcile these two stakeholders? What activities do you have to ensure that you find the best talent pool possible in overseas markets?

In India, for example, we have a local company administering staff, and that company has a local president. Our main customers are Japanese companies, so recruitment is more related to those companies strengthening their presence in overseas markets. Our company has partnerships with universities across the globe to create collaborations between academia and industry. In Korea, Poland, Hong Kong, Vietnam, Taiwan, and the US, we provide training and internship opportunities locally.

Japan has quite a unique system of lifetime employment, but this is already beginning to change, and job positions have become more fluid, with trends emerging in Japan, such as skill-based hiring and mid-career hiring. This poses challenges to companies trying to understand this shift in mindset. From your company’s point of view, what are some of the challenges and opportunities you’ve discovered due to the shift in Japanese work culture?

The Japanese labor market’s transition to a more fluid environment is a recent thing, and job hopping has become more well-known. Among the 10 million people willing to change jobs, only 10% take active steps to do so. There is huge leeway for this job-hopping market to grow. With this, we are seeing the development of new businesses in Japan that already exist in Western markets, such as retention of the employment  and welfare provisions. We plan to open these new fields in Japan.

To set up these new businesses, we are currently researching overseas markets, particularly focusing on how business is conducted in those markets. We recently acquired a mental health care company, so we can provide comprehensive solutions to improve work environments.

This seems to be a shift in mindset towards talent retention and mental health care. If we look at the next three to five years, are there any new services or products you are interested in developing?

With the aging workforce, the need for health care is growing, so we are looking to provide services such as online remote health consultations with nurses and doctors. Our company also has a health management department, which is consigned to BPO businesses, and we are seeing growth in this area.

We saw that Pasona is attending the Osaka Expo next year. What will you be showcasing at the event?

We will be showcasing iPS cell hearts, which are, for intents and purposes, artificial hearts. This is to display an amalgamation of the future for humans and technologies. We are eager to showcase the latest cutting-edge research alongside human integration. We plan to incorporate the character Astro Boy into this exhibition as well.

Awajishima island is basically a laboratory, experimenting with new work and lifestyles. With the usage of new technologies, we hope that efforts will lead to more regional revitalization and the creation of new industries.

When you look at Pasona Holdings as a group, we see that there is a relatively new division linked to tourism and regional revitalization. How does this new division fit into your broader business goals?

Rather than just solely focusing on regional revitalization, our focus is to create a new social experiment. This involves gathering talented personnel to Awajishima island and seeing how things play out. We have relocated part of our headquarters to Awajishima Island, and over the past four years, the population has grown. Before, the island struggled in terms of population, but with our entry, the social environment has changed. We want to see how much impact we can make by bringing talent here. Since our arrival, there have been about 30 new companies, including venture companies, relocating their headquarters. Overall, we have about 2,000 people working on the island.

Imagine that we come back in 2026 and have this interview all over again. What goals or dreams do you hope to achieve by the time we come back for that new interview?

That will be our 50th anniversary, and that is a huge milestone. We are now currently planning on how to reach the next 50-year milestone beyond 2026. Technology aside, there are so many unique points to humans as a workforce. We want to emphasize the uniqueness of humans as workers by providing solutions to the well-being and work environment.

For more information, please visit their website at: https://www.pasonagroup.co.jp/english/