TOKYO — More than 1,000 of Japan’s technical experts left over about four decades to join companies in China, South Korea, Taiwan, Thailand, and other Asian rivals, research has found, raising concerns for the country’s competitive edge in cutting-edge technology.
The government is seeking a way to stop the drain.
“Employees with great technical prowess have flowed out” of Japan said Ayano Fujiwara, a senior researcher at the Science Ministry’s National Institute of Science and Technology Policy. Researchers tracked down staff movements from 1976 through the spring of 2015, and confirmed that 490 employees left Japanese electrical machinery makers for South Korean businesses, while 196 went to China. Another 350 went to smaller rivals like Taiwan and Thailand.
Big-data analysis of Asian tech patents over the last 40 years turned up cases in which the same names appeared on applications from Japanese companies, then later from overseas ones. The over-1,000 tally only counts experts of a high enough level to be filing patents, so the real number is likely higher.
At least 40% of those expatriated to South Korea and nearly 30% of those to China came from eight Japanese power players such as Hitachi and Panasonic. Many were relatively young — in their 40s or younger, for over 90% of the China-bound and over 70% of those headed for South Korea. And the majority were “in Japan’s top class” of technicians, said Fujiwara, with frequently-referenced patents.
The exodus to China and South Korea began in earnest in the 2000s. In the wake of the bust of the dot-com bubble and the collapse of Lehman Brothers, DRAM chip maker Elpida Memory’s earnings slumped and it went bankrupt in 2012. Chipmaker Renesas Electronics was forced to slash its staff in half, and many capable semiconductor techs suddenly cut adrift looked overseas for work.
“There were several thousand Japanese engineers in China in the late 2000s,” affirmed one such expert headhunted by an electrical machinery maker, suggesting the numbers in this report are merely the tip of the iceberg.
In South Korea last month, one Japanese engineer who had previously worked for the Samsung group was directing quality improvement at a smartphone parts factory in Ansan, a city about 30km southwest of Seoul.
While leading a development team at a Japanese electronic parts maker in 2005, that engineer was approached by a headhunting company regarding work at a new Samsung factory. The offer came with extraordinary benefits, including a more than 30% higher salary and a three-bedroom apartment — even for a single person. And a history of working with Samsung meant the engineer had little trouble finding work in South Korea even after departing the electronics conglomerate in 2012.
Chinese and South Korean manufacturers have grown rapidly of late. Samsung Electronics’s sales have doubled over a decade to about $177 billion in calendar 2016, according to QUICK FactSet. For Chinese communications device maker Huawei Technologies, sales have more than quintupled. During that period, Team Japan’s revenues have stayed more or less flat.
“Chinese companies can perfectly copy technology within three years,” says the Samsung alum. South Korea’s greatly growing technological prowess seems to have slowed the country’s Japan poaching. But rivals like Taiwan and China, in the view of NISTEP’s Fujiwara, “will keep on hiring Japanese engineers.”
Another Japanese engineer, this one a 40-something at Toshiba’s Yokkaichi semiconductor facilities in Mie Prefecture, was approached in earnest by someone who said he represented a scouting company.
“You’ll get an annual salary of 30 million yen,” or about $265,000, said the headhunter, promising a further 50 million yen as a reward once a factory was up and running. “Work in China for three years, and you’ll get paid plenty.”
For Chinese chipmakers on the road to mass production, the Toshiba Memory unit — recently agreed to be sold to a consortium of Japanese, American and South Korean companies — has been a treasure trove of engineering talent.
Japan’s government is keeping a close watch on the brain drain. Japanese enterprises have superior technology, not just in semiconductors, but a multitude of areas including carbon fibers — used in aircraft fuselages, for example — and high-precision machine tools.
In October, new foreign exchange laws took effect, to keep sophisticated technology related to national security from flowing overseas. The legislation allows for ordering overseas investors and others to sell their stakes in a Japanese company if concerns exist that a merger or acquisition could lead to leaks of critical technology.
Japan has provisions for punishing engineers that move to overseas companies and leak crucial domestic technology, but as an official at the Ministry of Economy, Trade and Industry points out, the country “cannot fully apprehend someone who’s transferred” abroad.
In 2012, Nippon Steel — now Nippon Steel & Sumitomo Metal — sued South Korean steelmaking partner Posco for stealing advanced steel sheet technology. Former employees of the Japanese company apparently contributed to the leaks. Technological leaks assisted by staff can impact a company heavily, although Nippon Steel’s case appeared to be one of industrial espionage.
In the age of connected devices, said to be part of the Internet of Things, electronic device experts are in high demand in all types of industries in Asia and beyond. The outflow of staff “not just to Asia, but also to Western companies like Google in the U.S. and Germany’s Bosch, may inhibit Japan’s future competitive ability,” said the president of Tokyo-based Meitec Next, which finds engineers for businesses.
“Engineers have a relatively low status in Japan,” said Shunsuke Mikami, president of Tokyo headhunting company Genius. “We need to prepare ways to compensate them better, such as higher pay.”
It is natural for experts to want an environment that values them more highly. Being of a younger generation born and raised in a more global era, many likely feel fewer qualms about moving overseas. Trying to protect national interests by increasing oversight alone may no longer be a fitting solution.