“ Selecting and Focusing ” and Changes in the Internal Labour Market in Japanese Electrical Machinery Firms

1. “Selecting and Focusing” and Changes in the Internal Labour Market in Japanese Electrical Machinery Firms Hiroyasu Uemura Professor of Economics Yokohama National University CSR and Changing Wage Systems, Hitotsubashi University

2. 1. Introduction (1) • Faced with international competition and fluctuating demand in the market, Japanese electrical machinery firms are selecting their businesses and focusing on competitive business areas, especially, design and solution business. This brings about a change in the “value chain” of production and transaction processes. Under these conditions, firm’s strategies determine the shift in the boundary of firm organization and the internal labour market.

3. Introduction (2) • In many electrical machinery firms, the design workers of electrical parts, electrical products and software are bought up within the internal labour market on the one hand, and the manufacturing workers of electrical parts, the assembly workers of products and office workers are likely to be hired from the external labour market, on the other. • Faced with these structural changes in the employment system, positive labour policies are needed in Japan.

4. Introduction(3) :Perspectives of Our Analysis • Four patterns of restructuring of businesses: “selective expansion”, “selective contraction”, “overall expansion”, and “overall contraction” in both vertical and horizontal directions of the boundary of firm organization. • Ten different categories of worker: “the design worker of parts”, “the manufacturing worker of parts”, “the design worker of products”, “the assembly worker of products”, “the design worker of software”, “system engineer”, “research worker”, “office worker”, and “sales and service worker”. • The Analysis of changes in the value chain, the excess and shortage of workers, and changes in internal labour market.

5. 2. Based on an Empirical Investigation in Electrical Machinery Firms • A questionnaire survey in October in 2002, supported by the Research and Information Center of Japanese Electrical Electronic and Information Union. • 216 sample firms in the general machinery industry, the electrical machinery industry, the precision instrument industry and the information service industry, including Matsushita, Fujitsu, NEC, Toshiba • Reference book:Tsuru, T. and Denki Rengo Research & Information Center, Selecting and Focusing: An Empirical Analysis of Electronics and Information Technology Firms, Yuhikaku.

6. 3.Four Types of Restructuring Patternin both vertical and horizontal directions------the Boundary of firm Vertical Development and Design Manufacturing and Assembly Electrical applianceSemiconductorComputer Copy machine Horizontal Development of Software Service/Solution Sales

8. 4. Changes in the Value Chain in Electrical Machinery Firms • Integration of software and hardware into products. ex. “System on Chip” • A change in the relationship between the design department and the manufacturing department. The mutual assistance between the design and manufacturing departments have been the strength of manufacturing activities in Japan, but the design department will play a leading role with “modularisation”. • Open procurement is increasing, and the relationship between the parts-manufacturing department and the products-assembly department is being more flexible. • A shift in business from the manufacturing of products to “solution business”.

10. 5. Excess and Shortage of Employment • Excess and shortage of employment occurs with the different types of worker in the restructuring of businesses in the electrical machinery industry. • Excess: the manufacturing workers of parts, the assembly workers of products and office workers. • Shortage: the design workers of products, the design workers of software and system engineers. • It is not easy to transfer workers from the department with excess to that with shortage within firm organization. Therefore, the coordination of employment is needed.

12. The Excess and Shortage of Workers with the Different Patterns of Restructuring • The excess of the manufacturing workers of parts and the assembly workers of products is larger with selective contractionin the vertical direction. • The shortage of the design workers of parts and products are larger with selective expansionin the vertical direction. • The excess of office workers is larger with selective contractionin the horizontal direction.

13. 6. Changes in the Internal Labour Market • 1) Changes in the ILM of the Different Types of Worker • The ILM is still kept for all the types of workers. • However, the ILM will change for the manufacturing workers of parts, the assembly workers of products, and office workers in next five years. • 2) Changes in the ILM with Different Patterns of Restructuring • With selective expansionin both vertical and horizontal directions, the ILM will change more drastically for the manufacturing workers of parts, the assembly workers of products, and office workers in next five years.

14. With overall expansion in the vertical direction, the ILM will be relatively kept even for the manufacturing workers of parts and the assembly workers of products in next five years. • With selective contraction in the horizontal direction, the ILM will change more drastically for office workers , and hiring these workers from the external labour marker will increase in next five years. • Manufacturing workers are influenced more by restructuring in the vertical direction, while office workers are influenced more by that in the horizontal direction.

17. Factors Determining Changes in ILM---a logit RA

18. Factors Determining the Changes in the ILM • High value added in related processes. Especially, in the ILM for the design workers of parts, products and software. • Low value added in related processes. Especially, in the ILM for the assembly workers of products. • Selectivenessin the vertical direction affects very much the ILM for the manufacturing workers of devices and the assembly workers of products. • Selectivenessin the horizontal direction affects very much the ILM for system engineers and office workers.

19. In small firms, it will be much difficult to keep the ILM for assembly workers. • The ILM will be affected by the decision about whether the manufacturing process of parts and the assembly process of products will be transferred to Asian countries. • Various types of non-regular workers are increasingly employed as the manufacturing workers of parts, the assembly workers of products, system engineers and office workers

20. 7. Conclusion: Policy Implications and Corporate Social Responsibility • Firstly,faced with the coexistence of excess and shortage of workers as well as changes in the ILM of manufacturing and assembly workers and office workers, bringing up effectively both design and manufacturing workers with high skills will be more important to promote productivity increase in electrical machinery firms. • Corporations will be more responsible for establishing the system of skill formation of design and manufacturing workers at both firm level and industrial level. • Unions will have to establish a vocational training agency to support skill formation in both large and small firms.

21. Secondly,faced with the excess of manufacturing and assembly workers and the rapid increase in non-regular workers as manufacturing and assembly workers and office workers, the safety net of employment should be made to secure the employment of workers at both firm level and industrial level. Both corporations and unions will have responsible for supporting various kinds of professional employer organization to realise more job opportunity. • Thirdly,the strategy of firm is diversified, and the evolution of firm organisation has multiple trends. In these circumstances, both corporations and unions should have more responsibility for making the explicit rules of bargaining and long run policies at the industrial level. 

22. Thank you very much !