SHORTAGE IS NOT A NEW PROBLEM
Despite a large number of recent articles detailing the IT labor shortage in Japan, it is far from a new phenomenon. In 2008, the New York Times wrote that after many years of fretting over coming shortages, the country was actually facing a dwindling number of young people entering the engineering and technology related fields. Ever since Japan reached first-world status in the 1980s, young people’s interest in science and engineering has declined, and Japanese companies started to feel the recruitment pinch in 2008. In the previous 10 years, the number of science and engineering undergraduates fell 10%, while the number of creative arts and health undergraduates increased. Despite the drop in science and engineering undergraduates in Japan, 79% of Japanese companies said at the time they either had no plans to hire foreign engineers or were undecided, mostly due to fear that foreign engineers would not be able to adapt to the Japanese language or corporate culture. Perhaps for this reason, Japanese companies began employing engineers abroad at affiliates in countries like India, Thailand, and Malaysia.
ENGINEER SHORTAGES CAUSE SECURITY PROBLEMS
In 2018, it is obvious that the problem has become much worse. After cryptocurrency exchange Coincheck Inc. was hacked in January, the company noted that one of the main causes of the hack was the company’s inability to hire software engineers in Japan, which prevented the company from performing the internal checks necessary for security. Despite the hack, the number of exchanges has continued to increase, which has further increased the demand for software engineers. However, structural factors in Japan will make it difficult for exchanges to find more engineers. In contrast to Japan, Britain and other countries have strong research sectors that provide specialists in cryptography and other fields that the exchanges require. In the United States, companies are able to hire engineers from major cryptocurrency centers like San Francisco and New York. To make things even more difficult for Japanese exchanges, most engineers in Japan rarely make mid-career moves like engineers do in other countries.
NEW DEMANDS MAKE OLD PLAYERS CHANGE PAY STRUCTURES
The demand for software engineers has increased base pay significantly. While increasing pay for engineers at small startup companies does not cause much internal strife, the situation is much different at traditional manufacturers in Japan. For example, while engineers can make as much as ¥20 million ($170,000) a year at a tech company, salaries at manufacturers are in the range of ¥7 to ¥9 million due to strict budgets and low margins. To find engineers, Honda has said that it will adopt a more flexible salary policy at its new Tokyo lab, and Toyota has decided to forgo the problem completely by establishing its connected-car business unit and AI research center in the US.
ENGINEER RETENTION MAY ALSO BE A PROBLEM
In addition to the salary issue, there is one other factor that differentiates tech companies and manufacturers: attention span. IT engineers are used to building systems in a matter of weeks, while the development cycle for a car usually lasts years. Perhaps due to the fast turnover of work at IT companies, most IT professionals in the United States and China change jobs regularly. Conversely, half of the IT professionals in Japan have never changed jobs. Nissan has decided to use this to its advantage by establishing its connectivity division in Tokyo, with the belief that the loyalty of Japanese workers will give Japan an edge over Silicon Valley.
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Also published on Medium.