The Japanese HRO/PEO Market Potential

Japan is hoping that small businesses, with a little help from HRO, will help revitalize the economy.

by Hiroshi Karibe, Dr. Kenneth A. Polcyn

Since the early 1990s, Japanese entities have been monitoring the U.S. business model, with particular interest in the Professional Employer Organization (PEO) and other variations of HRO. Companies have been intrigued by the PEO industrys potential for assisting small businesses. U.S. small businesses in the 1990s were the leading contributors to U.S. job growthproviding 50 percent of the GDP. Future projections expect U.S. small businesses to create up to 60 percent of the new jobs in 2005not the situation in Japan!

What does U.S. small business performance have to do with the Japanese economy? For more than a decade, Japan has been in economic turmoil. Deflation, banks that prop up large debt-ridden companies, and government directed capitalism that supports large, unprofitable, and poorly run business, have all discouraged competitive business. Over time, small businesses have suffered.

Now in some circles, there is a growing interest in emulating the Anglo-American Competition Model to reap the potential of small business contribution toward reviving the Japanese economy to compete in the global economy. Nevertheless, Japanese firms, when faced with new foreign competitors, can be ruthlessly fierce to keep them from succeeding. This has led to an interestingly innovative Japanese approach.

During 2002, delegations consisting of the Japanese government, academia, and business representatives visited the United States in order to explore the PEO/HRO potential. They met with personnel from U.S. government agencies and the National Association of Professional Employer Organization (NAPEO). After further research, the decision was made to pursue HRO in Japan and to establish a Japanese-based small/mid-sized business outsourcing model unique to the country. The result was the September 2004 creation of the Japan Association for Professional Employer Organization (JAPEO).

A key player was the Japan Business Federation, a comprehensive economic organization created in 2002 by absorbing the Japan Federation of Economic Organizations and Japan Federation of Employers Association. As of May 2004, the Federation had a membership of 1,623, including 1,305 Japanese companies, 91 foreign companies, 129 industrial associations, and 47 regional employer associations. Its mission is to achieve a private-sector led, affluent market economy, creating a model for Japan that will lead to national economic recovery and contribute to the global economy.

At a November 16, 2004, Tokyo meeting in the Hall of the Japan Business Federation, the concept was presented to HR representatives from various large and small companies throughout Japan as well as the media. Speakers from the United States, the Japanese Business Federation, legal circles, and JAPEO provided presentations. A new Japanese book, Employment Revolution with PEO: The New Employment Business in the USA, was also provided to attendees. It explained the U.S. PEO/HRO concept and the potential of this model for Japan.

The meeting generated considerable interest from the attendees and requests for further information. Moreover, an article that followed in the monthly Japanese Human Resources Business magazine created additional inquiries. Since then, JAPEO has been conducting meetings with Japanese businessmen. This has resulted in a desire to talk with American PEO/HRO companies that are interested in expansion in Japan. Partnerships and joint ventures are options. However, some Japanese entrepreneurs are considering establishing their own companies to service small businesses.

JAPEO, with its partners, is moving forward with models for conducing PEO/HRO business in Japan. They should be available in 2005. One model will explain the steps required to create such a business. Another will address the unique services, products, and operating components of a Japanese PEO/HRO as well as related processes reflecting government laws and regulations. There will also be a model devoted to treating the financial aspects of establishing an HRO service firm, including pricing strategies and a proposal system for helping to sell products and services. The final model will focus on Japanese/American partnerships and joint ventures.

In an increasingly global economy, the ability to adapt to new business trends, such as HRO, will become important for businesses that want to stay competitive. JAPEO hopes to play an active part in helping Japanese business contribute to the new economy.