Located in the Pacific Ocean, Japan is an island nation in East Asia that is among the biggest global HR services markets, as measured by revenues. With a nearly $5 trillion gross domestic product (GDP) and 128 million people, Japan enjoys the world’s third largest economy.
In 2014, Yano Resources Institute completed its HR Resources Overview identifying Japan as the world’s second largest contingent labor market, with an estimated value of $36 billion and the probability that it will continue to grow. Additionally, Adecco Group has research estimating that more than 400 clients in Japan utilize 100+ Dispatch workers, and its 2014 Annual Report estimates that the Japanese market represents roughly 15% of the global staffing market following behind only the USA, with 28% as measured by revenues. Clearly, Japan is a market where contingent labor plays a big role. For clients utilizing multiple staffing firms to provide talent within their companies, a Managed Services Program (MSP) model could prove to be very beneficial.
MSP solutions support the end-to-end management of the procure- to-pay process for contingent labor and provide total visibility into such areas as spend, worker classification types, utilization by job category, tenure, and Haken agency performance. As a result of increased visibility, an MSP is able to proactively manage some of the most common Haken Compliance Risks, as well as facilitate and enable competition amongst the Haken agencies. Haken compliance risks include, but are not limited to:
- misclassification of workers
- poor management of tenure limits based on job category
- correct payment and calculation of overtime
What is a Haken Agency?
Haken is the Japanese term for temporary employees. A Haken Agency is responsible for dispatching temporary employees to companies.
The Dispatch Law
The focus on Japan’s market extends beyond being recognized as the world’s third largest economy and second largest contingent labor market. For many years, the expected revisions to Japan’s Worker Dispatch Act of 1985 have created anticipation and discussion. Multiple revisions since the initial enactment of the Dispatch Law have removed many of the restrictions on the use of contingent workers. Occupations have continued to be added to the list approved for fulfillment by staffing service providers (Haken agencies). Additionally, licensing requirements of agencies were relaxed over the same period.
The Ministry of Health, Labour and Welfare in Japan makes it very clear that sub-contracting (or “Name Lending”) is not permitted. For this reason, in Japan MSP clients still contract directly with their Haken suppliers to allow those companies to directly dispatch workers to the client. Aligning with the regulations, an experienced, global MSP provides a valuable service for Japan-based organizations by managing their client’s staffing service providers. To ensure the success of the MSP program it is absolutely vital to select an MSP that provides a comprehensive scope of services driving standardized processes, consolidated invoicing and treasury solutions, and decreasing workloads for client operations management, human resources, and procurement professionals.
In the past, the Japanese contingent labor marketplace has demonstrated a reluctance to adopt the MSP model for management of dispatch or temporary workers. Concerns surrounding the legality of the business model with regard to the business practices for worker dispatching, supplier funding acceptance, and the compliance of Vendor Management Systems (VMS) have been key drivers behind this hesitation. As education in the marketplace and familiarity with MSP program successes become more recognized, adoption of the model is sure to grow.
With caution waning, successful MSPs operating in the Japanese market are paving the way to broaden and deepen client partnerships. Experienced MSPs have the market knowledge to design, build and deploy solutions that will benefit both Haken agencies and clients using dispatch workers.
The Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers, hereafter referred to as the Dispatch Law, regulates the business practices for “worker dispatching.” It was designed to limit temporary staffing to certain occupations or job categories in an effort to protect the employment economies.
While Haken agencies have voiced concerns about the acceptance of the MSP fee and clients in the market may assume that suppliers will not participate, our research and experience demonstrate that Haken agencies will accept the supplier funded model. In fact, throughout the programs that we have launched in Japan, we have achieved 100% adoption with our implementations, indicating acceptance and support of the business model. Participating in an MSP program can also offer staffing agencies the exposure to job postings within a client that they might not have had while working independently. These agencies can also benefit from the reporting capabilities present in the VMS tool. As programs mature in the markets, MSP program teams will engage, coach, and mentor their Haken agencies to help them achieve continued success.
Another hurdle in the Japanese market is the complexity of overtime rules and their alignment to the individual contract. Success depends on working very diligently with local subject matter experts to ensure the correct timesheet data is captured and reflected in the invoice values. We work with our clients and the VMS technology providers to design the timesheet capture and invoice processes and conduct robust testing during all implementations.
Advances and investments in VMS technology specifically for the Japanese market make implementing MSP programs a ripening opportunity. Pontoon has partnered to configure the world’s largest VMS software in Japan to be fully compliant with Japanese Haken Law and the translation of Japanese language acceptable to the Tokyo Labour Bureau. Japanese Haken Compliance Reports require specific legal language translation. Special attention was given to ensure that the translation of those VMS fields which are part of all of the client-side Haken Compliance Reports were accurate. Additional needs for further translation may be required to keep certain fields within the VMS aligned with each client’s corporate culture/terminology pertaining to the use and management of contingent labor. Each client is unique and success comes with an MSP provider that has the experience and knowledge to make sure they receive the best possible solution.
Recently, an American multi-national consumer goods company decided to implement an MSP in the Japanese market, which would replace the existing time and material (T&M) process. Additionally, they would replace the existing e-timesheet technology with a global VMS technology. The challenge was to design, build, and manage a regional MSP and VMS that meets the diverse employment and associated legislative requirements of multiple Asia Pacific (APAC) countries, including Japan. With the leadership and knowledge of an experienced project team, early Haken agency engagement and early onboarding of the MSP program team, the implementation was a success. All workers were paid accurately and on time with the new invoice process. Most importantly, 100% staffing agency participation and supplier funding was achieved. This case study confirms the opportunity in the Japanese market when the MSP provider has the knowledge, experience, and willingness to partner with the client, the VMS provider, and the Haken agencies to achieve a common goal.
Japanese employers utilizing the services of multiple Haken agencies can be confident in the MSP model alignment with the regulations of the Dispatch Law. Many global and multi-national companies have expanded their MSP programs into the APAC market over the last couple of years. The opportunity to reduce the compliance risks and capture valuable reporting have been key drivers. Recent investments in VMS technology have added additional benefits to assist in managing tenure, overtime, and reporting for audits. With estimates of 400+ clients utilizing more than 100 dispatch workers, the time is now to partner with Pontoon and enjoy the many benefits provided by our MSP model. We are cultivating partnerships in Japan and we are prepared to deliver better people in a better way.
Pontoon is a global HR outsourcing company specializing in improving an organization’s workforce; including contingent, permanent and statement of work. We manage the contingent supply chain on behalf of our clients and recruit and onboard permanent hires. The tactics employed by Pontoon result in significant cost savings and revenue improvement, increased worker quality, unparalleled visibility and greater compliance. A division of Adecco with operations in nearly 100 countries and with more than 1,000 colleagues worldwide, the Jacksonville, Florida-based organization delivers solutions to more than 100 industry-leading companies.