Business Travel Management Still In Its Infancy

<B> Business Travel Management Still In Its Infancy</B>

By Amon Cohen

<I>Tokyo</I> - Business travel in Japan is not managed according to the Western model: Negotiating discounts with travel suppliers is rare, most trips are booked through in-house agencies, flights with the two major airlines have to be booked on separate proprietary reservation systems, corporate cards are unusual and many travelers operate on a per diem allowance.

To corporate travel managers in the West, this may sound reminiscent of their business travel environment before deregulation and recession took hold. Industry watchers, however, say that Japan's present economic problems are poised to set it down the road to more aggressive travel management.

To assume that the Japanese are somehow missing a trick by not consolidating and controlling their travel expenditure is to misread their business culture on a massive scale and make arrogant assumptions that the West has a monopoly on rational corporate practice.

American Express recently has researched the Japanese market with a survey of 789 large companies. Among the most astonishing findings, the survey showed that only 13 percent of the companies have negotiated air fares. The figures for car rental and hotel accommodation are 20 percent and 31 percent, respectively.

Only 5 percent pay for their travel and entertainment with a corporate card. Instead, 42 percent use cash advances or per diem allowances, and another 20 percent of T&E bills are paid through direct invoicing.

On the travel agency front, 44 percent of large corporations -- including most of the big name firms, such as Hitachi, Honda, Mitsubishi, NEC, Nissan, Sony, Toshiba and Toyota--have corporate-owned agencies. But of those that have an agency of their own, only 60 percent mandate that their employees use it.

At these agencies, Amex found, average annual in-house sales are $50 million, booked by an average of 40 agency employees. Sixty-six percent of companies do not have a travel manager with ultimate responsibility for T&E management.

<B>In-House But Diverse Systems </B>

''Travel management is still a brand new thing here in Japan,'' said Naoki Oto, senior manager of international sales for Tokyu Hotels Japan. ''Many companies do not even know that it exists.'' Oto, who represented Tokyu in New York for seven years, said that the large Western travel management companies have made little headway.

A major obstacle to corporate travel management is the lack of compatible technology platform. Flights that originate from here with Japanese flag carriers Japan Airlines and All Nippon Airways are booked on separate systems and terminals, while Japan Railways bullet trains--the main form of inter-city transport in Japan--are booked on a separate system. Partly, this is because the global distribution systems are in English, and most Japanese struggle to comprehend the Roman alphabet. It is also because there is little demand to integrate them. Overstaffing is common in Japanese companies, where employees expect a job for life, and depositing surplus staff in the in-house travel agency is, by all accounts, a common occurrence.

Further, there is only minimal provision of management information. In a classic chicken and egg situation, the Japanese travel industry has failed to devise comprehensive technology because there is little demand for data, and there is little demand for data because the technology is inadequate. Said Oto, ''With all these different systems, how the hell are you going to make up a statement at the end of the month?''

One company that is working on a solution is Japan Travel Bureau. Said to be the largest travel agency in the world, JTB has an estimated market share of over 30 percent of all agency purchases in Japan. In 1996, it introduced an outsourced corporate travel service for the first time, including a solution that lashes together the assorted booking systems.

The work has been done in conjunction with IBM, which is also a JTB corporate customer, and several other Western companies in Japan are believed to have signed with JTB as a result. Sales figures are impossible to obtain, but Oto said: ''If anyone can make travel management catch on in Japan, it is JTB.''

Several obstacles, however, remain. With per diems dominating, the corporate culture allows that within their budget, employees can choose any travel supplier they like. That is not to say that there are not pressures on travelers to use certain suppliers. In Japan, ''relationships'' are everything and if a company department has a long-established history of buying from a particular airline or hotel chain, it is difficult for a rival to pry that link apart.

Hard negotiating is therefore a rare occurrence. ''We get Western companies proposing hotel deals, but not Japanese companies,'' said Oto. ''In any case, it is difficult to do a deal because there is no way of getting information.''

Other analysts say Japanese companies do negotiate discounts with travel vendors, but according to a model of their own.

<B>Negotiating Japanese-Style</B>

''There is negotiating but not as we understand it,'' said Howard Allen, vice-president and general manager of the American Express Travel Services Group in Japan. ''Discounts are given but there is no bargaining. It is all about relationships, creating a situation of fragmented purchasing with many suppliers.''

Still, Allen said the imminent Big Bang in Japan's financial markets will lead to deregulation and a closer look at travel. ''I think the system will evolve. Close personal relationships are symptoms of a pretty regulated economy,'' he said. ''There has been much more dealing off price recently."

Over the past two years, he added, "International travel and purchasing managers are becoming more involved in local purchasing contracts, and also the airlines, particularly the non- Japanese ones, are increasingly investing in direct corporate incentives.''

Mitsuo Inagaki, an Amex spokesman in Japan, also thinks that the country's economic problems will help usher in Western-style travel management. Confidence in traditional Japanese business practices was shaken by the collapse in November of Yamaichi, the country's oldest and fourth-largest broker. ''Perhaps from now on people will do things their own way if it seems rational,'' he said. ''If you talk to Japanese people and ask them how they feel the pace of change, they will say they feel it very much.''

To illustrate the many pressures that produce Japan's very different attitude to travel management, Amex Japan secured an interview for BTN with Asahi, its second-largest corporate card client in the country. The interviewee, who declined to be named, works in the human resources department, which frequently is responsible for overseas travel in Japanese companies.

Asahi Chemical has an in-house travel agency, employing 16 people at its Tokyo office alone. It organizes 3,000 overseas trips each year and countless more domestic itineraries.

Employees are obliged to seek permission from a senior manager if they wish to fly domestically rather than take the train. Most of the rest of the travel policy dictates per diem allowances, which vary, though not greatly, according to rank and seniority. Accommodation allowances are weighted additionally according to which city the employee is visiting. Travelers may choose any hotel within their allowance or pay the difference for a more expensive one out of their own pockets. Conversely, they keep the balance if the hotel is cheaper than their allowance. No receipt is required, saving on administrative overhead.

When it comes to air travel, employees are allowed to fly any carrier they like domestically and are encouraged, although not mandated, to use JAL or ANA when flying abroad.

Reservations are paid through an American Express lodge card kept with the in-house travel agency. Employees also have Amex cards, but the data is not used for gathering management information or subsequent supplier negotiations. Instead, the main benefits are cutting down on cash advances and a comprehensive travel insurance package that is part of the Amex card proposition in Japan.

Asahi Chemical earns commission through its in-house agency of 9 percent for international flights, 4.5 percent for domestic flights and 2 percent for train tickets.

In spite of its size, Asahi Chemical does not drive volume or marketshare-based discounts, nor does it foresee this happening in the near future. ''A lot of issues remain to be resolved before Japanese companies change to the Western style of managing costs,'' said the human resources executive. ''If Japanese companies had a travel manager to keep an overall eye on travel costs, it would be a lot easier. But instead each department manages its own travel budget.

''The level of cost-consciousness is increasing. There is a tendency in the company to join forces to reduce costs, but this has not yet happened in travel. Whether we will bring in a travel manager in the next two to three years to reduce our costs is questionable.''

These opinions move toward the heart of the difference in attitude between East and West. Although there is fierce loyalty to the company, much of that loyalty is concentrated in the employee's own department. The department controls its own budget and has its traditional relationships with suppliers, making corporate-wide deals very difficult.

Also axiomatic to the Japanese way of thinking is the obligation of the employer to the employee, and here again Western-style consolidation is inappropriate. ''If you specify to the employee which airline they should use, their degree of choice would be lessened,'' said the Asahi Chemical executive. ''That would give them less flexibility in planning their travel schedules.''

Even more fundamentally, cutting costs is an anathema to the Japanese way of doing business. To cut costs means putting employees out of work and putting suppliers out of business. It also implies a confrontational attitude that is not regarded as acceptable in a consensual society. And if companies sack workers for short-term gain, society as a whole loses through the dysfunctionality that accompanies financial deprivation.

"It is true that we are behind the West if you are focusing narrowly on costs,'' said Amex's Inagaki. ''But in Japan there is a greater emphasis on harmony. We think long-term and of the betterment of the community and employees.''

The same applies to suppliers. When Clifford Grauers, general manager of the Park Hyatt Tokyo, tried to raise rates for corporate customers, some of them refused to accept the increase. Grauers at first considered ceasing relations with them, but the hotel's Japanese staff advised him against it. The following year, his corporate customers said they were now ready to have him raise the rate.

"If we really pushed to increase rates, our clients might accept--but then when occupancies were low, they would push us to lower rates,'' said Park Hyatt director of marketing Hirohide Abe. ''People don't change jobs much in Japan, and they remember how you behaved for many years. In the long-term relationship, we don't push them too much and they don't push us. It is a question of balance.''

Balance, relationships and harmony epitomize a business culture that makes it very difficult to introduce the more robust Western style of travel management. Whether these principles buckle under to the brutalities of economic globalization over the next five years will be a fascinating battle to watch.