Japan Cos. Look To Western-Style Mgmt. Techniques
<B>Japan Cos. Look To Western-Style Mgmt. Techniques</B>
By Amon Cohen
Tokyo - Only three years ago, Japan seemed a country ripe for embracing Western-style travel management practice. The bubble economy that brought unparalleled expansion and prosperity for three decades had burst. Consequently, the emphasis looked certain to shift from relentless--and frequently reckless--sales growth to prudent cost-containment. Yet, today, it is evident the dam has not broken to flood corporate Japan with travel management.
The principles are starting to be discussed and understood, but cultures do not change overnight. The term "relationships," the bedrock of Japanese business practice, still frequently is used and the short-term negotiation of supplier deals does not sit easily with those Byzantine, deep-rooted links that bind corporate interests to one another.
It is wrong to infer from this that the Japanese approach to corporate travel therefore lags behind the West. What can be said with confidence is that it is different. Yet, if the dam has not burst during the past three years, the pressure certainly is building. It is being applied by the continuing downward slide of the Japanese economy.
The Nikkei index still is heading south. Factories, shops and offices are closing, unemployment is approaching a previously unimaginable rate of 5 percent and confidence has been undermined by exposure of widespread corruption and mismanagement at the highest levels of political life. "Relationships" has been joined by another word in the business lexicon, familiar from the Soviet Union in the mid-1980s: "restructuring."
Japanese companies are contemplating huge upheavals in the way they run their corporations. In some cases, they are having it forced on them, especially in the automotive business, where such Western companies as DaimlerChrysler and Renault are getting involved in rescue plans.
The signs of change with which Western travel managers are familiar also are appearing. Japanese carriers on April 1 will reduce agency commission, dropping from 9 percent to 7 percent. Low-cost carriers, including Skylark and the unintentionally amusingly named Air Do, have entered the domestic market, forcing down fares by as much as 40 percent. As such, the in-house travel agencies that service the travel needs of most of the largest corporations are beginning to shut down in favor of outsourced agencies.
Perhaps most significantly of all, two major agency joint ventures are putting their weight behind travel management Western-style. JTB, said to be the largest travel agency in the world with a turnover of $15 billion, on Jan. 1 merged its corporate travel operation with Carlson Wagonlit Travel Japan to form JTB-CWT Business Travel Solutions. Then, Nippon Travel Agency, the third-largest agency in Japan, on Feb. 13 announced it was forming a joint venture with American Express.
American Express Nippon Travel Agency starts trading in April. A glance at the data produced from an American Express survey late last year shows just how different Japan is than the West. The poll of 242 companies, all employing at least 50 people, revealed that air transportation is way down the list of travel and entertainment expenditure categories, accounting for only 11 percent of T&E spend.
The briefest acquaintance with the marvels of Japan's high-speed train system explains why non-air transportation is much higher at 26 percent--especially as 89 percent of business travel is domestic. However, the largest category is the "E" in T&E, with entertainment accounting for 40 percent, confirming just how important building and maintaining "relationships" is to the Japanese.
When it comes to the handling of bookings, only 27 percent of the polled companies have a single designated travel agency, while 57 percent have none. There are early signs of the arrival of online reservations--about 2 percent of journeys are booked through semi-automated processes, such as e-mail trip requests to the agent, and 1 percent are booked without human intervention.
Payment methods, on the other hand, resemble the West a decade and more ago. On average, 73 percent of companies give out temporary cash advances and 71 percent also operate per diem allowances. Another obvious candidate for efficiency is getting rid of direct invoices from vendors, which still are used by 41 percent of companies.
American Express found that 23 percent of the responding companies issue corporate cards, but only 14 percent of them issue the cards to all traveling employees and only 13 percent insist the card is used for all T&E expenses. American Express concluded that cards are distributed "to reflect the status of staff within a company, with cards issued primarily to senior employees and not to streamline expense management."
When it comes to supplier relationships, the survey again paints a startling picture: Only 8 percent of Japanese companies have negotiated air deals, whether arranged by themselves or through their travel agency.
Phil Gsell, president and CEO of Business Travel International's Japanese partner Toppan Travel Service, believes the slow pace of change has surprised many of his rivals. "Carlson Wagonlit, Rosenbluth International and American Express all expected it to happen more quickly," he said, "but business in Japan still is based on who you know and who you have a relationship with. For the first time, things are changing and there are wider ways of thinking, but it will take another five years."
Guy Mackee, vice president for regional and global sales at JTB-CWT, believes events will move faster than that. "What has remained the same is that reluctance to change, but corporations here are becoming aware that T&E is something that needs to be managed and from which they can get real value," said Mackee. "Clients now realize it is not just a question of downgrading from business class to economy. Corporate Japan has an urgent need to look at cost-containment, not just in travel but across all areas of purchasing."
American Express director of public affairs and government relations Mitsuo Inagaki thinks there will be a new attitude toward the frighteningly large sums companies lavish on entertainment. "Entertainment was much more valuable when the economy was doing well and it was traditionally important to build relationships and leverage them," he said. "There is still that perception, but for younger people it is becoming less important. They see that competition is becoming more international and that we are no longer in an old-fashioned world protected by the government."
Not everything will change to the Western model. Mackee, who has lived in Japan for 20 years, finds the issue of travel policy and compliance a sensitive one. No one wants to create potentially confrontational situations where employees could lose face by being castigated for acting outside policy.
Mackee thinks the solution will be online booking systems with built-in policy filters that prevent the traveler from making non-compliant purchases in the first place. There is still some way to go, however. "At the moment, self-booking tools will handle only published international fares," he said.
More progress is being made in the closure of in-house travel agencies, which, in the past, frequently have been a repository for unwanted personnel and even have served as fiscally useful loss-makers.
According to American Express head of business and sales planning Akira Kawase, recent changes to ministry of finance accounting policy mean that from this year Japanese companies no longer can transfer losses to subsidiaries to keep the balance sheet of the main business looking healthy. "Most in-house agencies are loss-making, so companies are looking to change, probably in the next six to 12 months," Kawase said.
Carlson Wagonlit and Toppan Travel both have noted an increasing number of reviews of in-house agency arrangements in recent months. Both American Express and Carlson Wagonlit said they have entered into joint ventures with Japanese agencies because they complement one another. The Western agencies are providing the travel management know-how and global networks, while JTB and NTA have an easier entry into Japanese businesses.
NTA is transferring its $320 million corporate business into its new venture with American Express, which has 140 employees. JTB, which slowly had been building its understanding with Carlson Wagonlit for five years before commencing the joint venture, similarly is moving across its 300 corporate clients with a combined spend of $300 million.
Mackee is delighted that the rival joint ventures are launching so close to each other. "We think the Amex/NTA deal is excellent news," he said. "This is going to drive a lot of awareness. For us, partnering with JTB gives us a lot of credibility. JTB has a lot of clout in the market."
For the moment, external travel agencies are working on a commission basis in the vast majority of cases, but Toppan Travel's Gsell has noticed the first conversions to management fees. He expects the trend will be accelerated by the airlines reducing to 7 percent commission on April 1.
Mackee agreed. "Although it has been successfully introduced among foreign clients, there is not sufficient understanding among Japanese companies about what constitutes a fee relationship and how it differs from a rebate relationship," he said. "It is inevitable that it will come as commission drops."
Whether this will, in turn, generate negotiated supplier deals as Americans understand them is a moot point. "Japanese airlines are not very adaptable in this respect," said Gsell. "They understand discounts but not in the sense of a business deal. There is a regular price and a special price."
The special price, of course, goes to companies that have a "relationship" with the carrier. However, there are few, if any, special prices given to anyone on domestic air volume. Another problem area is the booking systems. Travel agents need at least four separate terminals in their offices: one each for rail, domestic air, Japan Airlines international flights and All Nippon Airways international flights.
Mackee predicted that the air reservations systems will merge in the next 12 to 24 months. Certainly, JAL, ANA and the third major domestic airline, Japan Air System, are working on an Internet portal similar to the Orbitz project in the United States.
Meanwhile, JTB has invented a front-end platform called Trips V to give the reservations agent some functional commonality, though Mackee admitted that "it is leading-edge for Japan, but it is not quite there."
With the pace of reform varying so much across different aspects of the travel management program, it is difficult to predict how much will change in Japan in the next three years. Certainly, the travel agencies with Western know-how look likely to start edging out in-house operations, but many cultural issues will continue to make the wholesale imposition of a Western blueprint unlikely. Restructuring is on its way, but relationships will continue to exert a powerful influence.