Japan's Famous Hospitality Is Keeping Productivity at Lowest in G-7

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Mitsukoshi department store

Employees bow at the entrance to the Mitsukoshi department store in Nihonbashi, Tokyo. Photographer: Tomohiro Ohsumi/Bloomberg

Customers are gods, as a saying goes in Japan, where staff press buttons for shoppers in department store elevators and hotel porters line up to bow to guests.

While Japan is revered for this hospitality, or omotenashi, all that bowing and scraping may be sapping productivity. So much so that the nation has ranked lowest of the Group of Seven nations by that measure for nearly 30 years.

With Japan facing a labor shortage as the population ages - - the jobless rate is at its lowest since the late 1990s and projected to fall further -- Prime Minister Shinzo Abe wants to more than double productivity growth in the service sector by 2020. He’s targeting the service sector that makes up about 70 percent of the world’s third-biggest economy, and has failed to embrace technology like Japan’s manufacturers.

“Success in raising the productivity of the service industry depends on whether we can get technology into service companies,” said Hidenobu Tokuda, a senior economist at Mizuho Research Institute Ltd. in Tokyo. “The problem is that service companies tend to be small, and unlike big manufacturers it’s tough for them to afford the initial investment of introducing technology.”

The government hopes that with lower corporate tax rates and consumer prices seen rising, companies will spend on automation. Abe told executives at a gathering of the country’s biggest business lobby last month in Tokyo that “the key to raising productivity is investment.”

The business world backs Abe’s drive. Kiyoshi Tanigawa, an official at the Keidanren lobby’s industrial policy division, said by phone Wednesday that the government’s policy is “commendable.” Akio Mimura, chairman of the Japan Chamber of Commerce and Industry, said in April that the impact of the labor shortage is felt hardest in the service sector.

Japanese Culture

A public-private sector panel on productivity last month gave examples of how costs can be cut through innovation while maintaining the level of service that people expect in Japan.

The Taiho Japanese restaurant in Tokyo uses tablet computers to cut out middlemen and place orders directly with fishermen, while the Yumotokan hot spring group has conveyor belts to send food to waiters out of sight of diners in its banquet halls. These technologies are used behind the scenes, while customer-facing service remains intact.

“While omotenashi raises the quality of services, it requires a lot of time and effort,” said Yasuhiro Kiuchi, a senior researcher at the Japan Productivity Center in Tokyo. “It’ll be hard to change this culture, but Japan has the inventiveness to make use of IT or improve efficiencies without customers noticing.”

Selfless Approach

Japan Airlines Co. defines omotenashi on its website as “a completely selfless approach to receiving guests” in a country where customers are not expected to tip for good service.

“Omotenashi is part of Japanese culture,” Kiuchi said. “Japanese customers demand a very high level of service but we don’t know how it should be paid for.”

Kiyoko Kondo embodies omotenashi. She’s greeted clients at the flagship Mitsukoshi department store in central Tokyo for 35 years and is able to welcome more than 300 regular customers by name.

“I get my reward when people say ‘Thank you,’” said 55-year-old Kondo. “It’s not cool to get money for my service.”

Productivity -- calculated as gross domestic product per hour worked -- was $41.5 in Japan last year, versus more than $50 in all other G-7 nations, according to Organisation for Economic Co-operation and Development data. The U.S. led the pack at $67.4.

The gap is worse in the service sector. Productivity at restaurants and hotels was 26.5 percent of that in the U.S., and about 41.5 percent in the retail and wholesale sector, according to an industry ministry report in 2013.

Spurring ‘Revolution’

At a meeting with private and public sector leaders on June 18, Abe said he wanted to spur a “revolution” in service productivity. This panel designated five service sectors -- restaurants, hotels, retail, health care and transportation -- as having low productivity.

Japan is performing more strongly in areas such as finance and banking, doing better than France and Germany, the ministry report showed.

One sector where Japan’s hospitality is paying dividends is tourism where, helped by a weaker yen, visitors have nearly doubled since 2013. The nation is ranked first out of 141 countries on its “treatment of customers” by the World Economic Forum, and Abe wants to harness this to boost Japan’s image overseas in the run up to the 2020 Olympics in Tokyo.

The challenge, however, is to monetize this hospitality while maintaining high standards.

“Japanese hotels and restaurants are full of the omotenashi spirit,” Abe said in a March speech. “But good service alone isn’t enough. Good service must be valued and compensated to sustain business.”

This complimentary-service strategy has been embraced by McDonald’s Corp.’s Japan business, where the restaurants’ menus offer a free smile to customers.

“I’m proud that people imagine a smile when they think about McDonald’s,” said Yumi Sato, a-24-year-old part-time worker at a store in Tokyo. “If it was a 100-yen smile, then I wouldn’t be smiling anymore.”

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