[611504015] Dang Hai Tran

Running head: CHANGES IN AJINOMOTO’S HR SYSTEM 1

Ajinomoto corporation in ASEAN:

A study of the changes in HR system regarding VoC theory

Dang Hai Tran

Nagoya University

Nagoya, January, 2016


Introduction

Founded in 1909, Ajinomoto is the most powerful and long-lived Japanese corporation in

the field of culinary. It is also the world’s largest producer of aspartame – a special sweetener

widely used in cooking, with a 40% global market share1. The idea behind it was kindled in 1908,

when Dr. Kikunae Ikeda discovered “umami” – another taste different from sweet, salty, sour and

bitter. After over a century of development, Ajinomoto has gained significant achievements and

strongly convinced the customers of its slogan “Eat well, live well”.

A notable thing about Ajinomoto is, since its early years, this company has successfully

invested in several South East Asian countries, namely: Singapore (1927), Philippines (1958),

Thailand (1960), Malaysia (1961), Indonesia (1969), and Vietnam (1991). All of those became

members of Association of Southeast Asian Nations (ASEAN), which makes Ajinomoto one of

the greatest Japanese brands in this region nowadays.

Considering that fact, I decided to look into Ajinomoto Corporation as a way to verify the

Varieties of Capitalism (VoC) Theory. In this report, I am going to point out several changes in

Ajinomoto’s Human Resources (HR) system since it penetrated ASEAN (Malaysia in particular),

then analyze them in the light of the aforementioned theory.

1 Matsui, Akira; Morita, Issei (November 18, 2004). "Ajinomoto May Exceed Full-Year Forecasts on Amino

Acid Products". Bloomberg.com. Retrieved June 23, 2010.


Literature Review

Varieties of Capitalism theory (VoC)

This theory emphasizes on the institutional diversity. It states challenges to globalization and

supports divergence by proving “nations often prosper, not by becoming more similar, but by

building on their institutional differences” (Hall & Soskice, 2001, p. 60). The ideas behind the

theory include:

- Embeddedness: this indicates economic action is embedded in broader social structures or

constrained by non-economic institutions.

- Path-dependence: this refers to the powerful role of history in explaining present and future

paths of economic behavior. Prior events, systems, institutions,… shape what is possibly today

and in the future.

- Complementarity: this refers to how institutions interlock and mutually reinforce one

another. Complementarities may also exist among the operations of a firm.

Traditional Japanese business system

Being a late industrializer in late 19th Century, Japan has many characteristics that set its

business system apart from other countries’. However, in this report, I only focus on the labour

aspect.

Labour system of Japanese companies has three pillars:

- Life-time employment system: companies hire employees from formal schools and keep

them until retirement. The employee is to serve the company loyally and not try to leave for a

better position. This system also means large firms train and promote their own employees to fill

higher managerial positions, rather than hiring specialists from outside. HR department is powerful

and highly respected.


- Seniority-based pay system: the longer you stay, the higher salary/position you may achieve.

In other words, this system underpays young workers, but rewards them well in later years, even

if their productivity declines. It offers workers a strong incentive to remain with their first employer.

According to Graham (2003): “It is because the company hired them and has ‘raised’ them to be

fully-fledged members of the society that they feel a debt of gratitude that prevents them from

changing company” (p. 69).

- Enterprise Unionism: enterprise unions represent “core” employees from every level and

in large firms enroll 80 to 90 percent of all regular employees. The companies guarantee them

welfare and security in return for their loyalty, bonuses for long hours, worker’s voice for no strikes.

“Because the unions are enterprise-based it makes no sense for them to fight the company. The

union is there essentially to complement the company management, not to oppose it; it works with

the company, not against it” (Graham, 2003, p. 29).


Analysis

Since its very first days, Ajinomoto has witnessed changes in its HR department. Although

there is not much information about its early system, based on what Hall et al. (2001) stated:

“nations with a particular type of coordination in one sphere of the economy should tend to develop

complementary practices in other spheres as well… the institutions sustaining coordination in one

sphere can be used to support analogous forms of coordination in others” (p. 18), we can assume

this corporation at first applied traditional business system, just like any of its Japanese

counterparts at that time. Additionally, not until 1990 when Japanese economy had to encounter

major problems, did Japanese business start to reform. It is hard to believe Ajinomoto could

survive by standing out of the majority before it had any business with other countries

(complementarity is strong in such a “coordinated model” as Japan).

The changes in the company’s labour system began when it stepped into ASEAN. Let’s take

a closer look at Malaysia. Established in 1961, Ajinomoto Malaysia is a public-listed company

formed between Malaysian shareholders and the Japanese Ajinomoto Group. It employs some 400

personnel, of whom about ninety are at the executive level. This shows an increase in mid-career

hiring, not only the newly graduated like before. About employee resourcing, Rowley and Abdul-

Rahman (2007) noted: “The company recruits new employees as and when necessary, especially

when a vacancy arises due to resignation or retirement. Staff turnover is small while expansion in

HR is minimal; thus, it is uncommon for the company to conduct annual recruitment exercises, as

is the case of the parent company in Japan” (p. 86). Ajinomoto Malaysia still manages to obtain

loyalty from its staff, a feature of life-time employment system. The fact that recruitment exercises

are not regular may be because: as a new branch, its labour size and number of employees reaching


their retirement age are not large. Another possibility is the need to expand is not as great as in

Japan.

Another considerable modification occurred in employee rewards. Prior to the Asian Crisis

(1997), Ajinomoto practiced HR policies similar to its parent company’s in Japan, where seniority-

based pay system played an important role in promotion and salary raise consideration. However,

the crisis was used as a rational for creating a new classification and compensation system, which

was applied in 2001. Accordingly, salary increase and promotion are now merit-based, instead of

seniority-based, so as to reward good performers and prevent resignations among highly potential

employees. In this sense, the “job grade” system – as it is called - evaluates staff based on the level

of skill and competence development, thus making more chances for promotion (there are five

tiers in total: job grade for senior manager is 1, manager: 2-3, deputy manager: 4 and so on). Also

affected, salary increase now depends on the Collective Agreement agreed once every 3 years

between managers and employees, therefore, even new staff have equal opportunities to the senior

one. From those facts, it can be concluded seniority-based pay system is replaced almost

completely in Malaysia. Due to Rowley et al. (2007), “adoption of the new system could also be

seen as a move towards localization, not only in terms of the component of its managerial staff,

but also in terms of its HR policies” (p. 87).

Labour relations remain essential in Ajinomoto Malaysia. Local employees are allowed to

participate in a union - Food Industry Employees Union, which is affiliated to the Malaysian Trade

Union Congress. Nowadays, some 200 or so employees are members. This means labour unionism

is more open, unlike the traditional system, where it is mainly done in-house. Furthermore,

Ajinomoto Malaysia stimulates the feeling of loyalty inside its employees by staff development

programs. It invests about 2.5 percent of the total salary budget in training sessions, conducted


both in-house and outside the company’s premises. The two main topics are team-building and

good inter-department communications with a view to reducing intra-organizational conflict.

So what happened after all those changes?

(Source: Ajinomoto Malaysia’s Annual Reports)

The chart above shows Ajinomoto Malaysia’s performance after the new HR system was

applied in 2001. Between 2002 and 2006, the company’s profit2 and gross earning per share

gradually decreased from about 14 million RM to 7 million RM, and from 33.6 Sen to 11.3 Sen

respectively. However, generally after 2006, there was a fairly stable upward trend in the

company’s performance toward 2014 (except for a plunge in 2009, when the effects of Great

Recession began to take its toll on Malaysia, and a dip in 2013). It can be concluded that the

company struggled at first with the new system, but flourished later.

2 Profit is a better indicator than revenue in this case because it counts total cost, including the expense for HR

system modifications.

0

10

20

30

40

50

60

70

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

0

5

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25

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45

Sen

Mil

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n R

M

Ajinomoto Malaysia's Financial Highlights (2002 - 2014)

Profit before tax Gross earning per share


While in Ajinomoto Malaysia, traditional system, more or less, changed in every aspect,

Ajinomoto in Japan stays intact for the most part. According to “Ajinomoto Group Sustainability

Report 2013”, the corporation is now using the 5-tier job grade system, replacing seniority-based

pay system. They develop different training sessions for each tier such as: Ajinomoto Global &

Group Leader Seminar for Job Grade 1, Ajinomoto Global Future Leader Seminar for Job Grade

2,… to raise awareness of the Group’s shared values (consolidate the labour relations in fact) and

open a door to the next level in employees’ career ladder. This also implies Ajinomoto corporation

still prefers promoting their own employees to hiring from outside. Besides, the Ajinomoto Group

in Japan has established a labor-management council where management policies are regularly

discussed as well as a labor condition assessment committee. Although there is no relation to any

national unions, this shows leaders’ endeavor to listen to their staff (worker’s voice for no strikes).

They guarantee welfare and security in return for loyalty by setting up “Disaster Prevention” and

“Occupational Health and Safety” Philosophy and Policies to ensure employee health and safety

(With all those things, unsurprisingly, the employment turnover rate of Ajinomoto corporation in

2013 was only 1.2%).

Thus, in summary, the parent Ajinomoto’s HR system has two out of three characteristics

remain pretty the same as the traditional labour system.


Discussion

This case can be used as an argument to support the VoC theory for the following reasons:

Firstly, it indicates strong complementarities existing inside a company, which is essential

to its development. In this case, the dependence of Ajinomoto on its HR department and labour

union is clearly seen through the fact that: whether in Malaysia or Japan, Ajinomoto still tries to

keep its employees involved in a union. It is a wise way to prevent conflicts and to gain employees’

loyalty, thus maintaining the life-time employment system. After all, “the primary concern of the

union is to protect the life-time employment system itself” (Graham, 2003, p. 30).

Secondly, it exemplifies the concept of embeddedness by noting that in getting into Malaysia,

Ajinomoto had its actions constrained by the country’s non-economic institutions/forces. For

example, Ajinomoto Malaysia’s unionism is no longer done in-house but linked to the Malaysian

Trade Union Congress, suggesting not only the expansion of labour’s power but also the influence

of Malaysian political authority on the company. Moreover, Ajinomoto also had to adjust (localize)

its recruitment process by taking in more experienced employees. That change is possibly due to

the difference between two educations (in terms of quality for instance) which does not enable it

to hire newly graduated students as usual.

Last but not least, this case is an example for divergence concept in the era of globalization.

Ajinomoto had to modify its own system to adapt to the new market. All three features of its

traditional HR system are not the same after being conducted in Malaysia, eventually leading to

satisfactory results when the company has become one of the most successful investments of

Ajinomoto in ASEAN. Meanwhile, the parent corporation itself does not change much. Therefore,

it is reasonable not to view globalization as a cause for convergence. Different regions tend to

maintain their characteristics and localize the exotic corporations.


Conclusion

"When in the Rome, do as the Romans do". From the story of Ajinomoto, we can see that

changing to adapt to a new market is important to the development of firms. However, it does not

necessarily mean changing the whole system. Provided that those modifications are based on the

core values and do not go too far from the traditions, the corporation can still go well.

The case also supports VoC theory by suggesting that globalization and convergence are not

the same terminology. There is no common model for all, and localization happening enables

different economic regions keep their main features even under the pressure of globalization. That

explains the diversity in the world nowadays, which is the key point in VoC theory.


References

Graham, F. (2003). Inside the Japanese company. London: Routledge.

Hall, P.A., & Soskice, D. (2001). Varieties of Capitalism. Oxford: Oxford University Press.

Jacoby, S.M. (2005). The embedded corporation: Corporate Governance and Employment

Relations. Oxford: Princeton University Press (chapter 2).

Rowley, C. & Abdul-Rahman S. (Eds.). (2007). The Changing Face of Management in South East

Asia. London: Routledge.

Ajinomoto Co., Inc. (2014). Ajinomoto Group Sustainability Report 2014: Developing and

Promoting Diverse Human Resources from a Global Perspective. Japan: Author(s).

Ajinomoto Malaysia (2002 – 2014). Annual Reports. Malaysia: Author(s).

Enterprise Unions in Japan. (n.d.). In Cross Currents. Retrieved from

http://www.crosscurrents.hawaii.edu/content.aspx?lang=eng&site=japan&theme=work&

subtheme=EMPLOY&unit=JWORK084

Life-time Employment. (n.d.). In Cross Currents. Retrieved from



The Seniority Wage System. (n.d.). In Cross Currents. Retrieved from



http://www.crosscurrents.hawaii.edu/content.aspx?lang=eng&site=japan&theme=work&subtheme=EMPLOY&unit=JWORK020

http://www.crosscurrents.hawaii.edu/content.aspx?lang=eng&site=japan&theme=work&subtheme=EMPLOY&unit=JWORK020

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