Silicon Valley talent war has Toyota seeking techies at home

WHEN IT COMES to recruiting tech talent, Toyota Motor Corp. is anything but subtle.

The Japanese automaker recently launched a marketing campaign targeting information technology specialists and software engineers along Tokyo’s suburban Nambu railway line, where the research centers of Japan’s signature tech giants are clustered.

“We want engineers from Nambu Line area more than from Silicon Valley,” declares one poster at Mukaigawara station, where one of the exits is designated exclusively for NEC Corp. employees.

Toyota’s talent raid is unusual in a country where lifetime employment is still the norm at many big companies. “It’s very unique for a Japanese company as well-known as Toyota to blatantly target specific talent markets or companies with direct advertising in regional locations like this,” said Casey Abel, managing director at recruiter HCCR K.K. based in Tokyo. “It says a lot when companies such as Toyota have to get this aggressive in order to attract the talents they need to navigate these markets.”

Such are the pressures bearing down on Toyota as it searches for global IT talent to power its expansion into autonomous driving and artificial intelligence.

SOFTWARE CAPABILITIES

“As cars become smarter, carmakers need strong software engineering capabilities to launch connectivity-based products,” said Zhou Lei, a Tokyo-based partner at Deloitte Tohmatsu Consulting. “They’re traditionally strong in mechanical engineering, but when it comes to connectivity and software, electronics makers, communications and mobile companies are a good fit to transfer their capabilities to automakers.”

Salaries have soared in Silicon Valley for automotive technology experts thanks to the emergence of Uber Technologies, Inc. and Tesla, Inc. as serious rivals. That’s why Toyota and Honda Motor Co. are looking for engineers at home, where average salaries for IT professionals are about ¥ 6 million ($ 54,500) a year, about half of what counterparts in the US earn, according to a survey by the Ministry of Economy, Trade and Industry (METI) of Japan.

The technology belt along the Nambu line in Tokyo has yet to produce a world- class start- up and some once-mighty names are in decline. Toshiba Corp., which has a research center in the area, is forecasting a loss of ¥995.2 billion for its last fiscal year and is selling its semiconductor business to cover multi-billion-dollar losses in its nuclear unit. Telecommunication and electronic device maker NEC reported the smallest annual operating profit in eight years.

‘NAMBU ALL-STARS’

“They may have to settle for Nambu Line all-stars until they are able to really compete with real IT giants for market-moving talent,” said Abel. “I’m sure on a spot basis they can get people in Silicon Valley, but getting them is only half the battle as the competition is even more intense there,” he said. “Retention and ability to provide people with a chance for meaningful and interesting work is amplified much more when you have Apple, Google, flying car start-ups, Amazon and others all around you.”

Toyota, despite softer sales this year, remains the most profitable company in terms of operating profit in Japan. The car maker is scheduled to report first-quarter earnings Friday. Operating profit is expected to decline 15% from a year earlier to ¥ 548.2 billion, according to the average of six analyst estimates compiled by Bloomberg.

Part of the reason for the decline is the surge in R&D costs, which is forecast to rise 1.2% to ¥1.05 trillion this fiscal year, as the car maker spends big on Internet connectivity and autonomous driving to keep up with Tesla, General Motors Co. and Ford Motor Co. Toyota and Mazda Motor Corp. are nearing a deal to buy stakes in one another and jointly build a $1.6-billion US factory, according to people familiar with the matter.

Japanese companies are playing catch-up with US rivals when it comes to making inroads into the fields of IT. Ford established a science lab in Palo Alto in 2012 to develop software, while GM has built two data centers in Michigan since 2013 to streamline product development, manufacturing, marketing, sales as well as connectivity services.

CONNECTED CARS

Toyota last year announced its connected-car strategy, which includes building a big data center in Plano, Texas to better understand how its customers drive the cars. The company also spent $1 billion in 2015 to form a research institute in the US focused on artificial intelligence and robotics technology and hired former US defense scientist Gill Pratt to lead it.

Since then, the institute has established research centers located quite close to four major US universities: Stanford, MIT, Carnegie Mellon and the University of Michigan.

“This close co-location provides a natural mechanism for recruitment at universities and thinktanks where there’s a lot of talent,” said Bob Carter, executive vice president of sales for Toyota Motor North America. “Plus we have a very good reputation, so that helps.”

VENTURE FUND

On top of that, Toyota last month started a $100-million venture fund, Toyota AI Ventures, to invest in start-ups. Many of the best minds want to have their own firms rather than be salaried employees so they can profit from their business when the technology takes off. The fund has already invested in a maker of cameras that monitor drivers and roads, a creator of autonomous car-mapping algorithms and a developer of robotic companions for the elderly.

“They didn’t have anyone who specializes in these fields, so they can’t internally groom those engineers,” said Koji Endo, an auto analyst at SBI Securities in Tokyo. “Toyota had been able to manage on its own in the past, but going forward, it will need to do it with someone else. Whether that is through collaboration, joint venture, or M&A remains to be seen.”

Japan is in the midst of one of the world’s most severe talent shortages, with IT professionals among the top three positions hardest to fill, according to Manpower Group’s annual market survey. Last year, the country was short of an estimated 171,000 IT staff and the gap may more than quadruple to 789,000 by 2030, according to the METI survey.

Nissan said last October it plans to hire about 150 engineers in Tokyo by 2018 for software, cloud computing, data analytics and machine learning. Honda started operation last year of