(Feb 6): Japan is facing a stark shortage of skilled human resources in the technology sector, even as it seeks to digitalise its economy and kickstart its lagging semiconductor industry.

Three quarters of technology hiring managers in Japan found recruitment to be “very” or “quite” competitive last year, with a shortage of skilled candidates being the top reason, according to new research by recruiting firm Morgan McKinley. The trend is prevalent across industries as well, the report found, with 90% of the organisations surveyed also facing competitive hiring.

The report notes that Japanese employers have had to speed up their hiring process so as to not lose out against their competitors. This stands in stark contrast to the US, where 32,000 tech workers have already been laid off this year, and multiple job offers are still rare.

Japan’s shortage of software engineers in particular has caused the country to lag behind in digital transformation. The report recommends a move toward recruiting foreign workers, as 31% of tech hiring managers cited a lack of skilled candidates as their biggest challenge for this year. Japan’s foreign worker population has recently been on the rise, topping two million for the first time as of October.

“A lot of organisations in Japan could for sure look outside and further afield, and I think they’d probably find more skilled talent or perhaps individuals that have had more experience of cutting-edge technology,” said Lionel Kaidatzis, managing director of Morgan McKinley Japan. “I think it’s improved, but I do feel that it’s still got some way to go.”

Companies are focused on high-quality talent, rather than hiring lots of workers, making the environment more competitive. Half of technology hiring managers are planning to increase their headcount in the first half of 2024.

High salary offers were the top priority for technology workers when moving jobs, and the report states that an unprecedented amount of offers were rejected by potential employees last year due to compensation not being high enough. More than 70% of employers in the field are expecting to raise wages in certain roles this year, as households in Japan continue to struggle with their pay not keeping up with rising prices.

“I still think that Japan is lagging behind on this and there certainly does need to be a significant amount of emphasis put on salary growth in Japan,” said Kaidatzis.