Silicon Valley talent war has Toyota seeking techies at home

When it comes to recruiting tech talent, Toyota 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 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.

"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 as serious rivals. That's why Toyota and Honda are looking for engineers at home, where average salaries for IT professionals are about 6 million yen ($54,500) a year, about half of what counterparts in the U.S. 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 startup and some once-mighty names are in decline. Toshiba, which has a research center in the area, is forecasting a loss of 995.2 billion yen 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.

"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 startups, 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 carmaker is scheduled to report first-quarter earnings Friday. Operating profit is expected to decline 15 percent from a year earlier to 548.2 billion yen, according to the average of 6 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 percent to 1.05 trillion yen this fiscal year, as the carmaker spends big on internet connectivity and autonomous driving to keep up with Tesla, General Motors and Ford Motor. Toyota and Mazda Motor Corp. are nearing a deal to buy stakes in one another and jointly build a $1.6 billion U.S. factory, according to people familiar with the matter.

Japanese companies are playing catch-up with U.S. 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.

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 U.S. focused on artificial intelligence and robotics technology and hired former U.S. defense scientist Gill Pratt to lead it.

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

"This close co-location provides a natural mechanism for recruitment at universities and think-tanks 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."

On top of that, Toyota last month started a $100 million venture fund, Toyota AI Ventures, to invest in startups. 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 a Tokyo research center mainly for artificial intelligence and IT. Volkswagen said last year it will hire more than 1,000 IT experts, tapping high-technology sectors, gaming industry and top-level research centers, in the next three years.

"The demand for IT talents is growing exponentially," said Deloitte's Zhou. "Japan has many strong electronics makers and home appliance manufacturers, and a lot of their embedded software capabilities could be put into the infotainment systems in connected and autonomous cars."

The Nambu Line has historically been a working-class conduit that moved people to and from factories in the Kawasaki area. Now, with a suburban sprawl spreading out from Tokyo, it's gentrifying and becoming more of a place where people are looking to shop, live and work. On weekends, some take the line to the two horse racecourses and three cycling tracks along it for wagering.

It became known as the "high-tech line" partly thanks to the city of Kawasaki's efforts to build an innovation hub in recent years, attracting a cluster of IT R&D centers. About 7.1 percent of the labor force in Kawasaki work in the IT industry, the highest proportion in Japan, according to the government of the city.

Toyota's hiring posters caught the attention of engineers because of the enticing, straightforward language, including one that says as blatantly as "Oh, you work at THAT manufacturer? Why don't you come and join us?" The campaign also went viral on social media, with Twitter users arguing whether "THAT" manufacturer actually refers to NEC, Toshiba or others.

Toyota expects engineers from companies along Nambu Line to apply for jobs at the carmaker, said spokeswoman Kayo Doi, without giving more details.

"It's very eye-catching and has an impact, and it's quite a bold move to target a station right in front of other companies," Junya Ashida, a 39-year-old engineer said of Toyota's advertisements at Mukaigawara station. "But I doubt top-notch companies like Toyota really think they want talents from here more than from the Silicon Valley."