Oyo entered Japan April 2019
Oyo utilizes a franchise business model and provides technology, brand and operational capabilities to support hotel owners. Founded in 2013 by then 19-year-old Ritesh Agarwal, the company entered Japan last April with the goal of signing up 75,000 rooms under its brand by March 2020 — aiming to surpass local hotel chain Toyoko Inn. By the end of September 2019, however, Oyo had only signed up 4,000 rooms. Oyo hired 500 workers through a PEO model in Japan with the promise to be transferred to a new entity. The PEO model was a side business of a recruiting firm which did not know how to manage the employees and the client.
Missed sales targets leads to a labor dispute
A labor dispute resulted when Oyo did not meet its room target and, as news reports indicate, reneged on some employment contracts. The company is reported to have asked sales personnel to accept 40% pay cuts. The company subsequently told some employees they may not be hired permanently. Other employees were offered direct employment if they agreed to pay cuts of between 30% to 40%. News reports indicate that Oyo senior management were asked to keep the company’s finances in greater focus after WeWork faced problems, and investors grew uneasy in general about tech startup profitability. As a result of these circumstances, some Oyo staff have formed a labor union. This is yet another major reputational headache for Softbank’s Vision Fund and Oyo itself.
Missteps by the part-time “PEO” Firm
A good PEO firm in Japan would explain to the client ahead of time what they can and can’t do in Japan and work closely, as an extension of the HQ’s HR to navigate Japanese regulations. They also don’t run this as a “side” business. Instead, this firm let Oyo do whatever they wanted as they thought they were just an administrative service to pay employees. They face unionization now. SoftBank had to step in, after public outcry, and warned against pay cuts, which finally saw Oyo agree to not cut pay. Oyo has, according to reports, made about 200 of their 500 workers permanent employees as of the publication of this information in the Nikkei Newspaper.
Foreign companies require capable local PEO services
Oyo’s experience in Japan reflects how it’s vital for foreign companies doing business here to ensure they select the right local partner to help with expansion plans and their execution. A lot of foreign firms just have an “entity” without a proper license. Or, they claim to have local presence which is a junior level staff that knows little about navigating the nuances of Japanese labor regulations. If you decide to PEO in Japan or Asia, hire a local Professional Employer Organization (PEO) that knows how to manage domestic and foreign workers and avoid the problems Oyo has encountered. Be sure to talk to the team where you want to hire in Asia, not just the team in your respective country.