Japanese Economy -6Kozo UEDA
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Topic • In Indu dust stri rial al Str Struc uctu ture re and and Bus Busin ines ess s • Are Are Japa Japan’ n’s s busi busine ness sses es sti stillll com compe peti titi tive ve? ?
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Contents • Structure by by in industry • Industrial pro production • Japanese firms – Competitiveness Competitiveness of Japanese Japanese firms – Their strategy – Strength
• Non-manufacturers • Smal Smalll and and medi medium um en ente terp rpri rise ses s (SME (SME)) • Corporate go governance 3
Economic Structure by Industry • Low share of agriculture • High share of manufacturing and service • Manufacturing share decreases. (1) Agriculture ,forestry and fishing (2) Mining (3) Manufacturing (4) Construction (5) Electricity ,gas and water supply (6) Wholesale and retail trade (7) Finance and insurance (8) Real estate and transport (9) Service activities (10) Government and non-profit services Sum
1955 19.9 2.0 28.4 4.5 2.4 10.7 9.6 7.3 10.1 8.7 100.0
1970 6.1 0.8 36.0 7.7 2.1 14.4 12.3 6.9 3.6 7.3 100.0
1980 3.7 0.8 29.2 9.4 2.7 15.3 14.5 6.2 11.7 10.3 100.0
1990 2.5 0.3 26.5 9.3 2.5 13.2 16.2 6.6 16.1 9.2 100.0
2000 1.7 0.1 21.3 7.1 2.6 13.5 16.9 6.7 19.6 10.5 100.0
2010 1.1 0.1 19.9 5.7 1.9 14.1 16.3 10.6 19.0 11.2 100.0
Source: Komine and Murata (2012, Table 6-1) from Cabinet Office 4
Manufacturing • Today’s talk starts with manufacturing. • Although its share is declining, it is still a main driver of the Japanese economy. — Large spillover — High international competitiveness • Look at Ministry of Economy, Trade and Industry, “Indices of Industrial Production” • In what product, are Japanese firms highly competitive? 5
Production by sectors 1 • Car and machinery production dropped, but are stable recently.
Source: Ministry of Economy, Trade and Industry, "Indices of Industrial Production" 6
Production by sectors 2 • ICT equipment production drops. aw material is stable.
Source: Ministry of Economy, Trade and Industry, "Indices of Industrial Production" 7
Production of individual goods 1 • !inal electric goods declined production drastically.
Source: Ministry of Economy, Trade and Industry, "Indices of Industrial Production" 8
Production of individual goods 2 • Increasing or robust production
Source: Ministry of Economy, Trade and Industry, "Indices of Industrial Production" 9
Production of individual goods 3 • Machinery is robust
Source: Ministry of Economy, Trade and Industry, "Indices of Industrial Production" 10
Production of individual goods 4 • Materials are gradually decreasing e"cept for high# s$illed goods.
Source: Ministry of Economy, Trade and Industry, "Indices of Industrial Production" 11
Niche products • In niche products, %apan&s firms occupy the mar$ets. Product
Share
Product
Share
'lass for cars ()
*emicon sealing
+
-ire Harness for cars
)
/hotosensiti0er
((
T1C film for LC2
33
4all bearing
+
'lass for LC2
)3
5C machine
(6
Compass for '/*
6
are earth magnets
+7
L82
73
Carbon fiber
7
Source: METI (2013) 12
Worldwide Market Share of JapaneseAffiliated Companies 1 • *hare falls
Source: Chart 35 in Bank of Japan (Apr 2012) “Outlook for Economic Activity and Prices” 13
Worldwide Market Share of JapaneseAffiliated Companies 2 • *till relatively competitive
Source: Chart 35 in Bank of Japan (Apr 2012) “Outlook for Economic Activity and Prices” 14
International Competitiveness Coefficient 1 • 5et e"port decreases.
Source: Chart 36 in Bank of Japan (Apr 2012) “Outlook for Economic Activity and Prices” 15
International Competitiveness Coefficient 2
Source: Chart 36 in Bank of Japan (Apr 2012) “Outlook for Economic Activity and Prices” 16
Issues • International competitiveness – For the Japanese economy – For Japanese firms
• What differs?
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Overseas investment • 1ctive in overseas investment even for *M8.
Source: METI (2012a)
SME: Small and Medium Enterprises
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Overseas investment Ratio of overseas revenue Ratio of overseas production Ratio of overseas profits
prospect actual
Source: Japan Bank for International Cooperation (2014)
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Why not in Japan? • Six burdens （六重苦）
The proportion of firms who would increase domestic investment if the burden did not exist
– Strong yen – High tax – High wage – Strict eco policy – Inactive FTA – Fear of energy supply shortage
• But they are changing. Source: Japan Bank for International Cooperation (2012)
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Promising countries • China dropped to the third. India is the first.
China
Source: Japan Bank for International Cooperation (2014)
India Indonesia China Thailand Vietnam Brazil US Russia
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Why overseas? (to India) Growth expectations Cheap labor The size of current economy
Center of supply chain Skilled labor
Source: Japan Bank for International Cooperation (2014)
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Why overseas? (to China)
Growth expectations
The size of current economy
Center of supply chain Agglomeration Cheap labor
Source: Japan Bank for International Cooperation (2014)
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Problems in China Increases in labor cost
Fierce competition Ambiguous law enforcement Insufficient protection of intellectual property right Regulation on foreign exchange and transfer Concerns about security and social situations
Source: Japan Bank for International Cooperation (2014)
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Processes considered to have high/low added value
• 92 valued. 1ssembly not valued.
Source: METI (2012a)
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R&D investment by firms • Japan stopped growing. China
Korea
US Germany Japan
Source: METI (2013)
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Non-manufacturing • -hat $inds of businesses are there: • Classification – *ervice for • businesses • Households
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Non-manufacturing (GDP as of 2011) Tertiary sector (5) Electricity, gas and water supply a. Electricity supply b. Gas and water supply (6) Wholesale and retail trade a. Wholesale trade b. Retail trade (7) Finance and insurance (8) Real estate a. Renting of dwellings b. Other real estate (9) Transport (10) Information and communications a. Communications b. Broadcasting c. Information services , Image information,character information production and distribution (11) Service activities a. Community and social service activities b. Business activities c. Personal service activities
share (%) 3.2 1.7 1.4 21.6 12.4 9.3 9.0 19.3 16.9 2.4 7.6 9.2 4.1 0.5
4.7 30.2 9.0 11.3 9.8
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Non-manufacturing • Omotenashi （おもて なし） – Service, hospitality – Overseas investment in tourism (hotel ), restaurant, etc.
Sources: METI (2012)
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Corporate governance 1 • Characteristics in Japanese businesses – Aim • Market share • Long-term • Opposed to rate of return, stock price and short-term
– Decision-making • Bottom-up opposed to top-down • Time (# of meeting)
– Long-term relationship • Continuing trade • Group (zaibatsu, supply chain) 30
Corporate governance 2 – Main bank • Indirect finance
– Relationship with employees – Who holds stock? • Main bank, related firms • Individual investors
– Surveillance by ministry
• What is its implication?
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M&A Number of M&As
Source: Figure 133-8 in Ministry of Economy, Trade and Industry (2014)
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