Japanese Economy

-6Kozo UEDA

Topic
Industrial Structure and Business
Are Japans businesses still competitive?

Contents
Structure by industry
Industrial production
Japanese firms
Competitiveness of Japanese firms
Their strategy
Strength

Non-manufacturers
Small and medium enterprises (SME)
Corporate governance
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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
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Manufacturing
Todays 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. Raw material is
stable.

Source: Ministry of Economy, Trade and Industry, "Indices of Industrial Production"

7

Production of individual goods 1

Final 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 except for highskilled goods.

Source: Ministry of Economy, Trade and Industry, "Indices of Industrial Production"

11

Niche products
In niche products, Japans firms occupy the markets.
Product

Share

Product

Share

Glass for cars 75

Semicon sealing 91

Wire
Harness for
cars

58

Photosensitizer

77

TAC film for

LCD

100

Ball bearing

98

Glass for LCD 50

NC machine

72

Compass for
GPS

82

Rare earth
magnets

96

LED

60

Carbon fiber

68

Source: METI (2013)

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Worldwide Market Share of JapaneseAffiliated Companies 1

Share falls

Source: Chart 35 in Bank of Japan (Apr 2012) Outlook for Economic Activity and Prices
13

Worldwide Market Share of JapaneseAffiliated Companies 2

Still relatively competitive

Source: Chart 35 in Bank of Japan (Apr 2012) Outlook for Economic Activity and Prices
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International Competitiveness Coefficient 1

Net export 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
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Issues
International competitiveness
For the Japanese economy
For Japanese firms

What differs?

17

Overseas investment
Active in overseas investment even for SME.

Source: METI (2012a)

SME: Small and Medium Enterprises

18

Overseas investment
Ratio of overseas revenue
Ratio of overseas production
Ratio of overseas profits

prospect
actual

Source: Japan Bank for International Cooperation (2014)

19

Why not in Japan?

Six burdens

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)

20

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)

22

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)

23

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)

24

Processes considered to have high/low added value

R&D valued. Assembly not valued.

Source: METI (2012a)

25

R&D investment by firms

Japan stopped
growing.
China

Korea

US
Germany
Japan

Source: METI (2013)

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Non-manufacturing
What kinds of businesses are there?
Classification
Service for
businesses
Households

27

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

Service, hospitality
Overseas investment
in tourism (hotel
<ryokan>),
restaurant, etc.

Sources: METI (2012)

29

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?

31

M&A
Number of M&As

Source: Figure 133-8 in Ministry of Economy, Trade and Industry (2014)

32

Reference
Japan Bank for International Cooperation, Survey Report on
Overseas Business Operations by Japanese Manufacturing
Companies, 2014.
Ministry of Economy, Trade and Industry (METI), White Paper
on Manufacturing Industry (Monodzukuri), 2012a.
Ministry of Economy, Trade and Industry, White Paper on
International Economy and Trade, 2012b.
Ministry of Economy, Trade and Industry (METI), White Paper
on Manufacturing Industry (Monodzukuri), 2013, but not yet
published in English as for June 2013.

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