First in a five-part series exploring how Japan and its East Asian neighbors are separately handling five common issues 2010 was another year of a humiliating setbacks for Japan as blue-chip companies kept losing share in key markets and China finally surpassed it as the world's second-largest economy.
The long-term outlook is not bright for Japan Inc. Companies in South Korea are rapidly increasing their presence in the world as the Japanese market shrinks while its population ages.
Experts say Japan Inc.'s business model isn't working any more at a time when the rapidly evolving digital technology market requires more emphasis on software, quicker decision-making, and cheap assembly of module parts sourced from around the world.
Indeed, the speed at which the Japanese manufacturing empire is collapsing is almost astounding, a recent report by the Ministry of Economy, Trade and Industry said.
Japanese firms have watched their dominance plunge across the board, from more than 80 percent in the global LCD panel market in 1997 to 10 percent by 2005, from over 80 percent in DVD players in 1998 to 20 percent in 2006, from 90 percent in car navigation systems in 2004 to 20 percent in 2007, and from 50 percent in solar panels in 2005 to 20 percent in 2007, the report released in June said.
"This is not only about particular companies or industries. (Japanese firms) have lost in every single competition, one after another," METI said in the report.
"Rather, this phenomenon should be recognized as a business model problem shared by many (Japanese) companies. And the speed of the downfall is even accelerating," METI warned.
The report, titled "Industrial Structure Vision," caught the eye of several analysts in Japan for the frank way METI — the champion of Japan's blazing postwar reconstruction — admitted to the structural problems being created by the technology-oriented and bureaucratic nature of Japanese manufacturers.
According to the report, Japanese firms manage to grab substantial market share in the initial stage of marketing because their products boast a technological edge. But when it comes to marketing digital products, particularly in emerging economies, those advantages quickly evaporate.
The Japanese drew strength from their vertically integrated manufacturing processes, from product design to parts production and assembly. This closed model, supported by Japan's mammoth pyramid-style group firms, was successful at improving product quality and established a high reputation for the "Made in Japan" label all over the world.
But from the 1990s, the core technologies for many electronic products, including computers, TVs and DVD players, went digital, and with modular components.
The priorities for gadget makers today are now quick software design, global module procurement, and the ability to assemble a product in any country where cheap labor is available.
This has rapidly eaten into the relative competitiveness of Japan's pyramid-style manufacturing groups, METI said.
The pyramid model remains successful in only a handful of fields, most notably automobiles and single-lens reflex cameras, METI said.
In these two particular industries, the total integration of sophisticated technologies, rather than module assembly, remains critically important — the apparent reason Japanese automakers like Toyota Motor Corp. are maintaining their competitiveness against foreign rivals, the report said.
"However, (the auto industry) is accelerating its shift to electric vehicles. Attention should be paid to whether the Japanese auto industry can cope with the trend for modular (EV parts)," the report said.
Keita Nishiyama, executive managing director at Innovation Network Corporation of Japan, a semipublic investment fund, said the pyramid model has created barriers between different industries and prevented innovative technologies from interacting.
"My key word is 'recombination,' " said Nishiyama, who is also an industry ministry bureaucrat.
"Manufacturing EVs requires technologies that are different from producing gasoline-powered cars, and some of those technologies exist outside of the auto industry pyramid," said Nishiyama, who stressed the need for Japan to innovate by flexibly combining technologies and breaking these pyramids.
The shrinking domestic market, together with rapid growth in emerging markets, poses another threat to Japanese corporate culture, the report said. This was backed by various experts.
"When thinking about the Japanese companies' business model, their target has been the domestic market, where they customize products specially for notoriously picky Japanese consumers," said Hiroshi Nakamura, professor at Keio Business School.
For example, although the Japanese cell phone sector has developed cutting-edge technologies, the industry — vertically integrated all the way from from handset makers to service providers — has been preoccupied solely with supplying the domestic market.
As a result, Japanese handset makers lag behind their foreign rivals in the global market.
"The domestic market is now peaked out, so it's important that firms' top executives shift their focus more to emerging markets," said Nakamura.
The nature of Japan's tightly integrated group structure also can be a disadvantage in rapidly growing emerging countries like China and India, where low prices and quick marketing decisions that cater to local needs are often the key to success.
South Korean manufacturers are particularly strong in emerging markets, thanks to their quick decision-making and particularly strong focus on local marketing, said Hidehiko Mukoyama, senior economist at The Japan Research Institute, who watches the South Korean economy.
Indeed, South Korea has increased its economic presence with its powerful "chaebol," the zaibatsu-esque business conglomerates led by the likes of Samsung Electronics Co. and Hyundai Motor Co.
South Korean companies are particularly quick to react to the needs of overseas markets because they are heavily dependent on exports, as the domestic market is relatively small, having a population of 45 million.
Midok Kim, professor at Tama University's School of Management and Information Sciences, said the South's export competitiveness is likely to increase because it has been strategically and actively signing free-trade agreements in the European Union, the United States, and elsewhere, a total of 45 countries.
"FTAs push (South Korea's strengths) even further," Kim said. "It has secured international competitiveness and can get ahead of other countries unless they expand their own FTA networks." Japanese manufacturers also must keep a close eye on their Chinese counterparts, which are seeking to become export leaders on a global scale. Given the country's rapid economic development, and government assistance and aggressive investment in research and development, its manufacturers may soon emerge as powerful rivals, pundits say.
"It seems that China is following the path of Japan and South Korea, which boosted their economies by fostering strong competitiveness in their manufacturing industries," said Hiroyuki Kato, economics professor at Kobe University's Graduate School of Economics.
China is now shifting its exports from labor-intensive products, such as textiles, apparel and foods, to more technology-oriented, electronic products, said Kato.
"The change has been of course led by mainly foreign companies, but domestic companies are surely growing and now competing with them in the domestic market," Kato said, pointing to Chinese carmakers as a notable example.
According to Shinichi Isa, former science and technology attache at the Japanese Embassy in Beijing, Chinese investment in science and technology has been growing by more than 20 percent a year under the banner of "innovation." Isa, current secretary to the senior vice minister of education, said China has the potential to become a strong force in information technology.
"Creativity is China's specialty. They are good at creating something completely new based on new ideas, while Japanese are good at perfecting what has already been created," he said.
Since software is becoming more crucial than hardware for many products, "China is expected to grow in this field," Isa said.
Source: The Japan Times December 31, 2010
On message: People passing through Tokyo's Shinagawa Station in November view ads on 44 digital displays, each measuring 65 inches, installed in the concourse.
Moving through a bustling JR East station, one can't help but notice the ubiquitous digital information swirling about.
Heading toward the Konan exit in Tokyo's Shinagawa Station, pedestrians can be overwhelmed by the 44 65-inch displays running digital ads. Even inside trains, small monitors above the doors stream digital content almost nonstop.
With flat-panel displays now affordable and communications infrastructure growing more advanced, digital signage — information displayed digitally in public spaces — is growing in both use and variety, like ads that change depending on the time of day or interactive guides in commercial buildings.
While the fledgling service will still take time before it becomes ubiquitous, some players predict digital signage has the potential to become a 1 Yen trillion industry in a relatively short time.
In the rising digital signage market, JR East has been a leader, most notably with its Train Channel, broadcasting ads and news on monitors inside many of its trains.
Vital signs: Visitors look at a digital sign in the Daimaru department store at Tokyo Station this month. The sign enables store tenants to disseminate up-to-date information about their goods and services.
"Overall ad sales have been down in the past two to three years due to the sluggish economy, but digital signage is growing," said Takashi Yamamoto, manager of transportation advertising at East Japan Marketing and Communications Inc., an ad agency owned by JR East.
When the company launched the Train Channel service in fiscal 2002, sales from digital ads came to a mere 82 Yen million. They jumped to around 41.9 Yen billion in the 2009 business year. The growth is obvious from the number of displays installed in stations and trains.
The firm now runs Train Channel on the Yamanote Line, Keihin Tohoku Line, Chuo Line and Narita Express, as well as the Keiyo Line starting last year. Combined, they have about 20,000 displays. It has also installed 210 displays 52 inches or bigger in 14 stations in the Tokyo metropolitan area and aims to increase that number to 300 by the spring.
Yamamoto said the growth in digital signs is backed by price reductions for flat displays and content distribution, as well as accelerated development of communications infrastructure.
For instance, the array of 44 displays in the Shinagawa Station concourse are connected to the WiMAX high-speed wireless network, making it easy to change content.
One big advantage for digital ads is efficiency and flexibility, Yamamoto said, noting that distributing digital content can be less costly because it doesn't require physical manpower like putting up paper posters.
If it's hanging "10, 20 or 50 posters, it's doable. But if it becomes 100 or 500 it takes a huge effort,"
Yamamoto said. "Train Channel on the Yamanote Line has 4,900 monitors. If you think about putting 5,000 posters, it is drastically cheaper."
Researchers say usage of digital signs, now being led by the transportation industry, is sure to grow in other sectors as well.
Nojima Corp. launched a paperless cell phone store in Tokyo's Roppongi district in November, with all information displayed digitally. Even the price tags for cell phones are displayed on iPads.
According to Yano Research Institute, a Tokyo-based market researcher, the digital signage market was worth about 55.2 Yen billion in fiscal 2008 and is expected to increase to 128 Yen billion in fiscal 2015.
Advertisers have increasingly shown interest in using digital signs, said Masayuki Nakano, senior manager of the business development department in the out of home media services division at advertising giant Dentsu Inc.
Nakano said digital signage has great potential for creative content, thereby generating even more interest among advertisers.
"I think the analog type (ads) will gradually shift to digital," he said, but not to the point where everything will be digital.
Meanwhile, Kojiro Masuko, supervisor of Nakano's division, said digital signage in terms of advertising still needs to clear some hurdles to become a more common option.
Although it's true that distribution of digital content can be cheaper than print ads, there are still not that many digital content creators, so that part of the process is still costly.
Also, content format, such as types of files, graphic resolution and the amount of data, have not been standardized, so work still needs to be done in this regard.
While challenges lie ahead, the Digital Signage Consortium, which consists of people in related fields, aims to make Japan the No. 1 country in the world for digital signs and expand the market to 1 Yen trillion by the end of 2015.
Digital signage has several key players, such as flat- and thin-display makers, content providers and businesses in communications infrastructure.
"Japan is quite advanced in all these fields," so this business has vast potential, said Miwako Iyoku, managing director of the consortium and a senior manager in NTT's research and development planning department.
Iyoku said offices will get in the act because the technology will allow employees to share information simultaneously. Touch-panel displays in public places offering information like searchable maps will also be useful, she said.
In addition, it can potentially become a "superlocal" medium for people to share information about their neighbors and local areas, something not really obtainable at present.
"I'd like it to be something that facilitates people's communication and activities," Iyoku said.
Fujifilm Imagetec Co., which has been creating print ads, is turning to digital.
The firm provides a touch-panel display for a shopping complex in Tokyo's Ginza district that shows videos of shops with information in several languages, including English and Chinese.
The company has also introduced a digital display service connected to social media like Twitter and Facebook, in which messages sent through e-mail and social media appear on displays. This service is currently used at the Daimaru department store at Tokyo Station, where tenants can put out information for shoppers like recommended items and sales.
"We have knowhow from the print business, so digital signage is an extension of what we have been doing," said Takashi Sanse, general manager of new business development at Fujifilm Imagetec.
"We are bringing new technology and integrating it."
Source: The Japan Times December 31, 2010
Firms, consumers key as weaker yen, jobs, inflation elude The economy's tepid recovery will have trouble staying on track in 2011 as the effects of government stimulus gradually fade.
Now that the economy has been stagnant for two consecutive decades, the government is uncertain if businesses will resume capital spending and consumers will return to their spending ways.
Business investment, sluggish since the global financial crisis in 2008, could take a significant upturn in 2011 thanks mainly to tax reforms endorsed in December. But there is uncertainty remaining over consumers, given the diminishing effects of the government's consumption-boosting programs.
"The Japanese government is treading in the right direction although the pace is slow," said Lee
Lee was referring to a recent decision by Prime Minister Naoto Kan to cut the effective corporate income tax rate by 5 points, lowering it from around 40 percent — a move hailed by business leaders.
But Lee also said Japanese firms will still have to pay more taxes than companies overseas and the reduction will be not enough to improve their international competitiveness.
Kan wants the planned tax cut to encourage companies to bolster domestic capital spending and employment and has called on leading corporate executives to help achieve these goals.
Also high on his list of priorities is unemployment, which crept up to a high of 5.1 percent in November. Fears that downward pressure will increase on wages and consumption have spurred the government to lower taxes on companies that hire more employees.
Looking at overall economic conditions, the Cabinet Office said in its December report that growth seems to be "pausing" amid slower exports and industrial output.
The slowdown overseas, especially in Asia, and the surge in the yen's exchange rate against the dollar and other major currencies have weakened the competitive edge of Japanese exports and subsequently slowed domestic production.
Output has also been affected by the approaching end of the stimulus measures, which included tax breaks and subsidies for environment-friendly vehicles and other products that lifted the automobile and machinery industries.
But as the effects of what experts describe as the "pre-empting of demand" have waned, consumer confidence has sharply deteriorated, and retail sales and industrial production have taken significant falls.
The economy expanded at a real annual rate 4.5 percent in the July-September quarter thanks to the pump-priming measures. Consumer spending, which makes up nearly 60 percent of gross domestic product, rose 1.2 percent. But GDP growth is now expected to have gone into reverse in this quarter.
The government expects the economy to grow only moderately next year, projecting a 1.5 percent expansion in fiscal 2011 starting in April. This is much slower than the 3.1 percent growth estimated for fiscal 2010.
Despite the gloom, some bright signs have emerged for both exports and production.
"Now we're seeing even smaller chances of a double-dip scenario for production," Kyohei Morita,
Brisk exports and output will likely translate into higher capital spending to meet growing demand.
Morita said Japanese companies might subsequently increase investment at a moderate pace.
Economists at Credit Suisse in Japan said in a research report that exports and production have "started showing some signs of recovery" that could raise employment, although they added that "individual consumption could remain poor in reaction to an earlier demand surge as a result of the fiscal stimulus measures."
Weaker consumption could bring further downward pressure on prices, making it more difficult for Japan to exit from chronic deflation.
The core consumer price index, which excludes fresh foods, fell for the 21st consecutive month in November, although the pace of decline has narrowed.
"Deflationary pressure could ease, albeit in a moderate manner," said Takahide Kiuchi, chief economist at Nomura Securities Co.
The Bank of Japan said in October that its zero-interest-rate policy will stay in place until it judges that the year-on-year change in the core CPI has entered a positive range of 2 percent or lower.
The central bank expected the index to fall 0.4 percent in fiscal 2010 and rise 0.1 percent in 2011.
In 2010, the bank went one step further into uncharted waters by adopting a "comprehensive monetary easing" policy of purchasing assets riskier than government and corporate bonds, using a 5 Yen trillion program to encourage corporate finance.
Critics had accused the BOJ of being unable to sufficiently ease monetary conditions — and further raise the prices of goods and services — by sticking with its orthodox policy of nudging short-term interest rates — the rates at which financial institutions lend to one another — although it can't force banks to lend to individuals.
The BOJ has struggled to "provide liquidity in the real economy," Barclay's Morita said, adding that under the "credit-easing" policy, the bank aims to improve the ability of financial institutions to deal with impaired assets on their balance sheets, a development that could help accelerate a recovery.
Gist of economic outlook for 2011
- Gross domestic product growth could slow on weak consumption. The government projects real GDP
- Private consumption may suffer a setback in 2011 as the remaining government incentives expire in March and the official unemployment rate stays high at around 5 percent.
- Capital spending may increase on plans to reduce the corporate tax rate, but the positive effects could be limited amid a drop in business confidence triggered by weak consumer spending.
- Exports could regain footholds if signs prove true of a recovery in U.S. consumption and in
- Industrial output is expected to bottom out and shift toward steady recovery when the government
- Prices could remain under downward pressure from weak consumption, a sign that the government will have to keep fighting deflation and that the Bank of Japan will likely keep interest rates effectively at zero.
Source: The Japan Times December 31, 2010
TOKYO (Nikkei)--Japanese electronic parts makers are scrambling to respond to the surging popularity of smartphones.
Global shipments of personal computers will total 348.73 million units this year, more than the 293.06 million smartphones shipped, according to U.S. research firm IDC.
But next year will likely see a changing of the guard in the information device market, with worldwide shipments of smartphones forecast to jump 44% to 420.98 million units, beating PCs, which are projected to increase 10% to 385.03 million units.
This shift will have a huge impact on memory chip and LCD panel makers.
PCs account for 80-90% of the roughly 4 trillion yen in annual DRAM chip sales. As PC market growth slowed, DRAM prices fell to 50% of their May levels in the first half of this month.
Elpida Memory Inc. (6665), the world's second-largest DRAM maker, plans to turn its Hiroshima plant into a production base specializing in cellular phone chips as early as next year by moving production of PC-use DRAMs to a Taiwanese unit and other sites. Smaller, more power-efficient DRAM chips for mobile devices currently make up 20-30% of the factory's output.
Smartphones mainly use NAND flash memory chips. At 2 trillion yen, the market for NAND chips is half that for DRAMs. But as supplies continue to tighten, Toshiba Corp. (6502), the world's second-ranked NAND memory chipmaker, is bolstering capacity at its Yokkaichi plant in Mie Prefecture by investing more than 100 billion yen.
The growing popularity of smartphones has also been driving demand for more responsive LCD panels than those used in PC monitors. To meet this need, Sharp Corp. (6753) and Toshiba have each decided to build a plant for small and midsize LCD panels.
Hitachi Ltd.'s (6501) LCD panel unit plans to set up a factory in Chiba Prefecture jointly with Taiwan's Hon Hai Precision Industry Co., which manufactures the iPhone for Apple Inc.
A typical smartphone uses 400-500 multilayer capacitors, roughly triple the number found in a second-generation cell phone. Murata Mfg. Co. (6981), the No. 1 producer of multilayer capacitors, is working to expand capacity at its factories to keep up with the growing demand.
Source: The Nikkei December 30, 2010
Living without sight or hearing is undoubtedly tough, but the senses disabled people are left to rely on often seem to become extremely keen. This year, two products making use of this unique perspective on the world have scored a hit as year-end and Christmas gifts.
A domestic towel maker, whose industry has lost ground to Chinese firms churning out low-priced goods, has produced a line of luxury face and bath towels that have sold like hot cakes. Although priced from 1,575 yen to 7,350 yen, more than 30,000 have leapt off shelves since debuting in June 2008.
Because of their sublime texture and high absorbency, the brand has been among the top five best-selling products week after week in the Isetan department store in Shinjuku Ward, Tokyo. The line is produced by Tanaka Sangyo in Imabari, Ehime Prefecture, a city known for its towel industry.
To develop the towel's material, the firm sought help from 10 visually impaired people employed by a nonprofit organization.
The NPO is known for organizing an event in Tokyo in which people with normal vision experience what it is like to be blind. Yoshibumi Tanaka, president of the company, took part in the event three years ago, and realized that visually impaired people were probably better attuned to their sense of touch and likely had developed a strong ability to distinguish texture.
When Tanaka asked the people from the NPO to test his firm's products, he received very nuanced evaluations. Some said the towels couldn't absorb enough water, while others said they would prefer a warmer, soothing feel.
After a lot of hard work and trial and error, the firm came up with a new brand, which it named "Dialogue in the Dark." Michio Matsumura, who took part in the product's development, said, "I'm glad society could use our capabilities and senses."
Another product, a portable message board used by the hearing-impaired that sells for 2,835 yen, has also been a strong seller, with about 50,000 units moved so far. Children use the boards as toys and families use them to leave notes for each other. Called "Kaki-pon-kun," the tool has a magnetic pen that is used to write on a flat board. The pen produces black writing that disappears instantly at the press of a button.
The tool was originally developed by Hideki Nakazono, an adviser to Tokyo-based WP Co., a provider of goods and services for the hearing-impaired. "It doesn't require a pen or paper. It's convenient for all kinds of people," said Nakazono, who has a hearing impairment himself.
Advertising giant Hakuhodo Inc. has formed a 100-member research and planning team with about half of the team made up of disabled people. The team's goal is to be more proactive about reflecting the ideas and senses of the disabled in the development of goods and services.
Karin Matsumoto, a hearing-impaired team member, said: "A disability can be an advantage. I'm enthusiastic about coming up with ideas and making popular goods and services that are easy to use for everybody."
Source: Yomiuri Shimbun December 29, 2010
TOKYO (Kyodo)--The government decided Tuesday to put off the creation of a greenhouse gas emissions trading system until after fiscal 2013 in the face of strong resistance from the business world, a move that bodes ill for the country's efforts to combat global warming.
The Democratic Party of Japan-led government has already submitted to parliament a basic anti-global warming bill that also includes an environment tax and fixed-price purchases of power generated by renewable energies, but is apparently backing off on the emissions trading system while the bill is pending at the Diet.
At a meeting of Cabinet ministers concerned, it decided to introduce an environment tax during fiscal 2011 and a system for power utilities to buy electricity generated with renewable energy sources at relatively high fixed prices in fiscal 2012.
Skepticism lingers, however, about whether Japan can take effective measures down the road, since the government of Prime Minister Naoto Kan has not shown a tough stance on the global warming issue.
Under the planned emissions trading system, each company would be given an emissions quota, and firms that emitted greenhouse gases in excess of their quota would have to purchase credits from other firms that are below their limit. However, this has fanned fears that the a system could increase the burden on companies.
The environment tax, which the government plans to introduce in October 2011, will take the form of higher tax rates on fossil fuels, depending on the degree of carbon dioxide emitted, and appears only to give a face lift to existing taxes on oil and coal products.
As for the program to boost the use of renewable energies such as solar and wind power, the government decided to begin a ''cautious discussion'' with a view to its launch in fiscal 2012 through legislation next year, but resistance from the power industry could still hamper its effectiveness, some analysts say.
The DPJ promised to create the emissions trading system on taking power through the August 2009 House of Representatives election, but earlier this month it proposed abandoning fiscal 2013 launch of the system and discussing the matter further in light of concerns expressed by the business community.
Source: The Nikkei December 28, 2010
The Office of Commercial Affairs, Royal Thai Embassy in Tokyo, Japan
Source : http://www.depthai.go.th