Industrial Structure Vision
June 2010
Ministry of Economy, Trade and Industry
Aims of the Industrial Structure Vision ‐ Embarking on a nationwide effort to strengthen industrial competitiveness
1. Recognize modestly the “deadlocked position” of Japanese industries’ having lagged behind the world’s major players and market changes
2. Free from the success mythology built on growth in the postwar period
y
gy
g
p
p
Shift in industrial structure ‐Building a new industrial structure that connects potential strengths to business ‐
I
Industrial structure
Toward “stable Multi‐pole Structure”
based on five strategic areas
“Mono‐pole structure” solely depending on the automobile industry
the automobile industry
Sources of added value
Inhibitors to growth
Converting inhibitors into “P bl
“Problem Solving Industry”
S l i I d t ”
Environment & energy, falling birthrate, Environment
& energy falling birthrate
aging population
Support for business model shifts by enterprises
‐ Win by technology and by business ‐
Many firms in a war of attrition in Japan
Keys to global competittion
High‐level vertical integral model and in‐house development policy
Modularization model (strategic combination of black box policy with open policy and international standards) in the private sector
in the private sector
Investment scale and speed
IV
Postwar period to early 1980s
‐ Government‐led resource allocation and protection of specific industries
‐ Convoy system
‐ Compartmentalized Compartmentalized
government structure
Strengthen 5 strategic areas
Toward “System sales” and “Creating added
“Creating added
cultural value Models”
High quality, product‐specific sale
II
“Four shifts” in the government and the private sector
p
International standardization
in coordination with business strategy
Ind str
Industry reorganization and realignment to meet global markets III
‐ Infrastructure related / system sales Infrastructure related / system sales
globally(nuclear, water, railroad, etc)
‐ Environment and energy problem solving industry(smart community, next generation automobiles)
‐ Creative industries (fashion, content, etc.)
‐ Medical, nursing, health, and child care services
‐ Frontier fields (robots, space, etc.)
(
p
)
Free from the dichotomy between globalization and domestic employment
‐Job creation by aggressive globalization “and”
building world‐class business infrastructures ‐
“Globalization = hollowing out” theory
out
theory
Shift in growing markets from Japan and developed countries to emerging countries
Shift in the government role
Shift in the government role
‐ Survive in global market to acquire added value‐
From 1990s onward
Change in the global marketing game
Rise of
‐ Market fundamentalism ideologue completely d i th
denying the national ti
l
government’s role
‐ Globalization of capital market
‐Rise of the state capitalism / socialist market economy
‐Solution
Solution business such as environment and the energy problem is changed into the center of business such as environment and the energy problem is changed into the center of
growth.
National governments striving to support, attract and promote strategic areas
Japan needs to formulate and implement a strategy that allows it to winner in the global by crossing the boundary between the government and enterprises, between ministries, and between the national and local governments.
‐ Make domestic operations more internationally competitive
(corporate tax reform aiming at international standards, enhanced logistics infrastructure)
‐ Attract High Added‐value function from abroad(Asia headquarter, R&D)
‐ Develop high‐level global human resources
Develop high level global human resources
‐ Maintain key industrial capabilities within Japan (support investments in strategic areas, develop shop floor professionals)
‐ Support SMEs’ entry into overseas markets
Build new public‐private partnerships
B
ild
bli
i
hi
making the best possible use of the market function
‐ Strategic partnership among the government, public and private sectors
((top‐level diplomacy, formation of consortiums)
p
p
y
)
‐ Restructuring of enhance the function of the financial agencies such as JBIC
‐ New R&D and performance evaluation centers jointly established by industry, academia and government
1
Issues Considered in the Industrial Structure Vision
•
The Japanese economy is in a serious deadlock.
– Japan’s economic rank in the world as a whole is declining. Per capita wealth is stagnant as well.
•
This deadlock is not a transient one, but involves structural problems in three major areas.
1. Problems with the overall industrial structure
2. Problems with corporate business models
3. Problems with the business infrastructure surrounding corporations
• Overcoming these structural problems will require not mere stopgap
measures, but
b t a comprehensive
h i strategy
t t
pooling
li the
th collective
ll ti wisdom
id
off
government and industry.
• With these issues in mind, the ICC is to discuss and consider “what will
drive Japan
Japan’ss revenues and employment in the future
future.”
2
1. The Deadlocked Japanese Economy
3
Japan’s economic rank in the world as a whole is declining
Change in global ranking for per capita GDP
Change in share of global GDP
2000
2008
1990
2008
3rd
23rd
14.3%
8.9%
Source: IMF World Economic Outlook Database
Source: IMF World Economic Outlook Database
Change in IMD World Competitive Power Ranking
1990
2010
1st
27nd
Source: World Competitiveness Yearbook
4
Global market growth is shifting to emerging countries
•
From now on,
on market growth will increasingly shift from Japanese domestic,
domestic European
and North American demand, to developing and emerging countries.
(billion dollars)
S l off market
Scale
k t expansion
i in
i various
i
areas off the
th world
ld
20,000
■2002−2008 market expansion
p
■2009−2014 market expansion
15,000
10,000
5,000
0
Developing and
emerging countries
Developed
countries
Japan
Source: World Economic Outlook Database, April 2010
5
Limitations of expansion of domestic demand through income distribution
• Japan already has one of the lowest savings rates
among developed countries. Boosting consumption
over the mid- to long-term is unviable.
• Labor’s share is higher
g
in Japan
p than in other countries
I t
International
ti l comparison
i
off labor’s
l b ’ share
h
Change in household savings rate in major nations
25.0 UK
Japan
20.0 France
Germany
y
15 0
15.0 France
フランス
Italy
イタリア
Germany
ドイツ
10.0 Japan
日本
USA
アメリカ
Italy
5.0 France
USA
Germany
USA
Source: OECD Economic Outlook No86
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
0.0 Japan
p
(Year)
Source: Prepared on the basis of Cabinet Office white paper on the economy and public finance (2008), OECD
“National Accounts”
Note: Labor’s share = Employee compensation/per capita income
= (per
(
capita
it employee
l
compensation
ti × number
b off workers)
k ) / (Cost
(C t off living
li i × reall GDP)
= real wages/labor productivity
If Japan’s overall “pie” is not enlarged, domestic demand will not expand
6
Stagnant and declining wages
• Over
O
the
h 2002 to 2007 period,
i d wages were stagnant or declining
d li i despite
d i economic
i growthh
Change in per capita wages
(Year 2005 = 100)
110.0 107.0 104.0 101.0 98.0 95.0 Sluggish
economy
Strong
economy
Sluggish
economy
Strong
y
economy
Sluggish
y
economy
92.0 90
91
92
93
94
95
96
97
98
99
00
01
02
Sluggish
economy
Strong
economy
03
04
05
06
07
08
09
7
Source: Ministry of Health, Labor and Welfare (MHLW) “Monthly Labor Survey”
Overseas investment expand while domestic investment stagnate
• Japanese
J
corporations
ti
have
h
been
b
boosting
b ti overseas investment.
i
t
t Meanwhile,
M
hil ddomestic
ti investment
i
t
t is
i att a standstill.
t d till
(million yen)
Change in overseas direct investment (net)
Change in domestic capital expenditures (year on year)
All sizes /
All industries
down 37%
Source: Ministry of Finance (MOF) “Balance of Payments”
Source: MOF “Corporate Enterprise Quarterly Statistics”
8
Shift to Overseas Operations Expected to Increase Further
Q Do companies
Q.
p
plan
p
to shift their domestic p
production,, development,
p
, research and headquarter
q
functions
to other countries?
(Unit: Company)
companies
Production function
companies
Development function
Research function
Headquarter function
companies
companies
Do not shift above
functions
No answer
■ Studying shifting part or
whole of the operations
■Shifted part or whole of
th operations
the
ti
companies
i
companies
Source : “Questionnaire Survey on Japan’s Industrial Competitiveness” (n=283 Source: “Questionnaire Survey on Japan’s Industrial Competitiveness” (n-283 companies), Ministry of Economy, Trade and Industry
(Note) The number of corporations for the “production function” question is partially redundant.
9
In the short term, employment problems revolve around “quantity,” while in the mid- to long-term they
revolve around “quality.”
• Japan is facing a potentially severe unemployment
problem
In the short term, the issue is “quantity” of jobs
Change in the unemployment rate
10,000 people
Potential number of unemployed: 9.05
million people
(Potential unemployment rate: 13. 7%)
• The working
working-age
age population will drop sharply
toward 2020 (8.01 million lower than 2009)
In the mid to long term, the problem is not so
much “quantity” as “quality” of jobs
Projected working-age population of Japan
10,000 people
2009
81.64 million
people
l
2020
73.63 million
people
Labor hoardingg population
p p
Totallyy unemployed
p y ppopulation
p
Unemployment rate: right axis
Potential unemployment rate: right axis
Source: Prepared on the basis of MIC “Labor Force Survey (Seasonally adjusted tabulation)" , Cabinet
Office “White paper on the economy and public finance"
Note 1: “The labor hoarding population” is calculated using the difference between the “actual
employed population
optimum number of employees needed for production.
population” and the “optimum
production.” The
“optimum number of employees” is the number of employees needed to achieve appropriate labor
productivity with a normal number of working hours)
Note 2: For the “potential number of unemployed,” the sum of the number of totally unemployed people
and the “labor hoarding population” is used as a matter of convenience. The “potential
unemployment rate” is the “potential number of unemployed” divided by the working age
population.
Working age population (age 15-64)
Wo
g age population
popu a o ratio
a o (right
( g axis)
a s)
Working
Source: Prepared on the basis of the National Institute of Population and Social
Security Research “Population Projections for Japan"
Note: Graph employs moderate predictions for the birth rate and death rate
10
2. Background
g
to the Stalemate
(1) Problems in the Overall Industrial
Structure
11
Expansion of the “pie” (income) is dependent on global manufacturing, and particularly on the automotive industry
• Of the nominal GDP ggrowth rate (2000
(
→ 2007))
of 2. 5%, the automotive industry accounts for
nearly half (1.1%).
Growth in profits over the FY 2001 →
FY 2007 period
All industries
Contribution of auto industry to GDP growth rate
(2000 – 2007)
Automotive
contribution is
about 50%
¥25.2 trillion
Of this amount, the four major global
manufacturingg industries account for
36% (¥9.1 trillion)
(Transport machinery: ¥2.1
¥2 1 trillion,
trillion electronics:
¥3.2 trillion, steel: ¥1.8 trillion, general
machinery: ¥1.9 trillion)
Source: Corporate Enterprise Statistics (annual survey)
Overall
(GDP growth rate)
Auto industry
share
Source: The GDP growth rate is based on the Cabinet Office “National Income Accounts.”
Degree of automotive industry contribution is prepared on the basis of METI “Extended
Input / Output Table”, MIC “Linked Input / Output Table”
Note: Figures for the automotive industry are calculated as induced values including added
value from spillover to other industries.
12
Labor productivity is increasing, but employee incomes remain flat
•
Japan and Germany, with export
export-based
based manufacturing-oriented
manufacturing oriented growth patterns, have achieved
increases in labor productivity (approx. 25%). However, since 1990, worker incomes in real terms
have remained more or less flat.
Ch
Change
iin G5 llabor
b productivity
d ti it
G5 p
per capita
p employee
p y compensation
p
（1990年＝100）
(1990
level = 100)
UK
220
UK
200
France
Germany
Japan
USA
UK
USA
USA
180
France
France
160
Japan
140
Germany
Germany
120
Japan
100
80
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source:
International Labor Productivity Comparison (Japan Productivity Center)
【出所】労働生産性の国際比較（財団法人社会経済生産性本部）
Note 1:労働生産性＝実質ＧＤＰ（購買力平価換算
Labor productivity = Real GDPドル）／就業者数
(at constant prices adjusted for dollar inflation / deflation) / workforce population
（注）１
（注）１．労働生産性＝実質ＧＤＰ（購買力平価換算
Note２．グラフデータは、1990年平均＝100として指数化
2: Data on the graph is indexed with 1990 level equaling 100.
Export-based manufacturing economies are facing cost competition from emerging countries
13
Per capita value added for global corporations and for other industries are divergent
Per capita value added for global corporations and domestic corporations
(million yen)
21. 0
Globalバル企業
(major)
グローバル企業
グロ
corporations
(大企業）
18.0
15.0
Peak
ピーク
(90/3Q)
（90/3Q）
12.0
9.0
6.0
Domestic
(small and
ドメスティック企業
medium)
corporations -29.2%
（中小企業）
3.0
0.0
55
59
63
67
71
75
79
83
87
91
95
99
03
07
Source: Prepared by UFJ Securities from the Ministry of Finance “Corporate
Corporate Enterprise Statistics (annual survey)”
survey)
Boosting the value added for domestic corporations is key.
14
Japan has a low level of dependence on exports
250.0%
231 2%
231.2%
＜各国輸出依存度の比較＞
Comparison
of export dependency in various countries
212.5%
200.0%
150.0%
109.6%
100.0%
77.7%
12.6%
USA
U
17. 4% 14.5%
Braazil
24.1%
Jap
pan
26.6%
In
ndia
28.1%
Fran
nce
36.6%
UK
U
40.2%
Ch
hina
47.5%
EU
U27
South Ko
orea
Vietn
nam
Malay
ysia
Hong Ko
ong
0.0%
Singap
pore
50.0%
Germaany
54.8%
Source: IMF, Cabinet Office “National Accounts”
It is important to connect industries other than specific global manufacturing
industries with overseas growth markets to boost value added.
15
Low Profitability of Japanese Corporations:
Attrition Through Domestic Preliminary Rounds
J
Japanese
fi
firms hhave many competitors
tit in
i the
th same industry
i d t
L profitability
Low
fit bilit off Japanese
J
firms
fi
Comparison of profitability
(5 categories of industry)
(Profitability)
Foreign
companies
(6
companies)
Japanese
companies
(3
companies)
Information &
telecommunications
equipment
(FY2007)
Foreign
companies
(5
companies)
Japanese
companies
(5
companies)
Foreign
companies
(4
companies)
Heavy electric
(FY2007)
Japanese
companies
(2
companies)
Semiconductor
(FY2007)
Foreign
companies
(17
companies)
Japanese
companies
(3
companies)
Chemicals
(FY2006)
Outline of main players in each industry
Japan
Foreign
companies
(5
companies)
Japanese
companies
(1
companies)
Europe
Asia & others
Samsung (ROK), LGE
(ROK), TCL (China)
LCD TVs
Sony; Sharp; Toshiba;
Panasonic; Funai Electric
Vizio (U.S.)
Railways
Nippon Sharyo; Hitachi,
Kawasaki Heavy
Industries; Tokyu car
corp.; Kinki Sharyo
Bombardier (Canada)
Nuclear Power
Toshiba (WH), Hitachi,
Mitsubishi Heavy
Industries
GE (U.S.)
AREVA (France)
Doosan Heavy Industries
& Construction (ROK)
Water business
(Drinking water &
sewerage)
oray; Metawater; Ebara;
Kubota, others *The number
of leading companies is 16 in
equipment,
q p
, 9 in plant
p
construction, and 3 in
operation and maintenance
management.
GE (U.S.), Nalco
(U S )
(U.S.)
Veolia (Europe);
Siemens
S
e e s (Germany),
(Ge a y),
Suez (France)
Thames Water
(A
(Australia)
li )
Toshiba Medical systems,
Hitachi Medical,
Shimadzu; ALOKA
GE (U.S.)
Philips (France)
Diagnostic imaging
Cement
(FY2007)
North America
equipment
Philips (Netherlands)
ALSTOM (France),
Siemens (Germany)
Hyundai Rotem
(ROK)
?
・Japanese companies have many competitors in the domestic market and are exposed to the preliminary round of the war of attrition
in Japan.
・South Korean companies can promptly decide on bold investment strategies for global markets without being exposed to the
preliminary round of competition in the domestic market.
Size of South Korean market per company (as against 1 in Japan)
Passenger
car
Iron & steel
Mobile
phone
h
Electric
power
Oil
wholesale
h l l
1.5
1.5
2.2
3.9
1.1
The domestic market
per company in South
Korea, whose market is
smaller than Japan s,
s is
larger than the size of
the domestic market
per company in Japan.
16
Big deals in South Korea
• In South Korea, since the 1997 currency crisis, the government has acted strongly to centralize industry to
prevent excessive
i diversification
di
ifi i off conglomerates.
l
(Supply-side
(S
l id measures))
• In Japan, since the strong yen crisis of 1985, the government has pushed for expansion of domestic demand
primarily through investment in the public sector (demand-side measures). This has bred a structure of
excessive supply
supply.
Semiconductors
Automobiles
Progression
Framework
2-company system: Samsung Electronics +
company formed from merger of Hyundai
Electronics
El t i andd LG Semiconductors
S i d t
Even after absorbing LG Semiconductors, Hyundai
Electronics (Hynix) faced a crisis
Samsung
Electronics
Samsung
Electronics
Hyundai
Electronics
Hynix
Semiconductors
LG
Semiconductors
1999
Absorption /
merger
2001
Company name changed
*The TFT and LCD segments of LG Electronics, which
remained part of LG, were taken over by merged entity LG
Phillips TFT / LCD
Progression
Petrochemicals
Merger broke down after failure to attract foreign
investment, French company Total invested in
Framework
4-group system: Samsung General Chemicals and Samsung,
Hyundai Petrochemical acquired LG Chemical /
Hyundai Petrochemical attempted integration
Honam Petrochemical
with foreign investment
Samsung
General Chemicals
Hyundai
Petrochemical
Total made capital investment
LG Ch
Chemical
i l
Honam
Petrochemical
Source: Prepared by METI based on
assorted documents
S
Samsung
T
Total
t l
Merger
failed
LG Daesan Petrochemical division
absorbed
Lotte Daesan
Petrochemical
division acquired
in merger
Framework
Hyundai
y
Motors acquired
q
Kia Motors
Daewoo Motors and Samsung Motors were
integrated into foreign corporations
Progression
Hyundai-Kia formed, Samsung Motors filed for
bankruptcy, causing a business exchange failure,
Daewoo Motors was ppurchased by
y GM, Samsung
g
Motors purchased by Renault
Hyundai Motors
Kia Motors
Hyundai Motors
Went bankrupt
in1998, became
a subsidiary of
Hyundai
Daewoo Motor
S
Samsung
Motors
Railroad cars
Framework
Merger of Hyundai Precision, Daewoo Heavy
Industries and Hanjin Heavy Industries
Hyundai
Precision
LG Ch
Chemical
i l
Daewoo Heavy
Industries
Honam
Petrochemical
Hanjin Heavy
Industries
Business exchange
failure
Went bankrupt in 2000, became a
subsidiary of GM in 2002
W bankrupt
b k
i 2000,
2000
Went
in
became a subsidiary of
Renault
Progression
1999 merger,
merger became a group
company of Hyundai Group in 2001
Hyundai Rotem
1999 merger
Name changed in 2007
17
Corporate “aging society and low birthrate” (Stagnation in number of companies established,
growing number of companies going out of business)
○The rate of companies going out of business continues to exceed the rate of those going into business,
leading to an ongoing decline in the number of companies
Changes in rate of companies going into/out of
business (non-primary industry)
（％）
70
7.0
5.9
5.9
Going out of
開業率
business rate廃業率
6.0
（万社）
560
6.8
6.1
6.2
5.6
540
528 526
5.0
4.3
40
4.0
3.5
3.8
5.8
5.1
4.0
32
3.2
4.0
2.7
2.0
10
1.0
523 520
510 507
500
485 484
470 469
480
3.6
3.5
4.21 million
companies
535 533
Small and
medium
enterprises
520
3.0
5.28 million
companies
(10000 companies)
8.0
Change in
Ch
i number
b off
companies
3.5
460
Total no.
of companies
434 433
440
Going into
business rate
421 420
420
400
0.0
75∼78
78∼81
81∼86 86∼91
91∼96
96∼99
99∼01
01∼04
Source: The Small and Medium Enterprise Agency “2008 White
Paper on Small and Medium Enterprises”
04∼06
（年）
(Year)
1981
1986
1991
1996
1999
2001
2004
2006
(Year)
（年）
Source: MIC “Establishment and Enterprise Census” (re-edited and rearranged)
Note 1: Conducted as the “Establishment and Enterprise Census” through 1991, and in 1994 as the “Enterprise List Update Survey.”
2: The criteria for designation as a “small
small or medium enterprise
enterprise” are as follows.
• Until 1996, the standard was 300 or fewer employees (100 or fewer for wholesalers, 50 or fewer for retail, food and drink or service industries), or ¥100 million or
less in capital (¥30 million or less for wholesalers, ¥10 million or less for retail, food and drink or service industries)
• Since 1999, the standard is 300 or fewer regular employees (100 or fewer for wholesalers, 50 or fewer for retail, food and drink or service industries), or ¥300 million
or less in capital (¥100 million or less for wholesalers, ¥50 million or less for retail, food and drink or service industries)
18
Necessity for Shop-Floor Manufacturers to Directly Develop Global Markets
•
Small and medium
medium-sized
sized manufacturers are
facing hardships, as big corporations at the
top of the pyramid have lost competitiveness
in global markets.
Withdrawal
Overseas Transfer
•
In order for shop-floor manufacturers to
expand into international markets, it is
necessary to solve the following problems.
Difficulty of collecting information independently
Necessity to directly
develop markets
・ It is difficult to find partners, to begin with.
・Information on overseas markets is insufficient.
Difficulty of negotiating independently
・ It is difficult to negotiate in English and conclude contracts
on an equal footing.
Decrease of work
On the verge of going out
of business
・ Information on partner country’s system and commercial
custom is insufficient.
Changes in the number of business establishments
Ota Ward
Higashi
Osaka
1983
2008
About 9,000
About 4,000
1997
2007
About 12,000
About 8,000
Difficulty of continuing business
・ It is difficult to cope with the outflow of know-how and
technologies.
・ Difficulty of collecting bills (Can’t afford to spend extra
money for delays in payment and defaults)
Source: Industrial statistics
19
2. Background to the Stalemate
(2) Problems Involved in Corporate
Business Model
20
Japanese Share Has Decreased Rapidly in Line with Growth of the Global Market
Problems involved in Japanese corporate business model, not problems of specific industries or specific products
Sharee in the world markeet (%)
DVD player
Car navigation
s stem
system
Liquid crystal panel
DRAM memory
e oy
Solar power
generation
panel
21
Overseas corporations have gained a competitive advantage by pursuing a strategy of standardization
•
Major overseas players have gained a competitive advantage by pursuing a strategy of strategy of
standardization integrating the “black box” with “open” paradigm
Interface standardization
(In the PC field,
field Intel)
Foreign
corporations’
strategies
Motherboard
Standardization of specifications
(In the router field,
field Cisco)
Companies protect their
Network
own domain with
intellectual property rights
and monopolize
p
the right
g
to update technologies
Use of open
●MPU
Router
protocol*
All other areas are
thoroughly standardized and
opened,
p
encouraging
g g entry
y
into the field by Taiwanese
manufacturers, etc.
● PCI buses
● Motherboards
Opening of peripheral field encouraged entry
by emerging countries, escalating cost war
Events
so far
f
While Intel maintains high profits with nonstandardized technology, Japanese corporations
involved in open fields (memory, HDD, etc.) are
squeezed by escalating competition
(IOS**)
Network
Engagement with growing black box approach to
infrastructure side
(Nokia and Motorola in the mobile phone field)
“Black box”
approach, protected
by intellectual
property rights
Base station control system
The right to update
technology is kept and
licenses provided to
other companies
Growing
black box
approachh tto
infrastructure
side
Interdependency
Open
standardization
Mobile phone handsets
Licensed corporations engage in
worldwide sales, Cisco routers become
the default option
Japanese corporations had the world’s
most advanced mobile phone
infrastructure and handsets, but…
Japanese corporations withdraw from
router field as a result
Inability to reduce costs and respond in a
timely fashion to technological advances in
an increasingly “black box” oriented
infrastructure field leads to inability to
expand overseas
*IP protocol used
**System “black boxed” by Cisco. IOS stands for Internetworking Operating System. Uses proprietary protocol IGRP (Interia Gateway Routing Protocol)
Source: Prepared by DI based on Koichi Ogawa “International Standardization and Business Strategy”
Source: Prepared by METI on the basis of DI “Survey of International Expansion of IT Industry in the Societal Infrastructure Field” (ordered by JIPDEC)
22
Cases where Japan manages to maintain share despite growth in global market
Successful closed / open strategy
(Digital cameras)
(1,000 units)
Maintenance of integration approach
(Automobiles)
25.00%
Number of units produced worldwide (excluding
世界生産台数（商用車除く）
commercial vehicles)
53,000,000
140,000
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
JJapanese
p ア ese ve
vehicles’
c es share
s e
日本車シ
日本車シェア
120,000
51,000,000
20.00%
49,000,000
15.00%
100,000
Digital cameras Number of
units produced worldwide
80,000
Digital cameras Percentage
produced by Japanese
corporations
デジタルカメラ 世界生産台数
デジタルカメラ 日系企業生産割合
60,000
47,000,000
40 000
40,000
45,000,000
10.00%
20,000
0
43,000,000
5.00%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
(projected)
41,000,000
39,000,000
0.00%
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source: OICA “World
World Motor Vehicle Production by country
country”
→ If electric vehicles go mainstream and
modularization progresses, will Japan be able to
keep up?
Source: JEITA “World-wide
World wide Production of Major Electronics
Electronics”
→ Can this recipe for success be applied to new
technologies in the future?
23
Digital camera closed / open success strategy
Like the
Lik
th Japanese
J
auto
t industry,
i d t this
thi is
i an integrationi t
ti
approach field with a very high degree of interdependence
Fourier
Transforrmation
A/D
D
CDS
S
CCD
D
Shuttter
Aperrtures
AF+
+
Len
nses
Concentration and encapsulation
of integration know-how
MCU
DSP
image
g
processing
Controllers
AF and other lenses,
shutters, sensors
Applications
M/W
OS
Drivers
Image
compression
and
expansion
LCD
Video
Memory
cards
USB
Internal structure is a complete “black box” Only external
Source: materials from Univ. of Tokyo Professor Koichi Ogawa
interface of digital
camera adheres to
global standard
Increase in mass
production by
other companies
24
Changes in Added-Value Acquisition Strategy in the World
1970s
Late 1980s
1990s
Japan
J
Measures to boost
domestic economy
Dominated the world
through vertical
Integral model
Collapse
p
of bubble
economy
(1991)
Around 2000s
Industrial
hollowing
Three excesses
(debts, facilities,
employment)
Yen’s appreciation Bubble
Digital technology
Competition
Europee
Loss of world share
due to vertical integration
・Pro-patent
・Pro
patent
・Joint research
・Drawing intellectual
human resources
・International
standardization
・Strengthening of location
competitiveness (corporate
tax breaks, etc.)
・Integration of intra-regional
markets
・Government-led joint research
A
Asia
Asian currency crisis
⇒Large industrial
reorganization (South Korea) Bold tax breaks for
Restrictions on
foreign investment
investment
Reform of state-run
enterprises, foreign capital
inflow policy (China)
Loss of world share
Modularization,
Move to open
technology
Concentrated
investment in
specific
products
U.S. and Eurropean cooperration with labor
production in
i Asia
U.S.
U
Shift in
strategy to
open inovation
Domestic
regression
through
approximation
of industries
Present
Winning back
world market
share by
promoting
modularization
models
Concentrated
support for
strategic
g fields
(clean energy,
next-generation
automobiles)
25
Structural problems contributing to Japanese industries’ industrial deadlock
• Limitations
Limitations of the outdated conventional model (Vertical
of the outdated conventional model (V ti l integration
i t
ti / ini
house development policy, product improvement / cost-reduction model)
Past
Pyramidal ,vertical integration / in-house development policy model
[Manufacturers of assembled products]: Integration approach, increased productivity,
exhausting
h
i competition
i i among many domestic
d
i with
i h competitors
i
i the
in
h same field.
fi ld
[Manufacturers of components and manufacturing equipment]: Performance honed by
partnership with strong manufacturers of assembled products,
simultaneous
development.
Present
Manufacturers
of assembled
products
Components, equipment
and related industries
(1) Left behind changes in world business models
(2) Inability to deal with growing and emerging
economies, loss of global market share
Exhausting, never-ending fight to compete with
companies in emerging countries over production
costs. Stagnant and declining wages. If makers of
assembled products fail, there is a possible collapse
of related industries as a delayed reaction.
26
2 Background to the Stalemate
2.
(3) Problems Involved in Corporate Business
Infrastructure (Location Competitiveness of
Industries)
27
Evaluation of Base Functions by Foreign Companies (Japan’s location competitiveness declining)
•
Japan has rapidly lost location competitiveness in all functions compared with 2 years ago,
ago when it was the
central stronghold of Asia.
Evaluation of stronghold functions by foreign companies
(Japan’s location competitiveness)
FY2007
Japan
Integrated base in
Asia
China
India
Singapore
Japan
1st
Manufacturing
b
base
China
India
1st
1st
R&D base
1st
2nd
B k office
Back
ffi
2 d
2nd
1t
1st
Distribution
center
FY2009
1st
2nd
1st
2nd
2 d
2nd
Singapore
2nd
2nd
1st
1st
1st
2nd
2nd
Source: Survey on Attitudes of Foreign-Affiliated Companies toward Direct Investment in Japan
(Ministry of Economy, Trade and Industry, FY2009, FY2007)
28
High Value Added Locations Shifting Overseas
Nissan shifts control of all its Nissan
shifts control of all its “March”
March model production locations to emerging economies such as Thailand
Sunstar moves HQ to Switzerland
The effective corporate tax rate is 21.17% in Switzerland. Also, a reduced tax rate of 5%‐10% applies to holding companies for 5 years.
In Thailand, if receive approval as a local holding company corporate tax is cut from
holding company, corporate tax is cut from 30% to 10%.
Fujitsu does joint R&D with Singapore Agency for Science, Technology and Research
Singapore has a 17% corporate tax, Singapore
has a 17% corporate tax
and support menu & incentives apply, such as lower tax on investments.
U.S. goods manufacturer P&G moved its Asia HQ from Kobe to Singapore (2009)
■
■
■
Sharp established a design & Sharp
established a design &
development center for LCD panels & TV in China (Nanjing)
In China, corporate tax is cut from 25% to 15% for qualifying high‐tech f
lf
h h
h
companies.
SSwiss pharmaceutical company Novartis i
h
i l
N
i
closed its Tsukuba Research Institute, and strengthened its Shanghai R&D center (2008)
Finland mobile phone manufacturer Nokia moved its development location from Tokyo to Singapore (2009)
U.S. medical device manufacturer Medtronic (pacemakers) moved Asia HQ
(pacemakers) moved Asia HQ from Tokyo to Singapore (2009)
Source: Made by Ministry of Economy, Trade and Industry, based on press releases of various companies, newspaper articles, etc.
29
International Comparison of Corporate Tax
○In
I th
the last
l t 10 years, advanced
d
d countries
t i have
h
lowered
l
d their
th i corporate
t tax
t rates
t by
b about
b t 10% in
i order
d to
t attract
tt t global
l b l enterprises.
t
i
Asian countries lowered the rate by about 3%.
Corporate tax rate
2000
2009
OECD
About 34%
About 26%
Asia
About 28%
About 25%
○On the other hand
hand, Japan’s
Japan s tax rate remains high,
high at about 40%.
40%
45
40
35
30
Japan
42%
40%
Advanced
country average
34%
○Actual tax burden ratios of major corporations in Japan and South Korea
(Average for fiscal 2006 through 2008, on a consolidated basis)
41%
40%
U.S.
(New York State)
Japan
p
Sharp
Canon
Nominal
tax rate
35 8%
35.8%
38 0%
38.0%
40 7%
40.7%
28%
25
26%
25%
Asia
(NIEs + ASEAN4 + China)
20
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
South
Korea
LG
Samsung
Electronics
Electronics
Nominal
tax rate
15.7%
%
19.2%
%
27.5%
%
(Source) KPMG Japan
(Note) Figures for EU (15 countries as of 1998), OECD, and Asia are simple averages (but for Switzerland, the tax rate as of
January 2008 was used).
30
Competitiveness of Distribution Infrastructure
・ Japanese port and harbor infrastructure has become less competitive.
competitive
・ Narita losing ground in terms of air cargo handled.
Ranking of major ports in terms of containers handled
1994
2008
Port name
2000
Port name
1
g
Hongg Kong
1
g p
Singapore
2
Singapore
2
Shanghai
3
Kaohsiung
3
Hong Kong
4
Rotterdam
4
Shenzhen
5
Pusan
5
Pusan
6
Kobe
6
D bai
Dubai
・・・
10
Yokohama
・・・
・・・
15
Tokyo
・・・
24
Ranking of major airports in terms of air cargo handled
N
Nagoya
24
T k
Tokyo
2008
Airport name
Airport name
1
Memphis (U.S.)
1
Memphis (U.S.)
2
Hong Kong
((China))
2
Hong Kong (China)
3
Shanghai (China)
3 Los Angeles (U.S.)
4
Incheon (ROK)
4
Narita (Japan)
5
Anchorage
g ((U.S.))
5
Seoul (ROK)
6
Paris (France)
6
New York (U.S.)
7
7
Anchorage (U.S.)
(U S )
Frankfurt
(Germany)
8
Frankfurt
(Germany)
8
Narita (Japan)
・・・
29
Yokohama
31
Competitiveness of Japanese Human Resources
•
•
Few Ph.D.’s
Ph.D. s are awarded in the fields of science and engineering in Japan, fewer than the numbers awarded in Britain and
Germany, whose populations are smaller than Japan’s, and about one-fourth of the number awarded in the United States.
The inflow of highly intellectual foreign human resources into the Japanese labor market is very small compared with other
advanced countries.
International comparison of the number of Ph.D.’s awarded in the fields of science and engineering
(The number is smaller than in Britain and Germany, whose populations are smaller than Japan’s.)
(2005)
U.S.
China
Germany
U.K.
Japan
ROK
28,000
14,900
12,200
9,400
7,700
3,500
Ratio of foreigners who have finished higher education in the country
(By far smaller compared with other advanced countries)
(2008)
Australia
Canada
U.K.
U.S.
France
Japan
29%
26%
16%
13%
12%
0.7%
Ratio of foreign students
(Japan is lowest among major countries)
US
U.S.
5.8%
UK
U.K.
25.7%
Germany
12.4%
France
11.7%
(2009)
Australia
28.6%
Japan
3.5%
（Number of foreign students accepted ÷ Number of students attending higher education institutions)
32
International competitive power of Japan’s financial markets
Major stock exchanges such as New York or London have more international appeal than Japan’s exchanges.
In Asia as well, Japan is being overtaken by emerging exchanges such as Singapore.
Change各国証券取引所における外国会社上場数の推移
in number of foreign companies listed on various global stock exchanges
800
700
600
500
400
300
200
100
0
NASDAQ OMX NASDAQ
Tokyo & Osaka
NYSE Euronext Tokyo SE Group New York
Stock
(US)
＋Osaka SE
Stock
Exchanges
Exchange
1996
Source: World Federation of Exchanges “Annual Report”
2002
London
Stock
London SE
Exchange
Singapore
Stock
Singapore Exchange
Exchange
2008
33