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Japan
Nr. 193 vom Januar 2005
Japan: Economic Reforms and Regional
Integration
Dennis S. Tachiki
Japan-Zentrum der Ludwig-MaximiliansUniversität, München
www.japan.uni-muenchen.de
Deutsch-Japanischer
Wirtschaftskreis (DJW)
www.djw.de
Japan Analysen Prognosen
Nr. 193 vom Januar 2005
Japan-Zentrum der Ludwig-Maximilians-Universität, München
Deutsch-Japanischer Wirtschaftskreis, Düsseldorf
Redaktion: DJW-Team, Franz Waldenberger
Düsseldorf/München, 2005
(ISSN 1617-139X; 190 2005)
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Herausgeber:
Japan-Zentrum der Ludwig-Maximilians-Universität
Oettingenstraße 67, 80538 München
Tel. 089/2180 9820
www.japan.uni-muenchen.de
und
DJW (Deutsch-Japanischer Wirtschaftskreis)
Stockumer Kirchstr. 61, 40474 Düsseldorf
Tel.: 0211 5649 8381
www.djw.de
Eine Liste der früheren Ausgaben ab dem Jahr 2000
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Prof. Dr. Franz Waldenberger
E-mail: [email protected]
DJW
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Nur mit Quellenangabe und gegen Einsendung eines Belegexemplars.
© Japan-Zentrum der Ludwig-Maximilians-Universität/DJW, München/Düsseldorf 2005
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1. Introduction
What are we to make of the Japanese economy? After more than a decade of false starts,
late last year we saw gross domestic product (GDP) growth akin to a developing country at
7.4% in the October-December quarter and 6.6% in the January-March quarter.
Nevertheless, in the April-June quarter, economic activities in Japan slowed to 1.3%
annualized growth rate.
ECONOMIC FORECAST: While close observers of the Japanese economy palpably
follow its ups and downs, as long as Japan’s latent growth rate stays within a 1.0% to
2.0% band, its economy should steadily recover at the pace of a developed country
rather than a developing country.
In many ways the ups and downs in the Japanese economy reflect a struggle between the
“old economy” still hiding behind “structural impediments,” which buffer Japan from the larger
global economy, and the emerging “new economy.” The July-September quarter is estimated
at 0.4%, partially because of a new method for calculating the accuracy of the GDP deflator
by setting the base year every year instead of every five years. From December 8, when the
Cabinet Office will announce third quarter data using the new GDP calculation, we should
begin to see the impact of information technology improvements and broader changes in the
regional East Asian economy on the Japanese economy. Thus, whither the Japanese
economy and regional integration in 2005?
I.
JAPANESE ECONOMY
A. Koizumi’s Structural Reforms
Since coming to power in 2001, Prime Minister Junichiro Koizumi has been resolutely
targeting three major issues in order to revive the decade long stagnant economy. The first
issue is resolving the enormous non-performing loan (NPL) burden, which the government
conservatively estimated in 2002 at 8% (some estimates were as high as 20%) of all
outstanding bank loans. His second target is reversing the mounting government debt, which
was at 140% of GDP in 2002, the highest among the developed countries. The third issue is
reducing the state’s role in society, where it regulates approximately two-thirds of all
domestic economic activity. Koizumi has been trying to kill these three onerous birds with
one “structural reform” stone.
NON-PERFORMING LOANS: Among the structural reform issues Koizumi has
targeted, the NPL problem of 43.2 trillion yen in 2001 is slowly declining to a
“manageable” 26.6 trillion yen (March 2004). For the seven major “city banks” this is
5.2% of all outstanding bank loans, close to the 5% goal set by the Financial Services
Agency for FY2004 (Note: Japanese fiscal year (FY) is April 1 until March 31). The city
banks’ bad loan ratio for September 2004 has dropped further to 4.6%. Indeed, credit
rating agencies are already upgrading the ratings of the major banks.
In 2003, Heizo Takenaka, Minister of Financial Services, moved along a broad front in
addressing the NPL issue. The Financial Services Agency (FSA) fired a warning shot by
Japan Analysen Prognosen Nr. 193 vom Januar 2005
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stating it will require banks to determine the “discounted cash flow” value of a loan as well as
employ tougher assessment standards for collateral. Moreover, the FSA placed additional
pressure on banks to submit business plans that would reduce their NPLs to 3 - 4% of all
outstanding loans by the end of FY2005. The Mitsubishi Tokyo Financial Group, Sumitomo
Mitsui Financial Group and Mizuho Group are well on the way to meeting this deadline.
Although all of the major banking groups except the UFJ Holdings will remain profitable over
the near term, they will all report lower profits in order to remove the NPLs off their balance
sheets by FY2007, and the Sumitomo Mitsui Financial Group announcing it will repay all
government capital injections by FY2007—that is, bad news over the next two years from the
banking sector will be actually goods news.
Subsequently, we are beginning to see among the stronger banks (1) a more “lean and
mean” banking organization, (2) a greater variety of financial products, (3) more competition
among banks (e.g., Mitsubishi Tokyo Financial Group and Sumitomo Mitsui Financial
Group’s bids for UFJ Holdings). This process is rationalizing the domestic financial services
industry; however, Japanese banks must still revise their “main bank” business model to
become competitive in the global market. Thus, in the next wave of bank restructuring, I
would expect to see the major Japanese banks either acquiring regional banks and/or
striking strategic alliances with foreign investors to strengthen market presence while
spinning off unprofitable business lines.
FISCAL DEFICIT: As the NPL problem (private debt) begins to unwind, some critics
argue the same close scrutiny should be made of Japan’s public debt (i.e., fiscal deficit).
Indeed, the mass media reports the “gross” fiscal debt has ballooned to 161% of GDP,
inviting comparisons to debt-ridden developing countries. When we consider that most
of this debt is short-term intra-government debt and another big portion is accountable to
quasi-government agencies, however, Japan’s “net” fiscal debt decreases to around
45%, a level comparable with most developed countries. Consequently, the devil is in
the details, where the Koizumi cabinet must critically examine line-by-line how to
balance fiscal expenditures and tax revenues.
On the expenditure side of the equation, the Koizumi cabinet initially assumed they could
decrease fiscal spending by 1% and increase tax revenues by 1% in order to cap the fiscal
deficit. While Koizumi has been successful in privatizing public corporations and cutting
wasteful ministry spending, almost all of this fiscal “dividend” has been used to pay for social
security, debt service, and local block subsidies (tax grants allocations to local governments)
rather than to his “seven priority areas”1 for jump-starting the domestic economy. Without this
fiscal pump-priming, a morbid economy has yielded a declining rather than increasing steam
of tax revenue, forcing the government into issuing sovereign bonds in FY2002, FY2003, and
FY2004. The nascent economic recovery is providing more tax revenues than projected last
year, but not enough for the government to wean itself of issuing sovereign bonds again in
FY2005 and most likely will continue to do so until FY2010.
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(1) environment, (2) measures for an aging society and declining birthrate, (3) regional vitalization, (4)
revitalization of cities, (5) science technology, (6) human resources, and (7) information technology
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The government’s task for increasing the revenue side of the equation, then, is clear: the
government must continue to issue sovereign bonds (although at a slower pace now) to keep
the economy moving forward while seeking ways to reform the (1) individual and corporate
tax system, (2) pension system, and (3) consumer tax system. Koizumi has promised not to
raise taxes during his tenure, but already the relevant deliberative councils are studying ways
to generate revenues or reduce expenditures from these large budget items. The period from
deliberation to legislation will take us into FY2006 and beyond, well after Koizumi’s term of
office. In the interim, Koizumi adamantly plans to take on the privatization of the postal
system, despite public polls showing pension system reform as the top priority of the
Japanese people. Unless Koizumi can convince the public that postal reform will have a clear
positive impact on the lives of the average citizen, he stands to diminish the value of his
political trump card (i.e., calling for a snap election) in neutralizing the strong resistance from
not only the opposition DJP, but also within his own political party.
IRON TRIANGLE: During the Cold War, an “iron triangle” of bureaucrats, politicians,
and business elites skillfully managed fiscal policy to drive the Japanese economy, but it
is now obvious that this arrangement is failing to maintain Japan’s competitiveness in
the 21st century. Consequently, Koizumi has bravely turned his structural reforms sight
on “destroying” these three sides of the iron triangle to allow market forces greater play
in a “civil society.”
At the bureaucracy axis of the iron triangle, much of the mass media attention has been on
the privatization of public corporations and the deregulation of the economy, but this
overshadows parallel efforts to decentralize national political decisions to the local
government level—that is, the trinity reforms: (1) cutting regional government subsidies, (2)
transferring tax collection authority to local governments, and (3) reviewing tax revenue
grants to local governments. Both the privatization and decentralization processes are meant
to create a “civil society” where individuals (markets) decide their life chances rather than the
omnipresent bureaucratic regulations. Koizumi’s attention to postal reform, however, will
likely distract him from continuing efforts to empower local governments during his term of
office. Moreover, by opening such a broad front—deregulation and decentralization—he may
have spread his political resources too thin to mount a concerted reform of the bureaucracy.
At the political axis, the Liberal Democratic Party (LDP) and its coalition partner (Komeito
Party) are starting to feel political pressure from the opposition Democratic Party of Japan
(witness the last upper house election results), but there are too many ideological differences
within the DPJ for it to become an effective ruling party. A more interesting trend to watch is
the appeal of independent candidates to voters who are sensitive to local issues such as
education, public works and the environment, and medicine and social welfare. This may
force the ruling and opposition parties to reconsider their policy platforms and/or seek new
political alignments to attract the large constituency of “undecided” voters. This is the path, I
believe, that will lead to a functional “two-party” system in Japan rather than all the fanfare
made over the recent gains the DPJ made in the last upper house election. As we get nearer
to the end of Koizumi’s tenure as prime minister in 2006, we should begin to see more visibly
the internal jockeying among politicians that is already going on in Nagatacho (the area
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around the Diet building) to position themselves several years down the road to become the
next prime minister.
At the business axis, the peak organizations (Nippon Keidanren, Chamber of Commerce and
Industry, Keizai Doyukai, Kankeiren, etc.) have not lost their grip on influencing government
policy, however, the diffusion of the Internet and the rise of “bit valley” entrepreneurs are
creating new business models challenging, for example, the hierarchical distribution system
and keiretsu (corporate groupings such as Mitsubishi, Mitsui, Sumitomo, etc.) business ties.
Consequently, Hiroshi Okuda, president of Nippon Keidanren is trying to encourage such
entrepreneurial companies to join the Keidanren, a call that Rakuten, an Internet-based
shopping mall, has answered. The question is how many more of the “new economy”
companies will follow. The new entrepreneurs in Japan’s do not have the political-economic
power to displace the keiretsu dominated economy. Indeed many of the successful dot-coms
are actually click and brick entities (i.e., keiretsu companies independently or in partnership
with a venture business putting part of their business online). Equally interesting will be to
watch whether the traditional big players will develop the agility to compete in the ecommerce arena (see section D below for a further discussion). In short, what we are
witnessing is further evidence why the Japanese economy swaggers between the old and
the new economy.
B. Monetary Policy
The Japanese GDP deflator has been negative since 1994 (except 1997) leading a growing
number of people to argue that the resulting rise in “real interest rates” discourages
investment and consumption. The Bank of Japan (BOJ) at first adopted a conventional “zero
interest rate” policy but stopped short of adopting an unconventional “inflation targeting”
policy to stimulate investment and consumption. With the installation of Toshihiko Fukui as
the new BOJ governor, however, we have seen the implementation of a “monetary easing”
policy to stimulate investments and interventions in the foreign exchange market when the
Japanese yen dips into the 100 – 103 yen range. Taking this unusually broad monetary
policy front (plus exports to China and the United States) seems to have allowed the private
sector to get back on its feet and drive the spurting economic recovery.
DEFLATIONARY SPIRAL: Deflation persists in Japan; however, the fact it did not face
an economic crisis early last year as many pundits predicted and the recent
improvements in the GDP suggest Japan may be pulling away from its “liquidity trap.”
Two lines of argument exist about the persistence of deflation in Japan. One line argues that
cheap goods from China “imports” deflation to Japan. This argument is quickly dismissed
because only 10% of imports are from China, and imports, in turn, only represents 10% of
Japan’s GDP—that is, the impact of Chinese goods on GDP is 1%. The other argument is
that “structural reforms” are removing “structural rigidities” and restoring competition back
into the marketplace, leading to lower prices. Considering that consumers represent 55% of
GDP, this is a more plausible argument. Under this latter scenario, as long as deflation
continues to be mild (1-2%), the BOJ will finally have some room to begin lifting its zero
interest rate and monetary easing policy to better reflect market fundamentals.
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Fukui reminds financial watchers that arresting deflation is only one indicator he is using
before realigning monetary policy to market fundamental. The other two are consensus
among the BOJ board members that the consumer price index (CPI) growth is more than
zero, and that economic and price trends warrant an end to the quantitative easing policy.
The latest GDP figures do not provide the legs for the BOJ to change the current monetary
policies. Moreover, as we head towards the end of 2004, policymakers are tacitly concerned
about the drop in oil prices, the weakening of the dollar (will and can the BOJ continue to
intervene in the FOREX market?), and the possible revaluation of the Chinese renminbi.
Nevertheless there is confidence that Fukui is the right person to manage the opportunities
and threats that may arise in the near term and play his role in keeping Japan on course for
industrial and corporate restructuring.
C. Industrial and Corporate Restructuring
One way to see how government reforms are leading to a restructuring of industries and
corporations is to examine the business plans of Japanese companies.
BUSINESS PLAN: A business plan reveals how a company balances the processes of
rationalizing existing products and diversifying into new products.
Historically, rationalization (cost down) is embodied in the renowned total quality management (TQM) system of Japanese companies. TQM covers the process of transforming raw
materials into finished products. Several trends emerging in the business plans of Japanese
companies are noteworthy for our discussion. One noticeable change in the rationalization
story is the inclusion of environmental management systems (EMS)—that is, how to reduce
the environmental impact of products and services.
Chart 1: Business Plan
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A total quality and environmental management system means Japanese companies are
becoming competitive by not only lowering cost, increasing quality, and shortening delivery
times (i.e., the QCD Function), but also reducing the environmental impact of their products
and services. We can already see this concern for a “life cycle assessment” (LCA) approach
to product designs (e.g., Toyota’s hybrid car) and production processes (cell
production).Another change in the rationalization story is the movement of information
systems online and the adoption of business models based on e-commerce.
E-COMMERCE: Initially Japan lagged behind the United States and Europe in moving
its business online to the Internet. According to a Ministry of Economy Trade and
Industry survey, however, since the 1990s, the diffusion of the Internet to Japanese
companies has increased from less than 10% to 96% for “enterprises” (>300
employees) and from 6% to 45% for “establishments” (<300 employees). Japan is now
one of the major leaders in the area of mobile commerce (e.g., i-mode).
Since the late 1960s, Japanese companies have invested in “closed” electronic data
interchange (EDI) systems. These information systems underlie the well-known just-intime/kanban delivery systems in manufacturing, the overnight delivery systems in transport
services, and the re-stocking system in convenience stores. As these “closed” information
systems move on-line to the “open” Internet, we would expect greater integration of a
company’s value chain by linking CRM (customer relations management) with the “voice of
the customer,” SCM (supply chain management) with ERP (enterprise resource planning)
and kamban/JIT delivery systems, an 3D-CAD (computer assisted design) with concurrent
engineering practices—that is, a merger between existing “analog” based TQM practices with
online information systems. Although it is too early to determine the cost savings from such
practices, it is clear some companies have been able to reduce significantly design time and
customer order turnaround time.
The other dimension of a business plan is diversification (new product development).
Japanese companies pursue product diversification either within their industry or across
industries. There are many successful examples of this product development strategy
throughout the post-war era. What is new is that many of the new products coming on to the
market are “digitalized”—that is, based on integrated circuit (IC) chip based technologies.
DIGITALIZATION: The business plan of Japanese companies indicates a shift towards
the digitalization of products and production. This trend is moving up a technological
ladder based “u (ubiquitous)-commerce”—that is, mobile commerce (cellular phones,
etc.) Æ voice commerce (e.g., robotics, biometrics, etc.) Æ television commerce (e.g.,
home entertainment systems) Æ silent commerce (e.g., RFID).
One of the clear drivers behind the current revival of the electric and electronics industry is
the brisk sales of digital products. At the core of this trend is the electronics component
industry (i.e., passive components, connecting components, transducers, electronic devices,
and displays). From this core industry, we can see the diversification “within the industry”
strategy unfold in the form of cellular phones, digital cameras, flat-screen panels, and other
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digital products. In 2002, for example, Japanese assembly makers held 84.3% of the global
market share for digital camera and 65.8% for car navigation equipment. As Japanese
assembly makers experience success in the marketplace with digital products, they are
abandoning lower value-added product segments to their foreign competitors.
There is some slowdown in the sales of digital electronic products, but within the framework
of the u-commerce technological ladder mentioned above, these products only represent the
lower step. I expect the next wave of u-commerce products and services will derive from a
diversification “across industries” strategy, where we will see new digital products in the
automobile (car navigation equipment), health services (home medical devices, sensors,
etc.), home security (robots), and other industries that will increasingly be based on voice,
television, and silent u-commerce, the next levels of the u-commerce ladder.
D. Emerging Sectors and Entrepreneurs
The information, communication and technology (ICT) industries have surpassed the
construction industry as the second largest component of GDP. According to ECOM
(Electronic Commerce Promotion Council of Japan) the projected size of the e-commerce
market in Japan in FY2002 should amount to nearly 47 trillion yen. This is a five-fold increase
over the amount of e-commerce transactions in 1998, when this survey first began. By
FY2005, the ECOM forecasts the e-commerce market should triple in size to 142 trillion yen.
B2B (Business-to-Business): The B2B market in FY2005 should account for 14.1% of
total business transactions in the economy, up from 6.6% in FY2002.
The manufacturing sector accounts for most of the e-commerce transactions across the B2B
(business-to-business) market in FY2003. The top three manufacturing sub-sectors are
electronic and information products (44%), automobile (40%) and industrial and precision
machinery (3%). Where the ECOM data becomes more problematic is in its future forecasts
of e-commerce trends. By FY2006, the ECOM forecast suggests a greater integration of the
supporting industries—that is, the cluster of companies in the materials industries, material
processing industries, and associated industries (dies and molds, machine tools, founding
and forging machinery, industrial furnaces, etc.) — at the foundations of the vertical keiretsu
production networks. These sub-sectors are relevant to an export-oriented economy,
however it is already clear that China and the other East Asian economies will come to
dominate the low and middle-technologies in these sub-sectors, pushing Japan to move up
the technological ladder to more knowledge-intensive technologies. This suggests the ECOM
forecast underestimates the potential growth in the knowledge service sector as an important
B2B player in the future.
B2C (Business-to-Consumers): The B2C market in FY2005 should account for 4.5%
of total business transactions in the economy, up from 1% in FY2002.
For the B2C (business-to-consumer) market in FY2003, the top sub-sectors in wholesale and
retail sectors are automotive (23%), PC and related goods (10%), clothing and accessories
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(4%), food (4%), hobbies (3%), and books and music (2%). In the bank and finance sector,
the financial services account for 4% of B2C total revenues. By FY2006, the ECOM projects
travel (8% Æ 15%) will move near the top of B2C list and replace real estate (22% Æ 9%) as
the top services sub-sector generating B2C revenues. The automotive (23% Æ 14%), PC
and related goods (10% Æ 4%) and finance services (4% Æ 4%) sub-sectors will contract,
but the clothing and accessories (4% Æ 8%)), food (4% Æ 7%), hobbies (3% Æ 7%), and
books and music (2% Æ 3%) should continue to grow. While the ECOM forecasts are
becoming more accurate, it tends to miss nascent trends. We note that these are youthoriented markets. To be sure, young people are at the forefront of on-line B2C purchases;
but the rapid aging of Japanese society suggests other types of B2C services tapping the
large savings of the elderly will emerge in the near future.
In summary, I expect further growth in B2B and B2C e-commerce; however, the major
players five years down the road may look very different from the present. Japan’s “new
economy” segment alone (excluding the “old” economy”) is much larger than the economy of
many countries in East Asia and there will be high demand for the most technologically
advanced products and services. Thus the Japanese stock market will probably develop a
split personality—cheering the new entrepreneurs while bashing companies that are not
making the transition to the new economy. The place to look for Japan’s “new economy” is in
Bit Valley.
BIT VALLEY: From 1999 a hot topic among Internet business people in Japan was the
Bit Valley scene, a community of the Internet entrepreneurial companies situated in
Tokyo ward of Shibuya.
One reading of the Chinese characters for Shibuya is bitter valley, leading to the moniker Bit
Valley. The word bit is meant to convey the obstacles these entrepreneurs have had to
overcome (bitter), their aspirations to create a Japanese version of Silicon Valley (valley),
and the geographical location (Shibuya). A Fujitsu Research Institute survey reveals that
there are 1,541 Internet companies in the 23 wards of Tokyo at the end of February 2001.
The figure below shows the detailed breakdown of the wards with the highest density of
Internet companies. Out of the 1,061 companies responding to the survey, 426 are located in
the five central wards of Tokyo, especially Shibuya-ku, Shinjuku-ku, Chiyoda-ku, Chuo-ku
and Minato-ku.
Approximately 24% of the Internet companies were founded before 1990, and the remaining
76% after 1990. The main business activity of these companies is concentrated in the area of
Internet application companies (55%). Consulting companies, website developers, search
engine applications, multimedia applications, and software and databases applications for
the Internet are the main types of businesses. Intermediary companies providing products
and services is the next largest category, account for 22% of the cases. The Internet
companies in this category are mainly concentrated among market makers providing on-line
brokerage, travel services, and advertising. The infrastructure (10%) and e-commerce (8%)
companies, the last two categories, bring into relief the supply side of the story—the local
capacity to implement e-commerce. The low level of business activities in the last category is
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due to the low level of enterprise integration activities among Japanese companies.
Other clusters of Internet companies are located in Sapporo in northern Japan and Fukuoka
(and Kyushu region) in southern Japan. The increasing numbers of regional clustering cases
bring into relief the classical importance of private-public partnerships, involving the
government, universities, and businesses, as another contributing factor to these clustering
of Internet companies. Government policies for stimulating entrepreneurship have shifted
from taking the lead to putting the small- and medium-sized enterprises (SME) in the driver
seat. SMEs often have an “intrinsic technology” they can leverage, but need help from
universities in developing the basic research behind the technology and a distribution and
sales channels, a role the sogo shosha (general trading company) have been happy to play.
From these ranks, we will probably see the new Sony and Toyota of the future. In addition,
this geographical dispersion of industry clustering outside the Tokyo and Osaka corridor is a
healthy example for stimulating economic activity in the less urban areas of Japan.
Chart 2: Clustering of Internet Companies in Tokyo
Although I have sketched the information technology landscape, I would be remiss if I did not
mention two other “techs:” bio-technology and nano-technology. Already, companies related
to biotechnology and nano-technology should account for a greater share of GDP over the
next three years, filling the void created by economic contraction in the wholesale/retail and
real estate industries. In the case of Japan, we may see some technological breakthroughs in
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these individual sectors, but given Japanese approach to technological innovation, I expect
many of the new innovations will emerge from the interface of these “three techs.” For
example, nano-materials used as sensors in medical bio-devices, bio-technology used in
developing interactive flat screens, and other such innovations that will help improve the
“lifestyles” of the Japanese people, especially the elderly in an aging society. This image of
Japan is a far cry from the “income doubling” years of the 1960s, but an equally spirited
argument could be made that it is an image of Japan that is very different from the “asset
bubble” years of the 1990s.
II. REGIONAL INTEGRATION
A. Economic Cooperation
The common member countries across the Asia-Pacific organizations constitute the architectural foundations for economic cooperation. The member countries of the Association for
Southeast Asian Nations form one subregional cluster of core members.2 A second subregional cluster includes the ASEAN + 3 (China, Japan and South Korea). And a third subregional
cluster draws the advanced Pacific countries (Australia, Canada, Japan, South Korea, New
Zealand and the United States) into the APEC orbit. Each subregional cluster extends the
geographical reach of economic cooperation, leading to the image of a “concentric integration” of the Asia-Pacific region. The (Pacific) Russia, the Indochina countries and the Pacific
Island Nations promote economic cooperation at a lower level of participation. Noticeably
less integrated into the regional architecture are the South Asian and Central Asian
countries.
Chart 3: Concentric Integration in the Asia-Pacific
2
Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam
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The regional action programs emanating from these regional organizations add the brickand-mortar to the architectural framework for economic cooperation. One way for anticipating
which action plans will emerge on the regional agenda is to monitor how the subregional
clusters filter them before getting to the APEC forum. At this regional level, to date, the most
common ground among the Asia-Pacific economies gravitates around trade and investment
liberalization action plans. The 1994 APEC meeting in Bogor started the region towards the
goal of unconditional free trade by 2010. After the 1994 GATT Uruguay Round, the APEC
member countries have submitted “individual action plans” and “collective action plans” for
liberalizing trade and industries; but, they have been noticeably slower in agreeing to early
voluntary sectoral liberalization (EVSL). Consequently, the EVSL issue has been repackaged
under the topic of “economic and technical cooperation,” leading to the drafting of an
Information Technology Agreement at the 1996 APEC meeting in Manila and embraced by
the World Trade Organization (WTO).
A concentric approach to regional integration has led to the creation of subregional groupings
and regional infrastructures.
CONCENTRIC REGIONAL INTEGRATION: Regional integration in East Asia has been
broad but not deep. That is, in contrast to the European Union, ASEAN, ASEAN Plus
Three (China, Japan, South Korea), APEC promote “economic cooperation,” but
monetary and foreign affairs issues are not formally discussed in these forums.
SUBREGIONAL GROUPINGS: Government policies to establish economic zones,
growth triangles, and free trade areas leading to subregional groupings attract FDI to
neighboring East Asian countries. A most recent trend is the negotiations of bilateral
“regional trade agreements” (e.g., economic partnership agreements, comprehensive
economic partnerships, etc.).
REGIONAL INFRASTRUCTURE: If we follow the flow of goods, people, information,
and money across national borders, the infrastructures of interest to Japanese
companies are container ports, international airport arrivals, international communications traffic (satellite, undersea cable, Internet), and capital flows. On these measures,
Japanese companies tend to gravitate toward hub cities that are “on-line and en-route,”
such as Hong Kong, Singapore, and Sydney. Greater attention is being paid to trade in
services related infrastructures (financial services, transport services, telecommunications, utilities, and professional services.)
B. Trade and Investment Corridors
Most of the Japanese companies operating in East Asia are concentrated in several trade
and investment corridors (see Chart 4).
Nearly three-fourths of the Japanese companies operating in East Asia are concentrated in
these trade and investment corridors. Two things stand out when we ask why Japanese FDI
is concentrated in these trade and investment corridors: subregional groupings and physical
infrastructure.
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NORTHEAST ASIA TRADE and INVESTMENT CORRIDOR: Coalescing in the late
1970s and early 1980s one trade and investment corridor is in Northeast Asia, anchored
at one end by Tokyo, running down the coastal areas of South Korea, Taiwan and
China, and anchored at the other end by Hong Kong.
SOUTHEAST ASIA TRADE and INVESTMENT CORRIDOR: Emerging in the 1980s, a
similar trade and investment corridor exists in Southeast Asia, extending from Chiang
Mai (Thailand and some extension now to Vietnam), through the western side of the
Malay Peninsula, and curves around Singapore with a narrow extension to Manila (the
Philippines), to Jakarta and ending in Surabaya (Indonesia).
Chart 4: Trade and Investment Corridors
Northeast T/I
Corridor
New Frontier
Countries
Southeast T/I
Corridor
We note that significantly fewer Japanese companies are found outside these trade and
investment corridors, essentially the “new frontier countries” falling within two broad bands.
NEW FRONTIER COUNTRIES: Both bands originate from the Kamchatka
peninsula on the Russian Pacific and run through inland China, but one leg
extends to Indochina and the other leg extends to South Asia. In between these
bands are the new frontier countries/regions of the Pacific Russia, inner China,
Mongolia, Cambodia, Laos, Myanmar, Vietnam, and the South Asian countries.
13
Where the new frontier countries are adopting the principles of economic cooperation, joining
subregional groupings, and building world-class infrastructures, however, Japanese companies have already shown a willingness to move their labor-intensive products to these
countries. For example, southern China has become a major producer of personal computer
related components, and Vietnam is attracting textiles and household electric/electronics
companies.
C. Global Production Networks
At least up to the 1980s, Japanese FDI was very simple—that is, transfer one product to one
country. In East Asia, Japanese companies first moved to Taiwan and South Korea in
Northeast Asia during the 1960s and 1970s, and then to Southeast Asia in the 1980s and
1990s. Now foreign direct investment (FDI) to China is the latest fad among Japanese
companies.
RISING CHINA: It seems Japan has three options in its relations with China: conflict,
cooperation, or competition. Although the political rhetoric at times becomes hot, it is
difficult to imagine outright conflict between the two countries. Instead, many of the
sensitive issues of the current generation of political leaders (Japanese occupation of
East Asian countries during World War II, border disputes, etc.) will remain volatile, but
left for the future generation of political leaders to resolve.
At face value, Japan and China, including Hong Kong, are highly “co-dependent” on each
other. Japan is China’s largest trading partner, while in 2003 China became Japan’s largest
trading partner (equal to the United States). But when we scratch the surface of China’s trade
and investment policies, we find that over the past decade there have been a number of
reversals. Moreover, we notice that some parts of the investment puzzle are missing, such as
intellectual property rights enforcement, unrestricted access to capital and financial markets,
and etc. Nevertheless, Japanese companies continue to invest cautiously in China, and since
mid-2003 at a slower pace after government restraints on investments were put into place.
This business strategy only makes sense when we examine the broader global strategies of
Japanese companies.
The broader view brings the other East Asian countries back into the FDI picture. From the
1980s, variations in trade and investment policies across the Southeast Asian countries
made it attractive to segment the production process and locate it in different countries. For
example, under the brand-to-brand complementation scheme (now replaced by the ASEAN
Industrial Cooperation scheme or AICO), Japanese automakers could manufacture transmissions in the Philippines, wire harness and press parts in Malaysia, engines in Indonesia,
and electrical components in Thailand. These auto components would then be shipped to
other ASEAN countries at a preferential tariff rate and local content certification for final
assembly of a car. This led to the emergence of production networks.
PRODUCTION NETWORKS: A global production network (GPN) refers to the spread of
different stages of production across national borders. It may or may not involve equity
ownership and unfolds within an institutional environment.
Chart 5 shows the segmentation of product and production across business functions,
14
redefining the organizational boundaries of a company. Matsushita Electric Industries (MEI),
for example, has a particularly large FDI stake in the Malaysian economy. In recent years,
however, its direct investments are typically part of a larger regional business strategy. MEI
spreads different segments of its products and production across East Asian countries, often
in joint ventures, to tap local technological and business capacities and assemble final
products ultimately destined for local and global markets. As Japanese outsource more of
these business functions, then, the complications of coordinating the relevant business
functions (e.g., procurement, personnel, sales, etc.) across national borders become just as
important as finding the right country to locate a plant. This has led to a greater concern
about transport services, communications services, consulting services, and etc.
Chart 5: Production Networks
As production networks unfold, there are four particular points where business strategies
interface with FDI policy in services. First, Japanese companies, especially in the electric/electronics industry, are outsourcing production to independent contract manufacturers.
As they attempt to link business activities scattered across national borders, host country
liberalization of transport services, improvements in customs clearance/security services, and
etc. grows in important for Japanese companies. In this regard, ASEAN is now discussing
trade in services (telecommunications, transport services, financial services as well as
education and professional services).
Second, as Japanese companies move their business activities on-line to the Internet, they
are using groupware (e.g., 3-dimensional computer assisted design and engineering) in the
design and engineering of new products. In this connection, the growth in a host country’s
information and communication technology industry is an important factor in attracting
service related FDI.
15
Third, Japanese companies in the electric/electronics and automobile industries are under
legal obligation to recycle their products once the consumer disposes it. This is reverberating
back into the value chain, making environmental management systems services grow in
importance. And fourth, new product development normally takes place within Japanese
companies in contrast to the more public characteristic of American research and
development. In both cases, however, the linkage between the university and the private
sector is creating a greater demand for educational services (research centers, consulting,
etc.).
Changes in the regional business environment suggest, then, that targeting a single country
(e.g., China) not only increases a company’s risk in the region, but also means it is blind to
the cross-border business trends emerging in East Asia. It is within this broader regional
framework that Japanese companies are using the business opportunities in East Asia to
relocate and reorganize their production networks.
III. WHITHER JAPAN, WHITHER EAST ASIA?
It seems Koizumi’s structural reforms have turned the corner in 2004. The bank NPLs
problem should begin to recede into the background over the next two years and monetary
policy will begin to reflect market fundamentals. Koizumi is still not out of the woods,
however. The concern about private debt (i.e., NPLs) is now turning to a concern about
public debt (i.e., fiscal deficit). As we move into 2005, then, the next big challenge for
Koizumi is to stop the bleeding of the fiscal budget. In this regard, Koizumi has chosen to lay
only the groundwork for fiscal reform but leave the actual drafting of legislation to after his
term of office. By steering this course, he may avoid political flak from various vested interest
groups and find some political space over the next two years to promote his favored
privatization of the postal services. Besides navigating through the domestic policy minefield,
he must deftly handle Japan’s involvement in Iraq, untangle foreign relations in Northeast
Asia (North Korea, China), and cautiously place agricultural issues on the world/regional
trade negotiation table. All of these international affairs are related to domestic issues. The
sending of troops to Iraq, for example, is stretching the limits of the Japanese constitution,
raising the issue whether there should be a revision of the constitution. Koizumi see these
issues as part of the agenda for a younger generation of politicians.
Koizumi cannot be as complacent about the economy, however. There are three keywords
for 2005. First, relocation: The Koizumi cabinet is pursuing a series of free trade agreement
and comprehensive economic partnerships that should allow Japanese companies to
relocate their low value-added business activities in overseas locations. Second, reorganization: In the wake of greater economic cooperation (i.e., policies and schemes promoting
the flow of goods, people, money, and information across national borders), Japanese
companies should be able to reorganize their business activities in Japan to produce high
value-added goods and services. The “digitalization” of products boom is an early example of
this business plan. And third, deregulation. The Koizumi cabinet has done much to deregulate the economy, opening “economic space” for non-keiretsu related entrepreneurs, such as
those in Bit Valley, to jump-start Japan’s new economy. A number of sectors still remain
untouched by deregulation—for example, professional services (medical, legal, accounting,
16
etc.) - requiring the opening of new economic space for revitalizing the Japanese economy.
The fact that we have some examples but no clear trend along these keywords suggests that
during the year of rooster (2005) there will be a lot of “cock-a-doodle-doo” accompanying bad
news, but we can interpret it as leading to a better brighter future a bit down the road. The
longer Koizumi stays in power, the more he seems to sail closer to his rhetorical goal of
creating a new civil society in Japan.
17
Author
Dennis Tachiki: is a professor on the Faculty of Business Administration at Tamagawa
University in Tokyo, Japan. The main focus of his research gravitates around the
intersection of country trade and investment policies and regional corporate strategies in
East Asia. He can be contacted at [email protected]
18
Über den DJW
Der Deutsch-Japanische Wirtschaftskreis (DJW), der Unternehmen seit rund 17 Jahren rund um
ihr Engagement in und für Japan hilft, ist seit Ende 2001 ein eingetragener, gemeinnütziger
Verein und bietet seinen Mitglieder umfangreiche Leistungen:
1. Information/Anfrageservice
•
•
Beantwortung von Fragen zu Japans Wirtschaft, Brancheninformationen usw.
Zusätzlich: Marktanalysen, Wettbewerbsanalysen, Recherchen, Hilfe bei der Suche
nach Geschäftspartnern (individuell)
2. Veranstaltungen (auch für Nicht-Mitglieder)
•
•
Wirtschaftsthemen (v.a. Vergleich Japan und Deutschland) für breites Publikum
Außerdem: Schulungen (nur für Mitglieder), Vorträge
3. Publikationen (auch für Nicht-Mitglieder)
•
•
•
•
Regelmäßiger Newsletter “DJW-News” (15. Jg.), alle 3 Monate per e-mail – kostenlos
Fachzeitschrift Japan Analysen Prognosen (Digitalversion, kostenlos)
AGB News (Digitalversion, kostenlos)
Sonderpublikationen (DJW Wissen und Praxis) zu speziellen Themen (z.B.
Biotechnologie)– gegen Schutzgebühr + Versandkostenpauschale
4. Jobbörse
•
Service für Unternehmen, die Kandidaten mit Japan(isch)kenntnissen suchen und
Kandidaten, die Stellen (Feste Stellen, Projektarbeit, Praktika / in Japan + Deutschland)
mit Japanbezug suchen
•
Deutsche und japanische Unternehmen, in Japan, Deutschland und weltweit
Unternehmen und interessierte Personen, die sich für Japans Wirtschaft interessieren, können zu
einem sehr günstigen Beitrag DJW-Mitglied werden und haben so die Möglichkeit, sich jederzeit
und ohne Begrenzung mit Fragen an den DJW zu wenden. Darüber hinaus bietet der DJW
seinen Mitgliedern Schulungen zu verschiedenen Themen an (z.B. Verhaltenstipps in Japan,
Geschäftsverhandlungen, Personalpolitik). Mitglieder profitieren auch von weiteren Zusatzleistungen auf Anfrage.
Als eines der Gründungsmitglieder der Japaninitiative der deutschen Wirtschaft und als Partner
der japanischen Außenhandelsorganisation JETRO verfügt der DJW über ein breites Netzwerk
mit über 6.000 Interessenten in Japan und Deutschland und arbeitet mit vielen Institutionen und
Organisationen eng zusammen.
Auch Nicht-Mitglieder profitieren von den Tätigkeiten des DJW: Die regelmäßigen Wirtschaftsveranstaltungen sind allen Interessierten offen und behandeln stets Themen im japanischdeutschen Vergleich. Jährlich werden rund 20 Veranstaltungen durchgeführt zu Themen wie
Logistik, Biotechnologie, Nanotechnologie, Rechtsthemen u.v.a.m.
In Bayern und Berlin (Neue Bundesländer) verfügt der DJW über ehrenamtlich arbeitende
regionale Niederlassungen. Die Arbeitsgruppe Bayern gibt den eigenständigen Newsletter AGB
News heraus. Alle Newsletter können kostenlos von der Homepage (www.djw.de) des DJW
heruntergeladen werden.
19
DJW Reihe Wissen und Praxis
Nr
19
Titel
Warum Japan?
Preis
5,00
Aus dem Inhalt: Ausgewählte Texte von Dr. Ruprecht Vondran, Erfolgsberichte
deutscher Unternehmen in Japan und Liste von Institutionen im deutschjapanischen Umfeld.
18
Facility Management in Japan Japan u. Deutschland (2005)
5,00
Aus dem Inhalt: Facility Management in beiden Ländern - eine Marktübersicht Betriebskostenreduktion in der Planungs- und Bauphase - Reinigungstechnik,
Kostenreduzierung und Hygieneaspekte - IT-Outsoucing und Rechenzentren Sicherheitslösungen zur Kostenreduktion für Unternehmen - Industrieparks als
Beispiel für FM im Industriebereich - Nützliche Daten zum Thema in J und D
17
Logistik in Japan Japan und Deutschland (2004)
5,00
Aus dem Inhalt: Stand und neue Entwicklungen in den Bereichen Logistik und
Supply Chain Management in beiden Ländern – Automatisierte Zollverfahren:
eine IT-Herausforderung - Logistik und mehr für die Automobilindustrie Nützliche Daten und Fakten zum Thema Logistik in Japan und Deutschland inklusive Firmenprofile
16
Biotechnology in Japan and Germany II (English, 2004)
5,00
Zusätzlich zu "Biotechnologie in Japan und Deutschland (Band 14) bietet dieser
Band eine Marktübersicht über Biotechnologie in Japan und Deutschland,
Praxisberichte, Auflistung der Venture Capital-Situation sowie Finanzierungsmöglichkeiten in beiden Ländern mit den jeweiligen Key Playern und eine vertiefende
Einsicht in die moralisch-ethischen Diskussion in J. und D.
15
Ratschläge für das Japangeschäft – (2003)
5,00
Diese Broschüre konzentriert sich praxisorientiert auf die Punkte im Japangeschäft, auf die es ankommt. Sie hilft bei der Vorbereitung Ihrer Japanaktivitäten
genauso wie beim Aufbau neuer Geschäftsbeziehungen und im Umgang mit jap.
Mitarbeitern. Hinweise für Verhandlungen mit Japanern, Hilfe bei der Planung
einer Japanreise. Checklisten helfen bei der „Last-minute-Vorbereitung“.
14
Biotechnologie in Deutschland und Japan (2003)
5,00
Übersicht über den japanischen und den deutschen Biotech-Markt (Marktgröße,
Charakteristika etc.) - Praxisberichte dts. und jap. Firmen - Liste mit Adressen
relevanter Organisationen, Websites usw
13
Technologie-Transfer: Kooperation von Wirtschaft und Wissenschaft in
D. und J. (2002)
5,00
12
Silver Market - Senioren als Verbraucher (2002)
5,00
11
e-Relations Wie organisieren und nutzen japanische und deutsche
Unternehmen ihr b2b-Geschäft online? (2001)
2,00
10
E-commerce in Japan (2000)
2,00
Alle Broschüren können online über www.djw.de bestellt werden (zzgl. Versandkosten)
20
Japan Analysen Prognosen (JAP)
Die Fachzeitschrift JAP wird seit August 2003 gemeinsam vom Japan-Zentrum der Universität München und dem DJW herausgegeben. Die Japan Analysen Prognosen behandeln
dabei überwiegend ein Wirtschaftshema im japanisch-deutschen Vergleich tiefergehend und
wissenschaftlich fundiert. Pro Jahr gibt es 3-4 Ausgaben.
Zugang zum Archiv aller online verfügbaren Ausgaben erhalten Sie über die Web-Site
www.japan.bwl.uni-muenchen.de oder www.djw.de. Die aktuelle Ausgabe versenden wir
kostenlos per e-mail als PDF-Datei an unsere Abonnenten. Wenn Sie die Zeitschrift ebenfalls
auf diesem Wege beziehen wollen, wenden Sie sich bitte per e-mail an den DJW
([email protected]) mit dem Betreff „Japan Analysen Prognosen“.
Die Themen der letzten Jahre waren:
JAP-Ausgabe Nr.
Thema
193 (2005)
Japan: Economic Reforms and Regional Integration
(Englisch)
192 (2004)
Unternehmensrestrukturierung in Japan
191 (2004)
Deutsche Außenwirtschaftsförderung Japan
190 (2004)
Wein in Japan und Deutschland
189 (2003)
Industrielle Cluster in Japan
188 (2003)
Neue Baseler Eigenkapitalvorschriften und Konsequenzen in Japan
187 (2003)
Videogames in Japan
186 (2002)
Deutsch-japanische Wirtschaftsbeziehungen seit 1962
185 (2002)
Deflation und Geldpolitik in Japan
184 (2002)
Der japanische Karaoke-Markt
183 (2001)
Alterssicherung in Japan
182 (2001)
Venture Capital in Japan

Japan - Deutsch-Japanischer

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