Japanese firms must adapt

06 January 2012

TOKYO: Many brand owners in Japan are struggling to adapt to the digital and globalised world, largely because of a common focus on old business models based around manufacturing.

While the Asian nation built its economy on making superior products in sectors like electronics and the auto industry, the share of its workforce actively manufacturing goods has fallen from 27% in 1970 to 17% at present.

"That model worked wondrously well when global competition revolved around individual products and the winners were the companies that made the best products at the cheapest price," Waichi Sekiguchi, of the Beyond Galapagos Research Group, told the Financial Times.

"But it makes much less sense in the world of digital electronics where the network is king."

Indeed, despite Japan's reputation for embracing new technologies, it failed to deliver a device with the impact of the iPhone, even though web-enabled handsets were available in the country a decade before Apple's gadget was launched.

Masayoshi Son, the founder of Softbank, the telecoms firm, argued the emphasis on manufacturing extended to the Japanese authorities, hampering progress in faster-growing categories.

"Nuts and bolts are Japan's past, not its future," he said. "No labour-intensive industry can revive Japan ... for Japan, knowledge-intensive industries are the only way forward. And yet our government policies are not focused on such industries."

Gree, the social gaming specialist, has proved to be one of the most innovative operators in Japan and now boasts a network of 2,500 partners globally, but does not believe it is representative.

"Japan's whole identity is tied to manufacturing," Yoshikazu Tanaka, Gree's founder. "If you're not producing actual material objects, people treat you as though you're doing something dodgy."

Although unemployment remains low, at roughly 4%, official figures suggest this could rise three times over if staffing reflected demand. An unfavourable exchange rate and the consequences of last year's natural disasters also pose challenges.

Yoshihiko Miyauchi, CEO of Orix, the financial services group, stated Japanese firms are expert in sectors from convenience stores to medical care, but have been slow to adopt an international approach.

"When Japanese companies go out into the world, they get stronger. It's the companies that try to fight it out at home that are struggling," he said.

Data sourced from Financial Times; additional content by Warc staff