Infrastructure related / system sales. Strengthen 5 strategic ... Toward âSystem salesâ and âCreating added ......
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.
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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).
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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
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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)
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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
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