It’s a known fact. Japan has stagnated over the last two decades. From the seeming cusp of global economic power in the late 1980s to a flat-lined economy and burgeoning deficit through the 1990’s and 2000’s the once mighty Japanese economic machine has stalled.
Mighty Japanese conglomerates, once unshakable in their hold over the consumer electronics market, have now fallen far behind Apple Inc., Samsung and other international competitors. Sony’s market value has fallen from approximately 100 billion in 2000 to a paltry 11.8 billion dollars (Sept. 27 2012 market cap). In 2011 Panasonic posted its largest ever loss of USD 10 billion dollars.
Pin-pointing the exact cause for Japan’s stunning decline is difficult and the issues are complex. But in a global economy that is now emphasizing user experience and software, Japan’s long-standing manufacturing dominance is doing little to help companies compete. The goods coming out of Japan are generally perceived as well-made but lacking in both sex appeal and usability.
Products coming from Apple & Samsung, on the other hand, are as valued for their design and the fashion statement they make as they are for their build quality and functionality. Consumer electronics have now become an expression of who a person is.
Japanese companies seem to have trouble keeping up with fast changing trends. Point-in-fact, Japanese phone manufacturers largely ignored the launch of the iPhone and Samsung’s similar products, believing these types of phones to be unfit for Japanese consumers. The major phone manufacturers, including Sony and Sharp, missed this shift in consumer preference, sticking largely to hardware upgrades. In fact Japanese phone manufacturers didn’t even launch domestic Android phones until 2010.
Instead, Japanese phone makers continued to refine traditional designs and upgrade hardware, largely ignoring the software and social networking aspects that would go on to make the iPhone and similar devices so popular.
The result?
Apple now dominates the Japanese smartphone market with 30 percent market share and Samsung holds a respectable share at 8.3 percent. These are stunning numbers for the generally isolated and hard-to-crack Japanese home market where consumers traditionally show strong preference for domestic brands.
Japan is still trying to rely on its manufacturing sectors. Yet, while Japan’s economy stagnates its currency remains relatively strong, hampering exports from the homeland. A strong currency, along with high fuel costs, high domestic labor costs, and numerous other factors have pushed Japanese manufacturers to open up manufacturing facilities in China, North America, and elsewhere.
Shifting operations overseas helps companies stay profitable but depresses the Japanese job market. Japan’s unemployment rate is only 4.3 percent, but the concept of “Lifetime Employment” has all but been erased and the National Tax Agency reports that wages fell, in nominal terms, for 9 of the 10 years from 2000 to 2010.
Is there an answer to Japan’s economic malaise? The very traits that made Japan so successful from 1970 to 1991 now seem to be holding the nation back. Japanese companies have long relied on innovation, not invention, to build high-quality products. Japanese companies proved themselves to be very good at tweaking already created products, such as cars and DVD players but were slow to jump on board for hot-trends, such as PCs and smartphones.
Japan still produces huge amounts of patents, is creating genuine wonders in robotics and other fields, and has one of the most well-educated and dedicated workforces in the world. The ingredients for success are still there, but leaders in both the private and public sectors will need to push to change the mindset of the country.
In order to reinvigorate Japan the old hierarchal system that emphasized loyalty to the company over creativity will have to be flipped on its head. New and innovative ideas will have to be given precedence over “time served,” and workers will need to be promoted based on merit and ability.
And in an economy that has long been centralized around a handful of powerful conglomerates, the Japanese government should provide the foundation and support system to nurture start-ups and SME’s.
Small companies have long been the key to the United States’ success in emerging fields. Now China, Hong Kong, Singapore and other nations are taking notice and launching aggressive programs to support start-ups, subsidize advanced R&D, and encourage venture capital investments. On the other hand Japan continues through a wave of recent consolidations and still has trouble turning its advanced research into profits.
Reforming a long held hierarchal labor market and trying to support start-ups in a land dominated by massive corporations is no easy task. These would be huge changes for a big, and old, society but with Japan’s debt spiraling out of control major reforms need to be implemented sooner, rather than later.