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Growth depends on companies’ ability to adapt

Financial crisis exposes Japan's, Germany's shared concerns, economic weaknesses; threatens long-term competitiveness

by Takashi Kitazume

Germany and Japan face some common challenges as they try to maintain growth amid the global financial crisis, veteran journalists from German media organizations told a recent symposium in Tokyo.

While Germany expects to be hit much harder than Japan by the turmoil, the two economies have similar underlying problems that threaten their long-term competitiveness, including demographic changes that could hurt their technological edge, the journalists said.

The five German journalists were speaking at the Oct. 10 symposium organized by Keizai Koho Center under the theme, “Challenges for corporations to achieve sustainable growth,” after a weeklong visit to Japan for exchanges with business people, government officials and academics. They were joined by Hiromasa Kubo, a professor at the Graduate School of Economics at Kobe University, who served as moderator of the discussions.

What do corporations need to do to achieve growth for the future? The answer is simple — earn profits by making products that meet customers’ needs, said Hans-Georg Schroeter, an economics editor and reporter at Frankfurter Rundschau.

Schroeter cited the examples of German auto giant Volkswagen and Robert Bosch GmbH, the world’s largest automobile component supplier, in discussing how companies do that just as consumer demands change in light of the closely linked issues of climate change and rising energy demand/prices.

Volkswagen and Bosch consider climate protection and energy as key aspects of their competitiveness and innovative capabilities, the journalist said. As governments tighten regulations on vehicle pollutants and consumers look at environmental features of products when they buy, a company’s growth hinges on whether it can offer “appropriate products at the appropriate time,” he said.

Volkswagen’s earlier attempts at hybrid and ultra fuel-efficient cars taught the automaker an important lesson — that any energy-saving technology must be affordable for consumers, Schroeter said.

The automaker has also learned that it needs a partner to invest in technologies for its growth, he said. Earlier this year, the company agreed with Japan’s Sanyo Electric Co. to jointly develop next-generation lithium-ion battery systems for hybrid vehicles.

Bosch has established a joint venture with a unit of South Korea’s Samsung group for the development of fuel cells for electric vehicles, Schroeter said. It is also trying to expand the group’s portfolio to cover renewable energies like wind power and solar panels, he added.

Such efforts require huge spending on research and development, with Bosch investing about 7.7 percent of its sales on R&D, Schroeter said.

And this is where many German and Japanese firms face the common challenge — how to secure enough engineering manpower to maintain their technological edge amid demographic changes, Schroeter told the audience.

As populations in many industrial nations shrink due to falling birthrates, companies need to secure next-generation engineers and other experts, he pointed out.

To meet the challenge, Volkswagen has tried to hire female and immigrant workers as engineering talent, he said.

Just as Volkswagen and Bosch look to emerging markets as the major source of their future growth in sales, they also turn to them as human resources suppliers, according to Schroeter. Of the 5,500 engineers hired by Bosch last year, 800 came from China and 1,500 were from India, and the company is also looking to sharply increase the number of employees in managerial positions hired in those emerging economies, he said.

Anna Marohn, an editor at Die Zeit weekly, also pointed to the similar challenges facing Japan and Germany due to their similar economic structures — of trying to maintain competitiveness through technological innovations to overcome disadvantages in manpower costs.

The Japanese and German economies are also known for their heavy dependence on small and medium-size firms, which account for more than 95 percent of companies in each country, she said.

And here again, many small but technologically powerful companies in Japan and Germany seem to face similar problems — family-based firms having difficulties finding successors, Marohn said, adding that changes to the inheritance tax regimes may be one way of easing the difficulties.

Quoting the words of the manager of a motor racing parts supplier to Toyota Motor Corp. that the journalists visited during their visit, Marohn cited shortages in engineers, caused by changes in conventional employment patterns in Japanese manufacturers, where engineers tended to stay with a single employer for their entire career.

To address this problem, Japanese as well as German firms may need to pay more attention to what they can do for their employees — rather than just what they expect from their workers, she said.