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Japan should be more German

by

Plenty of economists are warning that Europe could soon look like stagnant Japan. In fact, Japan could stand to look a little more European — or, to be more precise, more German.

Why has the “Made in Germany” brand thrived over the last 15 or so years, even as “Made in Japan” grinds toward irrelevance? All the more extraordinary, Germany has flourished in a savagely competitive global environment despite high labor costs, an overvalued euro and any number of regional financial crises. Its secret: adapting and innovating in ways Japan Inc. cannot even seem to contemplate.

“German executives didn’t complain about exchange rates — they figured it out and restructured accordingly,” says Stephen Jen, managing partner at SLJ Macro Partners in London. “In fact, the chaotic state of the global economy seemed to drive this change. Germany didn’t fight it. It went with it.”

The snap election just called by Prime Minister Shinzo Abe isn’t miraculously going to rouse Japan out of its latest recession. Instead, Japanese businesses are going to have to learn the same lessons their German counterparts already have. Here are three:

Innovation is everything. Adjusted for gross domestic product ($3.6 trillion annually) and population (80 million), Germany could still be considered the world’s No. 1 exporter. It trails China and the U.S., of course, but more than holds its own in autos, machinery, electronics, pharmaceutical products, optical goods, plastics and other sectors. Its success draws upon a mixture of design prowess, an intense focus on increasing productivity and moving upmarket, aggressive investments in research and development, and old-fashioned risk-taking. In order to exploit its comparative advantages, Germany has skillfully balanced the tensions between upping competitiveness and maximizing employment.

Japan’s products, meanwhile, tend to be price inelastic amid global disinflation. Executives favor incremental improvements to existing goods and processes over the game-changers Internet-age consumers reward. The problem, Jen and fellow SLJ economist Joana Freire argue in a report, is that Japan Inc. has fallen into a “bunt” mentality. “Using a baseball term, the goal is no longer to ‘swing for the fence,’ but to ‘just get on base,’ ” the economists write. “Abenomics,” they add, “could help remove the macro (deflation expectations) and the micro (structural rigidities) impediments to this breakthrough, but something else is needed.” Japan has to learn to think more ambitiously again.

Small is big. The yen’s 30 percent plunge in two years has tempered the urgency for change at Sony, Toyota, shipping giants like Mitsui O.S.K. and construction equipment goliaths like Komatsu. Instead, Tokyo should support companies like robotics innovator Fanuc, smartphone app creator Colopl, automation equipment maker Keyence and biopharmaceutical company PeptiDream — the kind of businesses that make up Japan’s “Mittelstand.”

Small- and mid-sized businesses form the backbone of Europe’s largest economy. The German government understands that in the age of the app, virtually all job growth comes from smaller companies. Mostly family-owned, they think long-term, compete on quality and inventiveness more than price, have solid balance sheets and high equity ratios, and enjoy strong government support. Japan, too, needs to back the sub-300-employee upstarts that will actually innovate, hire and change mindsets.

Think regionally. Germany trades plenty with America and China, which Daimler said today may become the biggest market for the Mercedes brand next year. But the evidence, Jen and Freire argue, “suggests that Germany’s rise as a global superpower in exports was due more to regionalization, or having unhindered access to the European Union, than to globalization, which Japan has relied on.”

While completing the Trans-Pacific Partnership trade deal with the U.S. and other nations would help to open up some of Japan’s most ossified sectors, Abe should also be looking to mend fences in Asia and strike all the bilateral free-trade agreements he can, including with China.

He should open the door to people, too, as well as goods. Berlin’s demographics aren’t as dire as Tokyo’s, but with 21 percent of the population over 65 (compared with 26 percent in Japan) the nation has to be nimble. Aside from a more welcoming immigration policy, Germany has wooed highly-skilled retirees back into the labor force and empowered women. Tokyo should follow suit on all three counts.

Germany certainly has its problems, not least of which is a 6.7 percent unemployment rate and the omnipresent risk of new euro crisis. And surely, migrant laborers from Turkey and elsewhere have legitimate complaints about the conditions they face there. But Germany has more to teach Japan than how to deal with its World War II past. The country shows how Japan can generate a more vibrant future.

William Pesek is a Bloomberg View columnist based in Tokyo who writes on economics, markets and politics throughout the Asia-Pacific region.

  • tiger

    and also stay away from stinking war criminals, too

    • forsetiboston

      Very useful commentary. We have a saying in the US, opinions are like *ssholes. We all have them and they all stink. Just saying, the article on the other hand does address some of those large former conglomerates that have a checkered pre-war/war/post war histories. Much like some of the German ones, like BAYER, Dailmer, BMW, Fokker, etc..

      Some day we can hope Asian populations can put the war behind them like the Europeans have. Imagine a unified Asia (e.g. EU) vs. the West, that would be mind blowing.

      • tiger

        why would an american want unified asia?

      • rossdorn

        Yes, tiger, you got it.
        Add to that the kind of politicians the japanese come up with, AND EVEN ELECT THEM, then you can see the future… if you look at China.

      • forsetiboston

        Why not? Why would America want a unified Europe? Keep in mind, as an American I don’t speak for the American government which is the face of the U.S.. That is not to be confused with what the people want or think. The same could likely be said of modern China. The governments actions are not always in the best interest of the people no matter where they fall on the globe.

        A united Asia is probably not a reality right now, but just think of the possibilities. If Asia could get over what are now petty differences they would eclipse the rest of the world. To answer your question why would an American want a unified Asia? Competition breeds innovation, right now as most of us see it we have Japan in her twilight, Korea on the start of her downward slope, and China running the copy machines as fast as they can while distracting the ‘People’ from their inner most problems. Most intelligent Americans will see a unified Asia as an opportunity. Perhaps an opportunity to focus on ourselves for once in the last several decades.

      • tiger

        Well, the first thing your government sees in a unified Asia is a major threat. and it really isn’t in your interest to have a unified Asia, since Asians are just as xenophobic as Americans, and Asian countries are not immigration countries.
        but you are right, it could be a nice thing to have, if it were possible. I just don’t see how it is possible, given there are still war criminal shrines that Abe visits yearly.

      • Dipak Bose

        There are serious religious differences in Asia; none likes the Muslims.
        There are serious antagonism against Chinese imperialism in Asia; none likes Chinese.
        Because of these two reason, there cannot be any unification.

      • forsetiboston

        So there are not serious differences between France, UK, Germany, Turkey, Italy? Start with the fact that the first two were bitter enemies with the third throughout two world wars (before and since). Toss in some religious differences (Catholic France/Protestant UK+Germany/Muslim Turkey) and the fact that the fifth one will jump into bed with whomever has the best idea.

        Mix that up with several centuries of hatred for one another. Shake twice, toss it out on the table, act like adults, get past your differences and what do you have? People and corporations that can use their leverage as one for the greater good of the many.

        I agree it’s probably not likely in Asia, but the implications are something.

      • Firas Kraïem

        Fokker was Dutch.

      • forsetiboston

        It was German long before it was Dutch, also before the bankruptcy Damiler-Benz or DASA had a vested interest. But I do stand corrected, I guess the rest of my point is moot.

  • Dipak Bose

    Wrong analysis. The author has never been to Germany or Japan and does not know the European economy or the Japanese economy. German exports are for the EU as other EU countries cannot compete with Germany. Germany does not export much outside EU. Japan has no such empire in Asia.
    Germany has not done any innovation, but it has increased the quality of its products which costs much more than the corresponding Japanese products, which have no quality today as these are all produced in China, not in Japan itself. German products are produced in Germany. Despite of higher prices, people in the EU prefer German products because of its quality and reliability, where few trust Japanese products today even in Japan.
    Products which you buy in Germany are mainly made in Germany. Products which you buy in Japan are all made in China. There is hardly any Japanese products in the Japanese market.

    • rossdorn

      Dream on!

      Not only have I lived many years in Japan and in Germany, but also in India.

      Your comment does not describe the reality of Japan or Gremany, it describes what is called thinking in India!

      So…. Dream on!

      • Dipak Bose

        If you have the option to buy a German car or a Japanese car ( actually all Chinese), which one would you buy?

        Japanese products are all made in China and as a result these are without any quality.

        There is hardly anything in the Japanese market which are made in Japan.

        These are facts.

      • forsetiboston

        Odd, in the US Toyota and Honda (Lexus/Acura/etc.) still round out the top of the automotive quality rankings. Still above German autos always. Though Ford is making inroads in the top finally. Care to take a guess where Ford, like almost all the others make their electronics, even transmissions (yes the Mustang has a standard transmission made in) you guessed it China. If you are making silicon products you’d be hard pressed to find a place other than China to pull off mass production at a competitive price.

      • Dipak Bose

        Both Honda and Toyota received huge amount of fines in USA.
        I guess because the components of Honda/Toyota are all Made in China. These are Japanese only in names/

      • forsetiboston

        The fines, if you are speaking about the “acceleration” issue then that was settled, and a number of the cases were found to have no merit. Recall AUDI if you can, back in the late 80’s early 90’s had vehicles routinely going through garage doors. No doubt due to China?

        My point was, which you missed. All auto manufacturers are making things in China. Pop the hood on your Mercedes, or your Ford, or your Tata, whatever you choose. They are all using goods that are sourced from China.

      • Dipak Bose

        Honda is fined because of defective components, of course Made in China. sanyo and Akai went bust, Sony and Sharp are about to go bust because their products are all Made in China. That will soon happen to Cannon and Toshiba very soon.

      • forsetiboston

        So because their products are made in China they are going bust? It’s not because of blatantly poor business decisions, lack of innovation and poor implementation of leading edge technologies? It was not because Sony and Sharp were out innovated at every turn, forcing them to try and cut costs by outsourcing to another place?

        Also your suggestion about Honda implies the “only” reason their defective components fail simply because they were made in China? Really?

        I would suggest a shift in your thinking. Honda, Toyota, Sony, Sharp, Toshiba, Canon, Ford, GM, Mercedes, Siemens, Apple, Westinghouse, etc. have all become obsessed with dividends and their CEOs make decisions based on that. Further, I would venture to suggest that the Chinese, like any offshore destination (India, Vietnam, Thailand, etc.) are opportunists and are trying to make/perform to a spec and save a buck. The CEOs like that, they like their profit margins and the shareholders don’t care. The top %’ages do not mind where their device is made and how it ravages nations. They care about returns on their money.

        I guess what I am saying the problem is not China, you are looking at a symptom of the problem. China is simply a symptom. Cut costs, raise prices and increase profit margins not matter what the collateral damage may be.

      • forsetiboston

        Oh I should add, when I returned to the US from Tokyo for the, I lost count but many-ith time this year. I had the concierge send a runner to the mall near my place to get a small carry on bag. Guess where that was made? Japan. If you think there is nothing made in Japan you are shopping by the price tag and not by the “Made In” tag.

      • Dipak Bose

        If you come back to Japan now from fried chicken to NTT mobile phone all are Made in China. This is the reason for the decline of Japan. It became like another Saudi Arabia or UAE.

      • forsetiboston

        I come back to Japan often. Mobile phones everywhere including Korea are largely made in China. As I mentioned somewhere else, anything that needs silicon is made in China. Computers, phones, tablets, military components, you name it.

        The reason for the decline of Japan is hardly offshoring it’s manufacturing if that were the case every country would be in decline, would they not? Whom doesn’t manufacture things in China now?

      • Dipak Bose

        Most countries of the world ( USA, UK, in particular along with most European countries) are in decline with destroyed manufacturing industries and high unemployment because the markets are saturated by the Made in China products.

      • Dipak Bose

        India is not Germany. I guess you China-man, you have to know some geography.

  • Ahojanen

    Germany enjoys its positive economic outcome thanks to (or at the expense of) other eurozone member economies. Southern European countries like Greece, Spain and Portugal, who still suffer severe recessions, cannot devalue the currency euro unilaterally despite their economic parity and weak competitiveness relative to Germany.

    Europe as a whole, primarily the eurozone economy, seems far from the full recovery from the last financial crisis. In a sense Germany takes advantage of the currency union for its own favor. Should Japan follow such a cheating strategy?

    • rossdorn

      Very funny… if Abe could, he would…. the point is, that Japan has none of the econmic muscle left that is needed to do that.

      Get real! Look at the chinese… they have the power now!
      Do you have any idea what will happen, if they refuse to take **** of the americans any longer and dump the Dollers they hold?

      • Dipak Bose

        Chinese products are all rubbish, if these are made by Chinese companies. It is making money by producing for the foreign multinational companies, particularly Japanese. This is the reason even South Korea can beat Japan in quality of the products. Japan has lost the credibility in the world market because it is producing everything in China and China has no quality, no honesty, all stinking rubbish.

      • forsetiboston

        Dipak, I hate to break the news to you but take a look at your latest Samsung $gadget. Good chance parts of it or the whole thing was made in China. South Korea is losing their edge in this respect. Profit margins are too compelling. Also it’s a bit short sighted to say that Chinese products are rubbish. I’d agree that Western product and Japanese product made in China tend to be of inferior quality that is not always the case. It depends on the corporation and how they negotiate the prices/etc. with the Chinese. There are a number of high quality Japanese and Western goods that come out of China. The word Lenovo comes to mind for starters. The others from the US are pretty obvious, Apple makes decent quality products all produced in China. LL Bean has ‘decent’ shoes made in China (I know hard to believe but true). Sony components though their edge is largely lost – the things that are made in China are decent quality (not Japanese quality but decent). The list does go on, but until we vote for governments that actually care about the people and not only about corporations (or the central government CCP) we are doomed to this continued offshoring and the relative return of rubbish to our shores.

        There was a time when Americans mocked Japanese products. There was also a time when we snickered at Korean products, now it’s our time to laugh at Chinese products – this all goes in cycles. If anything we should worry about Korea having a relatively short run.

      • Sony

        This is true.

        Korean companies like Samsung have diversified shareholders so that they are multinationals. There are clearly some industries that remain ‘Korean’ but more and more companies are becoming “Asian” – designing, sourcing, manufacturing, assembling wherever it makes the most sense.

        Asia is becoming very integrated. Naturally countries invest in unique infrastructure and develop areas of expertise based on location, resources, skills etc… but there is a shared base of production capacity to leverage. This gives the Asian / Eurasian region an advantage over other areas such as EU or North America, Mercosur etc…

        It is an interesting time because Russia plays a very strategic role because of land mass, trade routes, rich resources and it is being pulled one way by German Conglomerates and another by China’s industry. Whichever side Russia joins will dominate the next century. The US is in a difficult position because it does not benefit either way.

      • Dipak Bose

        Lenovo, Toshiba, and every other computers Made in China are just rubbish ( I have Lenovo, Del, Toshiba, so I know the problems). I also have a Samsung which is all not made in China; thus it works well.

      • forsetiboston

        I’d love to know what Samsung laptop you have which is 100% made in Korea. I’m here to tell you that I also have land for sale in Manhattan, Tokyo, and London.

      • Sony

        In the 50’s, & 60’s Japanese manufactured goods where known as “Jap-Crap”. In the 80’s and 90’s Japanese products electronics and automobiles where considered world leading.

        In the 80’s and 90’s South Korean brands such as Lucky GoldStar where known as cheap disposable junk. By 2000 a re-branded LG and Samsung began to dominate the entire display technology space and became the major force in both consumer electronics & white goods markets.

        In the 2000’s and 2010’s China was known as the low cost volume manufacturer but by 2020 China surpassed Germany in precision electronics and engineering… It will happen.

        Japan has lost because they failed to innovate. They are hamstrung by a culture with restrictive overbearing management that can never be seen to have made bad decisions… They are also disadvantaged by a lack of natural resources and they have no land based freight systems connecting major markets. More recently Japan has become removed from Asian initiatives and seen as only towing the line of the US which still occupy its country…

        The missed opportunity was taking a leadership role in creating a Free Trade agreement in the Asian community and creation of an Asian development bank whilst it still held financial clout. Japan should have fostered improved relations and co-operation with all of its neighbors and leveraged the resources of Russia to secure the needs of the region. Unfortunately for Japan it is not a meaningful participant in the Asia Century.

      • Dipak Bose

        USA can, as it did in 1920 to the Soviet Union, refuse to recognize the US Treasury Bills China has. China will be pauper. Also, USA and its allies including Japan can refuse to buy anything Made in China. China will be ruined.

  • Barrie Cooper

    This analysis is very poor because it fails to account for how integrated and specialised the industries of Europe now are. Germany’s largest trading partner, Britain, has many industries that seem to specialise in just making the things that the Germans need to make things. This interdependence as part of the world’s largest economy is something that Japan can never have. There will never be an asian equivalent of the EU; asian countries don’t work or think the same way as European countries. If Britain chooses to leave the EU because of the Eurozone integration it will remain part of the Free Trade Area and associated with the EU; nothing will change in that respect for Germany or Britain.

    • rossdorn

      Yes, that about sums it up.

      Asian governments, like the Japanese, are much to busy screaming at one another about some “islands” or “corals” to cover up their economic incompetence. The econmic might of Japan, once upon a time, stemmed from individuals like Sony and never from the mafia that runs the runs and whose interest is alone the syphoning off of the results of other’s labour.

      The only reason why the country has not already fallen down the ladder is the equally fast falling oil price. If that had not happend petrol and energy would cost twice what they cost now! Don’t dream that this will remain like that for long. When the energy prizes go back up again, you will learn what it means a Yen falling towards 120 to the Dollar….
      Its hard to think, that this will be anything but justice for a people, that elects the kind of prime ministers the japanese regularly do

      • forsetiboston

        One could capture this comment, insert “CCP” or “USA” for ‘Japan’. Also, Sony is not an individual – it is a conglomerate that got too big for its own good and lost sight of their core competency.

        One of the reasons the country (I assume Japan) has not fallen is that their individual savings alone are worth more than British GDP. That’s money people have in savings accounts in Japan. Think about that for a few minutes. When energy prices go back up Japanese people will second think their perceived ‘radiation’ problems and start going critical with their reactors again.

        It’s hard to think, that the people get to elect their leaders. Do they really? In Japan, the US, the CCP? Do the people actually have a say or are big corporations (Conglomerates?) calling the shots?

      • rossdorn

        If you were not so all-knowing, and researched a few things before aquring your fixed opinions, you might actually find out there was a Mr Sony when his corporation took over the electronic world with the creation of things like the walkman about 40 years ago?

        You might also want to reflect for a minute what would happen if all the japanese were to start disliking the devaluation of their yen-savings, and want to either withdraw those in cash, or in gold… ?

        That the state dept of Japan is owed to the people of Japan is of great advantage only because it does not allow any foreign banks to claim these depts. As happened in Greece and Spain, and ruined those cpountries, because that would mean the end of Japan as the world and we know it.
        But, that still does not solve the one problem this country has: utter incompentence at the top of feudal state.

        ALso, try to understand when reading and before typing. I wrote they get to elect their leaders, I no-where wrote they get to choose them. They elect them and thus legitimise the whole bull**** So, what follows is that it bis THEIR responsislitie, and they fully deserve to be hit the consequences, which in this case are the bills.

        You might want to consider one more thing. If you have understood something, like that idea about “big corporations,Conglomerates”, that there might be a chance that others also know that? And maybe even knew that before you?

      • forsetiboston

        I read this comment twice and tried to understand it. The only piece that was clear was the State Dept. being owed to the people of Japan.

        Perhaps you should try to understand something about modern democracies. If people start ‘losing’ money they start to vote to change policies. In the west we call that “voting with your pocketbook.” Americans do it every year and the pendulum swings to and fro and never actually stabilizes. If you think for a second that the Japanese would start to liquidate or shift to gold leaving their country high and dry you either haven’t spent enough time there or don’t talk to enough Japanese. There is another comment about xenophobia in this thread, and the Japanese are nothing if not xenophobic. Furthermore like most Asian countries they are rabidly xenophobic.

        Just for some clarification here, I grew up a while ago, part of that time included the famous Sony Walkman. I know a thing or two about the organization, it’s origins and what it has become today – a bloated organization that as this article highlights takes safe steps. They iterate they do not innovate.

        Explain something to me. How is an election not a choice? In my country if you don’t want to vote for someone you ‘choose’ to write someone in. But either way by casting a vote you are making a choice based on what you think is best for the country. Are they forced to vote one way or the other, is this something that changed in the last month?

        I’m not all knowing, and these are all opinions. I have lived a while, and I have lived and worked from Asia, through North America and in the European Union. In that time I have seen a thing or too, read a book or two, and have an opinion. So if you are here to “control” my right to post a comment then we have a problem. Unlike the Japanese voters (apparently) I have the “choice” to post or not.

      • Dipak Bose

        China is a criminal state where people do not have their fundamental rights and workers are nothing but slaves. This is the reason multinational companies all went to China after 8000 students were killed in Tienanmen Square in Peking in 1992.

  • Internet Terracotta Tiger

    If “innovation is everything”, as this writer says, Japan is the last country on earth deserving of any kind of lecture. Just last week I was reading about a trillion yen contract to Boeing for Toray’s carbon-fiber materials in aircraft. Shortly before that, the Nobel Prize in Physics for Japanese-discovered blue LEDs. And then the iPS cells in the human retina at Riken, and the list goes on and on from energy to semiconductors to you name it. Does this writer not read the 日経新聞 or the Nikkei Asian Review?
    The recession does not make it open season for gaijins to start criticising Japan just because they want to criticise Japan. The domestic consumption problem has little or nothing to do with the innovation-driven soaring Nikkei stock market, which is deservedly pulling in record profits. It no doubt is tied to the aging population and the fact that it’s cheaper for companies to manufacture overseas, both typical first-world problems. I just wish some of the gaijin countries especially my own could take a page from Japan on innovating instead of a culture of constant criticism and complaining, which as a recent report has shown offers little in innovation.

  • Oliver Mackie

    One difference that might be noted is that in the period 1995-2014 World Bank figures put unemployment in Japan (4.7%) at 3.5% lower than in Germany (8.2%.) This despite the so-called ‘lost (two) decade(s.)’

    I also refer anyone interested to Eamonn Fingleton’s book, “In Praise of Hard Industries” and it’s chapter on the fallacy of regarding such a period as ‘lost’ in Japan from other aspects.