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With the global economy becoming increasingly Net-oriented, leading Japanese companies are trying to ride out the information technology wave in a desperate bid to survive ever-intensifying competition.

In a measure aimed at saving 100 billion yen in annual production costs, NEC Corp. introduced an Internet-based procurement system in April, linking some 6,500 electronic parts suppliers worldwide.

The move constitutes an effort to reinforce NEC’s price competitiveness in response to increasing competition from South Korea and other Asian economies. It shortens the time required for parts procurement, enabling a quicker response to changes in demand.

Facing cutthroat competition within the global economy, NEC and many other leading Japanese firms are moving toward e-procurement to make the management of their supply chains more efficient.

Despite a fall in overall corporate capital investment, Japanese firms are boosting their IT-related investments to improve operating efficiency and competitiveness, according to the Development Bank of Japan, a quasi-governmental body.

The DBJ surveyed over 3,524 companies with capital of 1 billion yen or more in February and found that overall corporate capital investment in fiscal 2001 will fall 8.9 percent from the previous year.

IT investment, however, is expected to surge 12.2 percent overall, with manufacturers posting a 16.4 percent increase and nonmanufacturers a jump of 10.5 percent.

According to the DBJ, this is a stable trend that allows firms to boost investment in areas that will improve efficiency and competitiveness without expanding in size.

It also reflects Japanese firms’ growing recognition that using information technology is key to their success. This is evidenced in the highly

efficient real-time management of Seven-Eleven Japan Co., a leading convenience store chain.

When a customer approaches the counter at any Seven-Eleven store, a clerk at the cash register will input the gender and probable age of the customer.

When these data are linked with the sale information — via a bar-code scanner — the cash register automatically generates a customer profile. It might say, for example, that a man in his 20s spent 200 yen on instant noodles at the No. 14 store in Tokyo’s Shibuya Ward at 11:30 p.m. on May 17, 2001.

This is how Toshifumi Suzuki, chairman of Seven-Eleven, maintains an omniscient perspective on what is happening at the chain’s 8,641 stores nationwide.

With a vast computer network linking bar-code readers, cash registers and local host computers, Suzuki has access to all data and can follow changes in everything from sales trends to inventory and logistics information on a real-time basis.

So is the long-awaited IT revolution — said to be fundamental to reviving the nation’s ailing economy — finally taking place in Japan?

Some pundits say it is, but only within limited quarters in the nonmanufacturing sector, such as convenience stores.

McKinsey & Company Inc. Japan believes the same old problem still exists. This is the so-called dual economy, in which highly competitive global players and inefficient domestic industries coexist.

Manufacturers, long exposed to global competition, have been quick to establish an IT infrastructure.

Export-driven manufacturers, such as those in the auto, electronics, steel and machine tool sectors, boast productivity levels roughly 20 percent higher than their counterparts in the United States, according to McKinsey.

In contrast, the productivity of domestic industries, including construction, retail and other service sectors, is only 63 percent of that achieved in the U.S., it said.

Indeed, according to Advanced Management, a Tokyo-based private research firm, more than 80 percent of Japan’s 20 trillion yen business-to-business commerce is accounted for by only two industries — electronics and autos.

This is in stark contrast to the U.S. scenario, in which “B2B trade can been seen in any industry, ranging from electronics to retailing and petrochemical sectors,” said Hiroshi Kato, chief executive officer of Advanced Management.

Yoshihito Saito, a researcher at the Bank of Japan’s policy planning office, stressed the need to spread the IT revolution among non-IT producers.

“Japan has developed IT industries to a considerable extent. But they are mainly producers of IT products, not users,” he said.

Manufacturers of IT products, such as telecommunication devices and computer hardware and software, account for slightly more than 6 percent of gross domestic product both in Japan and the U.S., Saito said.

But Japan lags far behind the U.S., Britain and Canada in terms of its capital stock of IT-related devices, indicating Japan has far fewer IT users in the nonmanufacturing sectors, he said.

Emerging IT ventures in Silicon Valley have been given considerable credit for leading the U.S. economic recovery and surge through the 1990s. This spectacular comeback only became possible, however, when the IT revolution spread to other industries, igniting sweeping social changes.

Yoshihiro Tajima, professor emeritus at Gakushuin University, said the U.S. retail industry achieved a remarkable recovery by utilizing advanced computer systems for real-time management of its inventories and logistics.

Leading retailer Wal-Mart, for instance, now has the second-largest computer database in the U.S.

The Defense Department boasts the largest.

Japan meanwhile continues to stagnate. The vast majority of Japanese retailers remain small, while many of the larger ones, saddled with snowballing debts, are left with scarce financial resources to make strategic IT investments.

“The Japanese distribution industry has no future unless it rides on the wave of the IT revolution that is taking place in the U.S. and Europe,” Tajima said.

Many small retailers will need to reorganize into larger groups to be able to shoulder the massive investment necessary for IT-intensive systems such as these, he added.

Kazuhito Ikeo, professor of economics and finance at Keio University, said structural reform in the inefficient nonmanufacturing sector is essential for Japan’s future prosperity.

Both the government and politicians must bid farewell to their conventional tactics, he said. Poor policy decisions made in the 1990s, including repeated pump-priming measures while protective regulations were maintained, bogged the economy down, he said.

While the removal of protective policies will bring about long-awaited structural changes, it will also come at a huge social cost by imposing economic hardship on those in the weak nonmanufacturing sectors, he said. The process is necessary, however, to lift Japan’s economy out of the mire, he said.

“IT investment by itself won’t work unless it comes with changes in corporate organizations or the structure of industries themselves.”

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