Thanks to a strong showing from exporters, Japan has racked up five quarters of uninterrupted economic expansion; its best run since 2006. Its highly-specialized companies have found their footing once more in the global market, injecting a burst of newfound optimism into the economy
Since Prime Minister Shinzo Abe returned to office in December 2012, implementing his pro-growth policy dubbed Abenomics, corporate earnings have surged, while U.S. and Chinese demand for Japanese products has driven profits up by nearly 40% from fiscal 2000 to 2016. Japan, which experienced breakneck economic growth throughout the postwar era only to plunge abruptly into recession in the early 1990s, is now showing encouraging signs of emerging from its prolonged period of economic stagnation. Japan, Inc. is back.
Growth through transformation
While Japan’s first economic miracle was driven by the boom of the domestic market as increasing wages created consumer demand for domestic appliances and other goods, the next boom will come from tapping into new markets. Japan’s companies have long been household names around the world – Toyota Landcruisers can be found on every continent, including Antarctica, while the ubiquitous Sony brand has dominated home entertainment over the last few decades – but a new drive from corporations to tap into high-growth business segments is seeing them transform from mere manufacturers to global brands.
“Japan 1.0 was characterized by Japanese products gaining world fame rapidly. Nowadays, we need to take into account the increasing number of competitors from countries such as China and South Korea as well as the different desires that each country has. That is why it is very important to customize each product to its respective market,” says Yoshiharu Katsuta, President of Hitachi Maxell, a consumer electronics company that produces among other products batteries – the company’s name is a contraction of “maximum capacity dry cell” – beauty appliances, wireless charging solutions, and a number of industrial materials and energy products. Its latest development, an LED-based lantern that generates electricity by using water and salt, runs for around 80 hours and is being marketed as an emergency lamp for times of disaster and power failure, as well as for leisure and outdoor activities.
After a change in holding structure, the company will drop the “Hitachi” part of its name later this year, which it sees as an opportunity to relaunch its brand for the global market. “We want Maxell to be seen as a young, reliable and fashionable brand,” says Mr. Katsuta.
Out with the old and in with the new
Out with the old and in with the new is almost a mantra for Japan, Inc. today. Reducing ties with monolithic conglomerates allows for a nimbler business approach, as Hidehito Kotani, President, CEO and CTO of Panasonic Healthcare explains. “Panasonic Healthcare has a unique setup as Panasonic still owns 20% of our shares. The rest is owned by KKR Private Equity at 58% and Mitsui at 22%. We are one of first companies to be cut out of a big conglomerate, which means we now have our independent operations and we are growing very nicely with the support of KKR and Mitsui. Our unique history and business structure makes us one of the most innovative companies in the country.”
He adds that “Panasonic is a great brand, but it’s not a healthcare company. This can confuse people, and we want to transform people’s idea of our brand. We value our history of starting with Panasonic, and people can relate to Panasonic. But we are a new brand dedicated to healthcare, a new brand dedicated to innovation.” The company’s key product is its blood glucose meters, which measure blood glucose in diabetics using current flow caused by enzymatic reaction.
“Today, they are the most accurate blood glucose meters, and represent more than 50% of the market share in Japan,” says Mr. Kotani. In addition, the firm’s biomedical unit, which deals with research and development such as cell culture, is placed second in the world in its industry segment, behind Thermo Fisher. For Mr. Kotani, Japan’s incomparable technological prowess will be what drives the rebirth of its corporate sector. “In the past, Japanese companies were good at making machines. Now, these machines are able to talk to themselves, and drastically improve our results. I believe these machines are the rebirth of Japan Inc.”
Quality is key
Japanese companies’ success continues to revolve around the monozukuri concept – loosely translated as the art, science and craft of making things and encompassing the concepts of technology and processes integrating development, production and procurement, as well as intangible qualities such as craftsmanship and dedication to continuous improvement.
Quality control is the cornerstone of the concept: “In Southeast Asia there are many companies that don’t use big machines, they can work with raw materials making foam very easily and in large volumes. We don’t dare to compete with those companies in terms of volume, so we make higher quality products instead. This is our specialty; we don’t compete with cheap materials or products. This means we don’t focus on producing volume or sales. Our goal is to establish a good brand and customer relationship,” says Soichi Inoue, Chairman and CEO of INOAC Corporation.
Founded in 1926, INOAC has become a global supplier to the automotive sector, making parts to meet American safety standards for Japanese cars such as Toyota and Nissan, as well as for General Motors and Ford. It now counts over 100 facilities operating in 20 countries and over 20,000 employees. The company, a world leader in the field of polymer chemistry, specializes in polyurethanes, plastics, elastomers and advanced materials for industries including information and telecommunications, healthcare, cosmetics, industrial materials and housing.
Entering new markets through global collaborations
Gone, too, are the days when Japanese manufacturers worked in silos, shielded from the rest of the world. Today, collaboration is key, and it is to the American market, with its huge consumer base and commercialization prowess, that Japan’s corporates are flocking.
“Japan has always been a world reference in the manufacture of unique devices, whilst America is on the cutting edge of technology that then spreads worldwide. By combining the two, I truly believe that we will be able to create something special, for the benefit of humankind,” says Panasonic Healthcare’s Mr. Kotani. “Japanese quality and American innovation are the perfect match.” His company is currently assessing M&A opportunities within the U.S. market. “We want to collaborate with a company who has high technical competences and most importantly who has a vision in line with ours. Acquiring a company with the sole idea of generating profit is not part of the Panasonic Healthcare philosophy.”
“The U.S. market represents a big market for our growth,” adds Mr. Inoue of INOAC. “If you look at the chemical industry, there are many applications over there. America is a very big and important market for us.” He adds that the company has plants in Kentucky, Ohio and Michigan, as well as Canada. “We keep hiring local engineers to work in our plants, this means contributing to their market economy and also to developing local industry.” A careful focus on building good relationships in new markets, rather than simply copy-pasting the Japanese approach into a foreign country, has been an important factor in INOAC’s expansion. “Since we have many plants in various countries, I always instruct our managers to be aware we are going to build a factory in their garden,” explains Mr. Inoue. “Even just 30 years ago, if a Japanese company went to Thailand they would start ‘mowing the lawn’. They would make a ceremony, put a Japanese flag and claim that territory as theirs without reservation. I prohibited that. We are building our company in their garden so we should be low profile, and that’s why I appoint local people as managers. The Japanese are only advisors in this case. This is a principle I always keep.”
Indeed, INOAC’s U.S. operations are run by American chairmen and presidents with Japanese advisors. “Our biggest strength is localization, our ability to meet local market demands, and to use local manpower. We not only understand the importance of producing locally, but we also take advantage of the unique Japanese high-quality technology,” says Mr. Inoue. Combining this Japanese technology with local needs is what led to the company’s 50:50 joint venture with Rogers Corporation, a Connecticut-based specialty materials company listed on the NYSE. “We are developing many new applications together,” says Mr. Inoue, who points to the protective cushions inside Apple iPhone packaging. “Those products are made by our joint venture.”
The next step for this outward-bound piece of Japan, Inc. is to ramp up its joint R&D activities with American firms. “America has a big chemical industry and many leading companies use our products so we are really interested in doing more R&D activities to meet our customers’ needs and to keep a good relationship with chemical companies,” says Mr. Inoue, who is also scouting for sales channel partners to enable INOAC to better serve the vast U.S. market.
Made in America, by Japan
With a global shift toward protectionism, getting products into new markets and competing with local firms could pose something of a challenge. Hozumi Yoda, President of Nissei Plastic Industrial, believes he has the answer. “For us, America is one of the most important markets and we are always thinking about it. Americans are always willing to pay the price for a good product,” he says. In February next year, the company will invest $20 million in opening a new factory in Texas, San Antonio. “We will be assembling heavy machinery there and selling it in the Midwest area around Detroit. We are going to sell our products under the label of ‘Made in the U.S.A.,’” he says.
This new energetic, nimble approach to doing business boosted combined net profit at Japan’s major listed companies to a record level for the fiscal year ended March 2017. And the can-do attitude and focus on overseas production of Japanese businesses is driving a robust performance that shows no signs of slowing down. Japan, Inc. is back; bigger and better than before.