Free Research Paper on Japan:
Asian Business Environment
Overview of Japan
One should start by saying that economic growth of Japan after the end of the World War II, was enormous and resulted in Japanese economic ascension making Japan one of the few world most economically advanced nations.
Japan’s construction industry had been expanding drastically with the help of large civil works projects initiated throughout Japan. The triumph of construction, Kansai International Airport was built on an artificial island for a cost of $35 billion (Pempel, 189).
Japan had managed to advance originally via proper government industry cooperation initiatives, strong work ethic of the Japanese people, adoption of new technology, great emphasis on educational advances and virtually non-existent defense allocation. Currently Japan is still one of the top economic powers after the USA, China, and the European Union. For the past 3 decades Japanese economic growth was spectacular: in the 1960s the GDP grew at an average rate of 10%, in the 1970s the GDP grew at an average rate of 5% and in the 1980s the average GDP growth was 4.3% (Whittaker, 305). The 1990s were marked by remarkable slowdown of the economic growth of Japan because of the overinvestment that happened in 1980s and contractionary domestic macroeconomic policies that attempted to reduce the speculative access that existed in the stock and real estate markets (Aoki, 249). The Japanese government’s efforts to revive the slowing economy were unsuccessful, while the Japanese economy suffered further in the years 2000 and 2001 from the slowing of the US and Asian economies.
One of the most remarkable features that distinguishes the Japanese economy from any other economy in the world is the keiretsu principle, or the close cooperation between the manufacturers, producers, suppliers, distributors and banks that create synergy and increase in efficiency. Shunto, or the cooperation between the government and the businesses where the government provides support and assistance to chosen businesses (Ogura, 87). Shushin Kayo, or the paternalism, is the guaranteed lifetime employment in large corporations and unionized factories around Japan. Currently, many Japanese companies abandon their traditional business practice and engage in an American-type business activity in an attempt to improve competitiveness of corporations and lower costs.
Koizumi, Junichiro and his government engaged in creation of various privatization and foreign direct investment laws hoping to boost the Japanese domestic economic growth yet did not achieve any visible results. Despite the existence of various laws, the economy does not seem to respond any how favorably. Together with ageing population of Japan, the Japanese economy is expected to experience even more stress in the years to come (Hayes, 237).
Agriculture in Japan
Speaking about an agricultural sector of Japanese economy, I would like to note that it is highly subsidized and protected by the government’s regulations, laws and statutes that benefit primarily small scale farming and growing, rather than large-scale, Genetically modified farming as conducted in the USA and other countries in the west. Japan imports virtually all of its food and placed great tariffs on the imported foods that are also made at home. For instance, the imported rice is a subject to a tariff of about 500% and is restricted to about 5% of the total rice market in Japan. Japan imports other grains and meats. The only self-sustaining farming culture is fish, with Japan possessing the world’s largest fishing fleet and accounting for about 20% of the global fish catch (Bennett, 42).
Industry in Japan
Industrial sector of the Japanese economy accounts for about 25% of the overall GDP of the country. Industrial sector depends on imported raw materials and fuels. Japan has a world recognition for exporting automobiles and electronics and is a home of such large global companies like Sony, Nissan, Toshiba, Honda and Toyota. Japan currently invests heavily in its semiconductors industry, chemicals, machine tools and aerospace. Construction is one of Japan’s largest and most profitable industries currently benefits from the government’s multi-billion dollar subsidies and contracts attempted to improve the civil sector. One of the country’s core competencies is the robotics industry, that constitutes a long-term economic strength of Japan (King, 77). Currently Japan possesses about 65% of all working robots in the world.
Service sector in Japan
The service sector of Japan accounts for more than ¾ of the total economic production. The major industries are insurance, banking, real estate, telecommunications and transportation. Currently, the Japanese government attempts to privatize most of its holdings to assure the normal functioning of the service sector.
Problems and causes in Japan
Speaking about problems and causes in the 1990s, I would like to note that they were of the following nature:
Property bubbles. The prices of real estate and property skyrocketed. The major cities like Tokyo, Yokohama, Kyoto and others enjoyed the greatest price increases. Apparently, such bubbles were contributed to the lack of efficient management and competition within Japan because of government policies directed towards the development of local companies. The property was highly overvalued and later, the collapse or the burst of the bubble was inevitable sooner or later (Doane, 54).
Reliance on large corporations. The major Japanese corporations are export oriented and thus directly or indirectly depend on the swings in foreign economies. In the 1990s, the USA and the European Union saw major inflation, which certainly made the profits of major Japanese corporations slimmer. The smaller companies that in most developed nations account for a major part of the GDP, in Japan were not supported much. Whenever, the global environment presented challenges for the Japanese companies, the Japanese government understood the disadvantages of such policy (Malcolm, 230).
Unwillingness to open the economic market to foreign companies. As noted earlier, Japan attempts to protect its own market as much as possible from the external influence (Fukami, 63). The closed Japanese market thus lacked efficiency and was prone to major bubbles as it was in the case with real estate/property bubbles. Failure to allow the market forces rule contributed to the major Japanese depression, which continues till present (Fukami, 65).
Bank and financial problems. As other markets, financial markets of Japan were highly regulated and controlled. The Japanese central bank would set a certain price for the Yen and interfere immediately every time the exchange rates went off the limits. The banks and other financial institutions financed the bubbles and when the bubbles burst, the banks experienced a major collapse. Another fact that needs to be noted is the relatively small consumption of the Japanese citizens compared to the citizens of other nations. Small consumption, and inadequate financing, mortgage, leasing, etc. policies initiated by financial institutions and companies contributed to the decreasing aggregate demand and over production (Tachibanaki, 182).
Reforms and attempts to boost Japanese economy
In 1996, the Japanese government created the “program of Japanese economic structural reform”. The special Industrial Rebirth Council (IRC) was created and led by the Japanese Prime Minister Yoshiro Mori. The Council attempted to unite the member of the public and private sectors of the society to better work on the common goal. The role of the Council thus is the implementation of various progressive reforms in the society, ease up the use of the information technology at the Japanese companies and proper social programs to deal with the ageing Japanese society.
The IRC had managed to reduce the gap between the outward and inward investment flows in Japan from 12:1 as it was in 1996 to about 3:1 in 1999. The increased foreign direct investments certainly promoted additional economic and structural reforms in the country and lowered risk regarding capital and technology transfers.
The Japanese External Trade Organization (JETRO) together with the IRC had managed to create certain reforms in the following areas:
a. Entrepreneurship and innovation. The companies have a much greater flexibility issuing stocks, bonds and engage in splitting or transfers.
b. Corporate restructuring. Shareholders are allowed to exercise their rights via emails. The minimum quorum requirements. The power is allocated between shareholders and board of directors. The legal requirements are simplified while the shareholders are given more rights against the board of directors (Hook, 103).
c. Corporate pensions. Early introduction of the pension system and defined contribution plans. Corporate pension system establishment. The environment for efficient finance companies. The employees are given a choice of how much to contribute to their pension above the requirement minimum. The financial markets are adjusted to accommodate additional funds and expenses associated with the proper pension funds (Itoh, 244).
d. Development of new business areas. Japanese program allowed non-banking companies to enter the market for financial services and conduct operations there (Smitka, 390).
e. Boosting the development of small and medium business by improving the Information Technology infrastructure. The information technology is improved through seminars and trainings for corporate owners and management. Tax and recruiting support incentives are introduced for various small and medium business under the program. The companies are prompted to invest in human resources and information technology (Flath, 34).
f. Creation of new growth industries in Japan. This is where the program attempts to boost the competitiveness of the Japanese universities and schools. The new human resources created at universities and schools are then easily transferred to various companies. The new cost accounting system is advised to be developed and introduced across various industries.
Despite the fact that the Japanese government implemented a new special reformist program to improve the Japanese economy the program failed for various reasons that will be discussed below.
The Japanese government did not see the problem of growing property and real estate prices. The tremendous growth of the GDP and strengthening Yen were apparent signs of overheating of the Japanese economy (Ito, 144). The Japanese government, nevertheless, was encouraging production without taking any precaution measures and did not even inform the companies about the current economic state. The Japanese companies enjoyed tremendous growth of property prices and the international expansion of the Japanese capital. These companies did not care about small consumption in Japan and the habits of the Japanese to save a major part of their salaries. Growing production while stable or slowing down consumption in Japan created the oversupply of major goods and services that could not find their client. Rigid structure of corporations that prevented the major layoffs of people and corporate downsizing (as it would happen in other countries under other management approaches) placed additional burden on the major corporations and caused inefficiency on a large scale.
The major problems that can be solved are the following:
1. Lack of consumption. The Japanese people are believed to save a lot while spending little. Unlike Americans who prefer to have everything at once and who will to pay the mortgage for the rest of their lives, the Japanese prefer to save money first and buy things with their own money rather than on credit. This problem lowers the aggregate demand and prevents many companies from developing and growing. The problem can be removed by the companies that can provide many goods on credit at relatively low interest rates to allow people to engage in that activity. The government can prompt people to spend more by providing certain tax incentives on purchasing various things like apartments, cars, cottages, furniture, etc. Propaganda and social advertisement of “Have things you want now-pay for them later” will improve spending and thus the GDP of Japan.
2. Market inefficiencies. The Japanese market was said to be highly protected and regulated by the Japanese government. The presence of various inefficiencies thus is not surprising, since, the government cannot be the best ruler in the business world. The ‘invisible hand’ as discussed a few centuries ago by Adam Smith, or the market forces is what can assure that the Japanese economy will grow and expand rather than stumble.
The gradual lift of government control over major industries, imports, exports, exchange rates will allow Japan to quickly excel. A good example in this case is China, that some 10 years ago had extremely controlling government and relatively poor economy. At present the Chinese government attempts to invite foreigners to work in China and buy Chinese companies, while still controlling major strategic industries. As a result at present China is the second strongest economy in the world after the USA, GDPwise.
The problems that cannot be solved:
1. Opportunity/competitiveness lost. When Japan experienced a depression and a major recession that lasts for more than 15 years it had lost a lead in certain industries allowing countries in Europe, North America, and Asia to become more competitive and efficient. For now that means that Japan has to experience more competition from other countries that have at present technologies that were the sole prerogative of Japan.
2. Resource dependence. Japan depends on foreign import of virtually every resource it uses. The country is located on islands, which are poor in minerals/resources. Thus, Japan is able to engage in industries other than extraction and mining.
The country of Japan is a mix of constitutional monarchy and republic. It has the parliamentary government and three branches (executive, legislative and judicial). The country has a universal suffrage and a political system similar to that in Great Britain.
Japan has the parliament called “Diet or Kokkai which comprises the House of Representatives (lower house) and house of councilors (upper house). The Cabinet comprises a Prime Minister and his/her team who are accountable to the Diet. The prime minister is selected by the Diet. The current party in rule in Japan is Liberal Democratic Party (LDP) and the opposition party is the Democratic Party of Japan. Although Japan still an Emperor, he does not have any real power and is only a symbol of the State. Currently there are many debates about changing various inheritance laws since the emperor only has a daughter who does not qualify for the throne because of her gender.
Role of government and corporation.
The Japanese government is rather nationalistic and protectionist. It currently supports the role of tariffs and restrictions and works on various problems the country faces. In the 1980s it had gave in to the US demands to open up some markets and had actually started investments abroad (primarily the US economy). Still it appears that the government prefers to rather cooperate closely with certain industries or companies and sponsor/subsidize them rather than to allow the invisible hand of cut-throat free competition benefit the Japanese economy. As noted earlier in the essay, corporations play a major role in the life of Japanese. Large corporations despite abandoning life-employment to improve efficiency still serve a major social role for the Japanese. The corporation has its representatives in the parliament and thus a powerful lobby in the government. The fact that political decision-making power is tied to and controlled by capital and money creates an inefficiency that benefits large corporations rather than the whole country.
In conclusion, I would like to say that Japan had went through a period of drastic economic growth and development after the end of the World War II, yet apparently faced an economic depression and recession that Japan experiences even at present. Japan is famous for its industrial advances and robotics. Service industries appear to be rather popular too, and Japanese government further privatizes state-own strategic corporations.
The government cooperates greatly with the most favored companies of Japan while places numerous trading barriers on imported goods. Japan experienced major problems in the past like property bubbles, reliance on large corporations, unwillingness to open Japanese market to foreign goods, and bank and financial problems. At present Japan as two major problems that can be resolved quickly namely, market inefficiencies and lack of consumption. The problems that are unlikely to be changed and resolved are the opportunity/competitiveness lost and dependence on foreign resources.
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