Japan’s Economy Needs Revitalization

Autor: Bernhard Zepter, Ambassador ret.

Since the Banking crash in 1990 and the Asian economic crisis in 1997, Japan’s economy has suffered significant setbacks. Despite strong efforts of the Japanese government to lead the economy back to growth by comprehensive investment packages and cash injections, the results were rather disappointing and in fact led to an alarming national debt and long periods of deflation and economic stagnation. Although the yen still compares favorably vis-à-vis other currencies today, there are serious doubts even in Japan whether this will help the Japanese economy to relaunch the Japanese economy.

The malaise of the Japanese economy can also be seen by the most recent business figures. Key industries, e.g. in the fields of electronics, optics or information technologies fall behind competitors in China, Korea or Taiwan. The horrible natural disaster of March 2011 surely added to this. However, the fact that Japanese companies today struggle more than in previous years to overcome their problems is probably also a consequence of structural problems.

It is too early to rate the difficulties as indications of an end to the Japanese economic miracle. However, the Japanese companies are undoubtedly at a crossroads and are now called upon to reroute and to draw the consequences from a changed world. In the future, the state’s benevolent guiding hand can no longer be relied upon as much as in the past. The consolidation of the budget and a rigid policy for saving are now on top of the political agenda. Money is needed elsewhere, for instance for a sustainable solution of the urgent energy problems since the events of Fukushima.

In the foreseeable future, new stimuli will hardly emanate from the domestic Japanese market. To a large extent, this market has reached its peak. The policy of low interest rates may have helped to soften the consequences of the high national debt. However, at the same time it curbs the eagerness to consume among the Japanese. Their propensity to save still exists but in the absence of interest income of the private households, there is a lack of spending power. In addition, the population number in Japan stagnates as a consequence of the low birth rate and a restrictive immigration policy.

The future of growth therefore depends of Japanese readiness for increased operations on the world market. Enhanced market access is therefore essential for Japanese companies. But here as well, new rules have emerged which the Japanese operators need to take into account. The role of WTO as guarantor of world trade liberalization and free market access has decreased. Bilateral free trade agreements and regional economic coalitions increasingly replace WTO’s worldwide trade rounds. Only recently Japan showed more openness to the idea of concluding regional trade agreements. However, the negotiations with its Pacific neighbors and the EU about trade and cooperation agreements still make no real headway.

It should not be neglected that Japanese companies have invested massively in the dynamic emerging economies throughout the world over the last decades, as they had learnt a lot from the Japanese economic success story of the 70s and 80s. However, Japanese companies also need enhanced access to and cooperation with the technologically demanding and innovative markets of the OECD states, in particular of the EU and the USA, if they intend to maintain and strengthen their competitiveness.

At present, there is much talk about the crisis in the Euro zone. Actually, however, the EU remains a dynamic and stable economic partner, especially for Japanese companies. Therefore, it is high time to learn from the EU’s experience in economic transborder activities. Even companies with a long tradition of trading with EU states are often surprised by developments in and decisions from Brussels. As a consequence, they might suffer severe losses which could have been avoided by acting in a timely and diligent manner. This is the more necessary as the decision-making processes within the EU – whose institutions today control 100% of the foreign trade of its Member States – are particularly complicated.

It is not only important to have better knowledge of the internal structures of the EU and its mechanisms. Laws and regulations of the EU can also have important effects on countries like Japan. Whether in connection with the rules of competition, consumer protection, protection of intellectual property, norms and standards, tax legislation, environmental regulations, the construction of the Trans-European Networks etc.: Each new regulation in these areas may substantially affect the business practices of a Japanese company.

In the rapidly changing political environment Japanese companies who wish to be successful in Europe therefore require an EU-wide approach and a European network that represents their interests in a palatable way. The point is to make oneself heard in the interplay of 27 Member States and 500 million citizens as well as of countless companies and their lobbyists. This is even truer as decision-making processes within the EU have become so complex and have shifted almost exclusively to Brussels since the Lisbon Treaty took effect in 2009.

Today, lobbying for Japanese companies in the EU can no longer be successful without a partner specializing in process know-how. Such a partner enables the company to operate within the framework of a Europe-wide network. The partner’s task is to deepen the company’s knowledge of the decision-making processes within the EU and to put problems that arise into a pan-European context. Furthermore, he establishes better contacts with political decision-makers and the local professional associations. As a rule, classic instruments of safeguarding of interests, like e.g. law firms, associations, representative offices or public affairs agencies, are no longer sufficient for this work.

In the past, Japanese companies relied on the quality of their products, their innovative ability and their good value for money. These are indeed advantages which will always play a pivotal part and remain Japan’s asset in global competition. However, in our interdependent world, in which the future of the own national economy is increasingly dependent on the free access to foreign markets, a modern company will also need ambitions to increase its growth potential and to gather a wider view of what is happening on the most important prospective markets in this world. Such a company has to be willing and able to express its individual business interests and to introduce them into the worldwide decision-making process. The EU offers good conditions for this. However, a professional approach and a competent partner are required in order to fully enjoy these assets.

Date of publishing: 24. October 2012, 17:29. Categories: Japan's Economy.


  1. Renan says:

    Your’s is a point of view where real intelligence sinhes through.

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