A group of leading government and industry leaders known as the Industrial Rebirth Council was formed in July 2000 to expand and support Japanese economic reform initiatives. The council, which was convened by — and is chaired by — Prime Minister Yoshiro Mori, is comprised of key government ministers and CEOs of such companies as Sony, Toyota, Fujitsu, NTT and Toshiba.
This effort could help jumpstart various economic reforms first set in motion in 1996 with the government’s Program for Economic Structural Reform. That program was meant to set the nation’s economy on a new path that would ensure — or restore — economic vitality to a nation mired in recession.
A year later, in May 1997, an Action Plan for Economic Structural Reform was adopted that defined goals and outlined steps necessary for comprehensive deregulation and systemic reform by 2001. Still another initiative, the Industrial Revitalization Program of January 1999, addressed corporate reforms and the regulatory environment in the context of creating a more competitive global marketplace.
All of these initiatives point to a greater willingness than ever before by those in leadership to implement necessary changes that would attract foreign investment by improving Japan’s business climate. Put differently, there is a growing realization that simply waiting for economic conditions to change under current business practices is a flawed strategy for enhancing economic development.
“We Japanese have recently tended to become overly pessimistic about the medium- to long-term growth potential of Japan’s economy,” noted Masaru Hayami, Governor of the Bank of Japan, at a joint meeting in September of the Japan-Midwest U.S. Assn. and Midwest U.S.-Japan Assn. in Tokyo. “However, I believe that Japan’s economy will be able to regain vitality if it firmly pursues economic reforms needed from a medium- to long-term viewpoint, as witnessed by the revitalization of the U.S. economy since the 1990s. To that end,” he continued, “we should learn lessons from past mistakes. At the same time, it is crucial that we steadfastly implement concrete reform measures while earnestly discussing how to revive Japan’s economy.”
Seven Reform Measures Planned
The central banker touched on several points in his speech that underscore the importance of the work now before the new Industrial Rebirth Council, including reconciling differences in economic and corporate management styles between Japan and the USA and other major markets, and how those differences can impede economic growth. The Council will address seven reform measures over the next two years. Its priorities are to:
- Accentuate the dynamism of corporate management;
- Revitalize small and mid-sized businesses;
- Promote technological innovation and creation of growth industries;
- Strengthen human resource development and labor flexibility;
- Meet the needs of an aging population;
- Enhance environmental protection and proper waste disposal; and
- Strengthen the cost competitiveness of doing business in Japan.
On the first point, it may be necessary to revamp the role of corporate boards of directors to include outside directors. Current practice is to have a board made up of internal directors who have a tendency to micromanage the CEO’s duties, which inhibits his ability to implement change. Other measures involve promoting entrepreneurship and innovation, being more creative in stock-compensation plans and addressing various shareholder rights issues.
Some systems are now in place to support small and mid-sized businesses. “But there is room for further development of those systems, says Hidehiko Nishiyama, executive director of JETRO New York, one of seven U.S. offices of the Japan External Trade Organization (www.jetro.org). “Large companies in Japan will have to restructure themselves, and inevitably that will cause layoffs. New companies should absorb those laid-off people, so Japan desperately needs these businesses. The environment should be venture-friendly with respect to legal systems and social structures.”
Other reforms on the table with respect to this point include supporting small businesses’ use of information technology (IT) with seminars, training and tax incentives; investing in human resource development to enhance the application of IT; and facilitating the use of public and technological information via the Internet.
The third priority, promoting technological innovation, is a key goal of all leading economies, particularly those lagging the USA with its well-entrenched and even better capitalized high-tech industries. For Japan, this means investing more in research and development at universities and enhancing the transferability of human resources between private firms, the public sector and academia. It also means rationalizing the allocation of financial resources, encouraging more efficient procurement systems and enhancing corporate profitability by adopting cost-accounting systems.
Promoting technological innovation “is particularly important in Japan right now in such rapidly developing frontier areas as biotechnology and genome research, where Japan has been a latecomer,” says Nishiyama. “Japan should concentrate its efforts on promoting those [industries], and that development should be the basis of the new venture companies. We must do that.”
Fostering human resource development and labor flexibility may be an especially tough nut to crack given the firmly entrenched business processes that are virtually contrary to them. But this facet of the Council’s agenda will breathe fresh air into the labor force. Specific items on the agenda include enriching recruiting efforts with Internet usage, making pensions portable, expanding employment categories, changing university curricula to enhance viability in a changing economy and strengthening adult education and training systems that focus on the needs of individuals.
“We desperately need flexibility here so that we can transfer human resources from older economy [occupations] to newer economy ones,” stresses Nishiyama. “In the past, foreign companies looking to hire Japanese workers found them too risk averse,” he says. “The workers just wanted to be hired by large Japanese companies. This reform will make Japanese workers more attractive to foreign companies and to the small and mid-sized businesses that develop.”
The Industrial Rebirth Council has a unique opportunity to address one of Japan’s most vexing societal issues, it’s markedly aging population. “Japan will soon be the country with the most elderly population in the world,” Nishiyama points out. “The pension and medical care burdens will increase, and we have to think about that quickly.”
The Council will seek to find ways to develop new businesses in the medical and geriatric care arenas. It also will examine strategies for expanding electronic access to medical records to improve efficiency, facilitate privatization of nursing homes and allow more flexible standards for construction of nursing homes. Another measure before the council is to review industrial practices to reduce age discrimination.
The sixth item on the Council’s agenda involves environmental stewardship, an area Japanese people are increasingly sensitive to, Nishiyama relates. So it is in the popular interest of the government and business leaders to promote environmentally conscious agendas.
Efforts here will concentrate on promoting and expanding recycling systems and effectively disposing of hazardous materials to minimize pollution and global warming.
The last item on the list is by no means the least important. Strengthening the cost competitiveness of doing business in Japan may well be at the top of many corporate site seekers’ wish lists where the country is concerned. This factor has mostly to do with improving the efficiency of logistics and promoting reform to reduce Japan’s high cost structure.
“This area needs broad reform in various areas,” Nishiyama reports. “For example, Internet networking infrastructure, land and airport transportation, and electricity systems must be more cost competitive. Even land prices are very problematic when foreign companies want to do business in Japan. We must be a less costly economy.”
Clearly, the new Council must make some difficult decisions in order to move back onto the business development community’s radar screen. Formation of the Industrial Rebirth Council is another positive step in Japan’s realization that the global economy is charging ahead with or without it. Implementation of the reforms it seeks to change will be more positive still.
