Bending Adversity: Japan and the Art of Survival (23 page)

In the services sector, Japanese companies employ less foreign labour, but still some. A few companies operate call centres based in China and some back office work is done in places such as India and the Philippines. In Japan itself, many of the ubiquitous convenience stores, such as Lawson and Family Mart, are staffed by Chinese workers with near-impeccable Japanese and an appreciation of the ultra-demanding service culture. Japan’s service sector remains more ‘inefficient’ than that of other advanced countries, meaning there are more people to help the customer – wrapping items, pressing lift buttons and bowing graciously. This is the sort of thing that gets visiting time-and-motion consultants in a rage. If they are right that this is a hopeless waste of human capital – rather than part of one of the world’s most pleasant service experiences – then Japan’s much vaunted coming labour scarcity is surely exaggerated. Perhaps Japan won’t need 6 million foreign workers after all. It can simply redeploy to other industries the hordes of lift girls and night-stick-wielding building site workers (who warn passing cars of construction ahead). ‘Right now, I don’t think we have a very serious labour shortage,’ says Seike, who believes the real problem is a mismatch between jobs and skills and the precipitous growth of poorly paid work.

An obvious exception is the health sector, particularly when it comes to care for the elderly, where low wages make it hard to attract Japanese workers and there may be a shortage of up to 700,000 staff.
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One option, if the money could be found, would be to raise salaries. For society as a whole that would be a way of transferring the excess savings of the elderly to younger generations who are being squeezed – through low wages, higher pension payments and so on – as part of Japan’s adjustment to lower growth. Another way to solve the problem would be to allow in more nurses and care workers from countries
such as the Philippines and Indonesia. Pilot schemes have been introduced, but numbers are pathetically small, restricted to a few hundred each year. Even then, care workers who want to stay have been subject to overly stringent language requirements, justified on the grounds of patient safety. I once watched a television documentary about an Indonesian healthcare worker who appeared to be devoted to her job in a nursing home where she was adored by her elderly patients with whom she communicated perfectly well. However, she was unable to pass the strict exam in written Japanese, since there weren’t enough hours in the day to study the formidable lists of required characters, vocabulary and grammatical formulations. She was sent home.

Hiroshi Mikitani is a great believer in encouraging Japan to look outward. A successful financier at the Industrial Bank of Japan, he was exposed to new ways of thinking when the bank sent him to study at Harvard Business School. There he learned a new word, so unfamiliar he was forced to spell it out in the phonetic Japanese alphabet used for imported concepts: ‘entrepreneurship’. He founded an internet company that evolved into Rakuten, today Japan’s Amazon and eBay rolled into one. In 2012, Forbes put his wealth at $6.5 billion. Rakuten has expanded aggressively in countries such as Brazil, Indonesia, France and Russia. But Mikitani also wants to bring foreign influence to Japan. His boldest initiative, one that has attracted ridicule as well as praise at home, is to insist that his staff become proficient in English. His campaign bears the rather unfortunate name of ‘Englishization’. Even the menu at the staff canteen is printed in English. Mikitani, who wears open-neck shirts and polo sweaters, told me that learning English and being more open to the outside world was vital for Japan’s economic rejuvenation. ‘If all the employees of Panasonic or Sony could communicate in English, they could be far better than Samsung,’ he told me of the South Korean company that has left its Japanese rivals in the dust. ‘A language will open your eyes to the “global”, and you will break free from this conventional wisdom of a pure Japan. English is a tool to globalize you, to make you change.’
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Being open may be just as important as being fertile. Equating ageing with a dying economy implies that only countries with growing populations can be healthy. The late James Abegglen pointed out that,
when Japan’s population nearly tripled in the twentieth century, critics complained about its overcrowded islands where people had to live in ‘rabbit hutches’. Now the prospect of a declining populace filled everyone with alarm. One need only consider Pakistan, a country whose population has nearly quadrupled to 190 million since 1960, to realize that we cannot draw any neat correlations between population growth and prosperity.

Yet unless we expect the population of the world to keep growing indefinitely, all economies will one day face the problems now confronting Japan. The idea that richer countries should simply import labour from poorer ones implies an endless supply of people from somewhere else. That proposition must also eventually run out of road. If we are not to argue for an ever-larger global population – or, perhaps, the importation of guest-labour from some far-off galaxy – societies will one day have to find a way of prospering without the impetus of ever-greater numbers. Japan is a stark example since its population is not merely stagnant, but on the verge of rapid decline. Much of the slowdown in headline growth over the past twenty years is the result of less favourable demographics. As the population shrinks, there will undoubtedly be severe strains as the country seeks to balance competing generational needs. Japan will need to come up with a serious policy and societal response. However, I’m willing to place a little wager with Sakaguchi, the doomsday former health minister. The Japanese will be around for a little while longer yet.

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I was to imagine a grain of rice. Ippei Takeda, the avuncular chief executive of Nichicon, sat in his office in Kyoto, where the high-tech components maker has its sleek and rather daring offices. The spacious lobby looked more like an avant-garde art gallery than a corporate headquarters. I’d been escorted to the lift and along the corridor by one of his assistants to a large office on an upper floor. An immaculately dressed female attendant had just brought us both tea. She bowed as she entered the room, bowed as she silently set the little bowls of green liquid before us and bowed again at the doorway as she left. Takeda, engrossed in his story, appeared not to notice. He was blinking behind his silver-rimmed glasses and chuckling. The rice, he was saying, should be Japanese short-grained, about half the size
of longer-grained foreign varieties. Now, he said, to make one of the aluminium capacitors that his company produced, I must imagine drilling 300,000 holes into that single grain, flipping it over and doing the same on the other side. It was vital that the holes didn’t meet in the middle. An oxide layer, about eight to ten angstroms thick, must then be applied. He checked a little book with columns of figures before writing down the numerator, 1, followed by a denominator of 10,000,000. The thickness of the layer should be measured in ten-millionths of a millimetre. I must have looked nonplussed. ‘It’s very thin,’ he clarified.

The point of Takeda’s story was that there were still some things Japan did well. Making very small things was one of them. Nichicon’s energy-storing capacitors went into almost every conceivable electronic device from air conditioners to mobile phones. Though his company had many foreign factories, including in China, where it made some capacitors at three-quarters of the Japanese price, the really complicated stuff was still produced at home. The quality and consistency were superior in Japan, he said, better even than in South Korea. Some capacitors cost only a few cents each but, if they went wrong, they could disable devices worth hundreds, even thousands of dollars. Manufacturers paid a premium for quality. ‘If you’re asking me can Japan survive as a manufacturing nation, my answer is, yes, without a doubt.’

That view is not shared by everyone. Japan is even more paranoid than other advanced countries about what it calls the ‘hollowing out’ of its industrial base. The proportion of Japanese workers employed in manufacturing has been steadily declining for years, from 27 per cent in 1970 to 17 per cent today. That makes manufacturing more important than in Britain or the US, where about 10 per cent of workers are engaged in industry, but slightly less important than in Germany and Italy with about 20 per cent.
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Japan has been pressured by the emergence of lower-cost manufacturers in places such as China and by a strong rising yen. Since the tsunami, the drift of manufacturing abroad has accelerated, as companies worry about the safety of their supply chain and the reliability and cost of non-nuclear energy after the Fukushima disaster. ‘If you look at it logically, it doesn’t make sense to manufacture in Japan,’ says Akio Toyoda, president of
Toyota Motor Corporation, still a symbol of Japanese manufacturing excellence.
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For a nation that prides itself on
monozukuri
, an almost mystical belief in the art of making things, this is a shocking conclusion for the boss of Toyota to arrive at. In feudal times, artisans came above merchants in the pecking order. Even today, the Japanese hold a residual suspicion of finance – ‘money made from money’ in the words of one economy minister, who told me that Edo Japan outlawed usurious interest rates.
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The Japanese still consider making things to be more honourable. Some Japanese business leaders, perhaps remembering the disastrous forays abroad of banks, worry that the service industry is not cut out to compete internationally. Japanese standards of service are rightly legendary but not easily transferred abroad. When they have made bold gambits overseas, for example in banking in the 1980s, Japanese companies have tended to overpay for acquisitions and to struggle to convey a global vision to an international workforce. ‘Japan’s whole identity is tied to manufacturing,’ says Yoshikazu Tanaka, founder of Gree, an online gaming company and one of the most prominent recent success stories outside traditional industry.
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Few companies epitomize the decline of manufacturing like Sony, a byword for Japanese quality and innovation after the war. The company that invented the Walkman, the world’s first portable music player, and the Trinitron TV, with its revolutionary bright picture, has become shorthand for the dismal slide of manufacturing prowess. By 2012, Sony had not turned a profit in five years and, in that year, announced the sidelining of Sir Howard Stringer, the razor-sharp Welshman it had hoped could turn its fortunes around. For years, Sony has been outflanked by rivals such as Apple and Samsung. Though it has shed jobs by the tens of thousands, shipped out production to China and come up with device after unmemorable device, it has only fallen further behind. By mid-2012, its market value had dwindled to one-thirtieth of Apple’s. Samsung, a company from the former Japanese colony of South Korea, now regularly makes more profits than the top fifteen Japanese electronics companies combined.
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Sony’s biggest failing was its inability to navigate the industry’s transformation from analogue to digital, or from ‘knobs’ to ‘menus’
in Sir Howard’s clever phrase.
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That was more a question of lack of imagination than of technical knowhow. Akio Morita, Sony’s legendary co-founder, had thought hard about digitalization early on and Sony had a library of music that had come with its acquisition of CBS records. But Sony’s engineers, the mainstay of its early success, resisted what they saw as flighty ideas about networks and convergence. As late as 2004, the company’s devices did not support the standard MP3 format. Sony’s PlayStation video console was more successful. But even that lost its lead, failing to stave off the challenge from cheaper rivals and online games.

Yasuchika Hasegawa, boss of a pharmaceutical company and chairman of the Keizai Doyukai business lobby, says Sony illuminates a broader Japanese failing. ‘We continue to excel at developing and manufacturing the parts that go into machines and devices, but we miss the larger opportunities that developing new product concepts would bring,’
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he says. Japanese companies knew how to make more than two-thirds of the parts that went into both the iPod and the iPhone. But they were so focused on ‘partial optimization’ that they missed out on what really mattered: creating and marketing a digital ecosystem. Where, in the commonly heard cry, is Japan’s Google, its Twitter or its Apple?
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Where is the Japanese Steve Jobs? For Hasegawa it comes as only mild consolation that many devices still contain Japanese components of the sort made by Nichicon. In his view, Japan has downgraded from ‘Made in Japan’ to ‘Japan Inside’.

Manufacturers do still excel at making niche components as well as specialist equipment such as robots – in which Japan continues to be a world leader – and steppers, the machines used to produce silicon wafers for the electronics industry. Japanese companies manufacture all kinds of specialist chemicals, machine tools, automated systems, lenses, micro-controllers, tiny motors and dozens of other components and inputs indispensable for modern existence. Japanese car-makers, including Toyota, Nissan and Honda, continue to innovate and to excel. Japan, unlike Britain, whose manufacturing industry has shrivelled, is still good at making things you can drop on your foot. The decline of its electronics industry has been highly visible, since the brands that have faded – Sony, Sharp, Hitachi, Panasonic and many others – were once standard features in many middle-class
homes around the world. That dramatic slide, though, has obscured the more enduring performance of companies that are less well known to consumers, whether they make industrial machinery, materials or tiny components. Take the case of South Korea’s Samsung, whose success has caused so much damage to its Japanese rivals. Yet Samsung remains a huge importer of Japanese manufactured inputs, the quality of which it still cannot match itself or buy from other South Korean companies. For all its industrial success, South Korea still runs a big trade deficit with Japan, strong evidence of Japan’s enduring competitiveness in certain fields. Japan, after all, continues to head the global league table of granted patents, beating even the US, though it trails in Nobel prizes and academic citations, suggesting perhaps that more of its innovations are incremental improvements rather than revolutionary breakthroughs.
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