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Key Highlights

• Since the bursting of the bubble economy, Japan has been in a long period of stagnation that is colloquially known as the "lost decades." Due to the effects of the weaker yen, Japan's nominal GDP in 2023 fell back to fourth place in the world for the first time in 56 years since 1967, having been overtaken by Germany. Some view this as only transitory due to the exchange rate; however, looking out over the next 20 or 30 years, scenarios can be envisioned where countries such as India and Indonesia have continued population growth and see their economies expand while Japan's international standing further declines.
• On the other hand, Japanese companies' performance has remained strong, boosted by the resumption of economic activity following the COVID-19 pandemic and indeed by the positive effects of the yen's depreciation. Thanks in part to an influx of funds from overseas investors, Japanese stocks have hit a new all-time high, and there are rising expectations for wage increases and an end to deflation. While there are positive signs that the Japanese economy is enjoying a rebound, it goes without saying that putting an end to the "lost decades" will require the sustainable growth of Japanese companies and industries.
• Japanese industry has a history of being driven by manufacturing, which has traditionally been referred to as monozukuri in Japanese. Many Japanese companies have achieved a strong global presence through creating high value-added products by leveraging traditional strengths such as kaizen¹ in the workplace and suriawase² that involves close coordination within industrial clusters. The automobile industry forms the core of Japan's manufacturing industry.
• Japan's automobile industry has been highly praised in many countries and regions around the world due to its high quality and efficiency. It has developed both domestically and internationally along with peripheral industries such as automobile parts, machinery and equipment, and materials. However, the industry is now at a crossroads due to changing trends that have occurred since its inception, such as the shift to electrification and vehicle intelligence.
• In order for Japan‘s automobile industry to survive and thrive amid the fierce competition, transforming its business model will be essential. This will involve shifting the value provided from the traditionally emphasized "function" to "user experience" in order to meet changing consumer needs and social structures. What will determine the outcome here are cyber physical systems (CPS), advanced fusions of real and virtual spaces that create new strengths and compensate for weaknesses.
• CPS can be expected to have both expansionary and protective effects, such as improving production efficiency, passing on skills, strengthening the workforce, and creating new added value. This is a theme that should be addressed not only by the automotive industry, but by all Japanese industries, both manufacturing and non-manufacturing, where "human" issues such as low productivity and labor shortages are becoming increasingly serious.
• This presentation reviews the current situation for Japan and Japanese industry, and then maps out winning strategies based on recommended structural changes in the automobile industry, the utilization of CPS, and their expected outcome. As Japanese industry increases its added value and regains its earnings power, it is expected that it will more actively invest in human resources for sustainable growth. It is also hoped that Japan will continue to develop through 2050 and beyond as it reallocates its investment resources from past areas to future promising ones.

 

Notes

1. Kaizen is a Japanese term for the process of continuous improvement of business activities by all employees at a company.
2. Suriawase is a Japanese term for the process of coordination, fine-tuning, and precision integration between OEMs and suppliers to achieve a desired result.