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Japan Policy Conceptual Framework


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Dessertation on finding a new strategy for Japan.

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Japan Policy Conceptual Framework

  1. 1. Syu Jeng-Chyang PhD Candidate Strategy Development Department Japan Policy Conceptual Framework Figure 1 Source d_industrial_policy.html Japan Conceptual Policy Framework Japan’s Policy Conceptual Framework consist of a circle cycle in the center from which information flows bidirectional from and to two other supporting circles cycles in the framework. The center circle cycle represents Industry and is based on innovation with the goal of becoming a center of the world for innovation. This is the key development strategy that Japan will use as the new engine for economic and social growth in the future and which the rest of the framework is based (Economic and Industrial Policy Bureau, 2007). The points in the center industry circle cycle are as follows: • Global innovation center
  2. 2. • Nurturing of diverse local regional industries • Productivity improvement with Information Technology (IT) • Innovation in service sector “The center of the world for innovation, driving economic structural reform and setting the course for economic growth,”. Innovation has been important since the first commissioner of the Japan Patent Office, Korekiyo Takahashi, introduced a patent system in 1885. Today, Japan has more patent applications than any other nation. Systematic differences among countries have become a problem since the introduction of the patent system in Venice in the 15th century with advances in Information Technology (IT) the problem has accelerated with Japan having about 500,000 applications per year producing around 30% of the world total. Worldwide 1.6 million patent applications of which 40% are duplicates filed in different countries. A March 2006 survey by the Japan Patent office showed 23% of Japanese companies lost revenue from counterfeit goods according to the World Customs Organization estimates of world trade in pirated goods is 80 trillion Yen. The virtuous circle cycle means new innovations produce demand and this demand produces new innovations (Japan Patent Office, 2007). The “go-it-alone approach” within an organization is not always effective especially in managing knowledge and Japan’s extensive intellectual property. Promote cross-sector integration and collaboration in the knowledge field among researchers, managers and technicians in the private sector, universities, and public research organizations through innovative R&D with the goal of building a framework that links R&D to growth. The link between R&D research and growth by nurturing new innovations and spreading the
  3. 3. results through private companies and partnerships among government ministries and agencies. This has been one of Japan’s key strengths since the establishment of The Ministry of International Trade and Industry (MITI) in 1951 that engineered the success of “Japan Inc” to the renaming of The Ministry of Economy, and Trade and Industry (METI) in 2001 (Economic and Industrial Policy Bureau, 2007). “Nurturing of diverse local regional industries “ in July 2006 the “Economic Growth Initiative” was formed covering until 2015. It is a cross-sector growth strategy to improve three factors of economic growth capital, labor, and productivity (Economic and Industrial Policy Bureau, 2007). First, the strategy of relocation of companies to regional areas based on matching company and regional local natural strengths. Second, the continuation of the “Industrial Clustering Program”. Third, targeting of community-based businesses strengthening the regional living and working infrastructure (Economic and Industrial Policy Bureau, 2007). Improving productivity by Information Technology (IT). The Productivity factor increases must come from creating a Net Society for the future, Japan’s priority towards an advanced information communications society across the entire society. The government is pursuing an electronic government strategy for online administrative procedures, education, medical care, welfare, transport sectors, and training high-level human resources. An Information Technology (IT) improvement campaign is designed to implement deeper across society and sectors (Commerce and Information Policy Bureau, 2007).
  4. 4. Service industry innovation, The International Monetary Fund (IMF) 2009 Article IV Consultation with Japan supports the view of over the medium-term, reforms to restore fiscal sustainability, deregulate the service sector, and enhance labor and product market flexibility will help Japan to rebalance growth and lay the foundation for a sustained expansion (International Monetary Fund, 2009). It has been identified as a low productivity sector behind the US and Europe. Japan’s service sector represents almost 70% of GDP (Gross Domestic Product) and employment. The decision to restructure the service industry had already begun by Japan to switch from a manufacturing-oriented single engine to a twin-engine manufacturing and service industries model of economic growth and development by using continuous incremental improvements (Ministry of Economy, Trade and Industry, 2006). The right hand virtuous circle cycle is labeled Japan. It is for policies designed for the domestic market. • Boosting of new domestic demand • Creation of quality job opportunities • Regional revitalization Boosting of new domestic demand using from the demand side. A circle cycle for locally based innovation and demand. The supply side of economic growth is not possible because of Japan’s aging population and a low fertility rate. In the next ten years the baby-boomers that were responsible for economic growth will retire. The young population (aged 20-34) is predicted to decrease by 31% by 2020. This factor forces
  5. 5. Japan to create new domestic demand given the drop in population on the supply side. Other demographic considerations are 4.3 million Small and Medium Enterprises (SMEs) in Japan representing 99.7% of all businesses and 70% of employment. The Small and Medium Enterprise Agency is providing a financial safety net for SMEs that does not depend on personal guarantees but instead has established a loan system secured by inventory and account receivables. These support programs are set up in every prefecture to revitalize regional economies. These Monodzukuri (Manufacturing) SMEs are well equipped with high-level technologies that continue to serve Japan’s larger manufactures and Service sectors (Small and Medium Enterprise Agency, 2007). Creation of quality jobs opportunities is based on average GDP growth over the next ten years around 2.2% annually. Gross National Income (GNI) will thus be around 2.5% annual growth. This translates income increase of about 30% from 2004 to 2015 (Ministry of Economy, Trade and Industry, 2006). Regional revitalization starts with SMEs that make use of local resources production area technology, regional agriculture, forestry, fisheries products, and tourism resources. Factors such as suburbanization have created harsh situations for shopping areas. The revitalization of downtown areas will be supported by concentrating city functions in urban areas. This will create compact and lively downtown areas (Small and Medium Enterprise Agency, 2007). The left hand side of Japan’s Policy Conceptual Framework forms the Asia virtuous circle cycle. It lists three points of interest. • Collaboration with Asian Countries
  6. 6. • Driving of Asian growth • Enhanced degree of international specialization Asian countries have become important drivers of economic growth for Japan. They are investment targets for production bases that create jobs that lead to consumption growth that increases product demand. This cycle works by Japan’s “Mother Factories” producing high-value-added products in Japan, commodity-type products are mass- produced in Asia supplied by parts from Japan. It is important that this trade structure is dynamic based on competition and cooperation to increase the freer flow of people, goods, and capital to an enhanced degree of international specialization. Japanese manufacturing is the main driving force of economic growth for both Japan and other Asian countries that benefit from FDI (Foreign Direct Investment) from Japanese manufacturers. It represents 20% of Japan’s GDP and 90% of all R&D investments of all private companies (Manufacturing Industries Bureau, 2007). Implications for Thailand during and after the global financial crises covering the period of the longest economic growth era since WWII from 2002 to 2007 based on implementing Japan Policy Conceptual Framework, All three of the global engines of growth have been severely affected by the global financial crises. All three economic growth engines during the growth period had been severely affected. Credit type bubble engine of growth US, UK, Spain, and Ireland. Export led-type engine of growth Japan, South Korea, Singapore, Germany, and Thailand. April 2009 Thailand’s exports decreased by 16.6% on a year-to-year basis while Japan’s exports decreased by 39.1%. Japan due to high value-added exports and Thailand due to integration of the global
  7. 7. supply Chain (Japan White Paper 2009, 2009). Booming Emerging Countries economic growth engine Middle East, European Countries, etc. The Asian Emerging economic growth engine is the only engine working led by China and India until a global recovery takes hold. Expected outcome from Japan Policy Conceptual Framework is due to a large part of Asia’s growing middle class defined as households with disposable incomes ranging from $5,001 to $35,000 a increase of 6.2 times from 1990 – 2008 (Japan White Paper 2009, 2009). “Global Economic Strategy and Foreign Economic Policy of Japan – The Four Prioritized Fields”. One, direct benefits for Thailand, Domestic and Foreign integrated economic measures to drive forward the concept of doubling the size of Asia’s economy, Two, the market development for the emerging economies are essential for the diversification of the investment destinations. Promotion of innovation in the “Volume Zone”. Promotion of new innovation of low cost technology. Three, “Global development of the low carbon Revolution”. Promotion of international energy conservation and cooperation. Promotion of overseas market expansion strategies that centers on low carbon technology. Four, “Multi-layer cooperation including industrial cooperation with countries rich in natural resources”. Support resource countries by providing technology. Agriculture based alternative fuels in the case of Thailand. Strengthening international exchange in various fields tourism and education that represents a major source of foreign exchange earnings for Thailand and opportunity to develop Thailand’s human resources in education required in the international specialization of labor.