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Manufacturing for Growth: Japan

Building tomorrow’s manufacturing dynasty

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Although Japan is one of the largest economies in the world and is recognized internationally for its advanced research and development capabilities, best practices in manufacturing, and leadership in key sectors, such as electronics and automotive, there are several challenges that loom that could signal a potential drop in its overall competitiveness as a manufacturing destination.

For instance, Japan's aging, shrinking population could adversely impact overall production of the Japanese workforce – which is critical to world-class competitive manufacturing. Other challenges include high taxes, high post-Fukushima energy costs, limited access to natural resources, and currency appreciation of the Japanese yen.

To achieve these objectives, the Keidanren's 2011 growth strategy outlines five policy areas that are focused on improving Japan's international competitiveness and enhance its attractiveness as a manufacturing destination. They are:

  • Fundamentally revising energy and environmental policies
  • Taking measures to combat deflation and stabilize exchange rates
  • Reducing the burden on companies, including corporate tax and social security premium
  • Participating in the Trans-Pacific Partnership and promoting other high-level economic partnerships
  • Developing employment policies based on a diverse labour market

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CEO Policy Recommendations

Executives believed that the following set of recommendations would enable Japan's pursuit of more advanced manufacturing capabilities

  1. The policy focus needs to shift to providing stable and economically affordable energy – with a particular focus on electricity stability to prevent power outages detrimental to both people and businesses
  2. Executives wanted to see Japan's energy supply depend on multiple, disparate sources to hedge against the risk of electric outages
  • Ensure Japan has the long-term ability to provide cost effective, stable, and clean sources of energy
  1. Executives broadly believed that Bank of Japan needs to do more to ease monetary policy and that the government needs to intervene in foreign exchange markets
  2. The key to addressing the strong yen and deflation are policy measures that increase domestic demand, such as deregulation and increased participation in international economic partnerships
  • Develop monetary policies that help stabilize exchange rates and address inflation
  1. Executives supported corporate tax rate reductions recommended in the Keidanren's 2011 growth strategy, including a 5% reduction in effective corporate tax rates in the immediate term, a rapid cut of corporate tax rates to 30% to align with other major countries
  2. Executives also said the government needs to lead the way in developing a globally competitive tax system that allows Japan to attract foreign investment that helps create employment and expands personal incomes
  • Institute policies that lower tax burdens on corporations
  1. Japan's competitive advantage is in high value-add products that require significant craftsmanship, time, and technology, and that free trade is fundamental to selling these products globally
  2. Executives said the government should discontinue the practice of giving subsidies to less successful industries as the practice was seen as neither helpful nor sustainable. Instead, executives said the government should reinforce strong industries that have high export potential for their products to overseas markets
  • Increase participation in the Trans-Pacific Partnership and encourage other economic partnerships
  1. Participants in the discussions said the government should encourage greater workplace diversity and provide more support for families with young children, to encourage increased work-life balance
  • Develop employment policies and frameworks that take into account today's diverse labour market
  1. Executives said policy-makers should create a "blueprint for talent" that outlined the skills and the workforce Japan would need to sustain its manufacturing competitiveness and meet future growth targets. Executives noted that any such blueprint of future talents should be reflected in the national education curriculum and be supported with stable funding
  2. Policy-makers and business leaders should collaborate to provide youth with leadership experiences as well as a sense of confidence that the country is heading in the right direction and that the manufacturing sector offers exciting employment opportunities
  • Promote vocational training and development of outstanding innovators
  1. While Japan currently has a high investment to GDP ratio, most of the funding comes from the private sector
  2. Greater increases in overall government R&D spending and a change in the way the budget is allocated as critical for Japan to retain its competitive edge
  3. Executives would also like to see more Japanese-style venture businesses that could take R&D risks and work aggressively to develop and commercialize new products
  • Strengthen policies supporting long-term investment in science and technology
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