Fast facts. Area: 377,835 sq km, slightly smaller than California Natural resources negligible mineral resources, fish Currency yen: $1CAN = 101.

Transcription

1 Japan

2 Fast facts Area: 377,835 sq km, slightly smaller than California Natural resources negligible mineral resources, fish Currency yen: $1CAN = JPY

3 Population - 127,417,244 (est. 2005) Population growth rate 0.05% Life expectancy years Japan s population fell for the first time in October, 2005 Only by 19,000 but its an indication of what is to come

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5 Lack of natural resources Japan suffers from having very few resources for manufacturing A contributing factor for the start of WW II Japan still very interested in securing raw materials Energy is of particular concern

6 Japan wants access to Russian energy

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8 Japan s biggest problem An aging society is a major problem

9 Climbing dependency ratio

10 It will be serious by 2050

11 Gov t credit ratings may suffer

12 Population is expected to peak in 2007 It will fall by half by the end of 21 st century There will be 1 million 100 year olds by 2050 Average age of marriage is 26.3 for women and 28.5 for men Immigration is not a serious option

13 Fewer Children

14 Hire older workers Retirement age to be raised to 65 from 60 by 2013 Will keep 2 million more in the workforce Typically rehired retirees are paid less Age discrimination in hiring may need removed: many job advertisements are closed to anyone over 45.

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16 GDP growth rate 2.1% (est. 2005) Canada s is 2.9% Per capita GDP - $30,400US (ppp) GDP composition by sector Agriculture 1.3% Industry 25.3% Services 73.5%

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18 Japan s Two economies There is the domestic economy Relatively inefficient and resistant to change There is the export economy Very efficient and competitive

19 Japanese agriculture Farmland ownership is extremely fragmented average farm land size of between 3 and 5 acres Most are highly inefficient and survive because of protection Highly protected Rice has over 700% tariff 55% of cultivated land is in rice High food prices by world standards

20 Declining farm population an_the_slow.html#

21 Trade flows

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24 Japan does have a comparative advantage in its more efficient energy use

25 Traditionally Japan has Discouraged Inward FDI

26 Restless Japan The Pacific and Philippine Plates push against the Eurasian Plate. This geological movement makes Japan one of the most unstable places on year.

27 Closed Doors Japan was essentially closed to outside contact from 1603 to 1854 Limited contact was permitted through port of Nagasaki 1854, Commodore Perry landed at Yokohama and engineered an unequal trade treaty at gun point

28 Japanese realized they needed to modernize, militarize and industrialize Zaibatsu appeared to achieve this Mitsubishi, Mitsui and Sumitomo Japan became militarily aggressive and acquired Taiwan (1895) and Korea (1910) Invaded Manchuria in 1931 Bombed Pearl Harbor in 1941

29 Post WW II Relying on Confucian values of hard work, loyalty, and cooperative efforts coupled with US assistance the Japanese infrastructures were rebuilt Democracy was established Government, financial institutions and industry banded together to build a new Japan

30 Japanese business relations have been governed by wa Wa - the notion of harmony within a group, requires an attitude of cooperation and a recognition of social roles. If each individual in the group understands personal obligations and empathizes with the situations of others, then the group as a whole benefits. Success can come only if all put forth their best individual efforts. Decisions are often made only after consulting with everyone in the group.

31 Consensus does not imply that there has been universal agreement, but this style of consultative decision making involves each member of the group in an information exchange, reinforces feelings of group identity, and makes implementation of the decision smoother Participation in group activities, whether official or unofficial, is a symbolic statement that an individual wishes to be considered part of the group

32 Japan's sogo shosha, or large general trading firms Itochu Corp. Kanematsu Corp. Marubeni Corp. Mitsubishi Corp. Mitsui & Co., Ltd. Nichimen Corp. Nissho Iwai Corp. Sumitomo Corp. Tomen Corp. 9 largest

33 The 9 largest Japanese general trading companies, or sogo shosha, have 1,300 offices in over 100 countries and over 5,000 affiliated companies worldwide Sogo shoshas deal with 20,000 to 30,000 products per company The largest 18 sogo shosha companies handle 62% of Japan s imports and 37% of its exports

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36 The Japanese keiretsu The precise composition and structure of such business groupings are immensely varied. Here we focus on the industrial groupings generally known as keiretsu.

37 The Japanese keiretsu expressed through cross shareholdings and personal relationships as well as through financial and commercial transactions Bilateral relationships between firms are embedded within a broader family of related companies.

38 Keiretsu Another form of industrial conglomerate appeared to replace the zaibatsu Keiretsu means something close to link or affiliated with Two types Horizontal Vertical

39 The Japanese keiretsu Horizontal keiretsu are highly diversified industrial groups organized around two key institutions: a core bank and a general trading company (sogo shosha).

40 The Japanese keiretsu Vertical keiretsu are organized around a large parent company in a specific industry (for example, Toshiba, Toyota, Sony).

41 The Japanese keiretsu Intercorporate relationships are imbued with symbolic significance which helps to sustain links even where there are no formal contracts.

42 The Japanese keiretsu Transactions are conducted through alliances of affiliated companies Interfirm relationships tend to be long term and stable, based upon mutual obligations

43 The Japanese keiretsu Intercorporate alliances in Japanese economy are marked by an elaborate structure of institutional arrangements that enmesh its primary decision-making units in complex networks of cooperation and competition.

44 The Japanese keiretsu

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47 Diversity Problem 41% of work force is female but few hold top management positions Lack of confidence by women is cited as a contributing cause, but Japan has deep seated attitudes about division of labour Overt sexism In 2004 only 2.7% of division chiefs of firms over 100 employees were women 5.2% of Fortune 500 executives are women

48 Financial Crisis of the 1990s

49 Christmas Day, 1989 Nikkei 225 sits at 39,000 Japanese shares account for more than half of total global stock capitalization To cool stock/land price increases, Japan announces sharp interest rate rise Nikkei 225 tumbles to 34,000, reaches 20,000 by mid-1991

50 The Road to Undiversified Risk $5.2 trillion in total loans issued by 1990 Doubled in 10 years Top 25 banks by assets, 17 are Japanese, including top 7 25% of aggregate loan portfolio in property and construction ($1.16 trillion) Additional 55% indirectly linked to land

51 Collapse of the Bubble Economic growth slowdown Stock and real estate prices decline: 50% decline in property prices, quality of loans suffer Value of collateral eroded Bank equity holdings shrink Reduced ability to raise equity capital Reduced ability of debtors to service loans Banks took on more risk to protect margins

52 Inadequate Bad Debt Management Banks had only $30 billion in reserves to protect against fall in property prices Mostly held in equities, which were eroding Estimated Bad Debts at Major Banks $120 billion Bad Debt Provision = $34 billion Used fixed level instead of historical average

53 Inadequate Bad Debt Management Aggregated Bank-Income Statement $US Billions Before Tax Profits Bad Debt Provision Dividend Paid Kanaya and Woo, Japanese Banking Crisis of the 1990 s. Princeton, Essay in International Economics, 222, June 2001

54 Corporate Governance Shareholder structure provided little control Cross-shareholding Borrower shareholders depended on bank credit Keiretsu Poor directorship system Directors promoted from within or retirements Expected to resign when the term is up External auditors lacked legal liability

55 Corporate Governance Major Effects: Management under limited pressure to maximize profitability for shareholders Lack of accountability created an environment that promoted delaying restructuring and eliminated long-term focus

56 Regulatory Forbearance False hope of economic recovery Fear of public panic in financial system Intervention only after insolvency Anzen and Tokyo Kyowa were insolvent in 1993, not suspended until 1994 Lending at these two institutions doubled between

57 Regulatory Forbearance Constant dividend payment a common corporate practice Stock Exchange rules ordered de-listing after 3 years of losses lack of enforcement allowed banks to manipulate bad debt provisions Lax loan-classification rules Non-performing loans were not recognized

58 Other Contributing Factors Tightening of monetary policies after shock interest rate rise Uncoordinated deregulation and overcapacity

59 Mitigation and Efforts at Recovery

60 Internal Reforms Transfer of credit-approval back to creditinvestigation bureaus Focus on borrower s cash-flow analysis Tankan survey showed decrease in willingness to lend by the banks

61 Credit Ratings of City Banks Tokyo- Mitsubishi Dai-Ichi Kangyo Fuji Sakura Sanwa Sumitomo Tokai 1996 B/C C C D C C C/D 1997 B/C C C/D D C C C/D 1998 C D D D C/D C/D D 1999 C/D D D D D C/D D Kanaya and Woo, Japanese Banking Crisis of the 1990 s. Princeton, Essay in International Economics, 222, June 2001

62 Government Intervention Prompt Corrective Action Framework (1997) Well defined guidelines for asset valuation External audit and inspection Specified financial thresholds were regulators could intervene $300 billion bail-out Fundamental change in government policy Any institution would be allowed to fail

63 Government Intervention Financial Supervisory Agency 1998 Consolidated and assumed supervision of banks New laws to insert special management Doubled bail-out to $600 billion (12% GDP) Second round of applications for relief (1999) was 4x as much as the first round First bail-out ineffective, Long Term Credit Bank and Nippon Credit were nationalized

64 Recent Developments Banks merged into four groups: Mizuho Holdings Mitsui-Sumitomo Bank Mitsubishi Tokyo Financial Group United Financial of Japan Crisis has changed the entire industrial system as groups (keiretsu) are merging

65 Recent Developments Foreign competition in the sector LTCB bought by American investment firm New rules for bad debt write-offs

66 Future Directions

67 Future Directions Increased foreign ownership Strict loaning practices Leaner business practices Fire un-needed workforce Allow businesses to become competitive Relaxation of governmental control

68 Present and Future Problems Golden Recession Past success and current wealth is allowing Japanese to feel somewhat satisfied and is acting as a barrier to change Past Bail-outs People feel that the government will bail them out as they have in the past

69 Present and Future Problems Workforce numbers declining Reduction in productivity Work ethic of those working declining More time on family and fun Reduction in Productivity

70 Post office is a problem the money that Japan Post has funneled to state-backed and politically connected businesses such as construction has helped to keep rural voters sweet on the LDP

71 Tension between Japan and China The Japanese grumble about Chinese criticism of their wartime record which they regard as politically motivated Unwilling to be seen as capitulating to China, Japan's prime minister, Koizumi, continues his controversial visits to the Yasukuni Shrine where Japan's wartime history is celebrated.

72 Territorial Dispute with China

73 Tech leakage Japanese firms are losing their technical secrets to other Southeast Asian countries Notably South Korea Some firms use human labour instead of machines or software to protect their processes Sharp, for instance, explicitly designs gaps into the automated processes at its advanced LCD factory in Kameyama, Japan. The right moment to twist a knob or push a button is thus kept safely inside the heads of a few Sharp employees.

74 R and D invests 3.2% of its GDP in R&D, compared with 2.6% in America and 2% in the European Union

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76 Business networks in East Asia East Asian business organizations have long been embedded in complex structures of interorganizational networks.

77 Characteristic Large Japanese enterprise Chinese family business Size Large Small/Medium Capital intensity Varied Low Managerial discretion from owners Business specialization and managerial homogeneity High High Low High in firms, medium in families Strategic change Incremental Opportunistic Growth focus Sector share Volume expansion and opportunistic diversification Integration of different activities Risk management Minority shareholding Extensive mutual dependence Personal ties and ownership Limiting commitment and maximizing flexibility

78 Korea at Night North Korea South Korea

79 South Korea

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81 Fast facts Area - total: 98,480 sq km (about the size of Indiana) Natural resources - coal, tungsten, graphite, molybdenum, lead, hydropower potential Population - 48,422,644 (2005 est) Population growth rate % (2005 est) Life expectancy years

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83 GDP growth rate 3.7% (2005 est.) Per capita GDP (PPP) - $20,300 (2005 est.) GDP composition by sector agriculture: 3.8% industry: 41.4% services: 54.8% (2005 est.) Currency: won - $1CAN = KRW

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91 Korea Chaebol Modeled after Japanese zaibatsu A single person in a single position exercise authority through all the firms in the group They are built around a holding company Top 4 account for at least 40-45% of Korea s GNP Unlike keiretsu they do not have their own financial institutions They spread across many industries

92 More centralized than keiretsu with large centralized staffs More family based than keiretsu Based in part on Confucian ideals and loyalties Examples are Samsung, LG (Goldstar), Hyundai and Daewoo

93 Chaebols are roughly equivalent to keiretsu

94 Major differences The government prevented the chaebol from owning private banks, partly in order to increase its own leverage over the banks in areas such as credit allocation The chaebol are still largely controlled by their founding families, unlike the keiretsu, which are run by professional corporate managers.

95 Biggest chaebol

96 Still small Notwithstanding their overwhelming presence in the domestic market, the largest chaebol are small by world standards. In terms of sales, for example, Samsung Electronics is only about 14% of the size of the Japanese electronics firm Matsushita, whereas Hyundai Motors is less than 10% of the size of the US car maker, General Motors.

97 Major problems The overly rigid education system stresses rote learning over a more creative approach The labour market and the trade unions remain inflexible Many well-educated workers are either underemployed or insecure in their jobs The chaebol remain unaccountable to outside shareholders, whom they often swindle by manipulating their subsidiaries' finances

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99 Dispute with Japan Called Tokdo by Korea Takeshima by Japan South Korea has some economic reasons for maintaining its claim. The waters around the islands contain lots of fish, and reserves of natural gas and minerals may lie beneath them. South Korea has stationed a number of policemen on the rocks. It rejects any attempts by the Japanese side to represent the issue as a territorial dispute which requires international mediation.

100 North Korea Kim Jong-II

101 Fast facts Area - total: 120,540 sq km Natural resources - coal, lead, tungsten, zinc, graphite, magnesite, iron ore, copper, gold, pyrites, salt, fluorspar, hydropower Population 22,912,177 (2005 est) Population growth rate - 0.9% (2005 est) Life expectancy years

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103 GDP growth rate 1% (2005 est.) Per capita GDP (PPP) - $1,800 (2005 est.) GDP composition by sector agriculture: 30% industry: 34% services: 36% (2005 est.) Currency: won not convertible

104 Interesting videos New York Times: ghbandwidth/realmedia/ _krisnk_video.html # CBS News (60 minutes) shtml?source=cbsvideos&searchString=north+k orea&x=0&y=0&sort=1&type=all&num=10&offset=0