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Japanese firms must transform as population shrinks

Publication Date : 29-04-2014

 

“The country’s population will decrease like ‘reproduction on a limited scale,’” said Ryuichi Kaneko, deputy director general at the National Institute of Population and Social Security, using the economic term during a meeting at the Liberal Democratic Party’s Headquarters for Japan’s Economic Revitalisation. A silence fell over the meeting after Kaneko’s statement.

The “working-age population”, from 15 to 64 years old, will decrease from about 80 million in 2012 to about 44 million in 2060, according to the institute.

The 21st Century Public Policy Institute, a think tank of the Japan Business Federation (Keidanren), said in a 2012 report, “With the population beginning to drop in earnest, there is concern that the Japanese economy will experience constant negative growth from the 2030s.”

It also said, “Japan will lose developed-country status, with its presence on the world stage significantly diminished.”

The report emphasised, “We must look straight at this serious reality and consider the steps that the Japanese economy should take.”

Then, what can Japanese companies do to maintain the country’s vitality? One important key word is “overseas".

Mandom Corp., a manufacturer of hairdressing products for men, is known in Indonesia and other Southeast Asias countries for its Pixy brand of women’s cosmetics. Its corporate image in Japan is completely different from that in other countries. It earns about 22.2 billion yen, or about 40 per cent of the total annual sales, in other countries.

“The domestic market has been hardly growing. We must put our energy into expanding overseas businesses in which we can expect growth,” said Mandom President Motonobu Nishimura.

Suntory Holdings Ltd. in January decided to purchase Beam, Inc., the largest US whiskey maker, for about 1.6 trillion yen. Suntory wanted to acquire Beam’s sales channels in the United States, Europe and Asian countries. The Japanese market for whiskey and similar liquors accounts for only about 3 per cent of the global total.

The huge investment by Suntory means “buying 10 or 20 years”, according to Suntory President Nobutada Saji. “This is the last and biggest chance for us to become a global player.”

Koichi Haji, executive research fellow at the NLI Research Institute, said: “Companies will use money earned in overseas operations in investment for advanced equipment and facilities as well as research and development projects. Increasing dividends for investors and raising wages for highly skilled jobs, they will expand domestic demand. There is a way for Japan to become such an investment-oriented country.”

Domestic firms adjust operations

Not only companies having large overseas operations, but also companies firmly rooted in the domestic market are undergoing changes.

A sales clerk from a 7-Eleven shop visits the home of Teruhiko Kinami, 75, of Saitama, every day. Home deliveries of meals and other items are indispensable for Kinami, who suffers from diabetes.

About 80 percent of Seven-Eleven Japan Co.’s 16,000 convenience store outlets around the country offer home deliveries on a daily basis.

According to Mizuho Bank, the size of the market for those aged 65 or older will rise from 68.5 trillion yen in 2012 to 107.6 trillion yen in 2025.

“To maintain the company’s growth, we have to keep on changing,” Seven-Eleven Japan Chairman and Chief Executive Officer Toshifumi Suzuki emphasised.

Population decline has also spurred integration and reorganisation in the banking industry.

In April 2010, Tokushima Bank and Kagawa Bank merged to cope with shrinkage in the regional economy because of the population decline.

The two banks chose to integrate to prosper together, rather than continue engaging in fierce competition.

Looking into the future

“We’d like you to consider whether you can continue to run your business for five years, or 10 years, without changing your current business model,” Financial Services Agency Commissioner Ryutaro Hatanaka urged a meeting of top executives of regional banks at the beginning of the year.

Regional banks have overcome various crises by establishing solid management bases in their respective regions. However, the population decline could shake the foundations of their business.

“We want them to take drastic measures [to cope with the situation],” said a senior official of the FSA, which has been prompting the regional banks to consider mergers or management integration.

 

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