Key points from “Japan: From Kamikaze Capitalism to Smartpower Dynamism“.
“The impact on the real world, however, is very similar. Excessive financial leverage–whether simple or complex–forces mitsu no kajo–three excesses: excess debt, excess employment and excess capital stock,” Mr. Koll continued. “I recently visited China and there we have almost three and a half years of global demand of refrigerators sitting in inventory. So, I really urge you not to go into the refrigerator business, because the competition there is going to get very, very intense. It may not be quite as bad in the global car industry or the steel industry, but basically excess capacity–and with it excess employment–abounds. The great liquidation of many of these assets is still to come. During the boom, producers around the world prepared to supply for 4.5-5 percent global demand growth. In reality, we’ll be lucky to get 3 percent or 3.5 percent on a sustained basis over the next decade.”
This report was filed in May 2009, months into the “Expand Domestic Consumption” (扩大内需) policy. Sounds like China’s magic central planners are creating the mistakes central planners are known for. Just another reminder than short term numbers are not very meaningful. A friend from GE used to say “If you torture the numbers enough, you can get them to confess to anything”.
Japan has great strengths in R&D, Mr. Koll pointed out. “Throughout the 1990s, while the banks were bankrupt, while politics was a disaster, you see that corporate Japan continued to invest.” R&D spending amounted to 3.4 percent of GDP, “way above what you have in the U.S., way above what you have in Germany.”
In the U.S., the private sector accounts for only half of R&D, with the balance carried out by the American military and military contractors. In Japan, the private sector share is 80 percent, so there’s more new technology getting out into the broader marketplace, from the Toyota hybrid to cellphones: “If you have an Apple iPhone, you find that about 62 percent of the components are made by Japanese companies and can only be made by Japanese companies.”
China R&D spending is extremely low. Nobody is willing to invest in R&D because your innovations will be copied. The gov’t talks about enforcement.
Of the 350,000 wholesalers in Japan, two-thirds buy from other wholesalers and sell to other wholesalers. “It’s a Byzantine, clustered, multilayer distribution system, and it is why Japan is not very profitable. Here, the good news is being unleashed by the current recession. We are seeing massive, unprecedented restructuring of the supply chain, of logistics, of merchandising.”
Sony has pledged to cut its suppliers by half in the next 12 months; Toyota has said it will buy steel from a Korean company rather than a Japanese firm. Mergers in the last two years have reduced the number of department-store chains from eight to four.
SD is another area where China is also a mess. However, the Chinese economic system has a lack of trust. Ironically, the middle-men probably are making that situation worse. If import tariffs were lowered to reasonable level and smuggling was properly prevented on goods en-route from Hong Kong, Sales & Distribution in China is a huge field open for reform.