The world market's expansion and Japan's stagnation

How should we view Japanese manufacturing? Scenery that looks obvious from inside Japan takes on a different outline when reviewed in the context of overseas markets and international competition. In this series, writing from the standpoint of someone who handled business planning and overseas business development at Keyence and now runs the Japanese arm of a foreign-owned company, I read the reality of Japanese industry through public data. Part 1 takes up the expansion of the world market and Japan's stagnation.

Since 2000, the world's industrial structure has changed dramatically. At the center of that change were globalization and digitalization. Markets expanded from self-contained domestic ones to an integrated global whole, and companies entered an era of competing on the premise of the world market, not just their home market. World nominal GDP has grown substantially over the past two decades, and maritime cargo volumes have kept rising. The market's expansion has advanced not as an abstraction but concretely, in the form of growing logistics volumes.

Yet it is hard to say Japan captured this growth in the world market well. Judging Japan by nominal-GDP ranking alone is not accurate, but the relative decline in Japan's presence while the world grew markedly cannot be overlooked. The problem is not merely a business cycle or a temporary currency effect. The essence of today's stagnation lies in Japan's industrial structure being slow to adapt to global growth.

Behind this lies Japan's own success story in manufacturing. For a long time, Japan produced high-quality, highly reliable products through vertically integrated production systems and shop-floor fine-tuning (suriawase). This approach was extremely strong in fields such as automobiles and industrial equipment, where built-in quality and shop-floor responsiveness translate directly into competitiveness. Indeed, Japanese manufacturing built international trust through high quality and stable operation.

But in markets shaped by globalization and digitalization, the premises of competition changed. What mattered became whole-system optimization through standardization, rather than the accumulation of local optimizations. Those who set specifications, unify interfaces and hold mechanisms that can connect different companies and regions became able to capture the whole market. This is not to deny Japan's shop-floor strength. Rather, it means we have entered an era where shop-floor strength alone cannot win.

One country that has adapted to this change is China. Starting from a vast domestic market, it has linked design, manufacturing, logistics and sales, raising competitiveness with scale as its weapon. The rival is no longer a single product. Competition now plays out across the “entire industrial system”: standards, supply networks, mass-production capability, price and speed. Fighting on a mere extension of the conventional approach tends, inevitably, toward a war of attrition.

That said, it is not that Japan lacks strength. The ability to build in quality, to keep operations stable on the floor, and to respond finely to customer requirements remains a major advantage. What matters is not to use those strengths as an extension of the domestic market, but how to layer them on top of global standards. Accept the global standard, and on top of it implement the value of Japanese quality, operation and support. Is this not the realistic direction Japanese manufacturing should take from here?

What is being asked now is not only whether products are good or bad. It is whether we can update our very way of winning, on the premise that the world's rules have changed.

First published in Automation Shimbun, series part 1.