Global Focus: Supply Chain Management in Japan

Ahead of &#8212 and behind &#8212 the curve


By Masahisa Inagaki and Kazuyuki Kuroda

Compared to previous decades, Japan is less likely to be the main topic of a discussion about the Far East. More and more, the focal point is China — Asia's new hub for emerging markets and cost-effective sourcing and manufacturing opportunities. Of course, it may not be long before some other Pacific Rim country becomes the world's theme du jour. Change happens.

Nevertheless, Japan is still one of the most enlightened, productive and influential countries in the industrialized world. It also is a leading participant in the migration of world business leaders toward global operations — the integrated designing, sourcing, manufacturing, distributing, selling, marketing and supporting of products and services globally.

Simply put, Japan is a supply chain superpower — albeit one facing a host of unique challenges. Following is a brief review of the trends and hurdles that are molding the supply chain profile of 21st century Japan, along with a few recommendations for U.S. and European companies seeking to leverage Japan's assets to further their own global missions.

Supply Chain Trends

As a long-time world leader in manufacturing, the perspectives and actions of Japanese companies are heavily influenced by the need to source components and materiel from "lower-cost countries" — long-time venues such as China, as well as emerging sources such as Brazil, Russia and India. Japanese companies also recognize that local markets are largely saturated or mature, and that commoditization has driven down price points. This is why most have sought out new, global markets, many of which are the same regions whose fortunes were changed by global sourcing and procurement.

The bottom line here is that Japan's most promising manufacturing and supply venues may also be its newest markets, and many of these are closer to Japan (and thus more economical) than they are to North America or Europe. Moreover, Japanese organizations actually have more experience with this global cycle of sourcing and market-making than business entities in other parts of the world. Consider its longstanding motives for North American manufacturing: shorter supply chains and the good graces of U.S. consumers. Chances are high that the Japanese car you buy in the United States was actually built in the United States.

Growing numbers of mergers and acquisitions are another influencer of Japanese supply chain strategy. M&A is less of a tradition in Japan than in many other countries; but it's becoming more and more common for Japanese companies in a variety of industries to join forces with similarly focused organizations.

Japanese companies with particular involvement in M&A include pharmaceutical, retail and electronics and high tech. M&A in financial services is another rapidly expanding area. These industries, as well as others in Japan, often are seeking an inside track for serving growing economies, and they recognize that mergers/acquisitions can be the best way to acquire this global presence quickly. Increased M&A activity in Japan also reflects several other realities:

  • As more of their international competitors join forces, the more pressure there is for Japanese companies to seek similar levels of scope and scale.
  • The ability to maintain high levels of organic growth is increasingly limited in Japan, as it is throughout the industrialized world.
  • Local relationships are typically needed to ensure global operational excellence, and mergers and acquisitions can be the best way to make those relationships happen.
  • Somewhat relaxed regulation of M&A is expected in Japan in the near future.
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