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September 4, 2006

Japan and Asia in the 21st Century: Beyond Coexistence

Toshihiko KINOSHITA (Professor, Waseda University)

This article is based on a Japanese summary of Prof. Kinoshita's presentation at Nippon Keidanren's Higashifuji Summer Forum, published in the August 10, 2006 edition of Nippon Keidanren Times.

Asian economies have been steadily recovering since their devastation by the financial crisis in 1997 and 98, and are expected to achieve high economic growth in the future so long as peace is maintained in the region. Among them, China and India have emerged as Asia's growth centers that are attracting businesses from all over the world. For the time being, China seems to be the main battleground, where even giant corporations could drop out with wrong strategies. At the same time, some small businesses in Asia might be able to grow on their strengths to become global companies.

China will be facing a number of serious problems such as (1) rapid explosion of demand for energy and other natural resources, (2) diversification of values and opinions due to expanding middle class, (3) widening disparity between coastal and inland regions or between urban and rural areas, (4) emergence of excessive nationalism, (5) frictional risks due to overproduction and international dumping because of failing market adjustments, etc. We should take into consideration a possible political change in China in the future as a result of these problems.

As for Japan, it can be said that the economy has revived, but its presence in Asia seems to have declined, compared to the 1980s in particular. While people in Asia are generally welcoming the comeback of the Japanese economy, they are yet to understand Japan's new "hybrid-type" management model, and are rather attracted to more rapidly growing economies such as China and India. Japan's low presence may also be due to the fact that Japan's strengths nowadays lie in not so visible areas such as intermediate goods and manufacturing machineries. Other contributing factors include (1) negative attitude toward immigration of foreigners, (2) a high ratio of government debt to GDP, (3) low presence in the field of distribution and logistics in Asia, (4) changing image of ODA, etc.

Asia has grown to be quite important to Japan, as Japan's trade with East Asia has surpassed that with the U.S. and Europe in total value. Based on this fact, Japan is now trying to adopt an effective strategy to conclude EPAs (Economic Partnership Agreements) or FTAs (Free Trade Agreements) in East Asia, although it is not easy to negotiate and conclude such agreements with various Asian countries. However, it would not be too meaningful unless Japan could conclude high-quality EPAs, so it is important to sort out various issues, one by one, toward its strategic goal.

In China and India, currently there is severe competition over high-quality human resources. American and European companies have adopted strategies to invest in China and India that can now be expected to be global R&D centers, attracting businesses from all over the world. It is well known that there are basic differences in human resource management between Japanese companies and Western companies. While American and European companies in China and India tend to recruit high-level people locally for high salaries and actively utilize them for leadership positions, Japanese companies overseas would only make gradual adjustments in management based on their home-country style. In China and other Asian countries, there used to be some separation in the labor market between those whom Western companies would recruit and those whom Japanese companies would. But the market is changing rapidly these days, and it is becoming more and more difficult for Japanese companies to recruit and keep high-level human resources for themselves. Now Japanese companies must think of speeding up business localization, increasing PR investment, facilitating business-academia collaboration, etc.

It may not be easy for Japan to coexist with Asia, but there is no choice but to move forward, as the 21st century is the "century of challenge," full of potential as well as risk. Japan is running with China and India, constantly joined by America and Europe in Asia, where severe competition will prevail among Japan and other countries. Crucially important for every actor in Asia is to find a new integrated setting ("shikumi-zukuri") in order to respond globally as well as locally in the appropriate manner with a vision for the future. Japan could hardly survive if it depends only on competitiveness in production. Although Japan has its strength in manufacturing, it is important for Japan to try to appreciate and foster competitive areas of other countries and to grow together with them for mutual prosperity. Also Japan has strengths in environmental, energy-saving, and resource-saving areas as well as in the finance area and, therefore, should actively cooperate with Asian countries in these fields. Politically, Japan must maintain its alliance with the U.S., while adopting a policy to coexist with Asia, and publicize such as policy as much as possible. As for the so-called "East Asian Community," it will take a long time to form such a community, because the Asian region lacks a kind of common ground that the EU nations have possessed. Under such circumstances, what Japanese companies should do is strategic human resource acquisition and active network building, based on multicultural management.

(Translated by GLOCOM Platform)

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