no place is too safe, not even Japan!

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Weak political situation made matters worse. Slow-coach mechanism ensured that restoration of the banking system took years to take shape. The revaluation of the yen against all major currencies across the world post 1991 also meant that the Japanese style of export (of selling below marginal costs to garner market share) became redundant due to increased prices of exports. Manufacturing companies like Sony, Toyota, Honda and Mitsubishi started over-producing which backfired. That was one of the causes for the Nikkei crash during the years post-recession. The 1989 recession in Europe and US made things worse for the Japanese giants.

The over-investments by Japanese electronics and auto-giants were synonymous to the over-investments in tech-companies in US before the IT bubble burst in US in 1990s. With banks raising interest rates, thereby denying further ‘easy’ loans, the last option before Japanese companies remained reducing operational costs drastically. In search of lower production hubs, China suddenly became the darling for Japanese companies. This also remains the one major shift in corporate habits post 1991-recession. 2001 saw many Japs like Toshiba, Sony, Olympus, Honda, Kyocera et al announcing a shift in manufacturing of Playstations, TVs, cameras, motorcycles et al to low-cost China. As per a 2001 Nikkei Research report, 71% of 562 major Japanese manufacturers expressed they plan to shift production facilities to China. The 1993 level as Ronald Bevacqua, Senior Economist for Commerz Securities asserted, “China is eating Japanese lunch! More and more low-cost Japanese manufacturing is being shipped over there. Unlike the rest of Asia, China is doing high-end stuff as well.” Even Jesper Koll, Chief Economist, Merrill Lynch Japan added, “The reality is that the de-industrialisation is happening very rapidly in Japan. I can see the Nike model here, where you do the brand management in Seattle and the manufacturing in Indonesia. In Japan, you will do the brand management in Osaka or Tokyo and the manufacturing in China.”

Despite the cost-saving measures adopted for years, presently, the Nikkei hovers around the 12,900-mark. Compare this to the 38,915 mark it touched on December 29, 1989 and you’ll realise that the economy is still ‘just’ recovering from the destructive 1991 shock.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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