Challenges on the Road toward Reviving Manufacturing: Japanese companies lagging in localization

Japan is facing challenges in reviving its manufacturing industries, with the lagging localization in their overseas operations as the primary issue. What can be done to address this? Looking at the examples of other countries, we look to find suggestions for Japan's manufacturing industries to implement. In the February issue of the RIETI Report, we present the column "Challenges on the Road toward Reviving Manufacturing: Japanese companies lagging in localization" written by Faculty Fellow Kazuyuki Motohashi.

Motohashi first looks at the situation of reshoring in the United States, where a growing number of American manufacturers are bringing production back to the country. This case shows that the localization of production operations to match the market needs is the key to the revival of manufacturing in the global economy. Considering its decreasing population, Japan faces a more difficult situation, and expanding into the global market including emerging economies is the key to its manufacturing revival. However, Japanese manufacturers lag behind their U.S. and European counterparts in localizing overseas operations due to their tendency to pursue product development under the leadership of the headquarters in Japan. Motohashi states that this must change and that creative ideas with unique local tastes are indispensable, and he further asserts that accelerating the localization of manufacturing can be achieved by giving more authority to local subsidiaries and promoting local personnel to positions of authority. Finally, Motohashi looks at this from the perspective of the science-based economy and gives some business and policy suggestions.