Can Japanese business seek more opportunities with China?

Yoichi Funabashi, The Asahi Shimbun, Tokyo

During a recent visit to Shanghai, I had dinner with three senior managers of Japanese companies operating locally. The conversation centered on the changing business environment in China.

One said, "When I attended a dinner party the other day, I met a branch manager of a major Chinese bank. He went around the main table handing everyone his business card and asking for their support. Not long ago, people in his position wouldn't have bothered to make such a humble gesture. He asked to be referred to Japanese companies. Chinese companies have grown to be our rivals."

Another said, "I am impressed at the excellence and diligence of young Chinese workers. When we advertized for 10 openings at our local subsidiary, 1,069 people applied. In the end, we hired 10 workers for their English ability and 15 for their Japanese- language skills. People who went to Japan as working students are good at the language and are hungry to learn."

A Japanese print maker, which closed its Osaka factory, recently opened here, another said. In Japan, it paid an hourly wage of 900 yen or a monthly salary of 250,000 yen. "Here, it pays 15,000 yen a month, including overtime. With such a wide gap in labor costs, it wouldn't make sense to keep operating in Japan."

It is no surprise that Japanese companies are rushing to advance into the Chinese market. But this unprecedented move is causing anxiety to spread among Japanese businesses whose survival depends on how they fare in China.

The success of Fast Retailing Co., which operates the Uniqlo chain of clothing stores and triggered the rush, is viewed by many as the new business model. Uniqlo products are manufactured at 80 factories run by 65 companies in China. Those companies are commissioned with production by Uniqlo.

Makoto Hayashi, a fast retailing executive who oversees the Chinese operation, said "We started out in Shanghai when we first landed in China 10 years ago, but since then, we have kept shifting our factories to inland areas,". Shanghai, he said, "is rapidly transforming into a financial and high-tech center."

One of the company's strengths lies in the advanced technical support provided by experienced Japanese workers at local factories.

Koichi Kaneko, 62, who used to run a sewing factory in Yamaguchi Prefecture, fits the description. For the past year, Kaneko has worked part-time training Chinese workers at local factories.

"As far as individual workers are concerned, the technical level of their sewing has nearly peaked," Kaneko said. "All that is left now is to combine their skills systematically and manage them as a whole. Although we have interpreters, the Chinese workers are eager to learn Japanese. Technically, they have become more advanced than their Japanese counterparts in some areas."

Like Kaneko, a growing number of senior Japanese technical workers are moving to China to start afresh. Even though they want to pass down their skills to younger workers, few people in Japan show much interest. By contrast, there are countless young workers in China who are eager to learn. Looking at them makes me think of an aging father going out in search of a child for adoption.

Japanese technical workers in their 60s and Chinese technical workers in their 30s seem to have bonded well. There is an active talent bank in Shanghai of engineers and production control specialists who are retired or are about to retire from Japanese trading companies and manufacturers.

In Japan, there is a growing concern over the hollowing out of Japanese industries prompted by the trend to shift production locations to China. Some people even view China as a threat.

But unless Japan changes its traditional manufacturing systems, it cannot surpass China as a manufacturer. To begin with, Japanese manufacturers appear to be abandoning the tradition of manufacturing of their own accord.

Japanese manufacturers have been trimming their work forces, previously as part of streamlining efforts and now under the pretext of corporate restructuring. As a result, they have lost their ability to hand down traditional techniques to the next generation.

Is there no way to revive the Japanese tradition of manufacturing? The process should involve not only Japanese but also Chinese and people from around the world. Japan itself should aim at advancing manufacturing systems centering on research and development and designing of software and services. It should take advantage of China's energetic power and growth to revive Japanese economy and industries.

To Japan, China can be a threat or an opportunity. However, if expansion of China's domestic demand advances, Japan may find a second U.S. market next to itself.

Can Japan build a relationship with China so that it would present it with more opportunities than threats? We should come up with a business model that not only encourages individuals to start over or businesses to advance into foreign markets as a means of survival but a strategic one that aims at allowing Japanese and Chinese companies and individuals to enjoy coexistence and mutual prosperity.

If successful, Japan can use the energetic Chinese market as a springboard to accelerate its economic recovery after the "lost decade" -- just as it took advantage of the American market to rediscover itself and achieved postwar success.

Japan needs to look into what policy measures the United States took to reactivate its economy and industries during the 20-year period that Japan loomed as a threat to the United States. For example, it should look at the North American Free Trade Agreement and learn from it for future policy planning. This time, Japan is being chased by China. It should turn China into a favorable wind and run with it.

Japan has no resources or a key currency like the United States.

That is all the more reason it needs to hasten redevelopment of personnel and education.