Japan’s Manufacturing Industry

July 2010

Ministry of Economy Trade and Industry

A look at the situation of the global market shows that emerging countries have

increased their share of the global GDP as a result of population growth and

rising income. Emerging countries have also increased their presence as

both production bases and markets.

Although manufacturing industry has led the Japanese economy and has been

responsible for 90% of Japan’s exports, Japan has not fully taken advantage

of business opportunities in growth markets around the world.

The Condition of Japan’s Manufacturing Industries①

1

0

10

20

30

40

50

60

70

80 （％）（％）

Remarks: On a U.S.$ basis. Major Asian nations/regions excluding China refer to ASEAN, India,

South Korea and Taiwan.

Source: IMF, “World Economic Outlook Database, April 2010”

[Changes in Nominal GDP Share of World’s Major Regions]

2000 2008 2015 (forecast)

Developing

countries

Emerging

countries

28％

38%

46%

EU

United

States

JapanChina

Other regions

Major Asian nations,

excluding China

RussiaBrazil

0

1

2

3

4

5

6

7

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

(1990 = 1)

Japanese

exports

(Year)

U.S. exports

German exports

South Korean

Exports

Global exports

[Growth of Asian Emerging Countries and Increase in Value

of Exports by Major Countries]

Source: IMF ”World Economic Outlook”

Japanese exports have not fully benefited from an

expansion of Asian emerging markets.

Combined GDP of China,

NIEs and ASEAN

Combined GDP of U.S.

and EU

-0.25

-0.2

-0.15

-0.1

-0.05

0

0.05

0.1

0.15

0.2

0.25

0.3

U.S. EU Japan South Korea

China ASEAN

1990

2000

2008

In China and other Asian countries, production is increasing as they have adapted to the combination of

various production technologies.

With regard to intermediate goods, for which Japan is said to be maintaining a strong competitive edge,

South Korea and China have gradually been raising their competitiveness, and their industrial

infrastructures are becoming more advanced due to progress in the international division of labor.

In addition, Japanese companies are encountering challenges such as severe competition with other

Japanese companies, and technology leakage.

2

0

5

10

15

20

25

30

35

40

909192939495969798990001020304050607

U.S.

Asia (9 countries)

China/Hong KongEU

Japan

(Year)

(%)

[Changes in the Competitiveness of

Manufacturing Industries of Countries and

Regions (changes in the share of total value

added by manufacturing industries of countries

and regions)]

Source: U.S. National Science Foundation statistics

While the shares of Japan and the

United States declined, those of

emerging Asian countries grew.

[Changes in the Export Specialization Index

of Intermediate Goods]

Remarks: Export specialization index＝（Exports of

intermediate goods − imports／（exports of intermediate

goods ＋ imports)

Source: Research Institute of Economy, Trade and

Industry, “RIETI-TID 2009”

31%

5%

49%

1%

2%

0%

3%

18%

10%

0%

12%

31%

12%

24%

12%

15%

Japanese employees (regular employees)

Japanese employees (non-regular employees)

Retired Japanese employees

Local employees (regular workers)

Local employees (non-regular employees)

Retired local employees

Employees of joint ventures or partner companies

Employees of customer companies

Domestic bases (n=112)

Overseas bases (n=107)

39%

49%

16%

30%

57%

19%

Leakage through people

Leakage through products

Leakage through technological data (leakage of blueprints,

production data, etc.)

Domestic bases (n=287)

Overseas bases (n=351)

[Pathway of Technology Leakage]

(n=896)

Source: Survey by the Ministry of Economy, Trade and Industry

(January 2010)

[ Biggest competitors in emerging markets ]

China,

26%

South Korea /

Taiwan,

18%

Other emerging nations 6%

United

States,

6%

Japan,

29%

EU,

15%

The Condition of Japan’s Manufacturing Industries ②

Regarding our country as a manufacturing base, due to the development of

emerging countries, maturation of the domestic market and the relative rise of

domestic production costs, Japanese companies have been accelerating

overseas operations , increasing overseas production percentages and

manufacturing jobs have been decreasing.

As this trend continues, it may harm Japan’s economic growth, breaking

employment and technological clusters.

800

900

1000

1100

1200

1300

1400

1500

1600

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08 (年)

(万人)

0

5

10

15

20

25

94 95 96 97 98 99 00 01 02 03 04 05 06 07 08

(%)

(年)

※ only regular employment

7.9%

17.0%

149,600,000

107,300,000

3

1,113

788

4,016

5,865

2,917

1,900 2,212

585

406 3810

1,000

2,000

3,000

4,000

5,000

6,000

01 02 03 04 05 06 07 08

North America Europe

Whole Asia China

ASEAN10 South Korea/Taiwan

Others

(Number of companies)

(FY)

China: 1,393North Amrica: 1,276Europe: 824

South Korea/Taiwan: 612

[Changes in Number of Japanese Companies’

Local Subsidiaries (manufacturing sector)]

Source: METI, “Basic Survey of Overseas

Business Activities”

[Overseas production percentage]

Source: METI, “Basic Survey of Overseas

Business Activities”

[Manufacturing jobs]

Source: Labor force survey

The Condition of Japan’s Manufacturing Industries ③

Japan’s manufacturing industry needs the following in order to continue leading the

economy:

Demand from emerging nations, which are growing swiftly and suddenly

A strengthened industrial base for Japan’s manufacturing industry, in order to

ensure that the country’s position can be strengthened and maintained as a

supply base for high-level parts and products.

Future Direction and Action Plan for Japan’s Manufacturing Industries I

Future Direction for Japan’s Manufacturing Industries

Ensure demand from emerging nations, which are the new frontier of growth.

①Upgrading of development and production systems for products aimed at emerging

markets, and support for creation of sales channels

• Strategy for introducing products optimized to the needs of local markets

• Development of brand in emerging country markets

• Utilization of financial support such as JBIC, NEXI

• Public/private sector partnerships to enable planning/promotion of social infrastructure

development

②Work on improving profitability

• Prevention of technology leaks (raise awareness within companies, etc.)

• Strategic standardization (black boxes for core technologies, multi-purpose components and

open interfaces, etc.) in support of reformation of business models

Action Plan I – Ensuring demand from emerging nations

4

Action Plan for Japan's Manufacturing Industries II

Japan’s manufacturing industry needs to maintain its position as a center for domesticresearch and product development, as well as a manufacturing location for high-levelcomponents and products, and to continue to accumulate both employment andtechnical ability so as to continue to provide high added value. In order to do this, it isvital that we strengthen the industrial base of the manufacturing industries.

①Upgrade the domestic competitive environment• Review corporate taxes based on international standards, and improve the competitive environment

through a research and development tax system, etc.• Appropriate response to the problem of global warming, with consideration given to international

competitiveness

② Measures to increase profitability through improvements to Japanesecorporations’ excessive competitiveness

• Complete overhaul of support strategies for business restructuring, co-habitation, consolidation, etc.,based on an understanding of the reality of globalization.

• Support for strategic standardization and other improvements to business models• Prevention of technology leaks (increased knowledge of business confidentiality management policies,

reorganization of claims procedures, improved corporate awareness, etc.)• Strategic and effective intellectual property rights within companies

③Development and strengthening of next-generation growth industries• Prioritized distribution of domestic resources in support of technical development and rollout of next-

generation growth industries, etc.• Promotion of activities to attract companies engaged in next-generation growth industries (subsidies for

land acquisition, etc.)• Industrial support for social needs such as environmental and ageing society issues (systems reform,

fiscal support, etc.)

Action Plan II – Strengthening the industrial base for Japan’s manufacturing industry

5

◆ High-level products

① Vehicles

② Aircraft

③ Robots

◆ High-level components

④ Fine Chemicals

⑤ Carbon Fiber

High-level products and components

6

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1930 1960 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008

North America

Europe

Japan

Emerging market

(Number of vehicles in 10,000s)

（年）

16.2mil.

15.6mil.

5mil.

31mil.

67.96mil.（2008）

◆ Vehicle industry

【World market】

2004 2005 2006 2007 2008

Japan 30.1% 30.8% 31.0% 31.3% 32.0%

Europe 12.3% 13.1% 16.1% 19.6% 23.5%

U.S. 28.9% 28.2% 26.7% 25.6% 23.1%

China 3.5% 3.7% 4.3% 5.0% 5.4%

【The transition of world market share】

7

Japan’s technical strength is widely recognized and Japan’s auto companies

sell globally, especially in emerging countries. Japan’s auto companies

maintain about 30% global market share.

As trends toward green vehicles has been accelerated in developed markets,

we formulated the Next-Generation Vehicle Plan 2010.

Next-Generation Vehicle Plan 2010 (Outline)

next-gen. vehicle development and

production

Secure battery R&D and technology

Secure rare metals and build resource recycling

systems

Install 2 mil. normal chargers &

5,000 quick chargers

vehicles with systems (smart grid, etc.)

strategic international

standardization

Structural change in the auto market External factors affecting the auto industry

Six Plans

• Set diffusion targets (for 2020/2030)-Next-generation vehicles account for up to 50% in 2020

-Advanced eco-friendly -vehicles (next-generation vehicles + eco-friendly conventional vehicles) account for up to 80% in 2020

• Diversify fuels• Higher-value-added parts• Promote the siting of low-carbon industries

• Improve performance of lithium-ion batteries

• Develop post-lithium-ion batteries

• Achieve economies of mass production by promoting EVs

• Create an environment for secondary use of batteries

(Upstream)• Strategically secure rare metals

(Middle course)• Develop batteries and motors free of rare metals

(Downstream)• Establish battery recycling systems

• Build infrastructure intensively and systematically during the market preparation phase-Mainly in EV/PHV towns

• Pave the way for full-scale diffusion-Compile EV/PHV town best practice handbook

-Collaborate with the private sector (CHAdeMO Association)

• Create new business models in EV/PHV towns.

• Verify systems through the Next-Generation Energy and Social System Demonstration program.

• Promote international standardization and business development based on the verification results

• Establish international standards for battery performance and safety evaluation methods.

• Establish international standards for charging connectors/systems.

• Enhance public-private organization for standardization.

• Develop human resources for standardization

Targ

ets

Ac

tio

n p

lan

Overall plan Batteries Rare metals Infrastructure Systems International standards

Great changes in the competition

environment

• Alliance based on environmental technology

Energy constraints

• High oil prices in the medium-to-long term

Global warming prevention

• Target of reducing GHGby 25% from the 1990 level by 2020

New industry

• Making EVs and batteries the growth driver

- Rapid growth of emerging markets and trends toward green vehicles in developed markets

更なる燃費志向市場ごとに異なるパワートレインの

可能性

超低価格車の出現

①先進国市場・ 成熟した安定市場・多様化するユーザーや社会ニーズ

②新興市場・ 経済発展に伴い自動車購買人口が増加

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

1930 1960 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008

北米

欧州

日本

新興市場

（万台）

（年）

1620万台

1560万台

508万台

3100万台

6,796万台（2008年）

Battery R&D Target

(set in 2006)

Resource Strategy

Roadmap

Infrastructure

Development Roadmap

International

Standardization Roadmap

(Number of vehicles in 10,000s)

67.96 million vehicles (2008)

Emerging markets

Japan

Europe

North America

31 mil.

5.08

mil.

15.6

mil.

16.2

mil.

(2) Emerging markets

(1) Developed

markets

Emergence of

ultra-low-price

vehicles

Trends toward

greater fuel efficiency

Potential need to use

different-power trains

for different markets

(Year

)

- Increase in

the vehicle-buying

population, along

with economic

development

- Mature, stable

markets

- Diversifying users

and social needs

Necessity of advanced eco-friendly vehicles

Next-Generation Vehicle Plan 2010 (Diffusion Projections for 2020 and 2030; Government Targets)

Diffusion projections assuming private-sector efforts

(scenario where auto makers make the utmost efforts to

improve fuel efficiency and develop next-generation

vehicles) were made.

Next-generation vehicles will account for less than 20% of

new vehicle sales in 2020 and 30-40% in 2030.

The government has set diffusion targets to pursue for

each type of vehicle for accelerating the spread of next-

generation vehicles.

Next-generation vehicles should account for up to 50% of

new vehicle sales in 2020.

To achieve this target, the government should provide

effective incentives.

Diffusion projections by type of vehicle (with private-sector efforts) Diffusion targets by type of vehicle (government targets)

HV, EV, PHV, FCV,

CDV, CNG, etc.

Future conventional

vehicles whose eco-

friendly features are

excellent in light of the

technical standards of the

time

Next-generation

vehicles

Advanced eco-vehicles

(“post-eco-vehicles”)

+

• Only 1-2 changes expected by 2020Expected model changes

• Continued dominance of conventional vehicles in

international, especially emerging, markets.

Secure international competitiveness

• High risk involved in focusing on specific technologies, due

to variations in diffusion projectionsRisk for auto makers

• Even if green vehicles are available, whether to buy them depends on users.

Higher costs arising from the use of advanced

technologies

• Apr. 2009: Eco-vehicles account for 42.5% (next-generation vehicles 5.7%)

• Feb. 2010: Eco-vehicles account for 73.1% (next-generation vehicles 9.3%)

Effects of eco-friendly-vehicles subsidies and

tax breaks

The government seeks to make advanced eco-friendly

vehicles account for 80% of new vehicle sales in 2020,

provided that effective policy support is offered.

2020 2030

Conventional vehicles 80% or more 60 - 70%

Next-generation vehicles Less than 20% 30 - 40%

Hybrid vehicles 10 - 15% 20 - 30%

Electric vehiclesPlug-in hybrid vehicles

5 - 10% 10 - 20%

Fuel-cell vehicles Miniscule 1%

Clean diesel vehicles Miniscule - 5%

2020 2030

Conventional vehicles 50 - 80% 30 - 50%

Next-generation vehicles 20 - 50% 50 - 70%

Hybrid vehicles 20 - 30% 30 - 40%

Electric vehiclesPlug-in hybrid vehicles

15 - 20% 20 - 30%

Fuel-cell vehicles - 1% - 3%

Clean diesel vehicles - 5% 5 - 10%

Next-Generation Vehicle Plan 2010 (Roadmap)

Resource Strategy Roadmap

International Standardization Roadmap

Infrastructure Development Roadmap

Battery R&D Targets (set in 2006)

(1) Development of advanced lithium-ion batteries (FY 2007-2011)

· Aim to improve the performance, and reduce the cost, of lithium-ion storage batteries as the

power

source of hybrid and electric vehicles.

· FY 2010 budget: ¥2.48 billion (FY 2009 budget: ¥2.61 billion)

(2) Development of innovative batteries (post-lithium-ion batteries)(FY 2009-2015)

· Aim to elucidate the reaction mechanism of the storage battery through comprehensive joint

studies by government, industry and academia ,and become the front-runner in post-lithium-ion

battery development.

· FY 2010 budget: ¥3 billion (FY 2009 budget: ¥3 billion)

* Need for flexible actions according to international trends and technical

development

2006Improved battery

(2010)Advanced battery

(2015)Innovative battery

(2030)

Commuter EVs for limited use

High-performance HVs

Commuter EVs for general use

Full-fledged EVs

Plug-in HVs

Led by private sectorGovernment-

industry-academia collaboration

Universities & research institutes

Development structure

Performance

Cost

Small EVs for power companies

1 1 1.5-fold 7-fold

1 1/2 1/7 1/40

Led by private sector

Fuel-cell vehicles

Secure rare metals by forming a mutually beneficial relationship (infrastructure building, regional development, industrial promotion, human resource

development, etc.) with resource-producing countries through a nationwide effort

Rar

e M

etal

Fo

rum

fo

r p

arti

es c

on

cern

ed t

o s

har

e in

form

atio

n

2 million normal

chargers

5,000 quick

chargers

Installation targets

Source: 2009 June, ”Current Market Outlook 2009-2028”, Boeing

The number of fleet will double in

the next 20 years

(29,000 new deliveries and $3,220

billion market value)

29,000 new deliveries and $3,220 billion market

value from 2008 to 2028 in the passenger plane

market

Japan35%

Others65%

Share of Japanese manufacturers in the new B787 construction

Mitsubishi Heavy Industries

Kawasaki Heavy Industries

Fuji Heavy Industries etc.

【Ｂ７６７】 【Ｂ７７７】

＜ワークシェア＞ ２１％

＜日本担当部位＞

胴体、中央翼、主脚扉、貨物扉等

＜ワークシェア＞ １５％

＜日本担当部位＞

胴体、貨物扉、主脚扉

ワークシェア等の推移ワークシェア等の推移

＜ワークシェア＞ ３５％

＜日本担当部位＞

主翼、胴体、中央翼 等

【Ｂ７８７】【Ｂ７６７】 【Ｂ７７７】

＜ワークシェア＞ ２１％

＜日本担当部位＞

胴体、中央翼、主脚扉、貨物扉等

＜ワークシェア＞ １５％

＜日本担当部位＞

胴体、貨物扉、主脚扉

ワークシェア等の推移ワークシェア等の推移

＜ワークシェア＞ ３５％

＜日本担当部位＞

主翼、胴体、中央翼 等

【Ｂ７８７】

①Japanese manufacturers account for 35% in the new B787

construction, which is the most fuel-efficient aircraft of its

type in the world.

②Taking charge of the Main Wing

・1st time for Boeing to outsource the Main

Wing of a passenger plane

Cf.1) B787

•20% increase in fuel efficiency compared to B767 by drastic decrease in

weight, using carbon fiber composites in 50% of the aircraft.

•firm orders for 866(May 2010) are the fastest-selling pace in the history of the

airliner.

Cf.2) Transition of Construction Share of Japanese Manufacturer

•Steady Increase in Construction Share (B767：15％→B777：21％→B787：35％)

Transition of the number of world passenger plane

0

5000

10000

15000

20000

25000

30000

35000

40000

2008 2028

Fleet

New

Deliveries

construction share of Japan

◆ Aircraft

◆ Robots

Robot production has reached an almost industrial level . Based on shipments,

Japan’s robot makers have more than 70% of the global market .

Due to declining labor forces, increases in workloads and demands to improve

quality of products &/or services, it is highly expected that next-generation robot

technology will improve both industrial productivity and the quality of life of people.

Source：Japan Robot Association, IFR SD 「World Robotics

2009」

Global shipments of industrial robots

0

2

4

6

8

10

12

14

2001 2002 2003 2004 2005 2006 2007 2008

t

e

n

t

h

o

u

s

a

n

d

その他

日本

61% 71%

78% 78% 70% 72% 71% 70%

other

12

Robot production is now a 700 billion-yen

market & the value will increase to 2.9 trillion-

yen in 2020 and 9.7 trillion-yen in 2035.

○Life and wellness area

○Public and disaster prevention area

○Manufacturing area

Japan

Sales of major products and components,

along with Japan’s share of the global market (2007)

<Fine chemicals>

Japan’s chemical companies maintain large shares in the chemical material market, which

is itself growing rapidly with technology innovation. Although each market is not so big,

maintaining strong shares in each core materials market brings the Japan’s fine chemical

industry strong competitiveness. For example, Japanese companies has a huge share in

each lithium-ion battery component market.

◆Fine Chemicals

14

◆Fine Chemical

【Lithium-Ion Battery Components】 Global production （millions of Yen）Share of the global market

（Source）2007 2010 Battery Market :

Comprehensive Survey for Current Aspect FUJI KEIZAI Co.,Incand Estimation by Chemicals Division, METI

0

50,000

100,000

150,000

200,000

250,000

2006年 2008年 2014年（見込）

Cathode material

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

2006年 2008年 2014年（見込）

Anode material

Japan83%

others17%

Japan100%

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2006年 2008年 2014年（見込）

Separator

0

20,000

40,000

60,000

80,000

100,000

2006年 2008年 2014年（見込）

Electrolyte solution

Japan69%

Others31%

Japan 79％

Others

21％

Belgium16%

China6%

U.S.2%

others9%

Japan67％

Japan73%

US23%

others4%

Japan72%

US26%

others2%

Japan

81%

others19%

(possible)

(possible)

(possible)

(possible)

Japanese enterprises maintain international competitiveness for high-

value-added materials such as carbon fiber and aramid fiber It is necessary

to expand the market of these high-value-added materials in the future.

15

◆ Carbon fiber

0

10

20

30

40

50

60

70

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

千ﾄﾝ／年

Industrial

Aerospace

Sports

②Market transition of carbon fiber

As is lightweight and tough, the market will increase especially for industrial use.

①World market share of carbon fiber

Japanese manufacturers represent about 70% of the market.

Toray group,

Toho Tenax group and

Mitsubishi Rayon group

69%

Other overseas

manufacturers

31%

1,000t /year