Japan at the Crossroads (Where We've Been Before)

Japan is an interesting economy. It defies description as a manufacturing or knowledge economy because it spans these two descriptions and more.

This NY Times article points out something that I think is an inconsistency with modern Japanese attitudes. Specifically, the Japanese still see themselves as masters of manufacturing, with that being a valuable industry even beyond their knowledge and service assets.

I think that Japan needs to wake up to the reality that manufacturing excellence is not quite the thing it used to be. It used to be that the quality of goods could be determined, prior to having experience with those goods, simply by knowing what the country of origin was. Something from Western Europe was good, Eastern Europe bad. Japan good, China bad. North America good, South America bad.

Times have changed. When a modern company moves manufacturing, they move manufacturing know-how as well. China, South America, India and Eastern Europe are all becoming skilled at manufacturing high quality goods. The one time manufacturers are switching wholesale to enterprises based on knowledge and service.

The debacle with the batteries shows how much of a liability manufacturing can become to an economy that makes such high demands of quality simply in order to differentiate itself from the competition. When the perception of high quality is threatened, the basis for any price premium disappears. Japan is facing that threat because the quality margin between China and South Korea has been quickly shrinking in the last few years.

But Japan's real asset is something other than manufacturing entirely - its asset is design and engineering and perhaps this latest crisis of quality will force Japan to realize and focus on this. Japan is in for some rocky times ahead as they are forced to shift entirely to a knowledge and services economy, but this is the inevitable and proper direction to take.