[Outlook]Sticking to what you know

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[Outlook]Sticking to what you know

In Japan, investment in equipment and facilities is booming. The growth rate for this type of investment hit double digits recently, with manufacturing industries leading the trend. During the last decade after a burst of bubbles, Japan’s manufacturing industries seemed to have lost their growth engine. Many companies were transferred overseas and a hasty conclusion asserted that the era of manufacturing had come to an end. The same industries are now being revived.
For the past 30 years, the Honda Motor Co. has not built factories in Japan, but now it has announced plans to establish a factory in Saitama with an annual production capacity of 200,000 finished units. The company says the reason behind the move is to expand advanced production technology to the world. Fuel-efficient and high-energy vehicles can be produced efficiently only in Japan. Production technology will become more advanced during this process, so the company plans to transfer that technology to its factories worldwide.
It is not only large companies that want to use factories inJapan as bases to produce high-value items and develop new technology at the same time. Many medium- and small-sized companies have adopted this method as well.
Of course, labor costs are extremely high in Japan. However, among the many production factors, labor is increasingly becoming less important while technology is emerging as the crucial factor that defines competitiveness.
One thing to remember is that doing research does not directly lead to high technology. Only when combined with manufacturing technology does research enhance competitiveness. Research and production technology can be blended in factories in Japan.
The trend for Japanese manufacturers to build factories at home is not simply because times are getting better. Japan’s companies have sought ways to increase value despite hostile domestic conditions, such as shortfalls in demand and high production costs, and their efforts are finally paying off.
Meanwhile, Korea’s current situation is worrisome. Hardly any investments in equipment and facilities are expected this year. Investment in facilities by manufacturers is expected to shrink. If this is only because times are bad, there is no need to worry.
However, since the financial crisis in the late 1990s, investment in equipment and facilities has consistently decreased. For medium- and small-sized companies this trend is so serious that they are in a state of crisis.
If investment in equipment and facilities doesn’t take place, it is hard to expect long-term vitality in society. That’s why many demand the government design policies to encourage companies to invest and develop new products. However, a core problem lies somewhere else.
Recently, I visited a company for research. During an interview, an executive said the chairman of the company believes developing groundbreaking new technology is vital and that the company would spare no expense to make that happen.
However, off the record, he confessed problems. Unlike the founder of the company, the current chairman has little knowledge about manufacturing technology and little interest in manufacturing as an industry; in fact, he is planning to change the focus of the business.
The executive added that for people like himself who had been working in the field, it felt like Korea’s capitalists are on strike. What’s worse is I hear similar stories wherever I go.
Will it be possible for a company with no interest in manufacturing technology to succeed in developing new technology? Will it be possible for a businessman who cannot make his current business competitive to find another business with better prospects?
We are inclined to focus on fancy topics such as next-generation industries, growth engines and new technology while we are ready to discard factories and manufacturing technology all too easily.
In reality, there are no shortcuts. Honda, which is a synonym for innovation in Japan, sticks to its principle of looking at realities by focusing on real items in the field. In a bid to fuse production and research, the company made extraordinary personnel changes, switching the chief of a research center and the chief of production lines.
What we need most are not management strategies that appear in textbooks, but the tenaciousness to stick to one’s own business. Businessmen should try to become more competitive in their own fields, which is the right spirit of entrepreneurs. Then our society will regain vitality and our manufacturers will become truly independent, with our own technologies.

*The writer is a professor of economics at Saitama University, Japan. Translation by the JoongAng Daily staff.

by Woo Jong-won
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