Made in Japan: What Went Wrong?

In the past, Japanese products enjoyed a strong reputation in the global market for their quality and durability. This reputation stemmed from the technological and developmental capabilities of Japanese manufacturers. These companies believed that if they made good products, consumers would naturally follow.

As a result, people thought that Japanese products were reliable and unlikely to break down. When purchasing a high-quality item, many would choose a Japanese brand. Companies like Sony, Nikon, Panasonic, and Canon became synonymous with luxury. It is well known that Steve Jobs, the founder of Apple, modeled his company on Sony.

Product Longevity

However, each electrical product sold these days is expected to have a relatively short lifespan. Home Electric Appliances Fair Trade Conferences, authorized and supervised by the Ministry of Economy, Trade and Industry, have set a minimum retention period for parts. This defines the duration during which manufacturers are obligated to retain repair components.

For example, the parts availability period for televisions is eight years. In other words, manufacturers are no longer obligated to repair the product after eight years.

According to a survey of consumption trends released by the Cabinet Office in 2023, washing machines are replaced every 10 years, refrigerators every 13 years, and televisions every 11 years in Japan, with 60% of all replacements due to breakdowns. The former notion that "Japanese products do not break" has been largely shattered.

The Problem of Overconfidence

A number of Japanese companies have faced difficulties, including Sharp, once the top LCD TV manufacturer. Sharp was overtaken by South Korean and Taiwanese counterparts and eventually absorbed by a Taiwanese company.

Toshiba failed in the nuclear power business after acquiring Westinghouse Electric Company in the United States. It was eventually forced to sell off even its strong sectors.

The common thread among these companies was an overconfident assumption that if they made good products with their new technologies, consumers would follow. This likely led them to neglect the analysis of overseas competitors and the ever-changing market.

Failed Strategies in Emerging Markets

In the past, large billboards advertising Japanese companies like Panasonic and Canon were a common sight along airport roads in Asia and Latin America. Before long, however, these ads were replaced by those of South Korean companies.

It has been several years since major Japanese companies began entering emerging markets, but they have been slow to produce significant results. While they were often pioneers, many have ultimately been overtaken by competitors from other countries.

A report titled "How to Win in Emerging Markets: Lessons from Japan" (Harvard Business Review, May 2012) identified four reasons why Japanese companies have struggled to maintain a leadership position in emerging markets.

1. Distaste for the Middle and Low-End Segments

While Japanese companies specialized in high-end products, South Korean companies focused on the middle and low-end segments, which were in high demand in local markets.

For example, a Japanese TV manufacturer failed to gain market share in a country where cathode-ray-tube TVs were the norm. The company focused on selling the latest flat-screen TVs, which did not meet local demand.

2. Aversion to M&A

Japanese companies were often unfamiliar with mergers and acquisitions (M&A), especially in the context of cross-border transactions. As a result, unlike their Western counterparts, they engaged in acquisitions with unclear strategic objectives. For example, Western manufacturing companies strategically acquired key firms in emerging market countries, whereas Japanese companies were less effective in pursuing such strategies.

3. Lack of Commitment

In contrast to Japanese companies that entered the market earlier but made smaller investments, South Korean manufacturers that entered the market later invested heavily. They also introduced products that were in high demand in the local market.

4. Lack of Talent

Japanese firms prioritized deploying human resources from their headquarters in Japan to developed Western countries, rather than to emerging markets. Furthermore, they were slow to localize their pay raise and promotion systems for locally hired staff in these markets.

This report was published in 2012, meaning that more than a decade has passed since then. During this time, Japanese companies must have made efforts to improve their performance. However, they have paid a heavy price for the business they lost, falling behind latecomers despite having once been pioneers in these markets.

Reviving Japan's Semiconductor Industry

The environment surrounding Japanese companies is extremely challenging these days. Will they ever regain their former glory? Currently, both the public and private sectors in Japan are working together to seek new opportunities in the semiconductor industry.

In the past, Japan's semiconductor industry dominated the world market. In 1988, Japan and the US accounted for 50.3% and 36.8% of the global semiconductor market share, respectively. Six Japanese companies, including NEC and Toshiba, were among the top 10 companies in terms of annual sales.

However, after the 1986 Japan-US Semiconductor Agreement, which the US pressured Japan into signing, the share of foreign-made semiconductors in the Japanese market increased from 10% to 20%.

As a result, Japan's semiconductor industry experienced a significant loss of competitiveness. Furthermore, the players in the semiconductor market have changed dramatically since then.

Subsequently, semiconductor miniaturization progressed rapidly worldwide. Today, the most advanced semiconductors in mass production are 3 nanometers (nm), produced by Taiwan's TSMC and South Korea's Samsung.

Kumamoto Semiconductor Plants

Both TSMC and Samsung, along with Intel, are set to begin mass production of 2 nm chips in 2025. Currently, however, Japan's technology level for mass production lags at 40 nm.

Amid these developments, Japan Advanced Semiconductor Manufacturing (JASM) has completed the construction of its first plant in Kumamoto, Japan. Taiwan's TSMC holds the majority share in the company, while Sony Semiconductor Solutions, Denso, and Toyota hold minority shares. The plant has recently begun mass production of 12 to 28-nm semiconductors.

Construction of a second plant has also begun, with plans to ship 6 to 12-nm semiconductors by the end of 2027. The consortium of TSMC and the three Japanese companies has invested ¥3 trillion JPY (about $19 billion USD) in both plants, while the Japanese government has invested ¥1.2 trillion ($7.6 billion).

Government Initiatives

On the other hand, Rapidus plans to begin mass production of 2 nm semiconductors in April 2027. Rapidus is a company established by the Japanese government with an investment of ¥920 billion ( about $5.8 billion). It is also supported by Sony Group, Toyota Motor Corporation, Denso, Kioxia, NTT, Softbank Group, NEC, and MUFG Bank, which together have invested ¥7.3 billion ($46 million).

This new government-led initiative for semiconductor mass production is projected to require a further ¥4 trillion (about $25.4 billion) in funding. The technology behind this plan is provided by IBM, which developed a 2 nm semiconductor prototype in May 2022.

If Rapidus succeeds in developing this 2 nm technology, Japan's semiconductor development capabilities could catch up with the world's top players. However, TSMC already has 1.6 nm production technology, and the world’s leading companies are planning to mass-produce 1 nm semiconductors by 2026–2027.

Looking Ahead

The Japanese semiconductor industry, once at the forefront of the global market, has stalled significantly and lost its market presence. However, the Japanese government and the semiconductor industry now appear to recognize a great opportunity for a comeback.

Can the Japanese semiconductor industry regain its former glory in the global market? It is no exaggeration to say that this depends on the success of the two semiconductor plant construction projects currently underway in Japan. It also depends on Japan's ability to develop technologies beyond the 2 nm threshold in the future.

The Japanese government has made substantial investments in these two projects, with Rapidus, in particular. However, it is concerning that there have been few successful examples of government-led projects in Japan to date.

Author: Yoshifumi Fukuzawa

Yoshifumi Fukuzawa is a business consultant and former lecturer at Waseda University.