Why Japan’s Automotive Sector Lost Its Competitive Edge

To most people in the world, Japan is the ultimate Asian model of industrialised success. After World War II, its economy rose spectacularly to become the second largest in the world, behind only the United States and surpassing the growth of any other nation within such a short time span. Western observers were curious about the Japanese model of industrialisation, perplexed that there is, perhaps, another way of running an economy instead of the tried-and-tested ways of capitalism.

But the last two decades have not been kind to Japan. Its economy suddenly stopped growing when overinflated asset prices crashed in the 1990s and never recovered. Real incomes have stagnated or even contracted. Government debt, accumulated from monumental public projects that are not necessarily beneficial to the people, is now one of the highest in the developed world. Where has that left its automotive industry?

Japanese automakers have always made their keep by mass producing affordable, dependable cars that people can literally count on. Its efficient, near zero-tolerance lean production process nearly put Detroit’s carmakers out of business. Let’s not discount the immense domination of Toyota Motor, holding the record as the largest automaker in the world in terms of volume until the tragic earthquake of 2011. Its business strategy is sound and seems to be working well even up till today. But in my opinion, much of Japan’s automotive sector has lost its competitiveness and innovative drive.

Just look at the latest Toyota Camry or Subaru Legacy sitting on showroom floors today. Design-wise, they are about as bland as they ever were, not even attempting to be innovative or desirable. No matter, some might say, as these cars are not meant to push the envelope of cutting-edge design – fair enough. But one cannot help but compare Japanese cars to their Korean counterparts, such as Kia and Hyundai, who are producing truly eye-catching automobiles – and they don’t need to push the envelope either. But in this competitive world, they are. Can Japan really rest on its laurels? Japan is lucky in the sense that its target market values reliability above all else, allowing it to continue selling its cars well – but when they start to desire more, then Japanese cars in general have precious little to offer.

The next discussion point about technology might surprise a few people. Japan is popularly known to be a technologically-advanced country, implementing the latest inventions from research and development into their daily lives much more quickly than in the western world. But is this really the case? I would argue otherwise. Other than the niche models such as the Nissan GT-R or the Lexus LFA, by and large bread-and-butter Japanese cars have fallen by the wayside on the technology front. The bestselling Corolla still soldiers on with a 4-speed gearbox, apparently doing just fine in the new millennium with technology that has already been phased out by most nearly all other automakers many years ago. Its engine, a 2.5-litre naturally aspirated engine, produces only 181bhp which is an improvement of only 2hp/L over the previous 2.4-litre engine. A base competing Passat, in Singapore’s context at least, can boast a dual-clutch gearbox and a turbocharged engine, being more efficient and as cheap at the same time. This might seem perplexing and difficult to accept to someone accustomed to thinking of Japan as an advanced country, but this is the reality.

What we don’t know about Japan is that it is in far more serious trouble than what most foreign observers would realise. After reading The Fall of Modern Japan by Alex Kerr, I began to draw parallels with Japan’s automotive industry. We all know that the Japanese are long-term planners, sometimes planning for decades ahead in terms of business strategy, R&D and investments. What we don’t see with the naked eye is that they are also inflexible in this vision. Once they have planned for something, they do not stop – they will continue on an onward march towards completing that goal, regardless of changing circumstances or cost. This insistence is part of their culture of refusing to concede that a mistake has been made or that a change in course is needed, because they cling on unfailingly on their belief that what they have planned has to be right. After meticulous research and countless levels of consultation, you may forgive them for thinking that way. Unfortunately, with the world changing at an ever faster pace, it is making this long-term, inflexible planning quickly irrelevant and disastrous. They will go the whole way for something wrong.

The other point to make is that they are fiercely hierarchical. There is probably no other society in the world that puts more value on the rank and seniority of a person. With traditions like these, there are fewer whistle-blowers willing to sound out when they realise something is wrong, as it is going against the decision or wisdom of a senior.  Doing so may put them out of job. This allows inefficient, wasteful processes to continue because there is literally no consultation in the rank and file. This is made even more puzzling because the Japanese Just-In-Time (JIT) process actually postulates that every flaw in the process is fixed before the production line is allowed to continue to run smoothly. Perhaps this consultative process applies in the mass production process but not in the actual generation of new ideas and innovations.

With this culture, Japan is a hideously slow reactor to market trends, which might explain why their cars take so long to adopt new technology. The Camry is a tried-and-tested success, so they aren’t going to change the recipe, not by one bit. Detroit’s carmakers have learned and fought back with a more flexible corporate structure that restored its competitiveness. Japan is also an incredibly wasteful society that refuses to change its course when it is headed for a dead end. An example of this is its public spending – roads that lead to nowhere, rivers that are dammed for no reason, museums that serve no purpose. Likewise, the mass market might start looking for more than reliability alone after seeing what the Koreans or Germans can offer for the same price – when that happens, can Japanese automakers truly respond?

I would loathe seeing Japan’s automotive industry in decline. But to be a leaner economy, Japan still needs generations of young people to amass a paradigm shift in its culture. Right now, it seems it might be a victim of its own success. What used to be the fastest growing economy in the world with its uncompromising focus, one-dimensional target towards achieving its goals – and then successfully reaching them – is now facing a plan towards disaster with seemingly no turning back.

Author: James Wong

The only writer to be based in Asia, James provides a refreshingly different perspective to the automotive industry with his unique experience of living in the Far East. He is a prolific journalist who has written for several leading automotive publications in Singapore, including Torque Singapore and REV Magazine Singapore. He believes in the thrill of driving and champions for an appreciation of driving pleasure above the horsepower race. In September 2010, James relocated to the United Kingdom, London, bringing him to a whole new environment from which to start a new chapter in automotive journalism.

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  1. Excellent post. Do you think the keiretsu structure helped to cause this problem, or was it also created by the slow-moving, long-range cultural tendencies?

  2. Hi Daniel,

    Thanks for your kind comment!

    I definitely think keiretsu definitely played a large part in this problem. Keiretsu is part of the culture of hierarchy, bureaucracy, fear of rank/seniority – and collusion between groups of companies certainly exacerbated this. For example, the award of government contracts and even private contracts are closely tied to keiretsu groupings, preventing the sort of competitive (and thus efficient) markets that keeps things in order in a capitalist economy. So things may be done inefficiently, but they are continued to be done that way anyway – for the benefit of the people in power.

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