Toyota's Woes Reveal Cracks in Japanese Economy

      February 12, 2010 10:33

      Toyota's massive recall crisis could lead to an overhaul of the Japanese economy, some economists say. The New York Times on Monday cited Yukio Noguchi, a professor of finance at Waseda University in Tokyo, as saying that Japan must make the transition into a "postindustrial, service-based" economy. "Even Toyota can fail. Even Lexus, even Prius. Our world-leading manufacturing industry may no longer be world-leading. This has a strong impact on the national psyche," Noguchi said.

      Toyota is one of the companies leading the Japanese economy. Armed with the philosophy of "monozukuri" (perfection in craftsmanship) and concepts like "kaizen" (continuous improvement) and "just-in-time", the carmaker has come to symbolize the strength of Japan's manufacturing industry. But its status has been shattered by the recall fiasco. When complaints about technological defects began surfacing in the U.S., Japanese media tried to downplay the issue and pointed the finger at U.S. parts manufacturers, saying that they failed to maintain the same quality standards as Japanese suppliers. The situation turned when Toyota announced the recall of the Prius hybrid, which was manufactured in Japan. The ideal of "monozukuri" has been broken.

      Singapore's Straits Times also reported Sunday that Toyota is being sandwiched by Hyundai Motor in price, and Ford and Volkswagen in safety. Japan's entire manufacturing industry is in the same shoes as Toyota, it added.

      Some economists say the recall crisis reveals the limitations of the Japanese mass production style, NYT said. Toyota worked hard to maintain quality, but in the face of strong challenges from Korean and Chinese rivals, which enjoy cheaper labor costs, the Japanese carmaker hit its limits in controlling product quality and correcting technological flaws.

      They say Japan should shift its focus from traditional industries to those with high added value, such as IT and software. It should also concentrate on sophisticated areas where it is strong, like the development of alternative-energy technologies, robotics and advanced industrial machinery.

      The transition is already under way, although the Japanese people are resistant to it. According to the OECD, manufacturing's share of the Japanese economy has shrunk by nearly a third over the past 20 years, from 28.9 percent in 1999, to 23 percent in 2006, to slightly above 20 percent now.

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