Pure price competition inevitably leads to a gap in R&D funding, cutting corners, exploitation of employees, tax evasion, environmental pollution, etc., resulting in a lowering of the overall moral standards of society and the overall image of products.
The industry also fails to upgrade.
Overcapacity and involution are not phenomena unique to China.
Industrial powerhouses have encountered issues of overcapacity and involution at different times and stages of industrial development.
Taking Japan as an example, before 1992, the overall economic and consumption scale, including the average income of employees, had been steadily increasing.
At this time, overcapacity and involution were often temporary or confined to a specific industry.
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With market selection and conscious industry consolidation by the government, it quickly entered a relatively stable competitive state.
After 1992, almost all traditional industries in Japan faced absolute overcapacity and involution.
Around the year 2000, the scale of most traditional industries in the Japanese domestic market reached its peak.
A simple summary of the past 30 years of Japanese corporate experience in dealing with involution can be summarized as follows: 1.
Enterprises actively transform their business; 2.
Traditional industry enterprises merge to reduce internal friction; 3.
Technological advancement and differentiated competition strategies; 4.
Branding and internationalization of products; 5.
Rooting in niche markets without blind expansion; 6.
Collaboration and mutual benefit among enterprises in the same industry is the way for local SMEs to survive.
Japanese enterprises that have maintained long-term stable growth often do well in multiple aspects.
For example, manufacturing enterprises that have maintained stable growth after 1992 have three characteristics: (1) Continuous R&D and deep cultivation of technology; (2) Active and prudent expansion into overseas markets; (3) Clear corporate competition strategies.
There is "good involution" and "bad involution".
"Good involution" promotes technological progress, management improvement, and the formation of clear corporate competition strategies, resulting in the development of enterprises and industry progress.
"Bad involution" is pure price competition, which inevitably leads to a gap in R&D funding, cutting corners, exploitation of employees, tax evasion, environmental pollution, etc., resulting in a lowering of the overall moral standards of society and the overall image of products, and the industry also fails to upgrade.
I.
Case of enterprise active business transformation: Case 1, Sony Corporation.
Japan's electronics industry is a very involutionary industry, but Sony Corporation has gradually freed itself from this involution through 30 years of transformation.
Before the 1980s, Sony Corporation, like other companies in the industry, was a manufacturer of home appliances.
But today's Sony is no longer a pure manufacturing company, but a company that focuses on both content industry and manufacturing industry.
Currently, Sony's business has four parts: first, the content industry of movies and music; second, manufacturing, among which the most important product is CMOS Image Sensor (which is a semiconductor product that converts light signals into electrical signals), and most traditional home appliances have been phased out; third, game consoles, which are products that combine content and hardware; fourth, finance, Sony Corporation holds banks and insurance and other financial companies.
During the difficult times of Sony's business, the financial sector has provided a lot of profit support.
In 2024, Sony Corporation announced plans to gradually spin off its financial business, and the thinking behind it is to invest the funds obtained from the sale of financial companies into its own content and hardware industries, making the strengths even stronger.
Case 2, Hitachi Shipbuilding.
Japan has been a major and powerful shipbuilding country for more than 100 years, and its shipbuilding volume has been the world's first from 1956 to 2000.
The period from 2000 to 2010 was an era of fierce competition between Japan and South Korea, and then China's shipbuilding industry also caught up, making the competition even more intense.
Japan's shipbuilding industry has been overcapacity and shrinking for the past 30 years.
Hitachi Shipbuilding was founded in 1881 and has always been one of the representative enterprises in Japan's shipbuilding industry, ranking among the top three in Japan's shipbuilding volume during its peak period.
At the end of March 2024, Hitachi Shipbuilding Company had more than 10,000 employees, but no shipbuilding-related business.
Currently, the company's main business is waste incineration power generation equipment, seawater desalination plants, water and sludge treatment plants, ship engines, machinery equipment, precision machinery, bridges, etc.
Behind the successful transformation is more than 50 years of effort by Hitachi Shipbuilding.
Hitachi Shipbuilding Company introduced waste incineration technology from a Swiss company as early as 1960 and began to enter the field of waste incineration.
The 1960s was the fastest period of urbanization development in Japan, which required various advanced waste treatment technologies.
In 1987, Hitachi Shipbuilding launched the world's first multi-faceted shield machine.
In 1993, Hitachi Shipbuilding launched the world's largest diameter slurry shield machine (with a diameter of 14.14 meters).
In 2001, Hitachi Shipbuilding Company built a large-scale seawater desalination plant for Saudi Arabia.
In 2002, Hitachi Shipbuilding Company spun off its shipbuilding business to Universal Shipbuilding Company.
In 2004, Hitachi Shipbuilding Company built the largest-scale waste edible oil fuelization plant in Japan for Kyoto City (which is to convert gutter oil into fuel).
In 2015, Hitachi Shipbuilding Company entered the Japanese renewable energy retail market and became a PPS (Power Producer and Supplier, power production and supplier).
In 2015, Hitachi Shipbuilding invested in the Xiongwu River wind power station and Miyanozato biomass power station.
In the ship-related field, Hitachi Shipbuilding also retained some business.
For example, in 2014, Hitachi Shipbuilding's ship SCR (Selective Catalytic Reduction, selective catalytic reduction) system was the first in the world to obtain FTA (First Time Approval, a world-class ship diesel engine first approval certification).
Since the 1960s, Hitachi Shipbuilding has slowly transformed from a pure shipbuilding company into a company that builds environment-related factories and manufactures large-scale structural parts.
Business transformation is a common issue for Japan's traditional industries.
The transformation of Japanese companies began in the 1980s, which was called "diversification" at that time.
After the 1990s, many companies carried out "diversification" rectification, some fields were cut off, and some competitive fields accelerated development.
II.
Reducing internal friction through large-scale mergers: After the collapse of the bubble economy in 1992, almost all traditional industries in Japan faced overcapacity and involution, including shipbuilding, steel, banking, insurance, department stores, shipping, trading companies and other industries.
Subsequently, these industries saw unprecedented consolidation among peers, and many industries formed two or three industry giants.
Case 3, Japan's shipping industry.
Japan is a maritime country and also a major trading country, and the shipping industry is one of the important industries in Japan.
In 1964, Japan's shipping industry underwent the first industry consolidation, giving birth to six large shipping companies.
Among them, Osaka Shosen and Mitsui Senpaku merged to become Osaka Shosen Mitsui Senpaku.
Nitto Kisen and Daido Kaiun merged to become Japan Line.
Yamashita Kisen and Shin Nippon Kaiun merged to become Yamashita Shin Nippon Kisen.
In 1989, Japan Line and Yamashita Shin Nippon Kisen merged to give birth to Navix Line Company.
In 1999, Osaka Shosen Mitsui Senpaku and Navix Line Company merged to become Shosen Mitsui.
Currently, Nippon Yusen Kaisha, Shosen Mitsui, and Kawasaki Kisen are the three largest shipping companies in Japan.
The consolidation of Japan's shipping industry has been ongoing.
In 2017, Kawasaki Kisen, Shosen Mitsui, and Nippon Yusen's container business was integrated to establish Ocean Network Express, abbreviated as ONE.
The company's headquarters is not established in Japan, but in Singapore, deliberately away from the Japanese headquarters of the three companies.
These three companies are long-term competitors, and they can integrate their container business together, mainly to reduce internal friction and face global competition.
It should be pointed out that Japan's container ocean-going business is not an overcapacity market.
The merger of Japanese companies in the same industry is mainly to reduce excessive competition in Japan and to have a scale advantage when competing against foreign peers.
Case 4, Japan's insurance industry.
After the 1990s, the Japanese insurance industry underwent a once-in-a-century large-scale merger.
The Japanese life insurance industry formed five major giants through mergers, namely Nippon Life, Dai-ichi Life Holdings, Sumitomo Life, Meiji Yasuda Life, and T&D Holdings.
Among them, Meiji Yasuda Life was formed by the merger of Meiji Life and Yasuda Life in 2004.
T&D Holdings was formed by the merger of Taiyo Life and Daiichi Life in 2004.
The Japanese property insurance industry underwent a larger merger than the life insurance industry.
The pattern of 20 property insurance companies that had been maintained for a long time after the war has completely changed, forming three major property insurance holding groups.
The first is Tokyo Marine Holdings, including Tokyo Marine & Nichido Fire Insurance Co., Ltd. and Nissay Dowa Fire & Marine Insurance Co., Ltd., as well as several small-scale insurance companies.
Tokyo Marine & Nichido Co., Ltd. was formed by the merger of Tokyo Marine & Nichido Fire Insurance Co., Ltd. and Nissay Dowa Fire & Marine Insurance Co., Ltd. in April 2004.
The second property insurance group is MS&AD Insurance Group Holdings.
It includes Mitsui Sumitomo Insurance and Aioi Nissay Dowa Insurance, two property insurance companies.
Mitsui Marine and Sumitomo Marine merged to form Mitsui Sumitomo Marine in October 2001.
Dai Tokyo Fire Marine Insurance and Chiyoda Fire & Marine Insurance merged to form Aioi Nissay Dowa Insurance in April 2001.
Nissay Dowa Insurance and Sompo Japan Insurance merged in 2001 to become Nissay Dowa Sompo Insurance.
In 2010, Aioi Nissay Dowa Insurance and Nissay Dowa Sompo Insurance merged to become Aioi Nissay Dowa.
The current MS&AD Insurance Group was formed after the merger and integration of 11 insurance companies after 1996.The third-largest property insurance group is SOMPO Holdings.
In July 2002, Yasuda Fire & Marine Insurance and Nippon Fire & Marine Insurance merged to establish Japan Property Insurance Co., Ltd.
In December 2002, Taiyo Marine & Fire Insurance was also integrated into Japan Property Insurance Co., Ltd.
In 2001, Japan Fire & Marine Insurance and Kyoei Fire & Marine Insurance merged to form Japan Kyoei.
In 2002, Taiyo Fire & Marine Insurance was also integrated into Japan Kyoei.
In 2010, Japan Kyoei and Damage Insurance Japan merged to establish NKSJ Holdings.
In September 2014, it was renamed SOMPO Holdings.
This holding company was also formed through repeated mergers of six property insurance companies after 1996.
Case Five, the pharmaceutical industry in Japan.
The reason for the large-scale reorganization of the Japanese pharmaceutical industry is not the excessive internal competition in the domestic market of Japan, but the fiercer global competition faced by Japanese companies.
The core competitiveness of the pharmaceutical industry comes from continuous long-term investment in research and development and the establishment of sales channels.
This requires pharmaceutical companies to have a certain scale.
In 2005, Daiichi Pharmaceutical Company and Sankyo Pharmaceutical Company merged to become Daiichi Sankyo Company.
In 2005, Yamanouchi Pharmaceutical and Fujisawa Pharmaceutical merged to become Astellas Pharma.
Currently, both of these companies are among the top five pharmaceutical companies in Japan.
In 2007, Tanabe Pharmaceutical and Mitsubishi Pharmaceutical merged to become Tanabe Mitsubishi Pharmaceutical.
In 2005, Sumitomo Pharma and Dai Nippon Pharmaceutical merged to become Daiichi Sankyo.
These large-scale reorganizations, on the one hand, reduce internal friction, and on the other hand, are to have enough strength to compete with European and American giants when going overseas.
Three, technological progress and differentiated competition strategy.
Case Six, the case of Keyence and Nitto Denko.
After the long-term economic downturn after 1992, there are also many traditional Japanese industry companies that have maintained stable growth and have become corporate cases studied by business schools both in Japan and abroad.
The author introduces two companies here that can not only maintain stable growth but also always maintain a high profit margin.
Keyence is a company that mainly produces FA (factory automation) related equipment and instruments.
Over the past 40 years, the company has always been the manufacturing company with the highest average salary in Japan.
Speaking from a strategic perspective, the company has two very obvious characteristics: one is that the company does not have its own factory, all products are developed by the company, and suitable manufacturers are found globally for production; the second is that the company's innovation is a combination of innovation aimed at customer needs, not innovation with significant breakthroughs in the field of science and technology.
The company has a large number of high-quality marketing personnel to carry out service and sales activities in various companies, obtaining first-hand information from the enterprise site and potential needs.
After returning to the company, they consult with R&D personnel.
There is an unwritten rule within the company that products with a gross margin lower than 80% are not produced.
Essentially, the company's products are neither customized products for customers nor generic products for ordinary manufacturers, but products in between.
Nitto Denko is also a company with distinctive features.
The company was established in 1918 and was originally a company that produced wire insulation tape.
After the 1980s, Nitto Denko clearly proposed an enterprise strategy of becoming a champion in the niche field.
In Japan, GTN (Global Niche Top, the champion in the global niche market) is a registered trademark of Nitto Denko.
Nitto Denko has two obvious characteristics: one is the deep cultivation and extension of technology, many products of Nitto Denko are carried out around "film".
For example, insulating tape is a film coated with chemical agents, which has the function of electrical insulation.
The second is that the company has a lot of products with the first and second market share in the world.
After the 1990s, the profit margin of Nitto Denko was twice that of the 1980s, and the GTN strategy was obviously effective.
Whether it is Keyence or Nitto Denko, they are very typical paths of technological research and development + clear enterprise strategy + overseas development.
Four, going overseas and branding of products.
Case Seven, the Japanese whiskey industry.
In the past 20 years, the most successful industry in Japan to get rid of overcapacity and internal competition through branding is whiskey.
In 2023, it was the 100th anniversary of Japan's production of whiskey.
The Japanese liquor industry has always had the phenomenon of the alternation of various liquors.
Whiskey has been in a long bottleneck period after the 1970s, and the overall sales volume has not increased significantly.
After 2000, with the continuous awards of various Japanese whiskeys in global well-known appraisal meetings, the Japanese whiskey industry has ushered in a golden age.
Now, it is very difficult to buy good Japanese whiskey in the market, and the price is also rising continuously.
After 2010, the Japanese whiskey industry is not a problem of overcapacity and internal competition, but a problem of how to expand production capacity.
Case Eight, Daikin Air Conditioning and YKK.
In the 1990s, the sales of Daikin Air Conditioning were about 500 billion yen, and Daikin Air Conditioning was only a second-class enterprise in Japan at that time.
In the fiscal year of 2023, the global sales revenue of Daikin Air Conditioning was about 4.3 trillion yen.
The growth of Daikin Air Conditioning's sales revenue all comes from countries outside Japan.
Overseas development, Daikin Air Conditioning has both the acquisition of overseas enterprise air conditioning companies and direct investment in overseas production.
In fact, after 1992, Japanese enterprises with a bit of strength all went overseas.
Before and after 1992, the proportion of overseas sales of high-quality Japanese enterprises was generally about 30%, and now the proportion of overseas sales of high-quality Japanese enterprises is generally more than 70%.
Not only manufacturing, but also many service industries have gone overseas, including banks, insurance, logistics, creative design and other industries.
Five, taking root in the niche market, do not blindly expand.
Case Nine, Aone Precision.
There are fewer such enterprises, but they do exist.
Aone Precision is an enterprise that produces fixtures used in the processing of machine tools.
The demand for the product is very small, the requirements for personalization are strong, and the delivery time is required to be fast.
It is obviously not suitable to go overseas to find processing enterprises for such products.
The profit margin of Aone Precision has always been very high.
Case Ten, Michelin restaurants in Tokyo.
The appropriate scale of the enterprise is very important.
The competition in the Japanese catering industry is very fierce, and it is also very internal, but it subtly maintains a healthy balance.
Because in the past 30 years, the Japanese catering industry has obviously improved, and its global status has improved.
At present, the number of Michelin restaurants in Tokyo is the highest among all cities in the world.
However, upon closer observation, these well-known Japanese restaurants have not expanded their scale blindly because of their popularity.
Similar situations can also be observed in the hot spring inn industry.
Some hot spring inns are very popular, but they do not seek blind expansion and expansion.
Six, the same industry enterprise cooperation and win-win.
Case Eleven, Imabari towels and Yufuin hot springs.
Towels are not high-tech products.
After the 1980s, Japanese textiles were greatly impacted by the high-quality and low-priced textiles of China, but there are also some successful cases, and Imabari towels are a typical example.
Imabari is a small city located in Ehime Prefecture, one of the traditional towel production centers in Japan, with more than a hundred towel production enterprises at its peak.
In the late 1990s, facing the crisis of survival, the towel enterprises in the area joined forces to create a brand and created a unified Imabari brand, unifying the product quality standards.
Then, a large-scale marketing campaign was launched, successfully establishing the brand and getting rid of the price war with Chinese imported products.
Japan is a hot spring country, and there are many hot spring areas throughout the country, and there is also fierce competition between them.
After the 1990s, Yufuin hot springs in Oita Prefecture and Kurokawa hot springs in Kumamoto Prefecture were popular because many local hot spring inns joined forces to maintain a good environment and service, instead of fighting price wars and vicious competition between the same industry.