White Paper on International Economy and Trade 2004

Transcription

1 White Paper on International Economy and Trade 24 Key Pots Towards a new value creation economy June 24 Mistry Economy, Trade and Industry

2 [Contents] Chapter 1 Progress globalization and trends the macroeconomy Section 1 Progress globalization and changes macroeconomic mechanisms p.2 Section 2 Offshore outsourcg trends the US and and their impact on employment. p.5 Section 3 Risg productivity and the role human capital and organization. p.8 Section 4 Issues imbalance the world economy p.11 Section 5 Summary Chapter 1.. p.14 Chapter 2 The new value creation economy and evolvg modalities competition Section 1 Modality corporate competition Value creation utilizg tellectual. p.15 Section 2 Modality competition among regional economies Self diagnosis makes regional economies autonomous... p.24 Section 3 Modality labor market competition Human capital vestment keyed to skill standards. p.27 Section 4 Summary Chapter 2.. p.29 Chapter 3 Transition to a new value creation economy and East Asian economic tegration Section 1 Deepeng economic relations the East Asian region.. p.3 Section 2 International division functions and its determants... p.35 Section 3 Challenges facg the process economic tegration and liberalization. p.38 Section 4 Agriculture to transit to the value creation economy Creatg new busess models p.4 Section 5 Spreadg the idea new value creation economy Dual track policy Thailand p.41 Section 6 Summary Chapter 3.. p.42 (Note) Numberg figures is not sequential and corresponds to the ma text the White Paper on International Economy and Trade 24. 1

3 Chapter 1 Progress globalization and trends the macroeconomy Section 1 Progress globalization and changes macroeconomic mechanisms Progress Progress globalization globalization and and the the Great Great Moderation Moderation In parallel with the progress globalization the world economy, changes are also occurrg In parallel with the progress globalization the world economy, changes are also occurrg macroeconomic mechanisms, with the major developed countries simultaneously evcg a trend toward macroeconomic mechanisms, with the major developed countries simultaneously evcg a trend toward declg short-term volatility gross domestic product (GDP) growth rates and disflation (the Great declg short-term volatility gross domestic product (GDP) growth rates and disflation (the Great Moderation ). Moderation ). The disflation trend reflects the impact changes the competitive environment, cludg competition The disflation trend reflects the impact changes the competitive environment, cludg competition with imported goods. with imported goods. (1) Short-term volatility the GDP growth rate is declg. Figure Changes volatility four-quarter growth real GDP per capita the G7, and Standard deviation Standard deviation Standard deviation Standard deviation Variance Variance Canada France Germany Italy UK US Entries the first two columns are the standard deviations the four-quarter growth GDP over the dicated periods. The third column contas the ratio the standard deviation the second column to that the first; the fal column presents the square this ratio, which is the ratio the variances four-quarter GDP growth the two periods. Souece: Stock and Watson (23). (2) The world consumer price flation rate is slippg. (3) s consumer prices are beg pushed down primarily due to import competition. % Figure Trends consumer price dex (Price dex 2=1) Figures Changes the consumer price dex for import-competg goods and import volume dex (Import volume dex 2=1) 6 C: Import-competg goods D: Import-competg (deregulation and goods (without Import volume dex distribution reform deregulation and (Total) (right scale) overlapped) distribution reform overlapped) Year US UK Germany Italy France Sgapore Thailand Korea Hong Kong Source: IFS (IMF) FY 1. Adjusted to exclude the effects the consumption tax hike from The price dex figures from FY 1991 to FY 1999; 1995 base year. The figures from FY 2 onward; 2 base year. The 1995 base CPI (FY 1991 to FY 1999) is adjusted usg a connection coefficient (the figure FY 2 with1995 base divided by the figure FY 2 with 2 base). For the import volume dex, the same manner as CPI, 1995 base dex is connected to the 2 base dex. Source: The Summary Report on Trade ( Tariff Association), Mizuno, K. (23). 2

4 2. Weakeng lk between economic cycle and job growth 2. Weakeng lk between economic cycle and job growth Changes the price-settg behavior companies may be fluencg the relationship between Changes the price-settg behavior companies may be fluencg the relationship between macroeconomic GDP fluctuations and job growth through corporate personnel strategies. Examation the macroeconomic GDP fluctuations and job growth through corporate personnel strategies. Examation the relationship between compensation employees and operatg surplus confirms that the latest economic relationship between compensation employees and operatg surplus confirms that the latest economic recoveries and the United States (US), companies have been constrag labor cost rises rather than recoveries and the United States (US), companies have been constrag labor cost rises rather than expandg prit. expandg prit. In both and the US, it appears to be becomg creasgly difficult to lk economic recovery to In both and the US, it appears to be becomg creasgly difficult to lk economic recovery to employment recovery, with more and more dustries failg to experience job creases even times employment recovery, with more and more dustries failg to experience job creases even times economic recovery. economic recovery. (1) The lk between economic and employment recovery is weakeng and the US. Trough = 1 Figure Trends regular employment dices durg recoveries (establishments with 3 employees or more) 13 Nov = Trough = Figure Payroll job growth durg recoveries the US (non-agricultural sector) Nov = 16 1 Oct = Feb = 14 Nov = 12 Jan. 22 = Jan = Months 1.Regular employees are full-time employees and part-time employees. 2. Seasonally adjusted. 3. Months dicates a trough the economic cycle. Source: Monthly Labour Survey (Mistry Health, Labour and Welfare). 1 Nov. 21 = Months 1. Employees the non-agricultural sector clude part-time workers, who work for 35 hours or less per week. 2. Months dicates a trough the economic cycle. Source: Employment Situation (US Department Labor, Bureau Labor Statistics). (2) In the latest economic recoveries and the US, creases corporate pritability have not translated to creases compensation employees. % 1 Figure Changes compensation employees and operatg surplus Compensation employees % 12 Figure Changes compensation employees and operatg surplus the US Operatg surplus and mixed come 1 8 Compensation employees Operatg surplus Trough Trough Trough (Quarters) (Prelimary) Note: Four-quarter movg average. Source: Annual Report on National Accounts (Cabet Office) Trough Quarters Trough Note: Four-quarter movg average. Source: National Income and Product Accounts Table (US Department Commerce, Bureau Economic Analysis). 3

5 (3) In particular, even the recent economic recovery, manufacturg employment has failed to pick up either or the US. (Job growth recovery ) 24 Procyclical flows Figure Job adjustments by dustries durg the recession and recovery the 198s (manufacturg) Ceramic, stone and clay products Structural losses -12 Chemical and allied products Iron and steel Fabricated metal products Transportation equipment Apparel and other fished products made from fabrics and similar materials Food and tobacco Electrical machery, equipment and supplies Publishg, prtg and allied products General machery Structural gas Countercyclical flows (Job growth recession ) 1. Period recession is from Feb. 198 (peak) to Feb (trough), period recovery is from Feb (trough) to Mar For establishments with 3 employees or more. The size the circle dicates the number employees durg the economic peak. 3. The color scheme dicates the share GDP by dustry for the year cludg the economic peak. Black - 1% or higher, grey - over 6% and below 1%, grid pattern - over 2% and below 6%, vertical les pattern - over 1% and below 2%, tersections - over.5% and below 1%, and white - below.5%. Source: Monthly Labour Survey (Mistry Health, Labour and Welfare). Job growth recovery ) Cyclical flows Ceramic, stone, and clay products Structural losses Figure Job adjustments by dustries durg the recession and recovery the 2s (manufacturg) Electrical machery, equipment and supplies Transportation equipment Iron and steel Fabricated metal products Apparel and other fished products made from fabrics and similar materials Chemical and allied products General machery Publishg, prtg and allied products Structural gas Food and tobacco Countercyclical flows Job growth recession ) 1. Period recession is from Oct. 2 (peak) to Jan. 22 (trough), period recovery is from Jan. 22 (trough) to Feb For establishments with 3 employees or more. The size the circle dicates the number employees durg the economic peak. 3. The color scheme dicates the share GDP by dustry for the year cludg the economic peak. Black - 1% or higher, grey - over 6% and below 1%, grid pattern - over 2% and below 6%, vertical les pattern - over 1% and below 2%, tersections - over.5% and below 1%, and white - below.5%. Source: Monthly Labour Survey (Mistry Health, Labour and Welfare). (Job growth recovery ) 24 Cyclical flows Industrial machery and equipment Figure Job adjustments by dustries durg recession and recovery the 198s the US (manufacturg) Transportation equipment Lumber and wood products Fabricated metal products Rubber and miscellaneous plastic products Chemical and allied products Miscellaneous manufacturg dustries Furniture and fixtures Electronic and other electrical equipment Instruments and related products Paper and allied products Structural gas Prtg and publishg Structural losses Food and kdred products Countercyclical flows Job growth recession ) 1. Period recession is from Jul (peak) to Nov (trough), period recovery is from Nov (trough) to Mar The size the circle dicates the number employees durg the economic peak. 3. The color scheme dicates the share GDP by dustry for the year cludg the economic peak. Black - 1% or higher, grey - over 6% and below 1%, grid pattern - over 2% and below 6%, vertical les pattern - over 1% and below 2%, tersections - over.5% and below 1%, and white - below.5%. Source: Current Employment Statistics (CES) (US Department Labor, Bureau Labor Statistics). Job growth recovery ) 3 Cyclical Structural losses -21 Figure Job growth by dustries durg the recession and recovery the 2s the US (manufacturg) Furniture and related products Fabricated metal products Machery Computer and electronic products Plastic and rubber products Prtg and related support activities Transportation equipment Paper and paper products Chemicals Wood products Miscellaneous manufacturg Structural gas Food manufacturg Countercyclical flows Job growth recession ) 1. Period recession is from Mar. 21 (peak) to Nov. 21 (trough), period recovery is from Nov. 21 (trough) to Mar The size the circle dicates the number employees durg the economic peak. 3. The color scheme dicates the share GDP by dustry for the year cludg the economic peak. Black - 1% or higher, grey - over 6% and below 1%, grid pattern - over 2% and below 6%, vertical les pattern - over 1% and below 2%, tersections - over.5% and below 1%, and white - below.5%. Source: Current Employment Statistics (CES) (US Department Labor, Bureau Labor Statistics). 4

6 Section 2 Offshore outsourcg trends the US and and their impact on employment Overview Overview outsourcg outsourcg Information services account for the largest share the outsourcg market both and the Information services account for the largest share the outsourcg market both and the US at around 2%, with other areas cludg consultg and human resources services. These US at around 2%, with other areas cludg consultg and human resources services. These outsourced services equate closely to the dustry classification pressional and busess outsourced services equate closely to the dustry classification pressional and busess services. services. In the US, pressional and busess services all dustries account for a share total In the US, pressional and busess services all dustries account for a share total production approximately 1.7 times greater than. production approximately 1.7 times greater than. (1) Information services account for the largest proportion the outsourcg market both and the US. Composition ratio 25 Figure Composition ratio by area the outsourcg market the US (22) Composition ratio 25 Figure Composition ratio by area the outsourcg market (1999) Transpor ation Real estate, plants Information technologies Manufacturg Marketg and sales Human resources Trade Fance Management Customer services Admistration Information processg and stware-related Consultg Human resource and related Specialized services Miscellaneous technical services Product planng Manufacturg process Trade Advertisg Facility management General government support Welfare Other Source: Survey on Outsourcg (Strategic Outsourcg Council ). Source: 5th Annual Outsourcg Index 22 (The Outsourcg Institute). (2) The share total production accounted for by pressional and busess services is around 1.7 times greater the US than. Figure Comparison the production amount and share accounted for by pressional and busess services between and the US US Pressional and busess services 5 trillion yen production amount US$411.4 billion US$ trillion Share service dustries 13.7% 19.7% Share all dustries 5.4% 9.3% The exchange rate is the average exchange rate for yen to the US dollar. Sources: Simple Extended Input-Output Table (METI), Gross Domestic Product by Industry (US Department Commerce, Bureau Economic Analysis), Fancial and Economic Statistics Monthly (Bank ). 5

7 2. 2. Outsourcg Outsourcg trends trends the the US US While pressional and busess services the US contue to grow, the pace growth has slowed, While pressional and busess services the US contue to grow, the pace growth has slowed, suggestg that pressional and busess services are maturg as an dustry. suggestg that pressional and busess services are maturg as an dustry. Lookg at the relationship between outsourcg market maturity and fshore outsourcg, service trade Lookg at the relationship between outsourcg market maturity and fshore outsourcg, service trade statistics reveal that the trade value pressional, scientific, and technical services exports still statistics reveal that the trade value pressional, scientific, and technical services exports still outstrips that imports, but crease rates suggest that imports are growg faster than exports. outstrips that imports, but crease rates suggest that imports are growg faster than exports. Transactions with affiliates account for a growg share the case both imports and exports. Transactions with affiliates account for a growg share the case both imports and exports. A more detailed breakdown pressional and busess services reveals that the number service A more detailed breakdown pressional and busess services reveals that the number service dustries with declg employment has grown at an creasgly rapid pace recent years. dustries with declg employment has grown at an creasgly rapid pace recent years. (1) US pressional and busess services are the process maturg. (2) Exports pressional, scientific, and technical services are still higher than imports. Growth rate production amount (annual average) 1.% 9.5% 9.% 8.5% 8.% 7.5% 7.% 6.5% 6.% Figure Changes growth rates production amount and number employees presional and busess services the US All service dustries % 3.5% 4.% 4.5% 5.% 5.5% 6.% 6.5% 7.% Growth rate number employees (annual average) Pressional and busess services Sources: Gross Domestic Product by Industry (US Department Commerce, Bureau Economic Analysis), CBP United States Economic Priles (US Department Commerce, Census Bureau). (US$ 1 million) % 32.6% Figure Exports and imports pressional, scientific, and technical services for affiliated and unaffiliated transactions the US Imports Average growth rate between 1998 and 22: 13.4% 71.2% 28.8% Imports Exports Unaffiliated 71.4% 28.6% 5.3% 49.7% Exports Average growth rate between 1998 and 22: 9.4% Affiliated 54.1% 45.9% Source: U.S. International Services: Cross-Border Trade and Sales Through Affiliates (US Department Commerce, Bureau Economic Analysis). 56.% 44.% (3) The number service dustries with declg employment has grown at an creasgly rapid pace recent years. Figure Employment trends 21 dustries affiliated with pressional and busess services that have 4-digit NAISC codes (1) Industries that are decreasg employment from January 21 until recently (1 dustries) Accountg and bookkeepg services (-2.4%), Architectural and engeerg services (-2.1%), Computer system design and related services (- 16.4%), Management companies and enterprises (-7.2%), Employment services (-4.5%), Busess support services (-4.9%), Specialized design services (-1.%), Advertisg and related services (-14.4%), Travel arrangement and reservation services (-19.3%), Waste treatment and disposal (-9.2%) (2) Industries other than (1) above that are decreasg employment from January 23 until recently (1 dustry) Other support services (-.1%) (3) Industries other than (1) and (2) above that are decreasg employment from October 23 until recently (8 dustries) Legal services (-.7%), Services to buildgs and dwellgs (-8.4%), Other pressional, scientific, and technical services (-5.4%), Office admistrative services (-.5%), Facilities support services (-1.1%), Investigation and security services (-1.8%), Waste collection (-2.%), Remediation and other waste management services (-2.9%) (4) Industries other than (1), (2) and (3) above (2 dustries) Management, scientific, and technical consultg services, Scientific research and development services 1.Figures parentheses ( ) dicate employment growth rate from the standard pot time (January 21 for (1) and January 23 for (2)) until recently. 2. Not seasonally adjusted data. Values for February and March 24 are prelimary figures. 3. Number employees until recently is the number for March 24 if data for March 24 is available, and for February 24 if data for March 24 is not available. Source: Current Employment Statistics (CES) (US Department Labor, Bureau Labor Statistics). 6

8 3. 3. Outsourcg Outsourcg trends trends In the context the service dustry as a whole, both production value and employment figures position In the context the service dustry as a whole, both production value and employment figures position the pressional and busess services dustry as an dustry at the growth stage. the pressional and busess services dustry as an dustry at the growth stage. In terms balance payments statistics, s fshore outsourcg remas significant. In terms balance payments statistics, s fshore outsourcg remas significant. (1) s pressional and busess service dustry is at the growth stage. (2) The import value fshore outsourcg is gradually decreasg. Growth rate production amount (annual average) 4.5% 4.% 3.5% 3.% 2.5% 2.% Figure Changes growth rates production amount and number employees pressional and busess services All service dustries Pressional and busess services % 3.% 3.5% 4.% 4.5% 5.% 5.5% 6.% Growth rate number employees (annual average) Regardg obtag data the number employees, sce data for some dustries was not available the Survey on Service Industries, data for these dustries was supplemented from the Monthly Labour Survey. Concretely, data from the Monthly Labour Survey was used for dustries Category G Electricity, Gas, Heat Supply, Waterworks, Category H Transportation and Communications, Category J Fance and Insurance, Category K Real Estate, Category L, Subcategory 88 Medical Care, and Category L, Subcategory 91 Education the Standard Industrial Classification for revision Sources: Survey on Service Industries (Mistry Public Management, Home Affairs, Posts and Telecommunications), Monthly Labour Survey (Mistry Health, Labour and Welfare), Extended Input-Output Table (METI). (1 million yen) 27, 25, 23, 21, 19, 17, 15, Figure Trends imports other busess and technical services Source: Balance Payments Monthly (Bank ). 4. Development stages outsourcg and the US 4. Development stages outsourcg and the US Pressional and busess services outsourcg are considered to develop through three stages: (i) service Pressional and busess services outsourcg are considered to develop through three stages: (i) service functions are handled ternally; (ii) some ternal service functions are outsourced domestically; and (iii) functions are handled ternally; (ii) some ternal service functions are outsourced domestically; and (iii) service functions are procured fshore from affiliates and other busesses. service functions are procured fshore from affiliates and other busesses. Usg this typology, can be said to be at the growth stage whereas the US is now the maturity Usg this typology, can be said to be at the growth stage whereas the US is now the maturity and competition stage. However, it is unclear whether pressional and busess services will and competition stage. However, it is unclear whether pressional and busess services will tread the same development path as the US. tread the same development path as the US. (1) The outsourcg s pressional and busess services is at the growth stage, while the US is at the maturity and competition stage. Figure Interrelation between development stages the pressional and busess services dustry and development stages outsourcg Market scale Generation stage Growth stage Maturity and competition stage US Pressional and busess services dustries Interrelation Creation markets by pioneers Expansion entries Expansion labor demand Competition Consolidation Shift to and creation new busesses Stage 7 Outsourcg Source: METI. Internal creation stage Domestic outsourcg stage Busess rationalization Formation new busess patterns through utilization new production elements Offshore outsourcg stage Further reduction labor costs Utilization overseas production elements

9 Section 3 Risg productivity and the role human capital and organization Productivity Productivity trends trends sce sce the the 199s 199s Sce the late 199s, labor productivity has risen many developed countries. In the US, the share IT Sce the late 199s, labor productivity has risen many developed countries. In the US, the share IT equipment private capital stock almost doubled the late 199s, evidencg the rapid accumulation IT equipment private capital stock almost doubled the late 199s, evidencg the rapid accumulation IT capital stock. capital stock. (1) Sce the late 199s, the rate crease labor productivity has been expandg the US and elsewhere. Figure Trends rate crease labor productivity each country US France Germany UK 2. US Average for OECD countries Average for Average for Average for Average for Source: Economic Outlook (OECD). (2) The US saw the rapid accumulation IT capital stock the late 199s. 15. Figure Trends IT capital stock ratio and the US IT Capital stock ratio IT Capital stock ratio the US (Year) Note: The figures for the US dicate the IT capital stock ratio the private sector corporate capital stock. The figures for dicate the IT capital stock ratio the private sector capital stock. Also, calculatg the IT capital stock the US, the amounts vested dependently developed stware are excluded from the amounts vested stware. Source: FY22 Survey on Economic Analysis IT (Mistry Public Management, Home Affairs, Posts and Telecommunications). 8

10 2. 2. Comparison Comparison -US -US productivity productivity creases creases and and factor factor analysis analysis A comparison employg the same methods to the greatest degree possible suggests no particular A comparison employg the same methods to the greatest degree possible suggests no particular discrepancy productivity crease rates between and the US, while economic growth disparity discrepancy productivity crease rates between and the US, while economic growth disparity between and the US may have been caused by somethg other than IT vestment. between and the US may have been caused by somethg other than IT vestment. Lookg at differences between dustrial sectors terms productivity creases, the acceleration Lookg at differences between dustrial sectors terms productivity creases, the acceleration these creases the late 199s not only the durable goods dustry, the category to which the IT these creases the late 199s not only the durable goods dustry, the category to which the IT manufacturg sector falls, but over a wide range other dustries, raises the possibility that IT user manufacturg sector falls, but over a wide range other dustries, raises the possibility that IT user sectors such as fancial surance and retail could have driven this trend. In contrast to the US, creases sectors such as fancial surance and retail could have driven this trend. In contrast to the US, creases productivity followg IT vestment have been concentrated only the IT manufacturg productivity followg IT vestment have been concentrated only the IT manufacturg sector, dicatg that such creases may not have expanded out to the IT user sector. sector, dicatg that such creases may not have expanded out to the IT user sector. Corporate analysis both and the US showed that creasg productivity hges on the parallel Corporate analysis both and the US showed that creasg productivity hges on the parallel pursuit not only IT vestment but also human and organizational capital enhancement. pursuit not only IT vestment but also human and organizational capital enhancement. (1) The contribution to GDP growth by non-it sectors is substantially larger the US than. Figure Decomposition the factors for GDP growth rate Gross Domestic Product (GDP) Contribution IT Contribution non-it Gross Domestic Income (GDI) Contribution IT capital services Contribution non-it capital services Contribution labor services Total Factor Productivity (TFP) Note: Each value is average growth rate durg the surveyed period. Source: Motohashi (23). US (2) The acceleration productivity creases the US the late 199s expanded to the IT user sector. Figure Contribution to the acceleration rate productivity growths (by ma dustries the non-agricultural corporate sector the US, over ) Durable goods manufacturg Other service dustries IT manufacturg sectors cluded Fance dustry.54 Retail Wholesale IT user sectors.3.41 Transportation, public works -.9 Non-durable goods manufacturg Construction Acceleration rate productivity growths all dustries = 1.46% Mg Source: US Estimates by the Economics and Statistics Admistration based on data by US Bureau Economic Analysis. Origal source: US Department Commerce (22). 9

11 (3) In, creases productivity followg IT vestment have been focused the IT manufacturg sector (IT product manufacturers and IT frastructure). Figure Analysis factors for productivity by vestors (Contribution ratio on a year-on-year basis, average for the period startg from the January-March quarter 1995 until the July-September quarter 2) All dustries IT product users IT product users IT frastructure IT product (Manufacturg (Non-manufacturg (Communication manufacturers dustries) dustries) dustries) Year-on-year productivity ratio Capital factors Informatization-related capital factors Hardware factors Stware factors Communication equipment factors General capital factors Operation rate factors TFP Source: Analysis All Industrial Activities (21) (METI). (4) Not only IT vestment but also organizational reform and human capital enhancement have been found to be important boostg corporate productivity. % Figure Effects the spread IT, human capital, and flatteng corporate structures on TFP 5 (Standard) (Standard) (Standard) high high high low low high low low high high high low low high low low high high high low low high low low (spread IT x human capital) (spread IT x corporate structures) (human capital x corporate structures) Note: *** the graph means 1% significance, * means 1% significance. Areas where no statistically-significant results were obtaed are left unmarked. Source: Policy Impact Analysis Report 2 (Economic Planng Agency). 1

12 Section 4 Issues imbalance the world economy 1. Mid-term fluctuations asset prices 1. Mid-term fluctuations asset prices The new level capital transaction activity spurred by globalization and diffusion IT has creased the The new level capital transaction activity spurred by globalization and diffusion IT has creased the likelihood medium-term fluctuations asset prices the world economy. This could impact heavily likelihood medium-term fluctuations asset prices the world economy. This could impact heavily on the real economy through, for example, systemic bankg crises. on the real economy through, for example, systemic bankg crises. To deal with this situation, fancial authorities the various economies have been discussg the need To deal with this situation, fancial authorities the various economies have been discussg the need for the development fancial frastructure systems a broad sense, cludg proper accountg and for the development fancial frastructure systems a broad sense, cludg proper accountg and disclosure, discipled governance, centive mechanisms and supervision. disclosure, discipled governance, centive mechanisms and supervision. (1) The length and amplitude fluctuation cycles for global asset prices have been gradually expandg over time. 1985= Figure Large medium-term swgs real aggregate asset prices each country US France Canada Australia Netherlands 1985= UK Sweden Fland (year) (year Note: Real aggregate asset price dex is the weighted average the prices equity, commercial and residential property prices, deflated by the consumer price dex. The dex weighs the various asset prices by rough estimates their shares private sector wealth. Source: Bank for International Settlements (BIS), Oka, Shirakawa, Shiratsuka (22). (2) Increasg fancial liberalization is creatg lkage between mid-term fluctuations asset prices and credit volumes developed countries. 2 Figure Large medium-term swgs asset prices and credit the G Real aggregate asset prices (198 = 1) Total private credit/gdp (percent, right scale) (year) Real aggregate asset price dex is the weighted average the prices equity, commercial and residential property prices, deflated by the consumer price dex. The dex weighs the various asset prices by rough estimates their shares private sector wealth. G1+ is the data for 11 member countries the G1:, US, UK, Germany, France, Italy, Canada, Belgium, Netherlands, Switzerland and Sweden and data for the five countries Australia, Denmark, Fland, Norway and Spa, weighted by 2 GDP and PPP exchange rates. Sources: Borio and White (24), Oka, Shirakawa, Shiratsuka (2).

13 2. 2. Expansion Expansion US US current current account account imbalance imbalance Two pots have to be taken to consideration terms the sustaability the US current account Two pots have to be taken to consideration terms the sustaability the US current account imbalance. Firstly, for the government sector, addition to the current expansion the fiscal deficit, the imbalance. Firstly, for the government sector, addition to the current expansion the fiscal deficit, the grayg society is expected to beg imposg a much heavier burden than the 198s. Secondly, grayg society is expected to beg imposg a much heavier burden than the 198s. Secondly, the household sector too, growg outstandg debts and fallg savgs rates have created a situation the household sector too, growg outstandg debts and fallg savgs rates have created a situation which foreign money is fancg capital shortfalls both the government and household sectors. which foreign money is fancg capital shortfalls both the government and household sectors. To ensure balanced growth the world economy, not only the US but also and the other To ensure balanced growth the world economy, not only the US but also and the other economies must push through structural reforms to boost productivity and employment as a means economies must push through structural reforms to boost productivity and employment as a means achievg domestic demand-led economic growth, creatg resilient economic structures. In so dog, it achievg domestic demand-led economic growth, creatg resilient economic structures. In so dog, it will be important to consider the above-mentioned changes global economic mechanisms. will be important to consider the above-mentioned changes global economic mechanisms. (1) Led by the market, the US tw deficits have expanded to an unprecedented extent. (2) Caught an asset shortfall, the government and household sectors are coverg the shortfall with foreign capital. Figure United States: Current account balance / Trade balance / Fiscal balance (US$ billion) 3 Fiscal balance September 11, 21 2 Current account balance Simultaneous terrorist attack Trade balance IT Bubble Major tax cuts October 19, 1987 Black Monday January 16-February 27, 1991 The Gulf War Major tax cuts 23 % Figure United States: Balance by sector (percent GDP) Household sector Nonfarm nonfancial corporate busess Federal government Rest the world Rest the world Reaganomics September 22, 1985 The Plaza Accord February 21/22, 1987 The Louvre Agreement Late sprg Fancial crisis Asia March 19, 23 War begs Iraq Fiscal balance: OMB projections Sources: Balance Payments (US Department Commerce), Budget the United States Government, Fiscal Year 25 (US Office Management and Budget (OMB)). (3) Concern has been voiced over the long-term implications for the US fiscal position. (year) Nonfarm nonfancial corporate busess Households Federal government Sources: Flow Funds Accounts (FRB), Gross Domestic Product (US Department Commerce). (4) The grayg society is a factor concern relation to the growg fiscal deficit Year % 15 Figure United States: Surplus or deficit under CBO s long-term budget scenarios (Percent GDP) 4. Figure Trend the annual growth rate aged population the US and (aged 65 and over) 1 5 Scenario 6 Scenario Average growth rate (US) Average growth rate () Scenario 3-1 Actual Scenario 2-15 Scenario 1 (Spendg: high; Revenues: lower) Scenario 2 (Spendg: termediate; Revenues: lower) -2 Scenario 3 (Spendg: low; Revenues: lower) Scenario 4-25 Scenario 4 (Spendg: high; Revenues: higher) Scenario 1 Scenario 5 (Spendg: termediate; Revenues: higher) -3 Scenario 6 (Spendg: low; Revenues: higher) Source: The Long-Term Budget Outlook (December 23) (US Congressional Budget Office). (year) (year) Sources: International Data Base (US Department Commerce, Bureau Census), Population Census (The age unknown figure was distributed over all age groups.) (Mistry Public Management, Home Affairs, Posts and Telecommunications), Population Projections for : (22 (based on the results the medium variant projection)) (National Institute Population and Social Security Research). 12

14 3. Imbalances the growg Chese economy and their fluence 3. Imbalances the growg Chese economy and their fluence The Chese economy has sustaed high growth led maly by expansion capital vestment. However, The Chese economy has sustaed high growth led maly by expansion capital vestment. However, analysts have also begun to pot to the risk economic overheatg as a result this rapid capital analysts have also begun to pot to the risk economic overheatg as a result this rapid capital vestment expansion. vestment expansion. As the Chese economy has creased its presence the world economy recent years, economic lks As the Chese economy has creased its presence the world economy recent years, economic lks with Cha have deepened among the countries and regions East Asia, cluded. In the event that with Cha have deepened among the countries and regions East Asia, cluded. In the event that the Chese economy enters an adjustment and downturn phase, this could then impact heavily the Chese economy enters an adjustment and downturn phase, this could then impact heavily throughout East Asia. The various growth risk factors that could impact on Cha s economic growth (e.g. throughout East Asia. The various growth risk factors that could impact on Cha s economic growth (e.g. reform state-owned enterprises, bad loan workout, come disparity issues and unemployment issues) reform state-owned enterprises, bad loan workout, come disparity issues and unemployment issues) will accordgly contue to merit close attention. will accordgly contue to merit close attention. (1) Over the last five years, Cha has mataed stable high growth, with an annual average real GDP growth rate 7.9% Figure Cha: Trends real GDP growth rate and degree contribution by type demand Net export Inventory vestment Fixed capital formation Government consumption Private sector consumption Real GDP growth rate (year) Sources: IFS (IMF), Foreign Economic Data (Cabet Office), Cha s Statistical Yearbook (National Bureau Statistics Cha). (2) Increased fixed asset vestment due to expansion real estate vestment and corporate plant and equipment vestment has contributed to this high growth Fixed asset vestment amount (1 million yuan) Year-on-year rate Figure Cha: Trends fixed asset vestment (1 million yuan) Jan - Mar Jan - June Jan - Sept Jan - Dec Jan - Mar Jan - June Jan - Sept Jan - Dec Jan - Mar Jan - June Jan - Sept Source: Foreign Economic Data (Cabet Office), National Bureau Statistics Cha website. Jan - Dec 13

15 (3) Trade between Cha and its East Asian neighbors is creasgly creatg close economic relations. Figure Share exports to Cha and the Cha zone the overall amount exports each East Asian country and region (Unit: %) Hong Kong Taiwan Kore a Thailand Sgapore (Reference) US Germany Cha Cha zone Note: Cha zone cludes Cha, Hong Kong and Taiwan. Source: Trade statistics each country, World Trade Atlas (Global Trade Information Services). (4) It has been poted out that medium-term economic cycle waves have also emerged the Chese economy. 5 Figure Cha: Trends the ratio fixed asset vestment to GDP 45 4 Peak 35 Peak 3 Valley 25 9 years Valley 7 years 2 Valley (year) Source: Shohara (23). Origal source: Cha Statistical Yearbook 23 (National Bureau Statistics Cha). Section 5 Summary Chapter 1 Changes macroeconomic fluctuations that have been occurrg agast a backdrop economic Changes macroeconomic fluctuations that have been occurrg agast a backdrop economic globalization have at least partially fluenced changes the micro-level competition environment and globalization have at least partially fluenced changes the micro-level competition environment and corporate activities. Amidst these changes economic trends, evolvg competition modalities stead corporate activities. Amidst these changes economic trends, evolvg competition modalities stead attemptg to elimate or control competition will enable countries to prosper and respond to new challenges. attemptg to elimate or control competition will enable countries to prosper and respond to new challenges. 14

16 Chapter 2 The new value creation economy and evolvg modalities competition Section 1 Modality corporate competition Value creation utilizg tellectual 1. Intellectual as a source competitiveness 1. Intellectual as a source competitiveness In both and the US the ratio tangible to tangible has grown recent years, suggestg that In both and the US the ratio tangible to tangible has grown recent years, suggestg that the earlier style busess management based on tangible is undergog a major transformation. the earlier style busess management based on tangible is undergog a major transformation. With competition among companies tensifyg on a global basis, (i) companies now need to be With competition among companies tensifyg on a global basis, (i) companies now need to be constantly supplyg differentiated products and services, and for this reason (ii) knowledge has become an constantly supplyg differentiated products and services, and for this reason (ii) knowledge has become an important source differentiation products and services. These developments are drivg a shift the important source differentiation products and services. These developments are drivg a shift the basis busess management from tangible to tellectual. basis busess management from tangible to tellectual. (1) In both and the US, tangible are creasg as a percentage total company value. Figure Changes the ratio tangible to total (US) Figure Changes the ratio tangible to total () 1978 Intangible 1998 March 1986 All dustries March 23 Manufacturg Industry March 1986 March 23 17% Tangible Intangible 69% Intangible 58.6% Intangible 37.8% Intangible 69.7% Intangible 59.9% 83% Tangible 31% Tangible 41.4% Tangible 62.2% Tangible 3.3% Tangible 4.1% Note: Intangible are calculated as the portion remag when tangible such as machery and facilities, etc. are subtracted from the total market value (the sum total share value and long-term loans (corporate bands)) all companies except fancial stitutions listed on the stock exchange the US. Source: Blair, et al. (2). Note: Intangible are calculated as the portion remag when tangible fixed are subtracted from total share value, corporate bonds, convertible bonds, and long-term loans. The all dustries classification cludes 169 ese companies, and the manufacturg dustry classification cludes 14 companies. Source: Nikkei NEEDS. (2) The entry busesses utilizg tellectual is also leadg to transformation the dustrial structure. Figure Changes to the busess environment the animation dustry Figure Change the busess environment from the record era to the CD era Tangible Studios TV broadcast facilities Movie theaters Distribution & marketg Formerly Production companies TV stations Movie companies Advertisg & marketg companies Production committees Animation planng & production Animation broadcasts Production & broadcast animated movies Marketg character goods Tangible Studios Press factories Distribution & marketg Record era Record companies Production Music publishg companies Promoters Musical record planng & production Musical record manufacturg Musical record marketg Artist management Musical publishg management Concerts Recent trends Know-how Contents & production companies Tangible Production companies Studios TV stations TV broadcast facilities Movie companies Movie theaters Distribution & Advertisg & marketg marketg companies Animation planng & production Animation broadcasts Production & broadcast animated movies Marketg character goods Tangible Know-how Studios Press factories Distribution & marketg CD era Indies Record companies Production Music publishg companies Promoters Musical record planng & production Musical record manufacturg Musical record marketg Artist management Musical publishg management Concerts Source: METI. Source: METI. 15

17 2. The viewpot knowledge economy 2. The viewpot knowledge economy International stitutions and other organizations are analyzg and considerg policy responses International stitutions and other organizations are analyzg and considerg policy responses relation to the role tellectual recognition the shift to the so-called knowledge economy. relation to the role tellectual recognition the shift to the so-called knowledge economy. Appropriate evaluation and disclosure tellectual is becomg critical as the source value Appropriate evaluation and disclosure tellectual is becomg critical as the source value changes from tangible to tellectual. Specific approaches to the evaluation and disclosure changes from tangible to tellectual. Specific approaches to the evaluation and disclosure tellectual can be broadly classified to two types: (i) approaches which the tellectual tellectual can be broadly classified to two types: (i) approaches which the tellectual have to be quantified and recorded fancial statements; and (ii) approaches which tellectual have to be quantified and recorded fancial statements; and (ii) approaches which tellectual are qualitatively evaluated and disclosed separately from fancial statements. are qualitatively evaluated and disclosed separately from fancial statements. (1) In the comg knowledge-based economy, the sources economic value are shiftg towards the creation, acquisition and use tellectual. Figure The resource base the 21 st century enterprise Tangible where ownership is clear and enforceable Hard Commodities Rights that can be bought, sold, stocked and readily traded disembodied form and (generally) protected Non-price factors competitive advantage Potentially unique competition factors that are with the farm s capability to brg about St Difficult to isolate and value Tangible Intangible goods Intangible competences Latent capabilities <Physical > Land, factories and facilities Inventory Others <Fancial > Cash and equivalents Securities Investments Source: European Commission (23). <Material supply contracts> Licenses, quotas and franchises <Intellectual that can be registered> Copyright or patent protected origals film, music, artistic, scientific, etc. cludg market stware Trademarks Designs <Other tellectual > Brands, know-how and trade secrets <Competency map> Distctive competences Core competences Route competences <Capabilities> Leadership Workforce caliber Organizational (cludg networks ) Market/reputational Innovation,/R&D -process Corporate renewal (2) The evaluation and disclosure tellectual is a necessary step toward the shift to the knowledge-based economy. (a) (b) (c) (d) Recommendations the EU PRISM Report 23 Develop a statistical formation system at the national and company level for tellectual. Establish evaluation methods for R&D vestment the service dustry. Contue to promote IPR strategies. Factor tellectual to small and medium enterprise fancg policy. 16

18 3. 3. Intellectual Intellectual and and the the value value creation creation capacity capacity companies companies In order to analyze whether a concrete correlation can be seen between tellectual and the In order to analyze whether a concrete correlation can be seen between tellectual and the performance a company terms prit, sales, or share price, tellectual are divided to (i) performance a company terms prit, sales, or share price, tellectual are divided to (i) tellectual related to technological novation; (ii) tellectual related to organizational tellectual related to technological novation; (ii) tellectual related to organizational design ; and (3) tellectual related to human capital. design ; and (3) tellectual related to human capital. Empirical studies the US have shown that (i) vestment R&D spurs novation and improves the Empirical studies the US have shown that (i) vestment R&D spurs novation and improves the future performance companies; (ii) tellectual other than R&D (organizational capital and future performance companies; (ii) tellectual other than R&D (organizational capital and human capital) are also important sources company growth; and (iii) organizational capital, human human capital) are also important sources company growth; and (iii) organizational capital, human capital, and IT vestment complement each other and produce benefits for company performance capital, and IT vestment complement each other and produce benefits for company performance excess their benefits as dividual. excess their benefits as dividual. Empirical studies have shown that (i) although there is sometimes a positive correlation Empirical studies have shown that (i) although there is sometimes a positive correlation between R&D vestment on the one hand and the number patent applications which serve as a between R&D vestment on the one hand and the number patent applications which serve as a medium-term R&D vestment yardstick on the other and company performance, compared to the US medium-term R&D vestment yardstick on the other and company performance, compared to the US analysis, no lear correlation is demonstrated; (ii) non-r&d tellectual are an important source analysis, no lear correlation is demonstrated; (ii) non-r&d tellectual are an important source growth just as the US; and (iii) there is a correlation between corporate governance and company growth just as the US; and (iii) there is a correlation between corporate governance and company performance. performance. (1) Intellectual are classified accordg to whether they are created the area novation, organization, or human resources. Figure Classification tangible Intensified competition duced by globalization, deregulation, and technological change Fundamental corporate change, emphasis on novation, deverticalization, tensive use formation technology Innovation-related tangible Human capital tangible Organizational tangible Source: Lev (21). (2) Non-R&D tellectual are an important source company growth the US. (3) Boostg human capital contributes to creased productivity. 6 5 Figure Relationship between company sales and non-r&d tellectual the US R&D expenditure data available R&D expenditure data not available Figure Relationship between improvements to human capital and productivity creases Average percentage crease sales due to non-r&d tellectual Average percentage crease sales due to non-r&d tellectual shared by all companies Average percentage crease sales due to the non-r&d tellectual unique to dividual companies Percentage contribution non- R&D tellectual to creases sales The average percentage crease sales due to non-r&d tellectual is the total the average percentage crease sales due to non-r&d tellectual shared by all companies and non-r&d tellectual unique to dividual companies. 2. The companies analyzed are about 25 companies that appeared Information Week 5 over the period The percentage contribution to creases sales is calculated regardless the availability R&D expenditure data. Source: Lev (23). 17 Improvements to personal effect only Source: Abowd, et al. (23). Improvements to experience component only Combation personnel effect and experience component