copyright2002: nomura research institute ， ltd all rights reserved 0 tokyo club for global studies...

1Copyright2002: Nomura Research Institute ， LTD All Rights Reserved

Tokyo Club for Global Studies

Innovation and Promotion Policies for the Service Sector in Asia20-21 February 2003


Service Sector Innovation and Policy Issues in Japan

February 21, 2003

Nobuaki TakadaNomura Research Institute, Ltd.


Introduction

• The weight of service industries has been increasing. • Hopes are being pinned on the service industries to become

a key player in the rehabilitation of the Japanese economy.• The service industries have failed to achieve demonstrative

increases in productivity through innovation.

“Service innovation” based on the development and adoption of technology and know-how


Growing Importance of Service Industries

1978 1988 1998Agriculture, forestry and fisheries 3.7 2.6 1.8Mining 0.5 0.2 0.2Manufacturing 24.9 26.2 25.9Construction 11.1 9.3 7.8Total for secondary industries 36.5 35.8 33.9Electric power, city gas and water supply 2.4 2.5 2.9Wholesale and retail 11.2 12.6 12.2Finance and insurance 4.1 5.6 5.0Real estate 10.8 10.8 11.9Transportation and communications 6.4 6.2 6.3Services 13.2 13.9 16.4Government service providers 9.7 8.0 7.2Private non-profit service providers to the household sector2.0 2.0 2.3Total for tertiary industries 59.8 61.6 64.3

Change in Japan’s Industrial Structure (% of GDP)


80.0

100.0

120.0

140.0

160.0

180.0

1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001

Service Tertiary Manufacturing

Sectoral Trends in Employment 1981-2001

(1981 = 100)


2.8%

4.7%

1.9%

4.2%

0%

1%

2%

3%

4%

5%

6%

1990 2000

Manufacturing Service

4.0%

2.9%

5.3%4.8%

0%

1%

2%

3%

4%

5%

6%

1990 2000

Manufacturing Service

Business-Opening Ratio　　　　　 Business-Closing Ratio

Business-opening and Business-closing Ratiosin the Manufacturing and Service Industries


20.622.3 22.9

17.6

30.9

0

5

10

15

20

25

30

35

U.S. U.K. France South Korea Singapore

Ratio of Business Services to the Total Economy in Selected Countries

Percent of GDP


BusinessAmount of

outputNumber ofemployees

Number ofestablishment

Laundry, barbers and public bath 82.5% 18.7% 2.8%Parking 96.0% 26.3% 3.1%Other services related to daily living (Note 1) 62.9% 35.5% 19.1%Inns and other accommodations 56.5% 18.2% -13.6%Entertainment (excluding movie and video production) 80.6% 49.4% 17.3%Automobile maintenance 45.5% 21.2% 11.3%Machinery and furniture repairs 150.7% 52.6% 11.9%Rental of goods 81.6% 33.6% 12.6%Movie and video production 81.2% 44.0% 51.3%Broadcasting 63.6% 19.6% 0.7%Information services and investigation 164.6% 42.3% 44.6%Advertising 42.0% 7.2% -3.5%Professional services 121.1% 44.3% 23.9%Other services for businesses (Note 2) 133.2% 64.3% 42.2%Waste disposal 162.3% 60.7% 45.3%Health care 207.3% 125.2% 29.1%Public health and hygiene 244.3% 162.9% 88.1%Social insurance and welfare 135.8% 103.7% 49.2%Education 44.1% 24.9% 36.6%Academic research institutions -5.6% 33.3% 45.0%Religion 66.0% 8.7% 2.3%Political, economic or cultural groups 57.0% 21.7% 11.6%Other services (Note 3 138.1% 95.0% 56.1%

Growth Sectors of the Service Industry (1989-99)


Growth Potential of Service Industries

Rate of return

Chart. Smile Curve

R&D 生産販売 R&D Production

Value chain

SalesAfter-sale services

Rate of return

Chart. Smile Curve

R&D 生産販売 R&D Production

Value chain

SalesAfter-sale services


Smile Curves for the Computer Industry Structure of the Value Added in the PC IndustryValue added ratio

Other electronic parts

Semiconductor elements

and integrated

circuits

Data processing and supply

services

0％

5％

10％

Computers Computer auxiliary equipment

Family communications

equipment wholesale


equipment retailing

Software Computer leasing

1998

Liquid crystal elements

Structure of the Value Added in the PC IndustryValue added ratio

Other electronic parts

Semiconductor elements

and integrated

circuits

Data processing and supply

services

0％

5％

10％

Computers Computer auxiliary equipment


equipment wholesale


equipment retailing

Software Computer leasing

1998

Liquid crystal elements

Production valueOther

electronic parts

Semiconductor elements and ICs

Information services

0％

5％

10％

Computers

Computer auxiliary equipment

Family Communications

equipment wholesale


Equipmentretailing

Computer leasing

1988

Production valueOther

electronic parts

Semiconductor elements and ICs

Information services

0％

5％

10％

Computers

Computer auxiliary equipment

Family Communications

equipment wholesale


Equipmentretailing

Computer leasing

1988


Smile Curve of the Automobile Industry Chart. Smile Curve of the Automobile Industry

0％

5％

10％

Auto parts Enginesand

their parts

Chassis

Auto assembly Automobile wholesale

Automobile retailing

Autorepairs

Autos for hire and taxis

Value added ratio

Production value

0％

5％

10％

Auto parts Engines and

their parts

Auto assembly

Automobilewholesale


Auto repairs

Production value

1998

1988

Leasing and rental

Chassis Leasing and rental

Autos forhire and taxis

Chart. Smile Curve of the Automobile Industry

0％

5％

10％

Auto parts Enginesand

their parts

Chassis

Auto assembly Automobile wholesale


Autorepairs

Autos for hire and taxis

Value added ratio

Production value

0％

5％

10％

Auto parts Engines and

their parts

Auto assembly

Automobilewholesale


Auto repairs

Production value

1998

1988

Leasing and rental

Chassis Leasing and rental

Autos forhire and taxis


Implications from the Smile Curve

•The smile curve varies from industry to industry.

•Power relations among sectors make up the value chains of industries.

•Value added as a whole fell between 1988 and 1998.

• It is possible to change the value chain through innovation.


Evolution toward a Service Economy

Factors on the users’ side:

Individuals:

•Graying of the population.

•Participation of housewives in the labor force.

•Increasing need for continuing education.

Businesses:

• Core competency and outsourcing.

Government:

•Fiscal rehabilitation


Evolution toward a Service Economy

Factors on the suppliers’ side:

• Manufacturers focusing on after-sale services, such as maintenance and leasing

• Companies spinning off head office administration departments to create shared-service companies


Rising hopes pinned on the service industries

To create employment opportunities

To realize a desirable international production network with other Asian countries.

To contribute to strengthening the competitiveness of industries

To realize a rich and worry-free life


Policy measures by the Japanese government

The Cabinet Office:

•Council on Economic and Fiscal Policy

•Industrial Structure Council

Ministry of Economy, Trade and Industry:

•Service Forum

Japan Tourism Advisory Council


•(Workers, %)

•Manufacturing

•Mining•Finance and insurance

•Electricity, city gas, water supply

•Construction

•Real estate

•Transportation, communications

•Services

•Wholesale, retailing

Employment, %

•Manufacturing

•Mining•Finance and insurance

•Electricity, city gas, water supply

•Construction

•Real estate

•Transportation, communications

•Services

•Wholesale, retailing

TFP and the Rate of Increase in Employment Average annual growth rate in employment 1997-2000


• Combining crime-prevention sensors and telecommunications technology.

• Based on the information and communications infrastructure.

• Developed technologies in such areas as:

remote sensing,

image processing,

geographical information system (GIS),

and the application of information technology to finance


• Based on the combination of a physical distribution and delivery system and an information system.

“cool home delivery”

“time designation delivery”

“cash-on-delivery”

• Challenging the government-run postal business


• Convenience stores supported by sophisticated physical distribution and information systems.

• Offering a various services in addition to selling merchandise. Services Available at SEJ Outlets

•Copying •Fax transmission•Photo developing•Parcel delivery•Sale of postage stamps, post cards, and revenue stamps•Sale of waste disposal stamps•Sale of ski lift tickets•Printing of New Year’s cards•Sale of automobile third party liability insurance•Magazine subscriptions•Pick-up of merchandise ordered via the Internet, etc.•Sale of catalog gifts•Sale of various prepaid cards


• Barbershop chain operator.

• Based on the concept of \1,000 and 10 minutes.

• Eliminate shampoos, face shaves, and massages.

• Designed a shop system, including utensils and barber’s chairs, that allows efficient and inexpensive service.

• Opened shops in Singapore.


Application of Toyota-model production system

• Dry cleaning and laundry industry: Adopting the “kanban” method to process small lots of various types of clothing resulted in improved finishing, fewer delivery errors, and less damage to clothing.

• Hospitals:Reforming operations based on the concept of eliminating waste, which is the core of the Toyota model, sharply reduced waiting time for patients.


Need for Japanese-model service innovation

• It is essential for service industries to raise labor productivity.

• The development of markets and the creation of demand through innovation should expand the markets for services.

• Service industries need to do business abroad.


The direction of service innovation

Product innovation• Creating new service content.• Requires developing technology to create new services

or developing technologies and know-how to offer services more efficiently.

Process innovation• Building systems that can meet diverse needs and be

efficient. • Chain Operation is such a system.


Future policies for the development of service industries

(1) Develop service technologies

(2) Improve the market environment for service industries

(3) Develop service industry professionals

(4) Promote the internationalization of the service industries


Develop service technologies

Adapt technologies and know-how used in the manufacturing industries.

Develop original technologies for the service industries.

• Ubiquitous network technologies -- IC cards, RFID, etc.

• Data mining • Other information processing

technology • Sensor technology


Improve the market environment for the service industries

Increase competition by eliminating monopoly and removing entry barriers.

Open markets that have been monopolized or heavily regulated by the public sector


Develop service industry professionals

Securing and nurturing manpower with professional capabilities are essential for the development of these industries.

Enhance higher education in the field of services

Develop vocational schools for re-training and re-education of workers.


Promote the internationalization of the service industries

Provide information to help businesses go abroad.

Harmonize systems that affect the business environment in various countries.

Actively promote foreign direct investment in Japan.


Country （ Regional) DifferencesSectoral Share of GDP at Current Market Prices, 1980, 1990, 2000

(Percent)

IndustryAgriculture All Industry Manufacturing only Services

1980 1990 2000 1980 1990 2000 1980 1990 2000 1980 1990 2000

China 30.1 27.0 15.9 48.5 41.6 50.9 44.2 37.0 44.3 21.4 31.3 33.2Hong Kong 0.8 0.3 0.1 31.7 25.3 14.6 23.7 17.6 5.8 67.5 74.5 85.3Indonesia 24.8 19.4 16.9 43.4 39.1 47.3 11.6 20.7 26.0 31.8 41.5 35.8Korea 14.9 8.5 4.6 41.3 43.1 42.7 29.7 28.8 31.5 43.7 48.4 52.7Malaysia … 15.2 8.6 … 42.2 51.7 … 24.2 34.3 … 42.6 39.7Philippines 25.1 21.9 15.9 38.8 34.5 31.1 25.7 24.8 22.6 36.1 43.6 52.9Singapore 1.3 0.4 0.1 38.1 34.4 34.3 29.1 27.1 26.5 60.6 65.3 65.6Taiwan 7.7 4.2 2.1 45.7 41.2 32.4 36.0 33.3 26.3 46.6 54.6 65.6Thailand 23.2 12.5 9.1 28.7 37.2 41.7 21.5 27.2 33.4 48.1 50.3 49.2

Japan 3.0 2.0 41.0 36.0 28.0 24.0 56.0 62.0

Source: ADB, Asian Development Outlook 2001. World Bank, World Development Indicators 2001.

copyright2002: nomura research institute ， ltd all rights reserved 0 tokyo club for global studies...

Documents

service industry

service innovation

knowhow slide

weight of service industries

computer industry slide

automobile industry

service sector innovation

service economy factors