REIGNITING PRODUCTIVITY AND GROWTH IN JAPAN'S FUTURE

McKinsey & Company's business and economics research arm, the McKinsey Global Institute (MGI), was founded in 1990 to get a better knowledge of the global economy. Our mission is to deliver data and insights to business, government, and social sector leaders so they can make better management and policy decisions.

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McKinsey & Company in Japan-

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McKinsey's Japan branch, based in Tokyo, assists Japanese and global firms in making meaningful, long-term progress toward their most pressing objectives.

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Many of these issues are addressed by Abenomics, but Japan requires a much broader change agenda its underlying problems cannot be remedied solely through policy. This paper attempts to highlight possible growth and regeneration opportunities, with a focus on areas where the private sector can lead.

The McKinsey Global Institute (MGI) and McKinsey's Japan practise collaborated to produce this research. Georges Desvaux, managing partner of McKinsey's Japan office, and Jonathan Woetzel, an MGI director in Shanghai, headed the project. The research was directed by Tasuku Kuwabara, a McKinsey partner in Tokyo, and Michael Chui, an MGI partner in San Francisco.

Mami Ariie, Ken Fujimoto, Karen Kawabata, Motonori Kuwana, Andrew Marconi, Andrey Mironenko, Mika Mizunuma, Miki Sarumaru, Misako Sasayama, Elizabeth Silliman, and Manae Uchibori made up the study team, which was led by Salvador Guzman-Herrera and Asta Fjeldsted. Lisa Renaud assisted with the editing.

Tim Beacom, Marisa Carder, Matt Cooke, Vanessa Gotthainer, Deadra Henderson, Midori Horii, Misayo Iye, Yoko Matsumoto, Hanako Muto, Tomoko Okayasu, Julie Philpot, Rebeca Robboy, and Eriko Tsurugaya are among our colleagues in operations, production, and external relations.

Many McKinsey colleagues, including Ken Kajii, Peter Kenevan, Kenji Nonaka, Sree Ramaswamy, Yasushi Sawada, Yoshi Takanuki, and Bill Wiseman, provided valuable advise and feedback on advanced manufacturing.

Peter Child, Rimpei Iwata, and Paul McInerney were our go-to people for retail guidance. The financial services business was discussed by Vivek Agrawal, Vito Giudici, Fumiaki Katsuki, Masaaki Tanaka, and Ryoma Yamamoto. Axel Baur and Ludwig Kanzler provided us with invaluable health-care advice.

Martin N. Baily, the Bernard L. Schwartz Chair in Economic Policy Development at the Brookings Institution, and Keiko Ito, professor of economics at Senshu University, served as academic advisers for this research.

This paper contributes to MGI's aim of assisting business and policymakers in better understanding the forces reshaping the global economy, identifying important locations, and preparing for the next growth wave.

Become more globally integrated.

Instead of focusing just on the home market, Japanese enterprises must become more active in their pursuit of the world's fastest-growing markets. However, rather than simply becoming worldwide, businesses must think globally in terms of their operations and people development. Organizations can maintain their Japanese heritage while strengthening their ties to global supply chains.

Improve capabilities across the value chain

Japanese firms have long excelled in manufacturing and product creation, but they must invest in developing world-class capabilities in areas such as sourcing, supply chain management, customer relationship management, marketing, and after-sales support.

Continue the journey of digitization.

An end-to-end evaluation in most firms will likely show areas where there has been a dearth of IT investment and process innovation. Replacing outmoded IT systems and providing mobile tools to employees can result in significant performance gains.

Determine the optimal physical footprint.

With changing demographics, organisations may need to reorganise in a more digital world. Smaller urban storefronts (or, alternatively, big-box stores) that offer unique customer experiences can assist cut costs and boost proximity to customers in retail. Providers of health care may need to assess whether their locations, scale, and level of specialisation match the demands of patients of varying ages and regions. Some financial organisations may need to eliminate less lucrative branches while incorporating new interactive technologies into others.

What is it about today's climate that makes a significant adjustment in Japan's course possible? Everything, to put it simply.

Despite the fact that global trade is booming, Japan's export share has dropped from 7% in 2000 to 4% in 2013. Japan, on the other hand, has the manufacturing, export, and innovation resources to compensate for lost time and market share. Emerging economies will become growth markets for autos, machinery and equipment, and electronics as they continue to industrialise, all of which have long been Japan's strong points.