Managing the Japanese Service Industry: Location, Competitiveness and Internationalization

Japan has been a leading industrial power during the last 50 years. The manufacturing industry has developed world leading competitiveness and productivity. The service industry on the other hand has been less competitive and internationalized in comparison with other OECD countries. Increased regional and global competition changes the role of Japan in the knowledge intensive economy. Services are becoming a more important part of the future competitiveness of the economy. Japan is facing a number of challenges to foster a competitive knowledge economy with a high degree of services. The paper seeks to explore the advanced service industry and its connections to the manufacturing sector through two perspectives. First, structural and cultural reasons in the business environment could help to explain the limited success of the service industry. Service internalization and bundling of services have made it difficult for independent firms to compete. Japanese firms need to rethink their global strategy and build networks that are in line with knowledge creation and globalization. Service firms must clearly define their strategy for localization and internationalization. Manufacturing firms need to develop their offering of bundled services in order to move from free to fee. Companies that are well placed to produce value-added for clients through the product life cycle utilizing the broad base of intra- and inter-firm competence would enhance their competitiveness. Second, uneven regional economic development has proven to be a hurdle for the development of a knowledge intensive service economy. Knowledge flows between companies in regional economic clusters has proven difficult. The paper uses primary and secondary data on the national, regional and company levels to shows the difficulties, but also the potential that exist within the service industry in Japan.