Japan: Aging, but Somehow Thriving

In a lesson for all maturing economies, Japan is defying demographic trends to grow its economy.

In a shifting economy and corporate world, agility has become a key predictor of success—yet studies show only a fraction of the global workforce is considered highly agile. In this regular column, Michael Distefano, Korn Ferry’s chief marketing officer and chief operating officer, Asia Pacific, explores the concept of agility: who has it, who doesn’t, and what companies can do to mold it.

Ask a hundred people what countries should do to grow and you’ll get as many different answers, from fiscal stimulus to tax breaks and everything in between. But of those hundred different answers, you won’t hear the actual most important one. That’s because it is so obvious that it’s easily overlooked. The most important thing any country can do to grow is to populate. It’s hard to grow your economy when you don’t have people to buy stuff. 

Japan is currently playing the role of the exception that proves this rule. What’s going on in the country right now defies the numbers. Japan’s population is estimated to fall from 127 million currently to 88 million by 2060. Further, roughly 40% of those people will be older than 65. Last year marked the first time since 1899 that fewer than 1 million babies were born in Japan.

Yet the International Monetary Fund forecasts growth for the Japanese economy of 1.2% this year and 0.6% next year. Japanese companies are bucking demographic trends and posting stellar results. Toyota keeps selling more vehicles—and earning higher profits—than analysts expect in its home market of Japan. Shares of electronics manufacturer Panasonic are up 33 percent this year, with analysts saying that changes to its organizational structure and further expansion into new growth businesses are fueling its performance.

No company epitomizes the agility of Japanese companies in recent years quite like Softbank. In 2013, the conglomerate, led by CEO Masayoshi Son bought Sprint in an audacious move into the mobile market. Last summer it bought British chip maker ARM, and it has for years been investing heavily in Hollywood, striking partnerships with movie studio Legendary Entertainment and the William Morris Endeavor talent agency. The bets are starting to pay off. Investors have sent Softbank shares skyward since its pledge to invest $50 billion and create 50,000 new jobs in the U.S. The agility of Toyota, Panasonic, Softbank and others is not only fueling economic growth domestically, but can also serve as a model for global organizations in other mature markets that are grappling with similar demographic declines.

In addition to a two-decade low unemployment rate, wage increases, and mild inflation, the IMF cited a large and sustained increase in exports as the main reason for raising its forecast. Exports expanded at the fastest pace in more than two years in May, for instance.

The exports growth stems from Japanese companies recognizing the domestic challenges and finding a way to diversify to drive growth internationally. Cosmetics maker Shiseido, for instance, last year opened an Americas Innovation Center, with more international locations to come, as part of its global plan. Hitachi management’s growth plan projects international sales to account for a majority of its overall revenue in 2018. 

Japan’s demographic and economic trends foreshadow those in other mature economies, including the United States. Marriage and fertility rates have been on the decline in the U.S. for years. The number of Americans age 65 or older is projected to more than double to nearly 100 million by 2060. (Unlike in Japan, the total U.S. population continues to grow). Economically, the U.S. growth rate came in at an annualized 1.4% for the first three months of 2017, with exports increasing more than expected. Unemployment is at its lowest point in 16 years; job creation is strong, but wages are barely ahead of inflation; work isn’t steady; and consumer spending is volatile. 

U.S. companies appear to be concluding from the data that an economic slowdown is in the offing, signaling to tighten budgets and build cash reserves. These moves will only get them so far, though. U.S companies would also do well to emulate their Japanese counterparts and look for growth outside their borders.