Hideaki Sato
Advisor
Vietnam Chamber of Commerce and Industry Representative Office in Japan
On September 15, 2008, Lehman Brothers, a global financial-services firm, filed for Chapter 11 bankruptcy protection and went bankrupt. This was the largest bankruptcy filing in U.S. history, with Lehman holding USD 613 billion in assets, and this event was a key point in the global financial crisis caused by U.S. subprime mortgages. The shock of Lehman Brothers’ bankruptcy developed into a global economic shock, resulting in bank failures, sharp declines in stock exchange indices, and large reductions in the market value of equities all over the world.
The continuing growth of this crisis prompted fears of a global economic crisis, and some critics contended that this crisis would result in the Second Great Depression. However, this has not been the case. Although surely this crisis is a serious one, for the first time in history there is an international consensus regarding how such a crisis should be managed, and the world’s countries are acting in harmony. Also, in the current crisis, only financial businesses that deal mainly with speculative investments have collapsed. Thus, the world economy will survive this crisis and rise again.
For example, although in the U.S. the financial sector is in a devastated state, and the car and housing industries are facing severe recessions, other industries - such as aircraft, information and communications, and medical products industries - remain financially strong. These industries will push the car and housing industries upward, and the entire economy will rise again sooner or later.
In Japan, fears of the recession were exacerbated sharply by the Toyota shock. In November 2008, the Toyota Motor Corporation announced that it expected its main automaking business to lose USD 1.7 billion during the 2008-09 fiscal year, and as a countermeasure Toyota immediately drastically reduced its car-production volume and the number of its temporary workers. This significantly strengthened the public feeling that Japan is one of the countries hard-hit in this global economic downturn.
However, Japan’s economy will recover sooner than most people are anticipating. The prompt reduction in production by Toyota and other manufacturing companies was made possible by cutting temporary workers, which was enabled by the recent revision of the Worker Dispatching Act, which was not in effect during past recessions. Thanks to swift reactions such as the prompt reductions of workers and production, Japanese manufacturing companies managed to limit their losses to a minimum, and therefore as demands in the U.S. and China recover and grow, the Japanese economy will recover as well.
However, the Japanese economy still has a serious problem. According to a survey of the National Institute of Population and Social Security Research, Japan’s population hit its peak at 127.7 million in 2006, is now decreasing, and in 2046 will decline to 100 million. This population decrease will result in low consumption and therefore in the shrinkage of the domestic market. Without a promising domestic market, Japanese industries will have to again rely on overseas markets for them to survive.
In my view, the current economic crisis has brought about two changes. First, the economy led by financial businesses has collapsed, and the real economy has once again regained its status as the main actor in the world economy. Second, thanks to the fall of the European and U.S. economies, Asia is now increasing its presence in the world economy. Vietnam is one of leaders in this trend. The Asian Development Bank estimates that Vietnam will maintain a GDP growth rate of six per cent (6%) in 2009, and the bank says that the Lehman shock has had little effect on the country.
Given the economic situation described above, to promote the mutual development of Vietnam and Japan, it is necessary for Japanese small and medium enterprises (SMEs), including some of those in advanced-technology fields, to transfer their superb know-how to Vietnam. Japanese SMEs have superb know-how that is well known and highly praised worldwide. However, these companies are suffering from a chronic lack of successor-owners, and they are the hardest-hit in the current economic recession because most of them are in supporting industries. Because the Japanese domestic market will shrink due to a decrease in the nation’s population, Japanese SMEs also should transfer their technologies, but that will be difficult because, among other problems, they generally lack adequate capital.
Vietnam has a fast-growing economy and needs capital investment and technology transfers from other countries. Transfers from Japanese SMEs will be greatly facilitated if Vietnam and Japan can create a new patent system, in the form of a bilateral agreement, that protects know-how that Japanese SMEs now keep as trade secrets. In addition, the enhanced entry of Japanese advanced-technology companies into Vietnam will strengthen the bond between the two countries as tactical partners, and thus will contribute to the mutual development and prosperity of the two countries.
Mutual development
Transfers from Japanese supporting industries to Vietnam
Japan’s economy is now led by the automotive and electronics industries. But it must be kept in mind that the high international competitiveness of these two industries is based on superior supporting companies, such as manufacturers of parts like semiconductors and providers of processed materials such as steel and chemical products. The supporting companies include SMEs that provide highly skilled cutting, pressing, forging, casting, and molding of metals, and that produce manufacturing equipment and machines. No comparable aggregation of supporting industries exists anywhere in the rest of Asia. In China, the final-assembly segments of the automotive and electronics industries have developed, but their supporting industries have not grown, and thus parts such as semiconductors and liquid crystal panels, and materials such as magnetic steel sheets, must be imported from Japan.
The superb know-how of supporting companies is not suitable to be adequately protected by the current patent system, whose standards include requirements of novelty and inventiveness, and therefore companies keep such know-how as trade secrets. If those skills were to be patented and therefore able to be sold to foreign companies, transfers would become very attractive and practical choices for Japanese SMEs.
The legal basis of such a new patent system can be provided by the Paris Convention for the Protection of Industrial Property, one of the first and most fundamental international agreements regarding industrial property. Clause 4 of Article 1 provides that “Patents shall include the various kinds of industrial patents recognized by the laws of the countries of the Union, such as patents of importation, patents of improvement, patents and certificates of addition, etc.” This clause has not attracted attention, but it should be utilized for the economic benefit of both Vietnam and Japan.
Transfers from Japanese advanced-technology companies to Vietnam
One urgent issue facing Japanese exporting companies is to create and maintain “high credibility.” Japanese advanced-technology products such as nuclear power plants, shinkansen trains, aircraft, and information equipment all require the utmost in operational safety, and it is difficult to produce them in other countries. For the future development of Japanese industry, it is of supreme importance to continue to create superior products in those fields and to win international trust that results in the export of those products.
However, the political support for exporting the products of these advanced-technology companies, is inadequate. Although manufacturing companies own the technologies for producing, for instance, shinkansen trains and nuclear power plants, the systems that assure the high operational safety of those products are possessed by former governmental agencies. Although for lucrative business it is necessary to export technology and system as a package, former governmental agencies, fearing risks, have been reluctant to export their systems. But transfers from advanced-technology companies have an important role in transfers from supporting industries to Vietnam and in seeking mutual development of Japan and Vietnam as tactical partners, and therefore such transfers should be promoted as a matter of public policy.
Vietnam’s future
Since the adoption of the Doi Moi (renewal) economic reforms in Vietnam in 1986, that country has achieved eye-opening economic growth.
In the marketing and information fields, in particular, Vietnam has put into practice an aggressive open-door policy that has greatly facilitated deregulation and liberalization. In regard to international commercial relationships, the country joined the ASEAN Free Trade Area (AFTA) in 1995, APEC in 1998, and, after many years of negotiations, in 2007 it became the 150th member of the WTO. By joining the WTO, Vietnam became able to receive most-favored nation treatment by other signatories, which improved its exporting environment. As a result of these developments, Vietnam is the most attractive country, second only to China, in the field of foreign direct investment. This fabulous economic success has been achieved because the Vietnamese people have applied the drastic policies of Doi Moi, uniting as a nation under the strong leadership of the government.
Vietnam is developing rapidly, and it needs investment and technology transfers from abroad. In contrast, supporting industries in Japan, which are suffering from a chronic want of successor-owners and a shrinking domestic market, have to develop in overseas markets in order to survive. In this situation, a new patent system that protects companies’ know-how can facilitate transfers from Japanese supporting companies more effectively than any other possible measures could. At the same time, Japan also must export its advanced technology, such as that relating to the construction and operation of nuclear power plants and the production of shinkansen trains, so as to maintain and develop Japan’s economic bond with Vietnam. Reinforcement of this tactical partnership by these two measures is the best way to promote the mutual development and prosperity of both Vietnam and Japan. The post-Lehman-shock situation of the world economy is not the harbinger of another “Era of Great Development,” but represents an opportunity to realize these drastic reforms.-