Back to business - Issue 43 - Magazine | Monocle

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Even before the magnitude-nine earthquake and tsunami hammered Japan’s northeastern coast, the country’s economy had seen better days. Now weeks after the disaster, the idled factories, dead workers, delayed deliveries, fuel shortages and rolling blackouts pose a huge challenge for “Japan Inc”.

Few businesses have emerged unscathed. Tokyo Shoko Research estimates that more than 70 per cent of Japan’s 1,597 publicly listed companies were affected by the quake, tsunami, or nuclear crisis.

When car parts suppliers’ factories went down, most of the country’s car and van makers halted their assembly lines. Brewers Kirin, Asahi and Sapporo lost beer-making capacity, and computer-chip makers were left scrambling following the disabling of Shin-Etsu Chemical’s and Sumco’s semiconductor wafer-making operations.

The stoppages have had a ripple effect far beyond Japan’s shores, gumming up the global production of everything from gas-electric hybrid cars and aeroplane engines to iPads and mobile phones. US investment bank Goldman Sachs now predicts that Japan’s economy will expand just 0.7 per cent this year, ­instead of the previously forecast 1.3 per cent. Last year’s growth was at 3 per cent.

“There are concerns that our damaged parts factories are hurting the global economy,” says Hiromasa Yonekura, head of the powerful business lobby group, Nippon Keidanren. “We must limit the impact of the production delays.”

The Japanese government’s best guess is that the rebuilding will cost €220bn – about 8 per cent of Japan’s GDP. That’s more than twice what the country spent after the Kobe earthquake in 1995.

Compounding the problems: it might have been a meltdown at Tokyo Electric Power Co’s Fukushima nuclear power plant. Fertile fishing grounds and dairy farms near the plant could be plagued by fears of radiation contamination for some time. And without the plant, Japan faces a potential energy crunch this summer. Nippon Keidanren’s Yonekura has urged companies to slash their energy use by 25 per cent through electricity-saving steps and the use of in-house generators. The cutbacks could force manufacturers to curtail output and businesses to set the air conditioning on low during the hot, humid months.

As bulldozers raze buildings and lorries cart away debris and waterlogged cars, Japan’s leaders face tough decisions. How will they help the worst-hit coastal communities? Local governments say they want to finish the clean up in three years but it could take longer for some towns and villages that vanished under the tsunami waves. By then, businesses – from major exporters to family-run shops – may decide to move or shift ­operations overseas.

Still, a natural disaster doesn’t have to be an economic one. When countries ­rebuild by investing in new technologies and safety measures, it can spur long-term growth, says Mark Skidmore, a professor at Michigan State University who has studied how countries respond to disasters. “Japan has the potential for a recovery time that will be shorter than many predict,” says Skidmore.

Consider Kobe after its devastating January 1995 quake. Experts thought it would take a decade for the city to bounce back. Yet within 15 months, factories were already running at 98 per cent of their pre-quake levels, freight through the world’s sixth-largest container port had nearly recovered, and most shops in the city had reopened, according to a 2000 report by Purdue University’s George Horwich. And all the while Japan kept chugging along: in the first three months of 1995 the economy grew an annualised rate of 3.4 per cent. But that was then and this has been a catastrophe unlike any other.


Tokyo Electric Power’s dual crises – a meltdown at the company’s Fukushima nuclear power plant and a shortage of electricity – has transformed the capital’s skyline. In the Tokyo metropolitan area, street lamps and neon lights are dark and office buildings and homes have voluntarily dimmed their lights to help out. The possibility of power blackouts is expected to continue for months.


For days after the quake and tsunami, transport in northeastern Japan ground to a halt. When Yamato Transport’s trucks were finally able to resume shipments in the region, the number two delivery service didn’t just go back to business as usual. It assigned 200 lorries and 500 drivers and personnel to carry food and supplies to the disaster zone.


It wasn’t just major brewers’ factories that lay in ruins. Suisen, a sake brewer in Rikuzen-Takada city, was an hour away from celebrating the end to its annual brewing season and production of a million litres of Yukikko sake when the quake struck. After workers fled, the tsunami destroyed 150 tanks at the brewery. Three days later, Suisen’s website read: “Due to the disaster, we will be closed for a while.”


Hokuetsu Package’s three-week shutdown of its paper carton-making plant in Hitachinaka city, Ibaraki prefecture, was partly to blame for a scarcity of juice, milk and tea on store shelves. The Tokyo-based company has 40 per cent of Japan’s market for drink cartons. But official Satoshi Eshika says its factory was only part of the story. “Just after the quake there wasn’t enough petrol for the delivery trucks,” says Eshika.


In Iitate (population 6,200) dairy farmers have been dumping milk since food safety officials found elevated radiation levels linked to the troubled Fukushima nuclear power plant. The village sits about 30km northwest of the plant and residents have been told to stay indoors or evacuate. “We can’t begin to think about aid for farmers until things at the power plant are under control,” said Iitate official Hiroyuki Murayama.


The tsunami smashed the port cities of Ishinomaki and Kesennuma, in Miyagi prefecture – Japan’s third- and sixth-largest fishing ports. Oyster farms, seafood processing plants and boats were lost. Kesennuma Fish Market aims to reopen by June but it could take years to bounce back to the pre-disaster €200m trade in mackerel, shark, tuna and salmon. Market official Masaaki Onodera says: “The market’s foundation sank one metre and the computers were completely ruined.”


On the day the quake struck, East Japan Railway Company (JR East) suspended services – five bullet train lines and around 40 local lines connecting Tokyo to regions north and south – stranding millions of passengers. The railway company has gradually restored service, but rolling blackouts continue to hamper operations. It could be months before heavily damaged lines – the 575km Tohoku Line, for instance – are running again. “We have no idea when some of the lines will restart service,” says a spokesman.

Car plants

Toyota’s domestic factories are far from the disaster zone but many of its key suppliers – rubber, plastics, battery and computer-chip makers – were damaged. With parts in short supply, the world’s largest car maker has cut back on the production of hundreds of thousands of vehicles, including its popular gas-electric hybrids. The company is racing to shift production to overseas plants and find backup suppliers.


The quake that damaged Shin-Etsu Chemical’s largest semiconductor wafer plant in Shirakawa, in Fukushima prefecture, hurt the world’s chip-making industry. The company is the world’s largest maker of silicon wafers that are cut to make computer chips, and accounts for a fifth of global supply. Hi-tech gadgets such as mobile phones and tablet computers could be affected, too.


Nuclear radiation has spooked Asian tourists. Hong Kong’s Travel Industry Council asked its 1,500 member travel agencies to cancel all tours to Japan. Oriental Land Co, which operates Tokyo Disney Resort, shut the amusement park and the nearby Cirque du Soleil theatre for weeks due to an unstable electricity supply.

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