it revolution’s implications for the japanese economy kazuyuki motohashi rcast, university of...
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IT Revolution’s Implicationsfor the Japanese Economy
Kazuyuki MotohashiRCAST, University of Tokyo & RIETI
http://mo.rcast.u-tokyo.ac.jp/
Outline
1. Slowdown of Japanese Economy in Information Age
2. Macro view of IT and economic growth: Japan-US comparison
3. Firm level view of IT and productivity
4. IT, business strategy and performance
5. Some implications for developing countries, focusing on Thailand
IT and Economic growth: Japan and US
IT Investment/GDP
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
Japan US
GDP (1990=1)
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Japan US
What is ‘New Economy’?
Information technology revolution Moore’s Law and computer downsizing IT infrastructure and network externality: Internet
US economic resurgence in 90’s Productivity growth and economic growth not incurring
inflation Lowering NAIRU
But not for Japan? True? If so, why?
Comparative Analysis of Japan and USJorgenson and Motohashi (2005)
ALvKvKvKvKv
CwCwIwIwIwIw
LttKssKccKnnK
cccnncttIssIccInnI
lnlnlnlnlnln
lnlnlnlnlnln
,,,,
,,,,,,
Output: Ic: Investment in computers Is: Investment in software It: Investment in communications equipment Cc: Consumption of IT products In, Cn: investment and consumption of non-ITInput: Kc: Capital service flow from computers Ks: Capital service flow from software Kt: Capital service flow from communications equipment Kn: Capital service from non-IT L: Labor service
Total Factor Productivity: A
Result (1): Output Decomposition
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
1975-90
1990-95
1995-03
1973-89
1989-95
1995-03
(%)
Non-IT sector
IT sector
GDP
USJ APAN
Result (2): Input Decomposition
-1
0
1
2
3
4
5
1975-90
1990-95
1995-03
1973-89
1989-95
1995-03
(%)
TFP
Labor
non-IT
IT Capital
GDP
USJ APAN
TFP decomposition
0.0
0.5
1.0
1.5
2.0
1975-90
1990-95
1995-03
1973-89
1989-95
1995-03
(%)
IT
Non-IT
TFP
USJ APAN
IT and productivity at macro level
Productivity at IT supplier
Competition Sharp priceDecline of IT
IT investmentsAt user sectors
Productivity atMacro economic level
?
IT innovation
Productivity at IT supplier
ICT expenditure by industry (2000)
Manufacturing31%
IT services26%
Financialservices
20%
Retail/Wholesale
9%
Trans. &Comm.
2%
Utilities6%
Primaryindustry
1%Other services
3%
Construction2%
IT investment and Productivity:Industry Look
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
IT Expenditure/Sales (90's average)
Lab
or P
rodu
ctiv
ity
Gro
wth
in 1
990'
s
IT and productivity at firm levelMotohashi (2006)
Data: BSBSA (all firms with 50 employees and 30 mil yen capital, for manufacturing and wholesale/retail, about 15,000 samples from 91-2000)IT network use (only in 91, 94 and 97, (2000)) Intranet, CAD/CAM, CALS, EDI, EC Type of business process
Occupation mix: information processing workersInformation related expenses (incl. Computer rental fees, but not investment)
IT network and productivity
Intra Firm Network
-1%
0%
1%
2%
3%
4%
5%
1991-94 1994-97 1997-2000
Manufacturing Wholesale/Retail
Inter Firm Network
-1%
0%
1%
2%
3%
4%
1991-94 1994-97 1997-2000
Manufacturing Wholesale/Retail
Comparison with US(Atrostic, Motohashi and Nguyen 2005)
0%
1%
2%
3%
4%
5%
IT N
etwork
(Japan)
IT N
etwork
(U
S)
Intra-firm N
etwork
(Japan)
Inter-firm N
etwork
(Japan)
Needs to look into ‘black box of firm’
1. US Studies Bresnahan, Brynjolfsson and Hitt 、 QJE2001 IT + HR/Org strategy (flat organization 、 performance based
payment 、 bottom up business practices such as QC circles )→ productivity
2. Japanese Studies Same kind of approach: FRI(1996) 、 EPA(2001) Not only decentralization but also centralization may work? But organizational rigidity hinders productivity gain from IT inv
estment?
J-US economic system different?
A-type J-Type Implications for IT useCross functionalcoordination
Inactive Active →Comparative disadvantage
in using IT toolsJob description andreponsibility
Clear Unclear →Difficulty in businessprocess reengineering
Decision makingprocess
Top-dowm Bottom-up →Fragmentation of
IT systemKnowledge CreationProcess
Explicit knowledge Tacit knowledge →Ineffective use of
digitalized information
Firm level observation
Aoki, Nonaka-Takeuchi, Kagono et. al
Economic system level observation
• Japan’s Economic Model, particularly life-long employment practice hampers IT based restructuring of firms: CIA by Aoki
• In-house R&D and fragmented innovation system of Japan
Firm’s organizational changes across countries
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Flatorganization
structure
Delegatingresponsibility
Crossfunctional
team
Businesspractice
adjustment toIS
Japan
US
Europe
NIEs
Fragmented IT system
Type of Information System and Effect on Managament
0% 5% 10% 15% 20% 25% 30% 35% 40% 45%
Reponse to Globalization
Differentiation ofproducts and services
Business ProcessReengineering
Quick Decision Makingin Management
No IS IS by department firm wide IS
Ineffective use of digital information (explicit knowledge)
Organizational IQ Survey, RIETI
Brief Summary
Slowdown of Japanese economy, but IT contribution is not so small as compared to USFrom growth accounting exercise, slowdown comes from labor and non-IT capital contributionsTFP growth also slows down, coming from TFP growth in non-IT sectorFirm level analysis shows productivity premium of IT use is smaller for Japanese firmsPossible factors hampers effective use of IT
Organizational inertia for J-type firms Bottom-up decision making system of Japanese firms
Implications for Developing Countries: Particularly for Thailand
Importance of IT Infrastructure Broadband accessibility Effective use of Wireless technology, even 3G mobile system
Importance of complementary investments (HR, organization etc.) to maximize IT investments
SMEs: HR development, manager’s IT skills Manufacturing: Front loading in product development – 3D CAD
(becoming a part of global supply chain of multinationals)
Japanese model? Importance of tacit knowledge for manufacturing process (vs digit
al revolution and speed in Chinese system) Across ASEAN countries