Strategic Management

(PEST-Analysis)

Submitted To:
Sir. Faiez H. Seyal

Submitted By:
Syed Izhar Fahad Raza Faizan Usmani Rao Yawar Omer Rasheed Awais Numan Irfan Akram Raja Usman (FA09-MBA-146) (FA09-MBA-034) (FA09-MBA-082) (FA09-MBA-125) (FA09-MBA-094) (FA09-MBA-076) (FA09-MBA-058) (FA09-MBA-173)

COMSATS Institute of Information Technology, Lahore.

JAPAN

Brief History:
In 1603, after decades of civil warfare, the Tokugawa Shogunate (a militaryled, dynastic government) ushered in a long period of relative political stability and isolation from foreign influence. For more than two centuries this policy enabled Japan to enjoy a flowering of its indigenous culture. Japan opened its ports after signing the Treaty of Kanagawa with the US in 1854 and began to intensively modernize and industrialize. During the late 19th and early 20th centuries, Japan became a regional power that was able to defeat the forces of both China and Russia. It occupied Korea, Formosa (Taiwan), and southern Sakhalin Island. In 193132 Japan occupied Manchuria, and in 1937 it launched a full-scale invasion of China. Japan attacked US forces in 1941 - triggering America's entry into World War II - and soon occupied much of East and Southeast Asia. After its defeat in World War II, Japan recovered to become an economic power and an ally of the US. While the emperor retains his throne as a symbol of national unity, elected politicians hold actual decision-making power. Following three decades of unprecedented growth, Japan's economy experienced a major slowdown starting in the 1990s, but the country remains a major economic power. In March 2011, Japan's strongest-ever earthquake, and an accompanying tsunami, devastated the northeast part of Honshu island, killing thousands and damaging several nuclear power plants. The catastrophe hobbled the country's economy and its energy infrastructure, and severely strained its capacity to deal with the humanitarian disaster.

PEST Analysis:

Political Analysis:
Government Type: A parliamentary government with a constitutional monarchy. (Constitutional monarchy (or limited monarchy) is a form of government in which a monarch acts as head of state within the parameters of a constitution, whether it be a written, uncodified or blended constitution. This form of government differs from absolute monarchy in which an absolute monarch serves as the sole source of political power in the state and is not legally bound by any constitution. ) Government Stability: Japan receives a score of +0.94 for the factor "Political Stability and Absence of Violence/Terrorism" in the Kaufmann, Kraay, and Masatruzzi's Governance Indicators for the year 2008, compiled for the World Bank. The governance estimates are normally distributed with a mean of zero, and a higher score signifies a less violent and politically more stable society. Japan witnessed the installation of the fifth Japanese Prime Minister in four years. Prime Minister Yukio Hatoyama who assumed office on 16 September 2009 after leading the Democratic Party to victory in General Elections had to step down on 4 June 2010. The major reason was his inability to honor his election pledge on the relocation of the US Marine Aviation Base at Futema on Okinawa Island. Freedom of Press/Media, Rule of Law, Bureaucracy, and Corruption: Press freedom is constitutionally guaranteed and generally respected in practice. The independent court system has particularly emerged in recent years as a bulwark against political pressure on journalists. Japan has a vigorous and free media and boasts the second highest daily newspaper circulation per capita in the world (after Norway). Many national dailies have circulations topping one million and often produce afternoon and evening editions as well. More than half of the national newspaper market share is controlled by "the big three": the Yomiuri Shimbun, the Asahi Shimbun, and the Mainichi Shimbun. There are over one million civil servants in the Japanese government and the economic ministries (administration staff). Japan is arguably controlled more by the country's strong central bureaucracy than it is by its elected officials. There are thousands of rules and regulations overseen by the bureaucracy that businesses, government agencies and ordinary citizens have to abide by. Companies need licenses and people need to pass tests for doing all kinds of things. Since 1995, Transparency International (TI) has published an annual Corruption Perceptions Index (CPI) ordering the countries of the

world according to "the degree to which corruption is perceived to exist among public officials and politicians. The organization defines corruption as "the abuse of entrusted power for private gain". Japan is ranked 17th on the list out of 180. A higher score means less (perceived) corruption. Legislation: The legislative power is vested in the Diet (KOKKAI), which consists of two houses, the House of Councillors (Sangiin) and the House of Representatives (Shugiin). As a general rule, a bill becomes a law merely by passing both houses. If a bill has passed the House of Representatives but is defeated in the House of Councillors, it can become law if passed a second time in the House of Representives with two-thirds of all members present. The executive power is made up of the Cabinet, which is headed by the Prime Minister. The Supreme Court (Saiko Saibansho) and a number of inferior courts are vested with the judicial power. All judges are granted complete independence in decision making. The Supreme Court has the rule making power and is considered court of last resort, that determines the constitutionality of any law, order and regulation. It is made up of 14 judges who are designated by the Cabinet and a Chief Judge. The latter is appointed by the Emperor who must follow the Cabinet's designation. Each of the inferior courts are under the control of the Supreme Court which nominates as well the candidates for the post of judge. There are three major labour laws, namely:

(1) The Labour Standards Law (LSL) {The LSL regulates firstly working conditions and secondly the workplace safety and hygiene.} (2) The Trade Union Law (TUL) {The TUL guarantees the worker's right to organize and to bargain collectively} (3)The Labour Relations Adjustment Law (LRAL) {labour management adjustments and means of dispute settlement are specified in the LRAL.}

Economic Analysis:
Brief Economic Highlights: Japan's industrial sector is heavily dependent on imported raw materials and fuels. A tiny agricultural sector is highly subsidized and protected, with crop yields among the highest in the world. Usually self sufficient in rice, Japan imports about 60% of its food on a caloric basis. Japan maintains one of the world's largest fishing fleets and accounts for nearly 15% of the global catch. For three decades, overall real economic growth had been spectacular - a 10% average in the 1960s, a 5% average in the 1970s, and a 4% average in the 1980s. Growth slowed markedly in the 1990s, averaging just 1.7%, largely because of the after effects of inefficient investment and an asset price bubble in the late 1980s that required a protracted period of time for firms to reduce excess debt, capital, and labor. Measured on purchasing power parity (PPP) basis that adjusts for price differences, Japan in 2010 stood as the third-largest economy in the world after China, which surpassed Japan in 2001. The Japanese financial sector was not heavily exposed to subprime mortgages or their derivative instruments and weathered the initial effect of the recent global credit crunch, but a sharp downturn in business investment and global demand for Japan's exports in late 2008 pushed Japan further into recession. Government stimulus spending helped the economy recover in late 2009 and 2010. Prime Minister KAN's government has proposed opening the agricultural and services sectors to greater foreign competition and boosting exports through free-trade agreements, but debate continues on restructuring the economy and funding new stimulus programs in the face of a tight fiscal situation. Japan's huge government debt, which exceeds 200% of GDP, persistent deflation, reliance on exports to drive growth, and an aging and shrinking population are major long-term challenges for the economy. A 9.0-magnitude earthquake and an ensuing tsunami devastated the northeast coast of Honshu Island on 11 March 2011, washing away buildings and infrastructure as much as 6 miles inland, killing thousands, severely damaging several nuclear power plants, displacing and leaving homeless more than 320,000 people, and leaving a million households without running water. Radiation leaks at the Fukushima Daiichai nuclear power plant prompted mass evacuations and the declaration of a no-fly zone initially for people and planes within 12.5 miles of the plant but later expanded to 19 miles. Radioactive iodine-131 has been found as far as 100 miles from the plant in samples of water, milk, fish, beef, and certain vegetables, at levels that make these foods unfit for consumption and create uncertainty regarding possible longterm contamination of the area.

Energy-cutting efforts by electric companies and train lines slowed the pace of business throughout Honshu Island, and the stock market gyrated, dropping as much as 10% in a single day. In order to stabilize financial markets and retard appreciation of the yen, the Bank of Japan injected more than $325 billion in yen into the economy. Estimates of the direct costs of the damage rebuilding homes and factories - range from $235 billion to $310 billion. Some economic forecasters, who previously had anticipated slower growth for Japan in 2011, now believe GDP may decline as much as 1% for the year. GDP: (Purchasing Power Parity) $4.338 trillion (2010 est.) $4.211 trillion (2009 est.) $4.442 trillion (2008 est.) (Official Exchange Rate) $5.391 trillion (Real Growth Rate) 3% (2010 est.) -5.2% (2009 est.) -1.2% (2008 est.) (Per Capita) $34,200 (2010 est.) $33,100 (2009 est.) $34,900 (2008 est.) (Composition By Sector) Agriculture: 1.1% Industry: 23% Services: 75.9% (2010 est.)

Labour Force: 65.7 million (2010 est.) Agriculture: 3.9% (rice, sugar beets, vegetables, fruit; pork, poultry, dairy products, eggs; fish) Industry: 26.2% ( among world's largest and technologically
advanced producers of motor vehicles, electronic equipment, machine tools, steel and nonferrous metals, ships, chemicals, textiles, processed foods )

Services: 69.8%

Unemployment Rate: 5.1% (2010 est.) Budget: Revenues: $1.638 trillion Expenditures: $2.16 trillion (2010 est.)

Inflation Rate: -0.7% (2010 est.) -1.4% (2009 est.)

Exports: $765.2 billion (2010 est.) $580.8 billion (2009 est.)

Imports: $636.8 billion (2010 est.) $501.6 billion (2009 est.)

Foreign Exchange Reserves: $1.096 trillion (31 December 2010 est.) $1.049 trillion (31 December 2009 est.)

Stock of Direct Foreign Investment: At Home: $199.4 billion (31 December 2010 est.) $199.9 billion (31 December 2009 est.) Abroad: $719.9 billion (31 December 2010 est.) $740.4 billion (31 December 2009 est.)

Exchange Rate: Yen (JPY) per US dollar 87.78 (2010) 93.57 (2009)

Japan has a high income tax rate of 40 percent, but its corporate tax rate of 30 percent is described as "moderate." The income tax rate can rise to nearly 50 percent when local taxes are considered. Local corporate taxes added to the

national rate can yield a total rate of about 41 percent. Japan also imposes a value-added tax, tax on interest, and estate tax.

Social Analysis:
Demographics: The demographic features of the population of Japan include population density, ethnicity and education level, health of the population, economic status, religious affiliations and other aspects of the population. Population: 126,475,664 (July 2011 est.) Age Structure: 0-14 years: 13.1% (male 8,521,571/female 8,076,173) 15-64 years: 64% (male 40,815,840/female 40,128,235) 65 years and over: 22.9% (male 12,275,829/female 16,658,016) (2011 est.) Median Age: Total: 44.8 years Male: 43.2 years Female: 46.7 years (2011 est.) Population Growth: -0.278% (2011 est.) Urbanization: Urban population: 67% of total population (2010) Rate of urbanization: 0.2% annual rate of change (2010-15 est.) Major Cities - Population: TOKYO (capital) 36.507 million Osaka-Kobe 11.325 million Nagoya 3.257 million Fukuoka-Kitakyushu 2.809 million Sapporo 2.673 million Ethnic Groups: Japanese 98.5%

Koreans 0.5% Chinese 0.4% Other 0.6% Religions: Shintoism 83.9% Buddhism 71.4% Christianity 2% Other 7.8% Literacy Rate: Definition: age 15 and over can read and write Total population: 99% Male: 99% Female: 99% (3.5% of GDP is spent on education) Life Style: Sumo or Sumo wrestling is a traditional Japanese contact sport. Sumo still remains popular in Japan today where the top sumo wrestlers are well paid. The Japanese tea ceremony (cha-no-yu, chado, or sado) is a traditional ritual influenced by Zen Buddhism in which powdered green tea, or matcha, is ceremonially prepared by a skilled practitioner and served to a small group of guests in a tranquil setting. Japanese Food favorite foods are Rice foods, curries, seafood, green tea and 'sweets' such as dried octopus, squid and soured plums. Sushi, Onigiri (Rice Ball), Miso Soup, Beef Sukiyaki and Chicken Teriyaki. The Japanese eat three main meals a day. The main ingredient in all three, however, is rice (or sometimes noodles). Miso soup and pickles are always served as well. Meals eaten early in the day tend to be the simplest. A typical breakfast consists of rice, miso soup, and a side dish, such as an egg or grilled fish.
Japanese festivals are traditional festive occasions. Some festivals have their roots in Chinese festivals but have undergone dramatic changes as they mixed with local customs. Festivals are often based around one or two main events, with food stalls, entertainment, and carnival games to keep people entertained. Some are based around temples or shrines, others hanabi (Fireworks), and still others around contests where the participants sport loin cloths.

The most important holiday in Japan is the New Year, Shogatsu. Special holiday foods, called osechi , are prepared in beautifully decorated stackable boxes called jubako. New Year foods are also eaten because they are believed to represent good fortune or long life. At New Year's, children are especially fond of hot rice cakes dipped in sweet soybean powder. The Girls' Festival (or Doll Festival) is held in March. Dolls are dressed in traditional Japanese dresses called kimonos and

are offered rice crackers, colored rice cakes, and a sweet rice drink called amazake. Everyone in the family eats the foods. Festive foods for Children's Day (May 5) include rice dumplings stuffed with sweet bean paste. Japanese art covers a wide range of art styles and media, including ancient pottery, sculpture in wood and bronze, ink painting on silk and paper and more recently manga, cartoon, along with a myriad of other types of works of art. It also has a long history, ranging from the beginnings of human habitation in Japan, sometime in the 10th millennium BC, to the present. The kimono is a Japanese traditional garment worn by women, men and children. Kimonos are T-shaped, straight-lined robes worn so that the hem falls to the ankle, with attached collars and long, wide sleeves. Kimono are wrapped around the body, always with the left side over the right (except when dressing the dead for burial) and secured by a sash called an obi, which is tied at the back. Kimonos are generally worn with traditional footwear (especially zri or geta) and split-toe socks (tabi). The family in Japan is called Kazoku in Japanese. It is basically composed of a couple as is the family in other societies. The Japanese family is based on the line of descent. Ancestors and offspring are linked together by an idea of family genealogy, or keifu, which does not mean relationships based on mere blood inheritance and succession, but rather a bond of relationship inherent in the maintenance and continuance of the family as an institution. In any given period of history, all family members have been expected to contribute to the perpetuation of the family, which is held to be the highest duty of the member. The music of Japan includes a wide array of performers in distinct styles both traditional and modern. The word for music in Japanese is (ongaku), combining the kanji ("on" sound) with the kanji ("gaku" fun, comfort). Local music often appears at karaoke venues, which is on lease from the record labels. Traditional Japanese music has no specific beat, and is calm.

Technology Analysis:
Japan is well known for its automotive and electronics industries throughout the world, and Japanese electronic products account for a large share in the world market, compared to a majority of other countries. Japan is one of the leading nations in the fields of scientific research, technology, machinery and medical research with the world's third largest budget for research and development at $130 billion USD, and over 677,731 researchers. Japan has received the most science Nobel prizes in Asia. Japan has large international corporate conglomerates such as Fuji (which developed the nation's first electronic computer, FUJIC, in 1956) and Sony. Sony, Panasonic, Canon, Fujitsu, Hitachi, Sharp, NEC, Epson and Toshiba are among the most well-known electronics companies in the world. Toyota, Honda, Nissan, Mazda, Mitsubishi, Nintendo, Sony and Subar u are also very well known companies in the world. Some of Japan's more important technological contributions are found in the fields, electronics, machinery, robotics, optics, chemicals, semiconductors and metals. Japan leads the world in robotics, possessing more than half (402,200 of 742,500) of the world's industrial robots used for manufacturing. It also produced QRIO, ASIMO, and Aibo. Japan is also home to six of the world's fifteen largest automobile manufacturers and seven of the world's twenty largest semiconductor sales leaders. Japan is also considered to have one of the most advanced trains, notably the Shinkansen and maglev trains. Japan has also made headway into aerospace research and space exploration. The Japan Aerospace Exploration Agency (JAXA) conducts space and planetary research, aviation research, and development of rockets and satellites. It has developed a series of rockets, the latest and the most powerful of which is H-IIB. H-IIA/B rockets which have the capability of carrying 8ton payload to the GTO at maximum are now managed by the private-own company Mitsubishi Heavy Industry. It also built the Japanese Experiment Module, which was launched and added to the International Space Station during Space Shuttle assembly flights in 2007 and 2008. Since 1973, nuclear energy has been a national strategic priority in Japan, as the nation is heavily dependent on imported fuel, with fuel imports accounting for 61% of energy production. In 2008, after the opening of 7 brand new nuclear reactors in Japan (3 on Honsh, and 1 each on Hokkaid,Kysh, Shikoku, and Tanegashima) Japan became the third largest nuclear power user in the world with 55 nuclear reactors. These provide 34.5% of Japan's electricity. Americans invented the Internet, but the Japanese are running away with it. Broadband service in Japan is eight to 30 times as fast as in the United States -- and considerably cheaper. Japan has the world's fastest Internet connections, delivering more data at a lower cost than anywhere else. Internet Usage and Population Statistics:

YEAR
2000 2005 2007 2008 2009 2010

Users
47,080,000 78,050,000 87,540,000 94,000,000 95,979,000 99,143,700

Population
126,925,843 128,137,485 128,389,000 127,288,419 127,078,679 126,804,433

% Pop.
37.1 % 60.9 % 68.0 % 73.8 % 73.8 % 78.2 %

Usage Source
ITU C+I+A ITU ITU ITU ITU

By September 2007, Japan had 27.7 million broadband lines in place, making it the third largest broadband country in the world after the USA and China (China surpassed Japan earlier in 2004). Much of the success of broadband in Japan is owed to the stunning growth in 2003 of ADSL as a broadband technology. Japans telecommunications sector is one of the most active markets in the world. This market has witnessed the growth of VoIP and triple play services continued 3G competitions among mobile operators, noteworthy uptake of FttH and strides in digital and mobile broadcasting. Japan is an early adopter of triple play models, which provide TV, broadband Internet and voice telephony as packaged services from a single provider. Into 2005, the growing popularity of IP telephony in particular is dealing a blow to fixed-line giant NTT. The fixed-line network in Japan is undergoing a major transformation as the traditional telephony voice services move into decline. The copper cable of the fixed network, nevertheless, remains significant in Japan as it must support the millions of ADSL broadband subscribers. E-commerce, a subset of the Internet, has considerably influenced Japan's business outlook and marketing. The potential for E-commerce in Japan is believed to be huge, particularly with respect to monetary savings yielded on the cost of conducting and initiating business.

Most research and development is private, although government support to universities and laboratories aid industry greatly. In 1986 private industry provided 76 percent of the funding for research and development, which was especially strong in the late 1980s in electrical machinery, precision instruments, chemicals, and transportation equipment.