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IoD and Keizai Doyukai executive roundtable on resetting of the supply chain and distribution driving the new world of pieconomics

The Joint UK/Japan Business Roundtable participants hosted by the Institute of Directors (IoD) in the UK and the Japan Association of Corporate Executives (Keizai Doyukai) discussed resetting the supply chain and distribution driving the new world of pieconomics.

Senior leaders from the UK SME sector and major Japanese corporations attended the roundtable. Mitsunobu Koshiba, Chair of the International Affairs Committee, Keizai Doyukai and David Stringer-Lamarre, Fellow and Chair of International, Institute of Directors, chaired the roundtable. Dr Indranil Nath, Fellow, Co-Chair of the IoD Japan Business Group, Institute of Directors, moderated the discussion.

They recognise that disruption risk in the supply chain has increased in recent years. The combined challenges of the covid-19 pandemic and the US/China tension have created a perfect storm, leading to lower production volume in the UK and Japan. While Britain economy has been plunged into a supply chain crisis, with major retailers’ stock levels at their lowest since 1983. There is chaos in Britain’s petrol supply for past weeks due to a worker shortage and transport disruption as the UK emerges from lockdown due covid and the Brexit disruptions. Globally, China is facing power outages running out of coal for its power stations. Factories closure in Germany, In France, manufacturing activities fell, and Japan’s industrial output declined in August for the second month in a row. The global industry is set to lose $120 billion in revenue this year. Severe political uncertainties and disruption of importing materials and parts from the European Union and China have fuelled the problem.

Keizai Doyukai, Chair of the International Affairs Committee Mitsunobu Koshiba, said, “Doyukai conducted a study the nature of US and China confrontation and its implication of business community and individual businesses. He stressed that the geopolitics of the two economies and technologies will become important in the middle of the power game between the two largest economies in the world, in addition to covid and change of lifestyle and business volumes.

Kitty Ussher, Chief Economist of Institute of Directors, mentioned, “from a high in June/July, the Institute of Directors Economic confidence index has taken a tumble in September, back to level last seen in February 2021 for the UK. The net possible level of optimism recorded is negative 1%, down from plus 22% in July 2021. 75% of IoD members expected their cost to be higher in the next twelve months compared to the last twelve months. 57% expected their revenue to be a higher and better prospect.

The supply shortage has led to instability in the broader business environment, not only for inputs and imports but also for skills. The labour market performs extraordinarily, where vacancies are much higher, even though the Gross Domestic Product (GDP) is roughly the same. The unemployment levels are falling, but it is not lower than what it was before the pandemic. So, there is a mismatch where there are more vacancies in the marketplace, but residual unemployment suggests the labour market is not working. On trade, overall UK trade has fallen, and imports have lost more than exports. Trade with Japan imports fell faster than exports. Trade with China imports went up radically at 40%, and exports fell 30%. The UK is far more dependent on China. It will be interesting to see if this is permanent, especially demand for cheaper consumer electronic goods. We are trading less from the EU, and there is a structural shift. With trade barriers, capacity and practical issues, it has become harder to make the changes and queues in the ports. Unlike the UK, Japan had no lockdown, but there was damage to the Japanese economy last year, having a slow economic growth of 1%. 2021 Japan is expected to grow 2.9%. But it is still a challenge with the current situation in China and reasons that underpin the Japanese structural issues that include a decrease in population and corporations struggling to reform. Japan needs to change the business model and open the economy despite the geopolitical challenges and uncertainties caused by the US and China relationship and Japan’s recovery. Participants realise that extensive structural changes were at pace while balancing supply and demand as nations come out of the pandemic.

IoD Co-Chair of International David Stringer-Lamarre said, “UK companies are aware and are very concerned with the level of inflation, which is a major problem. Companies are looking at how to price their products and services“.

Though demand is strong in the UK, there are raised supply issues due to lower inventory in warehouses, that no new product was there during the lockdown period. The cost of fright has gone the roof. The UK also have an energy crunch. It is causing a significant headache, as suppliers are going bankrupt. The UK SMEs have to maintain the margin and cannot afford to lose customers. There is a constraint in the distribution chain, causing a business to take over their own warehousing space and stock their warehouses, not relying on the distribution chain, which impacts the price of warehousing and raises the sale cost.

In comparison, Japan has not seen a significant energy crunch or rise in the cost of energy. On the other hand, steel prices in Japan have gone up in recent times, but it is viewed as a positive move and enjoys the price rise creating a sound economic recovery. The shortage of semiconductors part in the automotive sector will influence the Japanese economy. It was noted that any reduction in auto products would have an impact on the economic yield. The price of food and consumer items have gone up. It is not a concern that Japan historically is a deflationary country, and businesses have welcomed any kind of price rise in general. When it comes to developing and securing the supply of semiconductors parts for the automotive industry and understanding the challenges, it was not for private businesses to manage one independently. Japan depends on imports from Taiwan and other ASEAN nations. The Japanese company is very well known for managing the supply chain. It needed more systematic support from the governments as countries came out of the pandemic. Currently, there is a raised tension between the private business and the governments in the UK, where governments have decided to blame the industry and world for the current challenges. However, the government in the UK has targeted relaxation to immigration to lure skilled resources and budgets to lifetime reskilling.

Inflation is not so much a problem, but it is the expectation of inflation so that it is self-fulfilling that the business community know the inflation will not be allowed to get high. The Bank of England would interfere with controlling it. It was true that neither the UK nor Japan has experienced inflation for some time and hence are nervous about it. In the condition where there are many uncertainties, participants viewed politics as the most significant risk and can be seen as a geopolitical recession. It was suggested that business should not move quickly with the new political change and in the current landscape even though several collations, alliances, and international relationships exist.

The supply chain issues are not short term but will be a permanent shift not due to covid, but the climate issues will drive change. The business has to go tactically long-term, driving innovation and reskilling. The commercialisation of technologies will be pivotal, and the company will have to play a more rapid role in changing social value. For example, the pharmaceutical business is looking at alternative markets, not relying on China and India per se for generic medicine. There was a general agreement that the UK and Japan were looking for China + 1 or India + 1 as an alternative supply chain model and not relying on one country. In the UK, 40% of the video surveillance products were from China, raising concern on privacy and human rights issues, how the UK would correct these issues, and making the products better and a compelling proposition and the choices to do better business.

Participants agree that a common framework for consolidation and maintaining enhanced focus on workforce/labour planning, getting information on the extended supply networks while understanding and activating the alternate supply source will be critical. Talking of China + 1 strategy, it was suggested that it was hard for businesses in Japan and the UK to look for alternative sourcing outside of China because of its quality products and price point. However, the company could look for ASEAN countries likes Vietnam as an alternative source for low-cost labour. The participants are aware that attracting new talent and upskilling the existing workforce to meet future carbon reduction ambitions and innovation are the future challenges and opportunities while sourcing for new partners outside of China. Japan and the UK are trying to improve their supply chain security amidst the pandemic while maintaining a positive economic engagement with China. Countries that will benefit from the supply chain investments will largely depend on their investments to boost the manufacturing capability and provide attractive land, labour and logistic offering. At the same time, efforts to conclude free trade agreements further where and how businesses seek to restructure their supply chain and the UK and Japan have to play their role. Once the business strategy is set, the digital supply network must be aligned with and be integral to its formulation. The supply chains have become highly sophisticated and vital to the competitiveness of many companies in the UK and Japan. It has also made it vulnerable to a range of risks absorbing delays and disruptions, with more potential points for failure as businesses are trying to come out of the pandemic. Talking about how the UK and Japanese companies could tackle managing and protecting intellectual property, there was a consensus that it is rooted in the culture of the companies and the expected trust from its employees. Companies have a role to play to keep people motivated and loyal, and that there are no reasons to pass or share confidential information. It is tough to protect intellectual property physically. The only way is to stay a few steps ahead of the competition. It applies to all industry and innovation will be essential.

Closing the roundtable, IoD Co-Chair of Japan Business Group Indranil Nath said, “The elephant is in the room. Turning the US-China tensions into cooperation will be a challenge for the whole world. China’s actions and an economic strategy and the undermining international efforts to promote global economic cooperation and the principles of international engagement are to be worked out to prevent conflicts.”

The IoD and Keizai Doyukai believe that business leaders’ roles are vital in implementing measures to promote the free, fair and open multilateral trade framework. It continues to work together to build a platform to connect corporations, including small and medium-sized enterprises in the UK and Japan, for both countries’ mutual benefit. Both the IoD and Keizai Doyukai look forward to contributing to the economies of both countries and the broader global economy through their members’ actions.

The executive roundtable was attended by

  • David Stringer-Lamarre, Managing Director Fortis Consulting Ltd
  • Kitty Ussher, Chief Economist, Institute of Directors
  • Dr, Indranil Nath, Co-Chair, Japan Business Group, Institute of Directors
  • Andrew Griffiths, Chair of Institute of Directors National Sustainability Taskforce
  • Pauline Norstorm, Chief Executive Officer, Anekanta Consulting Ltd.
  • Kirsty Maxey, Chief Executive Officer, TeamSpirit
  • Andrew Lambert, Chief Executive Officer, EMS Ltd.
  • Nick Revell, Managing Director, Ledwood Mechanical Engineering Ltd.
  • Alderman Alastair King, Chairman Nasbitt King Group, and Alderman City of London Corporation
  • Mitsunobu Koshiba, Chairman Emeritus, JSR Corporation, and Chair of International Affairs Committee, Keizai Doyukai
  • Masayoshi Fujimoto, President & CEO Sojitz Corporation
  • Satoru Hiraga, Chairman, Marsh Broker Japan, Inc
  • Takashi Imamura, Executive Officer, Marubeni Corporation
  • Kyoko Miyahara, Vice President, Pfizer Japan Inc.
  • Osamu Mogi, Senior Executive Corporate Officer, Kikkoman Corporation
  • Teruaki Nakatsuka, President & CEO, JATCO Ltd
  • Masashi Oka, President & CEO, SONY Financial Holdings Inc.

And supported by IoD Japan Group Ambassadors Timothy Stanley, Shaun Warren and Andrew Main.

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