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The Chemical Industry, Japan’s New Leading Industry

The Chemical Industry, Japan’s New Leading Industry

Aug. 14, 2012

Transcript

Recently, Japanese electronic goods makers are suffering from plunging profits, and the nation's automobile industry is also losing its momentum. Then, which industry is Japan now developing as the nation's leading industry? According to recent reports it is the chemical industry.

Until now, Japan's chemical industry has been less known to countries around the world including Korea, compared to its electronic and automobile industry. This is simply because there have been few Japanese chemical firms which showed outstanding performance on the international stage. If you look into the list of the world's top 30 chemical companies in 2009, Germany's BASF and US-based Dow Chemical and DuPont ranked first, second and third, respectively. Among the top-ranking companies were Sinopec, China's petroleum and chemical corporation, and Taiwan's Formosa Petrochemical. However, Japanese firms' presence was relatively weak as Mitsubishi Chemical and Sumitomo Chemical were each placed 14th and 17th.

Nonetheless, what is important is that the chemical industry is the industry with the highest added value among Japan's manufacturing industries. According to a survey conducted by the Ministry of Economy, Trade and Industry of Japan in 2009, the car industry and electronic industry accounted for 17.8% and 15.1%, respectively, of total sales produced by industries while the chemical industry took up 14.1%, ranking third. On the other hand, when it comes to the amount of added value, the chemical industry ranked top with a share of 17.2%, followed by the automobile and electronic industry, both of which took up 14.4%. In this context, it can be safely said that the chemical industry stood as Japan's leading industry in terms of added value.

What is more, Japan's small and medium-sized chemical companies are dominating the international market in state-of-the-art materials for cars and airplanes, even though there are few top-ranking Japanese chemical firms in the fields of medical and fertilizer materials.

While Korea and China are running after Japanese firms in processing and assembling finished goods, it seems hard for them to keep up with their Japanese rivals in the chemical industry, where technology comes first and foremost. In 2011, Korea's trade deficit with Japan recorded US$28.6 billion, down US$7.5 billion from the previous year. However, its chemical materials trade deficit with Japan logged US$10.9 billion, increasing from a year earlier, and it is on the rise every year. Under the circumstances, Korean chemical companies should make efforts to reduce heavy dependence on Japan.

Japan is placing more and more weight on the chemical industry not simply because it wants to outstrip Korea and China. Japan's move was mainly led by the prediction that “industrial chemicalization” is on its way.

In 2009, Itami Hiroyuki, a former professor of Hitotsubashi University, contributed an article titled “Chemicalization of the Japanese Industry” to the magazine “Chemistry and Industry.” He said in his article, “After the 1980s, so called ‘industrial electronicization' was under way with the advent of the information and technology revolution. Under these circumstances, electronic goods or materials were widely used not only in TVs and PCs but also in production processes and various goods produced in other industries. Meanwhile, in the 2000s and onwards, ‘industrial chemicalization' was rapidly implemented, shifting the nation's key industry towards the chemical industry. ‘Industrial chemicalization' was backed by three major reasons.”

First, there is an increasing demand for chemical technologies. Most notably, fuel cells came into the spotlight as a next-generation industry. Fuel cells produce electricity with a chemical reaction of oxygen and hydrogen. While fire and nuclear power generation are based upon physics, it is chemical reactions that drive fuel cells. Therefore, it can be safely said that the science sustaining the basis of the industry of today is chemistry while that of the past was physics.

Second, chemical materials are more and more widely used as key materials for general industries. It is impossible to manufacture cutting-edge digital devices without using functional chemical materials such as filters, light guide plates and lenses. As more chemical materials will likely replace other materials with an increase in high- performance chemical materials, the size of the chemical industry is expected to further expand in the future. A case in point would be the use of carbon fibers for manufacturing airplanes.

Third, chemical materials play a decisive role in transforming unnecessary materials into necessary materials. For example, researchers are developing a technology which will make it possible to use carbon dioxide, a common pollutant, as ingredients for chemical material production. In addition, “naphtha-free combinat,” which can make ethylene with carbon dioxide and hydrogen, is drawing attention. If “naphtha-free combinat is installed next to excessive carbon dioxide emitters like a fire power plant or a steel mill, it will greatly contribute to reducing pollutants that fuel global warming.”

It was known that the word chemistry originated from alchemy. In other words, the chemical industry can be referred to as the alchemy of the modern society. In this context, it seems quite reasonable for Japan to develop the chemical industry as its leading industry. Korea, too, needs to deliberate on how to lead its chemical industry in the future. For Korea, it is inevitable to import chemical materials from Japan for a while, but it can learn a great deal from the ways in which Japan has developed its chemical industry and find solutions.

Was Japan's chemical industry competitive in the first place? In the 1990s, Japan lagged behind Europe and America in the chemical industry, compared to other industries like automobiles, electronics and steel. According to professor Itami, Japan was heavily dependent on foreign raw materials and technologies due to its weak industrial base in the past. He also said that it was impossible to realize economies of scale as too many domestic firms were established in a disorganized way. Simply put, Japan's chemical industry in the past was similar to what Korea's chemical industry looks like today.

However, Japan's chemical industry started to show a totally different picture in the late 1980s. The country's chemical companies decided to put their focus on developing chemical materials for electronic devices and automobiles. That is, they could secure their competitive edge by specializing in chemical materials for electronic devices and automobiles while European and US chemical firms put more weight on pharmaceutical goods and fertilizers. Japanese firms could take an exclusive position relatively easily as they had a small number of rival companies in the area. They did not need to invest too much in development, and they also could develop new materials in cooperation with finished goods makers. Examples include the silicon wafers developed by Shinetsu Chemical, liquid crystal by JSR and glue and film made by Nitto Denko.

Korean companies can learn a number of lessons from the Japanese chemical firms that have successfully become the nation's leading industry. First and foremost, Korea now has a favorable environment where companies can successfully develop chemical materials providing that Korea has already become a powerhouse of IT products and cars. Large companies that produce finished goods can join hands with small and medium-sized chemical companies and develop a world-class company which can come into prominence in the niche market. In addition, it is not too late for Korean chemical companies to make forays into the global market in that there is still a high potential for high-performance, cutting-edge chemical materials including fuel cells and OLED displays to develop further. Last but not least, Korean companies can attract Japanese material companies with their quality products and buying power, thereby enhancing their own technologies in the future.

It is high time for large companies to closely cooperate with small and medium-sized companies to realize “industrial chemicalization.” The government should also do its part by proactively supporting the companies.

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