Harvard Case - China's Rare Earth and Japan
"China's Rare Earth and Japan" Harvard business case study is written by Jahan Ara Peerally, Ekaterina Turkina. It deals with the challenges in the field of International Business. The case study is 15 page(s) long and it was first published on : Jul 25, 2013
At Fern Fort University, we recommend that Japan adopt a multifaceted strategy to address its dependence on China's rare earth supply. This strategy should prioritize diversifying its supply sources, investing in domestic production, fostering strategic alliances, and engaging in international diplomacy to ensure a stable and secure supply of these critical materials. The recommendations aim to mitigate geopolitical risks, strengthen Japan's economic security, and promote sustainable development practices in the rare earth industry.
2. Background
This case study examines the complex relationship between China and Japan regarding rare earth elements. China, holding a dominant position in the global rare earth market, has leveraged its control over these critical minerals to exert influence on Japan, a major consumer of rare earths in high-tech industries. This dependence has created significant vulnerabilities for Japan, particularly in the face of trade disputes and geopolitical tensions.
The main protagonists in this case are the Japanese government, Japanese companies heavily reliant on rare earths, and the Chinese government. The case highlights the challenges faced by Japan in securing a stable and reliable supply of rare earths, essential for its manufacturing sector and technological advancement.
3. Analysis of the Case Study
This case study can be analyzed through the lens of several frameworks, including:
- Porter's Five Forces: The case highlights the bargaining power of suppliers (China) and the threat of substitutes (alternative materials or production methods) as key factors influencing Japan's strategic options.
- Resource-Based View: Japan's dependence on China's rare earth resources exposes its vulnerability and highlights the need to develop its own resources or secure alternative supply chains.
- Global Value Chain Analysis: The case demonstrates the interconnectedness of global supply chains and the potential disruptions that can arise from geopolitical tensions and resource scarcity.
- International Relations Theory: The case illustrates the interplay of power dynamics, economic interdependence, and national security interests in shaping international trade and resource management.
4. Recommendations
Japan should adopt the following recommendations to address its rare earth dependence:
1. Diversification of Supply Sources:
- Explore alternative sources: Identify and cultivate relationships with other rare earth producers, including Australia, Brazil, India, and the United States.
- Develop strategic partnerships: Form joint ventures and strategic alliances with countries possessing rare earth resources to secure long-term supply agreements.
- Promote responsible sourcing: Engage in ethical and sustainable sourcing practices to ensure the responsible extraction and processing of rare earths.
2. Investment in Domestic Production:
- Invest in R&D and innovation: Support research and development initiatives to develop alternative materials and technologies that reduce reliance on rare earths.
- Promote domestic mining and processing: Invest in domestic mining and processing capabilities to create a more resilient domestic supply chain.
- Develop recycling technologies: Invest in research and development of recycling technologies to recover rare earths from electronic waste and other sources.
3. Strategic Alliances:
- Strengthen partnerships with like-minded countries: Collaborate with other countries facing similar challenges to create a united front in addressing rare earth supply issues.
- Jointly invest in research and development: Collaborate with other countries on research and development projects to develop innovative solutions for rare earth dependence.
- Promote multilateral cooperation: Engage in international forums and organizations to address global challenges related to rare earth supply and demand.
4. International Diplomacy:
- Engage in constructive dialogue with China: Maintain open communication with China to address concerns and explore potential solutions for a more balanced and sustainable rare earth market.
- Promote fair trade practices: Advocate for fair and transparent trade practices in the rare earth industry to ensure a level playing field for all stakeholders.
- Support international agreements: Work with other countries to establish international agreements that promote responsible sourcing and sustainable development in the rare earth sector.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core competencies and consistency with mission: Japan's core competencies lie in advanced manufacturing and technological innovation. Securing a stable supply of rare earths is crucial for maintaining these competencies and achieving its national economic goals.
- External customers and internal clients: Japanese companies operating in high-tech industries rely heavily on rare earths. Ensuring a reliable supply of these materials is essential for their continued success and competitiveness.
- Competitors: Japan's competitors, such as South Korea and Taiwan, are also heavily reliant on rare earths. Diversifying supply chains and developing alternative technologies will be crucial for maintaining Japan's competitive edge.
- Attractiveness ' quantitative measures if applicable: The economic benefits of securing a stable supply of rare earths are significant, including maintaining manufacturing competitiveness, fostering innovation, and ensuring national security.
6. Conclusion
Japan's dependence on China's rare earth supply poses a significant risk to its economic security and technological advancement. By adopting a multifaceted strategy that includes diversification, domestic production, strategic alliances, and international diplomacy, Japan can mitigate these risks and create a more resilient and sustainable rare earth supply chain.
7. Discussion
Other alternatives not selected include:
- Complete reliance on China: This option would expose Japan to significant geopolitical risks and vulnerabilities.
- Import substitution: This option would require significant investments in domestic production and might not be feasible in the short term.
- Military intervention: This option is highly unlikely and would carry significant risks and consequences.
Key assumptions of the recommendations include:
- The availability of alternative rare earth sources.
- The willingness of other countries to cooperate with Japan.
- The feasibility of developing domestic production capabilities.
8. Next Steps
The Japanese government should implement the following steps to realize the recommendations:
- Develop a national strategy: Establish a comprehensive national strategy for addressing rare earth dependence.
- Create a dedicated task force: Form a task force to oversee the implementation of the strategy and coordinate efforts across government agencies and industry stakeholders.
- Invest in research and development: Allocate significant resources to research and development initiatives to develop alternative materials and technologies.
- Promote public-private partnerships: Encourage collaboration between government and industry to foster innovation and accelerate the development of domestic production capabilities.
- Engage in international diplomacy: Actively participate in international forums and organizations to advocate for responsible sourcing and sustainable development in the rare earth sector.
By taking these steps, Japan can mitigate its dependence on China's rare earth supply, strengthen its economic security, and promote sustainable development practices in the global rare earth industry.
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Case Description
The case presents the ongoing geopolitical struggle between China and Japan. The essence of the China-Japan conflict lies in the struggle over natural resources - rare earth elements (REEs) and suspected oil deposits in Senkaku Islands - and related territorial disputes concerning the sovereignty over the Senkaku Islands which are resource rich and near key international shipping routes. Even though quite a few countries in the world possess REEs, China possesses over 95 percent of the industrial production capacity for these elements, thus creating a global monopoly (Humphries, 2010). Most of the global REE supply-chain is controlled by China through the production of REEs on its territory or through the purchase of mineral rights from other parts of the world, such as Africa. As shown in the case, this generates a situation of REE dependency for states such as Japan and the U.S., which are both very influential on the world arena, and which consequently leads to important geopolitical frictions. Moreover, China shows a tendency to constrain its exports of REEs as part of its foreign policy, or as argued by other scholars, as an attempt to meet its increasing domestic consumption geared towards the production of technological items such as cell phones, computers and military weapons. China needs REEs to sustain economic growth, stimulate job creation at home and reduce its vulnerability to fuel shortages or price shocks (Cáceres and Sophal, 2012). The shortage of REEs on the world market creates the problem of rare earth asymmetry, which affects the relationship among countries and firms at the international level. The case depicts the subtleties of the China-Japan politico-economic relations and discusses the involvement of other important actors, such as the US and the EU, in the struggle for resources.
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