Question

Before lean manufacturing innovations, Japan mostly sold consumer electronics to the United States. How did lean manufacturing innovations alter Japan’s comparative advantage vis-à-vis the United States?

Short answer

The lean manufacturing innovation in the Japanese manufacturing sector incorporates advanced manufacturing practices. It improves the production volume, reduces the per-unit cost of production, and provides a trading environment for a larger basket of goods with the United States. It also improves the terms of trade between the two nations.

Step-by-step solution

Comparative advantage in the absence of lean manufacturing practices

Before the introduction of lean manufacturing activities, Japan traded mostly in electronics but did not realize its full potential or its comparative advantage. It should be noted that Japan has a comparative advantage in producing consumer electronics because the opportunity cost of its production is lower for Japan than for the United States.

In the absence of lean production processes, the production is less organized and lacks efficient communication, which hampers the diversity in production. Thus, a country sticks to the production of the same entity before making any structural change.

From the principle of gains from trade, individuals can achieve mutual gains by specializing in doing different things and trading with one another.

Production after lean manufacturing innovations

Once lean manufacturing was incorporated, it minimized the inventory cost of Japanese production because parts arrive on the factory floor just as they are needed for production. It allowed investing in some other project. It started manufacturing and exporting cars.

Lean manufacturing focused on organization and communication; it expedited the production process. The application of robotics and standardized production improved the quality of goods and administered product diversification in manufacturing units of Japanese industries.

The lean manufacturing innovation in the Japanese manufacturing sector altered its trade with the United States by either increasing production volume or reducing the production cost per unit, thereby maximizing Japan’s profit and welfare.