The Blog

Enlightening New Economic Growth 'Fast Expandind Markets': The Example of LED in Japan

Today's catchiest buzzword is "growth" - a priority championed by virtually every government official and business leader. Day in and day out, governments pledge to put their economies back on the growth path by building globally competitive industries, and business leaders vow to find new strategies to grow their companies.

Today's catchiest buzzword is "growth" - a priority championed by virtually every government official and business leader. Day in and day out, governments pledge to put their economies back on the growth path by building globally competitive industries, and business leaders vow to find new strategies to grow their companies.

Talking about growth is easy - but finding ways to achieve it is anything but.

No one can claim to have found the sure-fire formula for growth in a relentlessly competitive global marketplace - but we believe that, by looking hard enough with a micro lens at each industrial sector and each market, business leaders and policymakers can find new sources of growth, what we call Fast Expanding Markets (FEM).

Fast Expanding Markets can be defined as markets that expand by 15% CAGR over a period of three to five years. Through the extensive pilot study that we have conducted, we can easily identify over 20FEM in a variety of regions and industrial sectors. What bring about such growth opportunities? They are usually a combined result of serendipity (e.g. a particular "trigger event"), a consequence of social trends (e.g. climate change), government policies, technological disruptions, and consumers' ever-evolving preferences.

Despite what many strategists in the public or private sector think, FEMs are appearing across all regions, not only in "emerging markets". Consider Japan, for instance. Until the recent economic improvement thanks to the so-called "Abe-nomics", many saw the terms "Japan" and "growth" as incompatible, and perhaps even contradictory. Japan has been seen as a languishing economy for the past two decades. Its traditional businesses are facing ever-mounting competition from China and Korea, and Japan ranks low in competitiveness . From this perspective it is easy to write-off Japan's potentials in bringing new opportunities. Such pessimistic views, however, reflect a focus on the country's macroeconomic situation. Looking at the micro level, pockets of exceptional growth can be found. Although Japan's consumer-electronic industry may seem to have passed its prime, other adjacent sectors within the country are flourishing.

A "Fast Expanding Market" in a "slowly expanding country": LEDs in Japan

One of these growing markets is the market for Light-Emitting Diodes (LEDs) in Japan. The country is not only a leader in using such energy-saving products, but is also a leader in producing them. Japan's LED output is consistently ranked first in the world - an important factor because, according to McKinsey & Company, by 2020 the world market for LED is projected to be more than 11 times what it was in 2010.

Several interconnected causes have been driving the LED market in Japan.

Serendipity and global trends - a "trigger event" towards energy efficiency: One obvious cause for the LED boom in Japan is the Fukushima earthquake of April 2011 and the reduced appetite for the country's dependence on nuclear-generated electricity. Although the Fukushima disaster did not kick-start the growth of the LED market by itself, it triggered the acceleration of the country's Strategic Energy Plan 2010, which aims to replace 100 percent of the country's lights by 2020 with highly energy-efficient lighting.

Government actions to foster innovation and disrupt technological developments: Policy decisions by the Japanese government accounts for a great deal of the impetus in boosting its LED market. Indeed, many years ago, the Japanese government introduced the "Top-Runner Program," which promoted a "survival of the fittest" strategy: setting target standards for energy efficiency in 23 categories, based on the most energy-efficient products that are commercially available. On a regular basis, Japanese government agencies test all available products in each category- whether they are supplied by Japanese manufacturers or are imported. The best available product becomes the new standard, encouraging a cycle of continuous innovation.

Supply chains and clusters: While government policies have accelerated the adoption of energy-efficient lighting, businesses have also done their part to spur the LED market toward rapid expansion. Japan's LED industry owes much of its success to its integrated supply chain and technology clusters. Indeed, the country has the world's most complete value chain for the production of LED products. The country has several major LED manufacturers, and Japanese companies are active at all stages of the value stream - providing such essential materials as phosphor, silicone lenses and sapphire ingots. Japanese firms also control many of the key patents and production techniques in the LED supply chain. All of these factors allow Japanese companies - and Japan as a nation - to remain the champion in LED, surpassing their Chinese counterparts (who are mainly OEMs) and their Korean rivals (who focus mainly on non-LED lighting devices). This competitive industrial structure also allowed Japanese firms to take advantage of rapid technological advancements, from the invention of blue LEDs by Shuji Nakamura to the recent introduction of a "warmer" LED light, which opened up new market segments.

Lessons drawn

Macroeconomic data, while useful, can be misleading in guiding business decisions in specific markets. Analysis, decisions and actions need to go at a (much) more granular level , with a continuous "market sensing" approach to identify specific markets and industries with growing competitiveness and innovative edge.

Our line of sight for new sources of growth should not be limited by labels, such as "emerging markets" or "biotech". Instead, policymakers and business leaders should seek fast-expanding markets, wherever they happen to be - being it LED in Japan, quinoa in Bolivia, cattleranching in Paraguay or waste to energy in Sweden - and try to make the most out of them for their Country, or their shareholders.

Astute and entrepreneurial businesses will identify promising markets at their onset and will try to enter them to reap the benefits, leveraging their comparative advantage and their innovative edge. Forward-looking governments should facilitate and accelerate their growth, through targeted policies to support emerging value chains and their continuous upgrading that can develop competitive industries that can prosper both at home and abroad.

N.B. The Fast Expanding Markets was introduced for the first time in March 2013 by Tse, Esposito & Soufani on The European Business Review.


According to the IMD World Competitiveness Yearbook (2012), Japan ranks twenty-seventh, putting it behind Qatar (10), Malaysia (14), the UAE (16), China (23) and Korea (23), and just marginally above Chile (28) and Thailand (30).

The Effects Caused by Japan Earthquake on LED Industry (2011),

Illustration extracted from the seminal article on: