As Japan is facing a declining population, many firms expect this to have a negative impact on their business. In light of industrial characteristics and the current business environment, they are attempting to overcome the impacts of population decline by taking various measures including diversification, offshore production, and development of diversified personnel skills.

Companies have taken steps to change institutional rules for their wage and promotion systems. Whether employees accept these new systems and are motivated by them to work harder will depend on the successful implementation of performance appraisal systems. However, many companies feel that their appraisal system has some problems, so they are taking steps to address these issues, while attempting to raise employee motivation.

## (Shift in the Management Strategy and Personnel Strategy)

On the verge of a declining population and aging/declining birthrate, Japan's overall population structure and the age distribution in firms are changing gradually but significantly. According to a corporate study on the effects of declining population and aging/reduced birthrate on management and personnel strategies, the percentage companies which responded that they foresaw "large negative effects" or "significantly large negative effects" on management strategy and personnel strategy was 61.2% and 68.7%, respectively. For both categories, therefore, a large number of companies considered that there would be some negative impacts on their business activities (Figure 51).

With respect to measures aimed at the declining population and aging/declining birthrate to be taken three years from now, in terms of management strategy, a number of companies responded that they would deal with the issue by "reducing costs", "focusing on profits rather than sales", and/or "developing value added products and services" (Figure 52). In the area of personnel strategy, several companies answered that they would "develop personnel skills", "use elderly workers by extending retirement age or reemployment" and/or "increase the use of female workers". These results suggest that the companies plan to overcome the negative impacts of declining population and aging/declining birthrate by making full use of their profits, for which a significant rise is not expected in the future, to provide better services and products, developing existing personnel skills, and utilizing elderly and female workers, which were not valued highly as the human resources before.

Declining population and aging/declining birthrate, however, may also bring effects other than negative ones. For example, companies can expect a reduction in wage costs as the baby boomers, which are receiving higher salaries than younger employees, are retiring soon. Assuming that there will be no change in annual wages by sex, age group and employment pattern, and the portion of the employees against population (except for population structure), Japan's total wage bill in 2004, 2010, and 2015, will be 216 trillion, 210 trillion, and 203 trillion yen, respectively, indicating that total wages will decrease by 1 trillion yen per year (Figure 53). Thus, in terms of wage costs, firms may find some positive effects of population decrease.