The Tsuruoka story and others like it are rallying Japanese spirits. One Tokyo daily recently headlined THE RETURN OF A GREAT MANUFACTURING NATION. A business magazine, The Weekly Toyo Keizai, trumpeted the move of industry BACK TO JAPAN. Kenwood remains one of a very few companies that have actually withdrawn a plant from a poorer Asian nation. But Japanese multinationals have indeed rediscovered their own country as a manufacturing base; the recovery that began last year has been fueled by the spending of an increasingly confident Japan Inc. Toyo Keizai listed 100 new plants under construction in Japan, many built by companies that have not invested heavily in their home market in years. Most strikingly, four factory projects are underway at a cost of more than $1 billion each, all built by the major multinationals that are leading a revival in Japan’s “digital economy.”
Three false recoveries in the past 14 years have been spurred by the Japanese government, which put construction companies to work building bridges to nowhere. The current construction boom is far more productive. Toshiba is building a $1.9 billion wafer-fabrication plant, Matsushita a $1.2 billion plant to build advanced computer chips, Fujitsu a $1.5 billion logic-chip plant, Sharp a $1.4 billion TV factory. It’s no coincidence that these companies were among the major tech firms recently reporting strong 2003 profits, reversing a string of recent losses. They have money to spend, and capital investment rose strongly last year, capped by a 15 percent year-on-year rise in the fourth quarter, when the economy grew 3.4 percent.
There are several reasons behind the new factory boom. Having shifted hundreds of plants to Southeast Asia and China since the ’80s, Japanese companies are recalculating not just the cost savings but the risk of exposing technology to copycats abroad. “The recent massive investments in Japan show how they want to keep the core technology in a black box at home where they can protect it,” says a senior official in Japan’s Ministry of Economy, Trade and Industry.
Companies also want to be closer to Asia’s richest customers, the Japanese, who are starting to spend again after a long slump. Japanese have long spoken of the “three sacred treasures”–coveted consumer goods that help drive the economy. In the 1960s this list included a washing machine, a refrigerator and a black-and-white TV; now it comprises a digital camera, a DVD recorder and a plasma or liquid crystal display (LCD) TV screen. Consumer-electronics shipments are surging in response to demand for the “three treasures,” led by a 72 percent rise in sales of LCD TVs in March alone. Those who make these hot sellers are “beginning to build facilities in Japan instead of various [other] places in Asia,” says Takahide Kiuchi, a senior economist at Nomura Securities Financial and Economic Research Center.
Experts date the turnaround to 2001, a year of reckoning for corporate Japan. Many companies were deep in debt, bloated with payroll and money-draining subsidiaries, and in danger of losing their technology lead. “Japanese companies began to have a strong sense of crisis,” says Kazuharu Miura, senior analyst at the Daiwa Institute of Research. “They were being caught up by South Korea, Taiwan and other countries.”
The increasing speed of technological change was shortening the gap between new models to as little as three months, and customers were demanding greater customization and quality. Companies “began to wonder whether manufacturing outside Japan could really help keep the cost down,” says Keio University business professor Keinosuke Ono. Flying out experts to fix foreign assembly lines was expensive. Consumer claims for defective foreign-made products were rising. At Kenwood, says Sato, “we could not meet the demands of consumers fast enough” with products shipped from Malaysia. And deflation in Japan was making it more affordable to buy supplies at home.
Ever since that time, leading Japanese multinationals have been aggressively re-evaluating how and where they do business. Cost-cutting raised profits and brought in the money to invest in Japan–but companies are spending more wisely now. The corporate environment is “very different” now, says Kiuchi. “They are building factories after having carefully studied potential buyers, and are churning out products after having carefully calculated the demand.” Kenwood began considering a move back to Japan in January 2003 and began producing in Tsuruoka eight months later.
The rediscovery of Japan does not imply a turn away from foreign markets, either. The Ministry of Economy, Trade and Industry official calls the phenomenon sumiwake, or “dividing the works.” Japanese investment in China rose 21 percent from 2002 to $5.1 billion in 2003, and Japan will continue to produce appliances, computers and other well-established consumer products in China and other Asian countries. It is for fields like LCD–where technology is still changing fast and profit margins are high–that Japanese companies are building plants at home.
Sharp learned the value of a home base after rolling out the first practical liquid crystal display on a calculator in 1973. Sharp developed its manufacturing machines with contractors who, by the 1990s, had begun passing on know-how to rival firms in Taiwan and South Korea. Sharp now works to keep its secrets “in the black box,” says a spokesman. The fruit of that effort: the new $1.4 billion plant in Mie prefecture, which makes large-screen LCD TVs, including all the components. Sharp recently announced record sales of $21.5 billion in 2003, buoyed by sales of 1.48 million LCD TVs, and expects to sell twice that many units worldwide this year.
Experts say it is too early to tell whether all the new factories will slow the long-term decline in manufacturing employment. But Sharp’s new LCD-TV plant has brought more than a dozen suppliers and 1,000 jobs to an area now known as Crystal Valley. Tsuruoka is a hotbed of plant construction. Not far from the Kenwood plant, truck convoys ferry equipment to the clean room of NEC’s new $571 million wafer-fabrication facility. NEC plans to build a semiconductor plant on the same site, for which it will hire 100 new employees. “We always kept high-end, high-tech sectors in Japan,” says NEC spokesman Hisashi Saito. “It’s just that the economy wasn’t ripe for new investment for a few years. Now we see a positive direction.”
It’s hard to imagine that Japan could reverse the manufacturing decline afflicting all rich industrial nations, but many Japanese are hoping to see a revival beyond the top end of high-tech. They cite an apparel company that recently shifted production from China to Japan, where new machines make it possible to make seamless knit- wear. This year Onward Kashiyama ordered about 150,000 (out of 3.4 million) pieces made in Japan and plans to raise that number steadily, particularly for garments costing $100 or more. “Manufacturing in Japan, we can make the knitwear at the same cost as the China-made products,” says com-pany spokesman Hideki Shirai. “More than anything else, we can meet the consumers’ demands quickly.” It takes a month to get deliveries from China, so fast-changing fashion tastes can be satisfied only by clothes made in Japan. Textile makers were the first major industry to begin seeking out cheap factories abroad. Who knows? Maybe they’re on the cusp of a new trend.
