[Pen-l] Japan's De-deindustrialization?

[Michael Perelman <michael@xxxxxxxxxxxxxxxxx>]

BusinessWeek published an intriguing article about Japanese automakers 
boosting domestic investment to expand production in Japan, even though the 
Japanese market is declining.  The Japanese plants will have a competitive 
edge because they are more flexible and have fewer defects.  German 
companies are also ramping up Japanese production, presumably for similar 
reasons.

What US companies are following a similar strategy rather than adopting a 
race-to-be-bottom approach?

Rowley, Ian. 2008. "Facing an Auto Slump, Japan Lifts Capacity: Carmakers 
Are Expanding at Home, Where Nimble, High-Tech Plants Offer More 
Flexibility." Business Week (29 May): p. 64.
http://www.businessweek.com/print/magazine/content/08_23/b4087064205041.htm

"In the midst of a dramatic earnings slump, Toyota, Nissan, and Honda are 
ramping up production fast.  Not in the U.S., their most profitable market, 
but back in Japan, where domestic auto sales just hit a 25-year low.  Every 
major Japanese automaker is building plants at home or adding capacity to 
existing ones.  A Toyota subsidiary is constructing a 120,000-car plant in 
Miyagi, north of Tokyo.  It's Toyota's first such plant in Japan since 
1993. Nissan, which not so long ago was slashing production in the country, 
is expanding capacity by 22% at its Kyushu factory.  Honda is spending $1.5 
billion on a new factory and engine plant in Saitama, just outside Tokyo.  
"The time has come for our Japan operations to once again take the 
initiative," Honda President Takeo Fukui told reporters on May 21."

"Why all the outlays?  After all, Japan's carmakers have long had a policy 
of opening plants in overseas markets to avoid import duties and to hedge 
against currency gyrations.  Japan remains an expensive place to make cars, 
with wages 10 times higher than in China.  A shrinking population is 
causing labor shortages. The yen's recent 15% surge against the dollar 
makes Japan-made cars even pricier.  Throw in contracting domestic sales, 
and the moves seem to defy business logic."

"One explanation is the flexibility that the investment brings. Japan's 
high-tech plants excel at switching production from one model to another.  
That's especially useful when auto demand is sinking or flat in mature 
markets but surging in the Middle East, Russia, China, and India.  Nissan's 
Kyushu plant, for example, exports to 160 markets and produces eight 
different models on a single production line."

"Anxiety over quality is another factor in the increase of production back 
home. In recent years, Toyota has had to issue numerous recalls, while 
Nissan's Canton (Miss.) plant became notorious for its defects during a 
production speedup. Executives are loath to admit that one plant is better 
than another, but Japanese makers' domestic factories score higher on 
quality than equivalent plants overseas."

"Japanese engineers and workers, while more expensive than their 
counterparts in developing markets, are still a good deal.  One reason is 
that Japan's wage levels, after barely rising in a decade, are not as high 
as they once were relative to other developed countries.  According to 
consultant AlixPartners, Japanese industrial workers in 2006 made around 
$22 an hour, just two-thirds the level in Germany.  Moreover, it's still 
rare in Japan for workers to switch from one automaker to another, so a 
well-trained, seasoned workforce is a given.  "It's not so expensive in 
Japan, and when you consider the quality, motivation, and diligence with 
which people work, the value-for-money is unbeatable," says Markus 
Schädlich, president of Karmann Japan.  In December, Karmann, a German 
company that makes convertibles under contract for Audi, Mercedes, and 
Nissan, will begin production at a factory in Japan."

"The notion of mother plants, which test new technologies that later filter 
out to plants worldwide, remains strong. Fukui predicts Honda's Saitama 
plant will set an example for its plants globally. Labor productivity is 
expected to be 20% higher than in existing plants, thanks to greater 
automation and advances in welding and painting. Honda aims to cut the 
amount of energy used to produce each car by more than 30%. Honda and its 
Japanese rivals are not abandoning their plan to make cars around the 
world. But they are strengthening Japan's role as the essential benchmark."



-- 
Michael Perelman
Economics Department
California State University
Chico, CA 95929

Tel. 530-898-5321
E-Mail michael at ecst.csuchico.edu
michaelperelman.wordpress.com
_______________________________________________
pen-l mailing list
pen-l@xxxxxxxxxxxxxxxxxx
https://lists.csuchico.edu/mailman/listinfo/pen-l