After slashing investment and shifting production abroad over the past several years, major firms, especially in the booming consumer electronics industry, are plowing big money into facilities at home. The principal force behind the new investment drive is surging demand for a range of new-generation home appliances, such as flat-panel TVs. But another factor, with greater long-term implications for Japan's manufacturing sector, is growing recognition that production bases in Japan are vital for developing competitive, high-value-added products.
Matsushita Electric Industrial Co. (6752) is building a new, 60 billion yen factory in Ibaraki, Osaka Prefecture, to pump up its output of plasma display panels. When it starts full-scale operations in fiscal 2005, the plant will churn out 80,000 PDPs a month, boosting the company's overall production to 1.5 million units a year. Matsushita has also decided to expand domestic production of system LSI devices used increasingly in digital gadgets like DVD players and cell phones. The company is spending some 130 billion yen to build a plant equipped with advanced micromachining technology to manufacture the strategic products in Uodzu, Toyama Prefecture.
Sharp Corp. (6753) is also concentrating its cutting-edge R&D and manufacturing operations in Japan. The company's new factory in Kameyama, Mie Prefecture, which enables integrated production of liquid crystal display TVs, the firm's cash cow, embodies this strategy. By the end of fiscal 2004, Sharp will have spent some 150 billion yen on the plant's state-of-the-art equipment. In addition, the company will also have used nearly 180 billion yen to build and expand domestic production facilities for products such as semiconductor laser devices and solar batteries.
Providing another important sign of economic recovery, Japan's manufacturers have started ramping up domestic production again. Swelling domestic demand for manufacturing equipment is the direct result of the recent spending spree. Machine tool orders related to domestic demand spiked 34.9% in January, compared with a 28.5% rise in overall orders, the Japan Machine Builders' Association has reported. Domestic sales have been outstripping exports since September last year and will grow further to account for 560 billion yen of annual orders totaling 1.1 trillion yen in 2006, according to the association's estimate.
TT's Take The pick-up in domestic production is at odds with a survey of top Japanese executives conducted last summer by the Japan Management Association indicated domestic production was dwindling. When asked about future, however, more respondents projected an "upward trend" three years down the road than those looking for a "downward trend." The rush to beef up production in Japan has been fueled partly by the realization that R&D and manufacturing operations must be located close to each other to create really original and highly sophisticated products. That has inspired many Japanese firms to abandon plans to focus domestic operations on research and development while shifting production to countries with low-cost labor.
Japanese companies have rushed headlong into local production in China, but the strategy is not without its risks. The inevitable appreciation of the yuan could spell the end of Japan's capital investment binge in China, while overseas factories will never be at the forefront of innovative new products.
Rather than export manufacturing and in all likely hood in the near future, white collar IT and other jobs, why not export bureaucrats! Japan's supply of bureaucrats is virtually endless, and the domestic economy would not be hurt one iota if the ranks of bureaucrats in Japan were reduced by, for example, 10%. Indeed, relieving Japanese industry from the thumb of bureaucrats would release the very same "animal spirits" that Japan needs to revive its economy.
