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Japanese Production Base Returning Home

Japanese Production Base Returning Home

KOO Bon-Kwan

Sept. 4, 2004

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In the past two years, Japanese manufacturers have cooled their zeal for overseas investment, steadily relocating their production base back to Japan. Until the mid-1990s, they used to invest heavily in low-cost labor countries such as China and ASEAN (Association of Southeast Asian Nations). After the Asian financial crisis of 1997-98, though, that trend has been tapering. Japan's foreign direct investment in Asia is beginning to shrink, even though its investment in China briefly rose after Beijing gained membership in the World Trade Organization (WTO): it rose from 160.6 billion Rmb in 2001 to 277.3 billion Rmb in 2003. But Tokyo's overall investment in East Asia has turned more or less flat. Foreign investment by Japanese electronics makers has actually dropped since 2000.

But their investment back home has been dramatically increasing since 2003. After an 8.0% increase year-on-year in 2003, Japanese companies are planning to boost domestic investment by as much as 22.5% year-on-year in 2004. The biggest rate of increase is planned by electronics makers. Their investment dropped sharply in 2001 and 2002, but turned robust in 2003. Carmaker Toyota expanded overseas production after 1993, but now, for the first time in ten years, it is pushing ahead with plans for expansion of production lines in Japan.

Some companies are shuttering overseas production to relocate to Japan. According to a February 2004 survey contained in the 2004 White Paper by Japan's Ministry of Economy, Trade and Industry, 12 out of 413 Japanese manufacturers with overseas production sites have already moved back to Japan, one company was considering moving back, and three others that initially contemplated moving have now decided to stay home. Manufacturers that have already relocated to Japan included makers of digital home appliances, information technology devices, fashion apparel and kitchen cabinets.

A growing number of Japanese companies is expected to move home as more of their chief executive officers stress domestic production. This is evident in a survey of CEOs from 5,415 companies sampled by Japan Management Association (JMA) in 2003: 42.5% of those polled said their domestic production was reduced in the last three years, but at least 31.0% replied that their home-based production was expanding. Discussing the prospects for the next three years, however, CEOs who planned to increase domestic production accounted for 38.3% as opposed to 26.2% for those intending to reduce home-based production.

While this trend reflects a growing preference for home-base production, it's likely to consolidate in the future: a Nikkei News survey of 161 major Japanese manufacturers from July to August 2004 found that 48.7% of those polled were planning to increase investment for home-base production in the next three years. Only 11.3% said they will cut back on home investment. More surprisingly, one out of every ten Japanese companies had already relocated overseas production base, underscoring the prevailing mood within Japanese companies.

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