SCDigest Editorial Staff

SCDigest Says:

In July, 10.3 million Japanese workers were involved in manufacturing, the lowest number since the government began calculating the monthly figures in 2002, when there were more than 12 million manufacturing workers. What Do You Say? Click Here to Send Us Your Comments Click Here to See Reader Feedback

While Japan has not been immune to the low cost country and outsourcing megatrend, especially in terms of developing its markets in China, still the export-driven country's manufacturers have been less likely than go offshore than their US and European peers.

That is changing, however, as a rising Yen and still downbeat exports markets in the West make the home grown production increasingly unsustainable.

Those factors are driving a major restructuring of Japan's economy. Japan counts on exports for about two-thirds of its economic growth, despite numerous efforts over several decade to increase the percentage of domestic consumption - a goal interestingly that China is also now trying to achieve.

That export focus has generally meant domestic production, though many large Japanese manufacturers have been moving down the offshore path for some time. But the rise of the Yen versus the dollar and Euro, as well as slow economies in the West that lead to price and margin pressures, are now accelerating the offshore move.

Recent announcement tell the tale: 

• Computer maker Fujitsu said it was moving a lot of production to Taiwan to reduce costs versus existing capabilities in Japan and Germany.

• Sony's television unit said this week it will increase its outsourced production to 50% of its total shipments, from the previous 20-30%. The move offshore is a key factor why the division showed a second quarter profit,  after six straight years of losses. Overall, Sony now makes a record 55% of its goods offshore.

• Car makers Toyota and Nissan are also moving more offshore. Toyota is likely to produce a record 57% of its output offshore this year, up from 48% five years ago. Just last week, the world's leading auto maker by production said it will begin making its popular Prius at a plant near Bangkok, marking the first time its flagship hybrid will be mass-produced outside Japan.

Meanwhile, Nissan will make some 71% of its cars abroad this year, compared with 66% last year. Earlier this year, Nissan became the first Japanese auto maker to mass-market a foreign-made car in Japan, importing the compact March, which it produces in Thailand.

"I can guarantee you we will increase capacity in Korea," Nissan CEO Carlos Ghosn  was quoted as saying a few months ago, adding that Japanese companies have to adapt to the surging yen by "sourcing more and more products outside Japan—there's no other way to compete."

• Murata Manufacturing Co., a maker of electronic components, aims to double its foreign output to about 30% by the fiscal year ending in March 2013.

According to The Wall Street Journal, a survey by Japan's Ministry of Economy, Trade and Industry in August found that 40% of the country's manufacturers said they would shift production and research-and-development operations abroad if the yen remained at 85 to the dollar. The Yen has since strengthened beyond that.

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