Global Economy: Japan Adds Factories at Home
By Yuka Hayashi
12 June 2007, The Wall Street Journal
TOKYO -- Japanese manufacturers, which have been eager to shift production to lowcost countries such as China or major markets such as the U.S., are racing to build factories back home, in a change of strategy among some of the world's industrial heavyweights. Toyota Motor Corp. and Honda Motor Co. sell more cars in the U.S. than in Japan, but
Toyota has invested three times as much in Japan as in North America over the past three years. Honda is building its first auto factory in Japan in nearly three decades. Tokyo
Steel Manufacturing Co., a midsize company, is building the first new steel furnace in
Japan in 15 years. And Sharp Corp. is considering building a plant here to make liquidcrystal displays a year after completing another such plant.
As products from hybrid automobile engines to flat-screen televisions become more complex and the pressure to bring improvements to market quickly intensifies, Japanese manufacturers are finding it is important to keep factories physically close to their engineers, parts suppliers, decision makers and Japan's large pool of highly trained workers. Japanese companies registered to build 1,782 factories in Japan last year, up from 844 four years ago and the highest number in 14 years, according to government figures.
Meanwhile, they are building fewer plants abroad -- 182 in the year ended March 31, down from 434 four years earlier, according to a government survey.
"Companies have learned what they can do well in China and what they can do better in
Japan," says Yukio Watanabe, an economics professor of Keio University in Tokyo. "It has become clear to them it is essential to be in both places."
By keeping factories on their home turf, companies say they can also reduce the risk of having their manufacturing secrets stolen by rivals. Sharp assembles flat-panel TVs at five factories around the world, including China and Mexico. But the LCD panels that go into the TVs, the most critical component, are built only at its main factory in Japan where its technology is guarded.
Canon Inc., a maker of digital cameras and office equipment that has reported record earnings for seven straight years, has been increasing production in Japan at a faster pace than overseas. Foreign-made products fell to 39% of its overall sales last year from a peak of 42% in 2004. The Japanese market, accounts for 22% of Canon's overall sales.

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At its Toride plant in the Tokyo suburbs, Canon produces more-advanced and expensive products, such as high-speed copy machines that are sometimes customized for individual clients. In its Suzhou plant near Shanghai, it assembles mid- to lower-end copy machines.
"It's very important for us to maintain manufacturing in Japan," Canon Chairman Fujio
Mitarai said. "Product development and manufacturing go hand in hand, and Japan is where the communications between the two take place."
Among the advantages Canon enjoys in Japan are skilled workers such as Yoshii Takada, a 25-year company veteran. Ms. Takada, who works in the Toride plant, is so familiar with the products the plant makes that she can assemble a laser copy machine singlehandedly from 780 components, without a manual. She is so skilled, she has the title of
"meister," which Canon gives to its top manufacturing workers.
That kind of expertise comes in handy when product cycles are shorter and workers must assemble a wider variety of products. Ms. Takada regularly advises managers on how to speed up manufacturing by better organizing assembly stations.
"There is no end to the process of kaizen," says Ms. Takada, referring to a trademark practice at Japanese manufacturers that seeks continued improvements in efficiency by eliminating waste. "I'm always thinking how I can help improve the quality."
Until a few years ago, the benefits of producing goods in Japan were often outweighed by high labor and other costs. Since then, Japanese labor has become substantially cheaper, thanks in part to corporate restructuring during the country's more than a decade-long economic slump and a more flexible labor market.
Aided by deregulation, companies have quietly but steadily replaced millions of full-time employees with lower-paid temporary workers. Just 10 years ago, only one in five
Japanese workers was a temporary worker. Now, one in three is a temp.
Not only has Japanese labor become cheaper, but factory automation and the use of manufacturing robots have reduced reliance on workers. Canon has increased the output of ink and toner cartridges in Japan by automating the process. The average dollardenominated hourly wage for a Japanese production worker in manufacturing was $21.76 in 2005, down 7.3% from a decade earlier, according to the U.S. Bureau of Labor
Statistics. During the same period, the average wage in the U.S. soared 38% to $23.65, while the German average climbed 9.6% to $33.
The gap in labor costs between Japan and other Asian nations is also shrinking because wages in China and other nations are rising sharply. Pay in Japan is still higher than
South Korea, where the hourly wage is $13.56, but the difference is narrower than in
1995 when the average Japanese worker made nearly three times as much as a Korean worker. In addition to making Japanese-built goods cheaper overseas, the yen's current weakness against the dollar and other major currencies makes Japanese labor even more attractive for companies with global operations.

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