After quake, Japanese companies look abroad but not to China's mainland

By He Shan: 0 Comment(s)Print E-mail China.org.cn, July 4, 2011

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Office workers stroll through a street filled with restaurants at lunchtime in Tokyo. Japan's economy contracted sharply in the first quarter, veering back into recession as factory production and consumer spending wilted in the aftermath of March 11 earthquake and tsunami. [CFP]

Japanese manufacturers whose factories were damaged in the 9.0-magnitude earthquake in March are trying to resume production, with some companies opting to shift operations overseas instead of repairing their old bases.

A survey by the Japanese Ministry of Economy, Trade and Industry in April estimated that manufacturing companies would restore 80 percent of production by July and reach pre-quake levels by October.

The earthquake struck a severe blow to global industry, which relies on Japanese high-end manufacturers for important components in semiconductors, auto parts and machinery.

Compal Electronics, a leading laptop maker in Taiwan, said sales would be 15 percent lower than its target set earlier this year because of supply disruptions from Japan.

Another company, Renesas Electronics, supplies 40 percent of the world market for microcontrollers, knocked out the production of auto giants like US Gerneral Motor after its plant was hard hit by the quake.

Though the Japanese government is trying to keep its companies at home – it set up a US$700-million fund to provide reconstruction capital – some businesses are still moving production overseas.

Panasonic, the biggest Japanese maker of consumer electronics, rolled out a US$1.23-billion investment plan to move its smartphone component production line to Taoyuan, Taiwan, and at the same time rev up output in another plant in Taiwan.

Canon, the world's largest camera maker, moved its high-end camera production line in Fukushima to central Taiwan. Rival Nikon is in talks with Malaysia about a relocation of production line.

Asian countries are taking notice. To win the heart of Japanese companies, Southeast Asian countries, such as Singapore, have helped the quake-hit areas with cash offers and investments in those areas.

But Japanese companies have so far circumvented China's mainland, once the apple of manufacturers' eye. But China may not be immediately well-suited to absorb Japan's high-end and high-quality production. Instead, China's cheap labor caters better to labor-intensive production, said Cai Linhai, a researcher at the International Commerce Academy of the Commerce Ministry.

Japanese companies also know that a "Made in China" label may lower their brand reputations on their high-quality products. At the same time, they fear Chinese copycat producers could steal their technology.

Cai said Chinese companies should make a commitment to protecting intellectual property rights to dispel their misgivings. He also said they should follow the examples of other Asian countries by investing in northeast Japan, while offering Japanese companies well-researched business plans that highlight specific advantages over other countries or cities.

"Merely saying 'our city is better and please come' without giving concrete examples is not convincing," Cai said.

He also pointed out that China is a large market that Japanese companies cannot afford to ignore, which gives Chinese companies leverage.