Japan's manufacturing industry was hit by an earthquake: stayed home or transferred

The impact of the earthquake on the front line of Japanese industrial production is gradually expanding throughout Japan. According to reports, the earthquake-stricken area, the Northeastern region of Japan, is one of the concentrated areas of Japanese industry. There are a large number of companies in the pillar industries such as steel, petrochemical, automobile, and electromechanical industries. Due to serious losses, some companies have started since the end of last week. Have to announce the suspension of production.

Affected by the earthquake, the loss of Japan's manufacturing industry is still unable to estimate. From a strategic and operational point of view, what choices will Japan's manufacturing industry make in the future?

Accelerate the transfer to emerging markets?

“Japan was originally a country with a global allocation of resources, and many companies’ production and manufacturing sectors have already achieved a transfer to other countries such as China.” Associate Professor Wu Jingfei, Center for Industrial Economics at Fudan University’s School of Economics, told the “First Financial Daily”.

According to the reporter, the transfer of Japanese manufacturing companies' factories overseas can be traced back to the 1980s. The beginning was due to trade barriers and other reasons, Japanese companies had to build factories in the United States for production and sales. Later, due to cost reasons, the factory was transferred to South Korea, Taiwan and other Asian countries and regions, and now emerging market countries represented by China, Brazil, Russia, India and other BRIC countries.

"It is difficult to say whether the pace of transfer will be accelerated due to this earthquake. But what is certain is that from the perspective of strategic layout, some industries, such as aircraft, automobiles, and chips, will inevitably adhere to a certain portion of manufacturing and production. Japan's mainland." said Wu Jingfei.

"Actually, Japan's overseas manufacturing output and production capacity are larger than those of its domestic counterparts." For many years, Mitsui & Co., Ltd. has been working in the Japan Economics Society of the Chinese Academy of Social Sciences, which aims to study Japanese economic publications such as "Aiming at the Japan Foundation". Director Bai Yimin told reporters that the part of Japanese companies retained in the country belongs to high-precision R&D, technology and manufacturing, and is a part that Japanese companies are not willing to transfer. Therefore, some Japanese equipment sold to China will also appear. If there is a critical part of the repair, it will often need to be shipped back to Japan.

Liu Yuyang, a researcher at Samsung Research Institute's strategy group, believes that “this is how it maintains its competitiveness and national competitiveness”. Like a “waterfall effect”, advanced companies master the manufacture of high-end parts and then slowly decompose, but the higher the scope of technology diffusion, the smaller. Just like the iPhone, the top-end chip is made in Japan, and the circuit is made in Taiwan. The speakers may be made in mainland China, and finally assembled in the mainland.

From another perspective, Bai Yimin believes that Japan retains high-end manufacturing in its own country and is also related to Japan's traditional cultural habits. Japanese culture is essentially a farming culture, accustomed to industrial establishment, and dedicated to the intensive cultivation of the industry. This is different from the American-style nomadic culture. The nomadic open culture and mentality are one of the reasons why the United States is financially founded.

The risk of short-term unemployment?

After so many manufacturing plants have announced the suspension of production, will Japanese domestic industrial workers fall into the short-term unemployment risk caused by the earthquake disaster?

“Japanese society rarely has the concept of unemployment, and employees’ loyalty is high.” Bai Yimin said that Japanese companies are symbiotic and there are many cross-shareholdings between them. In the event of natural disasters or economic downturns, employees of general related companies will be accepted by other shareholding companies. Bai Yimin said, “If you ask the U.S. company’s employees who own the company, the answer will be the shareholder; and the Japanese company employees. The answer given will be owned by the employee."

"During the financial crisis of 2008, although some Japanese companies suffered serious losses, they also seldom layoffs." Bai Yimin said, "Many well-known Japanese entrepreneurs believe that even if companies face a crisis of survival, they must insist on keeping their employees. When there is no business, employees can be trained instead of dismissing them all.”

Of course, being able to provide such benefits for employees also requires financial strength to back them up.

"Actually, it is not the Japanese government that dominates the Japanese economy, but the Japanese consortium. In terms of the welfare of the Japanese people, the government provides social welfare, and most of the other benefits are provided by companies. Therefore, there is basically no need to worry about earthquakes like this. Disasters will worsen the affected employees and bring about the risk of unemployment,” Bai Yimin said.

Affect customers and suppliers?

Bai Yimin analyzed that there are many electronic chip manufacturing companies in Japan that have significant influence on the industry chain.

For example, Apple's iPhone, which has become so popular all over the world, has reported that a third of its parts are from Japan, according to the Singapore’s “Lianhe Zaobao” report. If production or logistics are not recovered quickly, it will lead to supply shortages. In China, Taiwan, and South Korea, which are in the downstream of the manufacturing industry chain, customer companies responsible for product assembly are bound to be affected, which may lead to tight supply of electronic products and even price increases.

Liu Xiaoyang said that while Japan is not currently the second largest economy, it still occupies an important position in semiconductor materials, chip design, and optical equipment.

In the Chinese market, due to the large number of imported high-tech products from Japan and the products and equipment in the upper and middle reaches of the industrial chain, many Chinese electronics, automotive and other companies with high relevance to Japan’s leading industries are likely to use their capacity owing to Japan’s capacity utilization rate. Suspension of the supply chain at the upstream of the supply chain has been reduced, and some projects may have to slow down due to the interruption of the production and delivery processes of Japanese equipment.