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Japanese companies move away from the 'world's factory'

Monday - 01/05/2017 13:22
China's reputation as the world's factory appears to be standing on increasingly shaky foundations as labor costs continue to rise, making the country a more expensive manufacturing location.
ForeignInvestment middle
ForeignInvestment middle
Once productivity and other factors are taken into consideration, even Japan now compares favorably with China in terms of production costs.

Lower economic growth

The situation has led a number of Japanese companies to reexamine their business strategies with a view to lowering their reliance on China.

  Kobe Steel has decided to delay increasing its production capacity in the country. The company had initially planned to raise forged aluminum auto-suspension parts production capability by 40% this autumn, but decided to shelve the plan for the next 12 months or so. The decision comes in response to the slowing growth of the Chinese new-car market.

     Meanwhile, the company will invest about 7 billion yen ($56.3 million) to increase production capacity of the parts in the U.S. by 80% to keep up with solid new-car sales in the country.

     After rising sharply until last year, China's smartphone market appears to have reached a saturation point. This has hit smartphone manufacturers as well as related industries.

     Tsugami is now making just 300-400 units of its compact turning machines a month in China, due partly to weak demand from manufacturers of smartphone parts. The company was making approximately 800 units a month this past spring, but even that figure is well below its monthly output capacity of 1,500 units.

Higher labor costs

In addition to lower demand, rising labor costs are driving Japanese companies to reduce reliance on China as a manufacturing base.

     Adastria, an apparel company that owns Global Work and other clothing brands, aims to lower its production in China from 90% of its overall output to 70% within the next five years. This will involve moving production to other Southeast Asian countries such as Vietnam. The change will result in higher shipping costs, but these will be offset by lower wages, meaning overall costs are expected to come down by approximately 10%.


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