Japanese Auto Components Manufacturers Explore China
The small- and medium-sized auto components suppliers are exploring the Chinese market, hoping to find profitable development opportunities.
As a result of the earthquake, Japanese auto components manufacturers had to stop their production and provisions, which affected the world’s auto industry. Therefore, Japanese auto components suppliers began to build factories outside of Japan at an accelerated pace.
Not only the big auto components suppliers but also the small and medium ones are seeking the opportunities to develop overseas. For these small companies, China, a neighbor to Japan, became the most ideal destination.
Hitomi Suzuki from Japan spent two months in visiting China in April and May. He hoped to find an opportunity to establish a factory in China to produce air cleaners for vehicles. With the help of Japan's External Trade Organization’s representative offices in Shanghai, Suzuki joined a delegation of executives of dozens of Japanese small- and medium-sized companies and visited Wuxi and Jiangyin, Jiangsu. At the beginning of June, this delegation, including Suzuki visited Danyang and Zhenjiang, Jiangsu. “Local governments of many cities are interested in our investment,” says Suzuki.
Re-mention of industrial transfer
According to the latest report from the Japanese government, Japan’s auto exports volume decreased by 12.5% year on year to 5.16 trillion yen this April. It was the largest decrease in 18 months. In comparison, the imports volume of vehicles of Japan increased by 8.9% to 5.62 trillion yen. 2011 was the first time that Japan saw trade deficit in vehicle business.
Japanese economist Hiroshi Watanabe thinks that the drastic decrease in auto exports can be attributed to the insufficient production capacity of Japanese automakers.
“This march, the mining industrial index of Japan dropped by 15.4%, higher than the drop during the financial crisis. But the decrease in the mining industry cannot even begin to compare with the auto industry,” says a Japanese government official. “About 1 million Japanese vehicles were sold from April to June. Before the earthquake, the quarterly sales reached 2.2 million to 2.3 million units. The decrease reached 55%.”
The earthquake prompted damages to every link of the Japanese auto industry. The broken supply chain of components forced the automakers to stop their production. In addition, the damaged ports made it impossible for the vehicles to be exported overseas. One earthquake exposed all the defects of Japanese auto production pattern.
The Japanese automakers centralized their forces in Japan. They moved the assembly plants to the foreign countries, but research and development as well as the production of key components, is still done in Japan. Therefore, when the earthquake destroyed the factories in Japan, the all production was halted because the plants in foreign countries could not provide enough capacity.
The Japanese auto components manufacturers have already realized this and thus have begun to move their plants to foreign countries. However, Wang Qing, deputy researcher of the Development Research Center of the State Council, says that the Japanese auto components manufacturers only move their manufacturing part to China but leave their research and development centers in Japan. “This is good for improving the core competitiveness of the Japanese auto components and follows the development trend of the global auto industry.
A Japanese government official says that the industrial transfer of Japan began in the late 20th century. The earthquake will force some industries to accelerate the pace of transfer.
This is based on three factors. Firstly, the appreciation of Japanese yen, the increase of labor cost and high tax, and power price which led to "made-in-japan" products unable to compete. Secondly, the Japanese government continuously raised the requirements regarding environmental protection and implemented strict rules limiting the emission of carbon dioxide. Thirdly, setting up plants in foreign countries can easily break the trade protection barrier which could give certain enterprises more favorable trade policies.
The appreciation of the Japanese yen led to the inability of Japanese companies to compete. This is a common problem for both the small- and medium-sized companies and the big companies like Toyota. Akio Toyoda, president of Toyota, said in May that Toyota would transfer more production capacity to foreign countries if the yen kept appreciating.
Local government’s interest
The Japanese External Trade Organization, which arranged the business tour for Hitomi Watanabe and the other Japanese entrepreneurs, is a special organization responsible for helping the Japanese auto components manufacturers to contact and communicate with the local governments of different provinces and cities in China.
“These small and medium companies have little or no experience with overseas investment. They need to unite as a group to invest into a place together. They also need the support of local government,” says a source of Japan External Trade Organization.
The source also says, “We did not give any promises about making investments in some places. We only guided the Japanese companies to see whether there are some places they would like to invest. But whether they invest or not depends on what kinds of favorable or supporting policies local governments give, as well as these companies’ own plans.”
Yin Hui, deputy director of the Investment Recruitment Bureau of Danyang, Jiangsu, says that the Danyang government has already signed a contract with the Japanese External Trade Organization. The two parties will build an industrial park of auto components for the “small- and medium-sized Japanese auto components manufacturers”. The industrial park is said to be finished this November.
However, Yin Hui says that Danyang faces intensive competition from other cities. “Wuxi, Jiangyin and Shenzhen are also eyeing a similar kind of project.”
Apart from the aforementioned cities, Foshan, Guangdong, also has an “industrial park for small- and medium-sized Japanese auto components manufacturers” based on a contract that Foshan government and Japanese External Trade Organization signed last December. Foshan plans to develop this base into the largest Asian industrial park for small- and medium-said auto components manufacturers.
Some local governments highlight their advantages in transportation and supporting facilities, in order to obtain investment.
A source close to Aisin Seiki, the largest gear-box manufacturer in Japan, says, “The local governments in China usually accept policies without much consideration. Some small companies may attach great importance to the operation cost. In addition, they put a lot of thought into the supporting facilities and talents recruitment.”
Wang Qian, a government official of Wuxi, Jiangs, says that Wuxi has advantages in recruiting these investments because the supporting facilities there are complete. In addition, more than 1,000 Japanese companies have been established in Wuxi. Therefore this city has enough experience in training and providing talents that Japanese companies like. “But we have technology-related requirements. If you only want to set up a manufacturing plant, we will not approve the project,” he says.
Core technology as the key
“These small and medium companies which are willing to invest in China, were previously haunted by the lack of capital and did not have the opportunity to invest in foreign countries. Now, the earthquake forced them to reconsider their strategy. In addition, the downstream automakers of these components suppliers are another reason for them to come to China. These automakers have already set up plans in China and they can provide numerous business opportunities,” says Chen Wenkai, president of Gasgoo.com
Before Toyota made an investment in China, Aisin Seiki, which is an important supplier for Toyota, already set up a plant in China. It is same with these small- and medium-sized components suppliers. However, if these small and medium companies only provide components for the Japanese automakers, they will not earn much money in China. If they decide to supply components these non-Japanese automakers, they don’t have advantages in cost compared with Chinese local components manufacturers because the Japanese companies’ research and development are done in Japan. Therefore, these small and medium components manufacturers may face a dilemma in China in the future. Whether they need to transfer their technology is the primary matter they need to think of before entering China.”
An account executive from a Japanese bank’s Shanghai branch says that the banks are not very bullish on those small- and medium-sized components manufacturers because of their conservative investment strategy and poor investment ability. “The banks may refuse to lend loans to them. If they don’t have products with high added-value, they cannot succeed in the Chinese market which is full of intense competition.”
Wu Xiaodong, deputy secretary-general of the All-China Automobile High Technology Commission, thinks that some big auto components manufacturers cannot get used to the Chinese market, so it is normal for these smaller ones to suffer failure in China. “They must have some initiative products in China. If they only consider China as a place for simple manufacturing, they are making a big mistake.”
Experts stress that China’s local auto components manufacturers are haunted by insufficient technology and thus have to supply cheap low-end products to the clients. Therefore, if the small- and medium-sized auto components manufacturers are willing to transfer some of their core technologies, if any, to the Chinese companies, they are more likely to get approval and supporting policies from local governments, which are needed for their success in China.
