Tuesday, April 09, 2002
Japan Machinery Sector Hit By Ongoing Slump, Sources Manufacturing Overseas
Tokyo, April 8: As Japan's long economic slump slowly sucked the life out of the machine tool making district of Ota, on Tokyo's western fringe, 64-year-old Takehisa Yukioka's small factory ended up being the only one left on the block. Now, after 40 years of taking orders from big power companies and drilling holes in metal plates with microscopic precision, Mr Yukioka, who has no son, has given up on finding someone to take over the business when he retires. "None of the guys from the big firms can do what I do," he grumbles, pointing to two gigantic metal shaping and drilling machines rusting away in his dusty factory. "I refuse to take up any other job, unlike those who closed shop around here. Some disappeared at night, some resolved to killing themselves," he said, puffing away on a cigarette. In the 1980s, when Japan's economic might was at its peak, Mr Yukioka's one-man factory was one of 10,000 small to medium-sized enterprises crammed into Ota's neat industrial alleys. The area is famed for churning out prototype tools for large firms ahead of mass production, and still churns out everything from delicate medical equipment to rocket parts for NASA. Some, like Yukioka, aren't exactly sure how their finely turned bits of metal and plastic are ultimately used. One thing they do know, however, is that their livelihood are at risk as demand from big companies falls and firms outsource to low-wage countries like China. Over the past decade, the number of small factories in Ota has fallen by half, illustrating a general problem facing Japan, where roughly 70 per cent of workers are employed by small-to-medium sized firms, many dependent on capital spending. In a striking contrast to the upbeat figures coming out of China, government data released on Monday showed that Japanese private sector machinery orders fell 16.1 per cent in February, from a year earlier, to 846.3 billion ($6.43 billion). Separate data released by the Japan Machine Tool Manufacturers Association showed tool makers received orders worth 58.98 billion yen in March, down 28.8 per cent. Earlier this month, the Bank of Japan's "tankan" survey of corporate sentiment showed big companies planned to cut capital spending by 8.4 per cent in the fiscal year that started April 1. A survey by the Nihon Keizei Shimbun business daily on Sunday put the figure at 12.9 per cent. The pain is being felt by the small firms of Ota. "Orders are plummeting and their machines need a major makeover, but the banks are turning them down," said Mr Kunio Tezuka, management consultant for Ota's Chamber of Commerce. Japanese companies now outsource about 20 per cent of their manufacturing overseas. This figure has risen between three and six per cent a year for the past three years and shows no sign of abating. That means small firms have little incentive to invest. Tezuka estimated that an average machine tool used by medium sized firms in Japan is typically up to 15 years old, compared with five years in China and 10 in the United States. In February alone, corporate bankruptcies in Japan rose 5.7 per cent from the month before, and more than 98 per cent of the 1,712 firms that went under were small-to-medium sized concerns. Economists say that even if Japan's economy starts to grow in the second half of the year, as many expect, that would not greatly improve the prospects for smaller companies. This, in turn, could hamper Japan's longer term recovery from its third recession in a decade, they say. "Despite the improving outlook for corporate profits, companies are hesitant to ramp up local production facilities," said an economist at the Development Bank of Japan. Some economists believe Japan's high trade surplus may eventually turn into a deficit, possibly in five years, as companies shift production overseas. By shifting small-scale prototype production to China, Japan also risks losing its technology edge, as well as skilled workers, which is expected to hit six per cent in the next few months. "The worst case scenario is that if Japan, on a cost cutting frenzy is sapped of its edge in advanced technologies," said Mr Makoto Ishikawa, economist at Japan Research Institute. The government recognises the problems facing small business, but has done little so far to reverse the trend. Finance minister Masajuro Shiokawa has urged the government to take the initiative on tax cuts, aimed at spurring Japanese breakthrough in such fields as nanotechnology and biotechnology. Such measures could include government funding, low-rate lending and drastic tax benefits for research and development. - Reuters
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