Thursday, November 14, 2002
China tempts Japan's digital camera makers
Reuters Tokyo, November 14
Hiroshi Komiya, head of the camera business at Japan's Olympus, waxes enthusiastic when he speaks of the legions of young women assembling digital cameras at his company's factories in southern China.
It's not just their bargain-basement wages, a tiny fraction of Japan's, that make them special.
Rather, it's their keen eyesight, nimble fingers, steady concentration and dedication to the job, which at Olympus's film camera plants have already achieved some of the lowest defect rates anywhere.
"We're not just shifting production there. We're building up the optimum global manufacturing system," Komiya said in a recent interview.
But such exuberance is not shared by all of Japan's "digicam" makers, who dominate the fast-growing market with some 90 percent of total global output.
Never mind that Japanese companies now make nearly all their colour TVs, stereo sets and videocassette recorders overseas, primarily in China and Southeast Asia.
For many of them, digital cameras remain a Japanese stronghold at the cutting edge of consumer electronics, where the country's advanced development and manufacturing skills are viewed as indispensable.
"We launch 10 or more new products a year so we have to move quickly from development to mass production," said Fuji Photo Film Co corporate vice president Norihiko Kato.
"All of our development work is done in Japan," he added. "If there are any production problems, we have to respond fast, so our manufacturing has to be near the development team to hit the ground running."
Last year Japan made 421 billion yen ($3.52 billion) worth of digital still cameras, which forged past video cameras to become its top consumer electronics product, according to government data.
Industry executives expect the global digital camera market to see 50 percent growth this year to about 23 million units and to continue gains next year.
"Overseas penetration is still low, and has just finally surpassed 10 percent of households compared with 23 percent in Japan," said Fuji Photo's Kato.
"Growth will remain strong overseas until this figure hits 20 percent, so next year could be quite good as well."
But as the market and the technology mature, and companies start targeting more price-conscious consumers, many are looking to cut costs -- especially for low-end models -- by moving a large chunk of their output to China.
Resisting China's allure
Olympus Optical Co, Canon Inc and Nikon Corp, which already have film camera factories in China, have either started mass-production of digital cameras in that country this year or plan to do so next year. Others are wary.
Sony Corp, the world's top-selling digital camera company, makes all of its digital cameras in Japan.
It's not just that key components, especially charge-coupled devices -- semiconductors that are a digital camera's "electronic film" -- are made in Japan and would have to be shipped to China.
Japan's manufacturing expertise also plays a role. The unique, rounded shape of Sony's hit Cybershot P1 digital camera, for example, was made possible by an idea from a Japanese factory to use a flexible printed circuit board that, unlike standard flat boards, could bend to match the camera's contours.
"Sony creates quite a bit of added value in its manufacturing processes," said Takasuke Okuda, head of corporate communications at Sony EMCS Corp, the electronics giant's manufacturing arm.
Also weighing heavily on executives' minds is how fast they can get products from the drawing board to the store shelf, as they compete fiercely to bring the very latest features and technical advances to consumers as quickly as possible.
"We're like fishmongers," says Fuji Film's Kato. "No one will buy a fish unless the eyes are still black and glossy."
Like fresh fish
Although his company shifted the output of a few low-end models to China, he said the bulk of production had to remain in Japan -- where development engineers are based -- to ensure no glitches would delay the production launch for a new model.
"This work has to be done face-to-face," he said. "If there's a tiny gap somewhere when pieces of the camera body are put together, the casing manufacturer, our own assemblers and the engineers will work round-the-clock for days until it's fixed."
But Olympus's Komiya played down the distance problem. "Since we have to hit the ground running at the manufacturing site, we bring Chinese employees to Japan to study so they take back expertise on ramping up production."
He also dismissed worries about delays due to shipping parts from Japan. "Although most of the key devices are produced in Japan, they're very small. Air freight costs are minimal and we place orders every day."
But both Olympus's Komiya and Fuji Film's Kato acknowledged that, unlike film cameras, digital cameras use a good deal of machine-assembled parts and had only limited scope for cost cuts, perhaps five percent, by shifting assembly to China.
And it may be just a matter of time before the Chinese catch up with Japan in parts supply and manufacturing techniques, such as aluminium moulding for a new Fuji Film camera that Kato said had to be done in Japan.
But even Sinophiles like Olympus's Komiya are confident Japan will retain its dominance in digital camera development, even if China takes over in manufacturing by using Japanese technology.
"There's no point worrying about letting go of your technology. Put it all out there. Profits will come back to you and you can create further value," Komiya said.
"Besides, digital technology is constantly advancing. By the time it reaches the manufacturing site it's already old. We have to have a development team in China, but we have firm control here of the basic technology."
Following is a summary of plans for production in China by top Japanese digital camera makers:
Japanese companies make 90 percent of the world's digital cameras, excluding so-called "toy" cameras that typically sell for less than $100 each and do not include key features such as colour displays.
The world's digital camera leader -- and the largest consumer electronics manufacturer overall -- produces all of its digital still cameras in Japan. Sony makes a small volume of video cameras in China for the local market, but has positioned Japan as its production centre for video and digital still camera exports.
The company grabbed headlines a few months ago when it said it would stop exporting video cameras to the United States from a plant in Shanghai and shifted U.S.-bound production to Japan.
Sony said the move was spurred by growing demand in China and did not result in production cuts at the Shanghai plant, although it also cited strategic advantages to making video and digital still cameras in Japan. "For products such as digital still cameras and camcorders, production for the export market is more appropriate in Japan than in China. Air cargo is cheaper and more easily available. It is close to engineering operations and, for new models, it is best to do manufacturing near the engineering functions," said Takasuke Okuda, head of corporate communications at Sony EMCS Corp, the group's manufacturing arm.
Olympus Optical Corp
The second-largest company in global digital camera sales, Olympus last month started production at a plant near Guangzhou, capital of Guangdong province in southern China. That, combined with a facility in Shenzhen, neighbouring Hong Kong, will boost its Chinese output capacity to 150,000 digital cameras a month.
The company's overall production target is about 4.5 million digital cameras this year.
Olympus already makes nearly all of its film cameras and IC-chip recorders in China and has expanded a lens plant in Shenzhen.
Its strategy is to focus development and creative work in Japan, and manufacturing in China.
Sanyo Electric Co Ltd
Sanyo is the world's largest digital camera maker, although 90 percent of its output is sold under other companies' brands, such as Olympus, through manufacturing partnerships and original equipment manufacturer (OEM) agreements.
Production capacity at its plant in Dongguan, in southern China's Pearl River delta, will be tripled next year to three million units, or 30 percent of its total output target of 10 million units, said Masahiro Iizuka, Sanyo's marketing director for digital imaging.
The company also plans to increase output at a plant in Indonesia to three or four million units from two million.
Annual production in Japan and South Korea, currently at two million units each, will be maintained or cut slightly.
Iizuka noted that many of Sanyo Electric's digital camera partners already manufacture lenses in China.
A latecomer to digital cameras despite its long-standing status as a top maker of film cameras, Canon has seen its market share surge to the number-three spot since it filled out its product line-up over the past year or two with compact and inexpensive models.
A plant in Malaysia began making digital cameras in the spring of this year with capacity of 100,000 units a month.
Canon expects to start making digital cameras next year at a film camera plant in Zhuhai, near Macau, as its digital camera output expands, although no production targets for that plant have been announced.
Canon plans to make 4.5 million digital cameras this year and about six million next year.
"We don't intend to shift production to China immediately. We'll gradually shift additional volumes to China. We're working to avoid a hollowing out in Japan," Canon President Fujio Mitarai said in an interview earlier this year.
Fuji Photo Film Co
Japan's largest photo film company as well as a leading maker of digital cameras and key components, Fuji Photo began digital camera production as far back as 1997 at a film camera plant in Suzhou, near Shanghai.
The plant's capacity of 100,000 cameras a month is about one-fourth of Fuji Film's total digital camera output planned for the business year to next March.
The Suzhou plant manufactures entry-level models such as the A202 compact camera, using lenses made by a subsidiary in Tianjin.
"We won't be shifting more production there just because costs are lower," said Fuji Film corporate vice president Norihiko Kato. He expected further increases in Chinese output would likely be linked to growth in China's domestic market.
A major film camera maker that has recently been increasing its market share on the digital side, Nikon started out at the high end of the market but has since expanded to include products further down the ladder.
The company plans to start mass-producing cameras at a plant in Wuxi, west of Shanghai, in April 2003 at a rate of 400,000 units a year, compared with this year's total planned output of 2.8 million units. Output in China is targeted to rise to two million units per year within two to three years. Matsushita Electric Industrial Co Ltd
Maker of Panasonic goods and a latecomer to the digital camera market, Matsushita last month launched a series of new products developed jointly with German lens-maker Leica Camera AG.
Although Matsushita has been one of Japan's most aggressive consumer electronics makers in shifting output to China, it currently plans to make all its digital cameras in Japan except for one low-end model outsourced to a foreign producer manufacturing in China.
"We don't think there are many cost advantages to moving to China. The key components are all made in Japan," said Hisao Shimizu, director of Matsushita's digital still camera development centre, at last month's new product announcement.
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