Where is Japan Heading? Some Thoughts From China

|China

Last autumn, I had the chance to visit Japanese companies in Xian and Dalian for the first time in quite a while. Although it was just a short trip for information-gathering purposes, in which I visited three companies, it made a deep impression on me.

As ever, there are still frequent reports to the effect that “another Japanese company has moved its production base to China”. The three companies I visited this time had different products – sewing machines, electronic instruments and machinery, and televisions – but every one of them had plans to continue with the transfer of production to China in future. All those in charge of production there were agreed on the view that eventually there will be no large-scale production capacity remaining in Japan. This was not news to me, however, my impressions were further reinforced after hearing the opinions of those on the ground.

The important point is this: Like others, these businesses operate according to a pattern of importing the vast majority of their parts and raw materials, mostly from Japan, assembling the product in China and then exporting the finished product. However, in recent years, in order to reduce costs, the supply of parts and raw materials from within China has been increased. In the initial stage of the switch to on-the-ground supply, companies exclusively sought supplies from Japanese companies that had established themselves in the surrounding area. Then, in order to reduce costs still further, items, mostly comparatively simple parts and raw materials, began to be supplied by local Chinese firms.

Manufactured goods from China are cheap, but they are also low quality. This was the idea commonly held by us for many years. Quality and delivery dates were among the problems arising from obtaining supplies from local companies, which were a source of concern for those in charge of production.

These were the circumstances, however they appear to have undergone a dramatic change recently.

All three companies I spoke to on this visit were agreed that, over the last two years or so, the quality of parts and raw materials supplied from within China has improved demonstrably and quite startlingly. The Pearl River delta region in South China and the Yangzi River delta region centering on Shanghai are particularly prominent as areas supplying parts. Japanese companies rate South China industries highly, especially in the field of electronics-related parts. The Dalian electronic instruments and machinery maker purchases a certain fundamental part from a Japanese part maker that has also established itself in Dalian, however to purchase the same part from a Chinese maker in South China would, in fact, be 20% cheaper. The quality is even more-or-less the same. It is difficult to switch from a supplier, with whom one already has a connection but, if truth be told, the company would like to change suppliers. In South China, where foreign capital and local part makers are concentrated, competition is fierce, so prices are constantly falling. Chinese companies compete equally with Japanese ones as suppliers and a situation has arisen where the former surpass the latter on occasion.

A similar phenomenon is also occurring in the production facilities of Japanese companies. In China, one can employ a large workforce of young people cheaply. However, for those workers employed “cheaply”, the wages they earn by working at a company financed via foreign capital are sufficiently high, in comparison with the income available in the farming villages that are their hometowns. Consequently, they work very hard. For the companies, employing plenty of “cheap” labor means that, for example, the examination of every single product is possible. In contrast, if we look at the situation in Japan, it is difficult to gather a young workforce in the first place. Even if one does manage to find them, they are not terribly well motivated.

In other words, if one is producing particularly large volumes, China is more suited to painstaking production than Japan is these days. As a result, it becomes the case that, if the Japanese firm uses Japanese management and technology, goods produced in China are of better quality than those produced in Japan. On my recent trip, I heard this story a number of times at the places I visited, and I remembered that I had heard much the same during a survey of an apparel maker, a little while before.

Presently, China’s production development is nearing a new stage. As the perception of the quality of Chinese products changes, facilities to produce goods cheaply and in large quantities are likely to accumulate in China at an accelerated pace. So what will Japan do? Will it specialize in development? And can we ensure that employment within Japan is secure? What kind of relationship regarding division of labor should Japan enter into with China, which is emerging as an industrial powerhouse? The time is approaching when we should seriously seek some answers.

[Translated by ERINA]