Strong Yen Sets Off Tremors in Japanese Firms
Factories that once hummed night and day are ticking over with too few orders. Big companies are shifting manufacturing of some products to low-wage developing countries and planning to produce advanced products overseas as well.
Meanwhile, big company presidents, in their annual reports to shareholders, talk of “restructuring the company.”
Beleaguered American industry? No, Japanese. The strong yen is forcing Japanese companies to charge higher prices for goods produced in Japan these days and making them uncompetitive in world markets--just as the high dollar hobbled U.S. firms four years ago.
As a result, Japan’s big companies uniformly have had declining sales and profits overseas for several years. And that is forcing hard decisions at company headquarters in Tokyo.
So, are there plant closings and mass layoffs? What are Japan’s companies doing in circumstances that only recently brought wrenching change to U.S. industry?
They are doing many things, some that make amends for past mistakes; others that could give pointers to American business. Still other Japanese moves will have a visible effect in the next few years in the United States.
Layoffs, first of all, are rare. Japanese companies do cut their work forces, but more slowly than the U.S. pattern.
An example is Hitachi Ltd. (the name means Rising Sun), a $40-billion sales company that is one of Japan’s largest. Hitachi, like America’s General Electric, is a diversified company that began by making industrial motors and electrical power generators.
It also makes household appliances, televisions and VCRs--if you own a Sears or RCA-brand VCR, chances are it was manufactured by Hitachi. Now the company is beefing up its efforts in computers and semiconductors and pushing against stiff competition to expand in telecommunications.
Increased Research Spending
But things are slow these days at the Hitachi City plant, 70 miles northeast of Tokyo, where the company began in 1910. There is only one power plant order, and, where 8,000 were employed five years ago, 5,800 work today. And even when orders pick up, jobs may not--because labor-intensive work will be shifted from high-wage Japan to China or India.
So are many of Hitachi’s workers unemployed and facing a bleak future? Not really. Most have been shifted to other Hitachi divisions or to subsidiary and supplier companies--where wages and benefits may be lower but at least there is work. Other jobs are being created by the roughly $60 billion a year that the Japanese government is pumping into public works.
Longer term, Hitachi City’s young people might work in new industries created by Hitachi’s currently aggressive research.
In the last few years, as sales and profits declined, Hitachi--like every other big Japanese company--sharply increased its spending on R&D;, where it is working on superconductivity and advanced electronics.
“We would rather put new work in an old plant than move the workers out,” says Hitachi President Katsushige Mita.
The pattern has worked before, allowing Japan to upgrade its work force from textiles to shipbuilding and steel and now to computers and services--while keeping the unemployment rate low. (Japan’s unemployment is officially listed at 2.6% of the 60 million work force, although the rate is 5.2% if calculated by stricter U.S. standards; Japan counts one hour of work a week as employed, where U.S. statistics do not.)
There’s no need to overpraise Japanese industry. Hitachi pays royalties to IBM today because it was caught stealing IBM’s computer secrets in 1982. And it also pays royalties to Texas Instruments, which sued eight Japanese companies for infringing semiconductor patents.
Nor should the problem of the yen be underestimated. Hitachi’s VCR contract with Sears and RCA is threatened by the Korean firm Samsung, which can make a VCR for half of Hitachi’s costs. Which is why Hitachi is expanding in America, planning to produce VCRs in Anaheim.
It also plans to produce auto parts near Lexington, Ky., and semiconductors at a new plant near Dallas, where it has only an assembly facility at present. All told, Hitachi--which declines to give precise figures--has about $1 billion invested in the United States today and plans to double that in the next few years.
Its determination, however, might set an example for U.S. industry. In coming to America, Hitachi and other Japanese companies are prepared to lose money for at least three years--their standard expectation for a new market.
The reasoning of a Japanese company is deceptively simple. Hitachi, for example, is expanding in telecommunications, even though it is well behind the Japanese leaders NEC and Fujitsu, to say nothing of American Telephone & Telegraph and other foreign firms. “But if it takes 5, or 6 or even 10 years to make a profit, we will do it,” says Yasuo Miyauchi, Hitachi’s chief financial officer, “because it can be a mainstay of our future business.” It will take more than a strong yen to stop such competitors.
