Japan Tries Gentler Tack to Crack Post-’92 Europe : Trade: Mitsubishi’s tie-up with Daimler-Benz reflects a strategy of establishing joint ventures on the Continent.
Faced with intensifying friction over trade and investment in the United States, Japan is casting a hungry eye on Europe.
In 1992, the 12 nations of the European Community unite as a single marketplace of 320 million consumers--and Japanese manufacturers are determined to be in place to share the expanding economic pie.
Yet fear of possible trade protectionism in a “fortress Europe” has motivated corporate strategists here to modify their traditional drive toward exports and acquisitions.
The approach to Europe is gentler. Rather than boldly pursuing corporate takeovers, Japanese companies are quietly obtaining minority shareholdings in European firms. Instead of buying the Eiffel Tower, they are securing beachheads in friendly territory--and moving their production base inside the ramparts.
The new tactic was demonstrated earlier this week when one of the world’s mightiest industrial and financial conglomerates, the Mitsubishi family of companies, announced that it is negotiating a “cooperative relationship” with West Germany’s giant Daimler-Benz group.
Mitsubishi officials would not comment on specific business plans. They did say the two groups would go beyond existing ties in the auto industry to cooperate in “high-growth industries such as aerospace, electronics and the service sector.”
Significantly, Mitsubishi disclaimed any intention of swapping technology in weapons research, though both groups include the largest defense contractors in their respective countries. That did not stop the Japanese news media from quivering with apprehension that Americans might fear a rebirth of the World War II Axis that aligned imperial Japan and Nazi Germany against the United States and its allies.
But a sober examination of what is potentially at stake in the Mitsubishi-Benz alliance clearly points toward 1992, the year the barriers will drop in the Common Market--and not back toward 1941, the year Japan attacked Pearl Harbor.
Mitsubishi Motors, the third-largest Japanese car manufacturer, accounted for 207,000 of the 1.7 million cars that Japan shipped to Europe last year. The company, which sells Mercedes Benzes through its distribution channels in Japan, is the only major Japanese auto maker without production facilities in the European Community.
Rivals Nissan, Honda, Isuzu and Suzuki are already producing motor vehicles in Europe, echoing the trend toward production in the United States. Nissan built 76,976 cars in Britain last year and 86,181 in Spain. Toyota is building a plant in Britain that will have the capacity to produce 200,000 cars a year.
Mitsubishi officials say they are studying the possibility of investing in an auto plant in East Germany.
Mitsubishi Electric, another core company in the group, whose top executives were involved in negotiations with Daimler-Benz officials in Singapore last weekend, is building a semiconductor plant in Alsdorf, West Germany, that will make 4-megabit DRAM memory chips.
It follows Fujitsu and NEC, chip makers with plants in Britain. Hitachi is looking at Munich.
Over the past several years there has been a phenomenal surge of Japanese investment in Europe--more than 300 Japanese companies have set up plants. Cumulative Japanese direct investment in the EC as of last March 31 was more than $35 billion, nearly a third of it in Britain.
The pace of the capital infusion has quickened dramatically: In the six-month period that ended last Sept. 30, Japan invested $7.3 billion in the EC, nearly double the amount in the same period in 1988. One dollar of every $4 Japan invests overseas now goes to Europe, while America’s share is declining.
The boom in European investment is no accident. A company that manufactures goods in one of the EC nations will apparently enjoy the free-trade atmosphere of post-1992 Europe, no matter what kind of protectionist barriers might be thrown up against Japanese imports.
“Japanese are very concerned about the possibility of a fortress Europe developing,” said Peter Morgan, senior economist for the Barclays de Zoete Wedd investment bank in Tokyo. “They’re looking for a way to be inside.”
Particularly, auto makers are attempting to make peace with their European competitors in order to assuage fears that Japan might try to dominate the industry once import quotas are relaxed.
“They’re trying to develop cooperative ties--as opposed to adversarial relationships--with European car manufacturers,” Morgan said.
Ultimately, however, the bottom line for the Japanese firms may continue to reflect a fixation on market share, whether the goods are made locally in Europe or imported from Japan.
“The Japanese are approaching Europe with market share in mind,” Morgan said. “They don’t know exactly who they’re going to displace, but they’re going to displace somebody.”
A fierce debate is now raging in the EC over how to define a Japanese car and how to deal with imports when the time comes. Five of the EC’s 12 countries now impose some sort of quota or market restriction on auto imports from Japan, but this practice will become illegal after national markets are merged. The EC Commission has proposed phasing out the quotas over a period of several years.
France and Italy are leading the fight to keep the quotas in place as long as possible and to include locally produced Japanese cars in the total. Britain and West Germany advocate a completely liberalized auto market.
“Our group welcomes Japanese manufacturers entering Europe,” Edzard Reuter, the Daimler-Benz AG chairman, told the newspaper Nihon Keizai late last year. “They will nourish EC markets with their vitality and create new jobs. Competition on the same ground can only lead to better products for consumers.”
EC ministers reportedly had a bitter clash when they met at the beginning of March to work out their differences on Japanese cars.
“The (Japanese) strategy is to set up plants in Japan, Europe and America wherever they can and switch production so they can destroy U.S. and European auto makers,” charged Edith Cresson, France’s minister for European affairs.
The French auto industry has taken the hard line that the Bluebird cars that Nissan produces in Britain are in fact “transplants” that should be counted as Japanese imports because so many of their components are Japanese in origin. Nissan contends that 71% of each car is local content. Peugeot charges that about half the car’s parts come from Japan or elsewhere.
“Those cars are not British,” Cresson told reporters. “If we didn’t have people in Europe who are a lot more Japanese than the Japanese, it would be a lot easier.”
The French may represent an extreme view but others are not far behind.
A European diplomat in Tokyo said: “My sense is that public opinion toward Japan has tilted a bit in the hawkish direction. The fact that Americans are bashing Japan on trade, that rubs off on European attitudes. I’d expect a certain rise in temperature over the next while.”
Still, Europe has been spared the source of much contentiousness in the U.S.-Japan trade relationship: an incorrigible trade gap. Japan’s trade surplus with the EC actually shrank by more than 13% last year to $19.8 billion.
But the Japanese seem unwilling to take any chances. A survey conducted by the Nihon Keizai of executives of 131 major corporations late last year suggested that Japan Inc. has “deep anxiety” about Europe. As many as 70% of all Japanese exporters are boosting investment in the EC “largely because they are scared that the integrated EC after 1992 might make harsher demands on Japan.”
