Market Scene : Japan’s Companies Keep Factories--and Jobs--at Home : Manufacturers such as Toshiba say that moving production overseas would destroy base they build on.

Why are Americans losing high-paying jobs in manufacturing while the Japanese are not?

The humble electric fan may tell the story.

Despite Japan’s status as a high-wage nation with a propensity to focus ever more on sophisticated, higher-profit manufactured goods--like the United States--Japan is still producing electric fans at home. American companies are not.

The same kind of competition from low-cost imports that has led American manufacturers to move production of one product after another to overseas plants has hit the Japanese too. But firms like Toshiba, the electronics giant, continue to produce nearly everything from nuclear power plants to computers to semiconductors to refrigerators and, yes, electric fans at home.

Even in an era of air-conditioners--more than 7 million sold a year in Japan--electronics firms here are still making 3.2 million electric fans a year. About 600,000 imports constitute only 16% of the market.

The determination of Toshiba and other electronics giants to remain in the business of making electric fans underscores a philosophical commitment to the value of a domestic base for manufacturing as a prerequisite for engineering advances--a commitment that appears to be disappearing in the United States.

Without plants at home, “manufacturing would just exist in an engineer’s mind . . . and stability in production couldn’t be assured,” said Hidehiko Yoshida, a Toshiba executive vice president. And without manufacturing, engineers would have no base upon which to build in creating the next generation model--or the next new product, he added.

The resolve also contrasts with American proclivity to seek ever-higher profit margins, discarding lesser-money-making goods along the way. Toshiba executives, for example, expressed amazement when asked why the firm is still producing in Japan all of the electric fans it sells in the country.

“If there is profitability in making a product, certainly we will continue to produce it,” said Natsuhiko Maejima, a senior manager in Toshiba’s air-conditioner and appliance division.

Remaining in the fan business, however, hasn’t been easy.

Cheap Japanese wages, once cited by U.S. manufacturers as the reason for abandoning their domestic production in the face of import competition, have faded out. Only when the yen-dollar exchange rate reaches 140 to 1 do wages, including benefits, become roughly equal between Japan and the United States, said Mahiro Tada, manager of Toshiba’s electronics-equipment marketing division. At present, with the exchange rate at around 130 to 1, wages are higher in Japan.

No tariff stands in the way of fan imports.

When the exchange realignments of 1985 opened the doors of Japan’s markets to imports from neighboring Asian countries, the future appeared dim here for the manufacture of old-style fans “that just blow air,” Maejima said.

Toshiba and other electronics firms responded by designing a “high-tech fan.” In effect, a new market was created.

The new gizmo is filled with microprocessor chips and sensors that enable the user to push buttons on a remote-control switch to speed up or slow down the fan, make it turn or blow in a fixed direction and select “natural air”--a soft flow that comes in wafts rather than in a steady stream. The fans also turn off automatically when the lights go out.

The top of the line comes with fuzzy logic that senses room temperature and humidity and adjusts wind strength accordingly. And, most important in small homes, they are virtually noiseless.

These high-tech fans cost between $123 and $190. But they have moved from a 20% share of the market in 1987 to 83% now.

Fans that just turn and blow air cost about $60 but account for only 6% of sales. Those “cheapies” and other varieties, such as wall fans, are supplied through imports.

“Japanese are very sensitive to seasons, and the electric fan is an appurtenance of summertime. It gives you a feeling that summer has arrived,” Yoshida said.

Even with the new market at home, Toshiba had to cut costs by automating its main fan plant so that an assembly line that had required 126 workers could be operated by only three people. Then, to cut expenses even further, the company farmed out the manufacturing of high-tech fans to a wholly owned subsidiary with lower overhead and lower pay.

Such efforts, repeated throughout Japan’s manufacturing industry, have laid waste to a forecast made five years ago by the Ministry of International Trade and Industry (MITI). It said Japan’s manufacturing industry would lose about 600,000 jobs by 1995.

More than half the period covered by MITI’s forecast has passed. But far from losing jobs, Japan’s manufacturing industry has actually added 1.25 million workers to its payrolls.

What’s more, a labor shortage that developed after MITI made its prediction continues even in the middle of a severe slowdown in growth.

Most new jobs in the United States have come in low-paying service industries, while manufacturing now accounts for less than 20% of the gross national product. In Japan, manufacturing makes up nearly 30% of the GNP.

Japanese firms, on average, still manufacture less than 5% of their total production overseas. American firms, by contrast, produce about 21% of their total output abroad.

A continual pursuit of ever-higher profit margins often induces American firms to drop production of specific goods even without red ink. TV sets are one example.

“U.S. management tends to go to wherever low costs are available,” Yoshida said. He noted that Zenith, the last of the American producers of TV sets in the United States, is about to transfer all its production to Mexico. After Zenith leaves, the only TV manufacturers in America will be companies headquartered in Japan, South Korea, Taiwan and France.

Most fundamental is management’s attitude.

“From the start, we think in terms of how to keep jobs at home. Avoiding a ‘hollowing out’ (erosion) of manufacturing is what we consider to be basic management. In Japan, you cannot lay off workers. Providing jobs is management’s duty,” Yoshida said.

Toshiba does abandon domestic manufacturing of products from time to time--but slowly and “painfully,” he said. Only four years ago, the company gave up producing small transistor radios and compact-disc radio-cassettes, the vice president said.

But most often, lower-end manufacturing is shifted overseas, while the sophisticated, expensive models of the same product continue to be made at home--unlike American firms, which simply give up entire product lines.

Five years ago, for example, Toshiba commissioned Samsung of South Korea to manufacture its low-end videocassettes--an item never produced by U.S. firms--with Toshiba-specified quality controls. Meanwhile, Toshiba manufactures a new, top-of-the-line VCR here.

“To continue production at home, we have to aim at the high end. For that, we have to do research and development,” Yoshida said. But to make research and development meaningful and move up the ladder of sophistication, a manufacturing base is essential, he said.

Maintaining a domestic manufacturing base also enables engineers to think ahead to the next generation model of a product even while designing technology and engineering for the current product, he added.

And after testing out new products in Japan, “we can export to the world,” Tada added.

While nearly all foreign analysts talk of Japan “transplanting” its manufacturing to overseas plants--a view that many Japanese analysts encourage--in fact what is happening is that much of the investment in overseas plants is supplementing, not replacing, manufacturing at home.

Until only five years ago, Toshiba manufactured nearly all its products in Japan and exported from here, President Joichi Aoi said in a news conference early this year. Trade frictions, not high wages, initially forced a change in that policy.

Currently, Toshiba manufactures 26% of all products that it sells overseas in its foreign plants, Tada said.

President Aoi said Toshiba “plans to set up more production plants overseas in the future, especially in Asia.”

Although the pace of change will be far slower than it has been in the United States, increased overseas production for Japan, too, will be “inevitable,” Yoshida said. Ironically, however--given that 5-year-old MITI study predicting job losses in the Japanese manufacturing sector--the main reason for the shift will be a shortage of Japanese workers because of the country’s declining birthrate, he said.

Young workers’ desire for shorter working hours will add to the pinch.

“With our present working conditions, we are having trouble attracting (factory) workers,” said Shunichi Abe, a senior manager at Toshiba, which employs 75,000 people in Japan. (Another 70,000 work for its subcontractors.) Although working hours are fixed at 1,950 a year, overtime drives annual working hours up to about 2,200.

Where the Jobs Are Toshiba production, domestic and overseas, in billions of yen:

1985

Domestic: 2,433.5 ($18.3 billion U.S.)

Overseas: 70.7 ($0.5 billion U.S.)

1990

Domestic: 3,354.2 ($25.2 billion U.S.)

Overseas: 344.7 ($2.6 billion U.S.)