Japanese Firms May Expand in U.S.
Amid worrisome news that several prominent Japanese high-tech companies are beating a retreat from U.S. shores, Japan’s largest trading company said Thursday that it is joining Atlantic Richfield Co. in a $200-million project to build the West Coast’s first polypropylene plant in Carson.
Other Japanese trading firms are expected to follow Itochu Corp. into the United States even as they shut down projects at home and in hard-hit Southeast Asia, according to Arco officials and others. Asia was the top recipient of Japanese investment until its collapse last fall.
The attraction is clear: The U.S. offers foreigners a safer market for fixed investments such as factories during a time of increased global turbulence.
“Japanese firms are looking more toward focusing their investments in a safe haven in a less risky direction,” said Donald Strenk, general manager of Arco Polypropylene in Long Beach.
The Arco deal follows recent announcements by Japanese electronics makers Matsushita Electric, Mitsubishi Electric and Hitachi that they will be closing chip-making factories in the U.S. because of the global slump in that industry.
However, the spread of Asia’s economic crisis has caused many other Japanese firms to look more closely at the U.S., whose technological edge and giant consumer market give it strength in a downturn.
California officials have noted a recent increase in inquiries from Asian firms scouting direct investment opportunities, according to Jesus Arredondo, an international specialist at the California Trade and Commerce Agency. So far this year, Japan’s NEC said it will proceed with a $1.5-billion expansion of its disk factory in Roseville, Calif.; Panasonic Disk Services began building a $93-million factory in Torrance; and Sumiden Wire Inc. announced a $12-million rebar manufacturing facility in Victorville.
But Japanese firms--many of which were burned pumping billions of dollars into overpriced U.S. real estate ventures during the 1980s--are proceeding with caution, according to Robert Brasch of Pacific Partners Inc., a Japan consultant who worked on the Arco-Itochu deal.
He said they are seeking ways to expand their reach into the world’s biggest market, and in return are offering U.S. firms access to their distribution networks in Asia.
“They have become much more sophisticated in their analysis of cash flows and return on investment,” he said.
Such is the case for Itochu, which has moved more quickly than most of its major Japanese competitors in restructuring its debt-laden operation amid Japan’s economic downturn. Last November, the firm announced plans to write off $1.6 billion in bad loans--mainly soured real estate investments--by 2000.
But while Itochu has slashed its investment budget and canceled or postponed a number of projects in Southeast Asia, it is looking for strategic ways to expand in the U.S., according to a company spokesman in Japan.
Itochu is taking a one-third interest in the Arco plant and will be responsible for Asia sales. The factory, slated for completion in October 1999, will produce about 450 million pounds of polypropylene a year.
Polypropylene is a recyclable plastic used in car interiors, plastic bags and many other products. The Carson project will mark Arco’s entry into that market.
Itochu is one of the world’s largest sellers of polypropylene and has developed a huge sales network throughout Asia, particularly in China. But except for an interest in an Asian factory, Itochu has not been a major producer.
