In Japan, as in the U.S., Companies Fear China

Times Staff Writer

It is quiet these days in Masao Namiki's cluttered factory, which smells of machinery oil and metal shavings. When the phone does ring, the news is often bad: Cut your prices by half -- or the order goes to China.

Over a cup of hot tea, Namiki, whose 15 employees craft the molds used to make a range of products from cellphone casings to auto parts, paints a dire picture that has a familiar ring. The country's manufacturing base is in jeopardy. Thousands of jobs are at stake. The government must protect them.

In Japan, as in the United States, the manufacturers' nightmare is China. Its emergence as the world's low-cost production platform is sparking political heat in Tokyo, as it is in Washington. In both capitals, the solutions are elusive.

Producers of toys and T-shirts, airplanes and cars also are alarmed by China. But the fate of the tool-and-die industry is of particular concern to government and business leaders: The highly engineered casts are crucial building blocks for the manufacture of everything else. If a country loses its tool-and-die makers, the fear is that it might as well kiss the rest of its manufacturing jobs goodbye.

Japan is still home to some of the world's most successful tool-and-die companies. But pressure from increasingly savvy Chinese producers supported by a flood of foreign investment, imported technology and low-cost labor is undermining traditional corporate alliances, threatening small suppliers and creating new pressures for Japanese politicians struggling to reverse more than a decade of economic stagnation.

"I really, really worry about the future," said Namiki, president of Namiki Kanagata, whose plastic-mold company is shoehorned into a small, cluttered two-story building in Ota City.

Until a few years ago, Japan's 12,000 tool, die and mold manufacturers were hanging on to nearly one-third of the global market despite their high labor costs and small size; more than 90% have fewer than 20 employees.

The Japanese companies were so successful because the country's large automakers and electronics companies maintained close ties with their domestic suppliers, providing a stable order base, financial assistance and technical help in exchange for high quality and relatively short turnaround times.

The system of close-knit alliances, known as keiretsu, is deeply embedded in Japan's corporate culture. But China is proving so potent a rival that it is challenging that tradition. That hurts the old-line tool, die and mold business.

"Rapidly, this loyalty is weakening," said Namiki, who has been in business nearly three decades. "Major makers just appreciate low costs; they don't appreciate quality anymore."

Under pressure to reduce costs and attracted by a nearby booming market of consumers, Japan's leading automakers and electronics companies have migrated to China. They have set up factories there, and are pressuring their largest suppliers to follow. And they have found local suppliers as well. That has accelerated the shrinking of the Japanese tool-and-die industry: Since 1996, the number of companies has declined 6% to 11,330 from 12,038.

On the other side of the Pacific, the industry has been harder hit. In the last 2 1/2 years, the North American die-casting industry has shrunk 10% to about 400 firms. U.S. mold makers lost $1.3 billion to $1.6 billion in business to foreign competition in 2000 and 2001, more than half to rivals in China, according to their trade group.

Both Japan and the United States have publicly pressured China to revalue its currency, the yuan. They argue that the yuan, which is tied to the U.S. dollar, is significantly undervalued, giving Chinese exporters an unfair advantage in selling their products overseas.

Beyond that, U.S. companies have urged the Bush administration to provide additional help, such as imposing tariffs on Chinese goods and tax breaks for companies that use U.S.-made tools, dies and molds. For their part, Japanese firms have concentrated on getting Tokyo's help to combat the technology transfers that they say are helping China gain the advantage.

According to Japanese companies, the growing popularity of computer-aided design and computer-aided manufacturing has given Chinese competitors a big boost. Using digital blueprints designed by Japanese companies, Chinese factories can produce the tools, dies and molds at 50% less because of that country's low wages.

"Before, we thought this technology transfer to abroad wouldn't easily happen, because it takes time to train a skilled worker," said Nobuaki Yamada, of the Ota City Industrial Promotion Organization.

In July 2001, Japan's Ministry of Economy, Trade and Industry issued an administrative guideline urging the members of three large auto and electronics trade groups to beef up their intellectual property protection and not share technical tooling data with unauthorized third parties. The government urged the Japanese companies to sign contracts with their suppliers to offer them greater intellectual property protection.

Critics of Japan's tradition-bound business climate argue that whatever the cause, the painful weeding out of small, inefficient companies is long overdue and should provide a boost for the economy by promoting competition, freeing up resources and encouraging innovation.

Shinjiro Yamada, chief executive of INCS, a company specializing in the rapid manufacture of prototype molds, compares Japan's tool-and-die manufacturers with turn-of-the-century weavers, who agitated against the introduction of textile-making machines for fear it would destroy their livelihood.

"Why are we afraid of China?" he asked. "We should change."

From high atop the 52nd floor of the Tokyo Opera City Tower, one of Tokyo's most prestigious corporate addresses, Yamada, a former Mitsui Metal executive, is plotting the next industrial revolution. It begins with a powerful computing system nicknamed Pharaoh, the general of his high-tech tooling company. Every morning, Pharaoh sends tooling orders to engineers who design the digital blueprints that are transmitted to a small factory in Ota City.

There, a barebones crew of part-time technicians reads Pharaoh's instructions and inputs data into a bank of 3-D stereolithography machines that fabricate the prototype parts. The small factory floor is eerily silent as robots glide along, inserting the raw metal into the machines and pulling out the finished product. Since last year, the part-time crew has shrunk to 40 from 200. By the end of the year, the tooling factory will be entirely robotic, Yamada said.

Decreasing the production time is crucial for Japanese automakers, which make up 60% of INCS' customers. That's because fickle customers want frequent design changes, putting pressure on firms to produce prototypes of new models quickly.

INCS' computerized operation works round the clock, supervised by three shifts of minimum-wage workers. Yamada said he had reduced the average time it takes to make a tooling to five days from 45 days. The tooling for an automobile bumper has been reduced to seven hours from 40 days.

In recent years, many of Yamada's large manufacturing customers have asked for help installing CAD and CAM systems in their factories, a trend that will hasten the demise of Japan's small tool-and-die producers. This year, INCS and Nomura Principal Finance Co. set up a $92-million fund to acquire ailing firms that are good candidates for modernization.

"Until three years ago, many people said this kind of factory is bad because it takes away jobs," Yamada said, pointing to his nearly deserted factory filled with humming machines.

"Now people are starting to understand that this is necessary."

Rie Sasaki of The Times' Tokyo bureau contributed to this report.

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