Japanese Companies Revisit Presence in China

Japanese manufacturers have been revisiting their investments in China. Incidentally, this has been happening as geopolitical risks in China increases.

Previously, factory automation and manufacturing equipment manufacturers are shifting their previous strategies to give overriding weight to China.  Now, they are actively building new and additional factories in India and countries in Southeast Asia. 

Setting forth “Factory of the World,” China has developed its manufacturing industry leveraging abundant workforce.  However, the Xi administration announced “Made in China 2025” in 2015, steering toward achieving industrial advances.  It focuses on next-generation information and communications; electric vehicles (EVs); semiconductors; robots; and aeronautics and astronautics equipment. 

Many visitors flocked exhibition floors of NEPCON Vietnam 2022 in September.

Consequently, the policy developed into trade tensions between the United States and China. In Oct. 2022, the United States announced additional regulations on semiconductors.  Furthermore, China’s zero COVID policy continued until last year caused supply chain disruption, aggravating components shortages on the part of Japanese manufacturers.  Wages in China soared to three-fold compared with 10 years ago for factory workers, and five-fold for engineers. 

Eyes India, Southeast Asia

Sales of Japanese FA and manufacturing equipment manufacturers in China account for about 80 percent. China remains and will remain to be an important market in the future.  Nonetheless, from the viewpoint of business continuity plan (BCP), moves to reexamine conventional plant operations highly dependent on China have been spreading. 

Artist’s rendering of Mitsubishi Electric’s FA factory in India planned to start operations at the end of 2023.

Mitsubishi Electric Corporation has invested about ¥1.3 billion in India to construct a new two-story FA plant with a total floor area of about 15,400sq.m on a 40,000sq.m lot.  The new plant will go on-line in December. 

The company intends to restrict investments to its existing two plants in China for China’s domestic market. From now on, it will expand its facilities in India as its global production base. 

On the other hand, THK Co., Ltd. built a new plant to produce linear motion (LM) guides in India. It started operations in fall of 2021 and has since been steadily continuing production activities. Moreover, the plant stands on a 205,000sq.m-lot and has a floor area of 37,000sq.m. The THK plant produces LM guides destined for the Unites States, and countries in Southeast Asia and Europe, as well as for the Indian domestic market.

Meanwhile, NITTOKU Co., Ltd. invested in Vietnam last year and established a local subsidiary. The company explains, “Going forward, in China, we will conduct business that completes in China.  We will expand our businesses in the Southeast Asian region, centering on the new production base in Vietnam, with the addition of Singapore and Thailand.”

EMS Companies Also Revisit

Electronics manufacturing services (EMS) companies are also reexamining their investments in China, and strengthening manufacturing bases in India and countries in Southeast Asia.  Katolec Corporation has 12 production bases in nine countries around the world and has been deploying EMS business. Recently, for the past three years, the company boosted its production, investing in plants in Vietnam, Indonesia, and the Philippines to build additional factories. The company said, “We intend to make one factory in Southeast Asia into a model factory of smart factory and horizontally deploy it.” 

Increasing number of EMS companies build additional factories in countries in Southeast Asia.

Rexxam Co., Ltd. has been expanding production in India and Thailand as part of effort to strengthen its EMS business. The company shifts investment to countries in Southeast Asia out of concerns over China risk.  In addition, Rexxam said, “We are producing at two plants in China.  Last year, we were plagued with a sea of worries, including the effect of lockdown on production, and supply chain disruption. From now on, we will expand plants in Thailand and India as a global base.” 

In its EMS business, Iida Electronics (Tsusho) Co., Ltd. responds to moves of customers to distribute production to countries in Southeast Asia shifting from overconcentration of production in China. Furthermore, the company has concentrated its printed circuit board mounting business at the Dongguan Plant in China to its Thai Plant, putting in place a system to position Thailand as a global hub.