TOKYO (Nov. 3, 3:30 p.m. ET) — Pushed by the record-high yen and economic problems at home, Japan's large plastic machinery manufacturing industry is accelerating its investment in lower-cost countries, expanding both in China and elsewhere in Asia.
Japan Steel Works Ltd., for example, opened a factory in Ningbo, China, late last year, joining other Japanese press makers already there.
But what also emerged in interviews at the recent International Plastic Fair in Tokyo is a marked trend toward more investment in Southeast Asia and India, in part as a hedge against relying too much on China. Some executives suggested that for Japanese machinery firms, those countries could be favored over China for future investment.
Injection press makers Toshiba Machine Co. Ltd., Sodick Plustech Co. Ltd. and Nissei Plastic Industrial Co. Ltd. — which all already have Chinese production — are now broadening to other Asian economies.
“The production in Japan will move to other countries,” said Hozumi Yoda, chairman of the Tokyo-based Association of Japan Plastics Machinery, and president of Nissei. “Maybe Indonesia, Thailand, Malaysia, or India.”
China remains a critical market, though, because its growth after the 2008 financial crisis has been the single biggest driver of Japanese machinery industry sales.
Sumitomo Heavy Industries Ltd., for example, said 40 percent of its Japanese-made machines are sold to China, including to Japanese-owned factories there.
Tokyo-based JSW started production in Ningbo in October 2010, making 20 to 30 machines a month there in its smaller range of presses, up to 180 tons, said Kazuo Kitamura, executive officer of the machinery business division. Production could grow to 60 machines a month in the short-term.
The reason for Ningbo is clear — lower production costs, particularly to compete with Taiwanese firms and Japanese rival Toshiba, which has a large factory in China, he said.
The Japanese yen, which now trades in the range of 75 yen to the dollar and is at its highest levels since 1945, is making JSW's factories in Japan too expensive, he said.
“Our existing customers, they have plants in China and Southeast Asia, and now they are changing suppliers from JSW to Taiwanese or [made in China] Toshiba models,” Kitamura said.
He said he singled out Toshiba because they export more from their China factory than other Japanese firms.
It's been a challenging year for Japanese firms, which export about two-thirds of the machines they make in Japan.
The March 11 earthquake and nuclear crisis stopped most auto production in the country for two months, and their U.S., European and domestic markets remain sluggish.
As well, Japanese firms said they worry about what they see as hard-to-predict government policies in China and the recent economic slowdown there, as Beijing has raised interest rates to try to contain inflation. That has sharply limiting credit to smaller manufacturers who buy from the Japanese.
“Many Japanese customers, they are very concerned about China's economic situation, so now they are investing in Southeast Asia, in Thailand, Indonesia and Vietnam,” Kitamura said. “So we have a lot of orders from this area.”
At IPF, held from Oct. 25-29 in Tokyo, Toshiba and Sodick both said they are establishing factories in Thailand.
Sodick, which focuses on the high-end of Japan's market, last year set up its first injection press factory outside Japan, in Xiamen, China.
It quickly followed that up earlier this year when it started making molding machines at a factory just outside Bangkok, where its parent company Sodick Group makes EDM machines, said Shigeru Fujimaki, executive managing director of Sodick Plustech.
The high yen has made exporting from Japan very difficult, including to the higher-tech Korean industry, Fujimaki said.
“Last year or two years ago, we sold a lot of machines to the Korean market, especially the vertical presses for the LED market,” he said. “Now they are afraid of buying our products because of the [exchange rate] price.”
“The yen level is too high,” he said. “They would like to buy but they have to get yen. It is quite expensive.”
The company will make 40 to 50 machines a month in Thailand, and it believes it can make a cost effective version of its standard models for 25 percent less than in Japan, Fujimaki said.
Toshiba, as well, is opening an injection press factory in Thailand this year to make up to 50 machines a month. It planned to open it in October but the property was hit by Bangkok's flooding, delaying the start-up.
Thailand right now is more expensive than China but the company expects China's costs to keep rising swiftly, and its capacity in its Shanghai plant is almost full, said Koji Egashira, group manager for Toshiba's Injection Molding Machine Sales Department.
The Thai investment is also driven by continued strong demand in Southeast Asia, while China has slowed somewhat in recent months, he said.
JSW's Kitamura said his firm also was looking at Thailand, and Nissei executives said they continue to move ahead with plans for a press manufacturing plant in “West Asia,” to serve India and surrounding countries, where they see manufacturing growing.
AJPM estimates that production of Japanese injection molding machines will double in China this year, to 2,400.
At the moment, that's still only about 20 percent of the 12,000 presses made in Japan, but production outside the country is almost certain to grow to counter higher costs at home and a more competitive global market.
Japan's English language business press these days is filled with worried references to the “hollowing out” of the country's manufacturing industries.
To help combat that, AJPM's Yoda said it's important that Japan join more trade talks, like the Trans-Pacific Partnership discussions underway between the United States and eight smaller economies.
Without such trade deals, the plastics machinery industry risks losing access to growing Asian markets, he said.
“If we don't join this treaty, we might lose our customers,” he said. “That treaty will be profitable for our competitors.”
South Korea, which has its own plastics machinery industry, recently completed trade deals with the United States and the European Union, prompting some Japanese business newspapers to say the country risks being left behind.
Perhaps sensing opportunities to make in-roads with Japan's global automotive and electronics firms, machinery manufacturers from other Asian countries exhibited at IPF, including Korea's Woojin Selex Co. Ltd. and China's Haitian International Holdings Ltd.
Japan's injection press industry remains among the world leaders, though. Its 12,000 domestically-made presses, for example, are five times the current size of the United States market.
But companies there seem worried about the future. Japan has many domestic press makers, competition is fierce and it's difficult in Japan for companies to buy each other and consolidate, said JSW's Kitamura.
“We are competing and slashing costs and have very thin profits,” he said.
At the last IPF, in 2008, many Japanese firms were looking at closer tie-ups with Europe's machinery industry. But interest in that idea seems to have faded, with the Japanese saying they prefer to expand their own factory networks in Asia. Tie-ups with other firms can be tricky, Yoda said.
“It's very easy to make machines, but the market for sales is quite difficult,” Yoda said. “If we tied up, those points are very difficult to adjust to each other.”