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As global supply chains buckle under Covid-19 stress, those in Japan remain sturdy, free of inflationary pressures and fitful economic activity. Container shipping costs aren’t spiking and delivery times aren’t delayed. Industrial activity is humming along while manufacturers’ sentiment is at its highest in almost two years. Overseas orders are recovering. It’s all the product of hard lessons learned — and could teach a thing or two to US President Joe Biden as his administration looks to rebuild American manufacturing capacity.
Japan’s industrial network became more resilient after the tsunami and meltdown catastrophes of 2011, which inflicted more than $200 billion in damage to businesses. Supply chains are now carefully crafted and closely monitored. Capital expenditures are strategically timed. The production processes of most industries have been kept within the country, with only a few offshored.
In the wake of the cataclysms of 2011, firms faced severe shortfalls and struggled to restore operations. Across the board, production fell over 15%; in the transportation equipment sector it fell more than 46%. Government surveys from the time show most companies in the basic materials and processing industries didn’t expect to get close to just-enough-supplies till at least seven to nine months out.
Companies reacted to immediate needs but, instead of throwing cash at the problems, they waited for the dust to settle to assess the imbalances in their supply-demand equations. There weren’t sudden spikes of spending or investments or big promises.
Since then, industrial firms have consistently invested in their future. Capital expenditure as a portion of sales has averaged over 5% in the last decade, touching 5.9% in the last fiscal year. In other so-called industrial headquarter economies, like the US and Germany, the average is more like 3%.
This month, Fanuc Corp, known for its conservative spending, made its largest investment in China to date, putting up 26 billion yen ($240 million) to upgrade a manufacturing plant in the country. Fanuc is one of the world’s largest makers of industrial robot and its machines populate factory floors across world. The automatons’ bodies are still made in Japan but robotics investment is rising in China where Fanuc makes some parts. The new spending underwrites its future competitiveness.
The tight relationships that Japanese companies have with their suppliers help the corporations make frugal but precise investments. That’s allowed the likes of Toyota Motor Corp to have a lens into layers of their production and procurements processes — and to spot deficiencies quicker.
—Bloomberg