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Will Electronics Firms Give Up on Japan Manufacturing?

With aftershocks continuing in Japan, are electronics firms showing signs of giving up on the shaky country?

So far, the answer appears to be no. Companies whose supply chains originate in Japan have sought short-term solutions to inventory interruptions, of course. But few reports exist of companies making fundamental changes in their long-term sourcing plans. Instead, the trend appears to be — again, so far — to get through the summer and then return to pre-quake business models. Some Japanese firms are finding that their supply chain partners, rather than abandoning them, are trying to help them.

Japan's Daily Yoimuri reports recently, for example, that {complink 12722|Renesas Electronics Corp.}, a key producer of specialized semiconductors for modern automotive engines, is being aided in its recovery at its Kawasaki plant by investors {complink 2393|Hitachi Ltd.} and {complink 3642|NEC Electronics Corp.}

“Automakers dependent on Renesas components in Japan and around the world have crossed industry boundaries and are trying to give the semiconductor firm a hand to help it resume production as soon as possible,” wrote the Daily Yoimuri ’s Mamoru Kurihara and Etsuo Kono, who reported the story in Japan. Part of the reason for that, apparently, is Renesas's massive market share, with virtually every major car manufacturer in the world using its microcomputer units (MCUs). Most cars have 30 or so MCUs in their motor and drive-train systems, and Renesas is the world’s largest manufacturer.

Following a 2007 quake, Japan's auto industry had to shut down entirely following widespread parts shortages. A decentralization process, designed to build redundancy into the industry's supply chain, skipped the MCU systems. Renesas, though crippled, is virtually the only game in town.

That would seem like a unique situation. Examples of wholesale supply collapses, of the sort that would cause companies to rethink doing business in a seismic zone, have proven rare. The latest report from the US Federal Reserve's Beige Book, which disects current economic conditions, was surprisingly calm in its assessments of the quake's financial after-effects.

A summary by London's Financial Times noted that shippers in the important Atlanta metro area have actually seen increased traffic since the quake, and “have not yet experienced major disruptions in the supply chain from the Japan disaster.” At worst, the American central bank found, some businesses are anticipating “some temporary interruptions, most notably in the auto and IT sectors.”

It may be the case that plans for fundamental changes are afoot, but with current inventory crises still unresolved, long-term solutions are not yet a priority conversation. A worrying but strikingly vague report by Reuters notes that “analysts say South Korean companies such as Samsung Electronics, may benefit as customers look for new suppliers.” Yes, they might, but as far as we can tell, they haven't yet.

What we do know is that electronics companies, including Sony, have announced plans to cut hours and extend vacations this summer, even as fears of shortages continue. The problem isn't damage to factories, in that case. It's the loss of electricity after the destruction of so much of Japan's power grid, and the ongoing disaster at the country's crippled nuclear plants.

Japan could face as much as a 20 percent shortfall in electricity this summer, according to various reports. So the long-term problem for suppliers may not be, perversely, damage to modern factories in a rich country. The problem looks to be an issue more common in developing countries: Flip the ON switch for the assembly line, and nothing happens. That, fortunately, is a short-term problem. But it's still a big one.

17 comments on “Will Electronics Firms Give Up on Japan Manufacturing?

  1. mfbertozzi
    April 15, 2011

    Marc, as you have reported within your editorial, situation is still quite difficult there, but Japan is doable to recover, strongly. Even in the past they faced hard situations. Coming back to energy power issues, lack of resource and issues for nuclear dramma are still high but as reverse side of the coin they are leader in algorithms conceived for green energy and maybe they could take leadership also in that segment in the near future.

  2. AnalyzeThis
    April 15, 2011

    I don't think many electronics firms will give up on Japan simply because a significant number of electronics firms are either Japanese-founded or Japanese-owned.

    Long term, I don't think the quakes will have much influence over manufacturing in Japan. Like the availability of electricity, it's a short-term problem.

    That being said, the quakes certainly haven't helped and there are other numerous issues that will probably lead to a decrease in manufacturing: high costs, aging population, etc.

    Electronics firms may very well give up on Japan in the coming years, but if they do, it won't be solely because of the disaster: Japan had issues before the quakes. And like earthquakes, many of those issues cannot be easily fixed or controlled.

  3. Anand
    April 16, 2011

    Marc,

      I dont think Electronics Firms will Give Up on Japan Manufacturing in near term. But in long run firms will definitely like to diversify their manufacturing base. Diversification will help these firms mitigate the shortafall  in supplies in event of any catastrophe.

  4. saranyatil
    April 16, 2011

    None of the electronics firms will never give up with a country like Japan, there has been lot of investment gone into setting up these manufacturing process and with time Japaneese have created an unimaginable name with all the companies never they have failed to meet their deliverables. in such conditions Moving completely out of Japan is not possible and to find a new set up for manufacturing is going to be a big work.

  5. Eldredge
    April 16, 2011

    I agree – Japan's electronic enterprises comprise a significant part of their economy. They will accomplish whatever they need o do to maintain their sucess.

  6. Anna Young
    April 17, 2011

    I agree with your view Anandvy. Electronics manufacturing companies cannot give up now on Japan, however, there might have to be a rethink on the longer term.

  7. Adeniji Kayode
    April 17, 2011

    I agree with all the comments made that Electronic firms may not give up on japan due to years of investments, associations  and good name Japan has been able to make over time.

    More over, Electronic firms need to have a back up plans or plants outside japan to support supply from japan.

  8. hwong
    April 18, 2011

    I really hope that it's only going to be temporary that people are losing faith in Japan. I am a little concerned because auto makers are halting production. Also, I have  heard that software projects are being canceled even after many years of investments due to fund  cutting.  This snowball effect will trigger many other industries in the long run.

  9. electronics862
    April 19, 2011

    Japan plays a central role in the high-tech and consumer electronics industries, many U.S. and European tech companies also have significant offices and operations in Japan so I do agree that electronics firms will never give up on Japan Manufacturing.

  10. elctrnx_lyf
    April 20, 2011

    I don't think the OEM's who are using the parts from Japnese companies are happy with this. Above all it is business for every one. Renesas may be asked by OEM's to acyually put rescue process in place if similar things repeat in future.

  11. mario8a
    April 21, 2011

    Hello

    Bussineswise, will Electronic companies rely in a system whit the mitigation plan and recovery plan after a tragedy as Japan?

    I think the answer is YES only if we are talking about Japan, where they have demostrate many times they will come bacj stronger, even though today they still ahead for many years in technology advances.

    Reagrds

  12. t.alex
    April 22, 2011

    Japan still maintain some of state-of-the-art components. Certain parts can only be produced in Japan still.

  13. Kunmi
    April 27, 2011

    Disagreed. Electronic firms will not give up on Japan Manufacturing. The fact that Japan is facing natural challenges does not mean that the manufacturing comapnies can not get back on their feet. It is just a matter of time, Japans credibility will be restored

  14. prabhakar_deosthali
    April 27, 2011

    I do not think that the migration away from Japan will happen so soon.  Japan is  such a nation with a lot of grit to sustain such disasters that she will , as a nation find a sustainable long term solution for thsi current crisis. It will not easily give up its stronghold on the Chip manufactruing . Some of their new initiative will be apparant to the rest of the world in a very short time.

  15. Mr. Roques
    April 28, 2011

    Well, I don't know if they will give up permanently, but in the meantime, what's going to happen to all those orders? Those companies will have to look elsewhere since most of Japan's companies are having big issues with production capacity (energy constraints, HR constraints, etc).

    But what if they like the other place (China? Taiwan? Korea?) better?

  16. prabhakar_deosthali
    April 29, 2011

    If they like the other places like China/Korea/Taiwan then it is well and good for the industry. There will be second sources and they will allow the Japnese industry time to come out from the current situation and not crumble under pressure. Over all it will be a win-win situation . The question is how prepared are these countries in terms of having the sufficient IP to be able to act as second source to japan?

  17. Mr. Roques
    May 28, 2011

    Well, it's better than nothing. But I think it was a perfect situation for them to get some extra market share (don't know if they did).

    How's Japan now? Is it over the hill? 

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