The Japanese Are Back But There's A DifferenceRobert Neff
Gone are the days of Japanese manufacturers arriving in U.S. towns to build plants, create jobs, and put pressure on local rivals, right?
Maybe not. Although totals for this year aren't yet available, a new wave of direct Japanese investment in the U.S. could be building. Within the past couple of months, several big companies have announced plans to expand U.S. production (table). This could presage the first surge of Japanese investment since the late 1980s, when Japan's "bubble" economy reached its headiest heights. Once the bubble burst, in 1990, the tide of Japanese money washing over the U.S. began to ebb.
The emerging boomlet isn't a reprise of the earlier splurge on "trophies" in real estate, Van Gogh paintings, or Hollywood studios. The Japanese investments also are smaller than the $1 billion-plus acquisitions that Europeans have been making--in pharmaceuticals, for example. Although not big or flashy, Japan's new investments are focused on building competitive clout in such core industries as autos, semiconductors, electronics, and office products. That sort of investment "is coming back," says Kiyohiko Nanao, economic minister at the Japanese Embassy in Washington. "It will continue to grow."
NIFTY NAFTA. Japanese executives cite several reasons: the North American Free Trade Agreement, a pickup in the U.S. economy, persistent trade friction, and the stronger yen--endaka in Japanese--which makes investing in the U.S. and paying American workers cheaper than ever. The beginning of a pickup in Japan's economy doesn't hurt, either.
Take Toshiba Corp., which announced in early October it would expand TV production at its Lebanon (Tenn.) plant by more than 40%, to 2 million sets a year, by early 1997. Toshiba didn't say how much it would spend, but estimates are about $20 million. A big consideration is that NAFTA may be extended to Latin American countries. "Our long-term view is of an expanded market in the Americas based on NAFTA," says Toshiba Executive Vice-President Yoshihiko Wakumoto. What's more, he says, the U.S. has proceeded further along the Information Superhighway than any other nation. Toshiba reckons that will fuel demand for TVs, especially the big models--with 30-inch screens or larger--at which the company excels.
Lower manufacturing wages and land costs in America are a key attraction. That's partly why Ricoh Co. recently decided to spend $30 million to start making thermal paper products near Atlanta. Building the factory there will cost 30% less than in Japan, says Koji Inoue, a managing director at Ricoh.
HIGHER TECH. But Ricoh also simply needs to be closer to its customers in the huge U.S. market, and that goes for the copiers it makes, too. In fact, as the U.S. copier business goes digital and merges with the printer market, it will be more important for Ricoh to increase production and research in America. Inoue says Ricoh will invest "huge amounts" in the U.S.--on everything from factories to software joint ventures.
Having a grasp of exactly what customers want is driving semiconductor giant NEC Corp. to devote $50 million to start making advanced 64-megabit memory chips at its Roseville (Calif.) plant. This is the first time the company will have made such a sophisticated product in the U.S. "We need to start advanced production overseas to meet the demands of our customers," says Hajime Sasaki, NEC's semiconductor chief.
Then there's Toyota Motor Co., whose $900 million expansion of its Georgetown (Ky.) plant is the biggest of this year's Japanese investments in America. Aimed at increasing local content--by boosting engine production and adding a new model called the Avalon to its line--this plan has been in the works for years, says Toshiaki Taguchi, a Toyota board director. "This just happened to coincide with growing trade friction and endaka," he says.
Significantly, Toyota's total $3.6 billion manufacturing investment will allow it in 1994 to assemble and sell more cars in the U.S. than it imports from Japan. That greatly reduces its vulnerability to the Super 301 retaliation that the Clinton Administration is threatening in autos.
Even though Japan's latest investments are modest in size, they are not completely without controversy. On Oct. 18, the congressional Office of Technology Assessment issued results of a two-year study concluding that Japanese investment in the U.S. has grown to three times that of American investment in Japan. It's "an imbalance deeply rooted in diverging systems of corporate governance and financing," said Senator John D. Rockefeller IV (D-W.Va.), who released the report.
The study also found Japan's investments suck in more imports of components and capital goods than Europe's do, and that Japanese don't do enough genuine research and development in the U.S. So even if the new investments help create what Japanese diplomats call "mutual dependency" between the two countries, they also may guarantee a steady source of political friction.
Japan's New Investments COMPANY PROJECT COST IN MILLIONS TOYOTA Adding to Kentucky auto assembly plant $900 MITSUBISHI Building new silicon wafer plant in Oregon 240 MATERIALS HONDA Boosting capacity at Ohio factories 200 NEC Expanding California semiconductor plant 50 RICOH Doubling of Georgia thermal paper plant 30 DATA: BUSINESS WEEK
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