Japan's wary manufacturers resist Abe's urge to splurge

Sat Apr 4, 2015 9:36pm EDT
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By Kevin Krolicki and Tetsushi Kajimoto

KUSATSU, Japan (Reuters) - Hirotoshi Ogura, a self-described “factory geek”, is Daikin Industries' (6367.T: Quote) master of doing more with less – and part of the reason Japan’s recovery remains stuck in the slow lane.

As Japan heads into the season of peak demand for room air-conditioners, Ogura and other Daikin managers have been tasked with figuring out how to boost output by some 20 percent at a plant in western Japan that six years ago the company had almost given up on as unprofitable.

The wrinkle: they have no budget for new capital investment at the 45-year-old Kusatsu plant. The still-evolving workaround shown to a recent visitor involves home-made robots for ferrying parts, experimental systems using gravity rather than electricity to power parts of the line, more temporary workers on seasonal contracts and dozens of steps to chip away at the 1.63 hours it takes to make a typical new air conditioner.

“We can do a lot without spending anything,” says Ogura, a 33-year Daikin veteran who joined the company just after high school. “Anything we need, we first try to build ourselves.”

Like Daikin, a number of Japanese manufacturers are shifting production back to Japan from China and elsewhere to take advantage of a weaker yen. Rival Panasonic (6752.T: Quote) has pulled back some production of room air-conditioners, Sharp (6753.T: Quote) has brought back production of some refrigerators, and Canon (7751.T: Quote) has repatriated some output of high-end copiers, according to a list compiled by Nomura.

But even as output recovers, Japanese companies remain cautious about new capital investment in factories and equipment. The trend is especially pronounced for smaller firms down the supply chain.

After increasing capital spending by 6 percent in the just-completed fiscal year, small manufacturers plan a 14 percent decrease in the current year, according to the Bank of Japan’s quarterly survey released this week. Big manufacturers like Daikin plan a 5 percent increase, but overall investment remains 10 percent below pre-crisis 2007 levels.

Over the same time, corporate earnings have increased by 11 percent, shares have rallied – Daikin's are up more than four-fold from its 2008 low - and Japanese companies have socked away a record 87 trillion yen ($730 billion) in cash.   Continued...

Japan's Prime Minister Shinzo Abe speaks to the media at his official residence in Tokyo in this photo taken by Kyodo March 19, 2015. REUTERS/Kyodo