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Strength of Tohoku Industry Reconfirmed | Toshiro Fukura, Director, International Exchange Department Institute for International Studies and Training [Date of Issue: 28/April/2011 No.0194-0795]

Date of Issue:28/April/2011

Strength of Tohoku Industry Reconfirmed

Toshiro Fukura
Director, International Exchange Department
Institute for International Studies and Training

The impact of the major earthquake which struck eastern Japan on March 11 has sharply delineated the critical role played by manufacturing bases in the northeastern Tohoku region not only in domestic but also global supply chains, most particularly in the case of electronic products and car parts. Getting these internationally competitive parts and materials manufacturers back on their feet will be intrinsic to the recovery of the Tohoku region, as well as in maintaining Japan’s industrial competitiveness.

Protracted production shutdowns

The March 11 Great East Japan Earthquake (2011 off the Pacific coast of Tohoku Earthquake) forced auto firms and other manufacturers to shut down production, and operations are taking a long time to restart. Auto giant Toyota halted its own production as well as that of affiliated vehicle body manufacturers over 14-26 March. Production of hybrid vehicles was resumed at the Tsutsumi Plant in Aichi Prefecture and at Toyota Motor Kyushu in Fukuoka Prefecture on 28 March, with all other domestic plants went back on line on 18 April. Honda too delayed the resumption of production activities at all its plants until 11 April.

What kept auto manufacturers out of production for so long? One factor was the damage sustained by assembly plants such as the Toyota Group’s Kanto Auto Works Iwate Plant and Honda’s Tochigi Plant, but what has had by far the greatest impact is the breakdown in parts supply due to the earthquake and tsunami damage sustained by parts suppliers.

The July 2007 off Chuetsu Earthquake in Niigata Prefecture in particular encouraged manufacturers to redesign their supply chains to reduce dependence on specific plants. However, the sheer scope of the March disaster made it almost impossible to escape impact. Moreover, even where temporarily shuttered plants are restarted, a return to full operation seems unlikely in the short term because of the dependence of many plants on parts availability, as well as power supply constraints.

The impact of shortfalls in parts supply does not stop with Japan. Toyota has announced that operations will be shuttered for several days in late April at its vehicle and engine and components plants in North America because of parts shortages. The same problem forced Ford to idle its auto plant in Genk, Belgium, for five days in early April. Ford has also apparently had to stop taking new orders for some car body colors because of the shortage of certain pigments sourced from Japan.

International concern over Japan’s supply capacity

The foreign media too has expressed strong concern at the suspended supply of Japanese parts and materials. For example, Bloomberg Businessweek expects a disruption to production activities all over the world when the supply of products from Japanese factories is interrupted, with US News & World Report fearing that this supply breakdown could derail the global economic recovery.

In terms of specific products, The Economist identifies a specialty resin produced by Mitsubishi Gas Chemical and Hitachi Chemical as well as a polymer made by Kureha, while Bloomberg Businessweek points to examples such as Sony’s batteries for laptop computers and the silicon wafers made by Shin-Etsu Chemical and Sumco Corporation (formerly Sumitomo Mitsubishi Silicon Corporation).

Major companies are placing almost daily updates on their websites on the status of recovery efforts at their plants. These information provision efforts are driven by mindfulness of their responsibility to supply. Moreover, they aren’t just checking on their own facilities. Tokyo Electron Limited, a leading global supplier of semiconductor production equipment that has plants in the affected areas of Oshu City in Iwate Prefecture and Sendai City and Matsushima Town in Miyagi Prefecture, noted in its 17 March Status Update that the company is also tracking the status of its over 600 primary suppliers.

Tohoku strong in ICT and devices

Where does the Tohoku region stand in the Japanese economy, and what industries does it have?

According to the Tohoku Bureau of Economy, Trade and Industry’s Tohoku Economy Key Points 2010, the six northeastern prefectures are home to 7.4 percent of Japan’s population. Total regional production accounts for 6.4 percent of the national total, while product shipments stand at only 5.5 percent. In terms of the prefectural ranking for product shipments, Fukushima comes in highest at 20th. Obviously, the various northeastern prefectures are not exactly national leaders in industrial production. In specific product areas, however, Tohoku has markedly high shares, including 14.8 percent of information communications technology (ICT) machinery and 12.9 percent of electronic parts, devices and electronic circuits.

According to the March 2011 Census of Manufactures issued by the Ministry of Economy, Trade and Industry, the northeastern prefectures stand in first place for shipments of many electronic parts and devices, as in the attached chart. Even outside of first place, Tohoku is a major producer of many key products, including Aomori’s semiconductor and IC measuring instruments (second place) and pig zinc (third place), Iwate’s flat panel display manufacturing equipment (second place), and Miyagi’s storage battery parts, attachments and accessories (second place) and scientific and industrial fine ceramics (second place). In the case of automobiles, Iwate Prefecture holds second place for car heaters and third for piston rings. Ibaraki Prefecture, another seriously damaged area that lies outside of Tohoku, leads Japan in shipments of 25 products, including silicon manganese, laminated plastics, pigment resin color and flexible printed boards.

I had ascribed the northeast’s industrial capacity to many years of work by the various prefectures to attract firms to the region, but apparently it goes beyond that. According to my friend at a major electronic components firm, Tohoku boasts many outstanding small and medium enterprises that have withstood intense competition to build up their own competitiveness.

Products for which the northeastern prefectures have the top shipment value (2008)
Miscellaneous ferroalloys
4 items including connectors for printed boards; miscellaneous molds for non-metal and dies, parts and accessories
12 items including control units; laser diodes; magnetic heads; magnetic tapes (raw); external memory parts, attachments and accessories; resistors; switches
9 items including radio receivers; products for lighting and signal;  camera lenses; fixed capacitors; diatomaceous earth and its products
9 items including speaker systems for hi-fi and cars; cameras except 35-mm cameras; parts, attachments and accessories of digital cameras; transformers
20 items including storage battery parts, attachments and accessories; optical discs (raw); parts, attachments and accessories of printers; metal packing and gaskets, including ones combined with non-metal;  miscellaneous rolled and drawn copper products, including rolled and drawn nickel silver products; optical pickup units and modules; TV tuners, including video tuners; organic rubber chemicals; auxiliary equipment of telephone exchange switchboards; parts, attachments and accessories of cameras and motion picture equipment
Source: Census of Manufactures, Ministry of Economy, Trade and Industry
Note: Product names were drawn from the commodity classification used in the 2009 Census of Manufactures. Refer to the following website for product details:

Recovery of Tohoku manufacturing bases key to the survival of the Japanese manufacturing industry

Seven years ago in April 2004, The Economist ran an article entitled “(Still) made in Japan”, praising Japan for the untiring efforts that have seen Japan continue to manufacture products with global competitiveness at home despite problems such as rising personnel costs. According to that article, one reason that Japanese products are not being overtaken by low-wage countries such as China is the development of integrated manufacturing systems that are far more sophisticated and complex than rivals can manage, as well as ongoing investment in next-generation products. The manufacturing bases of Tohoku region and Ibaraki Prefecture have played a part in these systems for electrical machinery and other products ever since mid-1980s. Restoring these bases will be vital not only to the recovery of the disaster-hit regions, but also to the survival of the Japanese manufacturing industry.

(April 19, 2011)
(original article : Japanese)

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Rebuilding Supply Chains to Erase Supply Uncertainty
(For the Japanese version of this article)

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