Post-disaster, manufacturing in Japan is going to look a lot more like that in the U.S.

03/16/2011 10:56 am EST

Focus: STOCKS

Jim Jubak

Founder and Editor, JubakPicks.com

One long-term consequence of the earthquake, tsunami, and nuclear meltdown in Japan will be an acceleration of the hollowing out the Japan’s export manufacturing

One criticism of Japan’s big exporters during the strong yen period is that companies like Sony, Toyota, and Canon had been slow to move production out of Japan to low-cost production platforms such as China and Vietnam.

Part of that came from a reluctance to disrupt long-term relationships with suppliers in Japan. Part of it came from a frayed but still strong traditional commitment to life-time employment for workers.

Whatever the reason Japanese companies haven’t moved a aggressively as those in the United States to send manufacturing functions and manufacturing jobs overseas.  And that left Japanese companies paying higher costs as the yen appreciated.

The destruction of factories at companies such as Toyota have garnered the bulk of the headlines during this disaster. But Toyota can relatively quickly shift production to overseas plants.

The thousands of smaller companies that make up the supply chains for the big exporters don’t have that flexibility. Many are tied to a single plant and right now they’re looking at either the destruction of their own factories or of the exporting giant they supplied.

Some of these plants will get rebuilt—but many won’t or when they are the operators of these factories will find that some of their work has fled overseas. That one reason the Bank of Japan and the Japanese government is flooding the economy with money. They want to see Japanese factories rebuilt quickly to minimize job losses.

I doubt they’ll be very successful. After all the off-shoring of Japanese manufacturing was a long-established trend before this disaster. It was only the pace of the transition that was at question.

Now I think that pace will pickup. Eventually that will be good news for the profits of Japanese exporters. No way it’s good news for Japanese workers or the Japanese economy.

 

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