On March 31, 2015, Toyota was the largest company in Japan—nearly twice the weight of the next largest firm, Mitsubishi UFJ, in the Tokyo Stock Price Index (TOPIX). However, some might be surprised to learn that Toyota has been operating in the U.S. for 58 years, has 10 plants and has produced more than 1.3 million cars.1
Operating Abroad Standard Procedure for Japanese Firms
Toyota is not the only Japan-based company with production facilities all over the world. Many Japanese firms do this. But this is starting to change as it becomes more attractive for Japanese companies to have more facilities in Japan.
Consider that when the yen was at ¥75 to the dollar, the profit margin for firms to go abroad and build production facilities in countries outside Japan was about 2.5 times that of building facilities within Japan. With the yen approaching ¥120 to the dollar, Japanese firms can more easily move their production facilities back home.
Finding Specific Examples
Some concrete examples I found of companies expanding production at home:
• Canon: In early 2015, Canon outlined its plans to increase domestic production. “There are two reasons behind our decision to shift a part of our production back to Japan,” said Canon Chief Financial Officer Toshizo Tanaka. First, “Abenomics is working well … thus leading us to believe the foreign currency rate won’t fluctuate widely from the current levels at least for [the]next several years.” Second, Mr. Tanaka said, the labor cost gap between Japan and other Asian nations where Canon has production bases has narrowed. Rising wages outside Japan, as well as advanced factory automation technology that the company has introduced at home, have contributed to the narrowing of those costs. Canon said it expects to increase domestic output to 50% by 2015, from 43% in the business year that ended December 2014. Approximately 60% of Canon’s production came from domestic factors between 2005 and 2009, a percentage that fell below 50% after 2011.2
• Panasonic: The company initially plans to bring the manufacture of top-loading washing machines back to Japan, followed by microwave ovens and household air conditioners. This production is returning home from China, where costs and wages have risen.3
• Daikin: The world’s largest seller of air conditioners has already moved part of its air conditioner production from China back to Japan.4
• TDK: The company is looking to build large factories in Japan for the first time in eight years, taking advantage of the improved profitability of domestic production brought on by a weaker yen. The plan is to spend about ¥25 billion on facilities that will start producing components for smartphones and automobiles in late 2016.5