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backASIAtalk June, 2012
Results of JETRO’s Survey on Business Conditions of Japan’s Small and Medium-sized Parts Suppliers and Their Status and Challenges for Asian Expansion
From July 2011 to January 2012, the Japan External Trade Organization (JETRO) interviewed with 170 Japanese parts suppliers (50 in Japan, 120 overseas) and 57 non-Japanese parts suppliers for cars, machines and electric and electronic goods, which are exploring other markets in Asia. Based on the results, JETRO analyzed the recent Asian market environment and changes in relationships with customers from the suppliers’ (herein after referred as “the subject SMEs”) viewpoint. We also summarized their concrete efforts towards expansion of new markets and enhancement of their competitiveness. This report outlines the results.
Summary points
(1) Present situation of the subject: SMEs
- Due to the continued decrease in stable domestic demand associated with the overseas production shift by major manufacturers, the subject SMEs have strengthened efforts to develop and expand their business overseas including other parts of Asia.
- In other Asian markets, many manufacturers, which used to import products from Japan, have been accelerating local procurement for the parts and components to realize cost reduction and shorter lead time. Japanese parts suppliers are also facing reduced orders from overseas.
To view chart/graph, please click here.
http://www.jetro.go.jp/news/images/20120601009-news/fig1.jpg
(2) Increasing “voluntary” overseas development
- The subject companies have been motivated to move overseas based on their own needs rather than by requests from their clients. The growing motivation includes a sense of crisis against the shrinking domestic market, needs for exploring new markets and customers and strengthening their spheres of business so that they can meet the demand from major manufactures oriented towards “global optimized procurement.”
- In spite of the harsh business environment in Japan, more than a few subject SMEs found additional work orders through expansion in Asia. In reality, there have been quite a few cases where Asian expansion helped to increase work orders for the headquarters of the SMEs in Japan.
To view chart/graph, please click here.
http://www.jetro.go.jp/news/images/20120601009-news/fig2.jpg
(3) Fierce competition with other Asian-based companies, though these competitors may potentially be future clients
- Throughout the Asian markets, the presence of local companies and other firms from Taiwan, South Korea and China have been increasing. Japanese suppliers commonly recognize that they will be forced to fiercely compete with these foreign firms including through cost.
- Local enterprises in the Chinese and Indian markets have gained power making use of their overwhelmingly low cost performance. They have made remarkable progress in product quality management and technological development and have become a significant threat to Japanese firms. Taiwanese firms have also strengthened their sales strategies in Asian markets, selling their products boasting “quality equal to Japan-made products with much lower price.”
- Some client manufacturers state that they do not deal with suppliers who have no unique technology in a single production process. Being a Japanese firm alone is not a benefit for the subject SMEs in business even with Japanese client companies overseas. These suppliers need to provide comprehensive strengths in cost, quality and delivery date, competing with other Asian firms under the same conditions.
- In the development of sales channels in other Asian markets, in particular China and India, the subject SMEs, which include producers of parts and components, industrial tools and test equipment, and facilities and machinery, have been targeting these foreign competitors as a sales destination and valuing them equally or more than Japanese client companies in the same regions.
(4) “Collective” market entry to overcome common challenges and gain win-win business results in Asia
- Common obstacles faced by subject SMEs when starting up business in Asia include:
- - - Necessity to seek out new customers as order amounts from existing ones are not sufficient to secure necessary production lots
- - - Orders in the region are mainly for parts manufactured in a single process not multiple processes
- - - Significant risk caused by limited funds and labor forces
- As a counter measure against these difficulties, some of the subject SMEs have formed alliances with other SMEs or customer companies to jointly enter overseas markets (please refer to the boxes on the below). This enables them to:
- - - Reduce initial investment and management costs
- - - Combine one another’s technologies and manufacturing processes to produce various kinds of high-demand small lot products
- - - This in turn allows subject SMEs to explore new customers and markets.
To view chart/graph, please click here.
http://www.jetro.go.jp/news/images/20120601009-news/fig3.jpg
(5) Major challenges faced by subject SMEs in operation in Asia and counter measures
- Securing human resources:
The subject SMEs do not have sufficient personnel dispatched from Japan or locally-hired managers. Some of the firms educate and train local employees in Japan for a few years, then utilize them as a core in establishing business in Asia.
- Cost reduction essential to compete with rivals in other Asian countries:
As concrete measures, the subject SMEs cited:
- - - Promoting localization and effectiveness of procurement of parts and components
- - - Improving production efficiency
The subject SMEs have, for example, adopted locally-produced materials once they meet Japanese quality standards and introduced locally-produced unit parts from the process, which have no negative influence on the safety and function of production.
- Enhancement of manufacturing capabilities to address package contracts:
To improve competitiveness, differentiation in quality and technology as well as response capabilities for requests on product specification change is essential subject SMEs. The same is true for strengthening manufacturing capability in response to packaging orders from various clients who may require combined manufacturing processes rather than a single process. Meanwhile, expanding the range of both prototype and ubiquitous products makes it possible to find new deals and customers.
- Securing good business partners for exploring new sales channels:
The subject SMEs have been required to fully utilize human networks for finding suitable employees, customers and material suppliers. Securing promising business partners including agencies who specialize in the products manufactured is key for the SMEs to expand their business with local firms in the vast markets of China, India and Indonesia. Participating in international exhibitions is also essential for the SMEs to find potential local customers and agents.
Cooperating with other support organizations for SMEs, local banks and governments, JETRO will further assist Japanese SMEs and their overseas subsidiaries operating in harsh management environments by offering local business information and assisting in finding sales channels, establishing local bases and developing global human resources.
Source: JETRO - GAI
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