Panasonic is considering bringing some of its manufacturing back to Japan, in what would be a rare reversal of Japanese companies offshoring production to China and other Asian countries with lower production costs

Last updated: May 22, 2014 4:27 pm

Panasonic considers bringing production back to Japan

By Jennifer Thompson and Jonathan Soble in Tokyo

Panasonic is considering bringing some of its manufacturing back to Japan, in what would be a rare reversal of Japanese companies offshoring production to China and other Asian countries with lower production costs.

Kazunori Takami, president of the Osaka-based group, said in a presentation to investors this week that he is thinking about reshoring production of some household appliances such as cookers, washing machines and air conditioners, in response to a weaker yen.

The final decision would depend on the exchange rate, a spokeswoman for the company said on Thursday.

Any move by Panasonic to boost production in Japan will be welcomed by the Japanese government, which is hoping that the yen’s depreciation over the past 18 months – a result of the policies of the Bank of Japan, and the economic reforms of prime minister Shinzo Abe – would entice Japanese companies to invest domestically.

The weaker yen has boosted the profitability of many Japanese companies, as it enables them to repatriate foreign earnings at more favourable rates. The 20 per cent fall in the yen’s value against other major currencies since late 2012 accounts for about one-third of the year-on-year operating profit gains made by Japanese manufacturers last quarter, according to Mizuho Research analysts.

However, a weaker yen also makes imports more expensive. Half of Panasonic sales are in Japan, compared with 28.8 per cent for Sony, and a quarter for Toyota.

Japanese carmakers, in particular, see little incentive in expanding domestic production because of a weaker yen.

“We’ve been investing in India, Thailand and Indonesia, and we won’t suddenly bring production back to Japan just because the yen is cheaper. Taking a long-term view, we will accelerate overseas production, no question about it,” Osamu Suzuki, chief executive of Suzuki Motor, said a year ago.

Companies have also been reluctant to increase capacity in Japan in part because of traumatic memories of the last cycle of yen depreciation a decade ago. Then, car and electronics makers built expensive new factories in Japan that soon turned into massive financial burdens when the yen surged a few years later.

The multi-billion-dollar restructuring that Panasonic endured in 2012-13 was a legacy of its investments in Japanese television production capacity.

Such experiences are likely to put limits on reshoring this time around, though there are signs that domestic business investment is picking up. Overall capital spending by Japanese companies increased 4.9 per cent last quarter, accelerating from 1.4 per cent in the last three months of 2013.

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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