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OM in the News: Japan Inc. Looks to Offshoring

April 11, 2011

Just as the US has faced the political and economic decisions to offshore and outsource much of its manufacturing needs, Japan is now accelerating its own move of factories overseas. Today’s Wall Street Journal (April 11,2011) reports that the reality of the earthquake and tsunami is prompting Japanese companies to reassess their risk profiles. With damaged factories, displaced workers, crippled infrastructure,  rolling blackouts, and supply shortages, Japan will not be able to rebound as quickly as it did after the 1995 Kobe earthquake. It is estimated that the nation lost 5% of its capital stock, compared to 2% from the Kobe tremor.

Although much of the capacity will be restored in time, Japanese offshoring will accelerate even more than its gradual trend line (see graph). Microprocessor Reneses Electronics, for example, will increase production outsourcing from 8% to over 25%. It plans to move auto chip production to Singapore.

Similarly, Nissan which already only got 25% of its auto production out of Japan, will move even more now. The Micra subcompact is going to Thailand and the Rogue SUV to Canton, Mississippi. “After the quake, managers signaled that they will step up efforts to shift output and sourcing abroad”, says Nissan’s COO.

Discussion questions:

1.What pressure will Japanese companies face when they close factories at home?

2. Why are these changes being made? Is it only because of the disaster?

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