Of the $652 billion in global electronics production in 1991, Japan's production represented about 27%, as shown in Figure 1.1. Japan's electrical and electronics industry as a whole produced $176 billion in goods in 1991, second only to the United States' $232 billion. In consumer electronics, Japan produced 4.7 trillion yenin goods, a 48% share of world production, as compared to shares of 12% for the United States, 22% for Western Europe, and 18% for newly industrialized economies (NIEs). In industrial electronics, Japan produced 11.7 trillion yen in goods, a 22% share of world production, as compared to shares of 38% for the United States, 34% for Western Europe, and only 6% for the NIEs. In electronic components, Japan produced 8.8 trillion yen in goods, a 37% share of world production, compared to shares of 32% for the United States, 18% for Western Europe, and 13% for the NIEs. Japan's share of worldwide electronic component production was stable from the previous year, the United States' share showed a decline, and the NIE share showed an increase. In 1991, Japan exported over 45% of its electrical/electronics production (11 trillion yen of 25 trillion yen in production), which accounted for 27% of Japan's total exports. In that year, Japan's electrical and electronics industry provided jobs for over two million workers, or 18% of Japan's manufacturing work force (Dodwell 1993, 4-6).
Figure 1.1. 1991 global electronics production, $652 billion total: shares of the world's
four largest electronics regions (Electronics Industry Association of Japan).
Consumer Electronics in Recession
Of Japan's total 1991 electronic production, consumer electronics represented 19%, industrial electronic equipment represented 46%, and electronic components represented 35%. As shown in Table 1.1, both industrial electronics and components were expected to increase in 1993, to 47% and 37%, respectively; however, as a result of the 1992-1993 recession, consumer electronics' market share fell to 16%.
In 1991, Japan's 4.7 trillion yen in consumer electronics production consisted of 60% video equipment and 40% audio equipment. With Japan's burst bubble economy and ongoing recession, overall consumer sales were down 17% in 1992 and were projected to fall 3.5% in 1993 to below 3.7 trillion yen. Sales of audio and video equipment had provided the basis for strong growth in the past, but were in severe stagnation, as shown in Table 1.2. By 1993, audio equipment went from 40% of the total market to around 36%. Sony introduced its new MD (minidisc) Walkman in 1993 in hopes of stimulating future sales in this market.
Japan's Electronics Industry Production 1992-3, with Forecast for 1994 (million yen)
Japan's Consumer Electronics Production 1992-3, with Forecast for 1994 (million yen)
Investments in the Electronics Industry
A MITI survey in 1992 of 1,667 companies found total plant and equipment investments in Japan valued at 20.8 trillion yen, as compared to 20.5 trillion yen in 1991 (Dodwell 1993). Of these totals, electronics equipment firms, including components firms, invested 1,399 billion yen in 1991 and 1,030 billion yen in 1992. That is, with the ongoing recession, investment fell 26% in 1992. Electrical appliance makers held their investment at 562 billion yen and 569 billion yen for 1991 and 1992, respectively.
Production-related investment accounted for 45% of overall outlays for new and high-value-added products. R&D-related investment represented 24% of overall outlays, with a priority on supplying competitive products. Investment related to cost cutting and labor savings represented 13% of overall investments. The most significant product-focused investments were in LCD production. Notebook-type personal computers received significant increases in investment. Investment in 4M and 16M DRAM (dynamic random access memory) semiconductor capacity was significantly reduced in 1992. Investment in cordless and portable telephone capacity was heavy as demand continued to grow. Computer-related R&D investment was also high.
Moving Production Offshore
Japan's success in global competition has created new political problems for the country. As shown in Figure 1.2, Japan's aggressive export strategy has allowed it to dominate its trade relationships with all of its major trading partners but China. Continuing imbalance in trade and current accounts has generated surpluses in Japan for 31 straight months. For 1993, it was expected that Japan's account surplus would be $130 billion. This heavy imbalance continues to put a damper on the economies of its trading partners at a time of global recession. A 20% appreciation in the value of the yen in 1993 made it more difficult to maintain the low-cost requirement of Japanese consumer product strategy. This is part of the reason Japanese firms are moving operations, with the accompanying advanced production technologies, into countries where manufacturing costs are lower.
Figure 1.2. Japan's trading relationships in 1993 (Newsweek 1993, 15).
The yen's appreciation has had a significant impact on consumer product exports. Color TVs and VCRs have been among Japan's major export items, as shown in Table 1.3. According to Japan's Ministry of Finance, camcorders surpassed VCRs as the number one export from Japan in 1992, with 47% of exports going to European markets and 40% to North American markets. Until the recession, camcorders had been Japan's number one growth product. Video discs and CD players were among the only products that continued to grow during the recession.
Export Ratios of Major Export Items
(% of Japanese industry production that is exported)
As a consequence of the recession, Japan has had to adjust to the yen's continuing appreciation in value. To stay competitive in world markets, Japanese electronics manufacturers have cut back on their labor forces, downsized plants and facilities, and reduced product lines and frequency of product model changes. Moreover, manufacturers are continuing to move their production facilities overseas (Fig. 1.3). Of 400 overseas production bases owned by Japanese electronics makers, 60% are for consumer electronics plants and 40% for industrial products. The major shift in facilities began in 1985 with a move into Southeast Asia.
Figure 1.3. The movement of Japanese production facilities offshore
(William R. Boulton & Assoc.).
The largest number of Japan's Asian plants are located in the Association of Southeast Asian Nations (ASEAN) nations of Malaysia, Singapore, Thailand, and most recently, Indonesia. Japan's move to ASEAN countries is a result of its need to restructure global operations in light of declining production advantages in Japan, the yen's appreciation, trade friction, and unification of regional markets. These plants provide low- and medium-priced electronics products and components. Of 136 billion yen in consumer electronics goods imported by Japan in 1991, 86% came from Asia, 8% from the United States, and 5% from Europe. A number of Japanese companies continued to expand plants in Southeast Asia during 1993; however, the investment priority was shifting to China. After having invested a total of nearly $30 billion in Malaysia, for example, Japanese firms invested only $1.5 billion in 1992. The number of Japanese investment applications fell from 46 to 35 for the January to April periods of 1992 and 1993, respectively. Japanese investments in Singapore remained high, with nearly $3.5 billion invested in 1993 (Newsweek 1993, 15).
As shown in Table 1.4, of 241 Japanese consumer electronics plants located offshore in 1992, 128 were located in Asia, 47 in Europe, 44 in North America, and 22 elsewhere in the world. Of 168 industrial electronics plants located offshore, 75 plants were in Asia, 38 in Europe, 48 in North America, and 7 elsewhere.
The Number of Offshore Japanese Production Bases in 1992
Table 1.5 shows the leading sources of Japan's electronics equipment and parts imports in 1992. Asia dominated Japan's consumer electronics imports with an 84% share. Asia also dominated Japan's import of passive devices and components and produced one-third of imported active devices. North America still dominated its industrial products imports and led in active devices, integrated circuits, and other parts and accessories. Only imports of U.S. microprocessors and memories continued to grow rapidly - up 23% from 1990-91. Japan's 1991 imports of components from ASEAN nations, China, and Hong Kong grew significantly, while those from Europe, North America, Korea, and Taiwan decreased.
Japan's Electronics Imports in 1992, by Region (million yen)
Japan's manufacturing technology exports were 321 billion yen in 1990, and its imports were 364 billion yen. The electronics industry's technology exports accounted for 97 billion yen, or 29% of Japan's total technology exports. Other major exports included chemicals, 17% (58.2 billion yen) of total technology exports; industrial machinery, 4% (14.4 billion yen); and ceramics, 3% (11.9 billion yen). Thirty percent of technology exports went to the United States; Asia accounted for 45%, the major recipients being South Korea (14%), Thailand (7%), Taiwan (5%), Singapore (6%), and Indonesia (6%); Europe accounted for 18%, with the U.K. (6%) being the primary partner.
Electronics also accounted for the majority of Japan's technology imports - 43% (160 billion yen), compared to 14% for transportation (52 billion yen), 8% for industrial machinery (31 billion yen), and 3% for precision machinery (11.4 billion yen). The United States was the source for 70% of Japan's total technology imports. Outside of North America, these imports came primarily from European countries (29%), including Germany (7%), France (6%), and the Netherlands (5%).
Manufacturing industries accounted for over 90% of Japan's 9.3 trillion yen in R&D expenditures in 1990. While R&D expenditures had tripled since 1980, they were expected to double again by the mid-1990s. The Japanese government set a goal in 1992 of doubling Japan's R&D expenditures as a percent of GNP. Japan's electronics industry R&D expenditures (3.1 trillion yen) accounted for over 37% of total R&D expenditures (8.7 trillion yen), as shown in Table 1.6:
Japanese R&D Expenditures
The growth rate of R&D in communication, electronics, and measuring equipment was the highest, having grown by a factor of four over the past decade. While the pharmaceutical industry showed the highest ratio of R&D to sales at 8%, communications, electronics, and measuring equipment R&D followed at 6.1% of sales. Electrical machinery R&D was 5.4% of sales, followed by chemicals (4%) and autos (3.7%).
Planning for Future Products
Japan's electronics industry is driven by expected growth in consumer products. The Electronics Industry Association of Japan forecasts growth by product category as shown in Figure 1.4, which projects audiovisual production for the years 1995 and 2000. The most significant projected growth comes from the shift to high definition televisions and VCRs. Projected output growth of minidisc and digital compact cassette players was expected to triple during the latter half of this decade. Combination telephone/color TV sets were expected to become a new growth product by the end of the decade. This forecast shows very little that is totally new; most categories show development of next-generation models of products currently on the market. This type of industry projection provides the roadmaps for most Japanese companies as they develop plans for future products. Such roadmaps help to identify the technologies that will be needed to produce the coming generations of products.
Figure 1.4. Japanese forecast of audiovisual production in 1995 and 2000
(Electronics Industry Association of Japan).
Forecasts for growth in computer-related products to 1995 are shown in Figure 1.5. The highest volume of production is expected at the low-priced end of the product spectrum. High-volume desktop computers put few constraints on product size but are differentiated by advanced functions. In contrast, notebook computers and personal digital assistants will push the limits of product miniaturization. (Notebook computers have allowed new competition to enter the industry from outside Japan and the United States.)
Figure 1.5. Number of computer-related systems worldwide (BPA, Dataquest).
Japan's heavy emphasis on the electronics industry has lead it to become a major player in the production and export of electronic components. In 1992, 52% of electronics components were active components (electron tubes 8%, discrete semiconductors 9%, and integrated circuits 35%); 15% were passive components such as capacitors, resistors, and inductors; and 31% were other electronic parts (mechanical parts 14%, and audio parts 7%). Total production of electronic components was valued at 8.8 trillion yen in 1991, an increase of 6% over the previous year. The growth rate 1986 to 1991 was 10% per annum. Active components production totaled 4.6 trillion yen in 1991, up 6% over 1990.
Passive component production totaled 4.3 trillion yen, up over 5% from 1990. The highest growth areas were discrete semiconductors, passive devices and parts such as connectors, switches, relays, and PCBs, growing at over 7% in 1991. Japan was the largest semiconductor market in the world, accounting for 39% of 1991 sales, compared to 28% for the United States, 18% for Western Europe, and 15% for the rest of the world. As shown in Table 1.7, while electronic device sales were down in 1992, they were forecast to come back again in 1993.
Electronic Devices and Parts Output
Japan exported 57% of its electronic components production in 1991, totaling 5.1 trillion yen. Active components represented 33% of all exports, passive components 7%, electronics parts 6%, and audio parts 3%. With the increasing production of components in Asia, Japan's components imports grew 8% to 1.3 trillion yen in 1991, equivalent to one-quarter the value of Japan's exports.