COVID-19: Japan to Invest Billions in Effort to Move Manufacturing out of China

George Mikolay
Apr 16, 2020

Will More Countries Follow Suit?

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The damage to society and economics from the COVID-19 pandemic has yet to be determined. Office hardware vendors experienced minimal impact from the China closures, thanks to a diversity in facilities used for manufacturing and an effective ramp-up. Still, the trade war with the United States—and the tariffs imposed, as a result—already had U.S. companies scrambling to move production out of China pre-coronavirus. Now, due to these unforeseen circumstances, companies and countries are compelled to rethink their sourcing and supply chain strategy.

Word is, the Japanese government intends on investing billions (up to $2 billion, in fact) to lure its country’s firms that manufacture products in China back to Japan. An additional $219 million is being set aside for those seeking to move production to other countries. China is Japan’s biggest trading partner under normal circumstances, but imports from China slumped to nearly half in February as the disease closed factories. With 1.3 billion people to feed and house, China wants to be able to make stuff, not import stuff. According to data from the United Nations Statistics Division (UNSD), China currently holds the largest share of global manufacturing, at more than 28 percent; the United States is second, at slightly above 16 percent; and Japan, at nearly 7.5 percent, is third.

A migration from China is nothing new as people have been talking about it for years. The trade war between the US and China had Japan considering moving businesses out of China, but COVID-19 has put the pedal to the metal and accelerated the process. Japan was in the midst of attempting to establish friendlier ties with China. A meeting between the Japanese Prime Minister and the Chinese President was slated for earlier this month—it would have been the first such visit in a decade—before COVID-19 made that an impossibility. The two countries had been expected to sign a document laying the foundation for future bilateral relations, which would have been the fifth of its kind since 1972.

So, who stands to benefit the most from a China manufacturing exodus? Smaller Southeast Asian nations, for one. KYOCERA already has production levels at plants in Japan and Vietnam. Similarly, Konica Minolta has a plant in Malaysia, which provides full-scale operation that includes the production of MFPs and consumables. Ricoh recently moved its production print line manufacturing from China to Thailand to offset cost increases experienced from the U.S. tariffs. And how about the good old US? Xerox noted that those consumables (e.g., toner and ink) are already produced close to North American and EMEA clients. KYOCERA’s shipment centers in Memphis and Dallas worked double time to fulfill orders. Another big beneficiary could be Mexico, thanks to the passing of the US-Mexico-Canada Agreement (USMCA)—just be careful not to hit that wall along the way. Mexico currently comprises roughly 1.5 percent of global manufacturing, per the UNSD.

How much this ends up impacting the office imaging market remains to be seen. The funding may not be big enough for companies to shift factories out of China completely, and the $2.2 billion is for all industries with the office imaging market being just one part of it. In addition, the cost benefits and supplies chain OEMs already have built in China are very big and connected. What remains clear, however, is that a return to status quo for Chinese trade and manufacturing pre-pandemic is unlikely.

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