Japan's competitive edge: how has the island nation managed to maintain the leading share of PCBs? A relentless cost-reduction drive.

LATELY I HAVE taken to analyzing the data on overseas production by Japanese-owned PCB manufacturers as collected via the Japan Printed Circuit Association. The results were hardly predictable. Only 24 of 186 Japanese PCB manufacturers produced boards overseas in 2003. Because the majority of consumer electronics production had already been transferred to other countries, the number is much smaller than I had expected.

Almost 60% of the production of single-sided PCBs by Japanese manufacturers has been sent overseas. More than 38% of flexible circuits were produced overseas as well. Overseas production of other products was much lower, however. For example, it was less than 17% for double sided PCBs. And for multilayers it was less than 12%. Just 5.3% of substrates for chip modules were built offshore last year.

Manufacturers were planning to transfer production abroad in the future. But they have no plans to significantly increase overseas production in the next few years, except for flex circuits.

The data do not reveal it directly, but Japanese PCB makers are confident that they can compete for domestic customers against overseas manufacturers in the near term, even though the competition supplies low-end products such as double-sided boards. Also the manufacturers were expecting to increase the export of circuit boards to other Asian countries. High-end circuit boards made in Japan are still price-competitive against other countries.

The details of the analysis will be described in JPCA's manufacturers survey report and will be published in the next few weeks.

Driving for Dollars

Toyota Motors, the largest Japanese automobile manufacturer, reported income of more than $10 billion for the fiscal year ended last March. It could be the largest profit ever for a manufacturer. A Japanese newspaper compared the major automobile companies in the U.S. and Japan (TABLE 1).

Notice the difference in profit margins. Japanese automobile manufacturers have much higher profit margins than American automakers. Commenting on why this is the case, managers at American automakers have pointed to the strong U.S. dollar, new facilities, and so on. These are factors, to be sure, but are not the true explanation.

It is my opinion that the major driver is corporate-level cost-reduction activities. Accordingly, they have high productivity, even though the employees have the world's highest salaries. There are several famous programs such as Kaizen and the Kanban System, which have also been introduced in the U.S. Unfortunately, it is my experience that very few people in the U.S. know the real value of the programs and in trials the companies have not generated remarkable results.

Many Japanese electronics companies have similar cost-reduction activities, and it is their competitive advantage. Otherwise, the high labor cost in Japan would leave them noncompetitive with low-wage countries such as China.

Briefs

Toyobo will significantly increase manufacturing capacity of polyimide resin for adhesiveless flexible laminates. Likewise, Nittobo will increase capacity of thin glass cloth to meet demand for epoxy boards.

Mitsubishi Gas Chemical, a major copper laminate supplier, will invest several billion yen to increase manufacturing capacity of BT resin laminates by 200,000 [m.sup.2] per month.

Ibiden will double its capital equipment investment to 25 billion yen in 2004.

Nippon Steel Chemical has turned the corner thanks to the booming adhesiveless laminate business, and will be in the black by next March.

TABLE 1. Major Automobile Makers in the U.S. and Japan

                             TOYOTA    NISSAN      GM         FORD

Cars sold (millions)          6.71      2.94       8.09        6.72
Revenue ($ billions)        161.78     69.50     185.53      164.20
Net profit ($ billions)      10.87      4.71       3.82        0.49
Profit margn (%)              6.72      6.78       2.06        0.30

DOMINIQUE NUMAKURA is managing director of DKN Research (Haverhill, MA) and publisher of Electronic Packaging Technologies. He can be reached at [e-mail].