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INTERNATIONAL > East Asia & Pacific

Mitsubishi Electric shifting production bases to avoid U.S.-China friction

  • October 31, 2018
  • , NIKKEI Business Daily , p. 4
  • JMH Translation

Mitsubishi Electric Corporation is reviewing its production system for machine tools and components in response to the trade war between Japan and China. Both product categories are targeted by the punitive tariffs imposed by the United States. The company is mulling shifting production to bases in Japan or Thailand. The company says it has not been impacted [by the trade war] to date. If client companies’ confidence in making capital investment wanes, however, it could result in unforeseen headwinds. The company has revised downward its projected earnings for the fiscal year ending March 31, 2019, and it is quickly taking measures to address matters that are causes for concern from a long-term perspective.   

 

Mitsubishi Electric has taken action in light of the U.S. invocation of punitive measures against China, including additional tariffs on machine tools among other items. The company has transferred the control of the production of U.S.-bound electrical discharge machines and laser processing machines used in metalworking from China to Japan. Production has been shifted from manufacturing facilities in Dalian, China, to Nagoya Works (Higashi Ward, Nagoya City).

 

China used to be a core production center for Mitsubishi Electric in supplying machine tools for markets in the West. Some 70% of electrical discharge machines and 30% of laser processing machines bound for the U.S. were manufactured by facilities in Dalian.

 

“If the trade war between the United States and China continues to intensify like this, we will consider transferring the production of other products we can manufacture in other countries,” commented Executive Officer Tadashi Kawagoishi. He said the company will mull shipping U.S.-bound exports of other targeted items, such as air-conditioner compressors, from bases outside China.

 

This shift of production is having a limited impact on the company’s performance for now. “There is no way that the shift will have no financial impact,” said Kawagoshi, “but it is of a level that we can absorb.” The factors behind the recent downward revision were unrelated to the production shift. The revision traces to stagnant sales of factory automation (FA) systems, electronic devices, as well as information and communication systems.

 

Nevertheless, the company will reconstruct its supply chain, which originates in China. Each division will identify items targeted by the tariff hike. Although a temporary increase in costs is expected, measures will be devised to counter the trade war because it is impossible to tell how the altercation will play out.

 

Generally speaking, the specifications of machine tools differ depending on the market. Mitsubishi Electric uses the same specs to manufacture U.S.-bound products in Japan and China, so it has a framework where it can adjust the number of products shipped by each factory. For this reason, it can flexibly handle changes in product destination.

 

Of course, production in Japan means higher labor among other costs. Compared with the rise in tariffs, though, it is still at a level that the company can absorb. Currently, there is no price pass-through to client companies. The company figures that the faster it makes an initial response, the better it will be able to lessen the impact of the trade war.

 

It has been said that the trade war set off by the United States and China will be a prolonged battle on the order of ten years. “We have the impression that clients are growing cautious about making capital investment,” Kawagoishi commented. “We are keeping a close watch on the impact [of the trade war].” In China, which is a key market for Mitsubishi Electric, there is a trend for companies to hesitate to make capital investment. Rival manufacturers and suppliers are of course pressed to respond. A cordon needs to be set up [to limit the impact] because there is only so much that Mitsubishi Electric can do alone.

 

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