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INTERNATIONAL > U.S.

“Buy China” program presses Japanese players to restructure supply chains

  • August 12, 2021
  • , Nikkei , p. 3
  • JMH Translation

In late July, U.S. President Joe Biden announced the “Buy American” program, which favors domestic products in government procurement. China, for its part, also mapped out a similar “Buy China” program. The moves are certain to affect global firms. Until now, companies have prioritized optimizing their global supply chains to increase efficiency, but [the Buy China program] may press them to restructure operations, including the relocation of production to China.

 

In particular, the Chinese move will deal a serious blow to medical devices makers, including GE Healthcare, Siemens and Philips, which are called the “big three” in that industry. Japanese firms, such as Canon, Fujifilm Holdings, Olympus, and Terumo, which enjoy high market shares in China, will be also affected. Olympus, which manufactures endoscopes, has seen Chinese sales grow at an annual rate of over 10%.

 

Regarding China’s favoring domestic products in government procurement, a person from Canon Medical Systems, a medical devices subsidiary of Canon, comments: “China is our key market. Currently we are mainly shipping products from Japan, but we will consider the option of shifting to local production by sizing up the situation.” The person also notes that the firm will need to weigh the risk of losing U.S.-bound sales if it shifts production to China.

 

“Expanding local production may increase the risk of technological outflows, but companies can still grow their market share if they select core products for local production,” said Koike Yukihiro of USB Securities. “They will need to exercise insightful judgment when they formulate business strategies.”

 

The localization of production was once caused by bilateral trade imbalances, but the underlying cause today is the struggle between the U.S. and China for hegemony. As the U.S. and China are moving to give preferential treatment to domestic firms, companies that have long benefited from free trade will need to assess and overcome new challenges. (Abridged)

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