Upturn in Capital Investment by Manufacturers (August 7, 2003)
Despite a sustained bout of deflation in the wider economy,
companies in key sectors of the manufacturing industry, such as electrical appliances,
automobiles, and steel, have begun increasing their investment in plant and equipment.
Corporations that have nearly concluded radical restructuring efforts, such as
by shrinking factory operations, closing down factories, and laying off workers,
are now ready to go on the offensive, working to improve productivity and profitability
in growth sectors. Playing a leading role is "survival investment,"
which involves focusing on growth businesses, enhancing performance to boost efficiency,
and developing new markets. Because investment by one company has a positive knock-on
effect on many others, there are hopes that the recent surge in manufacturing
investment will lead to an economic recovery.
|Automakers are among those firms increasing investment. (PANA)
According to statistics compiled by the Asahi Shimbun
from the financial statements released at the end of March by 1,717 companies
listed on the Tokyo Stock Exchange, 25 leading companies in the electrical-appliance,
automotive, chemical, steel, and shipbuilding industries plan to invest a combined
¥4.61 trillion ($38.46 billion at ¥120 to the dollar) in plant and equipment
in fiscal 2003 (April 2003-March 2004), an increase of 5.4% over the previous
year and the first rise in three years. Looking at the results by industry, the
nine major electrical-appliance manufacturers plan to invest ¥1.95 trillion
($16.25 billion), an increase of 14.6%; the four steel producers ¥291 billion
($2.43 billion), up 26.4%; and the five automakers ¥1.88 trillion ($15.67
billion), up 1.0%. It is noteworthy that investment continues to fall in the chemical
industry, where firms are continuing to withdraw from money-losing areas, and
the shipbuilding industry, where earnings are still down. This indicates that
the industries investing most actively are those where restructuring efforts have
already made considerable progress.
The biggest locomotive of industry investment as a whole is the electrical-appliance
sector, and the nine major companies in this industry raised investment for the
first time in three years after giving themselves some money to work with by cutting
costs. Sony Corp.,
which has cut investment by more than 20% in each of the past two years, will
boost investment by 18% this year based on the realization that semiconductors
and Internet technology are set to take off and that this is an excellent time
to take advantage of the opportunities they offer. Sony plans to up its investment
in the semiconductors used in video-game consoles, a major source of profits,
by 130% to ¥175 billion ($1.46 billion).
Toshiba Corp. has also decided to go on the offensive, bolstering investment by a
whopping 44%. More than half of the funds it will use - ¥151 billion ($1.26
billion) - will be invested in electronic parts, such as flash memory and system
LSI semiconductors. Sharp Corp. plans to raise its investment to its highest level ever, concentrating
60% of this money - ¥108 billion ($900 million) - on its liquid-crystal display
business. In order to win the battle with South Korea's Samsung Electronics for
the lead in manufacturing LCD TV sets, Sharp is working to make bigger screens.
Sharp plans to use new equipment and methods to make production of big-screen
(40-inch-plus) LCD TVs more efficient at its integrated-production plant in Kameyama,
New Opportunities to Invest
The country's five major auto manufacturers will increase investment for the second
year in a row. While Toyota
Motor Corp. plans to trim its substantial investment budget by 8% to ¥910
billion ($7.58 billion), Nissan Motor Co. is boosting investment by 11%, Mitsubishi
Motors Corp. by 37%, and Mazda Motor Corp. by 25%. Nissan, which has engineered a rapid recovery and has
wiped away its real interest-bearing debt, is set to greatly bolster its production
capabilities in North America, which is home to 40% of the company's sales. Mitsubishi
is splitting off its commercial-vehicle operations, reducing its interest-bearing
debt, and expanding its domestic sales network in conjunction with an aggressive
focus on new vehicles.
The four major steel companies have increased investment for the first time in
two years. Sumitomo Metal Industries is investing ¥47 billion ($392 million) to build a new
blast furnace at its plant in Kashima, Ibaraki Prefecture. After the new furnace
goes on line next fall, the plant will be able to produce more than 1 million
tons of crude steel annually. And with the increased production capacity that
will result from the intensification of its steel-plate production facilities
at the end of fiscal 2004, the firm hopes to greatly improve its competitiveness.
Nippon Steel Corp. and JFE Steel Corp. intend to use their investment to upgrade existing facilities.
The business environment in Japan has been tough recently, and investment had
fallen over the past few years as companies worked to become leaner. That investment
is now increasing is seen as a sign that these firms have turned the corner and
are ready to take the initiative again. For example, major Japanese makers of
semiconductors have already paid off 70% of their plant and equipment, compared
with a reported rate of around 50% for foreign firms. This should provide domestic
producers with an edge in profitability. The view is growing within industry that
the coming two to three years offer good opportunities to invest.
Related Web Sites
Japan Video Topics : The Japanese Economy Is Rising from Recession
Toyota Motor Corp.
Mitsubishi Motors Corp.
Mazda Motor Corp.
Sumitomo Metal Industries
Nippon Steel Corp.
JFE Steel Corp.
Copyright (c) 2004 Web Japan. Edited by Japan Echo Inc. based on domestic Japanese news sources. Articles presented here are offered for reference purposes and do not necessarily represent the policy or views of the Japanese Government.
IS SPRING ABOUT TO ARRIVE FOR THE ECONOMY?
(May 23, 2002)
TAKING CARE OF BUSINESS
(January 31, 2002)