Competitiveness of Manufacturing Industry and Small Businesses
※Mr. Tetsuo Seki's speech doesnot appear.
January 23, 2013
Mr. Tetsuo Seki
President, The Shoko Chukin Bank, Ltd.
Competitiveness of Manufacturing Industry and Small Businesses
January 23, 2013
Mr. Koichi Miyata
President, Sumitomo Mitsui Financial Group, INC.
Japan has posted trade deficits since the Great East Japan Earthquake that undermine our position as a major exporter. Our economy, based on the premise of large current-account surplus, is now standing at the crossroads.
The manufacturers of automobiles as well as capital goods, including industrial machinery and machine tools, are still enjoying high-levels of competitiveness. Yet, their supporting industries are facing hardship caused by rising electricity costs, which could eventually exert negative impact over the whole industry. Let me share with you some issues of concern today.
Small and medium-size enterprises (SMEs) account for 40% of the total shipments by Japanese manufacturers, or 115 trillion yen in terms of value. Shipment share of SMEs is nearly 50% for the basic materials industry, while their share of intermediate goods (parts and components) is even larger for the processing and assembly industry. For example, the automobile manufacturing industry, one of the most competitive sectors, depends heavily on the extensive supply chains consisting of numerous SMEs. Manufacturing one automobile requires as many as 20,000 to 30,000 parts, therefore prompt supply by SMEs is crucial.
SMEs also play a significant role in the export sector. While processed goods (manufacturing, transportation and industrial machineries etc.) dominate our exports, basic materials (chemical products, iron and steel, non-ferrous materials etc.) rank as the most competitive export industries with their high quality products. I hereinafter use the term “intermediate capital goods” which refers to parts, components and basic materials. SMEs have a dominant presence in the production of intermediate capital goods, with their share reaching 50-60%. Although the market enjoys high competitiveness today, there are three issues of concern: firstly, high appreciation of the yen; secondly, catching up by Asian parts manufacturers, reflected by decreasing parts procurement from Japan in overseas production sites; and thirdly, rising industrial electricity costs that could mar competitiveness. Prices of electricity in Asian countries are about half of Japan, and the price gap could become even wider as nuclear power generation is to be replaced by thermal power. If electricity cost increase by 20%, purchase cost could rise by more than 1% with significant impact on profitability for basic materials industries, including inorganic chemical industry, cement, glass fiber, steel, tires and tubes. Increased cost of intermediate capital goods could accelerate hollowing out and weakening of the industry.
Long-term dependence on thermal power generation will increase electricity cost and undermine the competitive edge of intermediate capital goods, our so-called last stronghold. We must bear in mind the issue of electricity supplies will determine the future direction of our economy. Let me close my speech by emphasizing the importance of discussing energy policy in the context of how to maintain our industrial competitiveness.