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By: Richard Del Cazzo
Web site: http://www.hdtv-hdtv.com
In one of the most visible signs of this nation's
long-awaited economic recovery, Japan's high-tech titans blasted
a vale out of the mountains here over the past two years,
creating a massive new center for the nation's booming liquid
crystal display (LCD) flat screen TV industry.
The rise of Crystal Valley, anchored by a three-month-old,
$1 billion Sharp Corp. plant, underscores a pivotal shift
in the world's second-largest economy, which has suffered
through 13 years of repeated recessions. Brand Japan is attempting
to revive its fortunes in part by repositioning itself in
the global marketplace as the Gucci of consumer electronics.
Sharp's new $1 billion LCD/flat screen TV factory in Kameyama
opened in January as the core of Japan's new Crystal Valley,
a visible sign of economic recovery in Japan.
After a decade in which Japanese companies shifted manufacturing
to nations with cheap labor such as China, the 12 new and
expanded factories here are churning out LCD flat screen television
sets, electronic components and cellular phone panels capable
of crystal-clear digital displays. With global demand surging
for ultra-up-market gadgets, a broad variety of local companies
making new investments on Japanese soil, including Sharp and
Canon Inc., are posting record profits.
During the 1960s and 1970s, electronic gadgets made in Japan
earned a worldwide reputation for being cheaper than American
and European products. Then they became synonymous with high
quality at a reasonable price. Now Japan's electronics industry,
armed with proprietary technologies aimed at improving quality,
is seeking to duplicate successes such as Toyota's luxury
Lexus, banking on the fact that customers will now routinely
pay a premium for the "Made in Japan" label.
Canon, once known for copiers and Sure Shots, is peddling
$10,000 digital cameras from a factory on the southern island
of Kyushu. In 2003, Sharp generated more profits from sales
of advanced lcd flat screen TVs produced in Japan than from
its regular TV sets, now made in China, Mexico and elsewhere.
These lcd flat screen tv sets range in price from about $1,000
to $7,000 or more.
"We think this recovery is definitely for real,"
said Kathy Matsui, chief strategist and Japan analyst at Goldman
Sachs. "It's pretty clear now that there is finally a
shake-up in Japanese industry going on, with lower cost [manufacturing]
going to China. But that's okay, because the highest value-added
products are staying here and growing, and the brand image
of 'Made in Japan' is going premium."
The transformation of the economy is far from complete, and
Japan faces fierce, lower-cost competition from South Korean
companies such as Samsung Corp. and LG.Philips Displays, already
dominant players in flat-screen TVs and other high-end electronics.
Also, while Japan's unemployment rate has recovered slightly
-- down to 5 percent from a record high of 5.5 percent in
January -- the growth of high-end electronics and component
manufacturing is unlikely to make significant new reductions
in unemployment, because such factories rely heavily on automation.
Japan's lingering problem with deflation, the continuous
drop in prices, is steadily lessening, but the economy is
still plagued by relatively weak domestic demand. That, plus
tough access to credit and the slow pace of structural reforms,
continues to weigh down the economy.
"There is a recovery, but if it's sustainable or not
is debatable," said Richard Jerram, chief economist with
ING Financial Markets in Tokyo. "There is still no movement
in Japan's basic unwillingness to make meaningful reform."
Nevertheless, a growing number of financial analysts argue
that Japan has reached a turning point, one that could reposition
Asia's economic powerhouse as a vital engine of global growth.
For fiscal 2003, which ended last week, Japan's Nikkei 225
stock index jumped 46.9 percent, the fourth-largest increase
since World War II. The economy has now grown in every quarter
for the past 12 months, outpacing both the United States and
Europe during the three months that ended in December. Gross
domestic product rose at an annualized 6.4 percent during
the last three months of 2003, the biggest rise since the
second quarter of 1990, right before the economy plunged into
a disastrous tailspin as share prices and real estate values
collapsed.
The recovery is buoyed by a surge in exports coupled with
capital investment at home. Exports to China soared 33.2 percent
to $62.5 billion in 2003. In the midst of major infrastructure
projects, the sizzling Chinese economy is sucking up steel
and heavy machinery almost as fast as Japanese factories can
produce them, helping to boost overall exports by 4.7 percent
in 2003 to $514.6 billion.
"You can't minimize the impact of China," said
Kunio Noji, senior executive officer of Komatsu Ltd. Sales
of its heavy cranes and bulldozers rose 11.8 percent in the
past year, fed by China's 9.1 percent economic growth rate.
"But we also cannot count on linking the economic future
of Japan too closely to China's growth. The Japanese economy
is still far bigger, and it needs to change independently,
repositioning itself globally," he said. "There
is no way Japan can compete with South Korea and Taiwan on
price. . . . We need to have a superior, value-added product."
During the 1990s, Japanese companies helped fuel China's
growth by shifting production there. Now, they are beginning
to plug the hole in the manufacturing sector at home with
what economists are calling the new divine vessels of the
economy -- digital cameras, liquid crystal display TVs, DVDs
and high-end cellular phones.
Industrial output by Japanese companies is at its highest
level in three years, with an estimated 100 new or expanded
factories opening in the past year and a 24.6 percent surge
from fiscal 2002 to 2003 in land acquisitions for factory
expansions or new manufacturing plants, according to analyst
reports and government data. The growth spurt is partially
linked to consumer electronics; cellular phone production
alone jumped 28.8 percent in 2003, contributing 7.2 percent
of Japan's overall increase in industrial production. Digital
camera production jumped 48.4 percent, adding 4.7 percent
to industrial output, according to government statistics.
The emphasis on premium products, analysts said, is particularly
important considering the surging yen, which is now near 31/2-year
highs against the dollar and which has made Japanese exports
less competitive.
Electronics giant Canon is an example of the shift to pricier
products with higher profit margins. Canon opened its first
Chinese factory in September 1989; today it has six production
sites with almost 15,000 employees there. While Canon will
continue to shift production overseas for less expensive and
complex products, it is embarking on a $1.43 billion, three-year
investment project in Japan -- 80 percent of the company's
total capital expenditures until 2006. Canon, which is building
a factory for high-end digital cameras on the southern island
of Kyushu, announced plans last month for another new plant
north of Tokyo for high-end digital copy-fax-printing machines.
Digital cameras now represent three times as much in sales
for Canon as film cameras, many of which are made abroad.
"We are no longer seeking our source of profitability
in low-cost products; in Japan, we are now only making digital
cameras between 2 million and 11 million pixels, the highest
quality," Fujio Mitarai, Canon president and chief executive,
said in an interview. "From Japan, we don't sell cheap
products anymore."
At the same time, analysts said, Japanese companies are combining
top-of-the-line technology with their experience at lowering
the price of consumer electronics through continuous improvements
in productivity.
At Sharp's sprawling new factory in Crystal Valley, for instance,
video cameras surrounding a corporate campus larger than seven
baseball stadiums guard what the company views as a major
breakthrough in LCD-screen technology. Sharp has developed
a new method to more cheaply cut larger sheets of LCD-screen
glass, which has shaved at least 10 percent off the sale price
of lcd flat-screen TVs.
Overall, Japanese companies are making the decision that
this nation, with extremely high labor costs, should no longer
be in the business of making many lower-tech products at home.
Sharp, for example, plans to cease selling tube televisions
in Japan next year, marketing only locally made flat-screen
models on the home islands.
To date, the largest market for lcd flat-screen TVs has been
Japan itself, with its culture of early adopters of technology
who are more willing to drop large sums on the latest gadgets.
In the United States, experts said, the price for flat-screen
TVs will need to come down substantially before they become
common in American homes.
But Japanese companies such as Sharp insist that because
only about 2 percent of TV owners worldwide have lcd flat
screen TVs, the market is ripe.
"This is Japan's great opportunity. Now is the time
for Japan to take advantage of our technological edge,"
Zempei Tani, senior executive vice president at Sharp, said
in an interview. "In the world of PCs, Microsoft and
Intel controlled the market, but now, there is a new and much
bigger market forming for products such as flat-screen TVs.
Japanese makers have that very technology, and we are now
in the middle of a fight for hegemony."
The trickle-down effect of investments by Sharp and others
is crystal-clear in this sprawling new center of LCD technology.
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