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Skilled, cheap work forces in other Asian nations attracting Japanese firms
Enlargement
Japanese companies have been shifting production to other parts of Asia to take advantage of the region's cheaper labor costs, ever since the domestic economy began to slump as the yen appreciated sharply in the 1980s.
Recently, however, there have been some changes to the type of operations being moved offshore, with an increasing number of firms even transferring research-and-development activities, once considered the epitome of Japanese industrial excellence.
Kaga Components Co., a switching-power-unit manufacturer in Tokyo, plans by the end of this fiscal year to build comprehensive manufacturing operations in Malaysia that will handle product development through to production of finished goods. The planned move follows the company's establishment of a production unit in Malaysia in fiscal 2000.
"Many major Japanese electric machinery makers have production units in Malaysia. We are being forced to move R&D operations there to supply parts that meet customer needs," a company executive said.
Kaga Components thought its biggest challenge would be recruiting skilled engineers, but that proved easier than anticipated. The state of Penang, where the company set up its unit, is the hub of Malaysia's high-tech industry and has a plentiful supply of skilled engineers.
Malaysia, China, India and other Asian countries are becoming major providers of skilled labor in cutting-edge industries. According to a survey by the Fuji Research Institute, 1.1 million students enrolled in university or college-level science and engineering-related courses in India in 1998. In China, the number was around 900,000 in 1999. These figures contrast with 280,000 science majors graduating in the U.S. in 1992 and 150,000 in Japan in 1994.
It is not only the number of students in these fields in other parts of Asia that attracts Japanese companies, but the quality of the students as well. "The deteriorating quality of science/engineering students is becoming a problem in Japan. The education standards in the field of cutting-edge technologies has been rising sharply in many other areas throughout Asia, thanks to improvements in their education systems," said Takeshi Onoda, a consultant to Mitsubishi Chemical Corp.
NEC Corp. plans to hire a total of around 500 software engineers in China and India in the current fiscal year as part of its drive to strengthen its consignment software-development business. The number of new employees in these countries almost matches the company's entire recruitment of recently graduated science and engineering students in Japan this spring.
Command of English can be a major advantage when securing tie-ups and cooperation agreements between companies and colleges and universities in the U.S. and Europe. Neighboring Asian countries have an advantage over Japan in this area. Scores in TOEFL, an English language proficiency examination, are regarded as a reliable measure of assessing the level of a nonnative English speaker's ability in the language. When broken down by nationality, the average TOEFL score recorded from July 1999 to June 2000 in China was 559, followed by Malaysia at 535, South Korea at 533 and Japan at 504.
Japan may still lead the world in manufacturing but it is beginning to fall behind the U.S., Europe and some Asian countries, such as South Korea, in software development and other information-technology fields. In South Korea, former researchers at major local companies and returnees who studied in the U.S. have been thriving in Internet-related businesses.
A Net go-between business in Seoul has been receiving an increasing number of inquiries from Japanese companies seeking to establish contact with South Korean Internet venture companies. These Japanese companies are especially keen on teaming up with IT ventures that have settled along Teheran Road in the new urban area of Seoul. According to the president of the go-between company, Japan leads South Korea in cellular-phone-related technologies but South Korea is ahead of Japan by two to three years in the area of Internet technologies.
One of the major factors that created the Net technology gap between Japan and South Korea is the difference in the development of telecommunications infrastructure in the two countries. In South Korea, digital subscriber line services have a 2.8-million subscriber base, but the number is just over 100,000 in Japan. In South Korea, aggressive competition among telecom companies and strong support of the government have quickly made DSL popular. In contrast, DSL services did not take off until recently in Japan because Nippon Telegraph and Telephone Corp., which has an overwhelming influence on the country's telecom market, had been pushing the integrated services digital network (ISDN), which offers a much slower data transmission speed.
Japan is also lagging in Internet penetration. Despite the government's declaration that it will work toward making Japan an IT superpower, only 20% of Japanese people report regular access to the Net, far below the 30-40% range for Singapore, South Korea and Hong Kong.
With the declining standard of science and engineering education and the slow progress of deregulation, some experts now worry that Japan's standing in the industrial world will begin to decline unless immediate action is taken.
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