Contrast the earlier posting of the decline of the US auto industry with this story about manufacturing resurgence in Japan - WSJ.com - Japan's Economy Gains Steam From Manufacturing Heartland:
NAGOYA, Japan -- In this Detroit-like landscape of auto plants, blast furnaces and machine shops, manufacturers have figured out how to produce something their competitors in America's Rust Belt have not: robust growth.
The economy of Central Japan's industrial heartland is booming, so much so that it is helping lift the world's second-largest economy out of 15 years of doldrums.
Property values in the provincial capital are surging. Packed restaurants are turning away customers. Tiffany, Armani and Coach have opened ritzy boutiques along its boulevards. Chauffeured sedans line up after hours waiting on executives cavorting in bars and nightclubs.
The rest of the country is now searching for the lessons to be drawn from the "Nagoya boom," which helped boost Japan's gross domestic product by 3.3% in its fiscal first quarter ended June 30. Nagoya's economic engines are the very businesses so often derided in other developed countries as "sunset industries": autos, machinery, steel, ceramics and chemicals. Yet in Nagoya, these industries are thriving in the face of low-cost global competition.
The developing world is teeming with manufacturers aiming to grab business from Japan, where costs are higher than anywhere else in Asia. Nagoya's manufacturers have kept them at bay with a maneuver now being copied by producers across Japan. They moved production of low-end products overseas, but continued to make lucrative high-end goods at home. Demand is growing for such products, which range from engines for hybrid cars to micro-robots for industrial use. To maintain its competitive edge, Nagoya spends robustly on research and development.
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Manufacturing has been Nagoya's lifeblood since the 17th century. The region, which stands between Tokyo and the ancient capital of Kyoto in the south, has long prided itself on its tradition of "monozukuri," or craftsmanship. For centuries, the region's hamlets competed to construct the most intricate wooden theater dolls, a custom that continues to this day.
Industries sprang up to produce everything from straw tatami mats to textile machinery. In 1937, Toyota Motor Corp. was spun out of a textile machine maker. Nagoya was targeted by Allied bombers during World War II because it produced the agile Mitsubishi "Zero" fighter planes.
Toyota, which is building a new headquarters across the street from Nagoya's bullet train station, is one of the biggest engines of the region's economy. Toyota is growing faster than any other major car maker in the world today. Many of the more than 500 companies that supply parts to Toyota are also thriving.
Toyota's new president, Katsuaki Watanabe, maintains that the boom "isn't just about Toyota." About 60% of Nagoya's industrial base is nonautomotive. Tool maker Makita Corp. and steelmaker Daido Steel Co. are both located near Nagoya, as are fax machine and printer manufacturer Brother Industries Ltd. and Yamaha Corp., one of the world's largest makers of musical instruments. The area's kilns turn out everything from industrial tiles to fine china from Noritake Inc. Big diversified industrial companies, including Mitsubishi Heavy Industries Inc., run their aerospace divisions out of Nagoya, which is also home to a slew of suppliers to other industries, including die-casters, paint processors, and metal pressers, molders, grinders and refiners.
Part of the turnaround is due to that industrial production system of strong interconnections that many assumed died when Japan, Inc. faltered:
Toyota churns out Corolla compacts and Camry sedans in plants all over the world. But its premium Lexus vehicles, and its popular Prius model and other hybrids that use both gasoline and electricity, are made only in Japan. Recently, it has grown comfortable enough mass-producing the Lexus and the hybrids that it is planning to slowly roll out production overseas.
To maintain a pipeline of new high-end products for its Japanese factories to build, Nagoya-area firms spend amply on research and development. The intricate web of cross-shareholding that ties many of them together makes it easier for them to set aside capital for such long-term purposes.
Toyota, for example, holds shares of many of its suppliers. These suppliers in turn own shares of Toyota. If Toyota decides to spend money developing new products instead of reporting it as profit or returning it to shareholders as dividends, it is unlikely to hear complaints from supplier shareholders. Many of Toyota's U.S. competitors, in contrast, focus more sharply on the quarterly bottom line to satisfy shareholders and analysts.
The Nagoya approach "doesn't necessarily mean you don't generate returns for shareholders," says Paul Sheard, an economist at Lehman Brothers in Tokyo. "It means you have the freedom to make the best cars, and you don't have the capital markets breathing down your neck."
In the meantime, the powers-that-be in the US think we can survive as a "royalty" economy -- living on our past ideas.
Manufacturing is, and always will be, a part of the I-Cubed Economy. The sooner we get over this notion that information innovation and intangibles are a disconnected part of the economy - and start applying our information, innovation and intangibles to manufacturing - the better.
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