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Japan Becomes No. 1 in Manufacturing Sales : Trade: The revelation raises more questions about the ability of America's industrial sector to compete.

August 28, 1990|SAM JAMESON | TIMES STAFF WRITER

TOKYO — Add another No. 1 to the list for Japan.

The nation that outstripped the United States to become the world's leading creditor and leading aid donor is now also the world's leading manufacturer in terms of sales.

Although the American gross national product is still nearly 1.9 times larger than Japan's, sales by Japan's manufacturing firms in 1988 surpassed sales of all manufacturing firms in the United States for the first time. Japan's statistics for 1989 won't be available until December.

The 1988 score card read $2.783 trillion for Japan to $2.612 trillion for the United States, according to the U.S. Bureau of the Census and Japan's Economic Planning Agency.

Apparently no government official in either nation has commented publicly about the development, and most appear to be unaware of it. But coming on the heels of growing qualitative competition from Japan in high technology and concern about the competitiveness of American industry, Japan's unheralded quantitative clout in manufacturing raises serious new questions for the United States.

Takashi Sakuma of the Economic Planning Agency's research division said sales of Japan's manufacturing corporations amounted to 357 trillion yen in fiscal 1988. At the average 1988 exchange rate of 128.26 yen to the dollar, that equaled about $2.8 trillion.

The U.S. figure of roughly $2.6 trillion was provided by the Current Business Analysis division in the Bureau of the Census in Washington.

Both figures were given in response to queries from The Times. Neither agency has made any announcement comparing the two countries' manufacturing sales.

In 1987, the last year for which the Organization for Economic Cooperation and Development issued figures for both countries in one report, the United States held a slight edge over Japan, $2,390 billion to $2,352.3 billion.

Sakuma noted that the sales compilation is somewhat misleading, because it includes an undetermined amount of double accounting. Goods that Japanese or American manufacturing firms procure from suppliers are counted once as sales of the supplier and again as part of the final manufacturer's sales, Sakuma said.

Counting only the "value-added" portion of manufacturing, the United States remains ahead of Japan--at least in 1987, the most recent year for which comparable statistics are available, he said.

Japanese manufacturers, Sakuma said, tend to rely upon outside suppliers for parts more than U.S. firms.

Last year's OECD National Accounts report showed that in 1987 "value-added" manufacturing in the United States was worth $862.3 billion, compared to $689.3 billion in Japan.

Even without statistical knowledge of Japan's quantitative gains in manufacturing, executives on both sides of the Pacific have expressed concern about the future of American manufacturing.

Nobuyuki Nakahara, president of Tonen Corp., an oil-refining company affiliated with Exxon Corp. and Mobil Corp., recently predicted that "differences between the United States and Japan will grow further in terms of investment, stocks, and productivity--all in favor of Japan."

The strong American service industry "is a buffer to (the United States') economic difficulties. Therefore, it is hard to define the course of the future for the U.S. economy. But I think the American economy faces a very difficult future," Nakahara said.

Asked about Japan overtaking the United States in manufacturing sales, Earl Harbeson, president of Monsanto Co., said during a recent visit here that "we have spent 10 years moving toward a service economy. Obviously, we have a manufacturing decline."

"The whole consumer electronics industry has been removed from American ownership and has never been replaced by other manufacturing. It concerns me a great deal that American manufacturing presence is on the decline relative to other countries, particularly in long-term investments in manufacturing assets," he said.

Harbeson blamed the decline on the "system" in the United States that "puts a very high premium on short-term results" and "takes it out of the hide of your stocks if you don't produce."

"It's going to take the leadership of Congress and the President" to turn the tide, he said. "Many people are worried about the future of American manufacturing, but it's not addressed."

"Graduates of American business schools don't want to go into manufacturing . . . and engineering schools in the United States are filled largely with foreign students. . . . We are not raising people educated in engineering."

Sakuma said the main reason manufacturing has remained strong in Japan is that businessmen here "expect a future decline in their competitiveness in producing a certain product and include the cost of developing a next-generation product in calculations of current manufacturing costs." As a result, when production of radios became uncompetitive, Japanese electronics manufacturers began television production, then moved on to videocassettes and compact discs.

Factories don't close; rather, they produce new products, he said.

By contrast, when American manufacturers move production overseas, the domestic plants often don't put out a new product; they are merely closed, he said.

Since the dollar started losing its value in 1985, Sakuma noted, many American manufacturing industries have regained competitiveness. He cited steel and chemicals as examples. But in consumer products, "production doesn't come back (to the United States) from overseas factories, even if exchange rates return to appropriate levels."

A white paper on the Japanese economy issued by the Economic Planning Agency said technological development has enabled Japan to maintain a strong manufacturing base, despite a 67% gain in the value of the yen since 1985. The yen appreciation should have made exporting more difficult for Japanese manufacturers.

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