Japanese Firms Turn the Tables on Outsourcing

TOKYO — Not so long ago, Japan seemed destined to lose its preeminent place as the world's factory for electronic goods.

During the late 1990s, as one Japanese manufacturer after another announced plans to shift production to lower-cost countries such as China, public alarm about the hollowing-out of Japanese manufacturing gradually turned to resignation.

Recently, however, there has been a growing reappraisal of the country's potential as a manufacturing base. Companies such as Canon Inc. and Sharp Corp. have shown that it is possible to reap impressive profits while maintaining production in Japan if such production requires high technical or manufacturing expertise.

Kenwood Corp., maker of electronics and wireless equipment, has gone a step further by showing that Japan offers advantages even to the manufacturers of commodity products.

Just two years ago, the company seemed on the brink of collapse and was forced to undergo drastic restructuring. Kenwood Yamagata, the group's manufacturing plant in the northern prefecture of Yamagata, was one of three factories that faced closure.

The company had already pulled out of the mobile-phone business, which was centered in Yamagata, so the factory was half empty by the time the group faced a decision on its future.

Furthermore, its manufacturing procedures were "20 years old," according to Haruo Kawahara, who had moved from Toshiba in June 2002 to become Kenwood's new president. But Kawahara believed that the Yamagata plant still had potential because of its highly skilled workforce.

"He said that if you looked at it another way, it was a treasure trove," recalled Kazuhiro Sato, the managing director of Kenwood Yamagata.

Kawahara strongly believed that Japan could still compete with its Asian neighbors, and even outdo them. Instead of closing the facility, he decided to shift production of portable mini-disc players from Malaysia to Yamagata.

The production of mini-disc players was transferred in August 2003. Since then, Kenwood Yamagata has become a model factory, churning out the players at a cost 10% lower than in Malaysia -- despite labor expenses in Yamagata that are four times those in Malaysia.

Yamagata achieved this feat by revamping its manufacturing processes to raise efficiency and reduce costs. Two years ago, the problem at the Yamagata plant was that too many people were needlessly moving around the factory, delivering parts and performing unnecessary tasks.

Sato and his team changed the layout of the factory and the way parts were delivered to workers, so that rehandling -- the number of people who deal with parts before they reach the production line -- has been cut by half. "The ideal is for one person to make the entire product," Sato said.