Toward Greater Competitiveness in the Japanese Electronics Industry : What We Can Learn from the Electronic Management Service

No.114
October 2001
Senior Fellow Tadahiko Abe

1. The post-1990s have seen a tremendous boom in the field of IT products. However, Japan's electronic industry-the country's leading industry-has failed to capture a considerable world market share similar to the one it once enjoyed in home electronics and audiovisual products during the 1980s, and it has seen its competitiveness in the IT field falter. If we examine the rapidly growing field of IT products, it is clear that the methods being used worldwide are much different than Japan's heretofore-fundamental style of unified and integrated R&D, manufacturing, and marketing. Rather, a new style of business-including Electronics Manufacturing Services (EMS) and foundries-that utilizes the unbundling of manufacturing operations and outsourcing to specialized manufacturing companies has become prominent, and is even spreading beyond the IT field to other types of products. If Japanese companies make the mistake of falling into complacency with the measures they've taken up until now, the strong competitiveness in manufacturing that Japan so proudly boasts may become weak and enervated.
2. With investigations of EMS and foundries as a base, this report will investigate, from a manufacturing perspective, the route necessary to strengthen Japanese companies' competitiveness in the electronics industry-the industry that will be the motivating force for world economics in the years to come. To this end, the current state, factors for increase, and the priority and limitations of EMS and foundries will be analyzed. Additionally, in order to estimate which products have a high possibility for EMS to extend to in the future, the relationship between the characteristics and present manufacturing structure (domestic production in all divisions, domestic mother factories plus overseas subsidiary producers, EMS, and foundries) of leading electronics products will be examined. Furthermore, based on future policies for the production configuration of leading domestic electronics firms, this report investigates the direction toward which Japan should move in the future.
3. The results of this research can be summarized in the following: The principle strength of EMS lies in its accumulation of mass-production design know-how. Additionally, in the years to come, factors encouraging increased unbundling focused on IT products will strengthen. The shift towards EMS will increase in products that use printed circuit board mounting processes. Hereafter, EMS will not merely be entrusted with specializing the manufacturing process, but rather become an integrated service that will expand response functions, such as design and development. Lastly, it is clear that Japanese companies are increasingly active in voluntarily engaging in response systems such as EMS.
4. To that end, this report proposes a directionality of production style that responds to the specific characteristics of every kind of manufactured good. Specifically, EMS has not yet taken the initiative in fields that show high future growth, such as digital audiovisual equipment. Therefore, in order to harvest the benefits of Japanese-style business strategy-one that synthetically and integrally acquires and applies marketing/inventory information and state-of-the-art techniques-it is crucial that Japan's leading companies not only perform unbundling in their factories, but also join together and construct an EMS alliance. Overseas EMS is already superior in regards to open-module type IT products; Japan must instead move in the direction of niche-EMS aimed at compartmentalization. Since local Japanese factories are weak in technological development, in order for Japan to fulfill the above goals it is necessary for Japanese companies to encourage corporate-academic partnerships with local universities.

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