Japan: Kyushu Firms Aim to Ride Auto Boom

FUKUOKA 09/28/2005; -The Asahi Shimbun reported that small manufacturers in Kyushu are trying to elbow into automotive businesses, one of the region's few bustling sectors.

The nation's southernmost main island, which has factories of Toyota Motor Corp., Nissan Motor Co. and Daihatsu Motor Co., is becoming a key auto production center.

In fiscal 2006, the combined vehicle output is expected to reach 1 million units, up from about 800,000 in the year ended March.

The increased output, however, has yet to benefit small local manufacturers.

The diffusion index of business confidence among small and midsize manufacturers in Kyushu stood at minus 19 in the April-June period, a deterioration of 7.5 points from the previous quarter, according to the Japan Finance Corp. for Small and Medium Enterprise.

A minus reading means pessimists outnumber optimists.

Local companies are targeting the lower end of the automotive supply chain: subcontractors to primary and second-tier parts suppliers.

Despite enthusiasm, the companies face numerous hurdles-most notably quality, cost and delivery-to break into the automotive sector.

Local governments are eager to help.

In an attempt to match prospective suppliers with auto parts makers, the Fukuoka prefectural government and other entities organized meetings in Kita-Kyushu last week.

Officials from 30 primary parts makers listened to sales pitches from 120 local companies, about 40 percent of which have never been engaged in the automotive business.

The Kyushu Bureau of Economy, Trade and Industry plans a similar meeting in February. The bureau is interviewing parts makers to determine their expectations of suppliers.

"If you want to enter the automotive sector, now is the best time because automakers are cranking up production," said Shinichi Ide, who heads the bureau's manufacturing industries division.

Primary parts makers are also expanding capacity or setting up operations. Koito Mfg. Co., for example, has announced plans to build a lighting equipment factory in Saga.

Kagoshima Denshi, a small manufacturer of semiconductors and precision motors, is aiming to supply sensors for air conditioning units.

"The semiconductor business is characterized by sharp ups and downs in orders," President Shunichi Watanabe said. "We can expect steady contracts if we become an automotive subcontractor."

Kyushu's automobile manufacturing dates back only 30 years, when Nissan set up shop.

Industry officials say few local companies are able to meet automakers' strict requirements, and content from the region remains low.

According to a recent survey of 260 local parts makers by the Kyushu Economic Research Center, the value of procurement in Kyushu was less than 50 percent at 45 percent of the respondent companies.

Industry officials assume that the remainder is coming from suppliers in the Kanto and Tokai regions, the traditional hubs of auto manufacturing.

In October 2003, 42 small and midsize manufacturers in Kyushu formed a group to win business for Daihatsu Auto Body Co.'s new factory in Oita Prefecture.

Of those companies, only eight have secured orders. It is especially difficult for 10 of the manufacturers that have no automotive experience.

One of the successful companies is Okamoto Jiko, a manufacturer of interior components.

The company has increased its workers from 48 to 56 and expanded its factory after receiving orders from the Daihatsu subsidiary.

Chairman Katsumi Okamoto said small manufacturers must shed their traditional mindset and realize that the auto industry is very demanding.

"You cannot make money even if you satisfy the client's requirements in full," he said. "You have to think hard about how to make yourself more efficient to earn profits."