The Thang Long Industrial Park outside Hanoi, Vietnam, where some 80 Japanese companies now have facilities. (Photo courtesy of Sumitomo Corp.)

Japan's core small and medium-sized businesses are moving production to Southeast Asian countries like Vietnam and Thailand at a faster pace than ever before; not especially surprising as the yen appears pegged at historically high levels and economic expansion in the region fuels local demand. However, there is one more major factor in the flight of Japanese industry to warmer climes: Japan's own major trading firms.

Japanese trading houses are playing key roles in virtually every aspect of what might be termed the Great Relocation, from factory infrastructure to logistics and even providing daily services to Japanese employees dispatched to the new factories. The sum of all these parts an expansion of some Southeast Asian industrial parks by eight or nine times, as well as the burgeoning concern of Japan's industrial enfeeblement so prevalent over the past months in the Japanese press.

One of the firms starting production in Southeast Asia is Topy Fasteners of Matsumoto, Nagano Prefecture, which will open a factory Vietnam. What prompted the decision to head south was the support offered by Japanese trading giant Sumitomo Corp., which is building the No. 2 Thang Long Industrial Park outside Hanoi where Topy Fasteners is headed.

"Sumitomo provided drainage infrastructure and a site close to a power station, meaning few electricity outages," Topy Fasteners President Morio Ota told the Mainichi. The automobile and electronics parts manufacturer decided to build a factory close to Hanoi at the end of last year, projecting an increase in motorcycle production in the country. Topy took a hard look at some industrial parks built by the Vietnamese government, but ultimately chose the Sumitomo site for its infrastructure.

According to Sumitomo, it expects to sell out all 154 hectares of lots at the No. 2 Thang Long Industrial Park, opened in 2008, and now plans to expand the site to 220 hectares. Already more than 20 Japanese companies have committed to moving in.

Trading company-built industrial parks began popping up in countries like Thailand, Vietnam and Indonesia in around 1990, spurred by the rise in the yen that came after the 1985 Plaza Agreement between the then Group of Five. The flow of Japanese companies into such sites was reduced to a dribble after the 2008 collapse of Lehman Brothers but, pressured by the high yen and enticed by local demand, resumed at the end of 2009 until it built into the veritable torrent we see today, according to Sumitomo. In response, the trading firm has expanded its total industrial park space in Vietnam to twice what it was in the same quarter last year, and to between eight and nine times in Indonesia.

Japan's small to mid-sized firms are under pressure to make the shift overseas to keep up with the foreign production expansion of major manufacturers, who are often also the smaller businesses' main customers. The trading firms, in order to help reduce the risks involved in opening a Southeast Asian production base and keep them coming to the industrial parks, provide these smaller companies complete support packages.

The support comes in many forms, from detailed information for Japanese staff to be posted to the new factories, to distribution centers providing logistics support or raw materials like steel to resident firms. The trading firms even set up Japanese restaurants, convenience stores and hospitals to make adjustment for Japanese workers and their families as smooth as possible.

Meanwhile, the industrial park expansions continue. Next year, Japan's Sojitz Corp. will expand one such site in Jakarta and begin opening the lots for building, while construction of new industrial zones in Vietnam continues apace.

Trading house Toyota Tsusho Corp., spurred by the expansion of foreign manufacturing bases by firms like Toyota Motor Corp., is another company hopping on the trend. The company will begin leasing factory space in Jakarta targeted at auto parts makers beginning in June 2012, among other projects.

The trading firm-run industrial parks are not limited to Southeast Asia, however. Next year, Sojitz will begin construction of an industrial zone in southern India.

The Thai floods that shut down so many Japanese plants this autumn have brought some of the risks of Southeast Asian manufacturing into sharp focus. However, economic expansion in the region looks to continue, and with it the industrial parks.

Source: Mainichi Daily News