TOKYO — A strike that crippled production at Honda Motor’s factories in China has come as a wake-up call to Japan’s flagship exporters as they seek to remain competitive and make a push into China’s burgeoning market with the help of low-wage workers.
The strike, staged by local workers to protest low pay and tough working conditions, has cost the automaker, Japan’s second largest after Toyota, thousands of units in lost production in the world’s biggest auto market. The walkout began May 17 at a Honda transmission factory in southeastern China and has shut down all four of the Japanese automaker’s factories on the mainland.
In Tokyo, the labor action has driven home a salient point: that as Chinese incomes and expectations rise in line with the country’s rapid economic growth while Japan’s own economy falters, the two countries face a realignment that will permanently alter the way their economies interact.
Complicating the picture is that Japanese companies see the Chinese as crucial consumers of their goods to make up for a shrinking, aging market at home. Some of the most profitable Japanese companies, like Fast Retailing, which runs the budget clothing line Uniqlo, have relied on production in China since the 1990s to keep prices low.
Despite the consequences for production costs, a rise in wages and standards of living in China is welcome news for many Japanese exporters: The same companies that produce in China have also scrambled to sell their wares there, moving factories to the mainland to drive costs down further and meet the needs of local customers. In Uniqlo’s case, as incomes in China rose, it followed up with local stores in 2002; the company has opened 64 outlets in China so far, and it aims to open 1,000 stores there in the next decade.
“Japan is starting to realize that the age of cheap wages in China is coming to an end, and companies that looked to China only for lower costs need to change course,” said Tomoo Marukawa, a specialist on the Chinese economy at Tokyo University.
He said the likelihood that Beijing would let the renminbi appreciate in the long term would also eventually add to rising production costs.
“Japanese companies also understand that China is a huge market,” he said. “And to sell there, it makes sense to produce there.”
The 1,900-person strike over pay and work conditions at Honda’s Foshan factory came as a particularly big shock to Honda, which had announced just days before the walkout that it would increase production in China to meet booming demand. Honda’s president, Takanobu Ito, said the automaker would begin major expansions at two joint ventures in China, Guangqi Honda and Dongfeng Honda, increasing capacity by 30 percent to 830,000 cars and minivans by 2012.
In April alone, Honda made 58,814 cars in China, a 28.7 percent increase from the same month the previous year and a monthly record.
The surge was seen at other automakers: Five of six Japanese car manufacturers with factories in China broke production records in April.
“The wave of motorization in China will not abate for the foreseeable future,” Mr. Ito, Honda’s chief executive, said last week. He said that Guangqi Honda would introduce a compact car designed especially for the Chinese market that would be produced there in 2011.
The rise in output in China has been driven by a strong economic recovery in that country, which is buoying auto sales more than in any other major market. The rebound has been a godsend for Japanese automakers, hard-pressed to cut costs in a bid to return to profit following a collapse in car sales in the global economic crisis.
Japanese carmakers are also racing to catch up with rivals after arriving relatively late in the market. The first Honda rolled out of a plant in Guangzhou in 1999, while Toyota did not produce in China until 2002.
Though sales have grown rapidly since then, Japanese carmakers are still struggling against local rivals because of a dearth of small, low-cost models, which are driving market growth in China.
Carmakers have been much more reluctant than other Japanese manufacturers to move the bulk of their production to China and elsewhere, despite high costs at home, because it took longer to relocate production.
Until 2009, when it was overtaken by China, Japan was the world’s biggest producer of cars.
At home, Japanese automakers were reeling from a strong yen, which makes their cars more expensive overseas and erodes the value of overseas profits (
see Honda FIT). A public backlash against the layoffs of thousands of temporary workers in Japan in the midst of the economic crisis has raised the specter of more rigid labor laws and clouded the outlook for production lines in Japan, many of which are still idle.
Meanwhile, sales in Japan have remained sluggish while newly frugal consumers in the United States and Europe have kept global auto sales from rebounding to their pre-crisis levels.
That makes the Chinese market even more important to Japan, experts say.
“The significance of the Chinese market to Japan’s automakers is that it has the potential to act as a multi-year growth pillar at a critical juncture when the major driver of the past two decades — the U.S. market — appears less promising from a long-term perspective,“ Clive Wiggins, an auto analyst for Macquarie based in Tokyo, wrote in a report earlier this year.
For Honda, the promise of access to a huge, growing market in China was as much a factor luring it to produce in the country as was cheaper labor. A 25 percent import tariff on foreign cars is also a major incentive for foreign automakers to produce in China.
More quickly than any other major Japanese automaker, Honda has started exporting cars made in China to third countries, with a small plant in Guangdong making its Jazz model for export.
But just as Honda announced it would also increase the number of factory workers it employed in China, workers went on strike. On top of low wages, workers complained about early shifts and working conditions like the temperature produced by the factory’s air conditioning system. The strikers also voiced frustration over a wage gap that has workers dispatched by Honda from Japan paid about 50 times what local Chinese workers receive.
Experts say that at the factory level, Japanese companies will need to start changing the way they work with employees, analysts say — giving local hires fair pay, benefits and a chance for promotion in line with those accorded to employees from headquarters in Japan.
“Japanese manufacturers need to raise morale by making sure that local staff can also climb within the company,” said Tatsuo Matsumoto, Asia researcher at the Japan Center for International Finance.
Japanese companies operating overseas have long been reluctant to promote local hires, partly because managers are afraid that the non-Japanese employees will not be as loyal to the company and will move on to competitors, taking their training and expertise with them.
Even though production costs are expected to rise, an extensive supply base of parts and materials for the auto industry makes it unlikely that Japanese automakers can abandon manufacturing in China. Transplanting what has grown into an unrivaled ecosystem of suppliers would be expensive and take years, analysts say.
“Japanese automakers are heavily invested in China. They’ve already set up a network of suppliers,” said Mr. Marukawa at Tokyo University.
“The strike may trigger a change in thinking at Honda about doing business in China,” he said.
“But they will find it difficult to leave.”
China has begun paying subsidies of as much as 60,000 renminbi, or $8,784, a car to makers of electric and hybrid vehicles on a trial basis in five cities, The Associated Press reported from Shanghai.
Separately, private buyers of such cars can get subsidies of 3,000 renminbi from dealers. The subsidies will be available in Shanghai, Changchun, Shenzhen, Hangzhou and Hefei. The cities are locations of headquarters for major automakers.
The program aims to “help promote faster technological innovation of automotive technology,” the Ministry of Finance said.
Source;
http://www.nytimes.com/2010/06/02/business/global/02honda.html?src=busln
Police in the good city of Fengchenggang in Guangxi Province re-badged their Mercedes-Benz ML350 into a Honda CR-V. There is a lot of criticism in China lately about local governments who waste taxpayers money. Police in Fengchanggang so made some changes to their 900.000 yuan ML350, a Honda CR-V only costs 200.000 yuan.
