|This IMM International Molding Report is prepared for IMM by Agostino von Hassell of The Repton Group, who providesIMM's monthly Molders Economic Index.|
What the Japanese economy will do over the next year and beyond directly impacts the economic outlook for U.S. molders.
Here is why. As Japan's economy strengthens it serves as a growth locomotive for all of Asia. This expands export opportunities for U.S. molders while
simultaneously lessening import pressures on U.S. markets. As Japan's and other Asian economies boost domestic consumption, fewer transportation parts and electronic components are imported into the U.S. This directly expands the markets for U.S. molders of such high-value-added items.
Four molders of medical devices say that they have all seen healthy increases in Japanese and other Asian orders. One major supplier of automotive parts told us that for the first time in three years it has been asked to quote on parts to be exported to Japan.
Japan has been in serious trouble for the past decade, showing essentially no growth at all. Many economists doubt that Japan will return to the former growth rates any time soon. We disagree.
We believe that the Japanese economy - profoundly changed - will surprise the world in the 2001-to-2006 period with high economic growth regardless of current oil pricing problems. We anticipate GDP growth jumping from virtually nil in 1999 to 3.1 percent or higher in 2001.
The miserable economic performance of the past decade forced a profound change in the Japanese economic model. In a break with tradition, many there have started to embrace individual creativity and initiative, less rigid management, and an invigorating entrepreneurial spirit. In this arena Japan is beating Western Europe, which continues to have a difficult time discarding rigid and obsolete industrial policy that favors giant firms over small entrepreneurs.
Japanese molders of tomorrow will be far more flexible, able to go after new market opportunities with surprising speed. Software development, innovative use of computers, and even the use of the Internet for business operations have long been weaknesses of Japan's economy.
But this is changing also. Here is one example. In late September a government blue-ribbon panel said it wants Japan to overtake the U.S. as a high-speed information technology (IT) giant by 2005.
"It is perfectly possible for us to overtake the U.S. in five years' time, but for us to do that we are going to have to change some laws," Sony Corp. Chairman Nobuyuki Idei, who heads the panel, said.
While many in the U.S. still doubt that Japan's internal reforms will succeed, leaders in Asia see the change. The result: a general increase in growth projections. The first half of 2000 showed a generally stellar performance, although a few nations with persistent domestic problems bucked the trend.
As you can see in Table 1 we have issued strong growth forecasts over the next five years for Hong Kong, Taiwan, Singapore, Australia, China, the Philippines, and Malaysia, mostly due to a resurgence in trade and domestic consumption. In Southeast Asia, Thailand and Indonesia - either because of slumping currency values or domestic unrest - are growing slower than anticipated.
In September the World Bank reported that Asia's overall outlook is good even though it remains vulnerable to demand-related shocks; the region's 1997 financial crisis left a triple legacy of heavy debt, skittish investors, and greater household insecurity. The bank, which expects growth this year in East Asia to exceed last year's blistering pace of 6.9 percent, said "some of the clouds that had darkened the economic outlook at the start of the year" were lifting.
The Manila-based Asian Development Bank also issued a cautiously optimistic economic forecast. It raised its 2000 forecast for Asia to 6.9 percent from 6.2 percent, due to improving domestic demand and buoyant external demand, and raised its projection for next year to 6.5 percent from 6.0 percent.
By comparison, the world economy will expand 4.7 percent this year, its fastest pace in a dozen years, powered by the rebound of Asia's economies and greater-than-expected growth in the U.S. and Russia, the International Monetary Fund said. In September, the IMF raised the forecast for global growth by half a percentage point from its prediction in April. It predicts the economy will expand 4.2 percent next year.
Japan's Growth Prospects
In late September the Bank of Japan issued a bullish forecast, noting a sharp rise in industrial output and solid export orders. Even a sluggish consumer market shows signs of growth.
"Overall, the economy is likely to recover gradually, led mainly by business fixed investment unless there are major adverse external shocks," the bank said.
The evidence of such growth specific to injection molding is solid. Domestic production of injection molding machines between January and June 2000 rose 56.8 percent year-on-year to ¥99.44 billion ($922 million), according to the Assn. of Japan Plastics Machinery. Strong demand for information technology gear boosted sales of associated production equipment, particularly molding machines with less than 100 tons of clamping force. Production of machinery in that class jumped 98.6 percent. The association also reported that production of injection molding machines in June rose 28.4 percent over a year earlier.
The Repton Group projects that the output by injection molding plants in Japan will rise almost 11.4 percent in the January-to-September 2000 period, compared to the same period in 1999. In 2001 that growth rate will decline to a sustainable 3.2 percent, and then accelerate to 3.8 percent through 2006.
The influential Japan External Trade Organization (JETO) in September said that Japanese international trade is moving from recovery to expansion. "Japan's trade activity recovered in 1999, shifting from negative to positive year-on-year growth both in terms of volume and U.S. dollar value," JETO sources reported. "It was the first positive year-on-year growth in terms of volume for exports and imports in a year, and the first yearly expansion in U.S. dollar terms in three years. The U.S. dollar value of Japanese exports amounted to $417.4 billion in 1999, up 8.1 percent from the previous year, while imports were up 10.9 percent to $309.7 billion."
Other Japanese data show that the export of manufactured plastics goods - which includes injection molded items - has grown in the first eight months of this year by 8.9 percent in value, with most of the additional trade going to other Asian nations.
Plans by the Japanese government to deregulate key segments of the economy will, say many Japanese business sources, be positive. These moves will lead to healthy competition, encourage financial restructuring, and boost needed investment in infrastructure and "human resource building" (a term in Japan for adjusting tough anti-immigration rules and shifting to a more individualized educational approach).
What Molders Should Know
All this adds up to several key developments of direct interest to U.S. molders:
- Japan suffers from a substantial shortage of qualified information technology workers. The country is relaxing immigration policy to attract such workers from around the world. This will heighten global competition for this increasingly limited global labor pool (something U.S. firms have already noted with stepped-up recruitment of high-tech workers from abroad).
- Persistent labor shortage in Japan will force relocation of basic molding operations abroad, mostly to countries such as the Philippines, Vietnam, Malaysia, Indonesia, and, somewhat as surprisingly, northern Mexico. This will create direct competition for U.S. molders seeking to expand global molding operations.
- Look for innovative labor-saving technologies from Japan. The type of injection systems (complete with automated demolding, inspection, and downstream assembly) seen at NPE will evolve even further. Such systems may become attractive to U.S. molders.
- We anticipate a series of steps to consolidate injection machinery suppliers from Japan. This will boost available R&D spending as well as increase global market strength.
Japanese molders will become very aggressive trying to find - often in the U.S. - joint venture partners. This is a consequence of the global sourcing demands of major computer and automotive firms.
The Repton Group
New York, NY
Agostino von Hassell
Phone: (212) 750-0824
Fax: (212) 752-5378
E-mail: [email protected]