Category Archives: Research Report

The Community Structure of the Global Corporate Network

The two largest communities account together for about 1/5 of all the nodes and comprise companies mainly located in the US and Great Britain, respectively. Here below we provide some more details:

  • The first biggest community includes 54065 economic entities. It is dominated by companies mainly located in North America (65%), in particular in the US (59%) and Canada (7%), while 10% of all the firms are located in three Asian countries (Japan, Taiwan and Korea). From a sector point of view, the nodes do not show a unique pattern: roughly 1/4 of the nodes belong, respectively, to the services, manufacturing and real estates, renting and business activities sectors. Finally, even if this community includes only 2283 TNCs (5% of the total), in terms of operating revenue, it represents roughly 34% of the total TNC value.
  • The second largest community has 49475 members, of which 2004 TNCs accounting for the 17% of the total operating revenue. Geographically speaking, the nodes belong, almost completely, toEuropean countries (89%), with Great Britain (42%) leading the other countries (Germany is represented by 9.6% of nodes, France by 6%, Sweden by 5% and Italy by 4%.). The largest part of the companies are in the business activity industry (39%), while the services and manufacturing sectors account for 20% and 18% respectively.

Source: www.plosone.org

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Labour Rights in High Tech Electronics: Case Studies of Workers’ Struggles in Samsung Electronics and its Asian Suppliers

This book describes the struggles of workers fighting for their basic rights in the electronics industry with a focus on the operations of Samsung Electronics and its Asian suppliers, including those in South Korea, Indonesia, India, Vietnam, Malaysia, Thailand and Taiwan. It also discusses the overall situation of the electrical appliance and electronics industries in Japan where workers have been hit hard by factories relocations.
This book is dedicated to all workers who have lost their lives in struggles for their rights, and to those who have suffered due to occupational diseases and industrial accidents in South Korea and many other places in Asia and beyond, and to victims who have died due to cancer from working in electronic factories. This book also salutes the survivors and their families, who struggle every day for justice.
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Capital Mobility in Automotive Sector in Thailand

Capital Mobility Research Paper Series No 4

By Woradul Tularak

 

Introduction

The automotive sector in Thailandhad been built under the government’s industry protection policy. In early 1960s the industry was protected by an import substitution and industrialization strategy which included a local content requirement programme. In response to this policy, Japanese auto companies expanded into Thailand, led by Toyota Motor Co. which established its assembly plant in the country in 1962, followed by Nissan Motors Co. in the same year.

In the mid-1980s, the overvalued Japanese yen pressured Japanese companies to find investment locations aboard in order to competitively export their products, especially to Southeast Asian markets. Japanese companies chose Thailandas their export base. This period saw of the peak in capital inflows to the sector since 1960ss, a trend which was dominated by Japanese companies.

1. Production Mapping

In early 2000, in compliance with the World Trade Organization’s Trade-related Investment Measures, Thailandeliminated its local content requirement programme. The impact was felt especially in motorcycle and automobile engine production. Additional moves toward further liberalization followed; in particular the import tariffs reduction schedule was introduced.

This was in line with the Board of Investment’s extension of investment incentives, which included tax exemptions to attract foreign investment, especially from multi-national companies (MNCs). As a result, since the late 1990s, the major automakers from the West, especially European and US firms, have expanded their production activities in the country. The arrival of Western automotive manufacturers in Thailandcan be seen as direct competition for the Japanese MNCs.

By 2008,  the major automakers in the world, including Ford, General Motors, BMW, Daimler Chrysler, Mitsubishi, Mazda, Isuzu, Honda, Nissan and Toyota, had all established production facilities in a number of sites. The position of the local industry in the global network has shifted from a parts and component producer and assembler to the major automotive production centre in Southeast Asia.

The sector’s share of manufacturing output in value terms is quite significant. In 2009, it contributed 210,000 million baht to the manufacturing sector, accounting for 12 percent of total manufacturing value and contributing around 8.1 percent to GDP.

Regarding the capacity of auto production in the country, currently more than one million completely built-up units (CBUs) are produced annually. In 2009, Thailandproduced around 330,000 passenger cars, 690,000 trucks and buses, and 1.7 million motorcycles.

 

a. International Trade

In 2009, exports of automotive parts and vehicles accounted for 9.3 percent of the total value of the exports of the country. The major export product was completely built-up units (CBUs). The total value of vehicle and parts exports was 379,486.62 million baht. The value of CBUexports accounted for 63 percent of the total value which was 251,342.94 million baht. CBUexports have also been on an upward trend. This is to say that industry had become more export oriented in completely built-up units than in the past.

For destinations of automotive exports, passenger cars were exported to the   following: 9.5 percent to ASEAN countries, mainly Indonesiaand the Philippines; 15.2 percent to Australia; and 14.3 percent to the Middle East. (Ministry of Commerce website, www.moc.go.th)

For trucks and pick-up trucks, the major export destinations were Australia, Chileand Indonesia. And for motorcycles, 36 percent of the total production was exported mainly to Indonesia, Vietnam, the United Kingdom (UK) and the Philippines. (Ministry of Finance report, 2010)

For automotive components and parts, the major export destinations were Japan, Malaysia, Indonesiaand US which accounted for 15.9 percent, 11.6 percent, 10.4 percent and 6.3 percent, respectively. For automobile engines, the major export destinations were Indonesia, Japan, Indiaand Malaysiawhich accounted for 15.4 percent, 12.0 percent, 9.6 percent and 9.3 percent, respectively. For the motorcycle parts, the major export destinations were Indonesia, Vietnam, Philippinesand Cambodiawhich accounted for 26.5 percent, 17.0 percent, 9.9 percent and 8.8 percent, respectively. (Export-Import Bank of Thailand (EXIM) 2010 report and author’s calculations)

Thailand’s major export competitors in thecomponents and parts sectors in 2009 were China, Mexicoand South Koreaand in CBUexports, Chinaand Indiawere the major competitors. In this regard, Chinaand Indiahave lower costs of production, while Thailanddepends heavily on raw material imports, in particular steel for automotive production which is around 50-60 percent of the production cost in the industry. In addition, Thailandcan be seen as the less attractive export base for MNCs.

 

b. Domestic Market

In 2009, the total number of domestic vehicle sales was 548,871 units, of which 238,773 units were passenger cars and 310, 098 units were commercial vehicles including trucks, vans, buses and pick-up trucks. Sales declined by about 10.6 percent from the previous year, mostly due to the decrease in sales of commercial vehicles.

From 2006 to 2009, the domestic market was quite stable. Total sales were around 5000-650,000 units per year, except in 2005 and 2006 when sales exceeded 650,000 units.

The major player in the domestic market with the greatest market share was Toyota with 42 percent of total sales in 2009, followed by Isuzu (20 percent), Honda (17 percent), Nissan and Mitzubushi (together 9 percent), GM and Ford (together 4 percent) and others (9 percent).(Thailand Automotive Institute, 2010 and author’s calculations).

 

c. Production Network

In the global supply chain, there are three tiers of suppliers in Thailandwith 1,815 plants. The automotive suppliers can be classified into two groups. The first group, Tier 1 suppliers (direct OEM suppliers) produce automotive parts and supply their products directly to car makers. Currently, there are 709 companies in this group; around 50 percent of the companies are foreign-owned company or joint venture companies and the remaining 354 companies are Thai-owned company. Among the foreign companies, 40.5 percent of them are units of Japanese MNCs.

The second group, Tier 2 and 3 suppliers, includes raw material suppliers and replacement equipment manufacturer (REM). This group supplies raw material, parts and equipment to Tier 1 suppliers. Most companies in this group are small and medium-sized Thai companies. Currently, there are around 1,110 companies in the second group.

The auto parts companies supply their products to the car makers, sometimes under a global supply agreement. For example, LEAR Company produces auto seats and supplies to Ford motor company under a global supply agreement.

Some of global suppliers are joint ventures with the local suppliers. For example, the Thai Summit Group, the largest supplier company in Thailand, is a joint venture between a Thai company and a Japanese partner. This company supplies its products to various car makers in the country.

 

d. Workers in the automotive sector

In 2008, the automotive sector employed around 350,000 workers. The 189 MNCs and their affiliates employed 136,339 workers. Around 50,000 of the 350,000 workers in the sector were sub-contracted, other outsourcing contract or were employed on a fixed-term contract. Both the MNCs and the local companies usually reduced the number of regular workers on the staff payroll and recruit other workers via agencies to replace them.

In a surveyed done by the unionists in 2009, the average wage of agency workers in the industry was lower compared to those with permanent staff positions. Most of them received the minimum wage of 178 baht with few other benefits, except for housing and some medical support in the case of a work- related accident. But most importantly, they had no job security.

Furthermore, sub-contracted workers were vulnerable to being laid off when the sector experienced a contraction or other financial difficulties. In the period following the global recession in 2008, General Motors laid off 780 workers that year, according to an interview with unionists in the Eastern Industrial Estate. More than half of them were sub-contracted workers. On the other hand, in the same year, Toyotalaid off hundreds of permanent workers and then re-employed most of the same workers but under new employment contracts with a fixed-term of employment of 11 months.

The large company uses subcontracted workers not only to cut long-term labour costs but also to weaken the power of the unions to negotiate a collective agreement. Workers hired through sub-contractors are non-unionized and the least protected by the labour laws. To bring these contract workers into the unions is sometimes difficult and depends on the union’s policies and effort.

 

e. Labour Union in the Sector

In general, labour unions in Thailandhave formed a very small number of workplace-based labour unions. In 2008, there were 1,258 labour unions in the country with 331,853 members which accounted for 3.73 percent of the total of 8,886,681 insured workers eligible to be members of labour unions according to the Labour law 1975. The unionization rate in the automotive sector is low but moderate if compared to other sectors. There were 114 unions in the sector with 17,946 registered union members in the sector.

To deal with the core issue, sub-contracted employment, with the small number of labour unions and their low membership, labour unions in Thailandfound it difficult to delay or abolish the practice of sub-contracted employment.

However, we have found some unions that have discovered ways to cope with this problem. For example, the group of unions in the automotive industry in the Eastern Industrial Estate negotiated in their collective agreement to limit  the number of subcontracted and agency workers to not more than 50 percent of the total number of workers. Some of the unions negotiated further requiring that those recruited as sub-contracted workers be made permanent worker in the certain period of time, i.e. after three years of work.

However, these union policies are still not fully effective because firstly, the number of subcontracted workers has increased substantially and become more wide-spread in terms of the number of workers as well as factories. And with the various forms thus the unions are overwhelmed by too many issues. Secondly, these issues and union policies are still not the first priority for most of unions, even though they are aware of the problems. Thirdly, regular workers are not considering contract workers as their fellow workers. This makes it problematic for unions to target their organizing on these workers and seek to enrol them in the union. Lastly, the company-based union structure in Thailandis not only an obstacle to organizing the contract workers, but it also weakens the power of the union itself. Thus, to cope with the sub-contracting issue industrial action is also required.

 

2. Mapping of capital flows

In the non-bank sector, private capital inflows into Thailandconsist of foreign direct investment (FDI), loans, portfolio investments (PI) and non-resident bank account (NRB). In general, capital inflows in form of FDI are longer term than PI and the others.

During the Asian financial crisis in 1997-1998, Thailand’s FDI was not affected and even grew remarkably after the currency was allowed to float. In this regard, the fixed exchange rate system, which overvalued the baht, seemed to discourage FDI the most, because it raised the potential costs of a Thai export base for the MNCs. This was similar to the 1980s when the overvalued yen and the cheaper Thai baht attracted Japanese FDI to Thailand.

 

a. FDI in the Automotive Sector

Since 2000, FDI in automotive sector has increased over time. In 2009, the value of FDI in the sector was US$1,443.97 million, the first of all industries. It increased from US$1,407.78 million in 2008 and US$1,248.81 million in 2007. During the period, others sectors, such as petroleum products, financial institutions and mining sectors, experienced a decline. Within the manufacturing industries, FDI in automotive sector had a share of 38.6 percent of the total invested in manufacturing and 26.1 percent of the total FDI invested in all sectors including services, construction, real estate, agriculture sectors and others.

The majority of FDI into Thailandhas come from Japan, the USand the European Union (EU), in that order. More than half the FDI in the automotive sector has been the direct investment of Japanese MNCs.

 

b. Portfolio investment in automotive sector

There are 471 listed companies in the total of eight industry groups classified by the Stock Exchange of Thailand (SET). These are resources, financials, property & construction, technology, services and agro & food industry. The industrials group comprises petrochemicals & chemicals, packaging, paper and printing materials, automotive, and industrial materials and machinery.

In 2009, the net profits of all companies in the resources group on the SET were 158,547 million baht, the most profitable sector. It is followed by financials (101,348 million baht), property & construction (68,240 million baht), technology (37,373 million baht), services (35,872 million baht), agro & food industry (29,622 million baht), consumer products (6,948 million baht) and lastly, the industrials, the lowest of the 8 groups (6,170 million baht).

This is to say that using the channel of the stock market in Thailandis not the major financing channel for the industrials groups, including automotive sector, since its profitability is low compared with other sectors.

In 2009, the industrials group, comprised of 69 listed companies. Within the group, the automotive sector earned a slim profit of 149 million baht while the some sector incurred losses, especially the industrial materials and machinery sector which had losses of 13,366 million baht in 2009.

Currently, there are 19 listed companies in the sector on the SET. In 2009, seven out of the 19 companies incurred losses.

All of the companies are parts suppliers, not car makers, and are majority Thai owned. Their core businesses are components and parts production. Two of them are assemblers, producing vans and buses and motorcycles namely, ThaiRung Plc. and Suzuki Thailand Plc. (Stock Exchange of Thailand, 2010 Report)

 

c. Loans from Financial Institutions

Japanese Bank for International Cooperation (JBIC)

One of the important roles of JBIC in the automotive sector in Thailandis to provide financial support to Japanese affiliates and subsidiaries through various financial instruments and methods.

Co-financing with Bangkok Bank

In 2010, JBIC signed the loan agreements with Bangkok Bank Plc. to provide loans in the amount of US$30 million to Japanese MNCs focusing on the automobile industry, the electric appliance sector, and the electronics industry in Thailand. The loan is provided through the Bangkok Bank Plc.

Co-financing with Japanese banks and Thai Bank

In 2007, JBIC signed a 26 billion yen unsecured loan to support industries for local Japanese subsidiaries and affiliates, especially in the automobile, home appliance and electronics industries. JBIC signed a syndicated loan with one of the top local Thai banks, Kasikorn Bank, for co-financing with eight private financial institutions (Sumitomo Mitsui Banking Corp (lead bank), Bank of Tokyo-Mitsubishi UFJ, Mizuho Corporate Bank,  Bank of Kyoto, Higashi-Nippon Bank, Sumitomo Trust & Banking Co and Nomura Trust and Banking Co, with JBIC providing a guarantee for their co-financing portion.

Local currency-denominated bond guarantee

In 2004, JBIC signed an agreement providing a guarantee for a baht-denominated debenture issued by Tripetch Isuzu Sales Co. ltd., a joint venture between Mitsubishi Corporation and Isuzu Motors and Tripetch of Thailand in the amount of 3.5 billion baht. (www.jbic.go.jp)

Financing by Thai banks

In 2009, the total amount of loans from Thai commercial banks in the automotive sector was around US$15,028 million and accounted for around 7.2 percent of the total amount of loan issued by banks to the manufacturing sector. (BOT statistics, 2010)

For a big project, in 2010, Bangkok Bank, Siam Commercial Bank and Tisco Bank joined in the syndication of a 13.5 billion baht (US$417.2 million) credit facility for General Motors (Thailand) to finance two vehicle programmes and the construction of a diesel-engine plant in Rayong.

In addition, recently, Ford Motor (Thailand) expected to secure a syndicated loan, with Bangkok Bank as the lead bank with the funds to be used to open a new factory. (The Nation, June, 24, 2010). The new factory will be run by Mazda Motor Corp and the Ford Motor Company’s joint venture, AutoAlliance (Thailand) Co. Ltd. (AAT). A total of US$350 million is to be invested in a pickup truck plant. The investment will enable production of the new compact pick-ups to commence in 2011. (www.mazda.com)

Looking at the sources of financing in the sector, the amount of financing from Thailand’s banks was much greater than that from FDI and other sources. In fact, there has been an upward trend in the financing by banks of  the major automotive MNCs. This is also reflected in the fact that Thailand’s banks are the major player in automotive sector and the finance sector has been the most profitable sector in Thailandsince it recovered from the crisis in 1997-1998.

 

3. MNCs mapping

Reportedly in 2008, there were a total of 1,185 MNCs (parent companies with and affiliates) in the country which employed around 800,000 employees. In automotive sector, there were 186 parent companies with affiliates employing around 152,113 employees. More than half of them are Japanese MNCs with affiliates. (www.investmentmap.org)

The major players in the sector are multinational firms, including Honda, Toyota, Isuzu, General Motors and Auto Alliance company, the Ford- Mazda joint venture.

In 2008, the top parent companies, together with their affiliates, in terms of number of employees were as follows: Toyotaemployed 18,749 workers;, Honda 15,346 workers; Mizubishi 6,070 workers; Isuzu 4,500 workers; and General Motors 1,500 workers.

Toyotawas the first Japanese automaker to establish a plant in Thailand. Over the years it has expanded its business line and operates many sites within the country. Currently, it has 6 affiliates, namely Toyota Motor (Thailand) Co.Ltd., Thai Auto Wheel Co. Ltd, Siam Toyota Manufacturing Co. Ltd., Hino Motor (Thailand) Manufacturing Co. Ltd., Hino Motor (Thailand) Ltd. and Cateler (Thailand) Ltd..

The largest factory in this group is run by Toyota Motor (Thailand) Co. Ltd. employing around 12,000 workers. It produces car bodies, while the other affiliates produce trucks and buses, engines and parts, internal combustion engines, aluminium die-castings, parts and accessories, car bodies, industrial inorganic chemicals.

Honda, the second largest MNCs in terms of the number of employees in the sector has eight affiliates, namely Honda Manufacturing (Thailand) Co.Ltd, YS. Tech Co.Ltd, Siam Yashiro Co.Ltd, Siam Goshi Manufacturing Co. Ltd, Honda Lock Thai Company Ltd, Honda Automobile (Thailand) Co.Ltd, Asian Honda Motor Co. Ltd. and Honda Southeast Asia Co. Ltd.

This group of companies produces automotive stampings, motors and generators, motor vehicle parts and accessories, plastics products, blast furnaces and steel mills, products of purchased glass, car bodies.

 

4. Conclusion

The global crisis resulted in a sharp contraction of 54 percent in vehicle production in Thailandin the first half of 2009 when compared to the same period of 2008. On the other hand, the global crisis does not appear to have affected FDI.

The reason for the contraction is due to the fact that there is a high degree of connection of production in the automotive sector. The sector is also highly dependent upon exports and the financial situation of MNCs in the parent countries.

Importantly, the crisis also affected the workers and large numbers were laid off, particularly contract and agency workers in Thailand

At the same time, the automotive sector recovered quite rapidly, thus employment has picked up. Large companies have announced plans to increase production. Ford Thailandincreased investment in new plants with the prospect of 11,000 new jobs. Another 2,200 workers are to be employed directly by the parent company. Another 8,800 workers will be recruited through local parts suppliers. Employment in the automotive sector is estimated to be maintained at around 300,000 until 2012.

Based on a report by the Office of Industrial Economics in 2010, there is shortage of labour and companies, especially those in the automotive sector, are looking for up to one million subcontract workers.

There is a tendency in the sector to employ workers on short-term contracts, andduring the recovery period, contract workers were employed in large number. But it remains to be seen how long these workers are employed in the industry.

In the aftermath of the global crisis, MNCs turned to local banks for loans rather than seek financial sources in their home countries. This was true of Ford Motor Thailand and GM Thailand. Both companies needed loans for business expansion and the construction of new plants.

Major MNCs investing in Thailandin the automotive sector come with their own affiliates or subsidiaries. These subsidiaries are in the business of auto parts. This helps to ensure timely production for the MNCs. When there is disruption in the parts business, the assembly plants are also affected.

Given the facts, there are challenges for labour unions:

  1. Labour unions should develop a policy to bring contract workers into the same union
  2. Once workers are organized, the union shall initiate national collective bargaining covering both regular and contract workers
  3. As MNCs are utilizing local bank loans, the labour movement in the country should develop a strategy so as to set conditions for the MNCs receiving these loans. For instance, one condition should be to promote decent work and labour union rights. In the same manner, the labour movement shall engage in a dialogue with the principal companies and request that guidelines on labour practices be imposed on supplier companies.

 

References

Ammar Siamwara, Foreign Capital Flows to Thailand: Determinants and Impact. (November, 1999).

Mingsarn Santikarn Kaosa-ard, TNC Involvement In the Thai Auto Industry, Thailand (Development Research Institute Quarterly Review, 2001).

Kriengkai Techakanont, The Evolution of Automotive Cluster and Global Production Network inThailand(Faculty of EconomicsThammasatUniversity, March, 2009)

www.jbic.go.jp

www.asean.org

www.moc.go.th

www.mof.go.th

www.boi.go.th

www.bot.go.th

www.set.or.th

www.investmentmap.org

The Nation (Thailand) 24-06-2010

Bloomberg, 1 February 2010

Businessweek, June 30, 2010

www.theautochannel.com/news/2010/08/26/493449.html

www.nytimes.com, February 26, 2010

 

Woradul Tularakis an independent researcher with a B.A. in Political Science from ThammasatUniversityand an M.S. in Economics from the Universityof Nebraskaat Omaha.  From 2005 to 2008 he was a Researcher at the Thailand Development Research Institute. His recent projects have been on Capital Mobility in Asia, Trade Union Role for Health and Safety Issues, Contract and Agency Labour in MNCs in Thailand, and an Industry Study on Building and Construction Workers in Thailand.

 

Capital Mobility Research Paper Series is a collaborative work carried out by AMRC and the researchers of Asian TNC Monitoring Network (ATNC). This collaborative research is one of ATNC’s programmes that develop the model of Asian ‘Triangle Solidarity’ which intends to deal with the changing shape of Asian capital and its impact on workers across Asia. This work is carried out by bringing together unions and labour organizations in the region, taking up a collaborative work that equips them with better strategies to cope with the trend of capital mobility. For further information about the work, please visit:

http://amrc.org.hk/taxonomy/term/issue_2/49

Preliminary Report on China’s going Global Strategy: A Labour, Environment, and Hong Kong Perspective

Capital Mobility Research Paper Series No 3

By Au Loong Yu and Kevin Li (Globalization Monitor)

Globalization Monitor, Hong KongSince the turn of the century Chinahas already become a significant player of out-flowing FDI (Foreign Direct Investment), FPI (Foreign Portfolio Investment) and an international world lender. This is against the background of China’s proclamation of seeking a ‘peaceful rise’. It is followed by more than 20 years of huge FDI inflow, which for many years was second only to the USA and then for three consecutive years, beginning from 2002, surpassed it.

For some years the think tanks of the Chinese government saw the relationship between Yinjinlai, literally meaning ‘inviting in’ (inflow FDI),and Zouchuqu, or ‘going global’ (outflow FDI), as supplementary to the course of modernization. According to this discourse, in the first phase of modernization, a country tends to accept more inflow FDI, without, the surplus capital for export. Then the inflow FDI, after interacting with the domestic market, necessarily modernizes the country to a point where it is both possible and necessary for the country to build its own TNCs (Transnational Corporations) and conduct overseas investment.

In 2004 the head of the Research Centre for the study of TNCs, Wang Zhile, edited a report on China’s TNCs with funding from the state. The Research Centre is a branch of the Research Institute of the Ministry of Commerce. Wang noted that

“Both the ‘inviting in’ and ‘going global’ strategies are ways to integrate into economic globalization. ‘Inviting in’ is the base for ‘going global’, and ‘going global’ is the necessary result of ‘inviting in’. The former strategy enables our country to get necessary economic resources like capital, technology and raw materials, but the initiative does not lie in the hands of our corporations. In fact, China’s accession to the WTO (World Trade Organisation) not only implies that she has domestic obligations to fulfil, but also that she is entitled to her legitimate rights beyond China. Only when we enhance our strategy of ‘going global’, of trans-national operation, can we balance our obligation with our rights’

Another professor from the think tank further elaborates the relations between ‘going global’ and the WTO:

“Now that China has become a WTO member state, we on the one hand need to fulfil our domestic obligations, while on the other we can also enjoy the privilege of national treatment (under WTO terms) afforded to Chinese enterprises, when they enter the markets of WTO member states.”

Chinabegan her overseas investment in 1980 following the course of market reforms that were kick started in 1979. Generally we can divide the last 28 years into three periods.

The preparatory phase: 1979-1991

Although the amount of over seas investment in this period is small, it helped Chinese firms to accumulate the necessary experiences and to cultivate partnerships and contacts for more overseas investment in the following years. In this period the place for overseas investment was first and foremost Hong Kong.

The second phase: 1992-1998

Deng Xiaoping’s tour to the South marked his attack on the ‘Conservative’ and the inauguration of full scale integration to global capitalism. It also began a period when China’s overseas investment increased dramatically. Again HK remained the most important destination, although it also started to diversify.

The third period: 1999- present

In early 1999 the State Department adopted a new document to promote overseas investment with special emphasis on processing industry. In 2001 Premier Zhu, in his policy address to the People’s Congress, officially used the term “going global” strategy for Chinese firms. In this period there is not only a dramatic increase of out flowing FDI, but also FPI(Foreign Portfolio Investment), including financial investment and international lending.

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Capital Mobility in the Philippine Automotive Industry and its Impact on Workers

Capital Mobility Research Paper Series No 2

By Ecumenical Institute for Labor Education and Research, Inc. (EILER)

Philippines

ABSTRACT

The Philippine automotive industry has many links to the global auto assembly and auto parts industry, but for the most part it has been unable to benefit from trade and investment liberalization measures, aimed at developing the industry over the past 60 years. At the same time, as a player at the lower end of the parts supply chain, the industry has often borne the brunt of negative trends in the global industry. The major manufacturers (OEMs) in the global auto industry, after years of unresolved overcapacity problems and heavy debt levels, were particularly vulnerable to the sharp downturn in the global economy in2008-2009. Adding to these problems were a contraction in market demand and rising costs derived from higher energy and raw materials prices, pressures to address climate change issues, and consumer demand for the personalization of motor vehicles. These problems were passed on to the subsidiaries of the OEMs and their parts suppliers, along with an intensification of the trend to transfer more responsibility for R&D and its attendant costs onto the balance sheets of the partners and parts suppliers. Additionally, the Philippine industry, whose only significant comparative advantage among ASEAN producers had been its low labour cost, was made more vulnerable to trends in the international economy by the adoption of the ASEAN Free Trade Agreement (AFTA) and other trade liberalization pacts.

Despite attempts to put place protectionist measures for the automobile industry, the local industry remained weak and underdeveloped, mainly due to limited domestic demand (slow growth in per capita incomes) which resulted in a diseconomy of scale among local producers. While local demand growth remained low, there was little impetus for sizeable domestic investment in the technology and supporting industries needed to make it competitive both at home and abroad. A total of 124 auto firms (both local and foreign) were surveyed and classified based on their supply chain role and ownership. Included in the sample were 14 subsidiaries of Asian auto giants, including Toyota Motor Philippines, Honda Cars Philippines, Mitsubishi Motor Philippines and Isuzu Philippines. There are also companies that only distribute CBUs (completely built-up), assembled outside the country, namely South Korean firm Hyundai Asia Resources, Inc. and Chinese company Kama Trucks. Purposive sampling was used based on official list of automobile firms from government agencies and major industry groups and chambers.

Based on the findings, the local automobile industry carry out low technological production processes and produce low value-added complimentary auto parts. Component specialists and integrators comprise the majority of all the auto firms sampled, with products and services ranging from stamping and, molding to the manufacture of, transmissions, car seats, car seat reclining adjusters, mufflers, brake discs, water pumps, carpets, molded rubber parts and other non-core automotive parts. The nature of underdeveloped production in the automobile industry is defined by foreign investments flowing into the country, which in most cases did not result to technology transfer. Manufacturing activities of existing Asian TNCs in the country have barely expanded while importation of CBUs continues to surge, especially with importation of Chinese automobiles. There had been no new investments to the automobile industry during the past decade, save for the foreign investments on motorcycle production. Should the trend continue, Filipino workers are bound for mass retrenchment and worse flexible labour schemes as companies downsize operations. The final section of the report details a number of recent labour issues, including union busting action and serious health and safety issues in two companies, Toyoto Motor Philippines and domestically owned F-Tech Philippines, which produces parts for Honda and other auto firms.

 

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Trends in Japan’s Direct Overseas Investments and their Impact on Asian Workers

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Capital Mobility Research Paper Series No 1

By KANEKO Fumio and TONO Haruhi

Yokohama Action Research, Japan

Introduction

The Japanese economy has remainedin aslump since the 1990s, and the number of employees in the manufacturing sector is decreasing. The rate of part-time, irregular workers is on the rise, sharply decreasing the number of full-time or regular workers. Under these circumstances, Japanese companies are steadily increasing direct overseas investments, resulting in an increase in the number of employees overseas as a whole. As compared with this, direct domestic investments were small in scale and did not contribute muchto the increase in employment although they did show an increase.

We are going to survey the trends in Japan’s direct overseas investments, and study how they are interconnected with the employment and business management situation. In particular, we will take up discussion of investments in Asia by automobile and electronics companies, which are the central industries in investments in the manufacturing sector. First, then, we will examine mid-term trends in the amount of investments, the number of employees, and sales. Secondly, we will look at their short-trends before and after financial crisis, and thirdly, at the business trends in the leading automobile company, Toyota Motor Corporation, and the big electronics company, Panasonic Corporation.Lastly,we address the financial crisis and its influence on employment.

1. A survey of direct overseas investment trends

Japan’s direct overseas investments, when seen from the international balance of payments, net and flow trends, continued to increase yearly from 2004 to 2008, and the total amount of US$31.0 billioninvestments in 2004 jumped to US$130.8 billioninvestments in 2008, more than fourtimes. In particular, increase in 2008 was noticeable (Table 1). In 2009 direct investments shifted to a decrease, which was caused by the global depression after the ‘Lehman Shock’ (the common Japanese term for the collapse of Lehman Brothers that provoked the following financial crisis) in September 2008.

Let’s take a look at the increase in investment up to 2008 by region. Increase in Japan’s direct investment was observed in all the regions, and the investments in the North American and Latin American markets recorded a remarkable increase. According to the regional ranking, the investments in Asian markets came first in 2004, followed by investments in North America, Europe and then Latin America. North America came first, however, in 2008, followed by Latin America, Asia and then Europe. By country, a lot more investments were made on the USA and the Cayman Islands. Investments in Asia by country varied year by year. Investments in China were high constantly, and Thailand had a record of steady investments. It is to be noted, however, that some countries enjoyed a soaring investment increase in a specific year, such as Malaysia in 2006, Singapore in 2007 and Korea in 2008. This may be because large-scale investment projects were set in such countries. Table 1 shows the net flow base, and withdrawal of investments might have led to a minus record, but it rarely happened. An actual minus record was found in Mexico in 2006, but as a whole, it is clear that Japan’s direct overseas investments continue to increase.

Let’s turn to Table 2 now and examine the trends by industry. We largely classify the industries into manufacturing and non-manufacturing sectors. Steady investments are made on the manufacturing sector while the non-manufacturing sector clearly shows a rising tendency. The core industries are finance and insurance, followed by wholesale and retail, and mining. A huge amount of investments were made in 2008 on these three industries, which must have resulted in a sharp increase in the total amount of investments. It can be said that such a sharp increase in investment in the finance and insurance industry were due to an increase in speculative and liquid investment, against thebackground of a financial technology boom. Investments in these businesses were heavily reduced in 2009.

In contrast to the speculative movement in the non-manufacturing sector, relatively steady investment activities are being made in the manufacturing sector, mainly in the field of transportation equipment. The industries following transportation equipment in order of size are electric machinery, chemicals and food. A sharp increase in investment was recorded in the industries of electric machinery in 2006, food in 2007, and chemicals in 2008. This could be because large-scale projects were contracted.

Combine the amount of investments by region with that of investments by industrial classification, and the actual conditions of Japan’s direct overseas investments canbe understood more clearly (Table 3). Investments in Asia are featured by the fact that more investments were made on the manufacturing sector than the non-manufacturing sector, as seen in 2005 and 2008. More investments in the manufacturing sector were made than any other region. With the exception of transportation equipment in North America, a large part of the manufacturing sector enjoyed the highest investments in Asia. There is a tendency that investments in the North American, Latin American and European markets were made as a rule more on the non-manufacturing sector than on the manufacturing sector. Although a lot of investment was on the transportation equipment, electric machinery and chemicalsindustriesin North America and Europe, the scale of investments in financeandinsurance, and wholesale and retail,has beenhigh. What draws attention the most is that the scale of investments in the finance and insurance businesses in Latin Americaleft North Americaboth in 2005 and 2008. The fact simply reflects a recent pattern of behaviour of transnational corporations of concentratinginvestment funds in the Cayman Island, a tax haven, from which they distribute funds to every part of the world.

2. Trends in the number of employees and profits of Japanese companies overseas

More influence on employment by Japan’s direct overseas investments is seen in the manufacturing sector than the non-manufacturing sector. According to a survey conducted by the Ministry of Economy, Trade and Industry, the number of employees of Japanese companies overseas (not including finance and insurance) came to 4.14 million in 2004 (82% of them, namely 3.4 million, working in the manufacturing sector).

The number went up in 2007 to 4.75 million (3.95 million employees in the manufacturing sector, reaching 1% higher, at 83%; Table4).

The number of employees in the domestic manufacturing sector, in comparison, reached its peak in 1992, with 15.69 million employees. In 2007, the number decreased by 4 million to 11.65 million. This suggests that work sites were exported abroad.

Take a look at the number of overseas employees by region. The number of employees working in Asia came to 2.47 million in 2003 (accounting for 65%), reaching 3.37 million (71%) in 2007, an increase of 0.9 million employees, or 6%. The number of employees in North America and Europe is not as high as Asia, recording almost no increase. In Asia where investments are made mainly on the manufacturing sector, as investment increases, the number of employees will go up. In other regions where more investment is made on the non-manufacturing sector, an increase in investment does not produce much increase in the number of employees.

Table 4 shows how the number of employees in Asia changes by region. China (including Hong Kong) has a large number of employees, followed by the so-called ASEAN 4 (these four members of the Association of Southeast Asian Nations: Thailand, Malaysia, Indonesia and the Philippines). As compared with this, the number of employees is low in the so-called NIEs 3(Korea, Taiwan and Singapore)and in other Asian countries (such as Viet Nam and India). While the number of employees in ASEAN4 and NIEs 3 has stopped going up, that of employees in China and other Asian countries still continues to increase. This may be because investment is shifting from the labour-intensive to the capital technology intensive sector in ASEAN 4 and NIEs 3 as the amount of investments in each region goes on increasing. In contrast, investments in China, Viet Nam and India seem to be centring on the labour intensive sector.

The domestic economy remained in recession while Japanese companies overseas marked a high rate of profits. Table 5 shows a steady increase in ordinary profits both in the manufacturing and non-manufacturing sectors from 2004 to 2007.

By region, the highest rate of ordinary profits was recorded in Asia, followed by North America and Europe. The trends from 2004 to 2007 indicated that the rate of ordinary profits has been increasing in Asia and Europe, but has been stagnant in North America. It is certain that the rate of profits as calculated according to accumulated investments is the highest in Asia.

We can indicate that the ordinary profits by sales amounts are on the rise as a whole, that the rate of profits in the manufacturing sector is always higher than in the non-manufacturing sector, and that the rate of profits in the non-manufacturing sector has rocketed, almost catching up with that in the manufacturing sector. Nonetheless, we can say that under the world financial crisis or global slump, originating in America in and after 2008, the rate of ordinary profits of Japanese companies overseas has been reduced.

3. Mid-term trends in investments in Asia

The international balance of payments as published by the Ministry of Finance indicates that Japan’s direct overseas investments in 2005 amounted to 5,045.9 billion yen, soaring in 2008 to 13,232 billion yen, i.e. by 2.6 times. Because the Lehman Shock caused the financial crisis and simultaneous global recession, however, the amount of investments was reduced in 2009 to half, that is, 6,989.6 billion yen. The investments in the manufacturing sector reduced to 3,083.1 billion yen in 2009 from 4,651.2 billion yen in 2008 while 8,580.8 billion yen in 2008 reduced to 3,906.5 billion yen in 2009 in the non-manufacturing sector, with a higher reduction rate than the manufacturing sector. Let’s take a look at the main industries in the manufacturing sector. The automobile industry (including other transportation equipment) marked a sharp reduction to 64.7 billion yen from 1,132.2 billion yen, and the electronics industry (including other electric machinery) went down to 242 billion yen from 586 billion yen. The total amount of investments by region is such that Asia recorded a relatively small reduction to 1,942.7 billion yen from 2,379 billion, yen contrary to expectation. This shows that more importance has been attached to Asia.

Table 6 shows changes of direct investments from 2005 to 2009 in Asia consisting of ASEAN4, NIEs3, China (including Hong Kong) and other nations (such as India and Viet Nam). The changes from 2008 to 2009 show that the automobile suffered a rather small reduction in China and electronics met with a higher reduction, while the latter marked an increase in other Asian nations. Trends from 2005 to 2009 suggested that investments in automobiles are to be noted in ASEAN4 and China, and China came first where investments in electronics were made in Asia.

With reference to the ’Current Status of Japanese Companies Abroad’ issued by the Ministry of Economy, Trade and Industry, we will follow the trends in Japanese automobile and electronics companies in Asia from 2002 to 2009.

Table 7 shows changes in the number of employees of Japanese companies in Asia. The number of employees of automobile companies in the whole Asian region has been on a constant increase from 180 thousand in 2002 to 620 thousand in 2009.

1.17 million Employees worked in 2008 in the domestic transport equipment industry, and more than half of them worked in Asia. Of the Asian nations, ASEAN4 was the most important region, but the number of employees in China has recorded a sharp increase, almost equal to ASEAN4. The number of employees in NIEs3 is of a small scale and tends to be in stagnation. The number of employees in other Asian nations is on the increase.

Take up electronics companies. A total of 190 thousand employees decreased from 2007 to 2008 in the whole Asian region, but an increase of 150 thousand employees was recorded in 2009. The financial crisis exerted more influence on employment in electronics than in automobiles. In Asia, China maintains the most important position, replacing ASEAN4. NIEs3 do not have a presence in this regard. Other Asian nations did not suffer a decrease in 2008 but continue to show an increase in the number of employees. In addition, the number of employees in the electric industry in 2008 was 1,760 thousand, and the employees in the industry in Asia accounted for more than half.

Table 8 shows sales of Japanese companies in Asia. A sharp increase in sales in automobiles was recorded, from US$20.3 billion in 2002 to US$143.8 billion in 2009 in the whole Asian region. ASEAN4 is the biggest market in Asia, but it seems that China is just behind them. Similar trends of the number of employees are seen to those of sales. Sales in NIEs3 are sluggish, but sales in other Asian nations are on the increase. Sales of electronics in the whole Asian region are on the increase as ever, but with a lower rate of increase. As to sales by region, China has marked the highest since 2005, followed by ASEAN4 and NIEs3. Sales in other Asian nations are at a low level.

To sum, Japan’s recent investments in the manufacturing sector in Asia are more in electronics than automobiles in terms of the number of employees, but the difference is getting smaller and smaller. The fact that higher sales were recorded in automobiles than electronics suggests that the centre of gravity is moving from electronics to automobiles. When we synthesize the number of employees and sales by region, we can see that the centre of gravity is shifting from ASEAN4 to China. A slackening in exportation from Japan to Asia and a decrease in domestic employment, that is, a so-called industrial hollowing, is ongoing behind the scenes.

4. Business conditions before and after the financial crisis

With the above in perspective, we turn our attention to the business conditions before and after the global financial crisis which the Lehman Shock ignited in September 2008. Let us study the changes every quarter from April 2008 to June 2010.

Table 9 shows changes in the number of employees, pointing out a little different tendency. The number of employees suffered a reduction of approximately 40 thousand in the automobile industry in the whole Asian region, that is, from 594 thousand at the end of September 2008 to 556 thousand at the end of June 2009. After this, employees started to increase in number, reaching 647 thousand, more than before financial crisis. We see a similar tendency by nation. The number of employees in electronics in the whole Asian region recorded a reduction of no less than 250 thousand from 1.147 million at the end of September 2008 to 0.9 million at the end of March 2009. Workforce reduction has been more remarkable in electronics than automobiles. Soon after, the conditions of employment began recovering but the number of employees has not reached the level of before financial crisis. An almost similar tendency is observed by nation.

Table 10 comes next. It shows how sales have changed. Sales of automobiles in the whole Asian region amounting to $34.27 billion marked in the quarter July to September 2008 went down to $26.32 billion in the quarter April to June 2009. They recovered soon after, and in the quarter October to December 2009, they exceeded the level before the financial crisis. By nation, ASEAN4 showed intense changes, but China and other Asian nations did not see much change. The amount of sales in electronics in the whole Asian region came to $30.5 billion in the quarter July to September 2008, but decreased to $18.45 billion in the quarter January to March 2009. Although it turned better soon after, it did not reach the level before the financial crisis until the quarter of April to June 2010. Roughly speaking, an almost similar tendency is seen by nation.

To sum, the following are the points at issue: First, automobiles did not touch bottom after the financial crisis at the same time as electronics did. Automobiles reached the bottom in the quarter April to June 2009 in terms of the number of employees and sales. Electronics did so earlier, in the quarter January to March 2009.

Second, there was a difference in changes and conditions between automobile and electronics before and after financial crisis. Although automobile reduced the number of employees and sales, it has recovered strongly, recording higher results than before financial crisis. In contrast, electronics went through a sharp reduction of employees and sales, and it is recovering without much force. It has not reached the level before financial crisis until in the quarter April to June 2010.

Third, there was a difference in changes before and after the financial crisis between ASEAN4 and China. China showed a greater magnitude in the reduction of employees and sales and recovery in electronics, in particular, than ASEAN4. Such difference was not found in automobiles. Because not much capital investment was in NIEs3 or other Asian nations from the beginning, there was no big change indicated before and after the financial crisis.

5. Business trends of automobile and electronics companies

While we examined the business trend on a macro level as discussed above, we would like to consider the trend on a company-level basis, before and after the financial crisis. Japanese major automobile and electronics companies had huge internal reserves because they did not fairly distribute their profits to the workers. As of the end of March 2008, Toyota, Honda and Panasonic had reserves of 14 trillion yen, 7 trillion yen and 4.5 trillion yen respectively, which were several times larger than their annual profits.

Because of such huge internal reserves, they did not have to depend on financial capital at the height of the financial crisis. Instead, by reducing their employment and adjusting the production, they were able to hammer out the new strategies. One was to strengthen the environment-related business. The other was to expand business to newly emerging countries. We can see typical examples in Toyota and Panasonic, which are the largest in the respective industries in Japan.

5.1 Automobile companies – the case of Toyota Motor Corporation

Trends in the automobile business world

The Japanese automakers have put more emphasis on overseas production, shifting their production bases from home to overseas, achieving better business results, in the face of strong yen trends in and after the 1990s, and saturating domestic markets. Competitiveness has sharpened; however, among automakers all over the world because they needed a lot more of investments in R&D to address environmental issues, and automakers in developing countries have been marking higher profitability. Under the circumstances, they had no choice but to undergo large-scale mergers and corporate reorganization.

Corporate reorganization went on worldwide while Japanese automakers formed closer tie-ups with strong foreign automakers: Nissan with Renault, Mazda with Ford, Mitsubishi Motors with Chrysler, and Suzuki Motor and Fuji Heavy Industries with GM. In contrast, Toyota did not tie up with overseas makers but they preferred to bring Hino Motors and Daihatsu Motor under their control to expand business. Honda Motor chose to survive on its own.

Although Japanese automakers were respectively different from each other, as seen from above, they were successful in achieving an almost steady profitability till 2007. The major factors in such a higher profitability were enlarged overseas production, use of irregular workers with low wages at home, and compulsory cost reduction of parts produced by sub-contract makers. The world financial crisis or global recession triggered by the Lehman Shock which happened in September 2008 caused the automobile markets, including those of advanced countries, to decrease in size, and suffer worsened business results.

Table 11shows the business conditions from 2007 to 2009 of the major five automakers. Each automaker marked a decrease in sales till 2009, and the operating income of each automaker except Honda went into the red in 2008. They were improving in business results gradually in and after 2009, mainly driven by the ‘Eco-car subsidy’ system. The system started in April 2009, ending September 2010, with an aim to bail out the automobile industry. Suppose you bought a new car which meets the environmental standards such as gas mileage; you would be subsidized by 100,000 yen. And you would be subsidized by 130,000 yen if you renew your car which has passed 13 years after registration. Car taxes are also reduced or exempted. About 600 billion yen was spent for one and a half years, which was very effective to enable the domestic car market to recover.

Another factor in recovery was the reduction of irregular workers. As shown in Table 11, many more irregular workers were dismissed than regular workers. Toyotawas the first in November 2008 to lay off (due to economic or industrial environment) dispatched workers or fire them (due to personal performance), as described later. This was called the ‘Toyota Shock’, and it became a big social issue because it occurred in the manufacturing sector.

In addition, expanded car markets in developing countries including China influenced the recovery of domestic automakers a lot. The number of cars sold all over the world in 2010 was estimated to be about 72 million units. Of them, 34 million cars were sold in advanced industrialized countries while 38 million cars in developing countries. It was for the first time that more cars were sold in the latter than in the former. In particular, China alone marked sales of 18 million cars, almost double the market size of America.

Toyota’s business trends

We would like to examine how Toyota, a leading Japanese TNC, took a new turn in their business before and after the financial crisis. First of all, let us see Table 12, showing the business results of Toyota Motor Corporation. These data are the consolidated accounts, including those of affiliated companies. The net sales of each fiscal year (from April to March in the following year) continued to increase every year. It reached to 26,289.2 billion yen. However, the business results rapidly got worse since the latter half of the 2008 fiscal year and decreased to 18,951 billion yen in 2009. It means the net sales returned to the level of the 2004 fiscal year. The sales amount as recorded in 2010 is expected to be 19,200 billion yen, and recovery is not fast.

After the net income of the 2007 fiscal year increased to 1,717.9 billion yen, it went into the red by 436.9 billion yen in the 2008 fiscal year. In the 2009 fiscal year, it went into the black only by 209.5 billion yen. It is expected that Toyota recovers in 2010 to the extent that they mark a net income of 490 billion yen, but are still a long way off from the level prior to financial crisis.

Due to their continuous high profits in the past years, Toyota still has financial capability. They need not depend on financial institutions. Because of the huge amount of their internal reserves, they are usually called ‘Toyota Bank’. Table 12 shows that the cash flows always exceed 1 trillion yen. It is noteworthy that they were able to retain more than 2 trillion yen cash flow even in 2008, when the financial crisis broke out and they suffered red in net income.

The production, both domestic and overseas, peaked in the 2007 fiscal year, but considerably decreased in the 2008 fiscal year because of the shrinkage of the world automobile market as an effect of the financial crisis. In the 2009 fiscal year, the overseas production increased while the domestic production further decreased. As a result, the ratio of overseas production exceeded 40% in 2009. On the other hand, the number of regular employees did not change very much, but rather trod on the increasing tendency. It can be analyzed that they adjusted the labour forces by reducing the number of irregular workers. The overseas regular employees have been increasing in number. The ratio of overseas employees exceeded 45% of the total employees.

Meanwhile the reduced production seriously damaged the suppliers. The subcontractors were forced to reduce their workers in a flurry, because they had just invested in the equipment and increased the number of workers in order to meet the prospective production increase of Toyota. This immediately led to the dismissal of irregular workers of subcontractors, which were in a vulnerable position.

Table 13 is the data of Toyota’s production results by region and country. Due to the differences in totaling basis, the figures do not coincide with those of table 12. When it comes to production results by region, North America used to be the biggest production base, but Asia replaced it in 2008. While the production ratio of Asia was 23.6% in 2004, it increased to 41.9% in 2009. Where is the production base in the Asia region? It is Thailand that has been maintaining an annual production of 400,000 to 500,000 automobiles. Meanwhile China has been rapidly increasing its production number. It never decreased since 2004 until 2009, when China became the biggest production base in Asia by replacing Thailand. Regarding other countries, all the countries remain less than 100,000 automobiles in production, except Indonesia, where more than 100,000 automobiles have been produced annually.

The number of Toyota’s overseas employees by region and country is shown at table 14. Unlike the number of production, there have been constantly a bigger number of employees in Asia than North America. In addition, the employee number continued to increase in Asia, while it has not changed much in North America. Consequently, the ratio of employees in Asia increased considerably among the total overseas employees from 33.9% in 2005 to 54.4% in 2009. In Asia, Thailand and China account for the majority. Since 2006, the number of employees in China became the biggest. The difference in number between China and Thailand has been widening since then. Regarding Indonesia and Malaysia, the number of employees rapidly increased because they absorbed subsidiaries of other companies.

How does the production trend discussed above reflect the income? Table 15 shows the change of Toyota’s net revenues and operating income by region. Regarding the share of net revenues by region, Japan, earning the biggest revenue, has stayed almost the same of 40~50%, followed by North America, which has dropped from above 25% to below 25%. On the contrary, Asia increased from 7% to 11%. We can observe a clearer difference by region in the operating incomes than in the net revenues. Before the financial crisis, Japan and North America occupied 80% of the total operating incomes. However, Japan, North America and Europe got into the red in the 2008 fiscal year. Japan and Europe suffered red in the operating incomes also in 2009. On the other hand, Asia and others, including Latin America, Africa and Oceania, played the role of compensating for the loss as a whole, without incurring a loss.

Toyota’s business strategy

In the process of recovering from the global recession, Toyota is gradually disclosing their new business strategies. One way is to develop environmentally considerate automobile manufacturing, such as hybrid and electric vehicles. On the other hand, Toyota attaches importance to newly emerging countries, including China, India and Brazil.

To meet the environmental requirements strategically, Toyota proceeded in developing hybrid cars equipped with a combination of gasoline engine with electric motor. They marketed 1 million hybrid cars all over the globe from 1997 to May 2007. The number of such cars sold was on a sharp increase, reaching 2 million by August 2009, and 3 million by February 2011. Of the cars sold, 185 million cars were sold overseas, mainly in the U. S. market.

Such a good record prompted Toyota to announce in November 2010 their strategy of developing diversified hybrid cars that meet the environmental requirements. The strategy shows that they double hybrid cars to 11 models by the end of 2012 to have a good selection of hybrid cars. Furthermore, they will market plug-in hybrid vehicles in the U. S. and Europe as well as Japan in 2012, which can be charged at home. They aim at selling 50,000 units per year. On top of this, Toyota is going to launch electric vehicles, which have taken them much time to be developed, on the domestic and overseas markets, such as the U.S. and Europe markets. It is aimed at achieving a sales target of some thousand units per year. Fuel cell vehicles are also being developed, and Toyota is planning to market them in 2015 at a price of not higher than 5 million yen per vehicle.

Following this strategy, Toyota officially announced in May 2009 that they would withdraw from the auto manufacturing plant New United Motor Manufacturing, Inc. (NUMMI) which was under the joint management of Toyota with GM. NUMMI was closed in April 2010. Tesla Motor, another American venture business decided to produce electric vehicles jointly with Toyota at the NUMMI site. Toyota invested $50 million to purchase the site. Hybrid vehicles are being produced not only in the U.S. and China, but also in Australia, where they started production in December 2009, and in Great Britain, where they started production in June 2010. Toyota did a technical supply to Nissan, Ford, Mazda, and Daimler as well, intending to gain the initiative in the field of environmental technology.

What is their strategy for developing or newly emerging countries like? Toyota temporarily froze in December 2008 the plant construction being planned in China and Brazil to carry out production adjustment when they were faced with financial crisis. They resumed the construction of the plant in China in December 2009 soon after production adjustment came to the end of the first stage. They also resumed the construction of the plant in Brazil in June 2010. In May 2010, they disclosed a new business policy to make much of newly emerging countries, in particular, China, India and Brazil, revising their production system which put too much emphasis on North America.

In China Guangzhou Toyota Motor Co. (GTMC) began production of the ‘Camry Hybrid’ in April 2010. Sichuan FAW Toyota Motor (SFTM) has announced the construction of a second factory in Changchun City, Jilin Province, scheduled to begin operation in 2012. The new factory constructed by SFTM in Chengdu began operations the following May. It is planned to increase their production capacity to approximate 1 million vehicles by 2012.

Toyota started production and sales of Etios, a low-priced sedan at a price of lower than 1 million yen, at the end of 2010 in India. They started the construction of the second plant as planned in Sorocaba to the west of San Paulo Brazil. The plant is going to start operations later in 2012, producing vehicles of the same model as Etios. They are planning to export such vehicles from India to Middle East and Thailand and from Brazil to other Latin America countries.

Under such circumstances, the President Mr. Toyoda Akio announced on March 9, 2011 their ‘global vision’ for the first time after his assumption of presidency of the company. The vision says that Toyota aims at increasing the rate of sales in developing countries from 40% at the moment to 50% by 2015, by delegating some power to its overseas production basis and reinforcing development and production. It also shows that Toyota sets a strategic vehicle per market. They do not divert car models for advanced countries to markets in newly emerging countries, but develop regionally unique strategic models. Along with this line, Toyota already started to produce and market Etios in India. This is the starting point of their strategy to exploit markets in newly emerging countries through common use of platforms and reciprocal supply of parts.

For this strategic purpose, IMV (Innovative International Multipurpose Vehicle) strategy has already proceeded. The IMV strategy is to develop multipurpose vehicles to be exported to newly emerging countries, and to promote common parts and effective production & adjustment. Thailand, Indonesia, South Africa and Argentina were designated as the global manufacturing bases for finished vehicles. At the same time, Toyota has established the manufacturing bases for major parts and the system making it possible to effectively supply them to the plants located in different countries, such as diesel engine in Thailand, gasoline engine in Indonesia, manual transmission in the Philippines and India. Such a cross-border trade of parts became feasible after the entry into force of the ASEAN Free Trade Area (AFTA). Among the ASEAN members, Thailand, in particular, accommodates many parts makers, and the finished vehicles are also exported. Since Toyota placed Thailand as a hub in Southeast Asia, they set up a regional production centre and workers’ skill training centre.

The mutual parts distribution network symbolized by IMV is not only practiced by Toyota’s overseas subsidiaries. More parts are supplied by main Toyota group companies and their overseas subsidiaries, such as DENSO and Aisin Seiki, resulting in establishing the consolidated supply chain. The number of overseas subsidiaries in main Toyota group companies increased from 213 companies in 2005 to 244 in 2010. Many of the subsidiaries are located in different Asian countries. The number in China has been remarkably increasing among Asian countries. Since these main Toyota group companies also produce different kinds of parts in their overseas subsidiaries, they export those parts by taking advantage of AFTA.

5.2. Electronics companies– the case of Panasonic

Trends in the electronics industry

We would like next to examine the business trend of electronics companies. After the bubble economy burst, Japanese electronics companies which were enjoying their golden days in the 1980s have declined in the international status, because of the cool-down of the domestic market and the revival of American companies, in addition to the intensified competition with Korean and Taiwanese companies in overseas markets. Big Japanese electronics companies recorded a great loss without exception in 2001 and 2002 after the IT bubble collapse, and have been trying to reorganize the production structure by transferring plants producing mass-produced products which are low-value added to other countries, and recruiting middle-aged and elderly workers for voluntary retirement. They also reorganized the semi-conductor and liquid crystal sections for structural reform. After this, partly thanks to weak yen, the companies recorded a continuous increase in profit, not so high though, till they suffered a big loss in and after the second term of 2008, adversely affected by the global recession. Table 16 indicates that the sales of the major manufacturers went down in 2008 and 2009 as well, and got into the red except Mitsubishi Electric Corp. Following the Lehman Shock, the U.S. dollar and the euro suddenly dropped because of creditability, while the yen became strong. This was another blow to the electronics industry.

Considering the data, we can easily imagine that they must have reduced the workers. However, we cannot confirm the remarkable decrease only with table 16, which shows only the number of regular employees. As a matter of fact, media reports suggest that after the ‘Toyota Shock’, each company enforced the closure of plants in addition to reduction of the workers, particularly targeting irregular workers, as counter-recession measures. For example, in December 2008, Sony announced that they would close five to six production bases in Japan and overseas, and would reduce its workforce by 14,000 workers, of whom 8,000 workers were working in Japan. In January 2009, Toshiba disclosed that it was planning to dismiss 4,500 irregular workers. In February 2009, Panasonic announced that it had a plan to reduce 15,000 workers by March 2010. The total number of workers to be reduced among the major electronics companies reportedly exceeded 66,000 workers at that time.

Such a reduction will cause the reduction of workers and the closure of plants in the electronics parts sector. We have no data to know how employment adjustment was actually made in the sector, including domestic and overseas supply chains. However, newspapers repeatedly reported the conditions of the local economy where supply chains were established. The current large-scale closure plants have seriously damaged the local economy. In the rural areas of Japan, the closure increased the number of the unemployed because there are only few employment opportunities. To make matters worse, many local companies providing the plants with various goods and services are also damaged. As a result, local governments suffer a big loss because they are no longer able to receive tax from the plants. Some of the local governments which subsidized to invite them to set up the plant started to demand the return of the subsidies to those companies which closed the factories contrary to the incentives provided by the local governments.

According to newspapers, seven leading companies posted a consolidated net profit in the black from April 2010 to December 2010. This owed much to the restructuring, ‘Eco-point’ for home appliances, and demand from newly emerging countries. The ‘Eco-point’ system was a subsidy system sponsored by the Japanese government like ‘Eco-car subsidy’. The system started in May 2009, ending in March 2011. Suppose you buy an air conditioner, refrigerator or television set which is regarded as energy-saving product, and you will be given a gift coupon or local promotion coupon in the amount of 5 to 10% of the product you purchase. Subsidies paid reached approximate 600 billion yen at the end of March 2011. The system helped each electronics company mark a prompt increase in sales.

As we discussed above, each electronics company first reduced the employment of workers and closed the unprofitable factories under the global recession. As the next steps in their management strategies, the first one is to strengthen the environmental and energy sector, and the second is to attach importance to newly emerging countries. Those strategies have been clearly reflected in Panasonic, the largest company in the industry. They also accelerated business tie-upswith leading electronics companies in Korea, Taiwan and China for production. What they aim at is to have higher cost competitiveness and collect their business resources into their favourite fields such as highly value-added products.

Panasonic’s business trends

Matsushita Electric Industrial Co., Ltd. (predecessor to Panasonic) had been in a slump in the 1990s. Mr. Nakamura assumed the presidency and took the initiative to carry out a structural reform in and after 2001. The company closed domestic and overseas production bases and cut off 13,000 workers. They also affiliated seven companies belonging to their group, and switched Matsushita Electric Works, Ltd. (predecessor to Panasonic Electric) to a consolidated subsidiary for the reorganization of the group. This was the first time that Matsushita did such employment adjustment. They had kept lifelong employment, deemed as the embodiment of Japanese-style management. This shocked Japanese society a lot. Because of this restructuring which was followed by the payment of retirement allowance, Matsushita got into the red in the amount of 427.8 billion yen for the first time in 2001 after foundation. They made a rapid recovery in business after this, and some even said, ‘Matsushita is a symbol of revival in the electronics industry.’

As is seen from Table 17, Panasonic recorded sales of nine trillion yen in 2006 and 2007 with an increase in net income. They disclosed in October 2008 the business result of the first term of 2008, which was the highest one in the black. Mr. President Nakamura was replaced with Mr. Otsubo in 2006, and the new president launched a three-year project, ’GP 3 Project’, starting in 2007 for Global Panasonic. Their target was to increase sales to 10 trillion yen or more and raise the rate of overseas sales to 60% or higher in three years. According to the plan to increase sales by one trillion yen, 70% depends on overseas business, mainly in newly emerging countries. It was also planned to continue restructure domestic and overseas production bases.

Matsushita mobilized capital in March 2007 from home to overseas unprofitable AV equipment sections and white goods appliances sections, and requested not less than 5,000 middle-aged employees to retire voluntarily. In addition, they closed unprofitable overseas production bases. No details of actual capital mobility are known due to lack of data, but Table 17 shows that the number of employees decreased by 30,000 (domestic: 10,000; overseas: 20,000) from 2005 to 2007. Matsushita Electric Industrial Co., Ltd. was at the middle point of their GP 3 project in October 2008, when they celebrated their 90th anniversary. They unified three company brands, Matsushita Electric, National and Panasonic, to Panasonic. Ironically, they were attacked by the global financial crisis immediately before such unification.

Panasonic’s profitability, which was high till summer 2008, took a turn for the worse. As seen from Table 16, with the sales amounting to 7,766 billion yen, they recorded current net income of 379 billion, getting into the red, and the number of employees decreased to 290,000. In February 2009, Panasonic announced that they planned to close 13 plants in Japan and 14 plants overseas by March that year. They added that they would close a total of 50 plants within and outside Japan, and reduce 15,000 workers (7,500 at home and another 7,500 overseas) by March 2010. As of 2008, Panasonic had 230 production bases or plants at home and overseas, so 50 plants accounted for 20% of them.

It is not clear how restructuring was actually carried out. Newspapers reported, however, that a restructuring plan of laying off 15,000 employees was announced in February 2009 at the electronic parts plant in Beijing, and 600 employees shut three executives into the plant for six hours in opposition to the plan, while in Japan, the semi-conductor production plant located in Kumamotowas closed, to shift production to Chinaand Malaysia. This is just an example. Panasonic closed and integrated some more domestic plants. It was reported that 21,000 domestic and overseas regular workers were laid off by the end of March 2009. In addition, it is assumed that a lot of irregular workers and other workers working in the supply chains were laid off. They constructed a plant in Amagasaki City, on the other hand, to produce panels for plasma display TVs and another plant to produce liquid crystal panels in Himeji City in response to higher demand for thin-screen TVs, as the ‘Eco-point’ system served as a tail wind. The plants are supposed to be the centrepiece of increase in production of thin-screen TVs.

Table 16 shows that sales in 2009 amounted to 7,418 billion yen, with a current net loss of 103 billion yen. It also shows that the number of workers employed by Panasonic increased to 380,000 in spite of restructuring on a large scale. This is because Panasonic made Sanyo Electric one of their subsidiaries, which had been weak in management capability, and remained in the red. The company in 2008 asked three big financial companies, the Mitsui Sumitomo Bank, Goldman Sachs and Daiwa Securities, to purchase preferred stock, which made them lose their virtual right of management. After the global financial crisis, these financial institutions needed cash, and they approached Panasonic for acquisition. Panasonic offered to Sanyo a takeover bid (TOB) in December 2009, and made the company a subsidiary.

At the same time, Panasonic made Panasonic Electric one of their wholly owned subsidiaries, which had been one of its consolidated subsidiaries. They reportedly spent 1,200 billion yen on making them wholly owned subsidiaries. Although Panasonic had been strong in financing – it used to be called ‘Matsushita Bank’ since the time of Matsushita Electric – they have issued commercial paper because they needed a huge amount of money for a wave of restructuring, TOBs and construction of new plants.

Panasonic went into the red for two consecutive years, 2008 and 2009, but as shown in Table 17, their sales reached 6,653 billion yen, a 27.5% increase over the previous year with a final profit of 115 billion yen in the black during the term from April to December 2010. The consolidated settlement of accounts including Sanyo Electric’s shows us clearly their recovery in business. The factors of such recovery include restructuring at home and abroad, the ‘Eco-point’ system supporting higher demand, and a sharp increase in sales of home appliances in newly emerging countries.

Panasonic’s business strategy

Panasonic announced in May 2010 an interim plan covering 2010 to 2012, where they intend to increase sales to 10 trillion yen in 2012. Of the sales, it is expected that environment-related business accounts for 840 billion yen. In addition, it is aimed at expanding overseas business which markets screen TV and white goods, and upping the rate of overseas sales to 55% over the whole sales amount. By January 2012, they intend to integrate or close production bases of the three companies, and reorganize their group business by dividing it into three fields, ‘Consumer’ which handles home appliances, ‘Devices’ including solar batteries, and ‘Solutions’ which proposes energy-saving plans.

Panasonic spent a tremendous amount of expense on making Panasonic Electric and Sanyo Electric their wholly owned subsidiaries because they had to hasten to expand business in the energy and environment sector and unify management, to get markets in newly emerging countries in order to survive fierce competitiveness among rival companies in Korea, Taiwan and China. Panasonic is planning to take Sanyo Electric’s solar cell and battery sections and make use of Panasonic Electric’s solar energy utilization section and combine them with its energy-saving home appliances to implement an energy-saving system business, proposing optimal power consumption in houses and buildings.

As to the markets in newly emerging countries, Panasonic makes much of not only China, India, Brazil and Russia, but also Indonesia and Vietnam. In particular, they presume that people belonging to the middle-class layer of each country are gaining a higher purchasing power, and they are in the course of developing products targeting at the middle layer. They disclosed in November 2010 a plan to construct a new plant to produce white goods in Brazil and in India, expecting to put each plant into operation in 2012. They are planning to build a plant in Minas Gerais, Brazil to produce refrigerators and washing machines, while in Haryana, India, they plan to build a plant to produce air conditioners and washing machines. In addition, Panasonic markets white goods and AV equipment including thin-screen TVs, and has participated in a large-scale energy-saving housing project in Tianjin, Dalian and Shenzhen, China.

Panasonic started tie-up businesses with leading manufacturing companies. For the production of high-performance car batteries, they entered into a capital tie-up with Tesla Motors, a U.S. electric vehicle venture business, in November 2010. They agreed to jointly develop cells for EVl. Panasonic also established a jointly invested company with Toyota, which invested on Tesla, and started to produce cells for EV. Panasonic announced in September 2010 that they would cooperate to create an IT-based ‘Smart Grid’ business, a next-generation power transmission network to realize more efficient use of electric power, along with Hitachi. To dominate global races to get orders, Hitachi is engaged in building infrastructure such as power lines connecting power stations with houses and office buildings, and Panasonic is to build home energy control systems for illumination devices, home-use electric appliances and solar power generators.

The strategies of environment-related business and emphasis on newly emerging countries are common in the automobile and electronics companies. Based on these strategies, reorganization of global production bases has been initiated. At this moment, we should keep in mind that compared to the automobile industry, the electronics industry is smaller in the investment of factory facilities and the size of products, in addition to having a shorter development cycle for new products with more kinds of products. Due to this circumstance, the electronics industry is prone to higher possibility of plant closures and transfer of production bases. The mobility of capital is higher in the electronics industry than in the automobile industry.

6. The Financial Crisis and Toyota workers

In Japan the first response to the financial crisis by Japanese TNCs was to dismiss the most vulnerable of irregular workers, dispatched workers. On November 6, 2008 Toyota announced ‘the planned dismissal of 3,000 fixed-term workers as a response to decreasing profits.’ This came to be known as the ‘Toyota Shock’. Following this announcement, automobile and electronics TNCs carried out a storm of ‘hakengiri’, firing dispatched workers with little or no notice, often in the midst of their contracts. The national government released an estimate stating that by June 2009, 216,408 irregular workers and 26,602 regular workers were to lose their jobs, whereas industry group reports estimated that 400,000 dispatched and sub-contracted workers would be fired.

To understand how workers in the automobile and electronics companies were affected by the financial crisis, we shall look at the case of Toyota workers in domestic plants and overseas subsidiaries as well as the resistance constituted by the respective workers movements. Toyota already began cutting down on the number of domestic irregular employees in the face of decreasing exports to North America, prior to the financial crisis. From confirmed reports alone, approximately 7,000 irregular workers were let go by the end of 2008 in Toyota’s main plant and domestic subsidiaries such as Toyota Motor Kyushu. It is known that a substantial number of workers at parts-suppliers also lost their jobs but the exact numbers remain unclear.

Overseas subsidiaries also either cut down or stopped production temporarily, but when the consolidated financial results for 2010 fiscal year reported in the black in business profits in two years, Toyota initiated a new strategy as outlined above.

Let us first examine the cases of Toyota subsidiaries in Europe and North America. In both regions, sales had remained low for a considerable period. In the aftermath of the financial crisis, Toyota Motor Manufacturing UK (TMUK) cut down production to a single shift. Workers who had lost their work did ‘work-sharing’ or performed tasks voluntarily for local government. In March 2010 TMUK ended production adjustment and called on workers in both factories in the UK (3,500 employees) to accept voluntary retirement, eliminating 750 jobs. In addition, Toyota Motor Europe (TME) in Belgium which supervises Toyota companies in Europe implemented in 2011 an early retirement program targeting 1,200 employees working in a sales managerial position from among 2,000 employees in the head office. In response to the program 160 employees retired.

Apart from such labour reduction, Toyota Motor Manufacturing France (TMMF) had been steadily reducing work days. In response, 400 workers, most of whom were members of the CGT (General Confederation of Labour) and FO (Workers’ Force),respectively the first and the third of the five major confederations of trade unions, went on strike demanding 100 percent compensation for the days cut. The strike lasted from April 6 to 20, 2009 stopping production in parts of the plant. The event marked the first large-scale strike at Toyota France and was covered extensively by the media. In the end the workers succeeded in winning large concessions from TMMF.

Likewise, there had been no dismissals at the Toyota subsidiary in North America, where the company had chosen instead to adjust production levels by stopping production and reducing the number of shifts to a single shift. However in June 2009 GM made its decision to withdraw from NUMMI, which was then a joint operation with Toyota. Toyota decided the following month to also end production at the plant by 2010 and to dismiss 4,500 employees. NUMMI was the single Toyota subsidiary plant in North America where the UAW had been successful at organizing. Because the plant had produced a larger number of Toyota vehicles compared to GM vehicles, the UAW continued protesting the closure of the plant. In January 2010 the union held a demonstration and rally in front of the Japanese embassy in Washington D.C. protesting the closure of the plant.

This coincided with the massive recall of Toyota vehicles which had made daily news headlines throughout the U.S. On February 24, the president of Toyota Motor Corporation Toyoda Akio appeared before Congress for questioning. On March 3, Toyota announced it would pay a total of $250 million (an average of fifty thousand dollars per person) in special benefits towards its employees. Following a vote by union members, Toyota made a final agreement with UAW to close the plant, thus ending the 26-year history of NUMMI, on April 1. Toyota closed the NUMMI plant, which was a unionized workplace, and switched to taking part in the production of Green Cars. Two Japanese parts suppliers located in California also decided to end operations following the closure of NUMMI. The total number of workers dismissed from related firms is estimated at 25,000. The UAW issued a statement declaring that organizing efforts targeting Japanese automobile companies such as Toyota would be initiated.

Toyota started early in 2011 to look for those employees working for sales companies who retire early, and adjustment of the workforce is still going on.

As already mentioned above, there has been no change in the number of workers at Toyota subsidiaries in Asia. Thai Auto Works (TAW) stopped production in May of 2010 however, and approximately 960 employees were transferred to other Toyota subsidiaries. Production facilities have been maintained in order to resume operations when demand shifts favorably. At Toyota Motor Philippines (TMP) there have not been layoffs although production was decreased from six days a week to five without overtime. However in August 2010 four TMPCWA activists including the vice-president were given punitive dismissals. The reason given was that supervisors were forced to stop the final segment of the production line for eighteen minutes when TMPCWA approached the line to discuss a grievance. This was presumably a way of getting rid of union activists before the next certification election scheduled for 2011. TMPCWA is holding a campaign to protest the recent repression in addition to the illegal dismissal of 233 workers in 2001.

It was in May 2010, as Toyota was aggressively expanding into China, when workers at a Honda components factory went on strike demanding wage increases. In June, workers at two factories of Tianjin Toyota Gosei, a Toyota sub-contractor’s plant located in Tianjin, went on strike. This was followed by strikes at Denso Guangzhou Nansha, a subsidiary of Denso Corporation (DENSO). The strikes lasted only briefly but caused a delay in production at both SFTM and GTMC factories. The strikes were caused by wage disparities between components factories and assembly factories. Japanese components manufacturers carried out a raise in wages following the strike. Toyota Chairman Cho Fujio stated that wage increases are part of a natural development. The rise in labour costs will not deter us from continuing local production. This indicates that Toyota is willing to respond flexibly to strikes in China due to the importance of the Chinese market.

As demonstrated above, the individual struggles being carried out in Toyota subsidiaries are each divided by geography, language, the fact that unions are lacking altogether or that there are only company-side unions. These are among the many difficulties faced by workers struggling for justice and to overcome division to form a global coalition against Toyota, a TNC whose movement of capital crosses national borders freely. And yet such a global coalition against Toyota is indeed emerging.

7. Postscript

A great earthquake attacked Japan on March 11, 2011 with a magnitude of 9.0, once in 1,000 years. The earthquake gave heavy damage to the infrastructure such as roads and electric power, and plants such as Kashima Ironworks, Sumitomo Metal Industries and Kamaishi Ironworks, Nippon Steel. Many a plant in the automobile and electronics industries and a lot of parts makers were also tremendously broken and damaged. It will take them many months or years to resume production activities. For example, the Tohoku district is Toyota’s third production base after Aichi and Kyushu. It will be inevitable for Toyota to suffer a great reduction of their production capacity, not to mention the state-of-the art Miyagi plant of Central Auto, a subsidiary of Toyota. Panasonic is not an exception. Their Fukushima plant and Sendai plant are left inoperative. Japan’s manufacturing sector which has been on the way to recovery from the Lehman Shock may slump again.

 

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