Manufacturers expect lasting quake impact

Perils of relying on limited suppliers come to the fore


More than two months after the Great East Japan Earthquake severed the supply chains of many manufacturers, a government survey on major businesses affected by the disaster signals they are likely to struggle for some time to come.

Less than 30 percent of businesses in the automobile, electronics and other processing industries who responded to the survey think they will be able to gain enough access to parts and other supplies by July, according to the Ministry of Economy, Trade and Industry survey.

The twin disasters that ravaged the northeast on March 11, coupled with the nuclear crisis, have exposed a major weakness among manufacturers — especially automakers. Their reliance on limited numbers of parts suppliers, a consequence of past consolidation efforts — could undermine their international competitiveness.

Supply chains for automakers were believed to resemble a pyramid form, where the manufacturer gets components from primary parts makers, who receive products from secondary and tertiary suppliers.

“We thought it was pyramidshaped, but it turned out to be barrel-shaped,” said an official of Toyota Motor Corp., noting suppliers of some products at the bottom of the chain turned out to be limited in number.

A typical case in point is Renesas Electronics Corp., which accounts for around 40 percent of the global market for microcontrollers for automobiles. At its Naka factory in Hitachinaka, Ibaraki Prefecture, a banner that says, “Customers around the world are waiting,” is hoisted at the entrance, as if to encourage its workers engaged in restoration work on the damaged factory.

The production lines, however, are not expected to reboot — even on a limited scale — until early June. Product shipments from the plant are expected to take a few more months to restart.

Renesas Electronics is the product of a merger between Renesas Technology Corp., set up by Hitachi Ltd. and Mitsubishi Electric Corp., and NEC Electronics Corp., an affiliate of NEC Corp.

“There are no domestic automobile manufacturers who do not use Renesas chips,” an industry official said.

For automakers, however, Renesas was one of their secondary or even tertiary manufacturers because its products are not directly sold to them. It delivers to Hitachi or components manufacturers affiliated with automakers.

But its position as a sole company at the foundation that supports the supply chain was long overlooked. None of the companies at the top of the chain bothered tapping other sources for stable procurement.

Production appears unlikely to be normalized until November or December at Toyota, while Honda Motor Co. appears likely to require at least until the end of the year to reinstate full production.

Shortages of components from Renesas and other companies are also dealing a serious blow to production of smartphones, flat TVs and other information and home electronics products.

Microcontrollers and “system-on-a-chip” devices are built into a broad range of those products. An official at a major electronics company said there is a constant watch on inventory of these devices at manufacturing factories.

Renesas also supplies overseas manufacturers. The quake’s impact on the Japanese company thus has international repercussions.

Some electronics component builders have not been able to map out plans for rebooting factories because their production facilities are in the 20-km no-go zone around the crippled Fukushima No.1 Nuclear Power Station. The Fukushima factory of Epson Toyocom Corp., a subsidiary of Seiko Epson Corp. is one of them.

In the first half of this fiscal year, which started in April, automakers are likely to face tough times as they are forced to cut production.

“They could report their biggest combined (operating) loss ever,” said an analyst at a foreign securities house.

In contrast, overseas carmakers such as Germany’s Volkswagen AG and General Motors Co. of the United States are enjoying strong business.

Fumihiko Ike, Honda’s managing director, said that “Japanese manufacturers will no doubt lose market share over the short term.”

In the fields of semiconductor materials and silicon wafers, Shin-Etsu Chemical Co. holds the top share worldwide. Its subsidiary Shin-Etsu Handotai Co. resumed partial operations at its Shirakawa factory in Fukushima Prefecture on April 20, but it is not expected to recover to the prequake level until late June or July.

An official at the parent company acknowledged that overseas competitors may eat into its market share, at least temporarily.

“We suspect (our clients) have already started reviewing procurement sources,” the official said.

“We are coping by lifting the capacity utilization of other plants besides Shin-Etsu Handotai’s Shirakawa factory. But since they were already operating at high utilization rates, we have not been able to fully cover (shortages).”

Japanese plants abroad that have relied heavily on parts from Japan have also been hit hard.