Japan is a heavyweight on the international scene

Japan is a heavyweight on the international scene.

Through the country’s miraculous post-war economic development, powerful businesses evolved.

Now Japan is the world’s third-largest economy after the USA and China. Germany trails behind in fourth place. But Japanese businesses have found life more difficult of late.

At the end of the 1980s, the stock market overheated; Japan then struggled through the 1990s, posting negligible growth as the rest of the developed world surged ahead.

By adopting policies designed to encourage exports, premiere Junich Koizumi engineered a short-lived surge of growth in the 2000s.

But the strategy backfired when the world economic crisis hit.

Japan’s economy shrank by 1.2% in 2008 and 5% the year after. Then, in 2010, the rising value of the yen turned up the heat.

More and more of Japan’s export-focused manufacturers have shifted overseas, moving their operations to countries with lower costs and closer to their target markets.

Japan’s leading steelmakers are doing their best to follow.

“The Japanese manufacturing sector is recovering, but I don’t think we are going back to the levels of 2007,” JFE Steel president and ceo Eiji Hayashida said.

“Japanese car manufacturers used to produce between 11 million and 12 million vehicles each year,” he told MB. “The best we will probably see in the future is 10 million or 10.5 million.”

For a company that focuses on supplying high-quality products to the auto sector, this is a problem for JFE.

Companies like Nissan and Toyota are now focusing investment outside Japan, building their products from transplant operations in the heart of evolving markets like Thailand and Vietnam.

For top-tier steelmakers like JFE, life is not quite so simple.

Japan has 28 blast furnaces, owned and operated by four main firms — JFE, Nippon Steel, Sumitomo and Kobe Steel.

“It’s very simple for the assembly business and automobile manufacturers to move their plants, but it’s hard for the steel industry to move facilities outside of Japan,” Hayashida said.

Several companies are considering crude steelmaking investments overseas. But right now, their hot end will remain concentrated at home.

At the moment, JFE exports around half of what it produces. As more customers relocate in foreign markets, that ratio is going to rise.

“Exports will grow to become more than 50% of the company’s output,” Hayashida told MB. “I would say 55%, possibly 60%.”

With the yen not far off its recent 15-year highs against the dollar, this will be no mean feat.

And with stiff competition from other Japanese plants and other steelmakers, JFE will have to work hard to protect its margins.

South Korea’s Posco is one example of a steelmaker that is starting to make inroads into other Asian markets.

But Hayashida is confident JFE has got what it takes – and with good reason, it seems.

Over the past few years the steelmaker has built alliances and formed joint ventures in several centres of growth.

Some, like the company’s investments in China, are already coming good. Others, like the company’s plan to invest in steelmaking in Thailand or Vietnam, are longer-term projects.

All of them have been calculated to provide JFE with a future of sustainable growth, whatever happens in Japan.

“In my opinion, as long as we are selling steel to Asia, there is not such a big difference between selling to export customers and domestic customers,” he said.

“Asia is just one market and the freight is very cheap: it doesn’t make any sense to distinguish exports from domestic sales,” he added.

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