11, 01. 2004
Major Fall in Domestic Production due to Increased Imports and Advancement to China
The Japanese textile industry is at a major turning point. In 2003, the volume of chemical fibers produced in Japan was 1.316 million tons, down 7.1 percent from the previous year. Meanwhile, the production output of cellulose fibers was at 159 thousand tons, a 2.1 percent year-on-year decline. Domestic production of synthetic fibers has shrunk to three-fourths the volume produced at its peak in 1997. The causes of the major reduction in output are the increase in the import of low-cost products from China, and the shift being made by Japanese manufacturers to relocate their production base overseas to China.
The Japanese Textile Industry: A Completely Structurally-depressed Industry
Uniqlo store at Shibuya run by casual wear retailer Fast Retailing Co.
It was in 1987 that the textile industry, which was once a leading industry that earned foreign currencies through exports, fell into a state of import surplus. The import of textiles has continued to increase since that time, and by 1999, imports accounted for 60 percent of the domestic textile market.
The sharp increase in the import of textile products was brought about by secondary products such as clothing. Whereas the proportion of secondary products within imported textiles was 75.8 percent in 1990, it had risen to 89.4 percent in 1995, and the share continues to grow.
The biggest supplier of imported textiles to Japan is China, leading the pack by accounting for 64.3 percent of Japanese textile imports.
Behind this rapid rise in the import of secondary textile products is the fact that suburban casual apparel retailers, apparel manufacturers and others are aggressively utilizing manufacturing bases that they have established in China. Reasons why China has been chosen as the production base of Japanese apparel manufacturers include an inexpensive labor force, enhanced local skills, the improved productivity of state-owned spinning mills and the fact that the majority of raw materials can now be procured domestically within China. Wages, said to be one-tenth to one-twentieth of labor wages in Japan, as well as the diligence of the workers are the biggest points of attraction for Japanese companies.
Emphasis Being Placed on High Value-added Fields Centering on Non-textiles
In order to compensate for the stagnation of their textile divisions, major Japanese textile manufacturers are shifting their managerial resources to non-textile divisions that are exhibiting high growth potential. In a radical reform of their operations, textile manufacturers are promoting the downsizing of unprofitable textile fields and the transfer of their production overseas, while also advancing into downstream industries, such as entry into the specialty store retailer of private label apparel (SPA) arena. They are also emphasizing R&D in high value-added products, such as nanotech textiles, and the development of growth businesses in non-textile fields such as automotives and healthcare.
At Toray Industries, Inc., the fiber and textiles division accounts for 40 percent of sales and 30 percent of overall profits. Toray maintains a stance that places more importance on its core textile business than other textile manufacturers. A characteristic of Toray is that as others are pulling out of the textile business, the company is striving to improve profitability by enhancing its market share in textiles while also focusing efforts within its textile business on cutting-edge technology materials, so that it may expand its high value-added textiles field.
Textiles account for more than 50 percent of sales at Teijin Limited, but its money maker is the medical and pharmaceuticals business with its high profitability. While Teijin is rushing to streamline their textile fibers operations on the one hand, its non-textile operations, such as films and medical, is accounting for about 70% of the company's profits.
The Asahi Kasei Group reorganized as a holding company with seven core operating companies in October 2003, and fiber operations were separated from the principal body. On a consolidated basis, however, its fiber operations boast the largest scale sales in the industry. Asahi Kasei is diversifying into many other areas outside of textiles such as chemicals, housing, construction materials, electronic materials and healthcare.
Following its withdrawal from acrylic fibers, Kanebo, Ltd. pulled out of the natural fibers arena as well. The troubled company is currently in the process of being revitalized under the Industrial Revitalization Corporation of Japan.
Chemicals and resins account for about 40 percent of Mitsubishi Rayon Co., Ltd.'s business, but the company is pouring effort into its acrylic business, with a focus on high value-added areas such as carbon fiber.
Meanwhile, Kuraray Co., Ltd. boasts a 70 percent share of the global market through its vinyl acetate-derivative resin eval, while Kuraray poval has a share of about 30 percent.
Three Key Points towards the Future
Can Textile Manufacturers Shift to High Value-added Fields in their Core Business?
A prime example of a company that successfully shifted to high value-added fields is Toray, currently the world's top manufacturer of carbon fibers. The company developed carbon fiber propeller shafts and other parts for mass-produced cars after Toray carbon fiber was adopted for use by two Nissan Motor Co., Ltd. models, including the Fairlady Z. Toray carbon fiber is being supplied to auto manufacturers around the world. Other applications for which expanded demand is anticipated include sporting equipment, such as golf clubs (shafts) and tennis rackets, as well as aviation-related fields. Toray plans to develop carbon fibers into a 100 billion yen business 10 years from now.
Can Textile Manufacturers further Diversify and Expand Non-textile Businesses?
The proportion of textile and fiber sales at major manufacturers has already fallen to between 30 percent and 50 percent of total sales. This downward trend will most likely continue. On the stock market, many investors already perceive Asahi Kasei, in which textile and fibers account for only 9 percent of its business, as a chemicals manufacturer or a housing maker rather than a textiles manufacturer.
Meanwhile, the medical and pharmaceuticals business has already developed into a profit pillar for Teijin, and the company is aiming to strengthen its industrial fiber and IT-related business through enhanced M&A activities and other means.
Kuraray, which has many original products, intends to expand its manmade leather, chemical and medical businesses, while focus is being placed by Unitika Ltd. on biodegradable plastics. Nisshinbo Industries, Inc., also intends to expand its non-textile field through automobile brakes, paper and biotechnology products.
Can Textile Manufacturers Create New Opportunities by Advancing into Mid-stream and Downstream Businesses?
If textile makers that manufacture fibers are considered an upstream industry, then those that manufacture woven, knit and dyed fabrics are its mid-stream industries. Some upstream textile manufacturers are actively entering the mid-stream arena, one step downstream, in order to find a means for survival. Unitika and Gunze Limited are prime examples. Unitika is marking high business performance in the woven fabrics and knits field. Gunze is currently the industry's top manufacturer of men's underwear. Toray and Teijin have invested in Kawashima Textile Manufacturers Ltd. Kawashima Textile utilizes traditional Nishijin-brocade techniques and has strength in the manufacture of fabrics used for curtains and automobile seats. With the expansion of domestic automobile production in Japan, the company is marking especial large growth in automobile interior furnishings. The benefits of such growth are sure to be felt by upstream manufacturers that supply fibers to the company.