OM in the News: Japan, Inc. Faces Offshoring Dilemma

If you think offshoring of jobs and production is a problem unique to the US, Nissan and Toyota would disagree. The Wall Street Journal (Feb.1, 2011) just reported that Japanese auto makers will be holding production steady in Japan (for now), but opening new plants overseas over the next 5 years to meet increased demand.  This move to offshoring ( a topic in Supp.11) comes as the yen hovers near record highs against the dollar. Nissan, Toyota and the other auto firms are having trouble making money on exports when the dollar is at 90 yen or weaker. (It sits at 82 this week).

Nissan “will significantly reduce the number of models it exports from Japan over the next 3 years, while boosting production …overseas”, says the company. It turns out that a move in the dollar by one yen in either direction is equivalent to $219 million in operating profit annually at Nissan.

For political and union reasons, Nissan promises to keep making 1 million cars in Japan, while Toyota vows to stay at 3 million per year. But Nissan just shifted production of its Micra model from Tokyo to Thailand. And the Rogue SUV will begin production at a Smyrna, Tenn., plant in 2013–departing  its current Kyushu, Japan location.

The additional good news for other countries wanting the jobs: Nissan will shift the outsourcing of many parts to cheaper production sites outside Japan.

Discussion questions:

1. Why are major Japanese auto makers attracted to the US, and other countries,  for production?

2. Is offshoring a political decision in Japan?