Choosing The Playing Field

Japan is a net exporter of machine tools. The United States is a net importer of machine tools. Both countries share certain challenges in common—chief among them being the competition posed by countries whose labor costs are lower. Employees in these countries can be hired to make machine tools or use machine tools more cheaply than in wealthier nations.

For now, it's not likely that the wealthier nations' labor costs will come down. Minimum wage laws and legally mandated expenses do contribute to these costs, but so too does the range of opportunities that employees have available. In a wealthy nation, manufacturing companies have to compete for their employees against a variety of other businesses prepared to offer a high level of compensation.

Therefore, the way for manufacturers to succeed in those wealthy countries is to focus their efforts on the kind of work that makes labor cost less of a factor. One option is high-end work that requires a high level of skill and/or a substantial engineering investment. The small number of suppliers capable of doing this work leads to high margins that can absorb the labor expense. Another option is to implement a highly automated production process that makes the best use of minimal staffing.

In Japan, one builder committed to the "high end" option as a way to manufacture machine tools profitably is Mitsui Seiki. Standard machine tools for general applications can be made at lower cost in countries such as China, Korea and Taiwan. By contrast, Mitsui Seiki has opened a new plant specially suited to making custom machines for tight-tolerance applications (click here). Also, company president Takehiko Higuchi, when recently listing the company's technology objectives, placed a high priority on developing five-axis machines with high speed rotary axes and multi-process machines that efficiently combine cutting and grinding.

Who will buy these machines? Mr. Higuchi sees a growing opportunity for machines such as these in the North American market. The high accuracy machine tools serve manufacturers performing high end work. And the fast five-axis machines and multi-process machines will serve manufacturers looking to use labor more strategically by performing more machining in a single setup.

In other words, this one builder's strategy for competing against low-cost labor is to make machines for other manufacturers that are trying to accomplish the same thing.