Looking Beyond The Borders

There was something really interesting going on at the recent JIMTOF,the Japanese machine tool show. After finally showing some signs of life in 1997, the Japanese domestic machine tool market was once again heading south. Yet none of the prominent builders seemed in all that bad of a mood.

While the Japanese machine tool industry is still popularly viewed in this country as a juggernaut, the truth is it has seen some very troubling times in the last decade. Regardless of exports, the core of most machine tool building nations' confidence stems from their domestic markets. When things are bad at home, things are bad, period.

In Japan, things have been awful. As its own customer, Japan peaked in 1990 when domestic shipments of metal cutting equipment hit 881 billion yen (about $7.5 billion at today's exchange rate). There were some extraordinary internal factors that year, but that watermark nonetheless capped off what had been a vibrant market for many years. Then the bubble burst. By 1993, domestic shipments had fallen to ¥314 billion ($2.7 billion), and for the next three years, domestic shipments never rose above ¥260 billion ($2.2 billion).

While $2 billion may sound like a lot of machine tools, when it's less than a third of your best year, that's not a happy state. In 1996, Japan's auto industry started buying again, and by 1997, domestic shipments of metalcutting equipment had climbed back to ¥421 billion ($3.6 billion)—better, but still less than half of the 1990 level. Shipments were still tracking at that rate through the first half of 1998, but by fall, business had again turned sour.

Why weren't the Japanese as crestfallen as their market? Look at total shipments, and you see a different picture. Even at the recent low point in 1994, Japan shipped ¥576 billion ($4.9 billion) worth of metalcutting equipment worldwide. Despite local conditions, shipments consistently grew into 1997 when they once again topped a trillion yen, at about $10.7 billion.

So, there were few long faces in Japan because business was still so good outside Japan. Admittedly, there are aspects of this story that make some observers' blood boil—most notably the meager level of Japanese machine tool imports in good times or bad. Still, there are more than a few companies here who live and die with our domestic market that might give a passing thought to this model.