Japan's Sumitomo adding rental factory space in Southeast Asia
Targeting smaller Japanese manufacturers looking to produce abroad
TOKYO -- Trading house Sumitomo Corp. will expand its factory rental business in Southeast Asia serving small manufacturers from Japan, offering them the chance to launch overseas production without the hefty financial commitment of building their own plants.
The factory space comes ready for use, equipped with electricity, gas and communications lines. The monthly rent for a 1,500-sq.-meter space in Vietnam is typically around 1 million yen ($8,661), meaning an annual cost that is anywhere from one-eighth to one-tenth that of constructing one's own facility.
The low initial investment encourages smaller businesses to start overseas operations, Tokyo-based Sumitomo said. Tamagawa Electronics, a tenant in Vietnam since August 2015, agrees.
"A smaller financial commitment was a main factor in renting the space," said an official at the Tamagawa Holdings unit, adding that it will make a decision two to three years down the road about having its own factory.
Sumitomo will increase floor space at its two sites near Hanoi that currently have 80,000 sq. meters combined, including at Thang Long Industrial Park. Together with a third complex of the same size slated to open in the fall of 2018, the tally in Vietnam will come to 200,000 sq. meters.
Expansions are also planned for the Philippines, where the company runs the roughly 80,000-sq.-meter First Philippine Industrial Park with a local conglomerate, and in Myanmar, where it operates the approximately 14,000-sq.-meter Thilawa Special Economic Zone with Japanese peers Mitsubishi Corp. and Marubeni. A new site in India is under consideration as well.
In all, Sumitomo now operates about 200,000 sq. meters of rental factory space in four Asian countries. The aim is to roughly double the size to 380,000 sq. meters to 400,000 sq. meters in five years. The expansion project will require some 10 billion yen, including costs for land acquisition and construction. Sumitomo expects to shoulder 5 billion yen of that, with the rest coming from co-operators of the industrial parks.
Sumitomo seeks to tap into the growing trend among small Japanese businesses to launch production overseas. These players accounted for over 70% of Japanese companies that made direct investments abroad in 2014.
The trading house will also offer optional support in dealing with local administrative procedures such as obtaining licenses, in addition to help procuring materials.