TOKYO -- As U.S. tariffs on Chinese goods spur manufacturers to rethink their supply chains, the upheaval offers big opportunities for Japanese contract electronics makers with ties to Southeast Asia.
Kaga Electronics plans to invest 500 million yen ($4.71 million) to build a second factory in Thailand, slated to open in December. The project in Chonburi Province, announced on Sept. 3, is intended to meet rising demand for circuit boards from printer makers expanding production in the country.
Kaga looks to generate 10 billion yen in revenue from the plant within two years, citing "possible moves by manufacturers to relocate production out of China to [Southeast Asia] in order to avoid the impact of U.S.-China trade issues."
The company's medium-term plan calls for revenue in electronics manufacturing services to reach 140 billion yen in fiscal 2021, up by half from fiscal 2018.
China, dubbed the world's factory, is the largest hub for electronics manufacturing services. But rising labor costs and the escalating Sino-American trade war are raising production expenses there for a growing number of companies.
The longtime focus on Southeast Asia by Japanese contract manufacturers leaves them well positioned to serve as alternative suppliers for businesses moving to the region to escape U.S. tariffs.
Meiko Electronics, which produces printed circuit boards in Vietnam, signed a deal on Sept. 3 to acquire a Vietnamese contract manufacturing arm of Japan's Towada group. Meiko will spend 800 million yen for a 60% stake.
The move responds to a surge of interest from companies that manufacture products such as automotive equipment and smart speakers in China.
Many of these businesses fear they will be unable to bear the cost of additional tariffs if they stick with Chinese suppliers, according to Meiko. Washington slapped additional 15% levies on a range of Chinese imports Sunday including consumer goods such as smartwatches and printers, and the U.S. plans to raise duties from previous rounds to 30% from 25% in October.
Meiko expects revenue from electronics manufacturing services to more than double in fiscal 2020 from the projected 8.9 billion yen for this fiscal year.
Unlike foreign rivals that often use China as their main hub, Japanese contract manufacturers tend to focus on Southeast Asia, where many electrical equipment companies and automakers from Japan have set up shop.
The technical prowess of these suppliers and their know-how on supply chains and factory management have made them a favored choice of companies seeking alternatives to Chinese outsourcing. Some companies have turned to Japanese contract manufacturers as a replacement for in-house production in China.
Japan remains a minnow in the industry. Siix, which ranks as Japan's largest provider of electronics manufacturing services but stands only 15th worldwide, reported 2018 sales of 242.8 billion yen, or about $2.29 billion. Market leader Hon Hai Precision Industry, better known as Foxconn, raked in 5.29 trillion New Taiwan dollars ($169 billion) in operating revenue over the same period.
Siix plans to move some contract manufacturing of parts for printers and automotive equipment from China to Indonesia and Thailand as early as this year, looking to leverage its strength in Southeast Asia.
CEO Yoshihisa Kainuma of MinebeaMitsumi, which produces electronic components in addition to its better-known bearing business, anticipates a rise in orders for the company's Cambodia plant, noting "various inquiries" about it.
U.K. research firm Technavio sees the global market for electronics manufacturing services expanding 17% from 2018 to $556 billion in 2022. Southeast Asia's share of production is expected to keep growing amid trade tensions and higher Chinese labor costs.
Contract manufacturers from Taiwan and mainland China also are rushing to shift production into Southeast Asia. Though it likely will take time for them to deal with hurdles such as switching to English or other local languages instead of Chinese, they could prove formidable rivals for their Japanese counterparts.