OSAKA -- Daikin Industries is overhauling its household-air-conditioner production structure because the yuan's strength against the yen has reduced the benefits of making the appliances in China.
In fiscal 2014, the Osaka-headquartered company will reduce by more than 30% the volume of inexpensive E-series air conditioners outsourced to Chinese partner Gree Electric Appliances. Instead, Daikin's Shiga Prefecture plant has begun making the E series, which accounts for half of Daikin's domestic sales.
Starting this year, the design and parts of inexpensive air conditioners were standardized with emerging-market models to reduce materials costs. This, combined with moving parts production in-house at the Shiga facility, will enable the company to produce the appliances for roughly the same low cost as outsourcing to Gree, according to Chairman Noriyuki Inoue.
To boost production at Shiga, Daikin plans to keep the roughly 1,300 contract workers it added to meet demand in advance of the consumption tax hike.
Gree has been making low-end air conditioners for Daikin since 2008, but the yuan's strength against the Japanese currency has hurt the profitability of Chinese outsourcing. The yen has depreciated nearly 20% against the yuan over the last 12 months.
Domestic demand for fiscal 2014 is expected to drop 20% on the year to around 7.7 million units. Switching to domestic production will help Daikin better respond to demand fluctuations, company officials say.