Multinationals in bind over 'America First'
Trump has thrown the global business landscape into tumult
TOKYO -- Forget the Trump rally. Companies all over the world are staring at a daunting set of challenges and uncertainties now that the U.S. has inaugurated an unpredictable president.
President Donald Trump, 70, has vowed to pursue an "America First" policy, build a wall on the border with Mexico and review the North American Free Trade Agreement.
He has also withdrawn the U.S. from the Trans-Pacific Partnership, which was to be a 12-nation pact whose supporters said it would have made it easier to do business across borders.
Trump's shock and awe style of governing, regarding economic and other matters, has knocked globally operating companies off balance.
The uncertainty is particularly thick in Mexico, which is being broadsided by Trump criticisms about the flow of undocumented immigrants into the U.S., talk of "bad hombres," threats that the U.S. will "build that wall" and intimidation regarding NAFTA.
Trump seems to want to stall the brisk movement of people and goods across the U.S.-Mexico border. That would deal a serious blow to the numerous multinationals that have set up shop in Mexico.
It can be said that Mexico is part of two worlds. Geographically, it is a North American country. Culturally, it is closer to Central and South American nations. As such, it often gets lumped in with these countries as part of Latin America.
For decades now, Mexico has been taking advantage of its North American-ness. It is the world's seventh-biggest auto-producing country, thanks to NAFTA, which allows for cars made there to be exported to the U.S. and Canada tariff-free.
By themselves, Japanese companies operating in Mexico number around 1,000. They include heavyweights like Nissan Motor, Honda Motor and Mazda Motor. For Japanese automakers, Mexico is now becoming a major overseas production hub -- the Thailand of the West.
As in the case of Thailand, many Japanese parts suppliers have followed the big brand names to Mexico.
Kintetsu World Express, a leading Japanese international freight forwarder, set up a Mexican subsidiary in October 2012. Kintetsu World Express Mexico mainly transports parts for Japanese automakers.
"If things go wrong," said Hironori Uchino, president of Kintetsu World Express Mexico, "our business model will become impossible to pursue."
Uchino made the remark at a monthly meeting of Camara Japonesa de Comercio e Industria de Mexico, A.C., the Japanese chamber of commerce in the country, in Mexico City on Jan. 27.
Some observers had said that Trump might change his tune on Mexico after taking office. But any such hopes were quickly dashed.
On Feb. 8, Nisshinbo Holdings said it has scrapped a plan to build a new parts plant in Mexico, citing "growing uncertainty over investment in Mexico." Nisshinbo became the first Japanese company to say adios to Mexico in response to Trump's NAFTA bashing.
Instead of building a new brake friction material plant in Mexico, Nisshinbo is now considering raising its capacity to produce such autoparts in the U.S. and Brazil.
Many other Japanese companies are mulling similar options.
Hazama Ando, a leading general contractor in Japan, has suspended multiple plant construction projects, already in the engineering stage, in Mexico since the beginning of this year at the request of its customers.
Japanese companies have contracted with Hazama Ando to handle their Mexico projects. "I wonder whether the projects will actually be resumed sometime in the future," Vice President Hidekazu Kojima said anxiously.
Other Japanese general contractors are postponing plant construction projects in Mexico and tenders for them, too, according to Kojima.
Some Japanese subcontractors are also feeling the pinch. Katolec is one. The Tokyo-based company makes electronic substrates for autos and other products on a contract basis.
In January 2016, Katolec opened a second plant in Mexico to produce autoparts. But the factory has only one production line, leaving much space unused. The company is reviewing its Mexico business plan.
Katolec President Eisuke Kato said it will take an additional two or three years than what had been expected for the plant to become profitable.
There seems to be no panacea for the corporate world's Trump woes.
On Feb. 6, a big law firm held a Mexico-related seminar in Tokyo. A lawyer from the Latin American country was present. His remarks sent shock waves through the crowd of 120 business people in attendance.
The lawyer told the seminar that one New Zealand company will stop exporting its products from Mexico to the U.S. and start shipping them from New Zealand instead. The lawyer then stressed the need for Japanese companies to adapt to the changing business environment.
But big companies are not set up to "adapt" as quickly as Trump taps out a tweet. In fact, they're kind of stuck. Even if corporate managers were to try to curry favor with Trump, it is unclear whether their efforts would ever pay off.
Meanwhile, in late January, shortly after Trump's inauguration, Terry Gou, chairman of Taiwan's Hon Hai Precision Industry, also known as Foxconn, unveiled plans to invest around $7 billion to set up a new liquid crystal display plant in the U.S.
Gou's announcement came as a surprise to many at Foxconn's Sharp subsidiary.
Foxconn and Sharp have already announced plans to build one of the world's largest LCD panel plants in China. Sharp will send some of its engineers to the Chinese plant and can ill-afford to spread out its talent even more thinly.
"Hon Hai will just pay money," one Sharp source huffed. "It is difficult to set up two new plants simultaneously."
Many others at Sharp were said to harbor similar sentiments.
But on Feb. 8, a top Sharp executive confirmed that the Foxconn subsidiary will lead the U.S. project.
Two days later, Japanese Prime Minister Shinzo Abe held his first official meeting with Trump at the White House. In a bid to prevent trade friction from flaring up, Abe told Trump that Japanese companies have increased the number of their employees in the U.S.
After the meeting, the two leaders moved to a Trump-owned resort in Florida and golfed together.
While they put on a good show for the cameras, Japanese companies' concerns with Trump linger.