Suzhou's biggest exporter believes that being too focused on the China market is a risky proposition Donning his company's light-green uniform, Yoshiaki Natori has much to be proud of. His plant, the biggest exporter in Suzhou and the 38th largest in China, is working around the clock. His factory is so important that the city government protects it from the power cuts that afflict most other businesses in the city. Under such favourable conditions, is he considering an expansion? 'No,' he said. 'It is too risky. Perhaps we will build a new plant somewhere else.' Mr Natori is president of Suzhou Epson, one of Seiko Epson's biggest factories in China, with an investment of US$330 million and a workforce of 8,600. The facility makes 50 per cent of the company's global production of liquid-crystal display modules for mobile telephones and digital cameras, plus 40 per cent of global output of quartz crystal units for mobile phones. Such a heavy reliance on China is rare among Japanese companies, which have been more cautious on the mainland than their United States, European, South Korean, Taiwanese and overseas Chinese competitors, In passenger cars, for example, Volkswagen has a market share of more than 30 per cent and General Motors 12 per cent, while Toyota Motor Corp and Nissan Motor combined have less than 5 per cent. In colour film, Eastman Kodak has a market share of more than 50 per cent after buying three state factories in 1998 and agreeing to invest US$1.2 billion, while its global rival, Fuji Film, has no mainland plant and a market share of less than 30 per cent and falling. According to official figures, Japan ranked as the fourth-largest foreign investor in China behind Hong Kong, the US and the European Community between 1996 and 2002. Japan invested US$25.8 billion, or 8.25 per cent of foreign direct investment, during the period. Seichi Masuyama of Nomura Research Institute found that Japanese investors in China had been less profitable than their US counterparts because they had been too slow in entering the market, out-sourced too little, made decisions too slowly and did not employ enough Chinese managers. 'Many industries are dominated by a handful of American and European, and sometimes Korean and Taiwanese firms, which moved in and invested aggressively, while the presence of Japanese firms is marginal,' he said. 'While early movers earned oligopolistic profits and benefited from economies of scale, late movers have enjoyed neither.' He said that Japanese firms should learn from the marketing and distribution success of Procter & Gamble and the rapid decision-making of Korean and Taiwan firms. Seiko Epson is an exception. It first invested in China in 1983, with a plant in Shenzhen making printers. Now it has 18 factories and research facilities, with an investment of US$672 million and a workforce of 30,000. Their products include printers, projectors, liquid-crystal displays for mobile telephones and digital cameras, quartz devices and watches. Its mainland plants make 47 per cent of the company's global output. But this investment is close to its limit, said Toshio Kimura, the executive vice-president and chief financial officer. He said simple prudence demanded that the company diversify its production locations and maintain manufacturing and research and development facilities in Brazil, Britain, Indonesia, Singapore, Malaysia, Mexico, the Philippines and the US. Mr Kimura said the company was also looking at Hungary, Poland and the Baltic states as potential production sites. 'Fifty per cent of global output from the China facility would be too much,' he said. 'There is a risk in every country,' he said. Mr Kimura also saw the risks of social instability and foreign-exchange volatility as negligible, although he did say that inflation could be a problem. 'The inflation risk is getting bigger. In that case, we can shift production to Indonesia and the Philippines,' he said. Mr Natori said the biggest headache was retaining qualified staff. 'China is developing fast, so there is a lot of job-hopping,' he said. 'It is easy for engineers to find other jobs. Some of our Chinese managers are too self-confident and think too highly of themselves. Their ability to work together with others to solve problems is poor.' In May, the Ministry of Commerce granted Seiko Epson the right to directly import and market products in China. This means that it can sell directly to Chinese customers without going through a middleman. 'We received the licence because we have made a big contribution and have good relations with the government,' Mr Kimura said. 'We did not pay a bribe. Other firms have applied and will receive a licence.' He said this licence would enable the company to triple domestic sales of electronic products and double those of branded goods over the next five years. Founded in Suwa, Nagano prefecture in 1942 as a watchmaker, the company, which listed on the Tokyo Stock Exchange in June last year, posted consolidated sales of 1.41 trillion yen (HK$100 billion) in the year to March 31. It has 110 companies, employing 84,900 people worldwide, 64 per cent of them in Asia/Oceania outside Japan.