Japan's Decoupling from China Experiment... Daikin Industries to Produce Air Conditioners Without Chinese Parts

Responding to Geopolitical Risks from COVID Lockdowns and US-China Tensions
Establishing Supply Chains Capable of Producing Products Without Chinese Parts
Requesting Partners to Produce Parts in Non-China Countries

Japanese air conditioner manufacturer Daikin Industries
[Image source=Daikin Industries website]

[Asia Economy Reporter Lee Ji-eun] Japanese manufacturing companies that had established production bases in China to reduce costs are recently reducing their dependence on Chinese parts and reorganizing their supply chains. This is a measure to reduce supply chain instability exacerbated by China's 'zero COVID' policy and geopolitical risks triggered by the US-China conflict.

According to Nihon Keizai on the 21st, Japanese air conditioner manufacturer Daikin Industries plans to diversify its parts supply chain across multiple countries or internalize it by next year so that it can produce products even without Chinese parts in emergencies.

First, for parts related to core product functions such as energy saving, Daikin plans to procure them through domestic Japanese companies. It also plans to require its suppliers to establish factories in countries other than China to produce parts.

For printed circuit boards previously produced in Shanghai, China, Daikin has prepared alternatives by establishing multiple production bases in Shiga Prefecture, Japan, and Malaysia. Air conditioner motors will also be reorganized to be produced in countries other than China. Although diversifying the supply chain may increase procurement costs, Daikin plans to improve production efficiency by sharing production base and inventory information among countries or developing substitute products.

The reason Daikin Industries is moving away from China is that it suffered production setbacks due to supply chain instability during the COVID-19 outbreak. Although Daikin reduced its dependence on Chinese parts from 35% in 2020 to 20% last year, it faced difficulties procuring key parts due to the Shanghai lockdown imposed by the Chinese government.

Besides Daikin Industries, the number of companies seeking to move away from China is rapidly increasing in Japan. According to statistics from the Japanese data research company Teikoku Databank, as of June, the number of Japanese companies operating in China was 12,706, a decrease of 940 compared to the previous year. Mazda Motor Corporation, which suffered production setbacks due to the Shanghai lockdown, is also reportedly considering ways to reduce its dependence on Chinese parts.

Experts emphasize that as geopolitical risks are increasing, including Russia's invasion of Ukraine and rising tensions around the Taiwan Strait, flexible supply chain measures by Japanese companies are necessary. Professor Takahiro Fujimoto of Waseda University told Nihon Keizai, "Japanese companies should prioritize the economic efficiency of supply chains during normal times but consider producing substitute products through multiple countries in emergencies."

This content was produced with the assistance of AI translation services.