2. Industrial Machine Sector

2. Industrial Machine Sector
2.1

Machine tools

2.1.1. Supply and demand trend(1) Outline

Fig. 2-1

Orders received for machine tools by business category¥ million, %
2000

2001

2002

2003

2004

2005

2006

Year-on-year
ratio(for 2006)

7,824

5,189

3,680

5,557

8,613

11,61912,996

11.9

Metal product18,325

13,383

9,732

15,20922,06722,641

21,030-7.1

General machine

192,850

154,430

120,190

160,512264,502302,287

330,108

9.2(of which dies)-

39,82132,32740,72465,64573,807

66,667-9.7

Machine manufacturer

Iron and steel/nonferrous metal

Electric machine

45,92235,131

22,56430,48350,902

44,29652,333

18.1

Automobile

129,042

136,541

141,490

158,988

225,632

258,959

195,505-24.5-

60,41067,10076,975

101,945

110,547

89,157-19.3

10,227

15,587

14,287

12,074

17,32823,942

27,06613.0
11.8(of which automotive parts)
Shipbuilding and othertransportation machine
Precision machine

38,27622,082

16,45924,17632,99032,91336,813

Subtotal

416,317363,771

314,990386,233

591,354662,397

641,825-3.1

Other manufacturers

26,557

17,19814,19724,50737,64333,33337,71913.2

National/local governments/schools

3,085

3,065

2,125

1,873

1,842

1,588

2,100

32.2

Other demand sectors

1,760

853

610

1,644

2,971

6,081

8,368

37.6

Trading firms/agencies

47,818

7,666

4,988

6,564

8,349

9,050

8,971

-0.9

Total, domestic demand

521,686

411,125

350,322441,587

672,839746,709733,009-1.8

Overseas demand

453,360

377,773

325,515

409,514563,353

616,494

703,961

14.2

Total amount of orders received

975,046

788,898

675,837

851,101

1,236,192 1,363,203 1,436,970

5.4

of which NC machine tools

926,477

745,409638,831807,208

1,176,257 1,304,058 1,374,496

5.4

868,442

849,884

650,600

792,356

1,025,726 1,275,637 1,407,258

10.3

821,236804,798

617,671754,995

975,911

10.6

Sales
of which NC machine tools

1,219,016 1,348,759

Notes: 1. Figures for dies and automotive parts, which are included in those for general machines and automobiles, respectively,
are shown in 2001 and after.
2. Due to rounding off, the total of year-on-year ratio is not 100.0 in some cases.
3. Figures with “-“ are negative ones.
Source: Based on Japan Machine Tool Builders’ Association, “Machine Tools,” No.168, March 2007, p.14.

The amount of orders received for machine tools was greater than that for the previous year
from 2003 to 2006 for four consecutive years, and it is believed that the amount in 2007 will begreater than that in 2006 for the fifth straight year. In 2006, the amount of orders received hit a newhigh of ¥1,437.0 billion first in 16 years after 1990 (Fig. 2-1).
(2) Production and demand

Orders received for machine tools were in a favorable trend, and overseas demand (net export)
showed especially high growth, recording ¥704.0 billion or an increase of 14.2% in 2006 over theprevious year. The growth rate of overseas demand was 25.8% y/y in 2003 and 37.6% y/y in 2004
but declined to 9.4% in 2005. In 2006, however, the amount of overseas demand exceeded ¥700
billion, suggesting that this demand will continue to be a big market for the machine tool industry in24

2. Industrial Machine Sector

the future. Domestic demand decreased a little by 1.8% from the previous year but registered ¥733.0
billion in 2006 (Fig. 2-2).

Fig. 2-2

Trend of the amount of orders received for machine tools¥ million
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000

Total, domestic demand
Total, ov erseas demand
Total amount of orders receiv ed

200,000
02000

Source:

2001

2002

2003

2004

2005

2006 Year

Same as that for Fig. 2-1.

By the business category of the manufacturing industry, while orders from metal productmanufacturers (¥21.0 billion, down 7.1% y/y) and automobile manufacturers (¥195.5 billion, down
24.5% y/y) decreased, those from other categories of manufacturers rose: ¥52.3 billion or up 18.1%
y/y for electric machine manufacturers and ¥330.1 billion or up 9.2% y/y for general machine
manufacturers (Fig. 2-3).

Fig. 2-3

Orders received for machine tools by the business category of the
manufacturing industry¥ million
350,000
300,000
250,000

Iron and steel/nonf errous metal
Metal product
General machineElectric machine
Automobile
Shipbuilding and other transportation machine
Precision machine
Other manuf acturers

200,000

Automobile

150,000
100,000
50,0000
2002

Source:

2003

2004

Same as that for Fig. 2-1.

25

2005

2006 Year2. Industrial Machine Sector

Then the production of machine tools in 2006 was favorable though the growth rate was lower
than in 2005: ¥1,211.2 billion or an increase of 9.1% y/y. This production figure was over twice thatin 2002 when it suffered a big fall and a growth for the fourth straight year after 2003 (Fig. 2-4).

Fig. 2-4

Production of machine tools¥ million

Year-on-year ratio (%)
30.0

1,400,000
1,211,230
1,200,000
1,000,000

20.0
814,636
878,082

776,453

800,000

26.4
585,098

690,205

600,000
400,000

27.2

10.0
9.1
0.0

18.0
-10.0
10.2

200,000

-20.0

-4.7
-24.6

0
2000

Source:1,110,257

2001

2002

-30.0
2003

2004

2005

2006

Year

Based on the Ministry of Economy, Trade and Industry, “Annual Report of Machinery Statistics.”

The production of machine tools by product category is as shown in Figures 2-5 to -11.

Fig. 2-5

Production of lathes¥ million

Year-on-year ratio (%)
40

300,000
212,477

264,846
276,952

250,000(28.7)

150,000

20(24.6)

200,000

165,074
137,08430

10(20.4)

(4.6)

0
-10

100,000-20
50,000-30(-30.4)

0

2002
02

Source:

2003
03

2004
04

Same as that for Fig. 2-4.

26

2005
05

2006
06

-40
Year

2. Industrial Machine Sector

Fig. 2-6

Production of numerically controlled lathes (including turning centers)¥ million

Year-on-year ratio (%)

300,000(29.2)

40

271,344

260,19330(20.4)

250,000

207,619150,000

20(25.3)

200,000

10

160,671
133,489

0

(4.3)

-10

100,000-20
50,000-30(-30.5)

-40

0
02
2002

Source:

03
2003

04
2004

05
2005

06
2006

Year

Same as that for Fig. 2-4.

Fig. 2-7

Production of grinding machines¥ million

Year-on-year ratio (%)
40

160,000(33.0)

140,000(35.4)

30

124,657(23.1)

120,000

20

93,728100,000

10

76,14980,00060,000135,339(8.6)

056,238-10-20

40,00020,000-30(-32.3)

-40

0

2002
02

Source:

2003
03

2004
04

2005
05

2006
06

Year

Same as that for Fig. 2-4.

Fig. 2-8

Production of gear-cutting machines and gear-finishing machines¥ million

Year-on-year ratio (%)

35,000(33.0)(31.7)

30,00035
28,66830

26,28825

25,00019,761
20,00015,000(17.2)
12,67520

16,698(18.3)

15
10

10,000
(9.1)

5,000

5
0

0

2002
02

Source:

2003
03

2004
04

Same as that for Fig. 2-4.

27

2005
05

2006
06

Year

2. Industrial Machine Sector

Fig. 2-9

Production of special-purpose machines¥ million
160,000

144,361

Year-on-year ratio (%)
50

140,000

126,460

120,000
100,000

100,565

99,31740(45.4)

30

86,33120(16.5)

80,00010

60,0000(6.1)

40,000(-1.2)

20,000-10(-12.4)

0

2002
02

Source:

2003
03

2004
04

2005
05

2006
06

-20
Year

Same as that for Fig. 2-4.

Fig. 2-10

Production of machining centers¥ million

Year-on-year ratio (%)
50

332,142350,000
300,000

267,492

159,870

150,000

40
30(24.2)(16.6)

250,000
200,000

376,670(43.5)

400,000

20(13.4)

0186,342-10

100,000-20

50,000-30(-34.2)

0

2002
02

Source:

10

2003
03

2004
04

2005
05

2006
06

Year

-40

Same as that for Fig. 2-4.

Fig. 2-11

Production of numerically controlled electric discharge machines¥ million

Year-on-year ratio (%)

60,00050,000(23.3)
48,05142,32040,00050,242

25

52,96020

38,96715
1030,000(4.6)

10,000(-5.7)

0

2002
02

Source:5(5.4)

20,0000-5(-7.9)

2003
03

2004
04

Same as that for Fig. 2-4.

28

2005
05

2006
06

Year

-10

2. Industrial Machine Sector

In general, the production of the machine tool products increased, though that ofspecial-purpose machines fell to ¥126.5 billion (down 12.4% y/y) in 2006 (Fig. 2-9). In particular, as
seen in the fact that the output of numerically controlled (NC) lathes amounted to ¥271.3 billion in
2006, a growth for four consecutive years (Fig. 2-6), the total production of NC machine tools
steadily increased (Fig. 2-12).

Fig. 2-12

Total production of NC machine tools¥ million

Year-on-year ratio (%)

1,200,000
773,462
1,000,000

597,30640

1,070,348
979,42230(29.5)

800,000

20(26.6)

509,659

600,000

10(17.2)(9.3)

0400,000-10

200,000-20(-25.1)

0

2002
02

Source:

2003
03

2004
04

2005
05

2006
06

-30
Year

Same as that for Fig. 2-4.

(3) Export and import

The export of machine tools in 2006 was ¥921.5 billion or an increase of 13.0% over theprevious year, recording a growth for the fourth straight year from 2002. The import in 2006 was¥135.6 billion or a sharp growth of 26.2% y/y (Fig. 2-13).

Fig. 2-13

Export and import of machine tools¥ million
1,000,000
Year-on-year ratio,
import800,000

600,000

Year-on-year ratio (%)
80.0
Export60.0
40.0Year-on-year ratio,
export20.0
400,000
0.0
200,000

Import0
2002

Source:

2003

2004

2005

2006

-40.0
Year

Based on Japan Machine Tool Builders’ Association, “Machine Tools,” No.168, March 2007.

29

-20.0

2. Industrial Machine Sector

By importing country, the U.S. is the largest importer of machine tools from Japan (¥229.4
billion in 2006), followed by China (¥157.2 billion) (Fig. 2-14). The financial statements and otherdata of machine tool manufacturers point out that demand for machine tools was large in theautomobile, farm machine, construction machine and aircraft industries in these countries. Thus it is
supposed that export to these industries was on a higher level.
According to the Japan Machine Tool Builders’ Association, the export of NC horizontal lathes
was the greatest in amount (¥185.9 billion, 20.2% of all), followed by horizontal machining centers(¥146.4 billion, 15.9% of all).
Fig. 2-14

Trend of export of machine tools by importing country (area)

2002

2003

2004

2005

Year-on-yearchange (%)

2006

Ratio to total(%)

South Korea

39,48040,37885,58470,54875,414

6.9

8.2

Taiwan44,03549,28887,39086,93999,718

14.7

10.8

China

54,08470,729118,298

123,760

157,183

27.0

17.1

Thailand

34,092

39,32946,35851,99749,401-5.0

5.4

Singapore

9,875

8,294

19,957

13,74918,18332.2

2.0

Germany

21,60422,93630,62240,91943,390

6.0

4.7

U.K.

10,177

5,025

6,403

7,469

10,447

39.9

1.1

Russia

4,131

320

1,251

2,420

2,067

-14.6

0.2

U.S.

138,646

128,758

143,067

195,493229,396

17.3

24.9

Others

128,544

199,048

144,136

221,816

236,257

6.5

25.6

Total

484,668

564,105

683,066

815,110

921,456

13.0

100

Note:
Source:Figures with “-“ are negative ones.
Based on the Ministry of Finance, “International Trade Statistics.”

The U.S. is also the largest exporter of machine tools to Japan; the import from the country in2006 amounted to ¥70.7 billion, accounting for over 50% of all (Fig. 2-15). According to thestatistics of the Association mentioned above, the import of laser machines was the largest, totaling
to ¥16.8 billion in 2006, of which the import from the U.S. was ¥7.1 billion. This is one of thereasons that the U.S. has a large presence in Japan’s import of machine tools.
Fig. 2-15

Trend of import of machine tools by exporting country (area)

2002

2003

2004

2005

Year-on-yearchange (%)

2006

Ratio to total(%)

South Korea

1,708

1,237

3,588

4,595

3,971

-13.6

2.9

Taiwan

1,466

1,879

2,312

4,654

5,656

21.5

4.2
6.1

China

2,264

2,416

3,992

6,387

8,340

30.6

Thailand

2,457

3,894

4,692

6,690

7,732

15.6

5.7

Singapore

1,282

2,292

3,455

2,864

3,747

30.8

2.8

Germany

6,826

7,485

10,262

11,41917,577

53.9

13.0

U.K.

1,171

969

780

1,623

834

-48.6

0.6

Italy

843

430

1,011

1,622

1,026

-36.7

0.8

France

276

549

565

794

1,596

101.0

1.2

Switzerland

4,406

5,660

7,166

11,447

11,947

4.4

8.8

U.S.

25,282

24,27548,56053,13670,73433.1

52.1

Others

2,923

2,077

1,862

2,222

2,489

12.0

1.8

Total

50,904

53,16388,245

107,453

135,649

26.2

100.0

Source:Same as that for Fig. 2-14.

30

2. Industrial Machine Sector

2.1.2. Results of operations and the trend of the machine tool industry(1) Trend of management and overseas business activities

Figure 2-16 and -17 show the share of the manufacturers of machining centers and NC lathes inthe domestic production. Major manufacturers have far greater parts of the share; the total
production of Yamazaki Mazak Corp., Okuma Corp., Mori Seiki Co. and other leading
manufacturers amounts to over 60% of all the domestic production.

Fig. 2-16

Share of machining center manufacturers in the domestic production, 11.9%Others:
11.9%
その他

ヤマザキ
Yamazaki
Mazak:
,
マザック
24.1%
(0.3)
24.1%(0.3)

OKK,
6.1%
OKK:
6.1%
(-0.8)(▲0.8)

牧野フライス,製作所Milling
MakinoMachine:18.6%(▲1.9)
18.6% (-1.9),
Mori Seiki:
森精機製作所
19.1% (2.5)
19.1%(2.5)

Okuma:
オークマ,
20.2%
(0.3)
20.2%(0.3)* Production in 2006: ¥376,670.0 million; up 13.4% over the previous year

Notes:
Source:Figures in parentheses are increase or decrease points (%); those with “-“ are negative ones. Figures of the share are
the estimates by Nihon Keizai Shimbun Inc.
Based on the “Nikkei Sangyo Shimbun,” August 10, 2007.

Fig. 2-17

Share of NC lathe manufacturers in the domestic production
ツガミ
Tsugami:5.2% (0)5.2%(0)

シチズン時計
(現シチズン
Citizen
Watch

Others:
その他
12%
12%

ヤマザキ

Yamazaki Mazak:
マザック
28.7% (1.0)

28.7%(1.0)(present
Citizen
ホールディング
Holdings):
ス)
10.3% (0.7)

10.3%(0.7)

Okuma:
オークマ
20.6% (-0.7)

Mori Seiki:

森精機製作所
23.6% (0.7)
23.6%(0.7)

20.6%(▲0.7)* Production in 2006: ¥271,344.0 million; up 4.3% over the previous year

Note:
Source:Same as that for Fig. 2-16.
Based on the “Nikkei Sangyo Shimbun,” August 17, 2007.

The results of operations of the main manufacturers of machining centers and NC lathes in2006 are as shown in Figure 2-18. As noted above, machine tools enjoyed a good performance from2005, and these manufacturers achieved greater sales in this favorable situation.

31

2. Industrial Machine Sector

Fig. 2-18

Trend of business results of the main five manufacturers (consolidated)¥100 million, %
2005
Sales

Okuma

1,888

24.8

2,040

187

273

46.0

298

Ordinary profit

171

256

49.7

283

Net profit

121

157

29.8

170

1,453

1,722

18.5

1,880

Operating profit

163

250

53.4

280

Ordinary profit

159

247

55.3

280

Net profit

138

162

17.4

168

1,232

1,376

11.7

1,400

Operating profit

119

168

41.2

170

Ordinary profit

116

169

45.7

170

Net profit

93

100

7.5

120

3,359

3,362

0.1

3,440

(of which industrial machine）

371

442

19.1

450

(Machine tools of industrial machine)

307

375

22.1

375

Operating profit

305

219

-28.2

240

Sales

Citizen Holdings

Tsugami2007 estimate

1,513

Sales
Makino Milling Machine

2005/2006
growth rate (%)

Operating profit

Sales
Mori Seiki2006(of which industrial machine)

54

64

18.5

66

Ordinary profit

346

260

-24.9

260

Net profit

186

71

-61.8

140

Sales

340

366

7.6

350

(of which machine tools）

291

328

12.6

-

Operating profit

59

62

5.1

-

(of which machine tools)

50

57

14.0

-

Ordinary profit

54

55

1.9

51

Net profit

55

34

-38.2

30

Note:
Figures with “-“ are negative ones.
Sources: Based on the financial statements, quick reports of settlement of accounts, etc. published on the website of thesecompanies.

After merging former Okuma Howa Machine Co. in July 2006, Okuma Corp. further reinforced
its product lineup to meet the needs of all user categories and attained an increase in orders received
and in sales. As a result of the merger with former Okuma Howa, simultaneous five-axis controls
and vertical machining centers, which Okuma had not had before the merger, were added to the
product line. In the area of manufacture, to improve the integrated production of main shafts formachining centers, Okuma constructed the Fourth Kani Plant in March 2005 and the Fifth Kani Plant
in February 2007; by these new plants, the company established an integrated manufacturing systemcapable of processing parts of double column machining centers to assembling them and worked toraise the productivity. As a result, the company recorded consolidated sales of ¥188.8 billion in 2006,
an increase of 24.8% over the previous year, having an increase in revenue and profit for the fourthconsecutive year.
Mori Seiki Co. registered sales of ¥172.2 billion in 2006 (up 18.5% y/y) as capital investment
was increased in the automobile and automobile-related, general machine, construction machine,
hydraulic machine and semiconductor-related industries.

32

2. Industrial Machine Sector

Makino Milling Machine Co. had continued high-level orders from many categories ofmanufacturers and attained sales of ¥137.6 billion (up 11.7% y/y) in 2006, though orders forautomotive parts and electronic and electric products in the domestic market were smaller thanplanned.
Citizen Holdings Co. enjoyed a nearly 20% increase in sales in 2006 over the previous year asorders for and sales of its CNC lathes, the main industrial machine business, were steady in general.
Thanks to the steady growth of the automobile and automobile-related and digital household
electric appliance industries, Tsugami Corp. recorded sales of automatic lathes, its major products, of¥21.0 billion (up 12.2% y/y) in 2006. Its sales of grinding machines were ¥6.2 billion or a growth of
25.4% over the previous year, due to the good performance of automobile-related and hydraulicmachine industries. Thus, the company’s total sales in machine tool business were ¥32.8 billion or an
increase of 12.6% y/y.
As outlined above, the performance of the major machine tool manufacturers in Japan was in a
steady tone, and their overseas sales also increased greatly (Fig. 2-19). The fact that the weak yen
trend was one of the favorable winds can be regarded as part of the background of the good businessresults abroad. Growth rates were especially higher in Europe and each of the companies declaredthat they would lay emphasis on strategies in Europe, especially Eastern Europe, in the years to
come.

Fig. 2-19

Overseas sales of the main four companies¥ million (year-on-year ratio)
Americas

EuropeAsia/PacificOkuma

434 (11.9%)277 (38.5%)

236 (19.2%)

Mori Seiki

389 (6.9%)

470 (41.1%)

165 (33.1%)

Makino Milling Machine

284 (5.2%)

146 (30.4%)406 (22.3%)

Tsugami114 (6.5%)

33 (43.5%)

6.4 (8.5%)

Source:Same as that for Fig. 2-18.

Wages in Eastern Europe are relatively low and the moves of plants by Western European and
U.S. manufacturers to Eastern Europe are increasing, leading to a rapid growth in demand formachines and equipment (See the article published in the “Nikkan Kogyo Shimbun,” September 19,2007). Yamazaki Mazak plans to open its sales bases complete with a product exhibition facility in
the Czech Republic, Poland and Hungary in 2008 in order to increase sales in Eastern Europe, which
are now only at a one-digit percentage of its total European sales of ¥800.0 billion a year, to 10% in
two years. Okuma also started its sales footing in eastern Austria in October 2007 and will open
branches with a showroom near the plants of major automobile manufacturers, such as Folkswagen,Audi and Peugeot. JTEKT Corp. says that it will establish a branch in Hungary or the Czech
Republic by the summer of 2008 through its sales subsidiary in Germany. Mori Seiki indicates its
intention to establish a competitive base in Europe: for example, it plans to increase its staff in
Europe to the 400-person level in 2008 and to increase customers among smaller machining
industries, too.

33

2. Industrial Machine Sector(2) Technological innovation and the business environmentMori Seiki, a leader in machine tools, had planned to construct a new plant in Thailand, taking
account of the growing demand for machine tools all over the world mainly in aircraft andconstruction machine industries. But in June 2007 the plan was cancelled due to the reason forpreventing the diversion of machine tools to military use. Behind this cancellation was the fact thatthe series of machine tools planned to be made in Thailand had a precision far higher than that
stipulated in the export control clauses of the Foreign Exchange and Foreign Trade Control Law.
Machine tools can be diverted to the manufacture of arms, such as missiles, and Thailand is a
so-called “non-white” country (Note: the exports that might be diverted to the development or
manufacture of arms to a “non-white” country must be approved in advance by the Japanese
Ministry of Economy, Trade and Industry). Considering this, Mori Seiki announced that instead of
the planned project in Thailand, it would reinforce the production capacity by 20-30% of its Iga
Plant (Iga, Mie Prefecture), the main manufacturing base in Japan, by the end of 2009.
While there is a trend toward the activities for limiting the manufacturing base so as to prevent
diversion to military uses, as those of Mori Seiki mentioned above, machine tool manufacturers havestarted to monitor their products by mounting a sensor, etc. on the products.
Mori Seiki established the system for remote-monitoring its machine tools delivered to abroadaround the clock. The machine tools sold to other countries may be resold illegally and then offered
to military use. Mori Seiki puts a communications equipment in its machine tools and regularlyaccesses then equipment via the Internet, thus making it possible for a remote call center to detect
any abnormality, including the stop of operation. The company uses this system not only to find the
malfunction of machine tools themselves but also to prevent the illegal use for military purposes, etc.
Similarly, Yamazaki Mazak started to load a “machine move detector” on its machine tools.
Starting from the shipment in August 2007, the company mounted the detector on part of products
for export and said that it planned to adopt it to about 200 types of its machine tools, including thosefor domestic users, by the end of 2007. Citizen Machinery Co., Citizen Holdings’ machine toolsubsidiary, loaded a sensor for preventing illegal export of its machine tools on all of its products
beginning in 2007. This sensor can sense the shock at the time when the machine tools installed at
the customer’s plant, etc. are taken away without permission, and prevent the computerized
numerical control (CNC) from working.
(3) Future prospects and problems

The order receiving environment in Japan in 2008 has some uncertainties and is expected totend to level off. Overseas, however, orders will substantially increase from the Asian region andwill grow favorably in the European region, too.
In the amount of orders received in 2006, domestic demand was still a little greater thanoverseas demand, but this situation is expected to reverse in the future. According to the Japan34

2. Industrial Machine Sector

Machine Tool Builders’ Association, the amount of orders received in 1990 during the economic
bubble period totaled to ¥1,412.1 billion, and while the domestic demand was 73.6%, the overseas
demand was 26.4%, the domestic demand accounting for a little smaller than three times that of theoverseas demand. But in 2006, the domestic and overseas demands were getting balanced, being
51.0% and 49.0%, respectively. In addition, the total of the first half of 2007 (January to June) was¥778.9 billion, an increase of 8% over the same period of 2006, and the overseas demand (¥414.9
billion) was greater than the domestic demand (¥364.0 billion). Orders received in August 2007
amounted to ¥129.7 billion, a growth of 12.6% over the same month in 2006, and some pointed outthat the high growth was supported by the brisk overseas demand, mainly for automobile use, allover the world (See the article published in the “Nikkan Kogyo Shimbun,” September 13, 2007).
Since there is a very fair possibility that overseas demand will continue to increase in the future andmanufacturers are reinforcing their system for increased production, it is expected that the sales will
surely increase.
However, expanding overseas demand creates the need to consider foreign exchange risks. Thisconsideration is an important factor in deciding whether to promote local production overseas further
or not. Figure 2-20 shows the trend of overseas production of the major machine tool manufacturers.
From this figure it is evident that Yamazaki Mazak surpasses others greatly in production abroad.

Fig. 2-20

Trend of overseas production of major machine tool manufacturers (2006)
Overseas plants

Ratio of overseas production

Yamazaki Mazak

U.S., U.K., Singapore, China

Okuma

China, Taiwan, U.S. (knockdown export)

A little less than 10%

Mori Seiki

Switzerland

1% or less

Makino Milling
Machine

China, Singapore, India

14%

Citizen Machinery

Thailand, Germany

21%

Tsugami

China

5%

Note:
Source:A little less than 40%

Figures for “Ratio of overseas production” are on a sales basis.
The “Nikkei Sangyo Shimbun,” August 22, 2007.

At late August 2007, Citizen Machinery announced that it completed the construction of a plantin Shandong Province, China with an investment of ¥500 million and planned to start the plant’s
operation in April 2008. It is the first time for the company to manufacture finished products in
China, though already having made electric parts, etc. for machine tools. Citizen Machinery says that
it will make low-priced models for domestic use in China and that behind the expansion in
manufacture in China is the fact that the traditional strategy of making machine tools for China in
Thailand is fairly costly because of import customs. As seen in the case of Citizen Machinery,machine tool manufacturers are making corporate efforts to firmly establish their local production
system, and these strategies for overseas production will be one of the industry’s future tasks.

35

2. Industrial Machine Sector

2.2

Farm machines

2.2.1. Supply and demand trend(1) Outline

The production of farm machines in 2006 totaled to about ¥498.5 billion, which was not so bad
though the growth rate was low. The export was about ¥258.8 billion or an increase of about 15%
over the previous year (Ministry of Finance, “Customs Clearance Statistics”). By region, in addition
to a continued increase in the export to North America, the export to the Asian area greatly grew,
making this area the second largest region for export from Japan that overtook Europe. The import
was about ¥47.2 billion, showing a solid growth (Ministry of Finance, “Customs Clearance
Statistics”). By region, while the import amount from Europe decreased, that from Asia achieved ahigh growth.
As for the trend of business activities of farm machine manufacturers, some attempts toreinforce sales in North America again were seen. But what is more noteworthy is that projects for
local production targeted at the Chinese, Thai and Indian markets became more active. The export toand sales in those markets were favorable. At home, as farmers were divided into two (whilelarge-scale farmers increased, small farmers were faced with aging and increasing part-time farmers),
farm machine manufacturers introduced large machines for large-scale farmers but it remained truethat the domestic market tended to become smaller. Thus, it became clearer that the future directionof farm machine manufacturers would be a shift of sales activities to overseas, mainly to China andother Asian markets.
(2) Production

The production of farm machines in 2006 was ¥498.5 billion or an increase of about ¥2.4
billion over the previous year, which was a steady performance. The production index supposing the
production in 2000 to be 100 was 110.6 points, a slight growth of 0.1 point over that in 2005 when
the figure was 110.5 points.
The production of farm machines increased in 2006 for the fourth straight year from 2003. As
the domestic market was shrinking, the Asian area, which became the second largest region after
North America for export from Japan, is expected to be the second largest market that could replace
the domestic market (Fig. 2-21).

36

2. Industrial Machine Sector

Fig. 2-21

Production of farm machines

Production(¥ million)
600,000

106.4

500,000
400,000

88.2
423,744

110.5

92.2
441,465

477,625

496,109

Production index(2000=100)
120
110.6
100
498,47580

300,000

60

200,000

40

100,000

20
0

0
2002

Source:

2003

2004

2005

2006

Based on the Ministry of Economy, Trade and Industry, “Annual Report of Machinery Statistics.”

By main type of machine, the production of farm machines in 2006 was as follows: land
preparation machine and accessories, about ¥294.8 billion (up 1.7% y/y); power plows (including
walking-type tractors), about ¥16.2 billion (down 15.8% y/y); wheeled tractors, ¥268.1 billion (up3.7% y/y); cultivation machines, ¥47.7 billion (up 4.3% y/y); managing machines, a little over ¥7.6
billion (up 2.1% y/y) and harvesting and processing machines (e.g., combines and agricultural
drying machines), a little less than ¥148.3 billion (down 3.1% y/y).
As noted above, the trend of production of farm machines by type can be regarded as favorable
in general because the figure was higher than that in 2005 for almost all types of machines. However,the production of harvesting and processing machines, which have a large amount of production
relative to other types of machines, decreased by 3.1% from the previous year, while power tillers
suffered a substantial fall of 15.8%, accelerating the downward trend of the production of thiscategory of machines (Fig. 2-22).
Fig. 2-22

Production of main types of farm machines
Land preparation machines and accessories
Power plows
Wheeled tractors
Cultiv ation machines
Managing machines
Harv esting and processing machines

Production(¥ million)
350,000
300,000
250,000
200,000
150,000
100,000
50,0000
2002

Source:

2003

2004

Same as that for Fig. 2-21.

37

2005

2006

2. Industrial Machine Sector(3) Shipment

The shipment of power plows (including walking-type tractors) in 2006 was ¥20.9 billion (up10.2% y/y), that of wheeled tractors, ¥266.0 billion (up 5.8% y/y), that of cultivation machines,¥45.2 billion (up 5.8% y/y) and that of combines (combined machines for harvesting and threshing),¥94.3 billion (down 3.8% y/y). While combines and power plows suffered a decline from 2005,
wheeled tractors showed a firm growth (Fig. 2-23).

Fig. 2-23

Shipment of main types of farm machines
Power plows
Cultiv ation machines

Shipment(¥ million)
300,000

Wheeled tractors
Combines

250,000
200,000
150,000
100,000
50,0000
2002

Source:

2003

2004

2005

2006

Same as that for Fig. 2-21.

(4) Export and import

According to the Customs Clearance Statistics of the Ministry of Finance, the export of farmmachines in 2006 was favorable, recording ¥258.8 billion (up 14.9% y/y). This export increased atleast for six consecutive years, suggesting that the tendency was turning toward supplementing theshrinking domestic market with expanding export (Fig. 2-24).

38

2. Industrial Machine Sector

Fig. 2-24

Situation of export of farm machines

Export(¥ million)
300,000

Year-on-year
ratio (%)
130

200,532
200,000

258,772124.8

250,000
117.8
148,580120

160,734112.3

150,000

114.9

105

50,000

100
95

0
2002

Source:

115
110

108.2

100,000

125

225,130

2003

2004

2005

2006

Based on the Ministry of Finance, “Customs Clearance Statistics.”

By region, the U.S. was the far largest importer of Japanese farm machines; in 2006, the export
to the country was ¥149.2 billion or an increase of 9.1% over the previous year, continuing to show asteady growth. Europe, which had ranked second in the import from Japan, was overtaken by Asiaand dropped to the third place; but the export to Europe in 2006 was ¥44.0 billion or a growth of
8.9% over the previous year.
The export to Asia, which rose to the second place in the import from Japan, was ¥54.2 billion
or a substantial increase of 39.1% y/y, indicating a rapid growth. Behind the rapid expansion in theexport to Asia, there are pointed out the following factors: export to China was brisk as the base of
the manufacture and sale of farm machines; efforts to open the market were increased in Thailand
and other ASEAN countries; and growing expectations for the market in India, a new industrial
country. This upward tendency is expected to continue for some more time stimulated mainly by thegrowing demand for tractors in Asia. At the same time, Japanese farm machine manufacturers will
promote local production in the Asian region in cooperation with local businesses (Fig. 2-25).

39

2. Industrial Machine Sector

Fig. 2-25

Situation of export of farm machines by region

Asia
EuropeAf rica

Export(¥ million)

Middle East
North America
Oceania

NIS*
Central and South America

160,000
140,000
120,000
100,000
80,00060,00040,00020,000
0
2002

Note:
Source:

2003

2004

2005

2006

NIS = New Independent States: 12 countries of new independent countries of the former Soviet Union excluding
Estonia, Latvia and Lithuania.
Same as that for Fig. 2-24.

The “Customs Clearance Statistics” of the Ministry of Finance says that the import of farmmachines in 2006 was ¥47.2 billion or an increase of 5.5% over the previous year, continuing toshow an upward trend. The import grew for six straight years in 2006, which made globalization
noticeable in the import sector, too (Fig. 2-26).

Fig. 2-26

Situation of import of farm machines

Import(¥ million)
50,00040,719110.6

45,00040,00035,00033,98844,741Year-on-year
ratio (%)
112
47,216110109.9

36,835108.4

10830,00025,00020,00015,000

105.5
104.2

106
104

10,000

102

5,000
100

0
2002

Source:

2003

2004

2005

2006

Same as that for Fig. 2-24.

By region, Europe was the largest importer of Japanese farm machines in 2006; but the amountwas ¥25.1 billion or a decrease of 5.4% from the previous year, the first fall in three years. By
contrast, the import from Asia strengthened the tendency to increase in the recent six years; the40

2. Industrial Machine Sector

import from this region in 2006 was ¥16.6 billion, a high growth of 24.8% over the previous year.
This may indicate the trend of growing dependence of Japan on Asia for both export and import. The
import from North America repeated increases and decreases in the past six years, but in 2006 theimport was a little over ¥5.2 billion or an increase 11.4% y/y, a steady growth.
As described above, the farm machine industry had a closer relation with Asia in import, too. It
is thus expected that the industry’s relation with Europe and Asia will become closer in the years
ahead (Fig. 2-27).

Fig. 2-27
Import(¥ million)

Situation of import of farm machines by region

Asia
EuropeAf rica

Middle East
North America
Oceania

NIS*
Central and South America

30,00025,00020,00015,00010,000
5,000
0
2002

Note:
Source:

2003

2004

2005

2006

NIS = New Independent States: 12 countries of new independent countries of the former Soviet Union excluding
Estonia, Latvia and Lithuania.
Same as that for Fig. 2-24.

2.2.2. Results of operations and the trend of the farm machine industry(1) Trend of management

This section mainly reports the overseas business activities of major farm machine
manufacturers.
Kubota Corp. is positively reinforcing its business in the Chinese market. In 1998, it founded
Kubota Farm Machine Co. in the City of Suzhou, Jiangsu Province, China and started the local
production of head-feeding combines in 1999. Having got behind Yanmar Co. at first, Kubota
became a top supplier in China as the total demand for these combines increased to 5,000 in 2005
and to 7,000 in 2006, and its market share in the country was a little over 60% in 2006. The
company adopted the strategy of laying greater stress on service than on sales and has been working
to improve its brand power in China rather than setting unreasonable prices in an attempt to increase
sales. In addition, Kubota plans to start the production of farm tractors in Thailand around March
2009. In this project, the company aims at constructing a plant in Thailand as the base of production
for all the areas in Asia and for Europe by forming a joint venture with the Siam Cement Group41

2. Industrial Machine Sector(SCG), a Thai conglomerate, with a total investment of 3.0 billion bahts (approx. ¥10.6 billion).
Kubota’s share in the Thai market, where demand for tractors is rapidly increasing, is about 70% andwill become the first Japanese manufacturer doing full-scale tractor production in Asia. Therefore,
other manufacturers will promote the construction of overseas production bases instead ofexport-oriented business while carefully watching foreign exchange fluctuations.
Yanmar Co. announced the policy of restarting farm machine business in North America. In
cooperation with a large farm machine manufacturer in the region, the company will start to sell
products of its own brand in the fall of 2007 first in about 20 years. In the North American market,
Yanmar had supplied farm machines to local manufacturers on an original equipment manufacturing(OEM) basis only. As the domestic market continued to become smaller as a result of decreasing andaging farmers, the company planned to uncover the global market by supplying its brand products in
an attempt to shake itself free from its business structure heavily dependent on the domestic market.
Yanmar set the objective of raising the ratio of its overseas sales from 30% at present to 50% by
2012, and the Yanmar brand project in North America has a test case-like meaning for the company
in its future activities for creating new global markets, such as China and India.
Iseki & Co. is making full-scale entry to the farm machine market in Thailand. The company
will sign an agency agreement with AMAC, a Thai company operating about 100 sales bases of farmmachines all over Thailand, under which Iseki will export low-priced tractors developed for
Thailand. What can be regarded as the factor behind Iseki’s project is this: mostly imported usedproducts had been sold in the farm machine market in Thailand, but because the purchasing power ofThai farmers increased due to recent economic growth, stable demand for tractors can now be
expected in Thailand in the future. Already being making and selling farm machines in China, Iseki
was behind Kubota, the industry leader, and other manufacturers in business in Southeast Asia. Thus
the company plans to open up its market in Thailand taking advantage of this agency agreement andis now studying the possibility of expansion into Indonesia and Vietnam.
Mitsubishi Agricultural Machinery Co. (Higashiizumo-machi, Shimane Prefecture) announced
that it would launch local production by a joint venture in Thailand and India in July 2007. With themodernization of agriculture and economic growth in Asia and other regions, demand for farmmachines, mainly tractors, is quickly increasing, especially in Southeast Asia and South Asia. In thiscircumstance, Mitsubishi Agricultural Machinery Co. would like to expand its market share in theseregions through the supply of products meeting the local needs. As it will be the first time that thecompany does overseas production, the local production is planned to start by the summer of 2008
after making final agreements with the Thai and Indian partners about the investment ratio and othermatters.
As for parts for farm machines, the activities of Nanyo, a trading firm of farm machines, haveattracted attention. The company established a business office in Dalian in the northeastern part ofChina, aiming at making the office a base for exporting parts for farm machines, etc. made in thispart of China to Japan. More specifically, Nanyo will handle the export of hydraulic parts for the
chassis, power transmission portions, etc. of tractors and other farm machines to Japan. As a result of
the opening of the business office in Dalian, the company plans to increase its business in China’s

42

2. Industrial Machine Sector

northeastern part to ¥2.0 billion by March 2009, about twice that in March 2007 and to ¥3.0 billion
by March 2010.
In the year ending in March 2008, Shin-Daiwa Kogyo Co. plans to add assembly lines at its
Chiyoda Plant in Kitahiroshima-machi, Hiroshima Prefecture to increase the production capacity ofsmall engines for farm and forestry machines, its main products, by 20%. With an investment of alittle less than ¥200 million, the company will increase small engine lines from seven at present to 11
and start to operate the new lines in 2008 and after in order to reinforce the production of bush
cutters and chain saws whose demand is growing mainly in North America.
As for the farm machine-related industries in Japan, the activities of manufacturers in Hokkaido
have attracted attention. According to the Hokkaido Association of Agricultural Machinery
Manufacturers, the production of farm machines of manufacturers in Hokkaido was about ¥20.0
billion annually; these manufacturers have a share of nearly 100% for upland farming machines for
tractors at home and a share of 70% for dairy farming machines for tractors. This differs from the
supply-demand structure of farm machines in other areas of Japan where major manufacturers takethe lead. To enhance value added and to improve the work efficiency are now urgent issues for
Hokkaido in order to compete with imported farm products. In such a situation, FE Co. in
Asahikawa, a developer of machines, invented a “washing machine of daikon (long and white
Japanese radish) with or without leaves;” since 2002 when it started to sell this machine, thecompany has sold over 150 units. In the summer of 2006, FE directly exported its medium-scale
daikon washers, which can wash 10,000 daikon a day, to an incorporated farm in South Korea. The
company’s technology, which is based on farmers’ problems and opinions about farm work that itcollects carefully and introduces into its new products, has begun to be valued highly in Hokkaido.
Also working to improve its existing products, FE is studying the colors and designs that do not
fatigue the workers too much in cooperation with Hokkaido Tokai University. The company’s
activities as these contribute to improvement in the site of agriculture (as well as forestry andfisheries) in Japan where the population is aging rapidly. Although this is a niche market, it will
suggest one of the future directions of the farm machine industry in Japan.

2.3

Textile machines

2.3.1. Supply and demand trend(1) Outline

The production of sewing and textile machines in 2006 was ¥287.8 billion, a substantial
increase of 16.8% over the previous year and a higher figure than that for 2003 (¥285.7 billion).
Main reasons are the fact that textile machines, which had been on the decline, turned to a great
growth and that industrial sewing machines and preparation machines showed a steady increase.
The export of all textile machines in 2006 totaled to ¥277.7 billion or an increase of 15.4% y/y,a higher figure than that for 2004 (¥262.3 billion), although the export of industrial sewing machines
did not grow very greatly (¥57.0 billion; up 1.7% y/y). Increases in the export of preparation

43

2. Industrial Machine Sector

machines, weaving machines, synthetic fiber machines, etc. can be mentioned as the factor behind this.
The import amount of industrial sewing machines was about ¥3.5 billion, a decrease of 22.6%
from the previous year, suggesting that domestic demand for industrial sewing machines surely fell.
However, the import of all textile machines registered ¥42.0 billion (up 12.8% y/y), continuing toshow an upward trend. The fact that the import of synthetic fiber machines, dyeing and finishingmachines, other textile machines and parts and supplies increased can be cited as the reason for this,suggesting that the import of textile machines has continued to grow so as to supplement
domestic-made textile machines.
(2) Production

The production amount of sewing and textile machines in 2006 increased by about ¥41.3 billion
over the previous year to ¥287.8 billion, which was greater than the figure for 2003 and was a
growth first in three years. The production index supposing the production in 2000 to be 100 was 103.4,
higher than the figure for 2003 (102.7) by 0.7 point, indicating a recovery trend (Fig. 2-28).

Fig. 2-28

Production of sewing and textile machines
Production index (2000=100)

Production (¥ million)
300,000

103.4

102.7

105

290,000
100

97.7

280,000

287,813

270,000

95

285,725

260,000

271,89790.9

250,000
240,000

90

88.6
253,033

246,50485

230,000
80

220,000
2002

Source:

2003

2004

2005

2006

Based on the Ministry of Economy, Trade and Industry, “Annual Report of Machinery Statistics.”

By the type of machines, the production of textile machines (synthetic fiber machines, spinningmachines, preparation machines, reeling machines, other preparation machines, weaving machines,
knitting and braiding machines, dyeing and finishing machines and other textile machines) increased
substantially and served as a propelling force for the entire production amount. And for sewing
machines, while the production of household sewing machines (including programmed sewing
machines) tended to decline, industrial sewing machines (including single-needle straight-sewing
machines, hemming machines, other fabric sewing and knit sewing machines) showed a firm growth.
Another characteristic of the production in 2006 is that the production of preparation machines,
which are included in textile machines, substantially grew, though these machines accounted for
only a small part of the entire production (Fig. 2-29).

44

2. Industrial Machine Sector

Fig. 2-29

Production of textile machines by the main type of machines
All sewing machines
Industrial sewing machines
Preparation machines

Production(¥ million)

Household sewing machines
Textile machines

250,000

200,000

150,000

100,000

50,000

0
2002

Note:
Source:

2003

2004

2005

2006

Data are duplicated for some types of machines.
Same as that for Fig. 2-28.

(3) Export and import

The export of all textile machines in 2006 greatly increased, recording ¥277.7 billion or up
15.4% over the previous year and turning from a decline in 2005 into an upward trend. By type ofmachines, the export of synthetic fiber machines was ¥7.1 billion, a substantial increase of 46.0% y/y,though it had only a small share of the total export. In addition, the export of preparation machines
was ¥53.7 billion or an increase of 38.8% y/y and that of weaving machines, ¥73.4 billion or a
growth of 33.9% y/y. By contrast, the export of dyeing and finishing machines was ¥8.8 billion or adecline of 25.8% y/y and that of spinning machines, ¥14.6 billion, down 17.7% y/y, both of themshowing a substantial fall (Fig. 2-30).

45

2. Industrial Machine Sector

Fig. 2-30
Export (¥ million)

Situation of export of textile machines

300,000

250,000

200,000

150,000

100,000

50,0000

Source:

2004

2005

2006

All textile machines

262,317240,660

277,663

Sy nthetic f iber machines

18,311

4,887

7,135

Spinning machines

13,592

17,786

14,644

Preparation machines

50,29438,71353,717

Weav ing machines

50,47754,86073,442

Knitting and braiding machines

76,57578,68081,841

Dy eing and f inishing machines

12,26911,906

8,837

Other textile machines

3,717

1,637

1,702

Parts and supplies

37,08232,191

36,345

Based on the data of the Japan Textile Machinery Association.

As for sewing machines, the export of industrial sewing machines in 2006 was ¥57.0 billion ora rise of 1.7% over the previous year. This was an increase for the second straight year from 2005
but the growth rate was low and unable to be regarded as a strong recovery (Fig. 2-31).
Fig. 2-31

Situation of export of industrial sewing machines
Year-on-year ratio (%)

Export (¥ million)
80,00070,000120
68,44498.6

60,000106.9
89.7

58,44985.4

56,061101.7 100
57,01752,44880

50,00040,00060

30,00040

20,00020

10,00000
2002

Source:

2003

2004

2005

Based on the data of the Japan Textile Machinery Manufacturers’ Association.

46

2006

2. Industrial Machine Sector

The export of household sewing machines in 2006 was ¥3.5 billion or a decline of 22.6% fromthe previous year. This export was in a downward trend in 2003 and after, suggesting that demandfor household sewing machines was inactive abroad from the view of export industry (Fig. 2-32).

Fig. 2-32

Situation of export of household sewing machines
Year-on-year ratio (%)

Export (¥ million)
7,000

6,378
129.4

6,000

140
5,884

120
4,731

5,000

92.3

4,000

4,531
95.8

100
3,506
77.4

80.4

3,000

60

2,000

40

1,000

20

0

0
2002

Source:

80

2003

2004

2005

2006

Same as that for Fig. 2-31

The import of all textile machines in 2006 was ¥42.0 billion, up 12.8% over the previous year.
By type of machines, the import of synthetic fiber machines recorded the highest growth rate of
46.7% y/y. Spinning machines also had a high increase rate of 30.0%. Parts and supplies and othertextile machines, which both had a large share in the import of textile machines, registered anincrease of 17.3% and 15.3% y/y, respectively, and served as the driving force in increasing theimport of all textile machines. On the other hand, weaving machines and knitting and braiding
machines showed a declining trend, a fall of 13.9% and 11.8% y/y, respectively (Fig. 2-33).

47

2. Industrial Machine Sector

Fig. 2-33
Import (¥ million)

Situation of import of textile machines
45,00040,00035,00030,00025,00020,00015,00010,0005,000
0Source:

2004

2005

2006

All textile machines

30,55837,24041,995

Sy nthetic f iber machines

639

961

1,410

Spinning machines

395

404

517

Weav ing machines

2,084

2,139

1,842

Knitting and braiding machines

3,154

3,437

3,031

Dy eing and f inishing machines

2,822

3,005

3,416

Other textile machines

7,852

11,846

13,653

Parts and supplies

13,612

15,44818,126Same as that for Fig. 2-30.

The import of industrial sewing machines in 2006 was about ¥3.8 billion or an increase of 9.9%y/y. This was a growth for the second consecutive year and gave signs of continued growth in the
future (Fig. 2-34).

Fig. 2-34

Situation of import of industrial sewing machines
Year-on-year ratio (%)

Import (¥ million)
4,500

124.1

4,000
3,500

140

4,022
3,440

3,241

3,181

3,783
120
109.9

108.1

100

3,000
2,500

80

79.1

73.3

2,000

60

1,500

40

1,000
20

500

0

0
2002

Source:

2003

2004

Same as that for Fig. 2-31.

48

2005

2006

2. Industrial Machine Sector

The import of household sewing machines consecutively increased in 2004 and 2005 but was
only ¥8.5 billion in 2006, which represented a fall of 9.5% from the previous year and was close to
the low level in 2003. This situation reflected the stagnant domestic demand for these sewing
machines (Fig. 2-35).

Fig. 2-35

Situation of import of household sewing machines
Year-on-year ratio (%)

Import (¥ million)
9,600
9,400

9,424

9,200

93.2

9,000

111.7
9,236

120

9,414
101.9

100
90.5

87.7

80

8,800
8,521

8,600

60

8,269

8,400

40

8,200
8,000

20

7,800
0

7,600
2002

Source:

2003

2004

2005

2006

Same as that for Fig. 2-31.

2.3.2. Results of operations and the trend of the textile machine industry(1) Trend of management

The trend of management of the textile and sewing machine business of major manufacturers isoutlined below:
In the year ended March 2007, JUKI Corp. recorded consolidated sales of ¥140,497 million, up
12.6% over the previous year. Its ordinary profit was ¥11,962.0 million or an increase of 34.6% y/y,marking an all-time high as in the previous year’s consolidated performance. By business segment,
the company continued to increase its sales in India, Bangladesh and other Asian markets in theindustrial sewing machine business. In addition, thanks to steady markets in China, Europe and otherregions, the consolidated sales of the entire industrial sewing machine business amounted to¥73,459.0 million (up 12.2%) and the ordinary profit, ¥11,670.0 million (up 22.2%) compared withthe prior-year quarter. Meanwhile, in the household sewing machine business, the company suffereda substantial decrease in the sales of highest-grade computerized embroidering sewing machines as aresult of the steps taken to cut back the door-to-door sales system; the consolidated sales of the entire
household sewing machine business were ¥8,599.0 million (down 18.2%) and the operating loss was¥1,458.0 million (¥76.0 million in the year ended in March 2006).
According to the report of Tsudakoma Corp. (which was published on December 27, 2006 after
correcting the estimated consolidated business results for the year ended in November 2006), thecompany’s consolidated performance in the year ended in November 2006 turned to a positive side49

2. Industrial Machine Sector

and recorded a surplus first in three quarters: sales, ¥46,750.0 million (up 18.4% y/y); and theordinary profit, ¥780.0 million. While this was mainly supported by the favorable result of machine
tools for automobile manufacturers, other reasons include that in the textile machine business, sales
were roughly as planned, efforts were made to save total expenses and the improvement in selling
prices began to show effects. In addition, in global-scale business activities, the company’s export toChina, which had been stagnant in the previous fiscal year, recovered and its export to India andPakistan grew. As a result, Tsudakoma was able to reduce the deficit of its textile machine businessby about ¥2.0 billion.
According to Shima Seiki Mfg., its consolidated results of operations in the year ended in
March 2007 were in very high gear: the sales, ¥47,079 million or up 24.3% y/y and the ordinary
profit, ¥9,450 million or up 67.7% y/y. According to the company analysis, the macroeconomic
factors contributing to these favorable results are the fact that the U.S. economy remained steady ingeneral though some slow-down was observed and the EU countries also enjoyed a domestic
demand-led growth. Other reasons cited by the company include the fact that in Asia, the export toand investment in China increased and a high growth continued there and that the Japanese economy
was sound, too, due mainly to improved corporate earnings.
For flat knitting machines, Shima Seiki’s main business, the company attributed the good
performance to the fact that the business environment changed and the producing areas werepolarized into two: one is consuming-type producing areas, such as Japan, Europe and the U.S.,
where short delivery schedule and small volume production is carried out using highly fashionable
and diverse designs, and the other is mass-producing areas, like China and Hong Kong, wherelabor-intensive production is made.
(2) Technological innovation, the business environment and overseas activities

The main developments in textile machine manufacturers and related industries, including
technological innovation and the business environment, are outlined below:
In the production lines of sewing machines where automation is considered difficult because
there are many minute assembly tasks, JUKI (Otawara Plant) had depended on manual labor for the
11 roughly classified processes, such as the screw turning work. But the plant is now trying toincrease work efficiency by replacing workers’ skills with pictures and numerical values in an effort
to compete with newly industrializing countries (NICs), such as China, where the labor cost is lower.
In 2004, aiming at expanding the concept of “digital booth” manufacturing system that was started to
be introduced by other manufacturers and utilizing the idea for transmitting skills to the next
generation, the company formed a team for developing digital booths and began the work to replace
the work standard sheets on which the work procedures, key points of the task, etc. were written foreach model with numerical values, pictures and other media. The first digital booth system wascompleted in September 2004, but because workers at the manufacturing site requested somecorrections to it, another year was spent to improve the system by, among others, adopting multiple
pictures, and the system was now usable for new employee education. As a future task, the company
plans to build up a new digital booth manufacturing system that could deal with even the task50

2. Industrial Machine Sector

requiring high-level skills (e.g., trial sewing work known as a “Level-S difficulty” task), whose
automation had been considered impracticable, by using voices and animations.
Tsudakoma Corp. is working to reinforce technical service for textile machines in newly
industrializing countries and areas. It trains local staff employed in its bases in Shanghai, China,
India and Pakistan so as to improve service for customers all over the world. For example, in India
and Pakistan, the company’s local agencies founded a technical service firm in June 2006 and in
February 2007, respectively. Tsudakoma is offering technical guidance to these firms and entrusts
them with customer service tasks. The customer service is divided by language; India is regarded as
an English-speaking area, and the Indian staff takes charge of English-speaking countries, including
Europe. Pakistan is designated as an Islamic culture area, and Pakistani staff is responsible for Saudi
Arabia and other Islamic nations. Because demand for after-sales technical service is increasing in
China and other NICs, Tsudakoma would like to expand the service system in China, India andPakistan and strengthen its sales basis in these countries and their neighboring areas through thedevelopment of human resources as mentioned above.
In June 2007, Murata Machinery, Ltd. announced that it would unite its two Taiwan subsidiaries(a corporation in charge of textile machine business and a corporation for distribution equipment
business). This was the step to meet growing demand for systems for plants of semiconductors andliquid crystal products in Taiwan, and the company enlarged the corporate size by the unification andincreased the employment of system engineers. In July 2007, the united company started businessand is increasing its capacity by reinforcing the staff. It is also strengthening its regular support
business, such as the maintenance of plant systems.
Toshin Ceratec Corp. (Seto, Aichi Prefecture) makes parts for textile machines. In late
September 2007, the company started to operate a new plant of ceramic products in the Anada
Industrial Park in Seto, Aichi Prefecture. After constructing the new plant, it is working to open up
new business fields, such as parts for medical appliances. Toshin Ceratec is producing a wide variety
of fine ceramic products, such as alumina and zirconia, in a small lot, and custom-made products
accounts for 60% of its product line. The main products are parts for textile machines, industrial
furnaces, etc., but the company intends to have orders for parts for medical appliances, electronicparts and the like, too, in the future.
Shima Seiki won the 53rd “Special Okochi Memorial Production Prize” for 2006 (The Special
Okochi Memorial Production Prize was founded in 1954 in commemoration of the achievements of
the late Doctor Masatoshi Okochi in the academic and industrial world and is awarded every year toremarkable achievements in the research and development of industrial engineering andmanufacturing technology, the introduction of an advanced manufacturing system, etc. on the basisof recommendations from related fields). The “development of an advanced manufacturing methodof knitwear using a computerized non-sewing flat knitting machine and design system,” to which theprize was awarded, solved some of the problems of knitwear production, including the stiffening andloss of elasticity of the fabric associated with cutting and sewing, considerable labor needed that
requires long lead time, and high product cost caused by the cutting loss of fabric.

51

2. Industrial Machine Sector(3) Future prospects and problems

In the past several years, the textile machine-related businesses having both a textile machinesegment and a machine tool segment showed a tendency of the machine tool segment covering
losses in the stagnant section of the textile machine segment. In 2006, the textile machine fieldshowed signs of recovery in general. As Shima Seiki pointed out above, the producing areas havebeen reorganized according to the regional characteristics of the global market, and there has been
the polarization into consuming area-type producing areas, like Japan, Europe and the U.S., where
short delivery schedule, small-lot production is made using highly fashionable, diverse designs, andlabor-intensive producing areas, mainly China and Hong Kong, where mass production is carried out.
In Japan, efforts to overcome high-cost structure is made by technical innovation of manufacturingmethod. This tendency of divided producing areas and markets in Japan and abroad centering ontechnological innovation is expected to increase in the future.
On the other hand, in the textile machine industry, the development of human resources(development of technical service staff) for each region of the world to meet the needs of after-sales
service is being more and more globalized, too. As part of differentiation strategies or to build thebasis for finding new markets, personnel training will become more positive in the future. Therefore,
it will be a more important issue for the industry to secure and develop human resources at the head
office in Japan who can deal with the challenge of global-scale management.
In addition, in the domestic business field, some of textile machine manufacturers, such as
Toshin Ceratec, have begun to enter the area of medical appliances taking advantage of the coretechnology stored in the textile machine industry. It is thus expected that textile machine companies
will begin business in the field of not only medical appliances but also precision machines,
electronic parts and others. This will make the role of cooperation among industry, government anduniversities more important in new product development activities.

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