Japanese companies look to diversify supply chains amid pandemic

The coronavirus pandemic has had a staggering impact on the global economy, grinding activity to a halt and severely disrupting supply chains. Many Japanese firms have been unable to stock products, ranging from essential goods such as face masks and hand sanitizer, to machinery parts. This has not only hurt bottom lines, but also affected the daily lives of consumers across the country.

Some companies are now looking at ways to reduce their dependence on suppliers concentrated in certain countries and regions.

Houseware goods manufacturer Iris Ohyama was one of the first companies to make changes. It had been selling face masks produced in China until the supply chain was disrupted very early on in the pandemic. Now the firm is making masks at a factory in Miyagi Prefecture, selling them in addition to those it still produces in China. Company officials say they are also considering expanding production facilities in the United States and France.

Nikki Fron, a Nagano-based manufacturer of critical parts and products for the semiconductor and auto industries, is building a facility in Thailand to complement its production base in Japan. And Taiyo Koko, a rare earths and metals supplier, is looking to supplement its global supply network with its own refining facility in Malaysia. The company had been importing materials from China, North America and Chile.

In most cases, the biggest challenge will be absorbing the additional costs for maintaining multiple production channels. Similar steps have been taken in the past, to lessen the financial damage caused by natural disasters or trade frictions. However, most firms eventually returned to a single supply chain as a way to cut costs, leaving them heavily dependent on certain countries and regions.

The government and the Japan External Trade Organization are offering subsidies to encourage firms to diversify their supply chains. In these most uncertain times, the hope is that this will be enough to convince them it's a risk worth taking.