Manufacturers like Ricoh move production out of China to avoid sanctions and customs measures.
The current U.S. administration’s tough stance on trade negotiations with China has finally affected the MFP industry. Most recently, the U.S. announced that the target of raising tariffs will be extended to almost all Chinese products as the “fourth phase” of sanctions and customs measures against China. It is expected that tariffs up to 25% would be imposed on the conventional non-tariff MFPs manufactured in China by the end of June 2019.
Most of the A3 digital MFPs are manufactured by Japanese companies, but the major production bases for all of these companies are in China. In order to avoid tariffs on products exported to the U.S., Japanese manufacturers are relocating manufacturing to their plants in countries other than China. For example and for this reason, Ricoh announced on May 16 that it would take the lead and transfer production of major MFPs for the U.S. to Thailand.
Ricoh has been working on strengthening its Business Continuity Plan (BCP) measures as part of its global production strategy, promoting parallel production of major MFPs at multiple locations. As it has worked on standardizing parts and establishing an optimal supply chain, the shift of production to Thailand is scheduled to be completed in about two months. In addition, Ricoh said there will be no significant change in production volume globally and in both China and Thailand.
Ricoh has been manufacturing high-speed models of major MFPs at Ricoh Asia Industry (Shenzhen) Ltd. in Shenzhen, China, and mid-speed and low-speed models at Ricoh Manufacturing in Rayong, Thailand. Ricoh reviewed its production processes and decided to divide production bases by product destinations. The major MFPs for the U.S. will now be manufactured in Thailand.
Japanese MFP manufacturers first moved their production bases to China about 20 years ago in an effort to reduce costs. But now, as the costs of living and labor in China have risen, Ricoh is not receiving as big a cost advantage as before. Because of this, manufacturers are moving production of MFPs and printers to Southeast Asian countries such as Vietnam, Thailand, and Malaysia, where wages are lower.
The decision by the U.S. to impose tariffs is likely to stoke this trend, but China remains positioned as a major production base thanks to the development of supply chains and logistics such as parts procurement. Although production bases are starting to expand from China to Southeast Asia, unplanned capital investment is required to establish a mass production system outside China due to unexpected events such as the U.S.-China trade friction. Like Ricoh, it is possible to reduce the impact of the tariffs by promoting commonality of parts and establishing an optimal supply chain. However, manufacturing each product model in the same factory can be done at a lower cost without making such efforts, as opposed to manufacturing all models in small lots at the same factory according to destination.
If manufacturers keep producing MFPs in China, they will be subject to a maximum tariff of 25%, so some cost increases are inevitable. Moreover, the sudden policy change by the U.S. administration may bring about a shocking U.S.-China reconciliation. If that would be the case, the hasty transfer of production to Southeast Asia would be a wasted investment. For this reason, MFP manufacturers continue to struggle to respond to the U.S.’s strong stance toward China.
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