Omron 2010 Annual Report Download - page 30

30
Is price competition with local
companies also a threat?
The product lineups of local control equipment
manufacturers are primarily made up of gen-
eral-purpose products, and competition with such
companies is certainly a significant threat, if only price
matters. However, while pricing is an important ele-
ment, overall value in terms of quality, service, and
reliability is most important at the production site.
Omron’s strength is in the balance of its prices and
the value-added features beyond the product price.
IAB maintains product development and production
bases in Shanghai, from which it offers customers in
China a steady flow of customized, value-added prod-
ucts, thereby generating rising sales in that country.
There is an image that most of IAB’s
customers in China are manufacturers
affiliated with Japanese companies. Is
this currently true?
Most of Japan’s leading manufacturers have
production bases in China and many of the
Japanese-owned companies utilize our products in
their production facilities. However, Japanese com-
panies account for only about 10% of IAB’s total sales
in China. Local Chinese companies are utilizing our
devices in their products and machinery, which in
some cases are supplied to Japanese companies in
the area. We do not know exactly how many of our
products end up at Japanese companies. The primary
sales destinations for IAB’s control equipment are local
Chinese companies, which represent roughly 80% of
our sales in the country.
The percentage of our sales to Japanese compa-
nies in the region has been rising recently in line with
the trends of Japanese companies shifting their pro-
duction operations to China and increasing their local
procurement activities.
What will be the key points for IAB
expanding its business in China?
Local companies that can benefit from the
Chinese government’s four-trillion-yuan invest-
ment package for infrastructure, which is mainly
targeting the development of inland regions, are
increasing plant and equipment investment. Business
is also growing rapidly for local machinery makers who
supply products to Chinese companies and export to
customers in emerging economies.
IAB is targeting customers in growth industries as
it fortifies sales and sales engineering capabilities. We
are also enhancing our sales offices and channels in
A
Q
A
Q
A
Q
the inland regions where the bulk of infrastructure
investment is taking place. We expect support serv-
ices to become increasingly important in the future,
and recognize the need to act quickly to strengthen
service support capabilities so as to get a head-start
over our competitors.
Rising labor costs have become an
issue. Will this affect IAB’s operations?
The previous production model relied on abun-
dant and inexpensive labor, with only a portion
of the production lines automated. However, automa-
tion is expected to increase in tandem with the rising
labor costs, which are drawing attention these days.
Already, we can see examples among our customers
of advances in factory automation. For IAB, this is a
positive development. We will do our best to fully meet
the surging demand for automation, and thus expand
our business in China.
Moreover, rising labor costs also mean that personal
income levels will be increasing and private consump-
tion will be growing in China. Increasing consumption
will then become a catalyst for new investment in pro-
ductivity. We think the Chinese market will become
even more attractive both as a production site and as a
market.
A
Q
Feature “Omron in China” China, Our Driving Force for Growth