15. Japan's Production Increases But Analysts Expect Slowdown Soon

TOKYO Japanese industrial produc­tion in August was unexpectedly strong, but analysts said output is likely to cool in coming months.

The Ministry of International Trade and Industry Wednesday said August in­dustrial output rose 4.6% compared with July, after adjustment for seasonal factors. That exceeded economists average forecast for a 3.6% rise and marked the sharpest pace of increase since January 1997, the ministry said.

MITI itself had projected a month ago that industrial output would rise 4.7% in August from July. Compared with year earlier levels, overall output rose 5.5%, according to the ministry. "Industrial pro­duction is beginning to show signs of recovery," the ministry said.

For the first time in more than three years, production rose across all 14 sectors surveyed, data from the ministry showed. The electrical machinery, semiconductor and automobile sectors registered especially robust output growth.

And in an optimistic development for the overall economy, the data suggested that long-term inventory adjustment by Japanese companies is coming to an end. Inventories inched 0.2% higher in August from July on a seasonally adjusted basis, after falling 1.3% in July and slipping 0.3% in June. The need by Japanese companies to reduce their inventories in the face of stagnant consumption had been one of the factors that weighed on production growth, depressing overall economic activity as well, economists said.

Vocabulary:

adjustment for seasonal factors - корректировка (поправка) c учетом сезонных колебаний

robust output growth- высокие темпы роста объема производства

inventory adjustment - доведение производственных запасов до нормы; корректировка запасов

weigh on – зд. негативно отразиться

16. Manufacturing And the Price of Outsourcing

Farming out chunks of production to subcontractors, known to business buffs as outsourcing, has proved one of the more enduring management fads of the past decade. By handing over more and more of their production to outside specialists, the theory goes, firms can cut costs, rein in capital spending and focus on what they are good at. Outsourcing plainly works: after all, Japanese companies swear by it.

Unsurprisingly, western companies have been trying to catch up. But like so many management techniques that seem to work well in Japan, production appears to have lost something in translation. According to one study of over 100 manufacturing firms in America. Japan and Europe, many western companies find that something unexpected happens when they start using extensive subcontracting. Far from falling, their costs actually increase.

A number of the firms surveyed found that, after several years' production they started to lose their technological edge over their competitors; others believed they were 'losing control' of their process technology; others that their product quality was faltering.

What were they doing wrong? Part of the answer is that most western firms start using subcontractors simply because they want to cut overheads - shorthand in most cases for cutting jobs. Exactly which bits of the manufacturing processes are subcontracted out is decided by which will save the most on overheads, not by which makes the most long-term sense. That means a piecemeal approach to outsourcing which results in patches of manufacturing overcapacity scattered at random throughout a firm's operations. Trying to consolidate and reorganise the mish-mash of operations that remain in-house is where companies usually trip up.

Approached this way, outsourcing has other snags. It often results in the use of large numbers of subcontractors, as each part of the company delegates work to favoured subcontractors. That is one reason why Europe's mass market car makers have failed to cut costs despite extensive outsourcing. Coordinating a gaggle of subcontractors is often more time-consuming, and costly, than managing in-house manufacture of the parts in question.

Worse, the piecemeal, random nature of much subcontracting means that a company can lose its grip, often without realising it, on some of its core manufacturing processes. By the time the firm realises what is going on, it may be too late to make up lost ground...