After two decades of shifting production overseas to cut costs, domestic manufacturers are starting to return.

Led by electronics makers, the homecoming is being driven in part by a fear of technology secrets slipping into the hands of foreign rivals.

Manufacturers started moving their production bases to China and other Asian nations in the 1980s as a way of staying cost-competitive. A steady appreciation of the yen against the dollar helped sustain the exodus.

Now, makers of products involving cutting-edge technologies consider it more important to protect their expertise. Companies also need workers with higher skills to compete.

Nippon Steel Chemical Co. is one company that has decided it is better off making its products at home.

After studying an alternative site in Chungju, South Korea, the electronics materials supplier opted to construct a new plant in Kita-Kyushu, Fukuoka Prefecture.

The company holds 60 percent of the global market of a type of specialized sheets for printed circuit boards, a market thrown into overdrive by fast-growing cellphone manufacturers.

The South Korean side was keen to have the key industry player on its soil.

Chungju offered a corporate income tax exemption good for five years and other preferential treatment. It translated into an estimated 10-percent saving in overall production costs.

With 50 percent of its products destined for the South Korean market, an offshore move would have also meant large savings in shipping costs.

For all those merits, Nippon Steel Chemical opted for domestic production. Reason given: fear its key technologies would be leaked to South Korean rivals.

``The (materials of) printed circuit boards are the fruit of our expertise and know-how,'' said a senior company official.

Protecting technology secrets was a key factor in other manufacturers deciding to build state-of-the-art production facilities in Japan.

Typical examples include the new plant opened in January by Sharp Corp. to produce liquid crystal display TVs in Kameyama, Mie Prefecture, and the plan by Matsushita Electric Industrial Co. to build a factory in Amagasaki, Hyogo Prefecture, to start production of plasma display panel TVs in autumn 2005.

A Sharp official said overseas sites, such as South Korea and Taiwan, were ruled out because of a higher risk of industrial espionage.

A domestic plant offers manufacturers other advantages besides better control of assets.

Proximity to research and development divisions allows them to respond quickly to changing markets. Reassigning workers between plants is also easier.

Even small and midsize companies are repatriating operations from other parts of Asia.

Osada Co. may not possess highly advanced technology to protect, but the maker of terminal blocks, used to facilitate wiring in power source units of air conditioners and refrigerators, has another problem.

Ever since it moved production to China in the 1990s, it has been plagued by defective products and high staff turnover.

Next year, Osada will relocate most of its Chinese production to a new plant in Tono, Iwate Prefecture.

Manufacturing costs of some products at the plant will be 10 percent higher due in part to investments in automated lines.

Still, Osada President Yutaka Osada says quality control is more important to the company's future. He says the days of outsourcing production to China to take advantage of cheap labor are over.

According to a survey by the Ministry of Economy, Trade and Industry, the number of land plots bought for plant construction in Japan increased 25 percent in 2003 from a year earlier, marking the first year-on-year rise in three years. The figure hit a record low in 2002.

In communities hosting the returning manufacturers, however, there has been disappointment at how few jobs have been generated.

In May, a Matsushita Electric Works Ltd. plant in Owari-Asahi, Aichi Prefecture, opened new production lines for circuit breakers for switchboards.

The work had previously been done by a staff of more than 200 in China. But the Japanese plant only needs 20 workers to operate the new, fully automated lines, with all of the workers transferred from other lines at the same plant.(IHT/Asahi: November 13,2004)