ECONOMIC SPOTLIGHT - MITSUBISHI HEAVY FIGHTS BACK International efforts to redirect Japan's export-driven economy toward domestic consumption face heavy going if the country's largest defence contractor and world's biggest shipbuilder is anything to go by. Mitsubishi Heavy Industries Ltd <MITH.T> (MHI), which began making ships and iron goods for Japan's military rulers 130 years ago, is responding to the strong yen by redoubling its efforts to maintain its share of export markets. "If we sell the best quality and the cheapest products, everyone will buy them," MHI president Yotaro Iida said. Although two of MHI's main businesses, shipbuilding and power plant construction, have been hit hard by the yen's 40 pct rise against the dollar, the company has no plans to abandon them, Iida told Reuters in an interview. Its other big activity, aircraft component manufacture, has performed so well that MHI now accounts for half of the money Tokyo spends on defence procurement each year. "We have made the utmost efforts among the world's manufacturers to improve productivity," he said. "You may be surprised if you come to see our plants. The outside is old but the inside is ultra-modern, with robots and computers." Securities analysts at major securities houses agreed that MHI has pared costs more quickly than its competitors. The company has slashed its workforce to 47,000 from 86,000 in 1976. Despite its cost-cutting, MHI expects profits to drop 40 pct to 30 billion yen in the current fiscal year ending March 31, from 1985/86's record 50.14 billion. And that includes gains from the sale of MHI's stake in Mitsubishi Motors Corp <MIMT.T> for 49 billion yen. Iida is optimistic about the future, however. He said a resurgence of demand from the Middle East following the recent recovery in oil prices coupled with persistent demand for power plants in developing countries will help MHI restore its exports-to-sales ratio to the past decade's average of 30 pct. MHI's exports-to-sales ratio fell to 25.9 pct in the half-year ended last September, from 35 to 36 pct five years ago. China is the most promising market, although MHI also considers other non-oil-producing developing countries as major customers. "Our customers are all seen as being in trouble due to a lack of foreign currency," Iida said. But he added that he felt MHI could sell to those markets with Japanese government financial support. It can also finance the plants itself and recover its investment through product sales, a strategy Iida said could prove popular in the future. In shipping, MHI is fighting back against low-priced South Korean competition by building more technologically advanced carriers to carry liquefied natural gas and other products difficult to transport. Shipbuilders Association officials told Reuters MHI is the world's largest shipbuilder in terms of orders and capacity. Domestically, MHI is involved in 12 national projects, including development of nuclear fusion reactors and launch vehicles for man-made satellites. It has been the biggest contractor for the Japan Defence Agency's F-15 and F-14 jet fighters and missiles, although all of these have been built under licence from U.S. Firms. MHI is now heading up five Japanese companies seeking to develop the country's own fighter plane to replace the currently used F-1 support fighters in the late 1990s. Military experts said Washington is putting strong pressure on Tokyo to buy a U.S. Plane, either the McDonnell Douglas Corp F-18 or General Dynamics Corp F-16, to reduce Japan's huge trade surplus with the U.S. "It might be a good idea to jointly produce planes with U.S. Makers as Japan is supported by the U.S. Defence umbrella," Iida said. MHI also plans to cooperate with the U.S. In its Strategic Defence Initiative space defence program by participating in the project when it moves from the research stage, he said. The U.S. Has been seeking Japan's technological support. In fiscal 1985/86, aircraft accounted for 17.1 pct of MHI's sales, shipbuilding 17 pct and power plants 27.9 pct. Iida said the ideal ratio is power plants 30 pct, aircraft and special vehicles 25 pct and shipbuilding 15 pct. As for the remaining 30 pct, Iida said he wanted to shift the domestic focus away from heavy machinery sold to manufacturers and towards household goods, but he declined to specify which products. "By the end of this year, you may find our brand name on your daily products, although this does not mean we will run away from our mainstream business," he said.