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Is Japan's manufacturing industry dying? Not quite.
The Meltdown of the Japan Model: The Reality of the Nation's Manufacturing Industry
(This article first appeared in the December 19 edition of Newsweek Japan, and it was translated into English by the English-Speaking Union of Japan)
The wealth produced by the manufacturing sector has long been the mainstay of the Japanese economy. Today, though, home appliances and personal computers are primarily manufactured by Chinese and Taiwanese firms, while companies like Samsung and Apple control production industries for television sets and smartphones. Even in humble products like vacuum cleaners, we see the British venture firm Dyson carving out a growing slice of the pie.
A depressing picture
A look at the heavy electric machinery sector shows that Japan's Mitsubishi and Hitachi--to say nothing of the beleaguered Toshiba--are falling behind their global counterparts like Siemens and General Electric. Japanese firms, which once traded on the strength of their trustworthiness, are seeing their reputation dragged down by the likes of Kobe Steel and Nissan, found to have taken quality-control shortcuts and misrepresented the capabilities of their products. (While it appears that the products themselves have caused no quality-related incidents, and the standards themselves may in fact be unreasonably strict, the reputational damage remains.)
Even in the automotive sector, thought to be a Japanese stronghold, Chinese and American competitors are making bold strides in electric vehicles, pressing Japanese automakers to respond to a new paradigm in the industry. And in robotics, another area where Japan is still thought by many to be a leader, it turns out that even the celebrated Pepper--a conversationally capable android found in many Japanese storefronts--gets its "brain" from a French IT firm and its body, built in Shenzhen, China, from Foxconn--the Taiwanese electronics manufacturer that purchased Japan's consumer electronics maker Sharp in 2016.
Japan shows little skill in designing entirely new systems from scratch. Rather, the country's expertise lies in taking existing things and "polishing" them to a higher level of quality or finish. And Japan falls far short in its communicative abilities in English--which impacts its capabilities to compete against China and the West in areas like finance or computer software. This linguistic shortfall also prevents the country from leading moves to combat cyber terrorism, a field that will be considerably more important in days to come.
The Japanese manufacturing sector now stands at a key crossroads. But the choices that must be made differ for each industry and each company. The firms that make no efforts to understand their markets and the conditions at their plants--those helmed by the "elite managers" of the past, who can only steer their companies according to the charts they have always used--will inevitably taste failure. And even celebrated companies that have a viable vision for the future, if they have allowed themselves to grow too large, will find that they can no longer focus sufficient human and financial resources on their most promising product areas. They will end up losing to their Korean and American competitors.
Also worth noting is that the firms that primarily take their marching orders from Japan's government and public corporations may be major operations, but they fall far short in the human-resource connections they need to succeed in business on a global scale. Their inability to grasp market needs and lack of marketing capability dooms them to failure in global competition. Emblematic of this are the domestic heavy equipment manufacturers that have long depended on orders from Japan's electric utilities and the consumer electronics makers that only bothered to develop cellular phones for NTT Docomo.
I should note that during the postwar years, most Japanese companies were what would now be labeled "black" employers--demanding endless hours of overtime work in order to boost their productivity. They effectively built much of their success with cheap labor. After the 1985 Plaza accord made the yen twice as strong against the dollar, though, we saw the rise of China, particularly from the 1990s onward, as the primary source of cheap labor. American companies with no factories of their own, and little more than the ideas for bold, innovative designs, came to purchase top-quality parts from Japanese and other sources and have them assembled by Taiwanese electronics manufacturing service firms like Foxconn and TSMC at their Chinese plants. This left little room for Japanese manufacturers to thrive. Japan's economy--or, more accurately, the country's corporate workforce--was faced with the need to refashion itself from the ground up.
Hopeful signs
Conditions were not so gloomy for everyone, luckily. Fujifilm, for example, foresaw the shift to digital photography and retooled its business at an early stage, unlike the US film giant Kodak, which went bankrupt in 2012. The heavy equipment maker Komatsu, helmed by executives who had worked their way up from the construction sites, moved early on to prepare itself for a global rollout of its products. Toray pivoted its business to products like Heattech fabric, developed jointly with Uniqlo, and carbon fiber. The fiber manufacturer Seiren delved into the chemical properties of silk to reinvent itself as a pharmaceutical player. And the home-use product maker Iris Ohyama is becoming a major force in the home appliances industry by coming up with product lines that create all-new areas of demand.
Japan's makers of vital components for home electronics and mobile phones also continue to show a comfortable supremacy in those fields. Chinese and Korean manufacturers would be hard-pressed to produce superior products without the parts they procure from companies like Murata Manufacturing and TDK. To this day Japanese firms account for more than a third of global electronic component production. Japan also retains the lead in the production of manufacturing equipment needed to turn these parts into finished products, and when it comes to industrial robots--which can complete complex tasks in the blink of an eye, even if they cannot yet converse with humans--Japanese players like Fanuc and Yaskawa are global leaders. In the age of the internet of things, Japan may not come out on top in the development of computer programs that can manipulate data on the massive scales involved, but Sony and Keyence will likely continue creating the sensors that will increasingly be installed in items and attached to our own bodies as part of the IoT.
Nationalist thinking in the economy will become obsolete
In the end, though, we must ask ourselves how much longer we will divide companies by their nationality, rejoicing over our own country's corporate successes and lamenting its failures. If blockchain technology permits unified reckoning of all financial accounts, and robotics advances raise productivity and lower the prices of goods, we can see the advent of an era when all people worldwide enjoy greater affluence in equal measure, regardless of where individual companies are located.
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