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Scandals erode brand Japan
2017-11-06, Cai Hong

Officials from Japan’s Ministry of Land, Infrastructure, Transport and Tourism have been busy conducting on-site checks at some Japanese companies as quality-control scandals tarnish the reputation of the country’s manufacturers.

In the wake of irregularities at Kobe Steel and Nissan Motor Co, two factories of Japanese automaker Subaru acknowledged on Oct 27 that it had allowed unqualified workers to inspect its cars. As a result, 255,000 of its vehicles sold in Japan will be recalled for reinspection. 

For more than 30 years, final inspections of Subaru’s Japan-made vehicles were sometimes conducted by uncertified technicians, violating the transport ministry’s requirements.

On Oct 19, Nissan said it would suspend domestic production of vehicles for the Japanese market for at least two weeks to address misconduct in its final inspection procedures that has led to a recall of 1.2 million of its vehicles in Japan.

Among recent revelations of misconduct, however, this is the more catastrophic: On Oct 8, Kobe Steel admitted it had systematically faked product quality data about the strength and durability of some aluminum and copper parts for more than a decade, while former employees said the data tampering dates back to the 1970s. 

The 112-year-old steelmaker’s fraud has very serious consequences as its aluminum and copper have been used by Japanese companies, and their overseas counterparts such as General Motors and Boeing, to make a wide range of products, from cars, bullet trains, planes and rockets to defense equipment. 

Kobe Steel said the aluminum and copper data was fabricated because of delivery deadlines.

The United States Department of Justice has demanded that Kobe Steel submit its documents related to the fabrications. And the European Aviation Safety Agency has asked companies to suspend the use of Kobe Steel products if possible.

The US and Europe are also major markets for Nissan and Subaru.

Some analysts have ascribed Japanese companies’ frauds to fierce competition from “newcomers” to the industry such as India and China.

Japan slipped one spot to ninth on the list of 137 countries and regions in the Global Competitiveness Report 2017-2018 issued by the World Economic Forum (WEF) on Sept 26, while some other economies in the Asia-Pacific region, including China, moved up.

The decline in Japan’s competitiveness can be partly attributed to the massive government debt, lingering deflation and inflexible labor market, despite the country’s comparatively high-quality infrastructure and workforce education level. 

The WEF report warned that advanced economies, including Japan, are showing signs of declining productivity and stressed they need technological innovation.

Many large Japanese companies have expanded into too many areas and carry an inflexible labor force. The New York Times reported that Japanese enterprises’ overseas acquisitions have doubled in value over the past three years, as declining business prospects at home have forced the previously inward-looking companies to venture into foreign markets.

At end-September, the number of overseas mergers and acquisitions by Japanese firms stood at 489, outpacing the record high seen in 2016, according to advisory company RECOF Corp.

Japan grew into a prosperous country after World War II by importing raw materials and making them into finished products for export globally. Later, on the strength of cheap labor, China attracted manufacturers and transformed itself into the “factory of the world”.

Japanese goods, the Mainichi Shimbun said, have remained competitive because of their excellent quality, which is evidenced in meticulously detailed production processes combined with a sincerity of purpose among its workers.

But a string of corporate scandals in recent years have soiled the Made in Japan label, which for decades has been a byword for quality, and show how some Japanese companies compete with their rivals.

In 2011, Japanese medical equipment-making company Olympus Corp admitted hiding massive investment losses. In 2015, the laptop-to-nuclear conglomerate Toshiba Corp admitted it had been doctoring accounts for years. 

Last year, Mitsubishi Motors Corp said it had used noncompliant fuel-economy testing methods for decades. And in June this year, 84-year-old auto-parts supplier Takata Corp, whose faulty airbag inflators have been linked to at least 16 deaths and 180 injuries and triggered the recall of tens of millions of cars around the world, filed for bankruptcy.

A deeply entrenched corporate culture has been blamed for these high-profile scandals. Major corporations recruit students straight from universities, more often than not offering lifetime employment and high salaries. This employment system has resulted in unwavering company loyalty and employees’ reluctance to report irregularities.

Experts say the Japanese government’s measures to reform corporate governance may be partly responsible for the exposure of the scandals.

Japan adopted its Corporate Governance Code in 2015, setting rules on disclosure, shareholders’ rights and independent directors in an attempt to promote greater corporate discipline and cultivate a more shareholder-friendly environment for investors. The progress has been encouraging, as at least two independent directors occupy chairs on the boards of four out of five Japanese companies.

But successive revelations of corporate malfeasance have belittled the Japanese government’s efforts to improve corporate governance, which is seen as the key to unlocking the country’s productivity in the face of an aging population and shrinking workforce.

The rippling shockwaves made by Japanese manufacturers are not expected to end soon. Global automakers, aircraft companies and other manufacturers have scrambled to identify potential hazards in their products because of the falsification at Kobe Steel.

On Oct 26, Kobe Steel said 88 out of 525 affected customers had yet to confirm its products were safe. Twenty-six of them were overseas companies. 

The Mainichi Shimbun rightly said there is a real danger that this string of scandals involving some of Japan’s best-known companies will demolish the “Japan brand”.

These cheating Japanese companies have a lot of in-house cleaning to do before trust in them will be restored.

 

The author is China Daily’s 

bureau chief in Tokyo. 

caihong@chinadaily.com.cn


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