As Japanese manufacturing fades, a factory town fights to stay alive

Japan is now paying the price of it's past protectionism.

The amalgam of issues that Higashiosaka faces – an aging population, offshoring, and a sagging currency - mirrors the problems that have been chewing at the foundation of the world’s third-largest economy and its global exports, which hit 83.1 trillion yen ($610.54 billion) last year.

These businesses were hollowed out by neo-liberal globalization first in the 80's and 90's.

And with 3D printing and automated manufacturing there was never going to be a preservation of this "industrial ecosystem".

How the LDP/Japan Inc. combine deals with this will be the measure of their capacity to create a sustainable socioeconomic system.

These businesses were hollowed out by neo-liberal globalization first in the 80's and 90's.

Judging from the image it looks to me these businesses failed to invest in automated processes and are thus now at a competitive disadvantage. An artisan tapping away with a hammer on an object in a vise is the 1940s way to manufacture. There are precious few manufactured goods where hand craftsmanship is more efficient, and particularly more accurate, than computer controlled automation.

I think Japan needs to give up the dreams of the past. Maybe in specific areas (robotics, precision tools and biotech) Japan can lead. But the days of being an industrial juggernaut are behind us.

If you own a small business, as you inevitably age, if you do not choose a successor and train apprentices, why would you expect your shop not to close with you?

Japan was the richest country in the world when they opened.

moreover... the disgusting industrial wasteland that covers the entire Osaka waterfront should be cleaned up so that tourists (a real money maker in Kansai) can enjoy the ocean

(Maybe off topic, but I think it relates to the clinging on to the old days of Japanese manufacturing--at any expense )

Japan is now paying the price of it's past protectionism.

exactly!

They have asked favors of Kojima, such as splitting costs or "going easy" on price increases.

Yet the companies that they supply their parts to are making enormous profits and not giving anything back to their suppliers.

Japan is not known for innovation. Japan is more known for protectionism. And the lack of global understanding when it comes to how business works.

They're an anachronism whose days are long past. An analyst who researched them told me that many don't use computers for even administrative work. Their ledgers and other records are on paper written in pencil, not Excel files.

They are also in the nasty habit of paying their workers lower and lower wages as their businesses decline, as they see this as preferable to lay offs (in an economy with a 3% unemployment rate!). These companies need to go.

Succession is another big issue for Japanese small-midsized, mom & pop businesses even though some have survived the latest crises (covid, Ukraine). Interestingly, diversity is emerging there as women and foreigners assume male-dominant traditional businesses.

I often visit my local gun shop here as I own guns for hunting. It's like walking back in time sixty years or so. Paper and seals everywhere. No order to anything. I offered to bring his operation into the 21st century by scanning and logging into a database all of his records; he wasn't interested. His attitude was, this is the way I have always done things, so this is the way I will always do them. Sums up so much about Japanese business.

Who Said Globalization Is Bad: It is great for the multinational, the 1% and pollution levels.

People and the planet: Who cares?

Thank your government and the Bank of Japan for playing with the yen and intentionally devaluating it to favor exports.

Good discussion going on as usual for Japan’s case. In addition to outsourcing which is another example of following the footsteps of the US, Japan needs to realize that everyone is a cut throat competitor, even democratic Allies, that is the US.

Competition under heavily skewed regulations takes place in the US. It has been done once before when the US crushed the Japanese semiconductor industry in the 1980–1990s when Japanese giants like Hitachi, Fujitsu, NEC, Toshiba, Sharp etc. were clearly gaining an upper hand. Taiwan and South Korea are no less beholden to the US than Japan.

Almost everyone I talk to are of the opinion that the US is not so keen to breeding TSMC and Samsung’s US operations into world leaders, as it is in grooming Intel, AMD, Global Foundry, Micron to beat TSMC and Samsung, and not the least, any emerging IC industry in China.

In Taiwan, the TSMC move to the US is viewed as suicidal by no less than its influential founder, Morris Chang, who openly criticized the plan to set up shop in the US and expressed strong skepticism over the success of US based IC industry based on considerations of talent pool, work culture, strain on resource, and supply chain issues. He’s even expressed these concerns to Pelosi during the latter’s recent visit apparently.

Japan needs to compete against and be a partner with the both the US and China in order to be taken seriously. China and the US are and will be ruthless. They will eat your bento and still make Japan say arigatou gozaimasu.

Matsushita (National/Panasonic/Sanyo) are in Kadoma, north-east of Osaka. Supposedly its because that area is the "kimon" (bad place for feng shui) of the city and the land was cheap. Generally speaking, you find these smaller suppliers, often referred to as "nagaya" clustered around the big manufacturers. Large manufacturers famously treat these small suppliers badly to start with, but if they shut down or move their factory overseas, the small suppliers are screwed.

A nagaya widget supplier is featured in the John Pilger documentary on Japan made in the late 1980s (early 90s?). He talks about how the workers get none of the benefits of the salarymen at the big company.

Sad, but their time has passed without them knowing. My father is a machinist with a shop full of machines but a geeky dude with a $50k CNC will out compete him on any job of any size any day of the week. At least he knows it.

Their ledgers and other records are on paper written in pencil, not Excel files.

I have personally seen this. Yes, there is PCW and accounting firms for the big guys, but the pencil and ledger (Campus notebook) is common. It's like the train operator who could not logon to his device due to failed password attempts; they seem to prefer what you can see and touch.

They are also in the nasty habit of paying their workers lower and lower wages as their businesses decline, as they see this as preferable to lay offs (in an economy with a 3% unemployment rate!). These companies need to go.

As for "they" you might be referring to Takenaka Heizo 竹中平蔵 and the deregulations 規制緩和 under PM Koizumi 小泉純一郎. These Keio 慶応義塾 guys basically downgraded workers from full-time to part-time and dispatched contract employees. No wage increase or bonuses not to mention other benefits. The money went to corporate clowns and dispatch agencies one of which Takenaka is the director.

Its been too much of "Wait and Watch" game while the key disruptions have wiped off their hopes for early transformations. Do we still have time to wait and watch or leave it to the business management to address the concerns:

"Now, we need to communicate with the consumer directly"

"It's now the time to re-evaluate."

"Competition isn't the way to survival. We have to join forces instead,"

and many more...not new for at least few years ago.

Very interesting article, thanks JT.

Stuck in the past and considering nagaya workers to be like slaves to large manufacturing companies, breaking point was reached some time ago.

A company that cannot raise its prices is doomed to fail sooner or later. This basic rule was scorned because Japan thought that with size and ganbare spirit, it could prevail without realizing it was just because of currency manipulation. With dropping demography and out of touch modernity company executives, task is now impossible for the large majority of them.

With all those company leaders who accumulated wealth on the back of their employees, they cannot understand the pain of their employees, why care?

Seen this first hand.

That's exactly it. I wish the 25 who downvoted this comment would care to say it is wrong.

Because LDP is now paying English netto-uyoku to defend glorious Japan everywhere. This started under Abe when he allocated budgets for MoFA to monitor and manage online content in regard to Japan.

You can see a bunch of them around here and on Reddit. Any slight criticism against Japan is warranted with downvotes and hates. Of course, the CIA also provides backup help for the LDP too! In fact, we see there are two or three American military men here defending Japan which is highly suspicious.

Septim Dynasty

Excellent post, and spot on!

@Septim Dynasty agreed!!

I used to live in Higashiosaka (near Fuse station), back when I was an ALT at a public HS. The city’s claims to fame were: being the “rugby city of Japan” and manufacturing bolts for NASA projects.

There was some kind of small factory behind my apartment that would operate all night. I’m not sure what they did, but I could smell burning metal and hear them dropping things all night! The people I met in that city were all great, so it pains me to read the article.

My wife and I are traveling from the States back to Higashiosaka in a couple of weeks to visit her family. I look forward to seeing things for myself.

All these businesses can be potential M&A candidates for foreign companies looking to set their foot into Japan given how much easier it would be than to fully incorporate a subsidiary from the start. Not only is the process going to be easier, but they can also tap into the resources that these companies already have like clientele, suppliers, partners, etc. Now as mentioned above, if all records are kept on paper rather than computers, it will be difficult for potential buyers to valuate the company they are looking to purchase.

Tear up all free trade agreements signed so far and bring the manufacturing industry back.

Stop encouraging the tourism industry, this is for third world countries!

As for "they" you might be referring to Takenaka Heizo 竹中平蔵 and the deregulations 規制緩和 under PM Koizumi 小泉純一郎. These Keio 慶応義塾 guys basically downgraded workers from full-time to part-time and dispatched contract employees. No wage increase or bonuses not to mention other benefits. The money went to corporate clowns and dispatch agencies one of which Takenaka is the director.

Many interesting data points in this thread about the downward path of the workers of Japan Inc..

A socioeconomic contract was broken around the 70's in the West and 90's in Japan.

Factory drudgery, for those with a basic education, could pay for a house, car, a stay at home partner, education for children and other things in the past.

Now those with extensive education struggle for basic subsistence.

The reason is well-stated above and more broadly here:

https://www.epi.org/publication/understanding-the-historic-divergence-between-productivity-and-a-typical-workers-pay-why-it-matters-and-why-its-real/

The large parent companies are/were the lifelines to these nagayas. When Abe gave big tax cuts to them and "encouraged" them to pass on the savings and benefits to their subsidiaries, you just knew that just wasn't going to happen.

This was mini-Reganomics, for anyone around to remember the disaster he created to the middle and lower classes, which here spelled the end of the nagayas.

There've never been big tax incentives for companies to relocate out of Tokyo to other regions. Osaka has seen nothing but negative numbers since the early 90s. Tokyo on the other hand have done well.

Koizumi's move toward cut throat capitalism was the beginning of the end. We needed, and still need, a more socialist approach to taking care of the middle and lower classes.

lack of global understanding when it comes to how business works.

101% agree.I deal with it every single day of year...no cahnge in sight at all.

while Japan have slept covered by gov protections other gew fast and strong...China,Korea,Taiwan,Singapore,Malaysia,Thailand even Vietnam..you name it.Now you pay for consequences of these archaic politics and rules.

The large manufacturers have always treated the smaller manufacturers badly, unlike members of their keiretsu or trading group. When times are busy, they pressure them with tight delivery schedules, when times are quiet, they dump them. No loyalty, just the bottom line.

Septim DynastyToday  12:47 pm JST

That's exactly it. I wish the 25 who downvoted this comment would care to say it is wrong.

Because LDP is now paying English netto-uyoku to defend glorious Japan everywhere. This started under Abe when he allocated budgets for MoFA to monitor and manage online content in regard to Japan.

You can see a bunch of them around here and on Reddit. Any slight criticism against Japan is warranted with downvotes and hates. Of course, the CIA also provides backup help for the LDP too! In fact, we see there are two or three American military men here defending Japan which is highly suspicious.

Hahaha. Like 5 cents warriors for CCP China or Vankers for SK? Show us all objective proofs not your imagination. That is very good ingredients for oppositions to accuse LDP at upcoming diets on top of

250mill state funeral, UC scandals, $30billion aids to Africa.

The onlyway to survive is to diversify, move and change to fluctuating markets, my friend has a small farm near me here in the UK, they constantly complain about the lack of money and how tight things are, so Ive surgested to him about selling "green milk" this is unpasturised milk direct from the farm, it would generate a higher income for him, as it cut out the supermarkets and dairies, no was the reply, and what ever Ive suggested, its met a stern "No" they are so entrenched in thier ideas and wont change, its infuriating, but its not my farm, so rather than upset them, I just dont say anything now, so the key thing that these small manufacturing co have done is spotted what the problem is, and started talking together and try and change, and diversify, I wish them all of the best, I hope they succeed.

I think some of the small-mid business owners rather want to end their business peacefully if they can afford to close it without debts because they know more investment is required to even just keep going.

On the contrary, those who want to hang in tight need not only financial support but also feasible future planning with reliable data to decide which pass to go, shift, or quit. I wonder if they have access to that kind of support...

@Brian Wheway.

For UK farms, diversifing is a necessity, especially with current government policies that will hammer them. But unpasteurised milk is a very bad idea. The risk of illness and consequent legal costs is just too high. There are so many options: guaranteed organic/Non-GE foods, direct to the public sales, crop diversification, rare breeds, opening a plant nursery, farm tourism, environmental experiences and off-road cycling to name a few. Traditional farming is unlikely to pay the bills with cheap food coming in from Australasia under new trade agreements, a lack of farm/abattoir labour courtesy of Brexit, water shortages, insane energy costs and price pressure from supermarkets.

Doesn't matter where you are on the planet, your business has to change constantly, as necessary, targeting a profit margin that makes you a viable concern, as you dodge market forces, government policies and economic decline. You don't just start making widgets in 1912 for three customers and then Carry On Regardless for the rest of time, generation after generation.

A lot of these artisans have skills that took thousands of years to perfect. Japan's travel ban is stopping the knowledge sharing to pass on these skills to the next generation around the world. Another casualty of an irrational ban on allowing people in the country.

Mom and da shop or a 20 employee business is a bad place to be in the economy because its chances are of only residual profits due to the big companies competion, i say power. Probably next subject will be rhe universal income and socialism models, i myself saw 2 generations family company being dry by the new times and found only a advantage in services, not products. Thanks. Have a good day.