As Tokyo spins up its defense industry for the country's largest military expansion since World War II, it has run into a challenge: some of Japan's best-known brands are reluctant to invest in the military side of their businesses.
Japan, which renounced war in 1947, last year unveiled a five-year 40 trillion yen military expansion to deter Beijing from using force in the East China Sea amid growing concern that Russia's attack on Ukraine - which it calls a "special operation" - could embolden China to invade Taiwan.
But a key part of Tokyo's strategy hinges on persuading commercial firms such as Toshiba Corp, Mitsubishi Electric Corp and Daikin Industries Ltd, which for decades have quietly armed its Self Defense Forces (SDF), to ramp up production.
In a country with an ingrained public sentiment against militarism, that is proving a hard sell for some of its suppliers, according to Reuters interviews with six government and company officials.
In private meetings with the defense ministry over the last year, some firms have raised concerns such as low profit margins, the financial risk of building manufacturing plants that could be left idle after Japan completes its military expansion, and potential damage to their public image from arms sales, an official directly involved in the talks told Reuters.
The official declined to be identified or attribute the complaints to specific companies, citing the confidential nature of the talks.
The government is preparing legislation that includes raising profit margins on military gear from a few percent to as much as 15%, and the provision of state-owned factories that companies can use to expand production risk-free. Some are concerned that might not be enough.
"Until now, the ministry has taken the defense companies for granted," said Masahisa Sato, an influential ruling party lawmaker and former deputy defence minister.
Sato said it was increasingly difficult for Japanese executives to justify defense sales out of "patriotic duty" to shareholders focused on more profitable civilian ventures.
Prime Minister Fumio Kishida's military buildup plan identifies defence manufacturing as a key pillar of national security.
Japan, however, does not have a national defense champion such as Lockheed Martin Corp in the United States or Britain's BAE Systems PLC, and many of the firms supplying the SDF are associated with more mundane products.
At Japan's biggest defense company, Mitsubishi Heavy Industries, which is developing Japan's next jet fighter and new longer-range missiles to help deter China, military contracts account for only a tenth of its $29 billion in revenue last year. Most of its business is civilian aircraft components, power plant equipment and factory machines.
Aircon manufacturer Daikin has a munitions sideline; Toshiba, which makes electronic goods such as printers, also produces military-grade batteries; and Mitsubishi Electric makes radars and missiles alongside fridges and vacuum cleaners.
Since early last year, defense officials have been meeting with these firms and other top suppliers, such as car-and-helicopter maker Subaru Corp, to urge them to expand their lower-profile military units.
Reuters contacted 15 leading Japanese defense manufacturers, whose CEOs the defense ministry invited to talks with then-defense minister Nobuo Kishi in April, and in January with his successor, Yasukazu Hamada.
Three of them, Mitsubishi Heavy, Mitsubishi Electric and IHI Corp, which makes jet engines, bridges and heavy machinery, confirmed they had also taken part in other lower-level discussions.
Five firms did not reply, and the rest declined to say whether they had joined in other discussions. The companies who responded declined to give details of the meetings or any concerns they raised during the talks.
Many companies are reluctant to talk about their defense units, fearing it might put off customers at home, where anti-military sentiment lingers, or overseas, particularly in China, where resentment over Japan's wartime past could be politicized.
Reuters asked 10 of Japan's military suppliers, including Toshiba, Mitsubishi Electric, Daikin and Subaru, for interviews with their defense unit managers. Only Mitsubishi Electric agreed.
Masahiko Arai, the head of Mitsubishi Electric's defense systems division, said he welcomed government proposals and hoped that contributing to Japan's "safety and security" would be beneficial for the firm.
His biggest concern, he said, was what would happen after Japan's five-year military buildup ends, adding that other companies "are troubled by reputation risk". His unit accounted for about 4% of the $34 billion in sales the company recorded last business year.
An official at another major Japanese defense supplier, who requested anonymity because of the sensitivity of the issue, said being directly involved with regional tensions might be bad for business.
"Reputation risk worries us a lot," the official said. "There have been occasions when our Chinese customers have expressed their discomfort when the topic of defense has come up."
Despite diplomatic tensions, China is Japan's top trade partner and a major manufacturing base for many Japanese companies.
When Japan ended a decades-long ban on military exports in 2014, it did not spur industry growth because of corporate timidity and overly cautious bureaucrats, analysts say. Mitsubishi Electric is the only company to have sold defence equipment overseas, with a deal in 2020 to supply radars to the Philippines.
Meanwhile, chemical company Daicel announced it would close its pilot-ejection system unit in 2020, and Sumitomo Heavy Industries said it told the defense ministry in 2021 it would stop making machine guns. Daicel cited low profitability, while Sumitomo Heavy said it was difficult to maintain production and train engineers.
An opinion poll published by the government this month suggests there is growing public support for a bigger military as regional tensions with China and North Korea escalate.
In the survey of 1,602 people, 41.5% said they wanted to expand the SDF, up from 29.1% in the last poll five years ago.
Even so, Japanese companies often refer to their military products as "special equipment," the government official said.
Daikin, which generates 90% of its revenue from air conditioning, is among them. It does not list the artillery and mortar shells it makes at its Yodogawa plant in Osaka, on its website.
"We aren't keeping our defense business secret; we disclose information about it in a regular way," a Daikin spokesperson said. "It's not about reputation risk."
On a street outside the barbed-wire topped wall that surrounds the Daikin factory, Reiko Okumoto, 66, said she had lived in the working-class neighborhood surrounding it for more than 40 years without knowing it produces shells.
"It would be good if Daikin could step away from military work," she said. "But given how the world is, I know that's unrealistic."© Thomson Reuters 2023.
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War is a racket. (Smedley Butler).
This is one of the most terrifying ways to begin an article, but it does only describe where we are right now.
China will sanction the business of these companies and corporations who participated in Japan's military expansions. You see Boeing received "0" order of airliner from Chinese airline companies.
No military expansion. Is a waste of money and only create a arm race with other countries. The GSDF is fine as it is. Just focus on their training, better pay and welfare. Let's be realistic. North Korea doesn't really bother us and only cares about South Korea and the US troops at their doorstep. Russia has bigger problems with the EU. While China is our neighbor and also the highest number of visitors every year( almost 10million each year). Our government should just stay away from US politics. Don't we already waste enough money buying their overpriced weapons and also covering the cost of their troops living here?
The key to any defence industry is government-issued "cost-plus" contracts, where the government will reimburse the company for whatever it spends to make the product, PLUS a guaranteed profit. There is no downside - only upside - and these Japanese companies only need to look at the USA defence companies and see how it is done extremely lucratively. And the companies costs are usually significantly padded with extensive cost overruns and needless redundant and featherbedding processes, so there is plenty of sugar baked into the cake from the get-go.
The companies are worry about potential damage to their public image from arm sales.
Only in Japan that could happen.
Much of the increased defense budget will be used for purchasing secondhand US weapons. Who in their right mind in Japan would want to take risks and invest in weapons manufacturing?
Tools, gotta have them wether you're building a home or in defense protecting it from oppressors like the Chinese Communist Party. So unless those businesses start caring about the freedoms they have in a manner similar to their profits they will risk losing both.
Just my thoughts.
Here is evidence of America’s decline to me. Even when Taiwan and Japan sign on to purchase arms from the U.S., the U.S. can’t “deliver” its promises.
About a decade ago, Japan bought two RQ-4 UAVs from the United States and signed a contract nine years ago. It cost 61.3 billion yen when it was purchased.
In nine years, the United States has never delivered the goods.
In nine years, the United States has asked Japan to pay an additional 295.1 billion yen for the maintenance of unmanned aerial vehicles that Japan has never received. So Japan purchased unmanned aerial vehicles for roughly 60 billion yen but is asked to pay roughly 300 billion yen in maintenance fees. At least they have something to counter the rise of China military right?
Nine years later, the Japanese still haven't got any of their UAV.
To add further insult to injury, two years ago, the United States Air Force cited the unmanned reconnaissance aircraft type in the contract signed by Japan as being "unable to cope with China” and required Japan to "retire" all 20 drones.
The U.S. government is beyond unorganized because the country is in decline. An enormous amount of energy is exhausted in partisan politics and elections, that things don’t get done and promises aren’t kept. Such low standards are not American standards.
Wait and see if Taiwan receives the goods they have also already paid for but have not yet received. The same with the subs Australia is buying 2030 and the Tomahawk missiles 2026.
Daikin. It was only when I was working for them that I became aware they did military weapons production as well. I was a little surprised.
Japan struggles to persuade its big brands to join military build-up
Both Mitsubishi Electric Corp and Daikin Industries Ltd, have a commercial obligation/return dividend to shareholders.
The lack of a compressive policy on tax and earnings has now become a political issue
The question, the depopulation, the cost of child care, past present and future is now front centre.
It seems to me that the rise of the dictatorships is driving the threat from military aggression. It is unfortunate that spending money on defense is necessary, but the alternative is to consign unprepared nations to slavery.
People and countries who are smart avoid foreign conflicts and domestic entanglements that do not truly benefit them in the long run. If Japan's leadership and voters are smart, they will go ahead with expanding conventional military forces, but will couple that with an expansion of their chemical weapons stockpile, and the creation of a large nuclear deterrent capability. Russia, China and North Korea have hypersonic nuclear missiles. Anyone at odds with them is not in any kind of advantageous military position without having the same, or something close to the equivalence in power.
We have witnessed the end of an era, when one of the world’s top economies could exist in peace without an offensive military. But I can sympathize with Japan’s change of heart, it seems American political and military muscle have steeply declined. Leadership in Europe has fallen nearly as hard. The American withdrawal from Afghanistan showed shockingly poor planning, and even worse execution, and adding to that the lack of common-sense leadership in Europe has emboldened Russia and China. If I were Japan, I wouldn’t put much faith in America’s multi willpower and ability.
No reason they shouldn't require their investment to be underwritten by government money. They know that the contracts will switch to the US if the US demand it, and want to protect their companies.
The US will eventually sanction anyone that so much as buys a spanner from China and ban sales to them. At that point, they may have to make bombs and bullets for WWIII if they want to make a profit.
As for reputational issues, no self-respecting Islamic State fighter would want to have driven anything other than a Toyota. It was so common that there was an inquiry into the supply chain.
The Japanese government may have their own quiet agenda in this. The US promise to protect Japan. But they promised to protect the Kurds and the Afghans too. Trust in the US can only go so far.
""Japan, which renounced war in 1947, last year unveiled a five-year 40 trillion yen military expansion to deter Beijing from using force in the East China Sea""
China will NOT use force, if anyone China will be the last to use force. I believe that China will use it's mighty $$$$$$$$ money to accomplish it's mission, assuming that it still wants to!!???
Militarize Japan and bleed it broke while the American war industry hauls in the profits.
Market is limited, regulated and it will cost some RnD and testing before it can really show up profit, unless government willing to spend some money using tax payer money for those company.
Give a man a hammer, and everything looks like a nail. The same goes for military buildup.
In any case, it won't matter what the big brands think, once we enter martial law, will it?
Tokyo would be destroyed in 5 minutes of a all out war with it neighbors,it will be a shell of itself,with million of it people suffering unnecessary, because of a paper tiger policy of Japan
Not necessarily, not all country have ability to do the same. Japan just don't have showcase where it can exhibit military product. What happened in Japan, it just becoming another scandal.
Japan even try to avoid big bet
It's the lack of profit that's driving away Japanese defense contractors away.
Not only Japanese MoD issue defense orders each year instead of over several years, the amount that Japanese MoD actually spends on weapons procurement is small, 1/3rd that of Korea. Worse, while the majority of Korean spending goes to buy world renowned Korean weapons, the majority of Japanese spending goes to buying US FMS weapons, leaving a pocket change for Japanese defense contractors.
Given the small amount plus the uncertainty of annual contracts, it is of no wonder Japanese companies are quitting defense business, while defense industry is a massively booming business in Korea where even ammunition vendors are setting up factories in Europe to supply Ukraine and NATO countries demanding Korean ammunitions, rockets, and artillery shells.
It's the classic case of rich getting richer and poor getting poorer.
Unless Japanese MoD goes crazy and announces an all out arms-rebuilding program with all-Japan stealth fighter(not the UK Tempest where Japan is a subcontractor), aircraft carriers(Korea is building two 70K ton carriers loaded with KF-21N domestic naval fighters), 3,000 tanks(MoD plans to keep 300 tanks), 1,000 HIMARS like rocket launchers, Japanese defense industry can't survive.
So, 2 out of 3 concerns are about...the bottom line...Tells it all me thinks. As far as the third concerns goes "...potential damage to their public image...", this one hasn't exactly made Japan Inc. amend their ways when it comes to an endless stream of corporate scandals year in year out, so we can just file this one under 綺麗事 (nice things to say) and simply forget about it altogether...
Essentially, Japan Inc most likely knows where their technology, brand names, production capacities and the overall foreign interest in their products lies...pretty low, seemingly.
...which translates as: the J-gov is throwing trillions at Japan Inc and still, Japan Inc thinks it's pies in the skies. Just compare this to the J-gov's military strategy outlined last year and rebuffed by both former and current Japan brass. Talk about severe delusion syndrome within the LDP and their supporters...
"Urging"...Says it all...Not even mentioning how the J-gov is trying to tell them to run their business. Not going to fly, not even by a few lightyears.
"Patriotism" only flies until you're being asked to fulfill your own "patriotic duty", then things suddenly come to a grinding halt. "Patriotism is the last refuge of a scoundrel’" and is mostly just an empty word in the LDP echo-chamber or a word making the flag-waving tinfoil hat demographic fret about, business and the population (in Japan) much less so....
Essentially all empty, meaningless and ultimately pointless talk from your usual LDP outlets. Just expect much much more of your hard-earned tax-money to flow into the pockets of the US military industry which has spent decades providing flashy gizmos to the JSDF for results that we are now being told amount to squat meaning that we are going to pile up more expensive (and ultimately useless) junk...
Depressing to say the least...
Then give all those firms an ultimatum, make more arms or Japan will buy them on the open market and cancel all domestic contracts..... There are International Defense/Armament Trade shows every year.....
The spirit of Mitsubishi Zero needs to be reawakened.
the financial risk of building manufacturing plants that could be left idle after Japan completes its military expansion
The companies can sell their arms abroad to friendly countries if that is the concern.