Feature: As Japanese manufacturing fades, a factory town fights to stay alive
22/08/2022 12:00
(Repeats story from Aug. 22)
By Sakura Murakami
HIGASHIOSAKA, Japan Aug 22 (Reuters) - The small factories
in the western Japanese city of Higashiosaka for decades fuelled
the thundering rise of the country's biggest brands - but a weak
yen and rising costs have accelerated a slow decline, and are
reshaping the industrial heartland.
Home to about 6,000 firms, 87% of which have fewer than 20
employees, the city is emblematic of how such forces are pushing
Japan's small manufacturers toward a tipping point.
The workshops in Higashiosaka create metal components for
everything from train seats to ballpoint pens, and have long
relied on powerhouses such as Sharp, Panasonic, and Sanyo for
orders.
Now Sanyo is gone, acquired by Panasonic. Work in general
has dried up in recent years in the face of competition with
South Korea and China; when Taiwan's Foxconn acquired Sharp in
2016, it moved much of the company's manufacturing out of Japan.
The amalgam of issues that Higashiosaka faces – an ageing
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.
One factory in the city, aircraft component manufacturer
Aoki, is pivoting to the food industry after being hit hard by
the pandemic. Another, air drill parts maker Katsui Kogyo,
raised prices for the first time since it started business in
1967. Lampshade company Seiko SCM scaled back its production and
is seeking to revive Higashiosaka's manufacturing industry by
converting part of its headquarters to shared working space.
"It's like being the frog being slowly boiled alive," said
Hiroko Kusaba, CEO of Seiko SCM. "We all believed that the big
brands would always protect us, but that's just not the case
anymore."
HUMAN CONNECTION
In the past six months, the value of the Japanese yen has
plummeted from about 115 yen to the dollar in early March to
more than 130 yen in August. Although a weak currency boosts
export profits, past a certain point it makes materials cost so
much they wipe out that benefit. urn:newsml:reuters.com:*:nL5N2W42GG
The pain of COVID lingers as well: 67% of the small firms in
Higashiosaka say they are still hurting from the pandemic,
according to a survey conducted in April by the local chamber of
commerce.
For these companies, weathering the economic storm isn't
just about surviving, but preserving the industrial ecosystem.
Small- and medium-sized enterprises account for 99.7% of
companies and 68.8% of employment in Japan. But these same
companies represent only 52.9% of the economy, according to a
2016 government survey, the most recent data available.
The region around Higashiosaka has a history as a
manufacturing hub dating back hundreds of years. The city still
has industrial enclaves where tiny factories are wedged between
houses, hammering, sawing and shaping metal from early morning
to dusk.
That mishmash of production has given rise to human
connections and a sense of community, said Hirotomi Kojima,
chief executive of Katsui Kogyo, the air drill company. That
provides a crucial support network, but also makes it difficult
to pass along higher costs.
Kojima raised prices in October. Materials costs have soared
since then, but he is hesitant to raise prices again, worried
that he may lose longtime customers.
They have asked favours of Kojima, such as splitting costs
or "going easy" on price increases.
"The closer I am to the customer, the harder it is to start
that conversation," Kojima said.
Torn between protecting those ties or hurting his business,
Kojima is seeking new clients for the first time in his 10 years
as CEO.
He often visits with Hironobu Yabumoto, a close friend who
manages another air drill manufacturer. Although they are in
direct competition, they pass each other orders and share
clients.
"We want the manufacturing industry and this culture to
stay," and that is a bigger priority than being the last one
standing, Yabumoto said.
SLOW DECLINE
In the past decade or so, both Kusaba and Kojima have seen
at least one factory quietly close every year as ageing owners
die, fall ill or shut down their heirless businesses.
The surviving companies are close knit. Kusaba, who is not
from the city, said the locals - such as the baker and rice
seller - anchor her to the community.
"And they come to me saying how business is down, how they
had so many customers before when the manufacturing industry was
thriving, and how times have changed so much," said Kusaba, who
has been CEO of Seiko SCM for 12 years.
That is why she is turning her own business on its head to
protect her bottom line and help manufacturers in Higashiosaka.
In June, she reduced the die-cast department of her company
to three people from six and decreased the amount of machinery.
In its place, she is creating a co-working office space and
opening a "shared factory," where users can pay for access to
machines and resources that will cut fixed costs and increase
production.
"The big brands, the big manufacturers – they've forsaken
us," Kusaba said. "Now, we need to communicate with the consumer
directly. We only have ourselves to rely on."
Her decision means there will be more die-cast work for her
competitors, but Kusaba said she would rather do that than watch
the entire industry fall into ruin.
"Competition isn't the way to survival. We have to join
forces instead," she said.
NON-ESSENTIAL
Aoki, which was labelled "non-essential" during the
pandemic, is trying to avoid being dragged down by an airline
industry wrecked by COVID-19. CEO Osamu Aoki has pegged his
hopes on a different arena: food manufacturing.
He is designing and building a machine that processes meat.
For now, it sits in the Aoki factory as workers fine tune the
device.
Although he predicts the food industry will provide more
stability, Aoki is expecting his electricity bills to double in
August – an 8 million-yen increase that will require a 4% jump
in revenue to cover.
Japan's manufacturing has traditionally been dependent on
selling value-added products, in which a weak yen boosts
profits. But that no longer seems true, Aoki said.
"I think it's a reckoning," said of the sagging currency.
"It's now the time to re-evaluate."
MANUFACTURING TRADITION
The changes and experiments in Higashiosaka do not guarantee
its survival, or that of Japan's small-business culture.
"We won't see a total wipe-out if the factories can pass
through the extra costs… but the longer (high prices) drag on,
the harder it will be on them," says Naohito Umezaki of the
Higashiosaka Chamber of Commerce.
He added that the city's social fabric was already fraying
as family-owned companies shut down for good; a top priority is
finding people to take over and preserve the manufacturing
tradition.
At Aoki, 22-year-old Yuto Miyoshi sought advice from the CEO
about whether to succeed his father in running the family
welding business in a neighbouring city.
"My father is often warning me of the hardships of running a
business," Miyoshi told Aoki.
But he added that on one rare occasion his father had a bit
too much to drink, and let slip what a succession plan would
mean to him.
"He said: 'I would be so happy if you took over,'" Miyoshi
said.
($1 = 136.1100 yen)
(Reporting by Sakura Murakami. Editing by Gerry Doyle)
((Sakura.Murakami@thomsonreuters.com;))