Analysis: Kobe Steel scandal latest to expose 'Made-in-Japan' fault-lines
13/10/2017 16:47
* String of scandals dents Japan's reputation for quality
* Looking to cut costs, some firms have cut corners
* Markets now more competitive, compliance stricter
By Sam Nussey
TOKYO, Oct 13 (Reuters) - Under the once-vaunted "keiretsu"
system of close, trust-based ties between manufacturers and
suppliers, "Made-in-Japan" became a byword for industrial
quality and reliability.
That reputation has eroded over recent years.
Kobe Steel 5406.T is just the latest in a string of
corporate scandals involving data tampering and other methods of
cheating to tarnish the Japan Inc quality stamp. urn:newsml:reuters.com:*:nL4N1MO1A1
It may be a sign that the government's push to improve
corporate governance is seeing greater disclosure of wrongdoing.
But the root cause is more likely that Japanese
manufacturers are failing modern compliance standards as they
grapple with a shrinking domestic market and increased global
competition.
As the focus has shifted to market mechanisms instead of
cosy relationship-based arrangements, Japanese manufacturers
have had to compete on price and expand their client base.
"Growing global competition has forced Japanese
manufacturers to cut costs to be more efficient, while
fulfilling a production quota which is often difficult to
achieve," said Motokazu Endo, a lawyer at Tokyo Kasumigaseki law
office.
The "keiretsu" system was the bedrock of Japan's automotive
industry. As the market has become more competition based, those
automakers now invest less money in their suppliers and spend
less time checking what those suppliers' factories are
producing, says Hitoshi Kaise, an auto industry consultant and
partner at Roland Berger.
Beyond that, Japan's economy has suffered decades of anaemic
growth, bogged down in deflation with its population shrinking
and with growing competition from its Asian neighbours.
Those pressures have potentially whittled away at Japanese
firms' ability to compete, says Hideaki Miyajima, a Waseda
University professor and corporate governance expert.
"GONE TOO FAR"
The list of manufacturer miscreants is long, and growing.
Nissan Motor Co 7201.T has had to recall every new car it
sold in Japan in the last three years after it falsified safety
checks. urn:newsml:reuters.com:*:nL4N1MH0M3
Both Suzuki Motor Corp 7269.T and Mitsubishi Motors Corp
7211.T have faced scandals over fuel economy tests on their
vehicles, and there was wrongdoing by the now bankrupt air bag
maker Takata, Toyo Tire & Rubber Co 5105.T and Asahi Kasei
Corp 3407.T .
"While focusing on targets was right in the beginning it has
gone too far, with companies that can't hit their targets
resorting to deception," says Hiroshi Osada, a production
quality expert and Bunkyo University professor.
Over the last 15 years compliance rules have become stricter
but many Japanese companies have carried on with practices
common in the past, says Nobuo Gohara, a lawyer specialising in
compliance, who took part in an audit of Olympus Corp 7733.T
after its accounting scandal in 2011.
"There are many of these problems lying dormant on the
factory floor," he said.
Japan runs the risk it will "lose out as other Asian
economies, including China, progressively raise their standards
of quality and reliability," said Professor Thomas Clarke, a
corporate governance expert at the University of Technology in
Sydney.
BETTER BOARDS
And it's not just dodgy data.
Conglomerate Toshiba Corp 6502.T is still battling an
accounting scandal, and there is a litany of wrongdoing at Tokyo
Electric Power Co (TEPCO) 9501.T , the operator of the stricken
Fukushima Daiichi nuclear complex.
Just this week, Japan's nuclear regulator said Japan Nuclear
Fuel had violated safety rules at its Rokkasho site by
fabricating records to say safety checks had been carried out.
The plant's start data has been delayed 23 times.
Even when moves are taken to strengthen external monitoring
of companies, "it's not possible to conduct checks day in, day
out," said Osada at Bunkyo University, who sat on an external
panel that audited Toyota during its 2010 recall crisis.
Companies must do more to develop a culture in which workers
are able to raise concerns and say 'no' to their bosses, and in
which teamwork is used to catch wrongdoing by other employees,
Osada added.
More attention should be focused on Japan's board members,
who are not active enough in engaging with scandals when they
occur, says Shin Ushijima, lawyer and president of the Japan
Corporate Governance Network, noting a tendency for companies to
be over-reliant on appointing outside panels that are not truly
independent.
Corporate governance reforms are having some impact, says
Ushijima. At Toshiba, he said, "the board, while not perfect,
was improved after it was reshuffled."
(Reporting by Sam Nussey, with additional reporting by Naomi
Tajitsu, Yuka Obayashi and Aaron Sheldrick; Editing by Ian
Geoghegan)
((sam.nussey@thomsonreuters.com; +81364411596; Reuters
Messaging: sam.nussey.thomsonreuters.com@reuters.net))
Keywords: KOBE STEEL SCANDAL/QUALITY