Kobe Steel Fake: The Other Side of Made in Japan

The European and American business circles once said that Japan is the best place to screw things up because once an accident occurs, cultural factors can often be excused.
Culture or nationality are not the core shortcomings of manufacturing in Japan. The key to success or failure is still closely linked to the sluggish investment under a falling rate of return. What lessons can China learn from it?

When a rat appears in a restaurant, it is not always possible for the rat to appear alone.

Japan’s Kobe Steel is in a deep scandal because of a series of fake news. In early October, the company admitted to tampering with the inspection data on copper and aluminum products, followed by the explosion of counterfeiting involving steel and other core products. The number of rioting companies also expanded to hundreds, ranging from automobile manufacturers in Japan such as Toyota to overseas Boeing aircraft manufacturers, and even defense industries and the Shinkansen may all be affected, with the history of counterfeiting dating back to ten years.

As Japan’s third-largest steel company, Kobe Steel has a special status. Not only has Japanese Prime Minister Shinzo Abe worked there, but Kobe Steel has also been one of the business cards made in Japan, especially for precision materials, and has a number of Japanese Industrial Standard (JIS) certified products that represent Japan’s fine quality. Although Kobe Steel products are not directed at consumers, they are the suppliers behind countless large enterprises, such as steel products with high-quality products occupy the bulk of the global market share. After the incident, Kobe Steel executives apologized for all the way, the company’s shares subsequently plunged.

Ironically, the Kobe Steel scandal involves so much that it is not until the world realizes that so many industries are so dependent on Japanese suppliers. On the one hand, the long-awaited issue of Japan’s manufacturing industry has been uncovered. On the other hand, Japan’s manufacturing industry has also shown its potential influence on the world.

Kobe Steel President and CEO Kawasaki bows as he meets with Ministry of Economy, Trade and Industry's Director-General of Manufacturing Industries Bureau, Tada at the ministry in Tokyo

The story of Kobe Steel is not an isolated case. In Japan in recent years, many scandals have been made. Nissan was exposed to unauthorized technicians to detect, plans to recruit millions of cars; Mitsubishi Motors was exposed in 2016 for decades to forge the fuel data of more than 600,000 cars; as early as 2015, Takata was forced to admit that the car’s airbag, which it made, was flawed and, after paying a heavy fine, eventually led to the largest bankruptcy in Japanese manufacturing.

What happened in Japan? In this regard, there is no lack of introspection in Japan. Is it a disadvantage or an excuse? The European and American business circles once said that Japan is the best place to screw things up because once an accident occurs, cultural factors can often be excused. To some extent, this is one of the myths of Chinese society’s understanding of Japan’s economy. Even many self-reported Japanese and even economic researchers in Japan find it hard to underestimate how often cultural factors are magnified when looking at the root causes of Japan’s success, such as the cult of Japanese craftsmanship.


However, this kind of thinking is not determined by cultural determinism. Of course, cultural differences are important. Japanese culture has its own uniqueness. However, reducing all to cultural factors is only a reflection of the weaknesses of our own. On the contrary, economic power has a more general explanatory power. In fact, the problem of Kobe Steel just revealed the tip of the iceberg of the Japanese manufacturing decline.

Once upon a time, the Japanese manufacturing industry is considered the foundation of Japan’s position, at the same time, there are some prejudices for the financial, Internet and other industries. The manufacturing industry really has special significance for Japan. With its manufacturing and exports in Japan, the manufacturing industry in Japan’s economic take-off has made a lot of contributions. For example, the U.S. auto industry in the 1970s and 1980s hit harder. The slogan of “Japan No. 1” As a result, Sony founder Akio Morita once said proudly that “as Americans are busy cultivating lawyers, we are more engaged in developing engineers.”

It is worth noting that this momentum has halted with the increase of U.S.-Japan trade frictions, various counter-measures, and Japan’s labor costs. In particular, as China joins the global market after 2002, the advantages of Japan’s manufacturing industry are no longer. The emphasis on manufacturing hinders the declining trend in the share of manufacturing in Japan’s GDP. After a decade or so, Japan’s manufacturing industry has fallen from one-fourth to less than one-fifth.

One of the reasons, the Japanese manufacturing strengths lies in technology, but this superstition of technology is not all advantages. Japan’s obsession with creation has made them attach great importance to polishing technology. The highly valued on-site view has also made the production frontline staff and technical personnel have a great say in the market, and the strategic choice of enterprises also tends to be dominated by technology and secondary to the market.

But good technology does not mean high-tech, does not mean good income. In fact, many Japanese technologies are gathered in the hands of small and medium-sized enterprises and rely heavily on manpower. One of the Japanese mechanical automation SMEs that was founded in 1936, is currently restructuring the semiconductor and other industries. With 100 employees in the field of automated packaging which is a leader, considered recessive champion, received a lot of rewards, such as foundry for Apple and Tesla. The 68-year-old president is the third generation successor to the company. As an SME in Japan, he sees an international vision and has a plan to set up factories in China. He said that big companies are good at science and technology and small businesses are good at technology. He called technology a skill, mainly by training. However, even though this enterprise can be regarded as excellent in terms of technical management, as far as we know, although they have the core technology, they can not obtain monopolistic interests and can not expand their scale. They do not attach great importance to the market and their profits are not high. So small and medium-sized Japanese enterprises and large enterprises have similar problems.

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In a sense, pursuing the perfection of technology excessively is not only the cost increase but more serious is the possible deviation from the direction of market demand and the missed opportunity of launching revolutionary products. There were quite a few classic cases in which Japanese products, which used to rely on unilateral technological breakthroughs in the past to win market share, may also be at high risk in times of increased global competition. For example, Sony’s Walkman and other products once swept the world, but when faced with a more radical product replacement as Samsung they had pressure, and that made the world’s leading semiconductor industry has been catching up in Taiwan and South Korea. Recently, for some time, Chinese people like to go to Japan to buy rice cookers. It is said that rice cooker in Japan can retain the unique flavor of the rice. This is the advantage of Japanese products. However, from a comparative advantage point of view, China’s household appliances are not without competitiveness, its advantage is precisely reflected in the low cost, large-scale, which is precisely the reason why Japan’s manufacturing industry lost ground in emerging markets.

One reason for the fact that Kobe Steel exposes the fact that fraud can be traced back for so long is one of the reasons for the long-term fixation of personnel positions. With the advent of aging, many Japanese companies often follow the key technical post. Japanese manufacturing tends to be a multi-tiered supplier system with large companies as the core, and the cooperation among them is fixed. SMEs at the end of the supply chain tend to be more vulnerable. Professor Takahiro Fujimoto, director of the Center for Manufacturing Management Research at the University of Tokyo who has long been interested in companies such as Toyota once said; there is lack of improvement in the productivity of Japanese companies over the past two decades, but the efficiency of frontline workers at factories has been on the rise. This is, in fact, the place where the Japanese manufacturing industry is worthy of recognition and pride. However, the problem is that such efficiency in manpower upgrading is often not as efficient as the capital investment.

Further, from a macro perspective, Japan’s obsession with technology did not receive the deepening of capital support. Technology by technology, capital by capital, innovation without capital support, skill alone often fails to bring dramatic improvements in efficiency, especially in the creation of new industries. In contrast, Americans have no respected artisan spirit, but are good at creating new industries – Internet, smartphones and other industries can be used as a typical representative; China is not good at creating new industries, but continued investment chasing after seeking industrial upgrading, but also maintained a rapid efficiency increase.

In this sense, the manufacturing industry in Japan is experiencing problems other than manufacturing: Japan’s venture capital system and financial system have not been enough when the return on investment in Japan is lower, the investment capital of Japanese companies is reduced, and the pressure on profits increases. High speed digging out full of innovation opportunities. Macro-level industrial upgrading rate of decline, the micro aspect will inevitably reflect the decline of competitiveness of enterprises.

In a sense, relying on hard-working rather than capitalistic Japanese tradition. The modern Japanese’s thinking is shaped mostly by the Edo period. Japanese scholar Hayami Arashi once summed up Japan’s path toward industrialization as “Industrious Revolution.” In the wake of the industrial revolution in England, the agricultural development in Japan’s Edo period was more dependent on the increased human labor input in replacing the domestic animal labor force instead of increasing the capital of the unit labor productivity.

It is worth mentioning that Hayato, who pioneered the “hard-working revolution,” actually opposes the qualitative determination of diligence as Japan’s national character, which he thinks that it is more of a mentality. Culture or so-called nationality is not at the core of Japan’s manufacturing: the successes and failures made in Japan, while associated with the spirit of craftsmanship, are still, to a greater extent, still closely linked to the sluggish investment under a falling rate of return.

At present, the manufacturing industry in Japan is not under the slightest chaos. It is not the result of mistakes but the consequence of “losing two decades.” From this perspective, the Japanese economy has already paid the price, and its worst era may have passed. China should learn from Japan’s success or failure of the country.


  1. With a string of negative surprises at Kobe Steel lately, I believe investors are likely to distrust management even more due to this latest incident, despite emerging signs of earnings improvement in the steel and construction machinery segments.

    Liked by 2 people

  2. The parties involved should realize that not just the management of individual companies, but trust in the “made-in-Japan” brand, is at stake. Kobe Steel disclosed in early October that it had tampered with quality data of its aluminum and copper products to make it look like they met all specifications.


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