THE ECONOMIST

 

AKIO MORITA, co-founder of Sony, liked to recall his first trip to Germany in 1953, when a waiter stuck a small paper parasol in his ice-cream and sneered: “This is from your country.” Like many of his post-war compatriots, Mr Morita was ashamed that Japan was known for shoddy goods. The fierce drive to reverse that reputation resulted in the Deming Prize, a quality-control award named after an American business guru so revered in Japan that he received a medal from the emperor for contributing to its industrial rebirth. All that hard work is under threat.

Toray Industries, a textiles and chemicals giant, is the latest pillar of corporate Japan to admit to quality problems. This week a subsidiary said it had faked inspections on reinforcement cords used to strengthen car tyres. Sadayuki Sakakibara, a former president of Toray, said he was “ashamed” and apologised on behalf of Keidanren, the powerful business lobby he now heads.

On November 23rd, Mitsubishi Materials sheepishly confessed (during a public holiday) that its subsidiaries had falsified data, on aluminium and other products used in aircraft and cars, given to customers in Japan, America, China and Taiwan. Those customers include Japan’s air force, earning a rebuke from Itsunori Onodera, the defence minister.

Kobe Steel, which was founded in 1905, recently revealed that it had sold “non-conforming products” to Boeing, Ford, Toyota and other household names. The firm had faked data on the tensile strength—the ability to withstand loads without breaking—of aluminium sheets, copper products and other items shipped to over 500 companies. Nissan and Subaru, both car firms, have admitted to similar fakery.

The welter of revelations is bad for Japanese business as a whole. Its main defence against low-cost competitors from China, Taiwan and South Korea is its reputation for quality, says Takeshi Miyao, a consultant to the local car industry. Hiroshige Seko, the economy minister, said the falsifications had “shaken the foundations of fair trade” and demanded to know why it had taken Mitsubishi over six months to admit misconduct.

That is timely compared with Nissan. Its use of uncertified technicians on final vehicle checks goes back 40 years. The technicians reportedly borrowed hanko— Japan’s all-important signature seals—from qualified inspectors.

Ironically, a corporate-governance code introduced in 2015 to rev up competitiveness may explain why such facts are coming to light. The code, which includes a whistleblowing clause, has encouraged employees to speak out, says Toshiaki Oguchi of Governance for Owners Japan, a governance lobby group (Toray disclosed its cheating only after an anonymous online post).

Privately, people at car firms complain that the problems in their industry relate to excessively stringent government standards introduced in the early 1950s. Some workers consider them primitive and unnecessary.

It is also possible that manufacturers set standards too high. Many have stayed ahead of competitors by promising to deliver products that go far beyond minimum standards of quality or performance, says Alberto Moel, a specialist in industrial robotics. Conflict occurs when pressure flows down to the factory floor to meet those promises, he says.

 

“Then you get corner-cutting, misrepresentations and sometimes unethical or even criminal behaviour.” Nissan’s woes have been blamed by some on Carlos Ghosn, its former chairman (nicknamed “Le Cost Cutter”), who sacked thousands of workers.

It is too early to predict permanent damage to Japanese manufacturing, says Koji Endo of SBI Securities in Tokyo. Most of the recent cases relate to paperwork rather than actual quality standards, he argues. They have thus far resulted in no foreign product recalls.

True, Takata, a maker of defective airbags, was forced out of business this year by a blizzard of lawsuits linked to at least 18 fatalities, but other firms have rebounded. Toyota is again the world’s top carmaker, despite a recall of 9m vehicles with faulty accelerator pedals.

That followed years of restructuring. Most Japanese companies now have at least two independent directors on their boards; until recently, they usually had none.

The result is closer scrutiny of wrongdoing, along with greater pressure to perform well financially. The battle between quality and cost-cutting will surely intensify, says Mr Oguchi. “The key is getting the balance right.”