Hid­den cham­pi­ons: Out of the shad­ows and into the Light

While some of Ja­pan’s best-known man­u­fac­tur­ers have lost ground to re­gional ri­vals in re­cent years, it is the coun­try’s Chuken Ki­gyo – strong, medium-sized com­pa­nies – that con­tinue to fly the na­tional flag, en­joy­ing strong global mar­ket shares in niche a

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The suc­cess story of Ja­panese man­u­fac­tur­ing is a well-doc­u­mented one. A chief pro­po­nent of its post-war eco­nomic boom, Ja­pan’s man­u­fac­tur­ing in­dus­try – pro­pelled by a great tra­di­tion for fine crafts­man­ship (or mono­zokuri) – usurped the United States in the 1970s and 80s to be­come the sec­tor’s ver­i­ta­ble global king­pin. Ja­panese cor­po­ra­tions such as Sony, Sharp and Pana­sonic took over the world of con­sumer prod­ucts; iconic brands that to this day re­main syn­ony­mous with the fa­mous ‘Made in Ja­pan’ trade­mark, and its rep­u­ta­tion for high-qual­ity. It is this rep­u­ta­tion for al­most flaw­less man­u­fac­tur­ing ef­fi­ciency that changed in­ter­na­tional busi­ness prac­tices and in­spired count­less cor­po­rate man­age­ment man­u­als and busi­ness ad­vice books.

The story of Ja­panese man­u­fac­tur­ing there­after is equally well doc­u­mented. The pe­riod that fol­lowed, com­monly known as the ‘lost decades’, sud­denly marked an end to the in­cred­i­ble ex­pan­sion of ‘Ja­pan Inc.’. Si­mul­ta­ne­ously, re­gional com­peti­tors from Korea, China and Tai­wan, learnt to repli­cate the man­u­fac­tur­ing pro­cesses of monozukuri. For ex­am­ple, be­tween 2002 and 2007, Ja­pan’s global mar­ket-share for in­te­grated cir­cuits plunged from 75 to 34 per­cent, as low-cost Tai­wanese and Korean prod­ucts flooded the mar­ket. Naturally, the cor­po­ra­tions to be hit hard­est by these eco­nomic trends were the larger ones – slower to re­act and tied by their hu­mon­gous size.

Whereas com­pa­nies such as Pana­sonic, Sharp and Sony have lost mar­ket share to re­gional ri­vals, Ja­pan’s smaller, lesser known man­u­fac­tur­ing firms con­tinue to dom­i­nate niches upon which the global tech­nol­ogy in­dus­try de­pends. The Ja­panese even have a name for them: Chuken Ki­gyo (or strong, medium-sized firms).

The story of Chuken Ki­gyo is one that is more sel­dom told about the Ja­panese man­u­fac­tur­ing in­dus­try – the story of the coun­try’s eco­nomic back­bone, or what one might call ‘the hid­den part of the ice­berg’.

Chuken Ki­gyo is also a sym­bol of Ja­pan’s great man­u­fac­tur­ing and tech­no­log­i­cal prow­ess, and a con­stant re­minder of its in­dus­trial strength – and never more so in re­cent his­tory when Ja­pan ex­pe­ri­enced years of eco­nomic stag­na­tion.

Now though, the coun­try’s strong, medium-sized com­pa­nies are lead­ing Ja­panese man­u­fac­tur­ing into a bright new era – one that is de­fined by the tech­no­log­i­cal in­no­va­tion and ef­fi­ciency that Ja­pan ex­cels in: the so­called Fourth In­dus­trial Rev­o­lu­tion.

In fo­cus: Ja­pan’s hid­den cham­pi­ons

To un­der­stand the im­por­tance ofchuken Ki­gyo to the Ja­panese econ­omy, one must first get a sense of its scale. In 2016, the Eco­nomic Cen­sus for Busi­ness Ac­tiv­ity es­ti­mated that SMES and LMES (large medi­um­sized en­ter­prises) ac­counted for nearly 97 per­cent of all Ja­panese en­ter­prises. Smaller in size, greater in cor­po­rate flex­i­bil­ity and highly spe­cial­ized in pre­cise prod­ucts, these ‘hid­den cham­pi­ons’ – as they are af­fec­tion­ately called – have built upon their his­tor­i­cal ex­per­tise to trans­form them­selves into qual­i­ta­tive and in­no­va­tive pow­er­houses.

In­deed, thanks to their ex­tremely high level of tech­no­log­i­cal prow­ess, Ja­panese SMES have be­come the undis­puted mar­ket lead­ers in many B2B sec­tors and are re­spon­si­ble for pro­vid­ing the qual­ity re­quired to make com­plex end-prod­ucts. While some of these are in the busi­ness of sim­ple en­gi­neer­ing (for ex­am­ple, Shi­mano Inc. sup­plies around 60-70 per­cent of the world’s bi­cy­cle gears and brakes); it is in the enig­matic ar­eas of elec­tron­ics and ma­te­ri­als-sci­ence that Ja­panese com­pa­nies truly reign supreme. As

“Ja­pan Inc. has trans­formed into a hid­den cham­pion and an ex­pert at mak­ing com­plex com­po­nents and parts. Around 50 per­cent of all smart­phone com­po­nents are made by Ja­panese firms” Osamu Inoue, Pres­i­dent, Su­mit­omo Elec­tric In­dus­tries

these tech­nolo­gies are largely in­vis­i­ble to con­sumers, the firms re­main mostly hid­den (es­pe­cially out­side of Ja­pan). How­ever, as they are es­sen­tial to mak­ing par­tic­u­lar prod­ucts, many en­joy vast global mar­ket shares. It has been es­ti­mated by the Ja­panese Min­istry of Econ­omy, Trade and In­dus­try (METI) that within the past decade, Ja­panese com­pa­nies served more than 70 per­cent of the world­wide mar­ket in at least 30 tech­nol­ogy sec­tors.

It is within these very niche and spe­cial­ist sec­tors that qual­ity re­mains king. While many tech­nol­ogy prod­ucts have be­come com­modi­ties, cer­tain com­po­nents have not as they re­quire con­tin­ual in­no­va­tion. This is what all Ja­panese tech­nol­ogy cham­pi­ons have in com­mon: a strict at­ten­tion to de­tail and a ten­dency to in­vest hand­somely in re­search and de­vel­op­ment.

Osamu Inoue, Pres­i­dent of Su­mit­omo Elec­tric In­dus­tries, Ltd. – which man­u­fac­tures elec­tric wire and op­ti­cal fiber ca­bles used mainly by the global tele­coms in­dus­try – ex­plains that while prod­ucts that were orig­i­nally made by Ja­panese firms have been repli­cated and, in some cases, lost sig­nif­i­cant mar­ket share to prod­ucts made by other in­ter­na­tional

man­u­fac­tur­ers, this does not mean that Ja­panese man­u­fac­tur­ers have lost in­no­va­tion ca­pa­bil­ity.

“In to­day’s world,” he says, “Ja­pan Inc. has trans­formed into a hid­den cham­pion and an ex­pert at mak­ing com­plex com­po­nents and parts. For ex­am­ple, around 50 per­cent of all smart­phone com­po­nents are made by Ja­panese firms, while prod­ucts are in­deed as­sem­bled in China.”

Hirokazu Saito, Pres­i­dent of Ohara Inc. – a global leader in op­ti­cal glass prod­ucts – ex­plains how such a trans­for­ma­tion has helped keep its com­peti­tors at bay, es­pe­cially the Chi­nese firms and other re­gional ri­vals who have based their busi­ness mod­els on at­tempt­ing to repli­cate Ja­panese mono­zokuri.

“The way we have been able to stay com­pet­i­tive and stand out amongst our com­peti­tors is by in­vest­ing a lot of time and ef­fort into our R&D forces,” he says. “As a re­sult, we have suc­cess­fully im­ple­mented in­no­va­tive ideas into our man­u­fac­tur­ing pro­cesses, thereby of­fer­ing a qual­ity of prod­uct that is truly unique to Ja­panese prod­ucts and that can­not be em­u­lated by ri­val com­pa­nies in China.

“Chi­nese com­pa­nies buy Ja­panese prod­ucts in order to an­a­lyze them and at­tempt to recre­ate them. How­ever, what has been demon­strated is that even though they can an­a­lyze the com­po­si­tion, they can­not main­tain the same level of con­sis­tency that Ja­panese com­pa­nies pro­vide. Our com­pany has al­ways main­tained a high-level of qual­ity, con­sis­tency and re­li­a­bil­ity in our prod­ucts, which has al­lowed us to con­tinue liv­ing up to, and even ex­ceed the ex­pec­ta­tions of what it means for prod­ucts to be ‘Made in Ja­pan’.”

For this rea­son, in­ter­na­tional man­u­fac­tur­ers every­where turn to Ja­panese mak­ers for these sorts of spe­cial­ized tools and com­po­nents. Car man­u­fac­tur­ers, for ex­am­ple, would want to avoid the PR dis­as­ter of a prod­uct re­call ow­ing to a car dash­board mal­func­tion caused by an in­fe­rior part that cost only a few cents. Mo­bile phone man­u­fac­tur­ers, too, would not want their de­vices’ screens to in­stantly a shat­ter as soon as they took the slight­est im­pact.

Cre­at­ing a high-end so­lu­tion to the lat­ter of these two ex­am­ples has been one of the most re­cent in­no­va­tions of Ohara Inc., a com­pany which tra­di­tion­ally prides it­self on pro­vid­ing the lenses for a range of high-spec tech­no­log­i­cal equip­ment. These in­clude high res­o­lu­tion tele­scopes used for astro­nom­i­cal stud­ies, mi­cro­scopes for bi­o­log­i­cal stud­ies, and top-of-the range cam­eras.

The Ohara Inc. pres­i­dent ex­plains the rea­sons be­hind the com­pany’s di­ver­si­fi­ca­tion strat­egy: “Over the past sev­eral years, de­mand for dig­i­tal cam­eras has de­creased sig­nif­i­cantly. In order to com­pen­sate for this drop in pro­duc­tion, we have had to ex­plore new types of mar­kets and pro­duc­tion lines, from which lithium-ion con­duc­tive glass-ceram­ics (LICGCTM) man­u­fac­tur­ing came to fruition.

“Ohara now makes use of a new line of glass ceram­ics to cre­ate durable glass that can be im­ple­mented in the pro­duc­tion of mo­bile phones. The rea­son mo­bile phone com­pa­nies are in­ter­ested in our glass ce­ramic prod­ucts is be­cause with the in­tro­duc­tion of 5G, there is a need for a ma­te­rial that of­fers high trans­mis­sion of sig­nals but that can also re­main durable. Glass alone can shat­ter too eas­ily, so the use of glass ceram­ics al­lows the mo­bile phones to re­main sturdy while giv­ing the best avail­able con­nec­tion to the user.”

The abil­ity of Ja­panese com­pa­nies to con­tin­u­ously in­no­vate – not just in ex­ist­ing prod­uct lines and tech­nolo­gies but through the cre­ation of new so­lu­tions in order to adapt to rapidly chang­ing con­sumer de­mands – stands its man­u­fac­tur­ing in­dus­try in good stead, par­tic­u­larly as the afore­men­tioned Fourth In­dus­trial Rev­o­lu­tion con­tin­ues apace.

Chuken Ki­gyo and In­dus­try 4.0

Also known as In­dus­try 4.0, the Fourth In­dus­trial Rev­o­lu­tion is the global dig­i­tal trans­for­ma­tion that has been oc­cur­ring since the mid­dle of the last cen­tury, char­ac­ter­ized by a fu­sion of tech­nolo­gies that is blur­ring the lines be­tween the phys­i­cal, dig­i­tal, and bi­o­log­i­cal spheres. Evolv­ing at an ex­po­nen­tial rate, the pos­si­bil­i­ties of bil­lions of peo­ple con­nected by mo­bile de­vices, with un­prece­dented pro­cess­ing power, stor­age ca­pac­ity, and ac­cess to knowl­edge, are un­lim­ited. And these pos­si­bil­i­ties will be mul­ti­plied in the com­ing years by emerg­ing tech­nol­ogy break­throughs in fields such as ar­ti­fi­cial in­tel­li­gence, ro­bot­ics, the In­ter­net of Things and au­ton­o­mous ve­hi­cles.

Rec­og­nized as an in­ter­na­tional hub of tech­no­log­i­cal in­no­va­tion, Ja­pan is ex­pected to ce­ment its place as a leader of this global in­dus­trial move­ment in the com­ing decades.

To this end, as part of its ‘con­nected in­dus­try’ pol­icy for boost­ing In­dus­try 4.0, the Ja­panese govern­ment has re­cently joined hands with the pri­vate sec­tor and is fo­cus­ing on di­verse ways in which it can de-

“We have suc­cess­fully im­ple­mented in­no­va­tive ideas into our man­u­fac­tur­ing pro­cesses, thereby of­fer­ing a qual­ity of prod­uct that is truly unique to Ja­panese prod­ucts” Hirokazu Saito, Pres­i­dent, Ohara Inc.

velop the In­ter­net of Things (IOT) within the man­u­fac­tur­ing in­dus­try. Mi­tu­toyo Cor­po­ra­tion – a firm spe­cial­iz­ing in mea­sur­ing in­stru­ments and metro­log­i­cal tech­nol­ogy – is an ex­am­ple of one of Ja­pan’s ‘hid­den cham­pi­ons’ that con­sid­ers it­self ahead of the curve in this area.

“Since some of our clients op­er­ate in com­plex in­dus­tries, such as au­to­ma­tion and avi­a­tion, we are re­quired to adopt IOT so­lu­tions,” ex­plains Pres­i­dent of Mi­tu­toyo, Yoshi­aki Nu­mata. “We em­ploy IOT as a means to uti­lize, an­a­lyze and treat the data cap­tured by our mea­sur­ing tools. This in­for­ma­tion is then sent to ma­chine tools and re­layed to the cen­tral server so that all rel­e­vant data can be cen­tral­ized and ob­served. This method be­gan long be­fore In­dus­try 4.0.

“While the de­moc­ra­ti­za­tion of smart fac­to­ries is rather re­cent, this trend is not new to Mi­tu­toyo. As we have been pro­vid­ing sim­i­lar so­lu­tions for many years, ma­chine tool and ro­botic man­u­fac­tur­ers come to us to col­lab­o­rate. In a smart fac­tory, the ma­chines, robots and mea­sur­ing tools must con­nect and com­mu­ni­cate with each other in order to keep the fac­tory run­ning. There­fore, our cus­tomers re­quire an IOT sys­tem that con­nects with as­pects of the pro­duc­tion line, and this is ex­actly what we have to of­fer.”

The art of cus­tomiza­tion

If the In­dus­try 4.0 is about in­no­va­tion, one thing that is equally as­so­ci­ated with it is cus­tomiza­tion. Over the past 20 years, man­u­fac­tur­ing has been about mass pro­duc­tion, with all con­sumers utiliz­ing sim­i­lar prod­ucts and de­vices. With the Fourth In­dus­trial Rev­o­lu­tion, ser­vices are be­ing adapted to in­di­vid­u­als and prod­ucts are cus­tom­ized to suit spe­cific needs. As such, in­no­va­tive tech­nolo­gies, in­clud­ing AI and IOT, are be­com­ing means to per­son­al­ize ser­vices to cus­tomers.

For the Ja­panese Chuken Ki­gyo, prod­uct cus­tomiza­tion holds equal im­por­tance as in­no­va­tion – not just for the com­pa­nies them­selves, but their clients too. As Azuma Arai, Pres­i­dent of Toy­oda Van Moppes Ltd. points out, the com­po­nents, tools and ma­te­ri­als in which Ja­panese firms ex­cel are al­ready highly cus­tom­ized. By work­ing closely with clients over many years, sup­pli­ers gain in­sight into their clients’ fu­ture tech­ni­cal plans and are trusted to come up with so­lu­tions to prob­lems.

“In Ja­pan, man­u­fac­tur­ers abide by the Qual­ity, Cost, De­liv­ery (QCD) con­cept. As I see it, our qual­ity is un­ri­valled, our de­liv­ery is cus­tom­ized to each client, and our prod­ucts al­low for cost re­duc­tion,” Mr. Arai ex­plains in re­la­tion to his com­pany’s spe­cial­ties in au­to­mo­tive parts.

“To this per­fect QCD model, I would also like to add an ‘S’ for ‘Ser­vice’. At Toy­oda Van Moppes, not only do we sup­ply cus­tom­ized prod­ucts but we also pro­vide re­lated ser­vices. Ser­vice, or koto in Ja­panese, is em­bed­ded within our def­i­ni­tion of monozukuri – so much so we some­times change the word to koto-zukuri.

“One of our ser­vices is to pro­pose best-prac­tice so­lu­tions to our cus­tomers. For ex­am­ple, we give ad­vice as to prod­uct uti­liza­tion and pro­duc­tion pro­cesses. We as­sist our cus­tomers on how to use our so­lu­tions. If a cus­tomer can­not process a cer­tain ma­te­rial, we pro­vide guid­ance as to how that is­sue can be solved.”

Such a trait of above-and-be­yond cus­tomer ser­vice is one that is com­monly shared across the Ja­panese man­u­fac­tur­ing in­dus­try – and is some­thing that Fu­mito Shinkawa of Shinkawa Elec­tric Co., Ltd. be­lieves helps dif­fer­en­ti­ate Ja­panese com­pa­nies from in­ter­na­tional com­pe­ti­tion.

“We want to dif­fer­en­ti­ate our­selves through qual­ity and also by grasp­ing ex­actly what our clients want and need. We want our cus­tomers to be happy, and more im-

por­tantly to un­der­stand what they need. The most im­por­tant thing is un­der­stand­ing what is hap­pen­ing in the field,” stresses Mr. Shinkawa, who is boss of the spe­cial­ist firm that pro­vides vi­bra­tion and con­di­tion mon­i­tor­ing sen­sors, soft­ware and so­lu­tions.

“By an­a­lyz­ing what our cus­tomers are do­ing, we can see what we need to de­velop in order to make our cus­tomers happy. We try to build a healthy re­la­tion­ship with our clients, to build trust and to re­al­ize that we are here to make their fac­tory as ef­fi­cient as pos­si­ble.”

Sur­viv­ing in a glob­al­ized world

Close col­lab­o­ra­tion be­tween com­pa­nies, whether it be a sup­plier-client re­la­tion­ship, or a busi­ness-to-busi­ness af­fil­i­a­tion, is not un­usual in Ja­pan. In fact, be­tween the sec­ond half of the 20th cen­tury and early this cen­tury, the coun­try be­came fa­mous for its keiretsu model – a type of in­for­mal busi­ness group or set of com­pa­nies with in­ter­lock­ing busi­ness re­la­tion­ships and share­hold­ings. While it is a struc­ture steeped in Ja­panese busi­ness tra­di­tion, in more re­cent times, eco­nomic com­men­ta­tors have claimed that keiretsu would not sur­vive in a glob­al­ized world.

Like so many of Ja­pan’s hid­den cham­pi­ons, Nswest Inc. – which makes high-qual­ity au­to­mo­tive com­po­nents – has a his­toric af­fil­i­a­tion with one of Ja­pan’s big­ger, house­hold-name man­u­fac­tur­ers; in this case Mazda. The com­pany’s pres­i­dent, No­rio Mi­nato, says that de­spite claims of a death knell for

keiretsu, there will con­tinue to be a cul­ture for “duel-cre­ation” long into the fu­ture.

“The real ques­tion is: how do we stand out?” he says. “In to­day’s glob­al­ized world, hav­ing high tech­no­log­i­cal skills is not enough to be com­pet­i­tive. To re­main com­pet­i­tive, we there­fore fo­cus on en­hanc­ing the dual-cre­ation we en­joy with Mazda and Dai­hatsu. As we are fa­mil­iar with Mazda’s phi­los­o­phy, we are able to an­tic­i­pate their de­sires. This ap­proach and fa­mil­iar­ity with a client is an ex­am­ple of co-cre­ation. I be­lieve this is how we stand out, and we shall con­tinue do­ing so in the years to come.”

The mes­sage then is clear: if Ja­panese man­u­fac­tures are to re­tain their mar­ket shares amid in­creas­ingly fierce global com­pe­ti­tion, they must stick to­gether and stay true to their val­ues which made them world-lead­ing man­u­fac­tur­ers in the first place.

“Since some of our clients op­er­ate in com­plex in­dus­tries, such as au­to­ma­tion and avi­a­tion, we are re­quired to adopt IOT so­lu­tions” Yoshi­aki Nu­mata, Pres­i­dent, Mi­tu­toyo Cor­po­ra­tion “Our qual­ity is un­ri­valled, our de­liv­ery is cus­tom­ized to each client, and our prod­ucts al­low for cost re­duc­tion” Azuma Arai, Pres­i­dent, Toy­oda Van Moppes Ltd.

I-line High Ho­mo­gene­ity Glass, by Ohara Inc.

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