Kobe Steel scandal exposes fault line in ‘Made in Japan’ program

TOKYO TOKYO — — Made Made in in Japan Japan becamebecame a a byword byword for for industrial industrial quality quality under underthe once-vauntedthe oncevaunted keiretsu system keiretsu of trust-basedsystem of trust-basedties between ties manufacturersbetween manufacturersand suppliers. and suppliers.

ButBut that that reputation reputationhas been has been eroded eroded during recent during years. recent years. Kobe Steel is just the latest in a stringKobe Steelof corporateis just the scandals latest in involvinga string dataof corporate tampering scandalsand other involving methods dataof cheating tamperingto and tarnish other the methodsJapan Incof cheatingquality to stamp. tarnish the Japan Inc quality It stamp. may be a sign that the government’sIt may be a sign push thatto improvethe government’s corporate governancepush to improveis seeing corporate greater governance disclosureis seeingof wrongdoing. greater disclosure of wrongdoing.Yet the root cause is more likely thatYet the Japaneseroot manufacturerscause is more likelyare failing that modern Japanese compliance manufacturers standards are as failingthey grapple modern with compliancea shrinking standardsdomestic marketas theyand grapple increased globalwith competition.a shrinking domesticAs the focus markethas shifted andto increasedmarket mechanismsglobal competition. instead of As relationship-basedthe focus has shifted arrangements, to market Japanese mechanisms companies instead of have cozy had to relationship-basedcompete on price arrangements,and expand their client Japanesebase. companies “Growing globalhave had competitionto compete has forcedon price Japanese and manufacturers expand their clientto cut base. costs to be more efficient, “Growing while global fulfilling competitiona production has quota, forced Japanesewhich is often manufacturers difficult to achieve,”to cut costssaid Motokazuto be more Endo, efficient,a lawyer while at fulfillingTokyo a Kasumigasekiproduction law quota, office. which is often The difficult keiretsu to achieve,”system was said MotokazuJapan’s auto Endo, industry’sa lawyer bedrock. at TokyoAs the Kasumigasekimarket has law become office. more The competitionkeiretsu system based, was those the bedrock automakersof Japan’snow invest automotiveless in industry.their suppliers and spend less time As checkingthe market what has those becomesuppliers’ more factories competitionare producing, based, those according automakersto Hitoshi now Kaise, investan less auto in industry their consultantsuppliers and and spend partner lessat Rolandtime checkingBerger. what

Japan’s economy has had tion decades shrinkingof anemic and growth,with growingand is bogged competition down fromin deflationits Asian neighbors.with its population shrinking and “Thosewith growing pressures competition have potentiallyfrom its Asian whittled neighbors. away at Japanese “Those pressuresfirms’ ability have to potentially compete,” whittledsaid Hideakiaway at Miyajima,Japanese a firms’ Waseda ability Universityto compete,” professorsaid and Hideaki corporate Miyajima, governancea Waseda expert. University professor.

The Nissan list Motorof manufacturerCo has had miscreantsto recall everyis long new and car growing.it sold in Japan Nissan in Motorthe last Co threehas had years to recallafter it every falsified new safetycar checks.it sold in Japan Suzuki in Motorthe last Corp three and yearsMitsubishi after it falsifiedMotors Corp safety have checks. faced scandals Suzuki over Motor fuel Corp economy and tests Mitsubishi on their vehicles, Motors and Corp there havewas facedeven wrongdoingscandals over by fuel the economynow bankrupttests on air theirbag maker vehicles, Takata, and thereToyo Tire was &even wrongdoingRubber Co and by the Asahi now Kasei bankruptCorp. air bag maker “While Takata, focusingToyo Tire on& Rubbertargets Co was and right Asahiin the Kasei beginning,Corp. it has “Whilegone too focusingfar, with on companies targets was rightthat can’tin the hit beginning,their targets it has resortinggone tooto deception,”far, with companiessaid Hiroshi that Osada,can’t hit a their production targets resortingquality expertto deception,”and Bunkyo University said Hiroshi professor.Osada, a production

During the last 15 years, factory compliance floor,” rules havesaid becomeNobuo Gohara, stricter a but lawyer many specializing Japanesein compliance,companies have who carriedtook on part with in an practicesaudit of common Olympus in Corpthe past. after its “There accounting are scandalmany of in 2011. these problems Professor lying Thomas dormant Clarke, on a corporatethe factory governancefloor,” said Nobuoexpert at Gohara,the Universitya lawyer of specializing Technology in compliance,in Sydney, who stressedtook part that in Japanan audit runsof Olympusthe risk it Corpwill “lose after outits accountingas other Asian scandal economies,in 2011. including Professor China, Thomas progressivelyClarke, a raise corporatetheir standards governanceof quality expert andat the reliability.” University of Technology in Even Sydney, when stressed moves that are Japantaken to runs strengthenthe risk it externalwill “lose monitoringout as otherof companies,Asian economies,“it’s not includingpossible to China, conduct progressivelychecks day raisein, day their out,” standardssaid Osadaof qualityat Bunkyo and University,reliability.” who sat on an external Even panel when that moves audited are Toyota taken duringto strengthenits 2010 externalrecall crisis. monitoring Companiesof companies, must “it’s do not more possibleto developto conducta culture checksin day whichin, workersday out,” are said able Osadato at raise Bunkyoconcerns University, and whosay sat “no” on anto externaltheir bosses, panel and that in audited which Toyotateamwork during is its used 2010 to recall catch crisis. wrongdoing by other employees.

“More attention should be

BLOOMBERG The imposing red and white chimneys of Kobe Steel Ltd plant dominate the harbor of Kakogawa, Hyogo, Japan.