A shift of power out East

Mar 2 2009 Agenda

Japan’s industrial heartland has some salutary lessons for the West Midlands. Anthony Rowley reports.

Visiting Greater Nagoya in Japan’s industrial heartland between Tokyo and Osaka is like stepping into the past – the past of the once great industrial complex that stretched from Birmingham and the Black Country to Coventry.

The way in which development of the two regions has since diverged symbolises the debate in Britain now about the wisdom of abandoning once great manufacturing traditions in favour of finance and other service industries.

In theory, Greater Nagoya ought no longer to exist, or at least not be facing the future with the kind of confidence that its businessmen and officials still display despite the current recession.

It could easily have been “hollowed out” like industrial centres in other advanced nations – England’s West Midlands, the German Ruhr and the US Rust Belt. Or it could have been overtaken by the rise of China as a manufacturing power.

Instead, the three prefectures of Aichi, Gifu and Mie, which make up Greater Nagoya with Nagoya City at their centre, continue to thrive on a tradition of manufacturing excellence – known in Japanese as “monozukuri” – that seems to defy all challenges.

But they also rely on a different balance between industry and finance and between making money and making “things” to that which took hold in Britain from the 1970s onwards.

While once great names in the British motor industry such as Austin, Morris, Wolsey, Singer and Riley long ago passed into history, along with others like Birmingham Small Arms (BSA) and former world leaders in the machine tools industry, their Japanese equivalents are thriving still.

Toyota is the world’s largest motor maker, Yamazaki is the leading machine tool producer and Mitsubishi Heavy Industries is in a class of its own.

Why do these and countless others, such as Honda, Nissan, Suzuki, Yamaha, Fanuc, Kawasaki, Fuji Heavy Industries and Moriseki, continue to survive and prosper in the production of everything from motor vehicles to castings and machine parts, or from ceramics and composite materials to industrial robots, while advanced economies such as Britain have rejected such activities as unsuitable to their image of post-industrial societies?

Is Japan still in the process of catching up with “modern” economies or has it just got the balance between manufacturing and service industries more right than Britain?

“Basically the people here are very diligent and have manufacturing skills,” Kazunari Sega, director of the Nagoya-based local office of Japan’s Ministry of Economy, Trade and Industry (Meti) says modestly.

They are proud of these skills and have not abandoned them to pursue supposedly more sophisticated types of employment in the way that recent generations in other advanced economies have.

But more important from the perspective of maintaining a stable industrial base, the owners of Nagoya firms – giants such as Toyota or myriad small scale enterprises alike – have not sold out their interests to the highest takeover bidder or private equity investor.

As an official at the Nagoya Chamber of Commerce and Industry puts it: “Many companies in Nagoya don’t know how to make money because that is not their target. Maintaining the firm’s financial stability is more important than making money.”

That and an emphasis on “kaizen” or innovation (Japanese-style), and “suryawase”, which means constantly refining manufacturing systems and techniques to a point where others cannot compete.

This continuing emphasis on manufacturing excellence has not prevented Japan’s economy from sinking into recession now, along with those of Britain, the US and others. But the severity of Japan’s slowdown is due to an over-emphasis in recent years on supplying the US and other credit bubble-driven overseas consumer markets with electronic goods and motor vehicles. Giants like Sony, Panasonic and even Toyota are in trouble for this reason.

With the exception of Toyota, these consumer market-dominated firms are not part of the Greater Nagoya community of engineering skills that promise to pull Japan out of recession earlier than will be the case in Britain and elsewhere.

Machine tool maker Yamazaki (or Mazak as it is known overseas), for example, dominates the global machine tool industry, and machine tools – computer-guided machining centres especially – are essential to producing the plant and heavy equipment that is expected to be in demand now as governments around the world seek to stimulate their economies by building up basic infrastructure.

Yamazaki is again a company that, in theory, ought no longer to exist.

It is still family-owned, 90 years after being founded by Japanese engineer Sadakichi Yamazaki as a maker of tatami looms.

A company history notes that “the core of machine-tool making has moved to Japan from Britain, Germany and the US”.

Yamazaki is now world leader in terms of sales and is determined to stay on top by means of “developing original technology that no other company can imitate,” says chairman Teruyuki Yamazaki.

Yamazaki Corp has preferred not to go public in order to avoid the “short-termism” and profit consciousness that shareholders can impose upon public companies, Tomohisa Yamazaki says.

In this sense, the firm’s story parallels in some ways that of once-great British firms such as Pilkington Glass, whose former head Sir Henry Pilkington took pride in being a “thing maker” rather than a “money maker.”

The Pilkington family staked all of its money on pioneering the now world famous float-glass process. Lord Pilkington (as he became) admitted later that he could not have justified such an investment to public shareholders.

Ironically, Pilkington was later forced by death duties to go public and recently it has been taken over by Japan’s Nippon Sheet Glass, which takes a longer view than did shareholders who bought the UK firm from the family and then sold it.

The late Sir Henry Pilkington’s disparaging comments about “money makers” were made at the time in the 70s when a new breed – symbolised by figures such as Jim Slater of Slater Walker, and by his protégé John Bentley – were stalking famous British companies such as Lines Brothers (of Meccano, Dinky Toys and Hornby model trains fame) and BSA, whose assets were undervalued in the stock market.

Those firms fell, despite efforts by workers whose families had worked there for generations to form co-operatives and to stage “sit-ins”. By contrast, the philosophy of people like Teruyuki Yamazaki is that “employees are the biggest assets of this company”.

Those employed nowadays in the slurry-smelling but spotlessly clean working environment of the company seem happy to remain loyal to a firm that is also loyal to them.

If Greater Nagoya has a weak point, it may be in its shortages of skilled labour and, some say, in the ability to innovate.

But while the region may not be ahead in areas of “pure” research such as biotechnology, its expertise in manufacturing technologies remains second to none.

“It is not easy for others to catch up,” claims Hitoshi Nishiwaki in the Nagoya Chamber of Commerce and Industry.

“It takes 50 years to come up to this skill level “ he adds.

That is aimed at China, but there is maybe a lesson there too for Birmingham and others should they ever decide to challenge the manufacturing lead that Japan has taken over from them..

* Anthony Rowley is a former staff writer on The Birmingham Post and The Times, who has covered Asia for the past 30 years as business editor of the Far Eastern Economic Review.