As Japanese manufacturing fades, a factory town fights to stay alive

HIGASHIOSAKA, Japan Aug 22 (Reuters) – The small factories within the western Japanese metropolis of Higashiosaka for many years fuelled the thundering rise of the nation’s largest manufacturers – however a weak yen and rising prices have accelerated a sluggish decline, and are reshaping the economic heartland.

House to about 6,000 corporations, 87% of which have fewer than 20 workers, the town is emblematic of how such forces are pushing Japan’s small producers towards a tipping level.

The workshops in Higashiosaka create metallic elements for all the things from practice seats to ballpoint pens, and have lengthy relied on powerhouses corresponding to Sharp, Panasonic, and Sanyo for orders.

Now Sanyo is gone, acquired by Panasonic. Work usually has dried up lately within the face of competitors with South Korea and China; when Taiwan’s Foxconn acquired Sharp in 2016, it moved a lot of the corporate’s manufacturing out of Japan.

The amalgam of points that Higashiosaka faces – an ageing inhabitants, offshoring, and a sagging foreign money – mirror the issues which were chewing on the basis of the world’s third-largest financial system and its international exports, which hit 83.1 trillion yen ($610.54 billion) final 12 months.

One manufacturing facility within the metropolis, plane part producer Aoki, is pivoting to the meals trade after being hit arduous by the pandemic. One other, air drill components maker Katsui Kogyo, raised costs for the primary time because it began enterprise in 1967. Lampshade firm Seiko SCM scaled again its manufacturing and is looking for to revive Higashiosaka’s manufacturing trade by changing a part of its headquarters to shared working area.

“It is like being the frog being slowly boiled alive,” mentioned Hiroko Kusaba, CEO of Seiko SCM. “All of us believed that the massive manufacturers would all the time defend us, however that is simply not the case anymore.”

HUMAN CONNECTION

Up to now six months, the worth of the Japanese yen has plummeted from about 115 yen to the greenback in early March to greater than 130 yen in August. And the ache of COVID lingers: 67% of the small corporations in Higashiosaka say they’re nonetheless hurting from the pandemic, based on a survey performed in April by the native chamber of commerce.

For these corporations, weathering the financial storm is not nearly surviving, however preserving the economic ecosystem.

Small- and medium-sized enterprises account for 99.7% of corporations and 68.8% of employment in Japan. However these identical corporations characterize solely 52.9% of the financial system, based on a 2016 authorities survey, the newest information obtainable.

The area round Higashiosaka has a historical past as a producing hub courting again tons of of years. Town nonetheless has industrial enclaves the place tiny factories are wedged between homes, hammering, sawing and shaping metallic from early morning to nightfall.

That mishmash of manufacturing has given rise to human connections and a way of group, mentioned Hirotomi Kojima, chief govt of Katsui Kogyo, the air drill firm. That gives an important assist community, but in addition makes it troublesome to go alongside larger prices.

Kojima raised costs in October. Supplies prices have soared since then, however he’s hesitant to lift costs once more, anxious that he might lose longtime prospects.

They’ve requested favours of Kojima, corresponding to splitting prices or “going straightforward” on worth will increase.

“The nearer I’m to the client, the more durable it’s to begin that dialog,” Kojima mentioned.

Torn between defending these ties or hurting his enterprise, Kojima is looking for new shoppers for the primary time in his 10 years as CEO.

He usually visits with Hironobu Yabumoto, an in depth good friend who manages one other air drill producer. Though they’re in direct competitors, they go one another orders and share shoppers.

“We would like the manufacturing trade and this tradition to remain,” and that may be a larger precedence than being the final one standing, Yabumoto mentioned.

SLOW DECLINE

Up to now decade or so, each Kusaba and Kojima have seen not less than one manufacturing facility quietly shut yearly as ageing homeowners die, fall sick or shut down their heirless companies.

The surviving corporations are shut knit. Kusaba, who will not be from the town, mentioned the locals – such because the baker and rice vendor – anchor her to the group.

“And so they come to me saying how enterprise is down, how that they had so many purchasers earlier than when the manufacturing trade was thriving, and the way occasions have modified a lot,” mentioned Kusaba, who has been CEO of Seiko SCM for 12 years.

That’s the reason she is popping her personal enterprise on its head to guard her backside line and assist producers in Higashiosaka.

In June, she diminished the die-cast division of her firm to a few folks from six and decreased the quantity of equipment. As a replacement, she is making a co-working workplace area and opening a “shared manufacturing facility,” the place customers pays for entry to machines and assets that can lower mounted prices and improve manufacturing.

“The large manufacturers, the massive producers – they’ve forsaken us,” Kusaba mentioned. “Now, we have to talk with the patron instantly. We solely have ourselves to depend on.”

Her determination means there can be extra die-cast work for her opponents, however Kusaba mentioned she would reasonably try this than watch your complete trade fall into spoil.

“Competitors is not the best way to survival. We have now to hitch forces as a substitute,” she mentioned.

NON-ESSENTIAL

Aoki, which was labelled “non-essential” in the course of the pandemic, is making an attempt to keep away from being dragged down by an airline trade wrecked by COVID-19. CEO Osamu Aoki has pegged his hopes on a special area: meals manufacturing.

He’s designing and constructing a machine that processes meat. For now, it sits within the Aoki manufacturing facility as employees advantageous tune the system.

Though he predicts the meals trade will present extra stability, Aoki is anticipating his electrical energy payments to double in August – an 8 million-yen improve that can require a 4% leap in income to cowl.

Japan’s manufacturing has historically been depending on promoting value-added merchandise, wherein a weak yen boosts earnings. However that now not appears true, Aoki mentioned.

“I believe it is a reckoning,” mentioned of the sagging foreign money. “It is now the time to re-evaluate.”

MANUFACTURING TRADITION

The modifications and experiments in Higashiosaka don’t assure its survival, or that of Japan’s small-business tradition.

“We can’t see a complete wipe-out if the factories can go by means of the additional prices… however the longer (excessive costs) drag on, the more durable it is going to be on them,” says Naohito Umezaki of the Higashiosaka Chamber of Commerce.

He added that the town’s social cloth was already fraying as family-owned corporations shut down for good; a prime precedence is discovering folks to take over and protect the manufacturing custom.

At Aoki, 22-year-old Yuto Miyoshi sought recommendation from the CEO about whether or not to succeed his father in operating the household welding enterprise in a neighbouring metropolis.

“My father is commonly warning me of the hardships of operating a enterprise,” Miyoshi advised Aoki.

However he added that on one uncommon event his father had a bit an excessive amount of to drink, and let slip what a succession plan would imply to him.

“He mentioned: ‘I’d be so blissful if you happen to took over,'” Miyoshi mentioned.

($1 = 136.1100 yen)

Reporting by Sakura Murakami. Modifying by Gerry Doyle

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