LDN - Business

Japan manufacturing scandals haven't hurt image but have been powerful lessons: ministry official

[December 27, 2017] By Malcolm Foster and Kentaro Hamada

TOKYO (Reuters) - A string of data-tampering scandals at Japanese manufacturers has not tarnished Japan's image, though it has been a powerful reminder to avoid sacrificing quality when under cost or delivery pressure, a senior economic official said on Wednesday.

Since October, Japan has seen revelations of data tampering and compliance failures at Kobe Steel Ltd <5406.T>, Mitsubishi Materials Corp <5711.T>, Toray Industries Inc <3402.T>, Nissan Motor Co Ltd <7201.T> and Subaru Corp <7270.T>.

The scandals have hit stocks of those companies and come at a time when Japanese manufacturers, long known for high-quality products, are facing intensifying competition from Asian rivals.

But the problems do not reflect systemic flaws in Japanese manufacturing, said Akihiro Tada, director-general of the manufacturing industries bureau at the Ministry of Economy, Trade and Industry. Rather, they were separate problems at individual companies.

And while the problems were clearly "unfortunate," he said in an interview with Reuters, "if you look at it objectively, this only happened at a few companies."

"This has impacted individual companies' reputations, but I don't think that Japanese manufacturers' overall brand image has been hurt," he said.

While the share prices of those companies have fallen, "it's not like the entire Japanese stock market has declined," he said. "I haven't seen any news that lots of orders from Japanese manufacturers have been canceled."

Kobe Steel, Mitsubishi Materials and Toray - all suppliers to global manufacturers - have admitted to product data fabrication. Nissan and Subaru have admitted to inappropriate final inspection procedures for domestic-market vehicles.

Most of these companies have used third-party investigators to compile reports on the extent and causes of the malfeasance, as well as measures to improve governance.

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Japan's Ministry of Economy, Trade and Industry's Director-General of Manufacturing Industries Bureau, Akihiro Tada gestures as he attends an interview at his office in Tokyo, Japan, December 27, 2017. Picture taken December 27, 2017. REUTERS/Malcolm Foster

They have blamed a focus on profit, lax quality controls and staffing shortages, though most said product safety was never compromised.

Tada also pointed to cost and delivery pressures as possible factors. "Quality cannot be sacrificed to delivery and cost. That's the top priority among those three elements. So that's been a good lesson for all of corporate Japan."

These companies "have realized to a painful degree that these kind of problems will affect their competitiveness," he said.

Last week, the ministry announced a series of steps aimed at preventing falsification, including a proposal to raise fines for breaking the Industrial Standards Law and encouraging manufacturers to use information technology to ensure quality control.

On Wednesday, Toray, which in November said materials-making subsidiary Toray Hybrid Cord Inc (THC) falsified quality data for eight years, in a report said, "it was perceived within THC that so long as product safety was ensured, slight deviations from the quality standards agreed to in contracts with customers were not problematic."

To prevent recurrence, the company said it would tweak its organizational structure and bolster its quality assurance section, appointing a general manager to oversee the division.

"Winning trust takes a long time, but it can be lost in an instant," Tada said. "That's a big lesson from this."

(Reporting by Malcolm Foster and Kentaro Hamada; Editing by Christopher Cushing)

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