HIGASHIOSAKA, Japan, August 22 (Reuters) – The small factories in the western Japanese city of Higashiosaka have for decades fueled the thunderous rise of the country’s biggest brands – but a weak yen and rising costs have accelerated a slow decline, transforming the industrial heartland.
Home to some 6,000 companies, 87% of which have fewer than 20 employees, the city is emblematic of how such forces are bringing Japan’s small manufacturers to a turning point.
The Higashiosaka workshops craft metal components for everything from train seats to ballpoint pens, and have long relied on powerhouses like Sharp, Panasonic and Sanyo for jobs.
Sign up now for FREE unlimited access to Reuters.com
Now Sanyo is gone, bought by Panasonic. Work in general has dried up in recent years in the face of competition from South Korea and China; When Taiwanese company Foxconn acquired Sharp in 2016, it shifted much of the company’s manufacturing out of Japan.
The amalgam of problems Higashiosaka faces — an aging population, offshoring and a flagging currency — reflect the problems eroding the foundation of the world’s third-largest economy and its global exports, which total 83.1 trillion yen (610 54 billion US dollars). last year.
A factory in the city, aircraft component maker Aoki, is turning to the food industry after being hit hard by the pandemic. Another, air drill parts maker Katsui Kogyo, raised prices for the first time since its inception in 1967. Lampshade company Seiko SCM has reduced its production and is attempting to revitalize Higashiosaka’s manufacturing industry by converting part of its headquarters into shared workspaces.
“It’s like being the frog that’s slowly being cooked alive,” said Hiroko Kusaba, CEO of Seiko SCM. “We all believed that the big brands would always protect us, but that’s just not the case anymore.”
In the past six months, the value of the Japanese yen has plummeted from around 115 yen per dollar in early March to over 130 yen in August. And the pain of COVID continues: 67% of small businesses in Higashiosaka say they are still suffering from the pandemic, according to a survey conducted by the local chamber of commerce in April.
For these companies, it’s not just about weathering the economic storm, but also preserving the industrial ecosystem.
Small and medium-sized enterprises account for 99.7% of businesses and 68.8% of employment in Japan. But those same companies make up just 52.9% of the economy, according to a 2016 government survey, the latest available data.
The Higashiosaka region has a centuries-old history as a manufacturing center. The city still has industrial enclaves, where tiny factories are wedged between houses, hammering, sawing and shaping metal from early morning until dusk.
This mishmash of production has led to human connections and a sense of community, said Hirotomi Kojima, executive director of Katsui Kogyo, the air drilling company. This provides an important support network, but also makes it more difficult to pass on higher costs.
Kojima raised prices in October. Since then, material costs have skyrocketed, but he’s reluctant to raise prices again for fear of losing long-time customers.
They have asked Kojima for favors such as cost sharing or price hikes “forgivingly.”
“The closer I am to the customer, the harder it is to start that conversation,” Kojima said.
Torn between protecting those connections or damaging his business, Kojima seeks new clients for the first time in his 10 years as CEO.
He often visits Hironobu Yabumoto, a close friend who runs another air drill manufacturer. Although they are in direct competition, they pass orders to each other and share customers.
“We want the manufacturing industry and that culture to stay,” and that’s a bigger priority than being the last survivor, Yabumoto said.
For the past decade, both Kusaba and Kojima have seen at least one factory quietly close each year as aging owners die, fall ill, or close their heirless businesses.
The surviving companies are closely related. Kusaba, who is from outside the city, said the locals — like the baker and the rice seller — anchor her in the community.
“And they come to me and they say how bad the business is, how they used to have so many customers when the manufacturing industry was booming, and how times have changed so much,” said Kusaba, the 12-year CEO of Seiko SCM is.
Because of this, she turns her own business upside down to protect her bottom line and help the manufacturers in Higashiosaka.
In June, she reduced her company’s die casting department from six to three employees and reduced the machine park. In its place, she creates a co-working office space and opens a “shared factory” where users can pay for access to machines and resources that reduce fixed costs and increase production.
“The big brands, the big manufacturers — they let us down,” Kusaba said. “Now we have to communicate directly with the consumer. We can only rely on ourselves.”
Her decision means there will be more die casting work for her competitors, but Kusaba said she would rather do that than watch the entire industry collapse.
“Competition is not the way to survive. We need to join forces instead,” she said.
Aoki, classified as “non-essential” during the pandemic, is trying to avoid being dragged down by an airline industry devastated by COVID-19. CEO Osamu Aoki has pinned his hopes on another area: food manufacturing.
He designs and builds a machine that processes meat. Right now it’s in the Aoki Factory while workers fine-tune the device.
Though he forecasts the food industry to provide more stability, Aoki expects his electricity bills to double in August — an 8 million yen increase that will require a 4% increase in revenue to cover.
Japan’s manufacturing industry has traditionally relied on sales of value-added products, with a weak yen boosting profits. But that doesn’t seem to be true anymore, Aoki said.
“I think it’s a reckoning,” said the ailing bill. “Now is the time to reevaluate.”
The changes and experiments at Higashiosaka do not guarantee its survival or that of Japan’s small business culture.
“We won’t see total obliteration if factories can pass on the extra costs… but the longer (high prices) drag on, the harder it will be for them,” says Naohito Umezaki of the Higashiosaka Chamber of Commerce.
He added that the city’s social fabric was already frayed, with family businesses closing for good; The top priority is to find people who will take over and preserve the manufacturing tradition.
At Aoki, 22-year-old Yuto Miyoshi asked the CEO for advice on succeeding his father to run the family’s welding business in a neighboring town.
“My father often warns me about the difficulties of running a business,” Miyoshi told Aoki.
But he added that on a rare occasion his father had a bit too much to drink and revealed what a succession plan would mean for him.
“He said, ‘I would be so happy if you took over,'” Miyoshi said.
($1 = 136.1100 yen)
Sign up now for FREE unlimited access to Reuters.com
Reporting by Sakura Murakami. Editing by Gerry Doyle
Our standards: The Thomson Reuters Trust Principles.