The development of the manufacturing industry in any country has never been an independent process. Japan is no exception. The driving force behind the overall growth and change in Japan’s economy has been attributed to the development of her manufacturing industry after World War II. Today, Japan is the second largest economy and the second largest consumer market in the world.

There is no doubt the Japanese manufacturing industry has acquired a high international standing. But there are always two sides to every coin, and Japan’s manufacturing industry is no exception. Problems inherent in the system have surfaced gradually in the last ten years and threaten the very existence of this engine of growth. Also, Japan is currently facing its worst economic recession in years.

Of particular interest to this paper are the future directions of Japan’s manufacturing industry and by studying an example of a successful cum well established Japanese manufacturing company, Kenwood Corporation, hopefully shed some light on this growing concern.

EVOLUTION OF THE JAPANESE MANUFACTURING INDUSTRY

Poor in natural resources, Japan had no choice but to earn its way in the world through a combination of manufacturing and trade. It took in many of the world’s technological advances as possible, absorbed them and used what emerged to produce attractive consumer products to earn foreign currency.

Two distinctive features can be found in the historical background of the Japanese manufacturing industry. One is a zigzag pattern. From the beginning, the Japanese manufacturing industry had not proceeded in the same direction nor even developed uniformly. In fact, this zigzag tendency was aided to a large extent by both historic disturbances and opportunities that arose both within and beyond Japan. Japan was especially quick to capitalize on such timings which gave her ample opportunities to penetrate the world market. This brings to mind the war years of World War I. When the Allied forces concentrated their efforts on fighting the war and thus their production levels fell drastically, Japan filled in the vacuum vacated in the industrial world and upped her manufacturing quantities to meet the increasing demand for such goods. Also, in 1973, while the first oil crisis caused a shift in the industrial structure, it also strengthened Japan’s capability to deal with challenging circumstances. Because of a congruity between government policy and management strategy, the second oil crisis did not have any effects on Japan.

Another crucial feature is the gradual development of an industrial plan. Japan has had an industrial structure corresponding to the level of development of the economy at each stage, and has furthermore flexibly and steadily altered it. While aiming for a wide encompassing industrial structure within its domain, Japan has been able to alter its industrial base and industrial presence. This is very much due to the credit of the strong governmental leadership. Financing (provision of cheap funds for rapid industrialization, mobilizing domestic savings and the Bank of Japan guaranteeing loans by city banks who provide loans to corporations), coupled with industrial policy, strong export driven growth since the 1970s and protectionistic measures have been the most commonly cited means by which the government has played a major role in shaping the fortunes of the manufacturing industry.

THE PRESENT DAY MANUFACTURING INDUSTRY

On the whole, the Japanese manufacturing industry has exhibited strong competitive power. It has maintained this power through high product quality (not simply in the sense of a physical product but also including the manufacturing industry’s adaptability to market factors in extending their range of goods and prompt delivery, among many others), high productivity at the plant sites, low production costs and value-added products.

Also, economic growth has raised the level of the average Japanese’s income. With improvements in income, the Japanese market has grown enormously and this has further benefited the Japanese manufacturing industry by creating extra demand for such goods. However, this held true only until the bursting of the bubble in March 1990.

For my purpose, I will be examining in greater detail an example of a Japanese manufacturing company with a history of 53 years, Kenwood Corporation.

PROFILE OF KENWOOD CORPORATION

Kenwood Corporation was established in December 1946 in Komagane City, Nagano Prefecture, Japan. Since its incorporation, Kenwood Corporation has stressed innovation as the means to provide customers with the best in home audio and car audio products, test and measuring instruments, and telephone and communications equipment (amateur and land mobile). Kenwood Corporation’s attention to detail in both product quality and functions has helped her become a prominent international manufacturer.

Today, Kenwood Corporation’s products are distributed in over 120 countries throughout the world, and enjoy a reputation for reliability and technological innovation.

As part of its strategic worldwide vision, Kenwood Corporation is constantly establishing more production bases overseas. Currently, there are production bases in Singapore, Malaysia, China, France and Mexico. Via such production bases, it is hoped that they will contribute to the host country’s economic development by helping train engineers and boosting the ratio of the local production content. But more importantly, I believe such a move will help reduce the cost of production, thus sharpening Kenwood’s competitive edge, reason being that labour costs in Japan are very much higher than her neighbouring countries. Shifting more of its labour-intensive production overseas will help Kenwood reduce its overall cost of production. Thus it was not surprising when I learnt that there are only 2 production plants in Japan, namely the Yokohama Plant and Hachioji Plant. Majority of the production work is being done at its overseas plants. The manufactured products are then shipped back to Japan, awaiting re-shipment to the United States and Europe which form the bulk of Kenwood’s business. These activities, together with domestic sales in Japan are coordinated by the 68 sales offices found in Tokyo, Osaka and Nagoya.

In Japan, Kenwood Corporation employs 2,817 employees, of which 2,583 are male and 234 are female. When asked about this huge disparity, the staff told me that the headoffice in Japan is more involved in research and development and such jobs have to be done by males.

KENWOOD COMES TO SINGAPORE

Singapore has the distinction of being Kenwood Corporation’s first overseas production base. Capitalising on Singapore’s political stability, adequate infrastructure and relatively cheap labour cost during the late 1970s, Trio-Kenwood Singapore (pte) Ltd was born in 1979 in the Toa Payoh industrial estate. The Toa Payoh production plant provided employment for about 300 employees and the number of females who were involved in the production lines were significantly more than the male technicians. With the transfer of technological know-how from Japan, Trio-Kenwood Singapore was by then already producing both home and car audio sets.

Come 1982, a second production plant was set in the Ang Mo Kio industrial park, as the first plant could not cope with the yearly increase of orders. More production lines had to be added and expansion was inevitable. According to the staff whom I interviewed, this dual operation of the Toa Payoh and Ang Mo Kio production plants continued until 1991. The Toa Payoh production plant was then shut down, effectively bringing both operations under the same roof, which continued to produce both home and car audio sets with about 1,200 employees.

A CHANGE OF FOCUS

However, even before this was taking place, Kenwood Corporation in 1990 established Trio-Kenwood Electronics Engineering (M) Sdn. Bhd., as a production base ion Malaysia and began marketing license-free transceivers. One might question if the setting up of another overseas production base in Malaysia has any bearing on Trio-Kenwood Singapore. After all both production bases were producing entirely different products. But, the Malaysian production base proved to be a double-edged sword in time to come. In 1993, a decision by Kenwood Corporation saw the production of both home and car audio sets being shifted northwards to Malaysia, hence resulting in about 800 employees being retrenched.

Nonetheless, it was revealed that although the move broke many a rice-bowls, it was a positive stride ahead. Singapore was now thrust with the production of a higher-end product, that of producing communications equipment (in the form of handphones and walkie-talkies). This was clearly in line with the Singapore government’s emphasis on high-tech production and seemed to have advantaged Singapore. Production of both home and car audio sets were getting too costly and labour-intensive to remain in Singapore. Also in line with the change in production of products, Trio-Kenwood Singapore became Kenwood Electronics Technologies (S) Pte Ltd to reflect a new image. Today, it is proud to have been awarded the ISO 9002 in Manufacturing Quality System. As the staff pointed out, sales of locally produced communication equipment are very small. As mentioned earlier, all completed products are to be shipped back to Japan to be re-shipped to America and Europe for sales. These products are then re-shipped to Singapore for local sales, depending on the occasion. Figures could not be revealed however.

STAFF MANAGEMENT

The staff management style largely parallels that of the parent company in Japan. Though the staff acknowledges the fact that she is second in charge of the Logistics Department she laments that Japanese managers are still heading the various departments some whom are even younger and less experienced than she is. Also, she has to work doubly hard to prove herself. Though there is a separate personnel department, it is also being headed by a Japanese. But, she pointed out that it could only decide on personnel matters pertaining to the lower rungs of the plant (i.e. production line workers). All other matters with regard to management level had to channelled back to Japan for decision and actions melted down. Thus, Kenwood Electronics Technologies has still not been ‘localised’ to a large extent.

RELATIONSHIP WITH SUPPLIERS

I asked the staff to tell me about Kenwood Electronics Technologies’ relationship with her suppliers. From the interview, I learnt that Kenwood Electronics Technologies chooses to do business with Japanese companies. This is further evidence that Kenwood Electronics Technologies has not tried to adapt to the local climate. It was revealed that the parent company still belittles the Singaporean suppliers and feel that their standards are far behind the Japanese. It is indeed frustrating to hear of this, but things seem to have changed in the last two years, with one or two suppliers forging a contract with Kenwood Electronics Technologies. But this figure is still disappointingly small considering that there are more than 100 suppliers. Kenwood Electronics Technologies adopts a unique ranking system of suppliers. This system ranks the suppliers on yardsticks such as the quality of products, speedy delivery among others. If a supplier lives up to such expectations, his company is then awarded a certificate stating his strengths. The more certificates a supplier receives, the higher the chance of having the contract renewed.

Keeping in line with the emphasis on high quality and value-added products, each part such as the wire cables or connectors must be meticulously checked. Also, before qualifying to be a supplier, representatives from Kenwood Electronics Technologies will go down personally to inspect the factory and quality of the samples of the prospective supplier.

THE BURSTING OF THE BUBBLE

In the 1970s, Japan was producing machinery and was heavily involved in manufacturing. But come the 1980s, wealth was created from means of invisible business by the buying and selling of stocks and shares and land. This was very attractive then because of the quick and high returns from this method of financing. This in turn drove Japan’s economic expansion even further.

The chief manifestation of Japan’s bubble economy was the astronomical value which both land and stock prices reached before this phenomenon ran its course by 1990. The bubble created a sense of unmatched prosperity in Japan with full employment, high corporate profits and the overall wealth effect created from high asset prices.

The first signs of an impending bubble burst was in March 1990 when the Nikkei stock index plunged drastically in one single day. Soon after, the whole market came crushing down rapidly. And like a chain reaction, the commercial land values eventually fell to one-third of what they were worth during the bubble period. Residential land prices were halved leading to a loss in confidence. As many loans were based on mortgages of high-priced land during the bubble period, banks could not collect back the loans they had lent out. And the ultimate effect was that Japan plunged into an economic recession and experienced stagnation.

THE GLOOM IN JAPAN

The dire consequences of the bursting of the bubble are apparent. The Japanese economy continues to stagnate, bankruptcies rising to the highest level, the failures of several large financial institutions and the decrease ion consumer demand along with declining confidence in the Japanese economy. To make things worse, the Asian economic crises rages on, affecting areas of substantial Japanese overseas investments especially in Southeast Asia, leaving the Japanese banking system with US$600 billion in bad debts. According to the latest statistics released by the Economic Planning Agency, Japan’s economy shrank for an unprecedented fifth quarter in a row, with the GDP shrinking 0.8% in the final three months of last year.

INHERENT PROBLEMS LURKING BEHIND THE SHADOWS OF THE MANUFACTURING SYSTEM

The problems Japan of facing now are detrimental. Adding on to that, one should not forget the ghosts of the manufacturing industry have come to haunt her too.

The chief problem is not limited to the manufacturing industry alone. The various social systems that are the foundations of Japanese industrial development, and that have supported the paradigm of mass production at its very core; have begun to change significantly. These changes have affected stable employment relations based on lifetime employment, the seniority wage system, enterprise unionism, and loyalty to one’s company. All there have functioned effectively up to now in an economy that experienced expanding markets and the appearance of new niches. High income and stable employment were achieved at the expense of changes in the social system, employment relations and the social awareness of the people. It is highly evident that the young generation is becoming more individualistic and thus not content to work more than twenty hours a day like their parents or grandparents did. Also, with the current economic crisis, more middle-aged men are being retrenched or forced to retire prematurely, reducing the promise of lifetime employment into a mere myth.

Second, in the Japanese market, a great proliferation of many models and brands of the same good exist side by side and compete, and there have been some dramatic innovations to meet certain consumer needs. But all this has diminished the merit of mass production and raised per unit production costs, which in turn has lowered value added. Excessive services, another feature of the intense competition among corporations, have indirectly brought about cost increases too.

To complicate matters, the distribution system in Japan has a large influence on value formation, which puts the manufacturing industry at a disadvantage. Via the way it distributes added value, few if any improvements of productivity return to it.

ALTOGETHER BAD TIMES

The miraculous development and growth of Japan’s manufacturing industry since World War II was spearheaded by three distinct systems: the Japanese economic system, the Japanese market system and the Japanese management system. Over the last twenty to thirty years, the triple supports have motivated Japan’s manufacturers to develop diverse strengths. The manufacturing industry was able to supply the world with high quality products at low prices by honing international competitiveness while improving quality, productivity and building up technological capabilities.

However, these efforts have no longer enjoyed positive results. The Japanese manufacturing industry has managed to capture markets in the United States and Europe, but not without encountering political friction, especially with the former. Increased competitiveness produced huge trade imbalances. Not forgetting that the first element in the equation has collapsed and is in no signs of recovery, and the second and third elements are causing Japanese to rapidly lose faith in them.

Currently, yet another challenge has arisen. The cumulative effects of concerted rationalisation and attempts to increase productivity have begun to show themselves in the operations of the American manufacturing industry. Improvements are also seen in product quality. The performance of American companies is getting better gradually but surely, throwing some long shadows over the very competitiveness of Japanese manufacturers had long taken pride in.

REACTIONS OF KENWOOD CORPORATION

Kenwood Corporation’s immediate concerns are similar to the Diet’s. They include a stagnant Japanese economy as a result of slowdown of growth in private investment in plant and equipment, a decrease in personal consumption induced by uneasiness about the future of Japan’s crippled cum bad debt ridden banking system and the general public’s perception of uncertainty with regard to the future of employment and income. Nevertheless, Kenwood Corporation has noted that Japanese exports to the United States and Europe were on the rise, spurred in part by the depreciation of the yen.

In the last Annual Report ’98, it was noted that overseas sales totalled ?12,175 million, a 10.8% increase over the previous year. Also, it reported a net income of ?,680 million.

Despite bleak prospects for both Japan and the region, Kenwood Corporation is committed to improving profitability in its overseas operations and strengthen its financial position. To that end, it is making every effort to achieve greater efficiency in manufacturing and sales, reduce costs, enhance its R&D capabilities and get new operations up and coming.

THE FUTURE OF KENWOOD CORPORATION

Now Kenwood has gone a step further with innovation in the IT (information technology) sector. It has teamed up with Zen Research Inc., a multinational technology company and the coalition has entered into a manufacturing partnership designed to supply the PC market with CD-ROM drives such as the Kenwood MULTI BEAM 40X Plus Drive that offer hard drive like performance. To achieve this aim, in 1997, Kenwood technologies (USA) Inc. was established and headquartered in Cupertino, California and a manufacturing plant built in the Philippines, in order to support this set up in latest CD-ROM undertaking. Kenwood Corporation will leverage its experience and expertise in many diverse fields to help in the research and development of advanced new technologies.

Also, the setting up of yet another subsidiary in April 1998, Kenwood ID, is bent on marketing high-wave/low-wave signal based systems and data carrier products to be used in no contact ID card systems. These products are ideal for use in controlling with movement of vehicles and factory automation.

WHITHER THE JAPANESE MANUFACTRING INDUSTRY?

First, competition is the keyword in changing long-held attitudes. The issue is now for Japan’s strong manufacturing industry, which is hard pressed, to reconsider its attitude towards competition.

The Japanese manufacturing industry, with its intricate parallel and excessive competition probably cannot help but turn to constructive cooperation in some form. Expressed in another way, the whole industry must effect a balance between competition and cooperation. On the one hand, cooperation may mean unity in product standards such as leading to healthy competition rather to circumstances akin to a cartel. Coordination of basic research and development is one form of desirable cooperation.

Second, the Japanese manufacturing industry needs a dosage of creative technology. Although some creativity is entailed in improving and further developing technology itself, a far greater level of activity is now expected of industrialised Japan. Two approaches have been pointed out towards the achievement of this goal. One is the fostering of creativity among technicians and workers. The second focuses on soft technology, which includes design and computer software, something that Japan has not been inclined to recognise and invest resources into without visible results. That inadequacy has been clearly recognised and the weight is being shifted to research and development in soft technology.

Third, adaptability is characteristic of a country like Japan which developed industrially to an abnormally rapid degree ion a short span of time. It first involves positioning one’s past experiences within an international framework and that means being aware of the extent of one’s influence in the world. It has been noted that Japanese companies have generally not been responsive to either of these prerequisities. In an increasingly globalised world, Japan must learn to understand the different experiences of other countries and hopefully imbibe the good points. To achieve this, Japan must engage in an exchange of information with other countries.

Grappling with adaptability and new principles of competition in order to enact this shift and move forward with creative development indeed appears to be the direction of the Japanese manufacturing industry in the future.

I believe that Kenwood Corporation has already started moving in this positive direction and will be able to emerge more competitive in years to come.

But the most crucial task at hand is to restore the health of the ailing banking system. Whether or not Japan rides out the current economic recession depends largely on the banking system. The Japanese are cutting back drastically on consumption and this does not augur well for the manufacturing industry. True, it can still hope to depend on the American and European markets but will not the equally battered Asian economies resort to the same initiative? Only when the banks are up and running will faith be restored and the Japanese be spending more and creating more domestic business for the manufacturing industry.

But I am optimistic that once Japan recovers from her current economic recession, she will rise again like the phoenix from the ashes as her history has shown.

Bibliography

Japan Commission on Industrial Performance. Made in Japan – Revitalising Japanese Manufacturing for Economic Growth, The MIT Press: Cambridge, Massachusetts London, England, 1997.

Kenwood Corporation Annual Report 1998.

Metsuhiro, Seki. Beyond The Full-Set Industrial Structure, LCTB International Library Foundation: Japan, 1994.

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