Small factories in the western Japanese city of Higashiosaka have fueled the rumble of the country’s biggest brands for decades but a weak yen and rising costs have accelerated a slow decline and are reshaping the industrial heart that gives. Home to nearly 6,000 firms, 87% of which have fewer than 20 employees, the city is emblematic of how such forces are pushing Japan’s small manufacturers to a tipping point. The Higashiosaka workshops produce metal components for everything from train seats to ballpoint pens, and have long relied on powerhouses such as Sharp, Panasonic and Sanyo for orders.
Now Sanyo is gone, acquired by Panasonic. Work has generally dried up in recent years due to competition from South Korea and China; When Taiwan’s Foxconn acquired Sharp in 2016, it moved most of the company’s manufacturing out of Japan. The problems facing Higashiosaka – an aging population, offshore and a weak currency – reflect problems that are gnawing at the foundations of the world’s third-largest economy. and its global exports, which generated ¥83.1 trillion ($610.54 billion).
Aircraft parts maker Aoki, a factory in the city, is turning to the food industry after being hit by the pandemic. Another, air drill parts maker Katsui Kogyo, has raised prices for the first time since it began business in 1967. Lampshade Seiko SCM is trying to revive Higashiosaka’s construction industry by reducing its production and turning part of its headquarters into a shared workspace. “It’s like the frog is slowly cooked alive,” said Hiroko Kusaba, CEO of Seiko SCM. “We all believed that the big brands would always protect us, but that’s not the case anymore.”
Human connection
Over the past six months, the Japanese yen has fallen from around 115 yen in early March to more than 130 yen in August. And the pain of COVID: 67% of small businesses in Higashiosaka say they are still suffering from the pandemic, according to a survey conducted in April by the local chamber of commerce. For these companies, weathering the economic storm is not just about survival, but about preserving the industrial ecosystem. SMEs account for 99.7% of businesses and 68.8% of employment in Japan. However, according to a 2016 government survey, the most recent data available, these same companies represent only 52.9% of the economy.
The area around Higashiosaka has a history dating back hundreds of years as a manufacturing center. The city still has industrial enclaves with small factories from dawn to dusk hammering, cutting and shaping metal. Hirotomi Kojima, CEO of air drill company Katsui Kogyo, said the mix of production instilled a sense of human connection and community. This provides a significant support network, but also makes it difficult to overcome high costs. Kojima raised prices in October. Material costs have risen since then, but he is hesitant to raise prices further, fearing he could lose longtime customers.
Torn between protecting those relationships or hurting his business, Kojima is looking for new customers for the first time in his 10 years as CEO. He often accompanies Hironobu Yabumoto, a close friend who runs another air drill manufacturer. Although they compete directly with each other, they pass orders to each other and share customers. “We want the manufacturing industry and this culture to survive,” and that’s a bigger priority than being last, Yabumoto said.
slow fall
Over the past decade, both Kusaba and Kojima have witnessed at least one factory quietly close each year as aging owners die, fall ill or close their neglectful businesses. Living societies are interconnected. Kusaba, who is not from the city, said locals such as bakers and rice sellers anchor her in the community. “And they come to me and say how the business is declining, how many customers they had before the manufacturing boom, and how times have changed,” said Kusaba, who was CEO of Seiko SCM for 12 years. to help protect her profit and help the producers in Higashiosaka.
In June, he reduced his company’s die-casting department from six to three people and reduced the number of machines. Instead, it creates co-working office spaces and opens a “shared factory” where users can pay for access to machines and resources that will reduce fixed costs and increase production. Big brands, big manufacturers they left us,” Kusaba said. “Now we have to communicate directly with the consumer. We have only ourselves to rely on.” Her decision means more dying work for her competitors, but Kusaba said she would rather do that than let the entire industry go to hell. “Competition is not a way to exist. Instead, we need to join forces,” she said.
Aoki, who has been labeled “irrelevant” during the pandemic, is trying to avoid being dragged down by the COVID-19-ravaged airline industry. CEO Osamu Aoki has pinned his hopes on another area: food production. It designs and manufactures a machine that processes meat. For now, he is sitting in the Aoki factory where workers are repairing the equipment.
Although he predicts the food industry will provide more stability, Aoki expects his electricity bills to double in August – an ¥8 million increase that would require a 4% jump in sales. Japanese manufacturing has traditionally relied on sales of value-added products, with a weak yen driving profits. But that no longer seems true, Aoki said. “I think it’s calculus,” he said loosely of the pose. “Now is the time to reconsider.
Manufacturing tradition
The changes and experiments in Higashiosaka do not guarantee its existence or Japan’s small business culture. Naohito Umezaki of the Higashiosaka Chamber of Commerce says, “If factories can bear the additional costs, we won’t see total destructio. He said that the social fabric of the city was already deteriorating as family businesses closed for good; Getting people to engage with and preserve the building tradition is a top priority. In Aoki, 22-year-old Yuto Miyoshi sought advice from the CEO on whether to succeed his father in running the family’s welding business in a neighboring town. My father often warns about the difficulties of running the business,” Miyoshi told Aoki. But he also said that on a rare occasion his father drank too much and let go of what the succession plan would mean for him.” He said, “I would be very happy if you took over,” Miyoshi said.
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