Takata And The Japanese Auto Quality Crash: What It Means

The recall of some 15 million cars due to defective airbags manufactured by Takata Corporation, which are believed responsible for five deaths, is one of the most damning indictments and illustrations of Japan’s fall. While Abenomics is directed primarily at macro-economic policy, including seeking to restore competitiveness through a weaker yen, the reality is that the Japanese manufacturing corporations that inspired admiration and awe – in some cases fear – across the world are not what they used to be. The travails of Sony, once the iconic global Japanese brand held to be synonymous with quality and innovativeness, could serve as the illustrative narrative of Japanese industry’s rise and fall. It demonstrates the fact that Japan’s problems are far deeper than twiddling about with the exchange and the money supply is likely to solve. The story of quality in Japan is quite fascinating offering many lessons. Japan is the only non-Western country that successfully industrialized in the late 19th and early 20th centuries. It adopted a nationalist economic policy inspired by the goal of “fukoku-kyôhei” – “rich country, strong army”. Economic power was to be sought not as a goal per se, but as a means of making Japan militarily and geopolitically strong. It quite brilliantly succeeded. While Japan defeated China in war in 1895/95, much more dramatic from a global stage point of view was the victory over Russia in 1905/05. Japan had become Britain’s military ally in 1902 and was one of the “Big Five” – along with the UK, France, Italy and the US – at the 1919 Paris Peace Treaty. Though Japan did manufacture labobr intensive goods, notably textiles, for export, most of its efforts were focused on heavy industry, especially military-related industry. The so-called “zaibatsu”, literally “financial cliques”, in effect large industrial groups such as Mitsui, Mitsubishi, Sumitomo, Yasuda, etc, worked hand-in-glove with the government to achieve these goals. While Japan had been among the victorious allied powers in World War One, it was among the defeated axis powers in World War Two. With the spectre of the cold war, the communist victory in the Chinese civil war and the outbreak of the Korean War, American Occupation (1945-52) policy in Japan sought rapidly to strengthen the economy in order for the country to become a robust American ally in the Pacific. This was not to be, however, through resurgence of the military-related heavy industry, but rather a focus on consumer goods for exports. To that end, among other things, the Yen-Dollar exchange rate was fixed at a very undervalued, hence highly competitive, 360! A serious problem even with a cheap yen was that in the 1930s and 40s Japan had established a reputation for producing very low quality shoddy products. The “Made-in-Japan” label was a synonym for crap! To say that Japanese industry had a quality problem was to put it mildly. It was then that a member of the entourage of the Supreme Commander for the Asia Pacific (SCAP) General Douglas MacArthur mentioned that he had heard of a professor by the name of W Edwards Deming at New York University’s Graduate School of Business Administration who, among other things, had published a seminal book entitled Statistical Method from the Viewpoint of Quality Control. MacArthur had Deming brought to Japan. The impact was a total revelation. Deming lectured around the country on what was referred to at the time as Statistical Quality Control (SQC), demonstrating how quality boosts productivity and lowers costs. He was revered. Deming became a famed teacher at the Japanese Union of Scientists and Engineers (JUSE). Never would he have, including in his own country, the US, such assiduous students. Japanese managers religiously applied SQC methods. Not only that, however, but in what became a pattern of Japanese incremental innovativeness, they adapted and improved the methods. That was Japan’s genius. SQC was an American invention that the Japanese came to master and dominate, transforming SQC into TQC (total quality control). The same applied to the transistor: it was an American invention that the Japanese transformed into the consumer electronics revolution of the late 1950s and 1960s.