Japan Seeks Its Economic Mojo in the Stuff That Makes the Stuff

Posted May 8, 2018 3:36 p.m. EDT

TOKYO — There is absolutely nothing sexy about bellows. But they just might be the future of Japan.

The cylindrical metal products made by Irie Koken Co. more resemble Slinkys on steroids than the gee-whiz gadgetry for which Japan was once famous, like Sony’s Walkman, Nintendo’s Game Boy and Toyota’s Prius. But they perform the crucial if underappreciated task of helping makers of semiconductors and LCD panels keep their products clean and working.

“The technology used in making these products is very difficult,” said Norihiro Irie, Irie Koken’s president. “Not many companies are able to do it.”

Some economists and businesspeople believe that slow-growth Japan may be forging a new, critical role in the global economy: making the stuff that makes the stuff for today’s digital revolution. Japan has become an essential supplier of robotics that power assembly lines; electronic systems for cars; circuit boards, sensors and other parts in your smartphone; and a host of other technical components and hardware hidden from the consumer’s eye.

Japan is moving toward “an entirely different strategy, where other countries cannot compete,” said Ryoji Musha, president of the economic analysis outfit Musha Research in Tokyo. “Going forward, Japan will show a remarkable emergence as one of the locomotives of the global economy.”

That would be good news for everyone. Japan remains the world’s third-largest economy, behind only the United States and China. A stronger Japan would offer a badly needed pillar to support global growth and serve as a counterweight to rising Chinese political and economic clout.

Bellows and the many other Japanese products like them have already helped buoy the country’s growth. Over the past two years, the economy has experienced the longest continuous expansion since the 1980s. Last year’s 1.7 percent growth rate was the fastest since 2013.

Sustaining it won’t be easy. Japanese companies will have to strive to keep their quality edge over low-cost China, which has caught up with Japan in making things like televisions and appliances, as well as over rivals, including the United States, South Korea and Taiwan. Japan’s image on quality has been hit recently by a number of scandals.

More broadly, Japanese society is still shrinking, aging and deeply skeptical of immigrants. That will make it difficult for companies to find enough skilled workers and will put pressure on the country’s leaders to keep its education system up to the task.

Many of Japan’s biggest players have to look beyond the country’s borders in their quest for growth. The declining population helped drive Takeda Pharmaceutical’s deal Tuesday for Shire — the largest-ever overseas acquisition by a Japanese company.

“The undertow pulling at the dynamics of growth is the main limit to what Japan can do on a sustained basis,” said Kenneth Courtis, chairman of the finance firm Starfort Investment Holdings. Though Japan has some competitive companies that will continue to excel, he said, “I don’t know if that changes the overall equation.”

Japan also had several false starts over the past quarter-century, only to stumble back into the doldrums. If this time is different, one big reason will be companies like Irie Koken.

Irie said business had not been this good since he took over as the company’s president 19 years ago. Sales more than doubled in its last fiscal year.

“We can’t catch up with all our orders,” Irie said.

With information technology becoming more critical to just about every sector and factories looking to improve efficiency, greater demand is expected for robots, chips and other high-tech products — and the made-in-Japan parts and machines needed to manufacture them.

“Even if there is a recession, I don’t see it changing speed right now,” said Rosen Diankov, chief technology officer at the robotics firm Mujin Inc.

Diankov, a U.S. robotics specialist, co-founded Mujin in 2011 with Japan’s Issei Takino, a former cutting-tool sales manager, to produce devices that control industrial robots. Its headquarters in a refurbished warehouse in east Tokyo has the hipster vibe of a garage startup, with offices and workshops cluttered with equipment. Such entrepreneurial companies are all too rare in Japan, where venture capital and risk-taking are scarce compared with the United States or China. But Mujin’s founders believe Japan is leading the way in automation, and they wanted to be part of the action.

“We could have opened our company in Silicon Valley,” said Takino, who is the firm’s chief executive officer. “One of the good things about being in Japan is that it is very easy to find a customer.”

Mujin’s technology can appear retro at first glance. One hand-held remote looks as if it belongs with a 1990s video game console. But Mujin says its advanced components make robots more efficient and easier to use and are hard for competitors to re-create.

The sheer complexity of these Japanese specialties may help the economy maintain a competitive edge. Unlike the TVs, CD players and other consumer electronics that drove Japan’s past boom, Mujin’s controllers and Irie Koken’s bellows are much harder for manufacturers in China and elsewhere to replicate. When the Beijing-based online retailer wanted to automate an unmanned warehouse in China, it turned to Mujin.

Some of Japan’s big corporations are heading in the same direction. Electronics giant Panasonic was once synonymous with TV sets and videorecorders. But over the past six years, it has drastically downsized its consumer businesses — it no longer sells televisions in the United States — and shifted into industrial electronics, including the batteries for Tesla roadsters and sensors and cameras for automobiles.

“It is very important to position ourselves wisely,” said Yasuyuki Higuchi, chief executive of Panasonic’s connected solutions unit. “Otherwise, we cannot be competitive.”

However, even the most competitive sectors aren’t immune from Japan’s problems. Severe labor shortages are already plaguing businesses, said Marcel Thieliant, senior Japan economist at the research firm Capital Economics, who added that the country isn’t welcoming nearly enough foreigners to offset the impact.

“The demographic headwinds will continue to resist,” said Thieliant, who estimates that Japan’s current spate of growth has already ended. “If you don’t get more immigrants in, you eventually hit a wall.” Irie has struggled to find the workers he needs to fill the deluge of new orders. His customers now have to wait twice as long as usual for their bellows — up to five months. “The economy is very good, so good workers are being taken by other companies,” he complained.

The shortage has prodded management to invent new ways to attract talent. Mujin employs a chef to cook lunch for the staff every day. Irie in recent years has taken all of his employees on a Hawaii vacation and renovated the company’s offices.

“The older employees asked: ‘Why do you have to spend money to make things stylish?'” Irie said. “The image of manufacturing may not be very nice. We want to change it.”

He remains optimistic, too. He plans to expand the capacity of his factory in Japan over the next few years, possibly making the firm’s largest-ever investment.

“We are riding a wave,” he said. “We can be on this wave because we have something special.”