Vol.37-No.03 March 1,1998
1.0 Production Facilities Shifting Offshore and the Graying of the Skilled Labor Force
The ratio of overseas production to what for Japanese companies which have shifted their production facilities was 26.2 percent in 1996, and has since risen further. With the increased international division of labor, imports of manufactured goods and machinery components into Japan have increased. The effects have been felt most considerably by Japan's small and medium-size manufacturing companies. When Japanese companies first moved abroad, they took with them a demand for machinery and materials which had a positive impact on employment levels in Japan. The initial trade surplus which that investment created has since been followed by a wave of imports as the foreign made products and components find their way back home or become substitutes for Japanese exports in overseas markets.
These changes represent a kind of restructuring within the Japanese economy. While they are producing new efficiencies overall, they are having a serious impact on smaller-scale manufacturing companies at home, particularly in the machinery and metals-related industries. Many small suppliers in the electrical machinery and automobile industries have been seriously affected by this restructuring and have had to shift offshore. For small firms in Japan's big cities, the number of establishments, the number of employees, and the value of product shipped are all declining. According to one survey, 30 percent of small companies in large cities predict that they will switch to a different line of business, close down, or scale down.
Overseas production is also rapidly maturing as locals are now being hired to design products. One reason for this is the move to have a design and development system which is better suited to the local market. It is likely that these trends, will continue into the future. The ability of the parent firm in Japan to engage in independent research and product development will be the key their ability to function as parent firms in the future. The competitive edge will be in the field of R and D. The ability of the Japan's economy to develop new prototypes and to produce high-quality goods has in no small measure be possible because of the highly skilled workers employed in Japan's small firms.
Parent companies in Japan have come to accept that the failure to maintain those production functions which most requires skilled labor will result in a loss of competitiveness in terms of product development. However, with the downsizing of on-site work divisions resulting in the retention only of the other, more skilled workers, many companies are beginning to wonder about how to ensure that it will have such workers in the future. They have become particularly concerned about how to maintain skill levels in areas where a long period of on-the-job training is necessary.
Smaller companies constantly face shortages in skilled workers. Two factors account for this situation. One is the tendency for younger workers to shy away from on-site jobs in manufacturing and construction | those jobs that 3-D are demanding, dirty and dangerous. The other contributing factor is difficulties companies have had hiring young employees over the long term since slow growth induced by the oil shocks back in the 1970s, the rapid appreciation of the yen, rapid progress in technological innovation, and full-fledged shift to overseas production. Over the past twenty years, Japan's small firms have dealt with these problems by no replacing workers who left.
The result was that the pool of traditionally skilled workers in their 30s and early 40s has strunk. In particular, there is a shortage of skills which require five to ten years over of employment in order to be acquired. The nature and the extent of the shortages vary greatly from industry to industry, but are most apparent in industries such as shipbuilding, heavy electrical machinery, and nonferrous metals. Accordingly, in these industries employers have thought cope with these shortages by extending the retirement age for older skilled workers or by re-employing retirees in order to ensure that the necessary skills are retained and passed on to the younger employees.
2.0 The Joy of Making Things
To attract young people to their firms, a growing number of smaller manufacturers have begun to place an emphasis on improving the workplace environment, on adopting the five-day workweek and providing a range of welfare facilities. Owing partly to technological progress in the spread of just-in-time production and the push to produce high quality goods, the workplace at many smaller manufacturing companies has improved considerably over the last ten years. For example, numerically-controlled equipment such as M/C and wire cutting machines are rapidly being installed by small and medium-sized companies involved in machine-processing. Workplace automation and mechanization have meant that such factories are no longer "oil-stained operations." Nevertheless, the image of the smaller-scale manufacturing firm continues to be that of the dirty workplace, which is behind the times technologically. This has made it difficult to attract young people.
Much of the work done at many smaller companies is subcontracted. The focus is on mass-producing goods as part of a specialized production system. Specific components are produced, and it is difficult to appreciate their ultimately use. Accordingly, work at smaller companies hardly provides workers with a sense of accomplishment or the satisfying of "having made a useful thing" even though the goods are produced with great precision and high quality in accordance with the customer's blueprint.
A group of young managers at small manufacturing firms in Tokyo's Sumida Ward (which is known as one location of small-scale manufacturers) has been developing a cooperative approach to designing and developing products in order to attract young workers to their companies.(1) Called "Rush Sumida", the group developed automatic fried potato vending machine. The machine is to designed that it will automatically fry fresh fried potatoes once a coin is inserted, and can be found in convenience stores. Another product which grew out of the group is an automatic machine for wrapping lunches which will even tie a bow. "We have thus worked together to create the machine the hard way," the leader of the Rush Sumida group stressed. "In this way we can enjoy the true satisfaction which comes from making things as a whole process from design to manufacture and delivery." These sorts of attempts to attract young people into small-scale manufacturing can be seen in several regions.
Even so, small and medium-sized manufacturers find themselves in a tough environment. How they develop their competitiveness is a pressing task. Overall, an increasing number of smaller-scale companies are moving towards having business relations with several larger contracting companies. The move is away from reliance on one specific company for demand. These changes are occurring in companies with the technological sophistication necessary to develop their own products. They are now receiving orders to make components on their own. The stronger firms are subcontracting components, and then assembling them into unit components for delivery. The fact that this tendency is becoming stronger also indicates that they have transactions with companies in remote areas. The tendency is that they will have a horizontal business relationship with those companies which are geographically removed from their base of operations. It also reflects the fact that smaller companies with a good technological base are becoming networked.
Under these circumstances, parent companies are increasingly evaluating subcontracting companies against tougher criteria. They demand further cost reduction, improved quality and precision, guaranteed quality, a secured delivery date, a shorter delivery period and an adequate response to limited production of a wide variety of goods. The strict procedures adopted by parent companies will further intensify the competition between Japan's small manufacturing firms. On the one hand, those smaller companies which are competitive will be overwhelmed by the demand for their products. On the other hand, however, decreased in the volume of work will force smaller companies to switch to other activities or to close down altogether. Thus, companies the gap between competitive and non-competitive firms in the same industry, even for the same type of product, is likely to widen further over time.
3.0 Securing and Fostering a Core Labor Force of Skilled Workers
As young people move from the manufacturing sector to other sectors in the economy, what are small manufacturers doing to secure a core labor force? Many companies are taking steps to improve their personnel and labor management practices. This is being done by introducing "ability-based management schemes", "improving the work environment," "adopting the five-day workweek" and "consolidating their remuneration package."(2)
However, it is still difficult to secure core workers unless improved working conditions are accompanied by steps to raise the social status of their skilled workers. To convey to prospective young workers how interesting it is to work in the manufacturing sector, small and medium-sized companies are coming to depend on other measures such as accepting students as interns or those for providing practical on-the-job training (OJT) in a more open manner (for those who are not regular employees). Many claim that they will offer a more sophisticated skills-testing system, or that they will establish a forum for skilled workers and actively seek to attain social recognition for the professional orientation which characterizes many of the smaller manufacturing companies.
As for the knowledge and skills thought in core workers, the ability to rationalize and streamline production processes is important. Attention is also paid to several basic skills. There is a demand for multi-skilled workers, who might be called "tekuno-waka-" (techno-workers). Such workers possess "the knowledge and skills relevant to quality control and products inspections and testing. They can operate N/C machines and engage in M/C programming. They have acquired knowledge and skills necessary to actively use personal computers and to maintain and improve equipment."
Companies wanting highly excellent skilled workers in specific skills areas represents only 14.8 percent of small firms. Training skilled workers in many of specific skill areas requires a long time. In many companies the challenge of passing on such skills from one generation to the next is increasingly being to team up as the workforce ages. Can manufacturing welding, painting, cutting, dye cashing and machine assembling and detailing were highlighted by many companies as skills which required many years to acquire. Also, pointed out were sheet metal processing, electronic and electrical assembling and soldering.
As for the future, pressing, dye casting, plastic forming, products inspection, plating, forging, painting and soldering are processes which work will be streamlined. Machine assembling and detailing, can manufacturing, and welding, product inspection, forging, heat treatment, sheet metal processing and electronic, and electrical assembling are the processes which are unlikely to be changed in the years ahead. Processes which will probably be subcontracted overseas include dye casting, electronic and electrical assembling, soldering and painting.
Most production processes require a variety of skills. Some can be acquired in a relatively short period of time while others require a considerably long time to master. Management at many firms now believes that skills which can be learnt in less than five years will become even easier to acquire in the coming years as the production process is simplified further. However, no change is foreseen in the demand for skills which require over five years to master. The common view is companies do not conclude that skills requiring a long time to acquire will not be replaced by mechanization or a switch to substitute materials. In other words, retention of those skills amongst successive generations of workers must be given a high priority.
Nearly 65 percent of small companies give guidance to workers for acquiring basic skills. Just over 66 percent of small firms implement "OJT training programs by watching what other companies do." About 30 percent of firms have "planned OJT", "in-house Off-the-Job training (OFF-JT) programs", "training at professional schools or at manufacturing companies", or "plant tours at companies with which business relations exist."
In one interview survey, operators of small manufacturing firms noted that planned OJT is the most effective method of fostering skilled workers. Planned OJT involves the clarification of the goals to be achieved in fostering skills, in providing responsible employees with training, and in show them how to develop an OJT plan to move from easy jobs to more difficult ones. The planned OJT approach is effective in motivating workers first to learn skills, and then to develop their own OJT plan and to follow-up a specific training activity with a self-appraisal. Needless to say, it is essential to combine OJT with OFF-JT both in the brush-up education of experienced workers and in the acquisition of new technology.
4.0 Dealing Policy-wise with Passing on of Skills to Later Generations of Workers
In those regions where small machinery and metals-related manufacturing companies are concentrated, the outlook is extremely bleak. Few companies, excluding those in Tokyo's Tama region, responded "We have a chance to grow." Many companies replied "We are finding it hard to survive." In Sabae (Fukui Prefecture) 37.5 percent of the firms surveyed felt that way; in Hitachi (Ibaraki Prefecture) the figure was 28.8 percent; and in Hamamatsu (Shizuoka Prefecture) it was 26.3 percent. The reality is, however, that two opposing changes are taking place. Companies with technological strength with products made in-house are growing, while those which have concentrated on processing alone are finding it difficult to respond adequately to the pressures for cost reduction and are experiencing a very tight business situation.
To restructure themselves during this period, many manufacturers are putting more energy into the development of new products, diversifying their sales outlets, reinforcing their business operations division, and strengthening their capacity for software, design and planning. Processing manufacturers, on the other hand, have moved to improve their productivity by investing in automated and high-precision equipment. The difference in management strategies between these two types of manufacturers has generated a wide gap in the need for talented people. Whereas the former group of manufacturers have put more emphasis on the hiring of young college graduates, engineers and those with expertise in sales business, the latter group of manufacturers have sought to employ young high-school graduates and skilled workers.
In order for Japanese manufacturing companies to stay competitive as globalization moves ahead, they are finding that they must shift their business to the production of items with a higher value-added. One approach has been to have one's own in-house products and to enhance one's ability to develop such products. To pursue this strategy the proportion of engineers among one's skilled employees must increase. Higher priority is being placed on core skilled workers or the "quasi-techno-workers" who have acquired basic skills and who have expertise and skills for streamlining and rationalizing the production process and looking after quality control (e.g., by conducting product inspections and tests). It is difficult to respond adequately to sophistication of the production process unless core skilled workers are multi-skilled.
It seems clear that a limited number of jobs will require very high levels of skill, and a long training period. They will still require a skilled labor force in the years ahead. As the employees with those skills age, it is becoming more difficult for firms to ensure that those will be acquired by some of its best younger employees. It will be hard to manufacture prototypes unless the sophisticated core skills basic to research and development are maintained. Without those skills it will be difficult for firms to maintain the edge which Japanese products have traditionally maintained over foreign products in terms of quality and cost.
What is the "manufacturing minimum", — the minimum manufacturing technology and skill levels which must be kept in Japan? How should "core competence", or the employees' collective store of technological expertise which will be the Japan's source of international competitiveness in future years be maintained and utilized? It is necessary for small and medium-sized manufacturers to go back to the basics of manufacturing and think about these matters. In particular their challenge is to establish mechanisms which will foster a core group of skilled workers in their own areas, while giving full play to the merits of their own concentrated regions.
To assist firms in dealing with this problem, in 1997 MITI and the Ministry of Labour designated a number of concentrated regions of smaller manufacturers which are having to grapple with the problems identified above. Designating the "regions for promoting the active utilization of sophisticated skills" the two Ministries sought to develop regional job opportunities by the active utilization of skills. While developing horizontal contacts transcending industrial categories, the ministries hope that mechanisms will be formed so that the important skills are actively utilized and passed on to the younger generations of workers.
Small and medium-sized manufacturers in Japan have traditionally seen themselves as being socially responsible and have been committed making high quality products. However, as more of the value added is coming out of the distribution sector, a growing number of manufacturers have become disillusioned with their prospects. For this reason, as well as the sophisticated technology and larger amount of capital investment needed, the number of manufacturing companies being set up has decreasing dramatically over recent years. An economy's vitality comes from a process of progressive renewal. Some new companies emerging in new industries; shift from their current orientation to new lines of business, still others close down when the competition reaches a certain level or demand shifts to new products or services. From this perspective, concern over the continued sharp decline in the number of establishments in the manufacturing sector has been voiced.
In manufacturing technological innovation and the extensive division of labor have made the end product invisible for many manufacturers and their employees, making the work itself less interesting. Attention is now focused on whether small and medium-sized manufacturers can provide their employees with challenging jobs linked to the development of new products and to the development and on-going improvement of new manufacturing techniques and production equipment. The time has now come when small and medium-sized manufacturers are moving ahead with many attempts being made at the local level to achieve the manufacturing minimum. This is where both the challenge and the charm of "making things" come into play. It is hoped that that dynamic will attract the next generation of core skilled workers into manufacturing.
| Notes : | |
| (1) | The exchange group of different industries is an autonomous group consisting of those running small and medium-sized manufacturing companies have combined with management of manufacturing firms in order to develop products and sales strategies which a single company alone would be hard to acquire and to exchange information. Chambers of commerce and industry in individual regions and local government bodies give assistance to exchange projects like this one in order to foster their small-scale sector. |
| (2) | Based on the outcome of a survey on small and medium-size manufacturing companies in ten different areas selected from among machinery- and metals-related such companies across the nation ("Chu-sho-kigyo-shuseki (Seizo-gyo-) no jittai ni kansuru cho-sa" Survey on Realities of Smaller-scale Manufacturing Companies, JIL 1996). |
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