THE Japanese manufacturing industry has once again hit the international business news headlines.
Unfortunately, this time, it hasn’t been for what it has always been renowned for: innovative technology, quality control systems, and the like.
Conversely, it’s to the contrary; cheating and falsifying data in order to purport to meet customer specifications, in international business.
This has left the business world stunned and pondering on the continued reliability of the “made in Japan” product brand disposition.
What went wrong?
A fortnight ago, executive Directors of Kobe Steel made a public admission that it fabricated and falsified data pertaining to its clientele’s quality specifications for aluminum and copper products.
Additionally, the company altered inspection certificates to purport to meet order specifications such as tensile strength, for over 200 companies, including Toyota automobiles and Boeing Aircraft Corporation.
The scandal occurred between September 2016 and August 2017 and imagine, upon the public admission, Kobe steel market value plunged by about a fifth of the total value and the loss amounted to an estimated US $1.6 billion.
Kobe’s scandal is estimated to have affected 20,000 tonnes of flat-rolled and extruded aluminum products, 20,000 units of aluminum casting and forgings in addition to 2,200 tonnes of miscellaneous copper products.
It’s inconceivable to imagine that the steel maker had the audacity to sell metal with strength that did not match the quality standard specifications.
The Kobe steel scandal news was revealed just a few days after Nissan recalled more than one million vehicles from its domestic market.
Nissan admitted that staff without proper authorization conducted final vehicle inspections before shipping them to dealers. Essentially, the Nissan scandal is particularly ‘hair-raising’.
In fact, in this instance, while vehicles for domestic Japanese market were being subjected to stringent inspections by more qualified staff, those for the export market were inspected by less experienced staff!
Essentially, the Japan’s manufacturing industry has over the years created competitive advantage amid fierce international competition by branding a premium product quality image.
In the last fortnight, the international business media has heavily criticised the happenings at Kobe steel and even gone further to heavily scrutinise the Japanese manufacturing reputation and corporate governance practices.
However, the Japanese Keiretsu system has successfully lived on for several decades and therefore it’s irrational amid the corporate scandals to assume that they have been wrong since their inception.
Manufacturing cheating scandals, though prevalent in Japan in the recent years; are not just isolated to Japan are increasingly becoming a global problem that inevitably requires urgent attention.
General Motors (GM) too, in early 2014, woke the world to another rude shock when it recalled 3.1 million consumer vehicles that were discovered to be faulty and were estimated to result in a charge of US $300 million.
Like the Japanese counterparts, what was particularly shocking about General Motors was that the company boasted of a robust Enterprise Risk Management (ERM) programme that was showcased by global experts.
Unfortunately, GM misclassified a major risk as insignificant and consequently took wrong actions.
On May 18, 2016, Suzuki, admitted that it had falsified the fuel-economy data regarding 16 types of vehicles sold in Japan, involving over 2.1 million vehicles.
About a month earlier, Mitsubishi Motors’ President Tetsuro Aikawa admitted that his company had manipulated the fuel-economy tests, for an estimated 600,000 vehicles.
Following on, on the United States (US) home front, Silicon Valley start-up, Uber has in the last one year been embroiled in cultural and cheating scandals.
Uber has a market valuation of over $60 billion and net revenues $1.7 billion in the fourth quarter of 2016.
Authorities in the United Kingdom (UK) have alleged that Uber used a software tool that performed dual roles.
The software is alleged to have helped drivers evade picking up authority’s officials in places the company didn’t have a service license, besides defrauding both drivers and riders out of money.
Studies reveal that companies don’t just stumble with just a single isolated incident.
There has to be a hidden underlying root cause that accumulates, then surfaces to erode a company’s competitive position.
Many a reader would ask, what is underlying these increasing cheating scandals world-wide?
Global competition has been necessitating low – cost off-shoring manufacturing strategies and unprecedented competition.
As evidenced in the recent Nissan scandal, experienced- highly paid workers are being replaced by cheap factory staff, which is further precipitating the scandals.
With the advent of the start- up culture, industry new entrants are waging a David Versus Goliath battle strategy thereby wrestling market share away from traditional corporate giants.
Indeed, the global business landscape has dramatically changed thereby causing unprecedented competition.
This has seen an increase in the number of large scale international businesses that have for decades been reputable companies to resort to cheating to remain competitive.
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The author is the Managing Consultant at GN Grant Business Consultant, a Chartered Certified Accountant (ACCA), a Master of Business Administration (MBA) holder, and a candidate for the Heriot Watt University (Scotland) Doctor of Business Administration (DBA)