
Why Japan lost its comparative advantage in producing electronic parts - hhs
https://voxeu.org/article/why-japan-lost-its-comparative-advantage-producing-electronic-parts-and-components
======
pkaye
I used to be an applications engineer for a company that developed electronic
parts. So many times I would interact with engineers at various companies
around the world. The Japanese engineers always stood out in how they
evaluated your product. They would always do rigorous testing of your
products. They don't just trust your specs like most other places. Sometimes
they built custom test fixtures to test things even we didn't have the
bandwidth to perform. I felt that is why they always have high reliability
cars and stuff.

~~~
detaro
There's the old (probably apocryphal?) story of a Japanese firm that got a
spec from IBM saying something like "max 3 defects per X units" and in the
shipment included a separate, clearly labeled box with 3 defective parts. They
didn't understand why, but the customer apparently really cared about those.

~~~
WalterBright
Reminds me of when a B-29 landed in the USSR. Stalin ordered that a copy of it
be built. A copy was built, complete with copies of the battle damage.

~~~
selimthegrim
Probably has more to do with not wanting to piss off Stalin

~~~
WalterBright
Exactly.

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MobileVet
I visited Hamamatsu Co in a professional setting in 2004 and was very
impressed. Their attention to detail was second to none and what we needed at
the time.

We were building brand new optical sensors for robots and they had lots of
experience in the area. They walked through our specs and needs and found the
right part and helped us integrated. It was white glove service all the way.

That definitely comes at a cost. When you are prototyping, that cost is
expected. If you cross into the millions of units, I can understand how their
approach and offering doesn't scale well.

Hard to match the other Asian mfgs when numbers are huge.

~~~
Fronzie
Hamamatsu is still around and still excellent at the design and prototype
stage of optical sensors.

They seems to have a company culture of very open technical discussions on
pros and cons which I'm not so sure is common in other Japanese companies.

~~~
dfox
What probably helps is that only real competition for Hamamatsu are people
peddling cold war era new old stock (usually Soviet made) military grade
parts.

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JRKrause
A critical element of the product my current employer sells comes from a
Japanese owned manufacturer. Their quality and consistency is remarkable but
it's like pulling teeth trying to get them to loosen quality controls to drive
out cost. Even when we would make up the loss of reliability in our own
integration they remain resistant to this change.

~~~
stareatgoats
Kudos to them then!

~~~
dwoozle
Not really, overengineering is bad engineering.

~~~
perl4ever
I was looking for replacement lightswitches; the old ones are probably 25
years old, some are broken. I got a new one that looked more or less the same,
but I got home and realized it doesn't have the same feel as the old switch.
And it isn't symmetric - it has a different click "on" vs "off".

Here's the thing - if you take your comment to the logical limit, the _only_
engineering requirement of a product is to make the sale. With this switch, I
took it home and installed it, and probably will not return it, so even if I
decide to throw it in the trash, it wasn't "underengineered".

But everything is becoming like this, and so people and companies that
"irrationally" overengineer stuff are becoming more valuable, as are their
brands. Even if _you_ don't care about what _I_ care about, there are too many
factors in any product for either of us to track. So there is always
incredible value in someone that pays attention to the aspects we are not
paying attention to. But that _is_ overengineering. There is no alarm bell
that tells you you have crossed over from optimizing what your customer cares
about to screwing them over with a piece of crap. Assuming anyone cared.

If you optimize everything, you destroy your brand.

~~~
dwoozle
Sure, they didn’t engineer for the feel of the click, and you are evidence
that there’s a market for it. Car manufacturers get this — flip the windshield
wiper lever on a S-Class Mercedes and it feels completely different from doing
it on a Kia. But that wouldn’t be overengineering if there is a real customer
need.

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ksec
Pure and Simple, They are the most Stubborn people on the planet.

But I dont mean that is a bad way, even with all its downside, I still view it
as a good thing.

It is their stubbornness to not give in to crap and sloppiness. Always over
engineering it, and made it uncompetitive again all other product in pricing.
Not willing to adopt to market situation, as they believe in their design and
system being better or "right".

Most of the Japanese companies manage to remain competitive only after they
moved the production out of Japan. But while they say they have the same QA in
place, in reality none of the product make outside of Japan of the same brand
are anywhere as good as if they were Made in Japan.

~~~
swagasaurus-rex
Wouldn't this idea support the idea that the appreciation of the yen made
these industries uncompetitive in the global market? Foreign production would
be more likely dealing in foreign currency, shielding them from shocks to the
yen.

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williamDafoe
My friend ran an LED manufacturer in Taiwan. They were destroyed by China's
federal government policy which basically subsidized (free housing) all the
Chinese LEDs until all the Taiwan companies were dead.

~~~
AFascistWorld
LED is especially brutal, there are few that produce chips but everybody can
do the assembly.

You can buy a 3W bulb plus shipping for 1 RMB at anytime, including big
brands, 1 RMB, that's $0.1399.

~~~
baybal2
Lol, most LEDs in China are in fact from Taiwanese wafers, and some are from
direct competitors.

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JJMcJ
During late 80s/early 90s when Japanese memory chips were eating the world,
one reason was their yields were much higher, so they could sell cheaper.

Friends in semi industry said one major reason, cleanliness standards in
Japanese fab lines were much higher than American.

~~~
patfla
Maybe but the Japanese capture of the memory market was just as much about low
costs of capital. Semiconductor manufacturing is about as capital intensive an
industry as exists.

I'd note that the Koreans now own this market. Same strategy. Commoditized
industry thus barriers to technological entry are not high - and low costs of
capital.

I lived and worked in Japan for 6 years as a software engineer and left
speaking and reading Japanese well. However I was in a joint venture
quantitative investment mgmt firm and not manufacturing. Finance has its own
particular views over, actually, all industries. You'll note that an important
measure in the paper is stock prices.

I might add to the author's analysis: with all these countries (Japan, Taiwan,
Korea and China) you have to watch the demographic curve and in particular see
just how many new university graduates arrive in the economy each yr. That
curve is now declining for all them - but did it start declining for Japan
earlier than Taiwan and Korea? Or is the time frame involved (since the GFC)
too short?

Traditional economics saw inputs as: land, labor and capital. Current
understanding is more nuanced but that doesn't invalidate l, l and c. Less
labor, less growth.

~~~
JJMcJ
Yields are a closely guarded secret for semi companies, since that determines
the lowest price a company can sell at and still make some money.

High interest during the 80s really hurt a lot of US companies, though. One
example is Caterpillar vs. Komatsu for construction equipment. Cat had a price
premium in early 80s, then interest rates were super high, the dollar popped,
and that created a window for Komatsu to grab market share.

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MR4D
There more than one instance of this, including the 2008 financial crisis, but
the first one is this:

 _As the yen appreciated by 60% following the 1985 Plaza Accord, Japanese
companies lost competitiveness in final electronics goods_

In other words, if your currency appreciates, you’re doomed.

~~~
nine_k
Not doomed, but your market narrows down. You better produce and sell
something really special.

Switzerland is an example of it: its currency, and thus work of its people, is
expensive. Their exports are things like high-end mechanical watches, and
other low-volume high-precision machines.

~~~
K0SM0S
In addition, I would think the relative safety and attractivity of finance in
Switzerland is also key to making sure said currency doesn't become
irrelevant. For a small country, they command impressive power in the
financial space, however privately so.

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gniv
There are areas where Japan manufacturing is still above and beyond. I
remember reading a few years ago about Canon Tokki, which at the time was the
only manufacturer of OLED production lines. It was in the news since Apple
could not get their hands on them fast enough for the iPhone.

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Scapeghost
Even in the Middle Eastern'ish backwater that I grew up in, "Made in Japan"
was colloquially synonymous with quality and class during the 1980s and 90s.

People prided themselves on owning Japanese TVs, radios, VCRs, sound systems,
ACs, flashlights, water dispensers, beauty products and of course, cars and
wristwatches.

Now the whole region is inundated with Chinese knockoffs for everything, and
people understand they're not as reliable, but they're good enough for the
average person and _cheap_ , and that's what matters to the importers and
buyers in the end.

Flimsy enclosures whose screws get permanently dislodged if knocked around in
the slightest. Rechargeable lamps that dim after a month of regular use. Power
strip sockets and power plug prongs of various devices have mismatching
dimensions so they wobble all the time, often cutting power. Nothing is
properly grounded so you often get static shocks. The same manufacturer making
the same products with slight variations under dozens of brand names. There's
no way of getting official support for any product, and forget about
warranties or refunds.

There are astonishingly identical replicas of all major Japanese and Western
products, even the latest iPhones, Apple Watch and game consoles, but of
course they don't have the same specs or software when you turn them on (which
is usually something like "500 games in 1!" kind of emulator menus.)

But more people can own them and many will never know what they're missing.

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Merrill
Fujitsu, Toshiba, Panasonic and Sony are among the largest outsourcers of
manufacturing, with many factories outside of Japan and sourcing many
components from non-Japanese vendors. So Japan has been going down the same
path as the US, just not so far yet.

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wahern
> By finding niches where they have market power, firms can reduce their
> exposure to safe haven capital inflows and volatile exchange rates.

But that would also exacerbate the flux of capital. That Japan has a large
number of Murata Manufacturing-like producers is exactly why the Yen
appreciated so sharply.

That strategy makes sense for each corporation, but on a national scale it's a
great way to find yourself overly specialized and with a diminished safety
margin for even your niche, up-market products. So the paper's advice is also
part of the _reason_ for the dilemma.

The paper's first bit of advice was to save during profitable periods and
spend during downturns. But there's a cooperation problem in that the first
companies to apply the aforementioned advice won't have to be as skillful at
navigating the swings, so the tendency will be for every company to pursue
that strategy even though only a few will succeed while the others are merely
hastening their demise.

Seems to me there need to be some institutional mechanisms in place to
maximize long-term profitability and stability. I suppose the Keiretsu
provided a mechanism like this--a self-interest in investing in diverse
sectors, even during downturns. But they're diminishing as Japanese industrial
practices increasingly mirror those in America and Europe.

------
known
Japan's methods of promoting exports has taken two paths. The first was to
develop world-class industries that can initially substitute for imports and
then compete in international markets. The second was to provide incentives
for firms to export.

The 1970s and 1980s saw the emergence of policies to restrain exports in
certain industries. The great success of some Japanese export industries
created a backlash in other countries, either because of their success per se
or because of allegations of unfair competitive practices. Under General
Agreement on Tariffs and Trade (GATT) guidelines, nations have been reluctant
to raise tariffs or impose import quotas. Quotas violate the guidelines, and
raising tariffs goes against the general trend among industrial nations.
Instead, they have resorted to convincing the exporting country to
"voluntarily" restrain exports of the offending product. In the 1980s, Japan
was quite willing to carry out such export restraints. Among Japan's exports
to the United States, steel, color television sets, and automobiles all were
subject to such restraints at various times.

[https://en.wikipedia.org/wiki/Trade_policy_of_Japan](https://en.wikipedia.org/wiki/Trade_policy_of_Japan)

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amayne
Could the argument be made that the drop also correlates with the advent of
smartphones like the iPhone and Android? The most expensive components in
these were microprocessors – which outside embedded systems were never Japan’s
strong point.

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H8crilA
Isn't this the Triffin Dilemma?

[https://en.m.wikipedia.org/wiki/Triffin_dilemma](https://en.m.wikipedia.org/wiki/Triffin_dilemma)

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AFascistWorld
The electronics market right now is like fast fashion, people use a thing for
2 years then there are better and shinier things to buy, TVs now come with
built-in low-end SoCs that will become obsolete and laggy before long, then
hey time to throw it out!

When I was working in a Japanese-owned PCB factory in China, faking/modifing
records on the production lines was common as water, to think that this was
probably one of the best ones in China or even the world, which supplied for
Japanese TVs, DSLRs and iPhones, was eye-opening and somewhat chilling. I
don't know if it was the same in Japan tho, people who went there to study
said it was awesome and they produced better products using old equipment.

And I just read a story about how testing contractors in Apple's iWatch
factories pass basically anything given after the stringen and supervised
first batch.

Breaking down just after warranty is perfectly acceptable now, so I guess
noboby buys craftsmanship.

~~~
detaro
> _so I guess noboby buys craftsmanship._

Part of the problem is: how do identify it, if even premium brands don't
reliably maintain their standards?

~~~
xyzzy_plugh
Modern manufacturing accounts for this. Any brand worth their salt expect a
certain yield to cover bad parts, assembly line faults, etc. There are often
multiple QA test stages to account for this. Brands/manufacturers also expect
a certain number of RMAs, and set up an RMA process. A good RMA processes can
reveal pathological issues (like falsified QA reporting), so good
brands/manufacturers will be flexible with their customers as long as they're
not being defrauded.

Part of the problem is the big contract manufacturers (like Foxconn) are
impossible to compete with on precision/cost.

In a past life, we moved a product from German manufacturing to China, as the
German tooling wasn't fine enough to hit our (admittedly insane) tolerances.
Whether or not the China MFG lied, they signed the contract and produced the
parts. Though, we had to spend a lot of resources on additional testing rigs
to weed out the tolerance misses/assembly line faults/bad parts over and
beyond what the MFG caught.

Not to mention that exporting stuff from China even 10 years ago was a lesson
in geopolitics. Not for the faint of heart. We ended up having Hewlett-Packard
(who we were a very large customer of, and white-label resellers for them)
export our first thousand or so units in HP boxes. Like night and day.

The overall competitive advantage is hard to capture. Time, money, ethics,
work ethic, efficiency. Having an entire country's incentives aligned with
extracting a cut of almost all consumer electronics in the world is hard to
challenge.

I wonder how the next 15 years will look now that the part seems to be over.

~~~
contingencies
_Part of the problem is the big contract manufacturers (like Foxconn) are
impossible to compete with on precision /cost._

I have a tip from speaking to distributors that a large part of the precision
story for those guys is that they essentially just buy _lots_ of SCARA robots
from the likes of Denso, Toshiba, Yamaha.

Cost .. unsure. Those guys are expensive and time consuming to talk to. They
don't get out of bed for small quantities. I'd posit their real advantage is
vertical integration and in-house engineering. Those guys can presumably turn
out a mold, arbitrary quantity castings or injected parts, solve issues and be
in production by Tuesday. Many other firms face 6-8 week wait times _per mold
iteration_ , and 2-3 month delays on _equipment purchase_ (let alone
production line integration). They also have government support as large
employers, so face little issue with exports, land acquisition, etc.

