Japan’s manufacturing has been moving overseas , mainly to China as Japan’s wages are higher by 20 to 30 times.

But others are not moving out of Japan.

1. Many have developed integrated manufacturing systems that are far more sophisticated & complex than rivals can manage.

2. Many companies have learnt how best to protect trade secrets that have long made them competitive. The worry that if they build a plant in China, their technology will get copied.

3. Many big firms believe that they can keep an edge in future by continuing to invest in new generations of products.

There are 3 long-standing advantages of the Japanese approach to manufacturing:

1. Specially trained workers.

2. Low defect rate.

3. “Lean” processes that hold down inventory costs & boost production flexibility.

It takes 4 Japanese workmen to assemble a mini disc player in Japan as against 22 Malaysian workers. The Japanese plant takes up 70% less space, while the defect rate has fallen by 80%.

Mould-making technology lies at the base of all manufacturing. Tiny, secretive firms consisting of less than a handful of workers, all craftsmen usually working in what looks like dim, grimy, oversize garages, filled with worn machines & piles of scrap metal. The work is highly specialised. Many mould makers, now in their 50s & 60s, started learning their trade when they were children.

Moreover, the knowledge about the technology is tacit, not formal. It cannot be transmitted by writing a manual or reading a patent application. Rather, it accumulates by working with colleagues over many years. This poses a barrier to entry for rivals. It is also why firms try to maintain lifetime employment in specialised high-tech sectors. This belief that the strength of the company is stored in the collective minds of the employees also helps to explain why Japanese companies dislike mergers & acquisitions. Firms resist takeovers, rather than viewing them as natural combinatory process of business, as in the West.

What Japanese manufacturers really excel at are “products whose functions require many components to be designed in careful detail & mutually adjusted for optimal performance.” This requires close teamwork within the company, as well as co-operation with suppliers. The ability to weld different skills & technologies is a common feature among top Japanese manufacturers in several sectors. Canon, for instance, combines precision mechanics, advanced chemical processes for toner inks, & servicing skills. Cars too are all about mixing different technologies. There is no “core” technology in cars. It is hard to come up with fresh business models that exploit mixed technologies.