20 September 2019
Kobe Steel's top executives apologize to government officials for manipulating product quality data. Photo: Asahi Chinese
Kobe Steel's top executives apologize to government officials for manipulating product quality data. Photo: Asahi Chinese

Kobe Steel scandal tarnishes Japan’s world image

Splendorous Clan is a Japanese drama set in the 1960s. The leading character, played by Japanese actor Takuya Kimura, has united all employees and succeeded in turning around the struggling Hanshin Steelworks, a fictional version of Kobe Steel.

Ironically, Kobe Steel has been embroiled in a product quality scandal recently.

Kobe Steel, a century-old industrial giant, has been manipulating data on product specifications for at least 10 years, involving more than 500 customers worldwide.

Almost all automakers in Japan and the US are affected, as well as airplane manufacturers like Boeing and Airbus. These companies are now checking whether metal products supplied by Kobe Steel meet standards. If not, they may be forced into a large-scale recall.

The scandal has shocked the business world.

Although Japanese companies used to be well known for their integrity and product quality, several Japanese big brands have made headlines for all the wrong reasons in recent years.

In 2011, Japanese camera maker Olympus was found to have falsified financial statements, hiding years of losses of US$1.7 billion dating back to the 1990s. Toshiba ran into trouble with a massive accounting scandal in 2015.

Japanese airbag maker Takata filed for bankruptcy in June this year. Its downfall was due to quality issues that led to a recall of more than three million vehicles. Its airbag inflators have been linked to at least 16 deaths and 180 injuries.

Some analysts blamed the lifetime employment system.

The system started during Japan’s postwar economic boom. It used to work well as it enhanced the sense of belonging of employees, but over time, companies lacked fresh ideas from new recruits.

The corporate culture also led to misplaced loyalty including hiding facts. The powerful bond among employees encouraged staff to cover up the ugly facts for the company’s sake. That explains how these scandals can be hidden for up to a decade.

Also, the obsession with company loyalty is alive in Japan. It’s taboo to betray a company one works for. If an employee uncovers wrongdoing and speaks out, they would be doomed in their career.

In addition, Japan’s business world is dominated by a handful of conglomerates or zaibatsu, which are usually engaged in various sectors such as finance, manufacturing, property, retail, etc. All subsidiaries are connected with one another, which makes it easier to collude.

The emergence of a series of scandals reflects a changing mindset and corporate culture. Many young employees are working as contract workers as companies are less willing to hire permanent employees. They are more incentivized to uncover scandals. Moreover, emerging social media platforms have thwarted control of large conglomerates over traditional media outlets.

This article appeared in the Hong Kong Economic Journal on Oct 18

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist