Why has “Made in Japan” been losing face frequently in recent times due to the data tampering scandal involving veteran Japanese heavy industry giants?

Recently, “Made in Japan” has encountered another crisis.

According to CCTV News, on April 24th local time, a large Japanese heavy industry company, IHI, announced that its subsidiary, IHI Prime Motors, had tampered with fuel data for ships and onshore engines. In order to make the test data look more “beautiful”, the company has produced 5537 engines for ships and other equipment since 2003,

On the 25th, the Japanese Ministry of Land, Infrastructure, Transport and Tourism has entered two factories of IHI Prime Motors located in Gunma and Niigata prefectures to investigate engine data tampering. It is reported that the former may have been falsified since 2001,

Chen Yan, Dean of the Research Institute of Japanese Enterprises (China), told First Financial that Japan has three major heavy industry giants


Starting from the shipbuilding industry

According to Japanese media reports, the issue exposed this time originated from reports by internal personnel of the company. At present, IHI Prime Motor Company has mainly engaged in fraud in two aspects, namely engine fuel consumption data measured during testing before shipment, and engine gas emissions. Among them, the falsification of engine fuel consumption data is not difficult to understand. For example, among similar products, products with lower unit fuel consumption are more likely to be favored by buyers. The falsification of engine gas emissions is a significant blow to IHI Prime Motors, which focuses on “green” as its selling point and attraction.

It is reported that the problematic product is not only used for ships, but also involves trains and power generation equipment. The Japan Coast Guard and Hokkaido Railway Company are IHI’s customers who use the company’s products carrying problematic engines. In addition, there are 43 emergency generators used in nuclear power plants. At present, the manufacturer has stated that they have not received any reports of safety issues with the relevant products.

In response to the issue of data fraud, the Japanese Ministry of Land, Infrastructure, Transport has requested companies to conduct self inspection and rectification, and submit a report by the end of May. This measure has temporarily prevented the delivery of engines manufactured by IHI.

What impressed Chen Yan deeply about the data tampering scandal exposed by IHI this time was that the duration of the fraud lasted for 30 years from the 1980s to the present day; Secondly, the number of counterfeits is also quite large, with problematic engines accounting for up to 79%. “These devices are mostly used on ships, but fortunately, we have not yet seen major mechanical accidents caused by counterfeits, which are basically limited to the adjustment of energy consumption figures. If an accident occurs, the consequences are unimaginable.”

According to company website information, IHI was founded in 1853 and initially only built a shipyard near Ishikawa Island. It has been around for over 160 years. After World War I, the company began to enter the automotive and aircraft manufacturing business and continued to grow through various mergers and acquisitions. In 2007, it was renamed from Ishikawa Shima Harima Heavy Industries Co., Ltd. to the current IHI. In its 160 year history, IHI has set multiple “firsts”, such as manufacturing Japan’s first civilian steamship, Japan’s first liquefied natural gas (LNG) storage tank, and the world’s longest suspension bridge – the Akashi Strait Bridge.

From the perspective of the company’s business scope, IHI is actually involved in various fields such as engineering machinery, aviation, and marine economy, but engines are relatively the main business sector. In addition to manufacturing aviation engines, IHI also undertakes maintenance work for aviation engines and is an important supplier of military defense products in Japan.

Of course, as the market changes, IHI is also responding flexibly and adjusting its industrial layout. For example, the aerospace industry used to only account for 2% of the company’s overall share in 1965, but now it is the most profitable industry for the company. IHI was the first to participate in the development of Japan’s aerospace technology, designing and producing the core components of rocket engines. For example, the small rocket Epsilon, which has attracted much attention from various sectors in Japan, and Japan’s first private rocket Space One KAIROS, are all developed with the participation of IHI’s aerospace department.

The latest news shows that on April 19th, IHI announced progress in the development of hydrogen fuel cells and aircraft electrification technology. The company stated that these two technologies are related to Japan’s next-generation aircraft development project and will continue until 2029. “This zero emission device can provide power for an electric aircraft with over 40 seats and a cruising time of over 3 hours.”

Manufacturing scandals dragging down the economy

In fact, IHI’s subsidiary’s alleged tampering with engine data is not the first scandal related to Japanese manufacturing. In recent years, various violations and fraud scandals have occurred among Japanese manufacturing companies.

According to Xinhua News Agency, on January 29th this year, Toyota Motor Co., Ltd., a subsidiary of Japanese car giant Toyota, revealed that four engines produced by Toyota Automatic Loom Company had “falsified exhaust emission test data”, and Toyota decided to stop the shipment of related diesel vehicles. At the end of December last year, Daihatsu Industries, a subsidiary of Toyota, admitted to 174 violations and will suspend the shipment of all models currently being produced domestically and internationally. Previously, Dafa was also exposed to have falsified data from car side impact safety tests. The report released by the third-party investigation committee at that time showed that the problem of data fraud by Dafa Industrial Company had a long history, but since 2014, there have been group violations. The report also alleges that the on-site manager was forced to commit fraud under multiple pressures such as production schedules and cost control.

In 2021, Mitsubishi Electric was exposed to have falsified product inspection data, which could last for up to 30 years; In the same year, pharmaceutical company Kobayashi Chemical was also exposed for fraud, with over 200 patients experiencing varying degrees of health damage after taking the company’s drugs. In August 2017, Kobe Steel, a Japanese steel company, was deeply embroiled in a “fraud scandal” and was exposed for tampering with data and using substandard products as substitutes. At that time, Kobe Steel admitted that the related products were used to make cars, Shinkansen, and airplanes, and were delivered to a total of about 500 domestic and foreign customers, involving numerous industries such as automobiles, railways, aviation, aerospace, etc

Chen Yan told First Financial that the outside world has always had great trust in the products of Japanese companies, but now not only small and medium-sized enterprises, but also large enterprises such as Toyota are frequently embroiled in fraud scandals. “When companies no longer pursue quality and authenticity, and cannot achieve good quality and energy-saving models, choosing to maintain the surface through fraud will bring huge distrust of Japanese products to society. This is a major problem that Japanese companies must solve.” he said.

Chen Yan emphasized that, especially when Japanese manufacturing is facing increasing international challenges in terms of price, brand, quality, etc., and when Japan’s industrial production capacity is in a downward trend, such as limited manufacturing costs and time, the subsequent response of enterprises is worth watching. He hopes that Japanese companies can continue to maintain a stable production mode in the current competitive environment, rather than just pursuing superficial data.

Some interviewees, who declined to be named, told First Financial that this is due to both the Japanese corporate culture and the lack of innovation drive among Japanese companies. “For example, there is a gap between modern corporate governance concepts and traditional Japanese corporate culture and management concepts, which has led to many problems for Japanese companies in pursuing short-term profits and long-term business strategies.”

While Japan’s manufacturing industry is deeply embroiled in various scandals, the Japanese economy is also being dragged down to some extent. The results of the Bank of Japan’s short-term economic observation survey released on April 1st this year showed that the confidence index of large manufacturing companies in Japan fell from 13 in December last year to 11 in March, marking the first decline in four quarters.

Analysis suggests that in addition to the impact of the earthquake on the peninsula at the beginning of the year, the shutdown of some Toyota car factories due to a fraud scandal was also one of the reasons for the decline in confidence. According to segmented industries, the confidence index of automotive manufacturing companies has significantly declined from 28 in December last year to 13.

Chen Yan believes that if “Made in Japan” cannot timely and fundamentally address the problem and restore its reputation, it will have a long-term impact on the development of enterprises and the Japanese economy.

The International Monetary Fund (IMF) stated in its latest World Economic Outlook in April that due to the disappearance of one-time factors supporting growth in 2023, such as a surge in inbound tourism, it is expected that Japan’s economic growth rate will slow down from 1.9% in 2023 to 0.9% this year, and 1% in 2025.