West muscles in as Japan is stripped of its aura

Analysts are saying that the days are over when EU and US firms could be overwhelmed. David Bowen reports standfirsty

THE JAPANESE industrial machine has been so badly mangled by the high yen that it will never again overawe the West, two leading commentators say.

Jeff Miller of Boston University, one of the US's most respected manufacturing experts, told last week's International Conference on Strategic Manufacturing that his biennial surveys of US, European and Japanese companies showed that while Western companies improved their physical performance rapidly between 1992 and 1994, Japanese companies moved ahead hardly at all.

The level of manufacturing defects - a measure of quality - was reduced by 11 per cent in the EU and 10 per cent in the US, but by only 4 per cent in Japan. Although absolute Japanese manufacturing standards are still higher than in the West, this is the first time the gap has narrowed. "Western firms are improving at twice the rate they were in the mid-Eighties, while the bubble has burst in Japan," Professor Miller said.

William Overholt, managing director of Bankers Trust in Asia, agreed. "The Japanese are not out of the picture, but for the next five years, they're going to be ordinary human beings, not supermen," he said. "They can no longer keep costs much lower than others, so they are not going to overwhelm whole sectors as they did in the past."

The Japanese had, he said, "a machine that existed for a particular ecological niche - with weak neighbours, manageable yen and very low costs of capital. Now that has all gone." Dr Miller said the high yen had forced Japanese companies to respond to short-term pressures. In his 1990 survey, they did not mention price control as a priority; last year it was their primary concern. They have also abandoned their determination to keep ahead by changing products rapidly.

Japanese companies used to be able to produce new-model cars or videocassette recorders with such rapidity that their competitors were left breathless. This expensive strategy has now been dropped.

Mr Overhill said there would have to be many mergers before the Japanese could re-emerge industrially. "There could be a bloodbath," he said, adding that the Japanese would have to concentrate on improving the economy across the board. "It is like a tennis player - it has a huge right arm, the electronics and automotive sectors, but the rest of it is flab." The gap between the best in the West and Japan may be narrowing, but is still wide.

A 1993 report by Andersen Consulting compared nine Japanese car component companies with nine British ones. Five of the Japanese plants were declared "world- class" - none of the UK ones were. On average Japanese factories had eight times fewer defects and 50 per cent higher productivity than the British.

"The Japanese model is coughing and spluttering, but still very good," Alan Harrison of Warwick Business School told the conference.

Dr Miller said it was increasingly difficult to make generalisations about differences between Western companies by nationality, because similar techniques for improvement were being put in place by good companies wherever they were. "It is striking how similar the US and Europe are."

The message for British industry - for so long the also-rans in Western industry - is modestly encouraging.

Further proof of the dramatic change in attitude in Japan caused by the high yen has come from Tom Myerscough, an export promoter at the Department of Trade and Industry.

He said that on his last trade mission to Japan, the companies involved were all offered business or potential business. "The Japanese welcomed us with open arms. That would never have happened two years ago."