Cottage Industries Hurt : Rising Yen Hits hardest at Craftsmen
Kikuhei Sakatsume and his wife, Mitsui, have spent the last 40 years putting the finishing touches on stainless steel tableware. The other day, they were at work in the wooden shack behind their house. Seated at opposite sides of an electric motor, they pressed the knives, one by one, against the grinding wheels.
“I do the blades and my wife does the handles,” Sakatsume, 65, told a visitor. “But if our income declines much more, we’ll close the shop and live off our pensions.”
The Sakatsumes are not the only people in this city of 45,000 facing their greatest economic crisis since the period immediately after World War II. The rise of the yen against the U.S. dol1818325536thousands of Tsubame’s workers, for it has made the stainless steel tableware they produce in staggering volumes too expensive to sell abroad.
30% Decline in Profits
The Japan Economic Journal last month predicted that the country’s 40 largest exporting corporations could expect a 30% decline in profits because of the yen’s rise but will survive; the Nomura Economic Institute projected a decline of as much as 3.3% in gross national product.
But Tsubame, made up of small manufacturers and even smaller subcontractors that are heavily dependent on exports and too poor to diversify into other fields, is in far worse shape. For Tsubame and 54 other officially designated export-dependent districts in Japan, the high-value yen may mean the end of a way of life.
Last year, Tsubame turned out 720 million stainless steel knives, forks and spoons--enough place settings to set the table of every American, with some left over. There is little domestic demand for Tsubame’s Western-style utensils; this is a country where almost everyone uses chopsticks.
If it were not for the sudden decline of the dollar against the yen, few people in Tokyo would pay much attention to this city on the rainy, economically underactive side of the mountain range that divides Honshu, the main Japanese island.
But since last September, when the top financial officials of the five big industrial democracies took steps to lower the dollar’s relative worth, Tsubame has been on the front page of Japan’s newspapers.
Cottage-Industry Conditions
Tsubame also offers a glimpse of another Japan, quite different from Tokyo or Osaka. Although Japan may be seen from abroad as the land of the future, millions of Japanese, including those in Tsubame, in fact continue to work in cottage-industry conditions reminiscent of an earlier century.
Most of the workers here are engaged in piecework, at home or in small workshops. One company pays its subcontractors the equivalent of a third of a cent for grinding down the rough edges of teaspoons. In some cases, piecework rates are calculated in sen. The sen543781664decades since a sen coin was minted.
The Sakatsumes are considered lucky. They get the equivalent of 1.6 cents a knife. Until last September, they were paid a little more than 2 cents a knife, but “what with the high yen, the factories have asked us to work for less,” he said.
Another couple, Atsushi Takahashi and his wife, Kazuko, make teaspoons on two 70-ton presses in a shop in front of their house. They earn less than a penny a spoon.
Six days a week, a factory truck delivers 10 crates, each containing 1,200 flat, tadpole-shaped pieces of stainless steel. One by one, the Takahashis slide these pieces into a slot in one of the presses and watch as the machine makes an egg-shaped indentation in the larger end. Then they remove it and insert the next piece. Both do this 6,000 times a day. And they do it another 6,000 times for the handles.
Not Enough Work
Takahashi said he had considered investing $12,000 to automate one of the presses but gave up the idea.
“There just would not be enough work to justify automation,” he said. “I know a number of people who upgraded their equipment and now cannot get enough work to make their investment pay.”
By Tsubame’s standards, the Takahashis are well off. They earn the equivalent of $105 a day. But the work is dangerous.
Noticing that his wife was nervous in front of a foreign visitor, Takahashi warned her to be careful with the press. In this business, people with missing fingers are common. The manager of one of Tsubame’s leading firms has no fingers at all on his right hand.
Takahashi says he is happy with his job, happier than when he worked at a factory, but he wants his son to work for the government.
“He can be a policeman,” he said, “but he’s got to have a government job.”
The number of crates delivered to the Takahashis has declined in recent months, as they and their neighbors have begun to feel the pinch.
‘No Trade Surplus Here’
Takeshi Ohashi, chief director of Tsubame’s Union of Western Tableware Manufacturers, said, “It’s all right for Americans to complain that Japan has a $50-billion trade surplus, but I can tell you there is no trade surplus here in Tsubame.”
According to an official of the Tsubame Chamber of Commerce, there are 1,500 factories connected with the tableware trade, and some of them have no orders at all.
Hitoshi Nakayama, whose father’s Nakayama Industries has supplied dinner sets to Macy’s and Bloomingdale’s, said that “at 220 yen to the dollar we stood a chance of breaking even.” Now, he said, his company is losing money.
The dollar, which was worth 242 yen last September, has been trading for around 170 yen. The decline in the dollar’s relative worth means that in order to earn the same in yen today as in September, a Japanese company has to increase its prices by 40%.
Tsubame’s 150 major tableware makers export more than 80% of their output, and the United States traditionally has been their largest single market. But because of stiff competition from South Korea, raising prices has not been an option available to the manufacturers here.
“Everyone knows Tsubame has to stop making cutlery, but nobody knows what to make next,” Nakayama said.
‘Japanese Have Long Legs’
He lamented the absence of a domestic market. “Today, Japanese have long legs like Westerners,” he said, “but they still eat their food with chopsticks.”
Buying less expensive steel from South Korea is also out of the question, for most tableware companies do not use enough steel to buy large quantities. Moreover, import deals must be settled immediately, in cash, and Japanese steelmakers give local customers credit for 120 days.
Unlike large companies, which can diversify their way out of a recession, most of Tsubame’s small factories lack the capital and the technology to go into new products. In the meantime, Tsubame tableware makers find themselves squeezed by South Korean firms, who are competitive in terms of quality as well as price.
As of February, South Korean manufacturers controlled 61% of the upper end of the U.S. stainless steel tableware market, while the Japanese had 28%. At the lower end of the market--for products arriving in the United States for less than $3.00 a dozen--Tsubame’s share has been 33%, compared to South Korea’s 42%. Three years ago, Tsubame supplied almost half of America’s stainless steel tableware in both categories.
Perhaps it is not unusual that Tsubame should fall behind a developing country. Of Tsubame’s work force of 16,000, one in five works in a shop with three or fewer employees. Two in five work in factories with fewer than 10 employees, and only 10 companies have more than 100 employees.
Price of Forks Cut
In one factory, which exports exclusively to the Middle East, management has cut the price of forks to 13 yen apiece from 18 yen in order to keep the dollar cost at the level of last September. To maintain production, management-level people put in a night shift at the presses.
Still, not everyone in Tsubame is on the brink of bankruptcy. In the early 1970s, about half of the 3,000 companies in the cutlery business diversified into other kinds of stainless steel housewares--pots and pans, for example. And firms that sell housewares in the domestic market have been untouched by the decline in the dollar’s value.
Like most Japanese export companies, the factories in Tsubame could thank the Americans for the prosperity that followed World War II. Until the last century, Tsubame’s workshops had a virtual monopoly on traditional Japanese-style nails. But, by the 1920s, with the market destroyed by the introduction of Western-style nails, some had begun to experiment with hand-forged, Western-style tableware. The U.S. military placed huge orders for the tableware that until then had been a sideline, and, after the troops went home, Tsubame began exporting to the United States.
By 1957, Tsubame was shipping 100 million pieces a year to the United States, so much that the U.S. government raised tariffs on imported steel utensils. To get around the higher tariffs, Tsubame’s craftsmen developed cutlery with plastic handles.
Among Tsubame’s companies, the Kobayashi Corp. may be the best example of a company that planned ahead. Its executives did 15 years ago what the United States is asking Japan to do today: They stopped exporting and started catering to the domestic market.
Design Awards
Today almost all of Kobayashi’s income is in yen, and most of its business is at the upper end of the market. An entire wall of the company showroom is decorated with design awards. Kobayashi has experimented with high-quality, Japanese-style lacquer handles for Western utensils, and its product line includes a 30-piece setting in gold and silver for $3,500.
The company discovered that while few Japanese will buy knives and forks for themselves, they will pay substantial prices for them to give as gifts.
Another successful departure from the cutlery business was made by the Twin Bird Corp. Its motto, displayed at the factory in English: “Leading Producer for New and Better Life.” Like Kobayashi, Twin Bird went into the gift field, which, according to one of its executives, is a $35-billion market in Japan. The company makes a desk-top light that has no switch; it responds to a touch anywhere on the frame.
But the success stories seem to be the exception, not the rule.
“The knife-and-fork industry is too weak to go into high-tech fields like ceramics and electronics,” said Kunio Nakano, secretary general of a group set up last year to attract new industry to Tsubame. “The problem is not only a lack of funds. The technology of tableware making is not easily transferable to other fields.”
Government-Backed Loans
In its year of existence, Nakano’s office has not been able to find any industries that want to relocate in Tsubame.
Meanwhile, most of the major companies in the tableware business here are receiving government-backed, low-interest loans from a $1.7-billion fund set up in February to aid small firms suffering from the yen’s rise.
Despite the decision last year to coordinate the effort to reduce the dollar’s relative value, Americans are not seen as the cause of Tsubame’s troubles. Yet there was U.S. opposition to these loans, and this raised some eyebrows here. Clayton K. Yeutter, the U.S. trade representative, called the loans subsidies for exports, and he threatened to challenge Japan under the General Agreement on Tariffs and Trade.
Few people here could understand how Yeutter could object to propping up an industry that provides jobs for so many people in Tsubame.
“International relations are pretty strange,” said Hajime Nakayama, president of Nakayama Industries.
