Japan Inc scandals widen as top carbon fibre-maker Toray admits cheating

Toray Industries' logo pictured at its headquarters in Tokyo, Japan.
Toray Industries' logo pictured at its headquarters in Tokyo, Japan.PHOTO: REUTERS

TOKYO (REUTERS, NYTIMES) – Japan’s Toray Industries on Tuesday (Nov 28) revealed 149 cases of quality data falsification at a materials-making subsidiary spanning eight years, in the latest quality-assurance scandal to hit a Japanese manufacturer. 

The world’s largest maker of carbon fibre composite materials said the cheating involved products including tyre-strengthening cords sold to 13 clients by Toray Hybrid Cord. A broader probe into possible wrongdoing across the group was ongoing. 

Toray did not name any affected customers but ruled out US aircraft maker Boeing, for which the Japanese company is a major supplier of carbon fibre used in passenger jets, and Uniqlo parent Fast Retailing, which uses its products in its best-selling Heattech clothing line. 

Japanese companies are facing growing pressure to disclose quality-assurance failings after widespread data falsification was uncovered at Kobe Steel. 

Toray said its subsidiary became aware of its problems in July last year, and the group learnt of them in October. It only decided to publicly disclose the cheating after rumours appeared earlier this month in an anonymous online post. 

“There were no legal violations or safety problems; this was between us and our customers, and so there was no need to disclose it,” Toray President Akihiro Nikkaku told a news conference. 

The internet post forced the company to “give a proper explanation before rumours spread”, Nikkaku said, adding that even if similar cases were found in the future the company would not be required to make them public. 

The comments are likely to fuel concerns about Japanese manufacturers’ governance and their commitment to stamp out cheating. 

Last week Mitsubishi Materials Corp admitted that it may have sent products with falsified data to scores of customers, and possibly continued to ship these products for months after the wrongdoing was discovered. 

Automakers Nissan Motor and Subaru  have also been hit by compliance scandals. 

The admissions threaten to damage trust in Japan’s manufacturing industry at a time of growing competition from its Asian neighbours such as China and South Korea. 

Toray’s shares plunged more than 8 per cent following the announcement and closed down 5.3 per cent in a flat broader market. 

HIGH FLYER

While Toray is not a well-known name outside Japan, its importance to the global supply chain and its influence in Japan are considerable. Growing demand for carbon fiber from a range of industries has turned Toray into a crucial supplier for many companies.

Toray's strong, light carbon fibre materials are used in Boeing’s 777X passenger jet and the 787 Dreamliner. 

The company is represented at the heart of Japan’s conservative corporate establishment, with former president Sadayuki Sakakibara heading the Keidanren business lobby. 

On Monday, before Toray’s revelations, Sakakibara warned at a news conference that deceptive quality-reporting practices by Japanese companies threatened to undermine trust in the nation’s manufacturing.

“It’s a grave situation,” Sakakibara said, adding that any discrepancies between the actual and promised specifications of a manufactured product “should in principle be made public as soon as they are discovered.”

Toray said it was in the process of notifying clients about the falsification and had not heard back from them about performance or safety issues with the fibre products used to strengthen tyres and other industrial goods. 

The affected customers were mostly in Japan but included at least one in South Korea. 

Two quality control managers had led the falsification, motivated partly by pressure to meet product delivery targets. The two managers responsible for the cheating have been transferred to different positions. 

Toray found the cases after an in-house survey pointed to the malpractice, prompting an internal investigation which Nikkaku said he hoped to complete by March next year. 

Combined revenue of the 149 cases amounted to 150 million yen (S$1.8 million) and would not have a big earnings impact, Nikkaku said.