As Tokyo prepares for the country’s largest military expansion since World War II, it has run into a stumbling block: some of Japan’s most well-known brands are hesitant to invest in the military side of their businesses.
Japan, which declared war on China in 1947, announced last year a five-year $315 billion military expansion to deter Beijing from using force in the East China Sea, amid growing concern that Russia’s “special operation” in Ukraine could embolden China to invade Taiwan.
However, a key component of Tokyo’s strategy is persuading commercial firms such as Toshiba Corp., Mitsubishi Electric Corp., and Daikin Industries Ltd, which have quietly armed its Self Defense Forces (SDF) for decades, to increase production.
According to Reuters interviews with six government and company officials, this is proving difficult to sell in a country where public sentiment is strongly opposed to militarism.
In private meetings with the defense ministry over the last year, some companies have expressed concerns about low profit margins, the financial risk of building manufacturing plants that may be idle once Japan completes its military expansion, and the potential damage to their public image from arms sales, according to a source close to the talks.
The official refused to be identified or to link the complaints to specific companies, citing the confidential nature of the discussions.
The government is preparing legislation that would increase profit margins on military equipment from a few percent to as much as 15%, as well as provide state-owned factories for companies to use to expand production risk-free. Some are concerned that this may not be sufficient.
“Until now, the ministry has taken defense companies for granted,” Masahisa Sato, a powerful ruling party lawmaker and former deputy defense minister, said.
Sato stated that it was becoming increasingly difficult for Japanese executives to justify defense sales as “patriotic duty” to shareholders who were more interested in more profitable civilian ventures.
Defense manufacturing is a key pillar of national security, according to Prime Minister Fumio Kishida’s military buildup plan.
Japan, on the other hand, lacks a national defense champion like Lockheed Martin Corp. in the United States or BAE Systems PLC in the United Kingdom, and many of the firms supplying the SDF are associated with more mundane products.
Military contracts accounted for only a tenth of Mitsubishi Heavy Industries’ $29 billion in revenue last year, despite the fact that the company is developing Japan’s next jet fighter and new longer-range missiles to help deter China. The majority of its revenue comes from civilian aircraft components, power plant equipment, and factory machines.
Daikin Air Conditioning manufactures munitions; Toshiba, which manufactures electronic goods such as printers, also manufactures military-grade batteries; and Mitsubishi Electric manufactures radars and missiles in addition to refrigerators and vacuum cleaners.
Defense officials have been meeting with these companies and other top suppliers, such as car and helicopter maker Subaru Corp, since early last year to urge them to expand their lower-profile military units.
Reuters contacted 15 top Japanese defense manufacturers, whose CEOs the defense ministry invited to meetings with then-defense minister Nobuo Kishi in April and his successor, Yasukazu Hamada, in January.
Mitsubishi Heavy, Mitsubishi Electric, and IHI Corp, which manufactures jet engines, bridges, and heavy machinery, all confirmed they had participated in other lower-level discussions.
Five companies did not respond, and the rest refused to say whether they had participated in other discussions. The companies that responded declined to provide information about the meetings or any concerns they raised during the discussions.
Sweeteners
Many companies are hesitant to discuss their defense units for fear of alienating customers at home, where anti-military sentiment persists, or abroad,
particularly in China, where resentment of Japan’s wartime past could be politicized.
Reuters requested interviews with defense unit managers from ten of Japan’s military suppliers, including Toshiba, Mitsubishi Electric, Daikin, and Subaru. Mitsubishi Electric was the only company that agreed.
Mitsubishi Electric’s defense systems division head, Masahiko Arai, said he welcomed government proposals and hoped that contributing to Japan’s “safety and security” would benefit the company.
His main concern, he said, was what would happen after Japan’s five-year military buildup ended, and he added that other companies are “concerned about reputation risk.” His division accounted for roughly 4% of the company’s $34 billion in sales last fiscal year.
Another major Japanese defense supplier official, who requested anonymity due to the sensitivity of the issue, stated that being directly involved in regional tensions could be bad for business.
“Reputation risk concerns us greatly,” the official stated. “On occasion, our Chinese customers have expressed their dissatisfaction when the topic of defense has come up.”
Despite diplomatic tensions, China is Japan’s most important trading partner and a major manufacturing base for many Japanese firms.
Analysts believe that when Japan lifted a decades-long ban on military exports in 2014, it did not spur industry growth due to corporate timidity and overly cautious bureaucrats. Mitsubishi Electric is the only company that has sold defense equipment overseas, with a deal to supply radars to the Philippines set to begin in 2020.
Meanwhile, Daicel announced that it would close its pilot-ejection system unit in 2020, and Sumitomo Heavy Industries informed the defense ministry that it would stop producing machine guns in 2021. Daicel cited low profitability, while Sumitomo Heavy stated that maintaining production and training engineers was difficult.
‘Special apparatus’
According to a government opinion poll released this month, there is growing public support for a larger military as regional tensions with China and North Korea escalate.
In a poll of 1,602 people, 41.5 percent said they wanted the SDF to be expanded, up from 29.1 percent in the previous poll five years ago.
Despite this, Japanese companies frequently refer to their military products as “special equipment,” according to a government official. Daikin is one of them, with air conditioning accounting for 90% of its revenue. Its website does not list the artillery and mortar shells manufactured at its Yodogawa plant in Osaka, western Japan.
“We don’t keep our defense business secret; we regularly disclose information about it,” a Daikin spokesperson said. “It’s not a matter of reputation.”
Reiko Okumoto, 66, said she had lived in the working-class neighborhood surrounding the Daikin factory for more than 40 years without knowing it produced shells on a street outside the barbed-wire-topped wall that surrounds it.
“It would be beneficial if (Daikin) could take a break from military work,” she said. “But, given the state of the world, I know that’s unrealistic.”
