Made in Japan

4/4/2018 Made in Japan: can handcrafted glasses survive an automated world?
The Big Read Artificial intelligence and robotics
Made in Japan: can handcrafted glasses survive an automated world?
The fate of Fukui’s eyewear offers a window into a country grappling with its future
Leo Lewis in Sabae 5 HOURS AGO
On the second floor of his factory, in the Japanese glasses manufacturing heartland of Sabae where
dedication jostles with dilapidation, Ryozo Takeuchi uncurls his hand to reveal a local secret.
“Walnut shells!” he yells above the rumble of a grimy machine. The chairman of Takeuchi Optical
and president of the Fukui Optical Association opens the machine’s door and points inside to a
rack of titanium spectacle frames. The wire skeletons have already travelled through a procession
of hand-operated machines and more than 10 specialists to reach this point. They will eventually
be sold under world-famous brand names. Prada, Fendi, Bulgari and Dior have all outsourced
production to Sabae at different times.
But first the frames must spend 72 hours jiggling in a bath of pulverised nutshells. “Three whole
days they spend in there! The perfect polish. ‘Made in Japan’. That’s why people still come to
Sabae,” shouts the 74-year-old, a third-generation chief of the company.
They may still come, but unfortunately for Mr Takeuchi and some of his fellow optical industry
chiefs who have been in the area for decades, not in the same numbers as they once did.
Chosen for its cheap artisanal workforce in the early 1900s, and later the world pioneer of titanium
frames in the 1980s, Sabae retains its own “Made in Fukui” brands and the western coastal city
functions as the anonymous precision craftsman behind hundreds of global marques. Some 97 per
cent of the glasses made in Japan come from Fukui prefecture, but that domestic output now has to
compete with cheap imports, mostly from China, and the global trend for automation.
As the closure of 40 per cent of its companies since 1992 attests, the decline in Sabae feels chronic.
If Sabae attracts attention now, it is because local or global buyers have spotted an opportunity to
pounce on decades of high-end Japanese manufacturing experience at bargain prices. In mid-
March, the Italian fashion group Luxottica swooped on one of Mr Takeuchi’s neighbours, Fukui
Megane, and bought a 67 per cent stake. The Italian company described the move as a strategic
entry to the “production heart of made in Japan”.
https://www.ft.com/content/84599df8-3684-11e8-8eee-e06bde01c544 1/7
A craftsman working on a pair of frames at Makoto Optical in Sakae © Bloomberg
Mr Takeuchi concedes that even with investors putting a financial value on their faith in Sabae,
the city has a battle on its hands to stake its claim in a global eyewear industry whose sales are
estimated by the research group Global Market Insights at about $100bn a year.
Automation is a buzzword, he says, but some things, like metal glasses frames, have to be done by
hand. He believes Sabae is a microcosm of the wider Japanese economy in 2018. The city’s perils
and potentials are shared with manufacturers across Japan from sandal-makers to semiconductor
manufacturers and shipbuilders.
“In a rapidly ageing society like Japan’s, with chronic depopulation challenges in rural areas, most
companies must adapt or die. That involves planning for succession and investing heavily in
automation,” says Howard Smith of Indus Capital Partners, a fund manager who has been
investing in Japan for more than two decades. “We are now starting to see sweeping consolidation
in sectors such as dispensing pharmacies, drugstores, automotive parts, restaurants and metal
fabrication . . . Investors are increasingly attracted to these kinds of turnround situations.”
It is tempting, standing on Sabae streets where shops and restaurants have closed, to take a more
pessimistic view. The city’s working population has dropped by 11 per cent since 2001 to 30,000;
over the same period, 20 per cent of companies have closed. Membership of the city’s local
chamber of commerce has fallen 57 per cent since 2001 to 350 companies.
Despite Shinzo Abe’s efforts to put regional revitalisation at the core of his economic programme,
the past five years of the prime minister’s Abenomics policies have made little impact, says
Masaaki Mizuno, the chamber’s head.
The city’s celebrated glasses companies, many of them led by chief executives at or close to
retirement age, are doubly exposed as they are also on the front line of Japan’s corporate
succession crisis — an acute shortage of heirs to the leadership of family-owned businesses that
threatens the future of tens of thousands of companies. It is a phenomenon that has given rise to a
new genre of dealmaking known as M&A Chukai, or M&A “go-betweening”.
Some Sabae companies are already falling victim to the demographic and economic shifts that are
gutting the regions and forcing urgent change on Japanese industry as companies compete to hire
from a shrinking talent pool or struggle to embrace technology. Many, admit Sabae locals, lack the
management dynamism or capital to carry out those changes, even as the product itself remains
above reproach.
Mr Takeuchi rises from a scuffed table, looks out of the second-floor window over a dreary, low-
rise scene and gestures towards three recently deceased optical companies that have not survived
the Abenomics era. “Bankrupt. Bankrupt. Bankrupt,” he says.
The view from Kenzo Matsumura’s boardroom could not be more different. Just a few

floors below the Japan headquarters of Goldman Sachs in the Roppongi Hills Mori tower, it offers
one of the finest vistas in central Tokyo. Mr Matsumura, a turnround tycoon bent on using robots,
automation, call centres, celebrity and sex appeal to transform his company, Hazuki, into a world-
beating reading glasses empire, says the sector is a critical case study for Japan.
His business of plastic-framed reading glasses, he says, is doing extremely well in a country whose
baby boomers are now in their late 60s and straining to read restaurant menus and the screens on
their mobile phones. “Over the next three to four years, I predict operating profits of between
¥60bn-¥100bn [$600m-$930m]”, says Mr Matsumura, who plans a second, fully automated
factory and a bigger sales push into the US and Europe. Abenomics has been a good thing, he adds,
showing a picture of himself on a sofa with the prime minister, “and Shinzo Abe is definitely
someone who understands markets”.
Japan's ageing population offers a lucrative market for eyewear manufacturers © Bloomberg
In the mid-2000s, Mr Matsumura, a former Salomon Smith Barney banker, was among a diverse
group of freewheeling capitalistswho made their names testing the market’s tolerance for
innovation, activism and chutzpah. Some of them were blisteringly aggressive. Others like
Takafumi Horie, whose internet group Livedoor once occupied the office directly above Mr
Matsumura’s current home, broke the law and went to jail.
Mr Matsumura played his part in that era through the presidency of Privée Zurich — a fund with a
reputation for aggressive stakebuilding. When the activism bubble burst Mr Matsumura and others
opted to lie relatively low, but his instinct for disruption remained.
Recommended In 2007 he bought five companies spun off from the

merger of Japanese toymakers Tomy and Takara.
Among them was a small trading house whose
product line-up included magnifier reading glasses for elderly people made in Sabae under a brand
called Pure Loupé.
It was, he says, a “bad product” being sold for ¥10,000 (then about $100) apiece through a
television shopping channel, but he was convinced that the market for reading glasses in the
world’s fastest ageing society was too good to miss. The numbers coming out of Sabae were
terrible. Each pair of glasses cost ¥2,880 to make, and were sold in a case that was imported from
China, bringing the total cost to ¥3,300. These were then sold wholesale to the television station
for ¥3,700, for a profit to the manufacturer of a mere ¥400 a pair.
“I went to Sabae to see the factory with 15 engineers. The machinery was battered and looked 40
years old. There were women doing the lens coatings by hand. Everything was manual. The defect
rate was 30 per cent. When you walked into the factory there was a mountain of defective lenses by
the door. One of the people was holding up the glasses on a stick like you’d dry a fish,” he says.
That visit doomed the factory to join the long list of closures in Sabae. But what happened next, say
analysts, should be the stuff of intense study by manufacturers across Japan — the very people,
says CLSA’s Japan head of research Morten Paulsen, who have been cowed by years of deflation
and are almost pathologically cautious about adding capacity.
A robot alongside humans making automatic change dispensers in a Japanese factory © Reuters
Mr Matsumura set out, with the help of the Japanese factory consultancy Keyence, to fully
automate the production, assembly and packaging of a pair of reading glasses — a process that has
taken years to bring to its current state.
“The big lens makers like Hoya and Nikon send production to China or Thailand to save on costs
but that misses the point. If you fully automate a factory, you can be in Japan running that factory
more productively and at lower cost than in China,” he says.
About an hour’s drive outside Tokyo in Chiba prefecture, the Hazuki factory is a monument to
automation. In an intricately choreographed dance, robots build the frames and lenses from
scratch, assemble them, test them and finally present them in a case made on an adjacent line at a
rate of 20,000 a day. The pace of change is so fast, says the factory’s manager, that later this month
a new assemblage of mechanical arms will carry out the process at three times the current speed.
While the factory is shrouded under obsessive secrecy, the public face of this transformation has
been unmissable. Under Mr Matsumura’s guidance, Hazuki reading glasses — still retailing at
¥10,000 — have been marketed as a sophisticated fashion item.
Mr Matsumura spent $5m to ram that message home in television adverts during the Japanese
broadcasts of February’s Winter Olympics in Pyeongchang, South Korea. The sales spikes, say the
managers of the Hazuki call centre above the factory, have been spectacular.
An eyeglass sculpture is displayed in the centre of Sabae, Fukui prefecture © Bloomberg
Back in Sabae, the question remains of whether the decaying corners of industrial Japan are
ready for the Hazuki treatment — or how much of the cherished monozukuri, or product-making,
ethic that came to encapsulate Japan’s industrial “miracle” of the 1970s could, with the right
investment and vision, withstand the march of the robots. Many have taken the cue: over the past
12 months delivery schedules for industrial robots have been dictated by production capacity
rather than customers’ need, say industry experts.
“The debate about robots in Japan is very different than anywhere else in the world,” says CLSA’s
Mr Paulsen, who points out that the debate is helped by the fact that four of the six largest
industrial robot makers in the world are Japanese. “Questions about robots taking jobs,
unemployment and so on are never brought up in the local media or during discussions and
roundtables with the robotics companies.”
Changing demographics and financial engineering may force change, admits Mr Takeuchi. Many of
his trade association’s members do not have successors for the current chief executive positions —
a fate that might once have spelt closure but which now attracts brokerage companies that find
buyers for companies without heirs.
There is money and technological ambition behind these deals, says the senior executive of one of
Japan’s largest matchmaking brokerages. “Nobody wants to say it out loud when they are sitting
across the table from a 70-year-old chief executive about to sign away the family firm. But everyone
is looking at these factories and thinking robots.”
Matchmakers for different corporate generations
In a Japanese market where stocks have spent 2018 under a barrage of global jitters and steady
selling, shares in three companies have managed to buck the trend: the M&A matchmakers, who
have learnt to thrive in places like Sabae and other regional cities bearing the brunt of Japan’s
corporate succession crisis.
In 2017, the government surveyed Japan’s small and medium-sized companies — a bloc that
collectively employs around 70 per cent of the nation’s workforce and where the average age of a
collectively employs around 70 per cent of the nation’s workforce and where the average age of a
company president is 59 — to ask them about their succession plans.
In companies where the chief executive was aged over 60, more than half said they could not find
a successor; where the chief executive was 70, more than two-thirds were heirless and facing
closure. An estimate by Nomura suggests that, between now and 2040, around 40,000 Japanese
companies a year will struggle to find a new leader.
In anticipation of this, three companies, their ranks filled with bankers who have defected from
larger firms, have stood out as corporate matchmakers — joining companies that wish to sell with
those looking to consolidate or other buyers. Nihon M&A Center, M&A Capital Partners and Strike
saw their businesses surge between 2013 and 2017. After brokering 223 deals in 2013, for example,
Nihon M&A settled 649 last year. Its two rivals — their share prices at or near all-time highs —
have seen similar rates of increase.
Common to all three, however, has been the extremely high ratio of deals where the issue of
succession has been the principal driver: for Strike, the proportion was almost 60 per cent of deals
last year; for M&A Capital Partners it was 79 per cent.
Copyright The Financial Times Limited 2018. All rights reserved.

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4/4/2018 Made in Japan: can handcrafted glasses survive an automated world?

The view from Kenzo Matsumura’s boardroom could not be more different. Just a few

Recommended In 2007 he bought five companies spun off from the

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