|BUSINESSWEEK ONLINE : OCTOBER 23, 2000 ISSUE|
|INTERNATIONAL -- LETTER FROM JAPAN
No Longer Going Such Great Guns (int'l edition)
Wandering through Nangoku, a gritty city on the southern coast of Shikoku, least accessible of Japan's main islands, one wouldn't imagine that this corner of the most gun-free of all advanced nations would be feeling the pangs of a softening in the world's biggest firearms market, the U.S. Nangoku, a community of 50,000, is given over mostly to farming and small-time commerce. But squatting among rice paddies on the edge of town is the low-profile Miroku Firearms Manufacturing Co., a collection of nondescript low-rise buildings spread over about 4,650 square meters. And Miroku is fidgety indeed over changing attitudes in the U.S.
This year, Miroku will churn out 140,000 shotguns and rifles for Browning. Browning, of course, is a leading purveyor of sport guns and accessories to the $15 billion U.S. market for such products. And Miroku has manufactured for the Morgan (Utah) company since 1966. Now, however, the Japanese company is struggling to preserve this lucrative relationship in the face of flagging demand and price pressures in what is by far its biggest market.
FIGHTING DOGS. As anomalies go, this one is staggering. Guns killed slightly more than 12,000 Americans in 1998, the latest year for which figures are available. That includes homicides, suicides, and accidents. Japan, with half the U.S. population, recorded 59 gun deaths that year, 40 of them accidental. And here, in a country with virtually no gun culture, we find a community relying partially for its prosperity on the manufacture of guns.
While Americans were winning the West with Colts, Winchesters, and later on, Brownings, all Japanese save the elite samurai class were denied firearms. While many Americans grow up learning marksmanship, skeet shooting, or hunting, few Japanese kids have ever seen a gun except in American movies and TV shows. More prolific than bullets in Kochi Prefecture, where Nangoku is located, are a renowned breed of fighting dogs called Tosa. Miroku, like countless other Japanese companies, has nonetheless learned to rely on consumers overseas, for better or worse. Hardly anyone here has any use for what the company produces.
Looking across the Miroku plant, the lessons seem obvious to me. For one thing, pistols--which are used in most gun deaths in the U.S.--are illegal in Japan. For another, the Japanese don't hunt much. Last year only 453,666 guns were registered in Japan. At least as important, getting a gun license in Japan takes an average of four months, and in that interim lots of training is required. Now look at the U.S.: Almost 1.2 million guns were registered last year; the average American can get one within days and without necessarily knowing how to use it.
How did Miroku, which supplies about 60% of the guns sold by Browning, land in this odd position? It's a curious tale, as it turns out, with roots in the Meiji era (1868-1912), when Japan was making a modern nation of itself and learning Western manufacturing techniques for the first time.
The story goes back to 1893, when a metalsmith named Kuraji Miroku started turning out handmade hunting guns in Kochi Prefecture. The mountains of Kochi teemed with deer, boar, and other wildlife. They also teemed with people: Many more than now lived in the mountains and wanted to hunt. By 1934, the Miroku operation, then run by Kuraji's son Bukichi, was making harpoons, Colt-style pistols, and a variety of hunting guns. Along the way, the company developed advanced technology in machining, molding, and precision assembly.
''STRONG HISTORY.'' During the war, Miroku made weapons. Afterward, business was suspended until 1951, when a new law allowed Miroku to incorporate and resume production of hunting guns. Since then, Miroku has become by far the largest of Japan's three nonmilitary gunmakers; it listed on the Osaka Securities Exchange in 1963. Last year, it posted sales of $78 million, and analysts expect that to rise to $82 million for the fiscal year ending Oct. 3l. ''I always assess a company based on its roots, and Miroku has a very strong history,'' says Katsuhiko Sugiyama, executive fellow at Tokyo's Ichiyoshi Securities Research Institute Inc. and one of few analysts who pay attention to the Shikoku company.
Look closely, though, and it's a mixed picture. The share price hovers near an all-time low. After losses in 1997 and 1998, a rationalization campaign under a new president, Shiro Takemura, yielded profits last year of $5.3 million. But this year, analysts expect net profit of $1.3 million--and further slippage in 2001.
Here we must return to what we might call the Miroku paradox. Largely to blame for Miroku's slump is its reliance on Browning. It derives fully 70% of its revenues from the U.S. company, with the rest coming from modest sales at home, elsewhere overseas, and from a growing output of machine tools and specialty wood products such as wooden steering wheels and gear-shift knobs for cars. Both Miroku and Browning, which owns 7.8% of it, blame tighter gun controls, an aging population, and a growing demonization of firearms among Americans. ''From the peak market quantities of the first half of the 1990s, the overall market has declined in all categories,'' says Donald Gobel, Browning's president for 20 years until July and who serves on its board. He has also been a director of Miroku for 20 years.
When Miroku and 122-year-old Browning first did a technology, manufacturing, and sales tie-up in 1966, the arrangement seemed ideal. Browning, which supplies the high end of the U.S. gun market, has historically worried less about production than research and development, design, sales, and marketing. It had long relied on its partner and current owner--Fabrique Nationale of Belgium, another grand name in guns--to make its products. But when production costs in Belgium soared, Browning needed a new source.
Enter Miroku, which welcomed the relationship. A few years ago, it was shipping 200,000 guns a year to its U.S. partner. That's down 30%--and Browning has forced Miroku to cut prices.
People in Kochi are taking notice. Miroku employs about 1,000 of the prefecture's 34,000 manufacturing workers, and it's a mainstay in Nangoku. ''The economic contribution of its subsidiary plants around Kochi is big,'' says Masahiko Uchikawa, who covers Miroku for Kochi Shimbun, the main newspaper here. Even bar hostesses worry. ''Some of my customers are from Miroku, and I sure hope they keep coming,'' says Yasuko Ito, who runs a cozy karaoke spot in Nangoku.
Most observers expect diversification to solve Miroku's woes. Given all those gearshift knobs and steering wheels, reliance on gun sales has declined to 78% of revenues, from nearer 90% five years ago. Takemura's wants it down to 50%. For its part, Browning vows to stick with its partner. ''Miroku has done an excellent job of investing in new modern equipment to reduce costs and of restructuring the company to succeed with lower volume,'' says Gobel.
It may not be long before Takemura, 71, is succeeded by Executive Vice-President Yoshihiko Miroku, 43, an engineer who joined the company just last year. Yoshihiko, the natural son of Takemura, was adopted by the sonless, late Bukichi Miroku in classic Japanese fashion. Soon it will be his challenge to prove that he's just as tenacious as those ferocious Tosa fighting dogs.
By ROBERT NEFF
Contributing Editor Neff has lived in Japan for 21 years. He was assisted by Lorraine Woellert in Washington.
EDITED BY PATRICK SMITH
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No Longer Going Such Great Guns (int'l edition)
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