HIGASHIOSAKA, JAPAN (REUTERS) – The small factories in the western Japanese city of Higashiosaka for decades fuelled the thundering rise of the country’s biggest brands – but a weak yen and rising costs have accelerated a slow decline, and are reshaping the industrial heartland.

Home to about 6,000 firms, 87 per cent of which have fewer than 20 employees, the city is emblematic of how such forces are pushing Japan’s small manufacturers toward a tipping point.

The workshops in Higashiosaka create metal components for everything from train seats to ballpoint pens, and have long relied on powerhouses such as Sharp, Panasonic, and Sanyo for orders.

Now Sanyo is gone, acquired by Panasonic. Work in general has dried up in recent years in the face of competition with South Korea and China; when Taiwan’s Foxconn acquired Sharp in 2016, it moved much of the company’s manufacturing out of Japan.

The amalgam of issues that Higashiosaka faces – an ageing population, offshoring, and a sagging currency – mirror the problems that have been chewing at the foundation of the world’s third-largest economy and its global exports, which hit 83.1 trillion yen (S$844.52 billion) last year.

One factory in the city, aircraft component manufacturer Aoki, is pivoting to the food industry after being hit hard by the pandemic. Another, air drill parts maker Katsui Kogyo, raised prices for the first time since it started business in 1967.

Lampshade company Seiko SCM scaled back its production and is seeking to revive Higashiosaka’s manufacturing industry by converting part of its headquarters to shared working space.

“It’s like being the frog being slowly boiled alive,” said Ms Hiroko Kusaba, CEO of Seiko SCM. “We all believed that the big brands would always protect us, but that’s just not the case anymore.”

Human connection

In the past six months, the value of the Japanese yen has plummeted from about 115 yen to the dollar in early March to more than 130 yen in August. And the pain of Covid-19 lingers: 67 per cent of the small firms in Higashiosaka say they are still hurting from the pandemic, according to a survey conducted in April by the local chamber of commerce.

For these companies, weathering the economic storm isn’t just about surviving, but preserving the industrial ecosystem.

Small- and medium-sized enterprises account for 99.7 per cent of companies and 68.8 per cent of employment in Japan. But these same companies represent only 52.9 per cent of the economy, according to a 2016 government survey, the most recent data available.

The region around Higashiosaka has a history as a manufacturing hub dating back hundreds of years. The city still has industrial enclaves where tiny factories are wedged between houses, hammering, sawing and shaping metal from early morning to dusk.