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Kobe Steel President Hiroya Kawasaki apologizes for the latest revelations of wrongdoing.

Kobe Steel products lose Japan's quality seal as scandal widens

More faked data further undermines trust among industrial clients

| Japan

TOKYO -- Kobe Steel has lost Japan Industrial Standards certification for a number of its copper products after falsifying data on their quality, marking the group's third such downgrade in a decade and dealing a heavy blow to trust among Japanese suppliers and their clients.

The steelmaker said Thursday that certain copper tubes made at subsidiary Kobelco & Materials Copper Tube's plant in Hadano, Kanagawa Prefecture, had lost JIS certification. The company had altered quality data to make it seem as though the products were up to grade and sold them to four corporate customers with the JIS seal of approval. The Japan Quality Assurance Organization discovered the problem while investigating the plant's quality assurance system in light of similar fabrications for steel and aluminum products.

Up to now, the company has repeatedly denied breaking the law. "We apologize deeply for all the trouble we have caused our clients," President Hiroya Kawasaki told reporters Thursday, adding that the company will look into "comprehensive measures to prevent a recurrence" of such fabrication. "We aim to regain JIS certification as quickly as possible" and to "rebuild trust" with Kobe Steel's network, he said.

Matter of trust

For all the upheaval it has caused, the scandal looks to have a limited impact on product safety. Roughly 80% of the customers that were shipped the affected copper, aluminum and other products have confirmed so far that the materials are safe, Kobe Steel said Thursday.

A more profound effect could be to undermine the faith companies have that the materials and parts they receive are of the quality they ordered. While customers such as automakers run quality checks on the first batch of material they receive from a new supplier, they typically check only that the correct quantity has been delivered from thereon out. All further quality checks take place once the final product has been assembled -- strength and durability tests for an entire car, for example. Many of Kobe Steel's customers affected by the data fabrications had long relationships with the steelmaker, allowing quality discrepancies to go undetected.

Makers of more complex machinery such as aircraft and rockets, which can contain more than 1 million distinct parts, also tend to perform quality checks on finished components, rather than on parts as they are received. Not even aviation authorities recheck each part and material on their own, according to a source in the aviation industry.

"Japanese manufacturers did institute tougher quality inspections starting in the 2000s as globalization took hold," an engineer at one materials maker said. "But many also put the onus for inspection on the supplier at that time."

While customers may accept products that do not meet agreed-upon standards or specifications if they are properly notified, Kobe Steel did not uphold its end of the bargain, instead passing off noncompliant goods as normal. In doing so, the company has badly abused the trust that underpins the entire manufacturing sector.

Not over yet

The full extent of the scandal may have yet to emerge. Kobe Steel announced Thursday that four new cases had come to light in which units, including its Japanese machinery business, had fabricated data outright or failed to complete testing procedures properly. Charges of wrongdoing at an overseas unit's steel operations also are under investigation.

The steelmaker has convened an outside panel to investigate, headed by Gan Matsui, former superintending prosecutor at the Fukuoka High Public Prosecutor's Office, as its own internal investigation has largely come to an end. The panel aims to report on the causes of the scandal and recommend measures to prevent a relapse by the end of the year.

It is not yet possible to say what effect the scandal will have on earnings, the company says. Kawasaki said Thursday he hopes "to comment in some fashion" on that matter when the company presents results for the April-September half on Monday.


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