Message from the President August.2023

Progress of horizontal integration

In June 2023, the Ministry of Economy, Trade and Industry, the Ministry of Health, Labor and Welfare and the Ministry of Education, Culture, Sports, Science and Technology released the latest version of the White Paper on Manufacturing Industries (Monodzukuri) that compiles the manufacturing company and technology changes and trends every year. The White Paper included content stating, “as part of the changes in domestic and overseas manufacturing industries, the transformation of implicit knowledge not only about product design but also about production line design and site operation into explicit knowledge through digitalization and standardization has been progressing. Accordingly, there is progress in horizontal integration such as the emergence of business sectors that provide the relevant functions externally, beyond the conventional boundaries between companies and industry sectors.”

In the manufacturing industry, there has been active movement away from vertical integration and toward horizontal integration for some time. The vertical integration model in which everything is developed and manufactured from scratch does not help companies win in an increasingly competitive environment with global players in light of the fast pace of technical innovation, the shortened product life cycle and the increased price competition. Every company has its own areas where it has high added-value in its value chain, and, by horizontally dividing labor with other companies in other areas and focusing on its own areas of expertise, it can overcome the competition. Main examples include fabless companies concentrating on their product design, marketing and sales functions and foundries that specialize in production.

The progress of horizontal integration stated in the latest version of the White Paper on Manufacturing Industries (Monodzukuri) indicates the diversification of the forms of horizontal integration. For example, there are companies who offer manufacturing business operators the same comprehensive platform that can analyze production data using AI, such as equipment operating status and quality examination, to detect equipment and quality defects in advance and implement automatic control.

In the manufacturing process, however, a company’s competitive superiority may sometimes be lost due to an excessive focus on the improvement of productivity through digitalization and standardization. To avoid this risk, certain products and services are made in black boxes using in-house development and production, even if this goes against current trends. Readily identifying the newest changes and trends regarding what other companies believe is important and what strategies they are using in manufacturing is very important for us.

I would like our engineers to understand their roles and their professional expertise in whatever circumstances arise, and constantly pursue new technologies and the approaches that use these technologies. Also, I ask that you enhance your questioning capabilities and your ability to understand issues to increase added value as engineers able to effectively use next-generation technologies and tools and use your own judgment, rather than being people used by these technologies and tools.


August, 2023