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Building manufacturing capability in Japan: embracing tradition and innovation

insight
August 12, 2025
9 min read


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Noritaka Wakuda

A Managing Director at Nagarro, committed to driving the digital transformation of Japan.

 

 

Japan’s manufacturing ethos continue to define global quality standards

Japan’s manufacturing ethos set the global quality benchmarks. Rooted in monozukuri: the art, science, and spirit of making, this tradition blends craftsmanship, quality, and discipline into a living foundation for industry. It has produced global icons such as Toyota, Honda, and Canon, synonymous with precision and reliability. Today, this legacy powers Japan’s automation leadership: according to the International Federation of Robotics (2024), the country has 419 robots per 10,000 employees, nearly triple the global average, driven by decades of kaizen-inspired precision engineering and early adoption of Industry 4.0 technologies. 

Kaizen (Continuous Improvement)

An ethos where every employee, from management to production, is expected to find ways to improve. At Toyota, employees submit over a million suggestions for improvement every year, with 90% of them being implemented. 

 

Lean manufacturing

A production philosophy that focuses on maximizing value while minimizing waste. Lean principles emphasize just-in-time delivery, continuous flow, and the relentless pursuit of efficiency. This philosophy, which has its roots in the Toyota Production System, has shaped a culture in which every process is scrutinized for waste (muda) and improved in terms of flow, quality and responsiveness. 

Quality control circles

Small teams work together regularly to address process inefficiencies and deficiencies, leveraging grassroots innovation. The best ideas often emerge near work. 

Japan's strength in manufacturing is not just vested in the machines, it is in the minds and hands of people that operate them.

Facing modern challenges 

Legacy alone cannot secure the future. Japanese manufacturers are navigating profound change, marked by both resilience and vulnerability. In June 2025, the manufacturing PMI rose to 50.4, ending an 11‑month contraction (au Jibun Bank). Yet earlier in the year, it hovered around 48.7–49.4, which clearly signals an ongoing pressure from weak exports and domestic demand.

An ageing population and labor shortage

By 2025, over 29% of the population will be 65 or older, the highest proportion in the world. This means, one in seven workers will be over 65. This demographic shift is leading to a projected shortage of 11 million workers by 2040. Leading to government's accelerated investment in digital solutions and automation as a vision for Society 5.0. The number of retirements now far exceeds the number of new hires, and in 2024 the labor shortage contributed to a record number of business failures.

Global competition

As Japan strives to remain the third-largest manufacturing economy, one question lingers in the minds of leaders: How do we remain globally competitive without sacrificing our values? The answer may lie not in reinvention, but in returning to the ethos that once defined its leadership, refining it for a more connected, competitive age.

Sustainability is the order of the day

With Japan's commitment to carbon neutrality by 2050, manufacturers are under pressure to reduce their emissions and introduce circular economy practices. The industrial sector is among the most challenging to decarbonize and requires significant investments in clean technologies.

Gaps in digital transformation

Despite its reputation for robotics, Japan is lagging in digitally integrating the entire manufacturing landscape. Many SMEs still operate on paper or in silos, slowing innovation and coordination across complex supply chains.
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An ageing population and labor shortage

By 2025, over 29% of the population will be 65 or older, the highest proportion in the world. This means, one in seven workers will be over 65. This demographic shift is leading to a projected shortage of 11 million workers by 2040. Leading to government's accelerated investment in digital solutions and automation as a vision for Society 5.0. The number of retirements now far exceeds the number of new hires, and in 2024 the labor shortage contributed to a record number of business failures.

Global competition

As Japan strives to remain the third-largest manufacturing economy, one question lingers in the minds of leaders: How do we remain globally competitive without sacrificing our values? The answer may lie not in reinvention, but in returning to the ethos that once defined its leadership, refining it for a more connected, competitive age.

Sustainability is the order of the day

With Japan's commitment to carbon neutrality by 2050, manufacturers are under pressure to reduce their emissions and introduce circular economy practices. The industrial sector is among the most challenging to decarbonize and requires significant investments in clean technologies.

Gaps in digital transformation

Despite its reputation for robotics, Japan is lagging in digitally integrating the entire manufacturing landscape. Many SMEs still operate on paper or in silos, slowing innovation and coordination across complex supply chains.

The industry 4.0 response: smart, systematic transformation

Japanese manufacturers are embracing Industry 4.0, but in a typically methodical and human-centred way. Smart factories utilize Industrial IoT sensors to monitor machine conditions and performance in real-time, enabling predictive maintenance and minimizing downtime. AI algorithms detect anomalies before they cause disruptions.

Industry-4.0
AI augmentation

AI does not replace humans but supports skilled workers by providing insights to avoid errors, improve schedules, or streamline workflows. This "harmony between man and machine" respects the values of monozukuri. 

Leading in robotics

Japan remains one of the most automated economies in the world, with 419 robots per 10,000 workers. Robots automate repetitive and dangerous tasks, allowing workers to focus on complex manual tasks.

Bottom-up digitization

Inspired by Kaizen, many companies are empowering their employees to co-develop technical solutions. Factory teams are testing their own IoT systems or AI applications, leading to scalable, employee-driven innovation. 

 

In 2024 alone, Japanese car manufacturers will install around 13,000 industrial robots, an increase of 11% on the previous year. This is the highest deployment since 2020. This expansion will allow the kaizen principles to be implemented with unprecedented precision and speed.

A cultural shift: From hierarchy to agility

Technology can improve tools, but to truly transform manufacturing, Japan needs to change its mindset. In the past, hierarchical corporate structures based on consensus, seniority and perfectionism were a source of stability and high performance. But in today's high-velocity: a digitally connected world, speed and adaptability are more important. This change doesn’t call for jettisoning the cultural identity; it needs reinterpreting it to meet the demands of a new era.

Among forward-thinking Japanese manufacturers, we are seeing a quiet revolution, one where agility is beginning to complement tradition. Companies are beginning to break down rigid hierarchies to allow younger, tech-savvy employees to take the initiative earlier in their careers. Cross-functional "digital task forces" and flatter team structures allow for faster, localized decision-making, especially on the front lines, where knowledge is often most important. Inspired by the startup mindset, R&D and IT departments are adopting agile frameworks such as Scrum and Lean Startup, which enable rapid prototyping and iterative development without waiting for top-down approval. Meanwhile, digital tools like AR headsets, real-time data dashboards and remote collaboration platforms are decentralizing control and streamlining workflows and giving more autonomy to those closest to the work.

 

 

Japan's next wave of industrial leadership will not come from hierarchy, it will come from the agility that its people will bring.

Sustainability Reimagined with Mottainai

Japan’s path to sustainable production is nothing new, it is just a return of its principles. At the heart of this change is mottainai, the traditional ethos that loosely translates as “not wasting what still has value.” Far from being a nostalgia, mottainai is re-arriving as Japan’s blueprint for industrial renewal.

In modern factories, this philosophy is manifested in data-driven energy optimization, where IoT sensors reduce power consumption during idle periods, and AI systems precisely calibrate heating, cooling, and energy loads. Material efficiency has also evolved: Robots are being used not only for precision assembly but also for automated material sorting and closed-loop recycling. At the same time, new product designs enable disassembly and reuse at the end of the life cycle. Ambitious national policies support these efforts, notably Japan’s Green Transformation (GX) strategy and its commitment to mobilize 20 trillion yen ($150 billion) through GX bonds to fund industrial decarbonization and innovation.

Manufacturers are also increasingly using blockchain and cloud-based traceability platforms to: monitor ESG metrics and track sustainable sourcing. Which enables them to meet growing transparency demands and gain the trust of their customers. Japanese businesses are responding by leveraging their cultural respect for resources into a competitive advantage as global supply chains increasingly demand climate accountability. In doing so, they are demonstrating that sustainability is not just about new tools but about revitalizing and time-honored values through modern means.

 

Mottainai is not nostalgia, it’s Japan’s blueprint for sustainable innovation.

A strategic inflection point: turning pressure into possibility

What if Japan's biggest manufacturing challenges become signals, instead of setbacks. Signals that point at a profound transformation, waiting to unfold.

Japan's industrial sector is at a crucial crossroads. The pressures it faces, such as changing demographics, intensifying global competition and rising expectations of sustainability, are not simply obstacles. They are signaling to once again take the lead, not by imitating others, but by mastering the future through the lens of your own unique identity.

It is time to modernize the strengths of the old systems.

 

A man-machine future based on trust

Nowhere is the urgency more apparent than in Japan's ageing workforce. Instead of viewing labour shortages as a weakness, leaders are beginning to see a new equation: a man-machine partnership model. Japan has always been a leader in robotics. Still, today, it can also be a leader in collaborative automation, where machines complement rather than replace, and humans are at the centre of production. This is an opportunity for small and medium-sized manufacturers, in particular, to become pioneers of worker-driven digital transformation. 

 

From costs to craft: preserving value leadership

Japan’s advantage lies not in cost, but in craftsmanship, precision, reliability, and integrity honed over generations. When experts retire, the challenge that surfaces is of continuity. Digital tools such as AI and digital twins can help to capture and pass on this expertise. In premium markets where quality is paramount, the combination of tradition and technology will be Japan’s key to maintaining its leadership position. 

Sustainability: from compliance to competitive strategy

Japan does not need to invent sustainability, it needs to remember it. The spirit of mottainai, reverence for resources, has shaped generations of Japanese industry. Now, that same ethos can drive regenerative manufacturing, leadership in the circular economy and transparent, low-carbon supply chains. This is not about meeting minimum standards but about creating a compelling business case for sustainability as a principle and a service.

 

Digitalization with a human touch

In the digital race, Japan's strength will not be in scaling the fastest but in scaling with purpose. While many SMEs are still lagging in adopting digitalization, this is a unique opportunity to initiate change from the ground up. Build an empowered workforce on the factory floor that is equipped with real-time insights that lets them optimizations and even develop small-scale IoT or AI solutions. This is digital kaizen in action, a reinvention of continuous improvement for the age of data. 

The future of Japanese manufacturing cannot be outsourced. It must be rebuilt from within, by reconnecting with the principles that made Japan a global leader, and translating them for a digital, sustainable age.

This is not about borrowing or resisting. It is about collaboration between generations, between tradition and technology, between Japan and the world, to develop a manufacturing model that is not only competitive, but also human and sustainable.

Generative AI in automotive manufacturing

Are you ready to lead Japan’s next industrial chapter?

Japan’s strength has always come from within its culture, its craftsmanship, its collective commitment to excellence. The next challenge is to turn these strengths into collective innovation.

Manufacturing opportunities in Japan

In the Japanese factory of the future, digital twins, AI co-pilots, and autonomous robotics may be present. But there will also be morning drills and quality control sessions with a shared sense of purpose. This fusion of tradition and change, of human insight and machine intelligence, shall create a uniquely Japanese concept for the future of manufacturing.

 

1.

How do we remain globally competitive without sacrificing our values?

2.

How do we address the workforce crisis without breaking our operational model?

3.

Can we scale digital transformation across our fragmented supplier base?

4.

How can we transition to sustainable manufacturing without hurting profitability?

5.

Are we culturally prepared to lead in a more agile, collaborative, and global world?

Building manufacturing capability in Japan: embracing tradition and innovation

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