As reported in this Blog on Aug. 01, Japanese machine tool maker, Horkos, was raided by Police under the violation of export control law.
They are allegedly investigated the exportation of license required machine tool to South Korea without license. The machine tool is said to be license required item due to its high technical specification. The company recognized it, but they declared its technical specification falsely to Customs, with intention to skip the troublesome export licensing application, and expected to cut lead time of shipment. In addition, their products may be re-exported to North Korea or Iran.
Horkos has 665 employees and its sales turn over is 21 billions yen, according to their web site.
The result of police investigation is still uncertain.
This kind of violation case is actually commonly happens (and unfortunately will continue to happen) in Japan, especially for small or medium sized company.
I pick up some reasons why.
1) Complicated regulation and implementation
Japanese export control law is too complicated to fully understand, even for educated business people. In order to correctly understand and know what to do, people must understand the combination of Law, Order, ministerial order, notification and circulars from METI. These are written with "law words", therefore normal Japanese cannot understand what it states.
2) Resource shortage
As export control skill is very niche category, not many trained employees are available who understand export control law. Even for logistics manager, many are not familiar with export control. Big companies such as Toshiba, Cannon, Mitsubishi etc. have experts in-house, however small and medium companies don't have such human resource.
3) Expensive advisory cost of CISTEC
There is official and public advisory organization in export control, such as CISTEC.
They offer advisory, training seminar, and books etc. to members companies.
However, the annual member fee is expensive, JPY800,000 (US$7,300) per company with its capital exceeding JPY100 millions, or JPY400,000 (US$3,600) for small companies with its capital below JPY100 millions. Small companies hesitate to be a member of CISTEC. Although CISTEC's service is available to non-members, the seminar fee and the books are priced as double of that of members. Currently, CISTEC members companies are only 338 as of August 1, 2008.
4) Classification difficulty
Much of operational difficulty is in classification of items, whether the items are required export license or not. The classification technique is relied on both technical knowledge and legal knowledge. Either one is not enough, definitely needs both area of knowledge and experience. There are not many engineers who has export control legal knowledge. In addition, basically METI don't touch the classification of items. I know in some countries government organizations take care of items classification, but in Japan, it is totally responsibility of exporter.
5) Export license application
When applying export license to METI, it takes much time. Maximum would be 90 days but basically in case by case. Not only the lead time, but documents preparation is troublesome. Exporter must prepare and submit a contract, a written pledge, or any other possible documents METI request. Such things motivate exporter to skip license application as much as possible. This circumstance is one of the reasons Horkos Corp. exported their items illegally. In addition, Yamazaki Mazak gave up building the new factory in India as reported in this Blog on Aug. 5. It is said they just gave up before applying export license to METI, possibly due to this reason.
6) Customer and business driven ethics
In Japan, business ethics are more in customer oriented (or sales oriented) than compliance. It is more important to expand business than to be compliant to law.
Such culture is more emphasized in small companies with slow economy, and especially in provincial companies where the economy is much worse than Tokyo area. Culture doesn't change soon. In addition, generally, sales managers have much more political power than operation guys in the organization. Sales logic and ethics tend to move the business to skip export license applicaiton or false classification.