Subaru's secret: Low-paid foreign workers power an export boom

OTA: Yasuyuki Yoshinaga was in a good mood at the early May earnings briefing in Tokyo. The top executive at the maker of Subaru automobiles joked that he would have to wear a helmet on an upcoming trip to the United States. The reason: Dealers were going to hit him over the head for not supplying them with enough of his cars to sell.

Subaru's US sales have almost doubled in the past four years. At the heart of that success is the company's Forester all-wheel-drive SUV, which has carved out a following with American drivers for its performance, price and aura of social responsibility.

That's been a key selling point for Subaru, which has marketed itself in the U.S. as the automaker with a conscience. Subaru's "Love Promise," in which it pledges to make "a positive impact in the world," has helped build loyal consumers in states like California, New York and Washington.

What Subaru does not tout is that its boom is made possible in part by asylum seekers and other cheap foreign laborers from Asia and Africa.

They work at the automaker and its suppliers at Subaru's main production hub, here in the Japanese town of Ota, two hours north of Tokyo. Many are on short-term contracts. At Subaru, some foreign workers earn about half the wage of their Japanese equivalents on the production line. At the automaker's suppliers, workers are often employed through brokers who charge up to a third of the workers' wages. From countries including Bangladesh, Nepal, Mali and China, these foreign laborers are building many of the parts for the Forester, including its leather seats, often in grueling conditions.

A Reuters investigation of factory conditions in Ota - including a review of pay-slips and asylum applications, and interviews with dozens of laborers from 22 countries - reveals that foreign workers are enduring abuses at the hands of labor brokers and companies in the Subaru supply chain.

$730 A MONTH

These include workers at Subaru's suppliers like Lakhan Rijal, a stocky 34-year-old asylum seeker who said he was fired after injuring his back at a plant that makes seats for the automaker. Other foreign workers spoke about being pressured to work double shifts, being dismissed without notice and having no insurance.

Most of the 120 workers interviewed by Reuters were earning the minimum wage for machinery manufacturing in Ota's Gunma prefecture - $6.60 an hour - or above.

But Reuters also found more than a dozen Indonesian laborers at two small Subaru suppliers who said their net monthly pay was $730. That works out to $3.30 per hour after rent, utilities and fees owed to the dispatch company in their home country had been deducted.

The problems in the Subaru supply chain are an outgrowth of Japan's peculiar labor market, which has tightened as the nation's population shrinks and its barriers to legal immigration remain high.

Squeezed by a lack of workers, companies like Subaru and its suppliers are resorting to what is effectively a system of back-door immigration of asylum seekers, visa overstayers and Asian trainees. This gray market in labor enables the employment nationwide of tens of thousands of foreigners on the cheap in sectors such as construction, agriculture and manufacturing.

Subaru's parent company, Fuji Heavy Industries Ltd, said its suppliers are responsible for their own labor practices and it was not directly involved in supervising working conditions. Obeying the law and company guidelines are a prerequisite to doing business with Subaru, the company said in a written response to questions from Reuters. The company also said it had no power to monitor the behavior of labor brokers.

"We ask that the suppliers do not discriminate and that they respect human rights and follow the laws and regulations as stated in our guidelines," Fuji Heavy said.


Subaru itself employs 339 trainees from China under a government program intended to equip workers from developing countries with industrial skills. Trainees are often indebted to dispatch agents back home and cannot change their employer once in Japan. The program has been criticized by the United Nations and by the U.S. State Department, which said in its recently released annual report on human trafficking that some trainees "continued to experience conditions of forced labor."

Trainees have been used as a stopgap in struggling industries like agriculture and textiles for more than two decades. But the Reuters investigation reveals how the trainee program is now being embraced by a major Japanese exporter at the heart of the country's manufacturing sector.

The main problem for Subaru and its suppliers is obtaining sufficient labor. The hiring of foreigners is about securing workers in the tightest Japanese labor market for over two decades, as Subaru scrambles to meet rising demand in the U.S. market.

While there is no official data on the number of foreign workers in the Subaru supply chain, Reuters found about 580 foreigners working at a sample of four of the automaker's suppliers in Ota. That estimate, based on interviews with companies, labor brokers and workers, represents about 30 percent of the workforce of some 1,830 at these four companies. In total, there are around 28,000 people working at the automaker's suppliers in the Gunma region, according to a Reuters calculation based on data from auto industry research company IRC.

A key source of gray-market labor for Subaru's suppliers is asylum seekers. In Japan, these people fall broadly into two categories: The bigger group of asylum seekers is made up of those who are allowed to work and have permits that need to be renewed every six months. A smaller group is made up of asylum seekers who are on "provisional release" from immigration detention and are working without permits.

Under government immigration rules, these people are allowed to stay in the country while their asylum applications are reviewed. But they are not allowed to work.


Asked how people on provisional release were supposed to survive if they were barred from working, Hidetoshi Ogawa, a senior official at the Ministry of Foreign Affairs, said they should rely on support from their relatives, friends and local charities. He said provisional release was a humanitarian measure to avoid long-term detention, "but in truth, these people should leave the country."

Lakhan Rijal worked with asylum seekers like himself and other foreigners at the Subaru supplier NHK Spring Co, commonly known as Nippatsu. At the plant they muscled pieces of leather by hand onto hundreds of headrests every day. Many of those on the production line lost fingernails, and others were unable to close their fists after a shift because of the strain of the repeated effort, Rijal and his fellow workers at the plant said.

In January, Rijal says he woke up with severe pain in his lower back and numbness in his right leg. He had injured his back previously before coming to Japan, requiring surgery. He said the labor broker who placed him with Nippatsu gave him an ultimatum: Work or don't come back. Unable to move, he said he was fired. Medical records show Rijal underwent spinal surgery for a herniated disc on March 12. He says he owes about $9,000 to a local hospital and to the Nepali agent who arranged his move to Japan.

"When I talk to my wife (in Nepal) on Skype, I hang up after three minutes," said Rijal, who has a nine-year-old daughter. "I can't stand her crying."

Asked about Rijal's case, Subaru noted that he had a chronic back condition before he worked at Nippatsu.

Nippatsu said any questions about its workers should be directed to the labor brokers who recruit them for the company and sign them on contracts. "It's the dispatch companies' problem," Nippatsu spokesman Hiroaki Saito said in a telephone interview. "We don't employ them directly."

Osvaldo Nakamatsu, who runs the company that recruited Rijal, said in an interview in Ota that Rijal was not given an ultimatum. Rijal wanted to go back home for treatment, Nakamatsu said, and he fired Rijal to help him get severance pay from the government. Rijal said he never expressed a desire to return to Nepal and that he didn't seek any payout.


Abu Said Shekh works at a Subaru supplier in violation of the law. On provisional release from immigration detention, he paints dashboard components and other interior parts for up to 12 hours a day, six days a week. Pictures taken with his mobile phone show him wearing a mask to protect against paint fumes. He asked that his place of employment not be identified.

A copy of Dhaka court documents translated into English show that Shekh was indicted back home in Bangladesh under the country's explosive materials laws. In his asylum application documents, the 46-year-old Shekh said he was the victim of trumped-up charges and had been targeted for being a member of an opposition party. Reuters could not independently verify his assertion. His asylum request was rejected in 2011, a Ministry of Justice letter shows. He has since reapplied and is now awaiting a final decision.

Shekh says he lives in the shadows, constantly on the watch for immigration officers. "I have no right to work and no insurance," he said. "Formally, I don't have an address or a bank account. To the government of Japan, I am Mr Nobody."

Asylum seekers on provisional release are effectively trapped - they can't go home and they aren't allowed to work. "I have to stay here and I need money to buy food," said Shekh, sitting in the two-room apartment he shares with a fellow Bangladeshi. "I just want to be treated like a human being, not a dog."

Subaru said it does not employ people on provisional release from immigration detention who aren't allowed to work and was unable to find any at its suppliers.

While Subaru is the Japanese automaker most reliant on domestic production, its suppliers in Ota also make parts for other car manufacturers, including Toyota, Nissan and Honda. Toyota and Nissan both said they did not employ asylum seekers; neither would comment on the employment of asylum seekers by their suppliers. Nissan also said it employs about 50 trainees. Honda declined to comment.


Subaru is a case study in how Prime Minister Shinzo Abe's economic policies have created wealth for exporters. Helped by a weaker yen, Subaru has powered past BMW and Mercedes in terms of U.S. market share. Its stock price has quadrupled since the end of 2012. Based on U.S. sales, the Forester alone is a $3.6-billion-a-year export machine, Reuters calculates.

Subaru is distinct from its Japanese competitors because it makes almost all of its cars - 80 percent of them - in Japan. That has made the automaker a major beneficiary of Abe's efforts to boost exports but left it and many of its 260 suppliers struggling to find workers.

"We can't make cars, or even parts, without foreigners," said Masayoshi Shimizu, mayor of Ota. "That's just the reality." The 20-year incumbent has lobbied without success to make his town a special immigration zone where hiring regulations for foreign workers would be relaxed.

Shimizu said in an April interview that he wasn't aware of the abuses uncovered by Reuters in Ota. But he was concerned by the potential financial burden on the town caused by labor brokers not enrolling workers in social insurance.

Even as demand for laborers in manufacturing has almost doubled over the past six years, Abe's government has stuck with an approach that severely restricts foreign workers from getting visas for factory jobs. That's largely because of the political sensitivity of immigration in a nation that has long celebrated its homogeneity.

In 2010, Japan changed immigration regulations to allow asylum seekers six-month renewable work permits while their applications were being processed. Since then, applications have jumped four-fold to a record 5,000 last year, fueled by asylum seekers from Nepal, Turkey and Sri Lanka. But fewer than two dozen applicants were approved in each of the last four years.

Hideharu Maruyama, an official overseeing immigration policy at the Ministry of Justice, blames the foreigners, who he said are exploiting loopholes in Japan's immigration system. "The idea has spread that people who apply for asylum will be allowed to work," he said.


Taro Kono blames the government. A lawmaker for the ruling Liberal Democratic Party, Kono said in late May that Japan needed to get over the "psychological barrier" to discussing immigration policy. "Official government policy is 'no cheap labour from foreign countries.' That's a big lie," he said, noting that under the trainee program, foreign workers were picking cabbages and making beds in hotels. "It's a back door. I'd say let's close the back door and start issuing work permits."

Originally meant as a humanitarian measure, the 2010 changes to the asylum process have morphed into a means of providing discount labor for companies like Subaru's suppliers. It's also been a boon for labor brokers. As Subaru has ramped up production in Ota, some of its suppliers say they have become increasingly dependent on dozens of local brokers who specialize in hiring foreigners on short-term contracts.

"The merit of using labor brokers is that the companies can cut jobs whenever they want," said Hiroshi Osada, a production quality expert and a member of an external panel that audited Toyota during its 2010 recall crisis.

More than 2.5 million temporary workers in Japan are registered by thousands of brokers. Large temp agencies recruit workers on short-term contracts for Japanese businesses. Smaller, less regulated firms employ workers directly, and send them to factories and offices. The number of such firms has been on the rise in recent years, supplying labor to worker-hungry factories in manufacturing towns like Ota.

In Gunma prefecture there are about 1,100 brokers, most in the smaller, less-regulated category. They range from a man with a van equipped only with a thick book of contacts to family-run firms operating from the back of a restaurant or garage. Many of the firms are run by, and geared towards, foreigners. Offices with signs in Turkish, Spanish and Chinese dot the streets of Ota and neighboring Oizumi.

Hikari Shouji is the labor brokerage firm that sent Lakhan Rijal to seat maker Nippatsu. The firm is run by Osvaldo Nakamatsu, who came to Japan with a wave of Japanese-Brazilian immigrants in the late 1980s and soon entered the brokering business, supplying workers to auto parts makers.


Nakamatsu said that he sends around 90 workers to Nippatsu, employs 11 full-time staff, and owns 26 vans and 75 rooms to transport and house them. The company is building four new dorms in its Hikari Village, a campus close to the Nippatsu plant. "We're so busy with Nippatsu, we can't really send people anywhere else," Nakamatsu said.

He said he takes about $4 per hour for each of his workers. Nakamatsu's firm stands to receive close to one million dollars a year from sending workers to Nippatsu, Reuters calculates, based on a 50-hour work week and 90 workers. He declined to comment on the revenue figure.

Some of the brokers are factory workers themselves. A worker at a top-tier supplier told Reuters he makes $80 a month for every person he finds and introduces to his employer.

Competition is fierce among Ota's brokers trying to win lucrative contracts to supply workers to local factories. Brokers are under pressure to wine and dine factory managers and sometimes to offer gifts to secure contracts, four brokers told Reuters.

"They need manpower but they have a lot of brokers to choose from," said Yosuke Niwa, president of labor broker Y's Corp, located on the outskirts of Ota. "The power is with the company."

Subaru said it was not in a position to directly monitor labor brokers working for its suppliers. At the same time, the company said it could "indirectly" force labor brokers to comply with its standards by using its power to change the terms of contracts with any supplier that proved problematic - an action it said it had never taken. The automaker said its suppliers and labor dispatch firms were "extremely careful in respecting labor regulations" and Subaru's corporate responsibility guidelines.

The automaker has ramped up production at its 46-year-old Yajima plant in Ota, using two shifts of about 4,000 workers in total to churn out 1,800 cars a day. It takes about 20 hours to build a Forester at Yajima, visitors to the plant are told. Beethoven's "Für Elise" plays on loudspeakers when the line is about to restart after a shutdown, a reminder also of the cost of lost time.


"Right now, the biggest challenge is keeping up with expansion by Subaru," said Masataka Sakamoto, chief executive of Sakamoto Industry Co, a top-tier supplier that makes mufflers and fuel tanks for Subaru vehicles.

Subaru and its suppliers also employ hundreds of workers hired through Japan's controversial foreign trainee program that was criticized by the United States and the United Nations. The automaker saves about $3.8 million per year by employing its 339 Chinese trainees, according to a Reuters calculation. Subaru declined to comment on the figure.

The program typically sends workers to companies for three years. But most of the Chinese trainees building Foresters at Subaru's Yajima plant only get one-year renewable contracts. That's a hedge against a possible slump in the U.S. market like the one that threatened Subaru in 2008, said Mitsuhiro Nagakawa, a manager at Subaru Kohsan Co, a subsidiary of the automaker.

"If in the middle of the process there's a downturn, we would need to keep the promise of a three-year contract," he said.

The Chinese, many of them men in their early 20s, work around 50 hours a week and are paid the minimum wage of $6.60 per hour, pay-slips reviewed by Reuters show.

That is about half of what Japanese temp workers employed full-time at the same plant make, according to Subaru advertisements posted in Ota and on the website of its parent, Fuji Heavy Industries. Subaru's U.S. subsidiary would not provide information on starting wages at the company's single overseas plant, in Lafayette, Indiana. It said the top hourly rate at the American factory is $25.33.

Subaru said the trainees in Ota were treated equally with Japanese workers and given the chance to learn skills on the job. The automaker also said that work-related documents were translated into Chinese and that it had established an environment in which these workers could speak freely.

Some trainees tell a different story - of being warned by their live-in manager that speaking about their working conditions could mean all of them would be fired and sent back to China. Unlike their Japanese co-workers, they are on one-year contracts and can't change employers.


Subaru houses the workers two to a room in an Ota apartment block, deducting rent, utilities and food expenses from their wages, their pay-slips show. None of the trainees, who said they pay up to $3,000 to a Chinese labor recruitment and dispatch company to join the program, agreed to be named.

Mohammed Shafeer Kallai stands behind the plant where he works and brings up pictures of his injured finger on his mobile phone. The 28-year old Indian asylum seeker had the tip of the ring finger on his left hand mangled by a conveyor belt chain last August at Ikeda Manufacturing Co, a supplier to Subaru and Honda that specializes in brake parts and shock absorbers.

Kallai said Ikeda managers did not call an ambulance after the accident. Instead, he said, they called his broker, who kept him waiting for 30 minutes before taking him to the hospital.

"We stopped the bleeding and told him to apply pressure to the wound," said Ikuo Nakajima, an assistant manager at Ikeda. Sadao Yagi, general manager at the Subaru supplier, said the company did not call an ambulance because it did not consider the case to be a medical emergency. Yagi confirmed that Ikeda had contacted Kallai's labor broker after the accident. Ikeda officials couldn't say how long it had taken for the broker to arrive and take the injured worker for treatment.

Yagi said Kallai was injured because safety guards on a conveyer belt had accidentally come off. The supplier said it had taken steps to ensure the safety guards on the line were secure after Kallai's injury.

"There was so much blood coming out," said Kallai. "I was saying, 'It hurts terribly, get me to the hospital.' But they said, 'It's nothing to do with us.'"