Osaka - Sunday, August 21, 2011
Nikkei, the leading Japanese newspaper specialized in economy and business, reported today that the Japanese government is to set up a back-up system in which western Japan can complement government function when a disaster should occur such as a huge earthquake that directly hits Tokyo, the capital of Japan.
This is because from the Japan disaster that occurred in March this year it became prominent that a system in which regions outside Tokyo can complement government and administrative functions in an emergency is critical for as business continuity and risk management.
1. What kind of functions are planned to be backed-up outside Tokyo for an emergency?
They are administrative including foreign diplomacy, defense, police and central government offices that are responsible for economic policies. Each function will set up complementary offices in western Japan so that the newly set-up offices will be able to replace the administrative functions should an emergency occur in Japan.
2. Where will such new complementary offices be established?
Locations of the new complementary offices will be decided based on disaster risk analysis including strength of the ground, possibility of landslides and earthquakes, and transportation convenience. Candidate prefectures include Osaka, Nagoya and Fukuoka.
3. How will new complementary offices be equipped?
New offices in western Japan will be equipped with video conference rooms and satellite phones that are less unlikely to fall into communication failure should a disaster such as earthquake occur. Data centre and IT systems will be established so that information and data necessary for each ministry to continue operating in emergencies will be stored. Also staff members required to manage the offices will be allocated.
4. Why the Japanese government made such a decision?
Simply put, it is a Business Continuity Management (BCM) of Japan by minimizing risk of government/administrative functions becoming paralyzed and economic activities falling into a chaos even if a disaster should strike Tokyo.
Currently the Japanese administrative organizations have no back-up organization/system(s) based on an assumption that a disaster covering a large area occurs and whole of Shutoken (Tokyo and its neighbours such as Yokohama, Chiba and Saitama) becomes paralyzed, which is almost equivalent to the country becoming paralyzed.
Complementary offices of central government offices are mostly located in Tokyo. Aligning with such a situation, over 60% of head quarters of large companies are currently located in Tokyo, and over 25% of GDP and population are concentrated in Tokyo. Thus, Japan is often said as “a country heavily concentrated in Tokyo, its capital”.
From the March 11 Japan disaster, it became clear that if a disaster should occur in Shutoken area it is quite possible that the economic activities throughout Japan will be in a chaos and the country will become paralyzed. Therefore, the Japanese government concluded that they would need to strengthen risk management by strengthening back-up organization/system of administrative functions by setting up complementary offices in western Japan.
5. Has there been any discussion of changing “Tokyo centralized country” before?
Yes, there has been such a discussion, such as relocating the Diet and administrative functions outside Tokyo. However, the discussion has cooled down because such a plan would require more than 10 trillion yen. Long lasting economic stagnation is a negative factor as well.
In comparison, establishment of back-up organization/system of government and administrative functions would require less cost, which is the reason why the Japanese government decided to study and discuss in earnest to put into action.
6. How the Japanese government is to proceed?
Ministry of Land, Infrastructure, Transport and Tourism (MLIT) that is responsible of mid- and long-term land and infrastructure planning is to request budget for the study (tens of million yen) in the upcoming 2011 budgeting revision in autumn. Committee constituting from experts from various fields will be established by the end of September, which is to create a report by the end of the fiscal year (March 2012) about the topic.
MLIT, Ministry of Finance, Ministry of Internal Affairs and Communications etc. are to set up cross-ministry meetings in 2012 to start discussing concrete issues of the topic, including review and improvement of legislation if necessary.
Resources:-
Japanese government/administrative functions have long been concentrated in Tokyo, the capital of Japan but the government decided to establish a back-up system in western Japan by setting up complementary offices of central government offices etc. This is because from the March 11 Japan disaster, it became prominent that business continuity and risk management is necessary to avoid paralysis of administrative function and economic activity chaos should a disaster covering large area occur, hitting Tokyo.
2011年8月14日日曜日
More M&A and Manufacturing Industry Restructuring in Japan?
Osaka - Sunday, August 14, 2011
Following the previous article Hitachi and Mitsubishi Heavy Industries Discuss Integration – Why and Its Meaning, the merger that provoked comment and interview by Mitsubishi Heavy Industries top management and his spokesperson as well as discussion online articles by leading Japanese business media, the author would like to explain what Nikkei, the leading Japanese newspaper specialized in economy and business, means by “Japan is facing historical turning point and restructuring of manufacturing industries is to come in the near future”.
1. How are Japanese automobile and electronics industries that have been the “engine” of Japanese economy?
Number of Japanese manufacturing companies in electronics including heavy industries and automobile are far greater than that of other countries, simply because mergers leading to industry restructuring have been extremely rare unlike other countries.
Today there are 8 automobile companies, 12 including companies specialized in trucks. Among 12 companies, there are only 2 that are truly “independent manufacturer” without investment from other company; Toyota and Honda. This is because there has been some restructuring in automobile industry in Japan. Market and business environment has been challenging nowadays and it is not surprising that investments (capital alliances) lead to M&A, similarly to recent M&A of the two Japanese leading iron and steel companies of Nippon Steel and Sumitomo Metal Industries. This would mean further restructuring of the industry.
Electronics is the industry that has been extremely slow in restructuring which is why even today the industry structure remains almost the same as that of just after World War II. There have been crisis such as economic depression attributing to high yen after Plaza Accord and the collapse of the bubble economy. However, electronics companies never thought of strategic alliances and M&A, leading to restructuring of the industry.
2. Why electronics industry restructuring has bee extremely slow in Japan?
It is because the electronics companies benefited from abundant domestic demand supported by businesses of electricity and telecommunications companies. Equipment investment of electricity companies (Tokyo Electric Power Co., Inc = TEPCO etc.) was as much as 4.9 trillion yen at the peak in 1993, and of Nippon Telegraph and Telephone Corporate (NTT), the leader of telecommunications that used to dominate in Japan, was as much as 3 trillion yen at the peak in 1996.
Heavy industries and consumer electronics that rely on businesses of electricity companies and NTT could assure sufficient profit generated from the 8 trillion yen market. This is why Japanese electronics companies could survive without drastic industry restructuring even if they lost the semiconductor competition with South Korea counterparts and suffered from depressions attributing to high yen, the bubble economy collapse and so forth.
3. Can Japanese electronics companies expect to continue benefiting from domestic electricity and telecommunications businesses?
No, they cannot. Equipment investment of electricity companies (TEPCO etc.) has plunged to as low as 2.12 trillion yen in 2010, and of NTT as low as 1.87 in 2010. This means the total equipment investment has become half from that of 1990s. In such a situation, electricity companies and NTT cannot possibly look after/support their “family” of electronics companies.
Liberalization of electricity companies has been slow but it is prominent that abundant investment from TEPCO cannot be expected when TEPCO is responsible for liability obligation of the Fukushima Daiichi nuclear plant accident. Abundant investment from other electricity companies cannot be expected either in the current ambiguous business environment.
Telecommunications companies have been “thrown out in the sea of competition” with liberalization, which is why NTT group was privatized and split in latter 1990s. NTT now handles all mobile terminals including those of the U.S. and South Korea manufacturers to compete and win over competitors such as SoftBank. This has much meaning because it was NTT, not NEC nor Fujitsu that was the “engine” of Japan’s IT industry growth. This is because even NEC and Fujitsu, the leading Japanese IT companies, have been subcontractors of NTT.
4. How can Japanese electronics companies survive in the future?
It is to convert “the current historical crisis since World War II” to “opportunity to change the old industry structure that has remained the same since World War II”. This is to get out of over-competition in the domestic market to compete in the global market.
Japanese consumer electronics and IT related companies would need to get out from a business environment in which NTT decides various standards and make investments because that would refrain them from generating creativity to compete with the global counterparts including Apple, Google and Sumsung. This means getting out to global market and they would need to do so now.
Japanese heavy industries would need to follow that, too. It might be a little harder for them than consumer electronics and IT related companies under the current structure in which “10 electricity companies dominate” avoiding competition; however, it is quite possible that such a industry structure is to collapses in the near future.
Japanese electronics manufacturers have technologies such as of smart grid, transportation (railway) and water supply, which were highly re-evaluated by other countries although it was barely reported because of nuclear accident news. Despite critical damages by the disaster, railways avoided fatal accidents and social infrastructure such as water and electricity supply and telecommunications recovered in such a short time.
With their world-class technologies, Japanese manufacturers can be competitive again in the global market as long as they get out there. What they need is change in mindset, courage and action.
This may well mean strategic alliance or M&A, leading to restructuring of the industry. The recent news of Panasonic acquisition of Sanyo, Panasonic selling of a part of Sanyo business to Haier, and merger of Hitachi and Mitsubishi Heavy Industries is quite possible to trigger such an industry restructuring.
Although this would mean more global competition, this would also be good for the world because countries, developed and developing, would be able to benefit from the world-class technologies the Japanese companies have.
Resources:-
Restructuring of the Japanese automobile and electronics industries (consumer and heavy industries), has been insufficient since World War II, although companies of such industries have been the “engine” of Japanese economy. This is primarily because they have been benefiting from abundant domestic demand/market supported by electricity and telecommunications businesses. However, such domestic market has become half from 1990s and they are facing historical crisis. They do have world-class technology especially in social infrastructure segment so one possible way for them to survive is to take this opportunity to get out to global market, from which countries could benefit from their technologies. This may well mean more M&A among manufacturers leading to industry restructuring in Japan.
Following the previous article Hitachi and Mitsubishi Heavy Industries Discuss Integration – Why and Its Meaning, the merger that provoked comment and interview by Mitsubishi Heavy Industries top management and his spokesperson as well as discussion online articles by leading Japanese business media, the author would like to explain what Nikkei, the leading Japanese newspaper specialized in economy and business, means by “Japan is facing historical turning point and restructuring of manufacturing industries is to come in the near future”.
1. How are Japanese automobile and electronics industries that have been the “engine” of Japanese economy?
Number of Japanese manufacturing companies in electronics including heavy industries and automobile are far greater than that of other countries, simply because mergers leading to industry restructuring have been extremely rare unlike other countries.
Today there are 8 automobile companies, 12 including companies specialized in trucks. Among 12 companies, there are only 2 that are truly “independent manufacturer” without investment from other company; Toyota and Honda. This is because there has been some restructuring in automobile industry in Japan. Market and business environment has been challenging nowadays and it is not surprising that investments (capital alliances) lead to M&A, similarly to recent M&A of the two Japanese leading iron and steel companies of Nippon Steel and Sumitomo Metal Industries. This would mean further restructuring of the industry.
Electronics is the industry that has been extremely slow in restructuring which is why even today the industry structure remains almost the same as that of just after World War II. There have been crisis such as economic depression attributing to high yen after Plaza Accord and the collapse of the bubble economy. However, electronics companies never thought of strategic alliances and M&A, leading to restructuring of the industry.
2. Why electronics industry restructuring has bee extremely slow in Japan?
It is because the electronics companies benefited from abundant domestic demand supported by businesses of electricity and telecommunications companies. Equipment investment of electricity companies (Tokyo Electric Power Co., Inc = TEPCO etc.) was as much as 4.9 trillion yen at the peak in 1993, and of Nippon Telegraph and Telephone Corporate (NTT), the leader of telecommunications that used to dominate in Japan, was as much as 3 trillion yen at the peak in 1996.
Heavy industries and consumer electronics that rely on businesses of electricity companies and NTT could assure sufficient profit generated from the 8 trillion yen market. This is why Japanese electronics companies could survive without drastic industry restructuring even if they lost the semiconductor competition with South Korea counterparts and suffered from depressions attributing to high yen, the bubble economy collapse and so forth.
3. Can Japanese electronics companies expect to continue benefiting from domestic electricity and telecommunications businesses?
No, they cannot. Equipment investment of electricity companies (TEPCO etc.) has plunged to as low as 2.12 trillion yen in 2010, and of NTT as low as 1.87 in 2010. This means the total equipment investment has become half from that of 1990s. In such a situation, electricity companies and NTT cannot possibly look after/support their “family” of electronics companies.
Liberalization of electricity companies has been slow but it is prominent that abundant investment from TEPCO cannot be expected when TEPCO is responsible for liability obligation of the Fukushima Daiichi nuclear plant accident. Abundant investment from other electricity companies cannot be expected either in the current ambiguous business environment.
Telecommunications companies have been “thrown out in the sea of competition” with liberalization, which is why NTT group was privatized and split in latter 1990s. NTT now handles all mobile terminals including those of the U.S. and South Korea manufacturers to compete and win over competitors such as SoftBank. This has much meaning because it was NTT, not NEC nor Fujitsu that was the “engine” of Japan’s IT industry growth. This is because even NEC and Fujitsu, the leading Japanese IT companies, have been subcontractors of NTT.
4. How can Japanese electronics companies survive in the future?
It is to convert “the current historical crisis since World War II” to “opportunity to change the old industry structure that has remained the same since World War II”. This is to get out of over-competition in the domestic market to compete in the global market.
Japanese consumer electronics and IT related companies would need to get out from a business environment in which NTT decides various standards and make investments because that would refrain them from generating creativity to compete with the global counterparts including Apple, Google and Sumsung. This means getting out to global market and they would need to do so now.
Japanese heavy industries would need to follow that, too. It might be a little harder for them than consumer electronics and IT related companies under the current structure in which “10 electricity companies dominate” avoiding competition; however, it is quite possible that such a industry structure is to collapses in the near future.
Japanese electronics manufacturers have technologies such as of smart grid, transportation (railway) and water supply, which were highly re-evaluated by other countries although it was barely reported because of nuclear accident news. Despite critical damages by the disaster, railways avoided fatal accidents and social infrastructure such as water and electricity supply and telecommunications recovered in such a short time.
With their world-class technologies, Japanese manufacturers can be competitive again in the global market as long as they get out there. What they need is change in mindset, courage and action.
This may well mean strategic alliance or M&A, leading to restructuring of the industry. The recent news of Panasonic acquisition of Sanyo, Panasonic selling of a part of Sanyo business to Haier, and merger of Hitachi and Mitsubishi Heavy Industries is quite possible to trigger such an industry restructuring.
Although this would mean more global competition, this would also be good for the world because countries, developed and developing, would be able to benefit from the world-class technologies the Japanese companies have.
Resources:-
Restructuring of the Japanese automobile and electronics industries (consumer and heavy industries), has been insufficient since World War II, although companies of such industries have been the “engine” of Japanese economy. This is primarily because they have been benefiting from abundant domestic demand/market supported by electricity and telecommunications businesses. However, such domestic market has become half from 1990s and they are facing historical crisis. They do have world-class technology especially in social infrastructure segment so one possible way for them to survive is to take this opportunity to get out to global market, from which countries could benefit from their technologies. This may well mean more M&A among manufacturers leading to industry restructuring in Japan.
2011年8月7日日曜日
Hitachi and Mitsubishi Heavy Industries Discuss Integration – Why and Its Meaning
Osaka - Sunday, August 7, 2011
Following the announcement made by Panasonic on July 28 of selling their refrigerator and washing machine business originally of Sanyo to Haier explained in the previous article Increasing Chinese Companies Acquiring Japanese Companies – How and Why?, Nikkei, Japan’s leading newspaper specialized in business and economy, reported on August 5 that Hitachi and Mitsubishi Heavy Industries are to start discussing integration of their main businesses including social infrastructure, with a possibility of future merger (management integration) of the two companies.
Taking this opportunity, Nikkei also made a special article insisting that Japan is facing a historical turning point in its core industries. This is because the recent M&A related announcements are the signs that restructuring in manufacturing industries, the “engine” of the Japanese economy.
1. Why the two companies decided to start discussing integration of their social infrastructure business?
It is because although the two companies are leading companies in this business domain in Japan, it is extremely difficult for them to compete and survive in the global market. The two companies do have world-class R&D capability but to compete in the global market they need to further become competitive in total power.
They realized this because recently they have been losing business negotiations for order intakes and their western counterparts winning. This attributes primarily to the fact that they were slower than their western counterparts to start developing business in future growth markets, in emerging countries in particular in earnest.
Such examples include the business negotiation for order intake of coal-fired thermal power station of Malaysia in March this year, the largest one in South East Asia, in which Mitsubishi lost and Alstom won (Hitachi also was involved in this at the beginning). In September of 2010, Hitachi lost and group of Canadian companies including Bombardier won the business negotiation of order intake of monorail construction of Sao Paulo, Brazil.
2. What is the positioning of the two companies in the global market?
This is summarized below (Source: Nikkei, translated by the author).
Company / No. of Employees (kilo) / Sales (trillion yen) / Net Profit (billon yen)
GE / 280 / 11.8658 / 916.4
Siemens / 400 / 8.5880 / 463.3
Hitachi / 360 / 9.3158 / 238.8
Mitsubishi Heavy Industries / 2.9037 / 30.1
* GE: for fiscal year ending December 2010, Siemens: for fiscal year ending September 2010, Hitachi and Mitsubishi: for fiscal year ending March 2011. 1 USD = 79 yen, 1 Euro = 113 yen
For gas turbine sector, #1 is GE with market share of 44%. #2 is Siemens with market share of 28%. #3 is Mitsubishi but with market share of only 8%.
And for railway sector, total market share of the big 3 companies (Bompardier of Canada, Alstom of France, Siemens of Germany) reach over 50%, with solid manufacturing and maintenance sites worldwide, when it is only just less than 5% for Hitachi.
3. Which market(s) do the two companies regard as the promising, future growth market(s)?
It is the worldwide infrastructure market, such as power generation. According to Organization for Economic Co-operation and Development (OECD), worldwide amount of power to be generated will be more than 3 trillion kW/h in 2035, which is increase by 80% from 2008. Investment in power generation infrastructure is expected to reach as much as 130 trillion yen between 2010 and 2035, of which 1/4 (approximately 32 trillion yen) is expected to be in China.
4. In which sector(s) the two companies could generate synergy if they are integrated?
One possible sector that the two companies generate synergy by leveraging their strengths is “Smart City” business. This is a city in which energy is efficiently used leveraging IT, of utilizing natural energy such as wind and solar.
This is because Hitachi is engaged in both social infrastructure and IT system, and Mitsubishi has world class technology in renewable energy such as wind and geothermal power.
In the next article, the author would like to introduce what Nikkei means when they say “historical turning point in industries in Japan”.
Resources:-
Hitachi and Mitsubishi Heavy Industries started discussing integration of their main businesses including social infrastructure, with a possibility of future merger (management integration) of the two companies. This is because although they are the two leaders in Japan with world class technology in R&D, they are not competitive enough to survive and compete in the global market. With integration, they aim to generate synergy in promising market expected to grow in the future such as power generation, leveraging their strengths. Their discussion, together with recent M&A related announcements, means that Japan is facing a historical turning point in its core industries.
Following the announcement made by Panasonic on July 28 of selling their refrigerator and washing machine business originally of Sanyo to Haier explained in the previous article Increasing Chinese Companies Acquiring Japanese Companies – How and Why?, Nikkei, Japan’s leading newspaper specialized in business and economy, reported on August 5 that Hitachi and Mitsubishi Heavy Industries are to start discussing integration of their main businesses including social infrastructure, with a possibility of future merger (management integration) of the two companies.
Taking this opportunity, Nikkei also made a special article insisting that Japan is facing a historical turning point in its core industries. This is because the recent M&A related announcements are the signs that restructuring in manufacturing industries, the “engine” of the Japanese economy.
1. Why the two companies decided to start discussing integration of their social infrastructure business?
It is because although the two companies are leading companies in this business domain in Japan, it is extremely difficult for them to compete and survive in the global market. The two companies do have world-class R&D capability but to compete in the global market they need to further become competitive in total power.
They realized this because recently they have been losing business negotiations for order intakes and their western counterparts winning. This attributes primarily to the fact that they were slower than their western counterparts to start developing business in future growth markets, in emerging countries in particular in earnest.
Such examples include the business negotiation for order intake of coal-fired thermal power station of Malaysia in March this year, the largest one in South East Asia, in which Mitsubishi lost and Alstom won (Hitachi also was involved in this at the beginning). In September of 2010, Hitachi lost and group of Canadian companies including Bombardier won the business negotiation of order intake of monorail construction of Sao Paulo, Brazil.
2. What is the positioning of the two companies in the global market?
This is summarized below (Source: Nikkei, translated by the author).
Company / No. of Employees (kilo) / Sales (trillion yen) / Net Profit (billon yen)
GE / 280 / 11.8658 / 916.4
Siemens / 400 / 8.5880 / 463.3
Hitachi / 360 / 9.3158 / 238.8
Mitsubishi Heavy Industries / 2.9037 / 30.1
* GE: for fiscal year ending December 2010, Siemens: for fiscal year ending September 2010, Hitachi and Mitsubishi: for fiscal year ending March 2011. 1 USD = 79 yen, 1 Euro = 113 yen
For gas turbine sector, #1 is GE with market share of 44%. #2 is Siemens with market share of 28%. #3 is Mitsubishi but with market share of only 8%.
And for railway sector, total market share of the big 3 companies (Bompardier of Canada, Alstom of France, Siemens of Germany) reach over 50%, with solid manufacturing and maintenance sites worldwide, when it is only just less than 5% for Hitachi.
3. Which market(s) do the two companies regard as the promising, future growth market(s)?
It is the worldwide infrastructure market, such as power generation. According to Organization for Economic Co-operation and Development (OECD), worldwide amount of power to be generated will be more than 3 trillion kW/h in 2035, which is increase by 80% from 2008. Investment in power generation infrastructure is expected to reach as much as 130 trillion yen between 2010 and 2035, of which 1/4 (approximately 32 trillion yen) is expected to be in China.
4. In which sector(s) the two companies could generate synergy if they are integrated?
One possible sector that the two companies generate synergy by leveraging their strengths is “Smart City” business. This is a city in which energy is efficiently used leveraging IT, of utilizing natural energy such as wind and solar.
This is because Hitachi is engaged in both social infrastructure and IT system, and Mitsubishi has world class technology in renewable energy such as wind and geothermal power.
In the next article, the author would like to introduce what Nikkei means when they say “historical turning point in industries in Japan”.
Resources:-
Hitachi and Mitsubishi Heavy Industries started discussing integration of their main businesses including social infrastructure, with a possibility of future merger (management integration) of the two companies. This is because although they are the two leaders in Japan with world class technology in R&D, they are not competitive enough to survive and compete in the global market. With integration, they aim to generate synergy in promising market expected to grow in the future such as power generation, leveraging their strengths. Their discussion, together with recent M&A related announcements, means that Japan is facing a historical turning point in its core industries.
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