Shift in Japan Economy Drivers – from Global Manufacturers to Domestic Non-Manufacturers

Osaka - Saturday, February 4, 2012




Nikkei, Japan’s leading newspaper specialized in business and economy, reported today that announcement of financial performance of Japanese listed companies April – December 2011 (consolidated base) is worse than the original estimation, and that the profit for fiscal year ending March 2012 is to drop by 21% from the previous year.



This mostly attributes to high yen, flood in Thailand and the EU financial crisis, which are all negative factors for export-oriented industries.



Having said that, companies driven by domestic demand such as telecommunications and consumer goods are strong. Trading companies have recorded the highest profit in the history attributing to strong business in natural resources and energy.



It seems that there is a shift in the industries/companies that drives Japanese economies.



1. How did Nikkei come to the conclusion?



Nikkei collected and analyzed financial data of 743 listed companies (excluding financial and new companies) that have made announcements of financial performance for April – December 2011 by February 3.



2. What was the conclusion?



It is estimated that the decrease in profit for manufacturing companies from the previous year tops to as much as 36%, when the original estimation was 10%. However, for non-manufacturing companies it would increase by 2%.



1) Who are the losers?



They are consumer electronics companies that heavily rely on flat panel TV in particular, such as Panasonic, Sony and Sharp. The total losses of the three companies are to reach as much as 965 billion yen.



Panasonic alone announced that they will be in the negative by as much as 780 billion yen for the fiscal year ending in March 2012 when it was in the positive by 74 billion yen for the fiscal year ending in March 2011. The loss is the greatest in the history for Japanese manufacturing companies. Although the estimation includes approximately 760 billion yen of structural reform cost such as impairment loss attributing to revenue deterioration from acquiring Sanyo, it is clear that the company was hard hit by the external negative environmental factors and that they need to change their strategy.



2) Who are the winners?



They are non-manufacturing companies that mostly rely on domestic demand and resource business.



For example, KDDI, a leading telecommunications company, is estimated to record the greatest profit in the history attributing to strong business in smart phones. Also trading companies whose resource related businesses are strong are increasing their profit to record the highest in the history.



3) What are the implications?



The Japanese companies used to be led by export-oriented manufacturing companies of automobiles and electronics but the recent estimation of the financial result indicates that the industries/companies that drive the Japanese economy are shifting from such companies to non-manufacturing companies that are driven by domestic demand.





3. What are the reasons for ill performance of manufacturing companies?



They are mainly external environmental factors.



1) Highest yen in the history



With the unbelievable high yen, it is quite possible that the total decrease of profit for all listed companies is to reach as much as 1 billion yen for the fiscal year ending March 2012. Automobiles and electronics are the mostly hard hit companies.



2) Flood in Thailand



Many export-oriented companies are hard hit by the flood of Thailand because many of them have key factories in Thailand. For example, the negative impact of the flood is estimated to be more than 100 billion yen for Honda and Toyota respectively.



3) EU financial crisis



Negative impact of the EU financial crisis cannot be ignored, either. For example, the printer business of Ricoh is staggering because companies operating in EU are cutting down on costs due to depression. For this reason, Ricoh is to fall to red for the first time in history.





Resources:-

The recent analysis of the financial performance of Japanese listed companies implies that the industries/companies that drives Japanese economy is shifting from export-oriented manufacturing companies such as automobile and electronics to non-manufacturing companies that rely mostly on domestic demand and resource business. The reasons of ill-performance of manufacturing companies are mostly of external environmental factors including historic high yen, flood in Thailand and EU financial crisis. For electronics companies that heavily rely on flat TV business, their strategy is also a possible factor.