Osaka - Sunday, February 26, 2012
As briefly explained in the previous article Shift in Japan Economy Drivers – from Global Manufacturers to Domestic Non-Manufacturers many, Japanese global electronic companies have been under-performing, while there have been some others that have been performing reasonably well.
In this article, the author would like to explain why there are such winners and losers among Japanese global electronic companies under the same tough business environment including historic high yen, the Japan Disaster and the flood in Thailand, based on an article of Nikkei, Japan’s leading newspaper specialized in business and economy, that was issued on February 25.
1. Why are there losers?
1) Who are the losers?
The losers are Panasonic, Sony and Sharp that heavily rely on non-profitable flat panel TV business, as explained in the previous article Shift in Japan Economy Drivers – from Global Manufacturers to Domestic Non-Manufacturers. Now Nikkei reports that the total loss of Panasonic and Sony for the fiscal year ending March 2012 is to reach as much as 1 trillion yen.
2) Why is the flat panel TV business unprofitable?
The main reason is the accelerated speed of digital technologies becoming obsolete combined with market entry by Chinese players. The price of flat panel TV sets has drastically dropped and also the demand of LCD panels has become excessive. This has completely changed “the rule of winning in the market = the market player that continued proactive investment until the competitors drop out is to become the market leader is to obtain profit”.
Today, the market leader with #1 market share in digital technology (e.g. flat panel TV business) can necessarily be profitable. In the case of LCD panel market for flat panel TVs with market size of 6 trillion yen per year, #1 and #2 global players Samsung and LG Display went in red for the fiscal year ending December 2011. The total market share of the two companies is above 50% but the total operating loss of the two companies for the business is as much as 120 billion yen.
2. Why are there winners?
1) Who are the winners?
The winners are Mitsubishi Electric and Hitachi that have managed to withdraw from unprofitable businesses to focus on their strengths, leading to successful recovery to mark net profit of more than 100 billion yen.
Mitsubishi Electric made withdrawal one after the after from PC, DRAM, system LSI and mobile phone businesses that had been unprofitable to shift their business to more profitable ones such as factory automation equipments although such businesses might be less known and popular to the general public.
Hitachi separated fluctuating businesses of semiconductor and flat panel businesses to focus on social infrastructure businesses that the company is strong in. As a result, their total net profit for 2011 and 2012 is estimated to reach 438.8 billion when the company had been in red from 2000 to 2010.
2) Why NEC that also withdrew from unprofitable businesses not a winner?
It is all about timing and speed.
It is true that NEC avoided fluctuating businesses such as plasma and LCD panels, semiconductors and PCs and their decisions and actions seem to be quite similar to those of Hitachi. However their revenue for this year is to decrease by 40% from its peak and they are estimated to be in the red for 2 consecutive years.
What NEC is different from Hitachi is the speed and timing of their decision and actions. Their withdrawal from semiconductor which had been their burden with much investment was slow. As a result, the company could not strengthen their telecommunication and IT services in a timely manner. For this reason, the company currently lack in businesses that could drive their growth.
3. How are losers trying to recover and grow their business again?
They are trying to do so by leveraging external opportunities and players and for this reason they have been proactive in M&A and/or collaboration with other companies to create business growth.
Sony is eager to invest in Olympus because they are very much interested in the medical equipment business of Olympus. Sony aims to make it as one of their pillar of their future growth.
Panasonic acquired Sanyo last year even if the company needs to go through brand cost depreciation that requires approximately 250 billion yen in order to acquire technologies inevitable for development of green, environmentally-friendly cities green cars that Panasonic was desperate. Panasonic plans to make environment related business as their growth driver. For this reason, they have recently been discussing collaboration possibilities with trading companies in promising businesses in new energy.
4. What are the author’s final thoughts?
Careful selection and focus on businesses based on their mission leveraging on core competencies is the basics of strategy; however in reality, successful strategy development and execution in a timely manner in today’s drastically changing environment is not easy.
Such successful strategy execution usually requires timely withdrawal from unprofitable and/or obsolete businesses and shifting to promising businesses leveraging their core competencies. This is inevitable for business portfolio optimization which is a challenge.
One main reason of difficulty in withdrawing from a business is the extreme difficulty to “abandon” past success. In the case of Panasonic and Sony, TV business had long been the core and driver of their business, symbolizing their company.
It must be so difficult for them to shift their focus from TV business to others similarly to what GE managed to do so withdrawing from consumer electronics to financial services, medical and infrastructure businesses. However, they would need to change their mindset and their business portfolio immediately for sustainability and growth.
Resources:-
What determines winners and losers of Japanese global electronic companies is whether they can withdraw from unprofitable business and shift to promising businesses based on their mission leveraging their core competencies in a timely manner or not. Careful selection and focus on businesses usually requires abandoning successful past which is a challenge. But companies need to change their mindset to do so to optimize their business portfolio adapting to today’s changing business environment is necessary for survival and sustainable growth.
2009年9月27日日曜日
Made In Japan Digital Consumer-Electronics Becomes More Affordable
September 27, 2009 – Osaka, Japan,
Nikkei, Japan’s leading newspaper specialized in economy and politics, announced today that Japanese consumer-electronics giants including Sony and Fujitsu are to start marketing in earnest low-end digital consumer-electronics. This is because demand of low-end digital consumer-electronics with limited features is expanding even in developing countries worldwide, growing as the “volume zone” of the market. Taiwan makers have been leading in this market segment and Japanese makers aim to take the offensive by leveraging EMS (Electronic Manufacturing Service) of Taiwan that has manufacturing plant in China, where the labour cost is low.
For mobile PC, Sony is to commission designing and production of net book, mobile PC of price zone around 50,000 yen utilizing EMS. Section responsible for interacting with EMS will be located in PC Division and people responsible for EMS will be located in China. With this strategy, Sony intends to increase its worldwide PC sales from original plan of 6.2 million units for 2009 to more than 10 million. Fujitsu that entered net book market April this year plans to double for 2009 EMS production from 2008 which was 600,000 units. Fujitsu plans to achieve total worldwide PC sales of 6.5 million, including approximately 300,000 units for net book PCs.
As for video camera, Victor will launch new model(s) with price range of 20,000-30,000 yen, half of the current models, in October for European market, and plans to launch in Japan and the U.S. as well. They do so by utilizing EMS reducing cost. Sony has already launched product(s) with price range of 10,000-20,000 yen this spring in the U.S. and Europe.
As for car navigation systems, Pioneer was the first Japanese maker to use EMS, to successfully market product with price of approximately 50,000 yen, which is half their previous products.
As for flat panel TVs, Toshiba plans to increase low price range LCD TVs to achieve sales target of 1.3 million units in 2009 and in 2010 to achieve 3 million units in 2010 for emerging countries. Sharp has already launched a model with price around 50,000 yen in China this year.
According to Display Research, a U.S. market research company, global net book sales is estimated to reach 3.5 million units for 2009 which is more than double of 2008. This is about 20% of total mobile PC sales. In addition, some experts expect that 40-50% of the U.S. video camera market will be of low-end products for 2009.
Japanese digital consumer-electronics giants have been focusing on high-end products that is usually said to be impacted by price competition. Their strength is “vertical” network, engaging in from developing backbone parts to assembling. However, such companies as Taiwan competitors such as Asus and low-end video camera maker under the umbrella of Cisco Systems have been increasing their presence in the worldwide market. If this trend proliferates in Japanese market as well, it is quite possible that Japanese makers would need to further outsource their production offshore.
To the author, it is high time for Japanese consumer-electronics giants to review and change their strategy as appropriate, applying concept and mechanism of “The Innovator’s Dilemma” and “The Innovator’s Solution” of Clayton M. Christensen.
Nikkei, Japan’s leading newspaper specialized in economy and politics, announced today that Japanese consumer-electronics giants including Sony and Fujitsu are to start marketing in earnest low-end digital consumer-electronics. This is because demand of low-end digital consumer-electronics with limited features is expanding even in developing countries worldwide, growing as the “volume zone” of the market. Taiwan makers have been leading in this market segment and Japanese makers aim to take the offensive by leveraging EMS (Electronic Manufacturing Service) of Taiwan that has manufacturing plant in China, where the labour cost is low.
For mobile PC, Sony is to commission designing and production of net book, mobile PC of price zone around 50,000 yen utilizing EMS. Section responsible for interacting with EMS will be located in PC Division and people responsible for EMS will be located in China. With this strategy, Sony intends to increase its worldwide PC sales from original plan of 6.2 million units for 2009 to more than 10 million. Fujitsu that entered net book market April this year plans to double for 2009 EMS production from 2008 which was 600,000 units. Fujitsu plans to achieve total worldwide PC sales of 6.5 million, including approximately 300,000 units for net book PCs.
As for video camera, Victor will launch new model(s) with price range of 20,000-30,000 yen, half of the current models, in October for European market, and plans to launch in Japan and the U.S. as well. They do so by utilizing EMS reducing cost. Sony has already launched product(s) with price range of 10,000-20,000 yen this spring in the U.S. and Europe.
As for car navigation systems, Pioneer was the first Japanese maker to use EMS, to successfully market product with price of approximately 50,000 yen, which is half their previous products.
As for flat panel TVs, Toshiba plans to increase low price range LCD TVs to achieve sales target of 1.3 million units in 2009 and in 2010 to achieve 3 million units in 2010 for emerging countries. Sharp has already launched a model with price around 50,000 yen in China this year.
According to Display Research, a U.S. market research company, global net book sales is estimated to reach 3.5 million units for 2009 which is more than double of 2008. This is about 20% of total mobile PC sales. In addition, some experts expect that 40-50% of the U.S. video camera market will be of low-end products for 2009.
Japanese digital consumer-electronics giants have been focusing on high-end products that is usually said to be impacted by price competition. Their strength is “vertical” network, engaging in from developing backbone parts to assembling. However, such companies as Taiwan competitors such as Asus and low-end video camera maker under the umbrella of Cisco Systems have been increasing their presence in the worldwide market. If this trend proliferates in Japanese market as well, it is quite possible that Japanese makers would need to further outsource their production offshore.
To the author, it is high time for Japanese consumer-electronics giants to review and change their strategy as appropriate, applying concept and mechanism of “The Innovator’s Dilemma” and “The Innovator’s Solution” of Clayton M. Christensen.
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