Amazing Transportation Services in Japan for Ultimate Customer Satisfaction (1)

In a recent Japanese TV programme they had a group of bus professionals from the US, the UK and France inspecting bus services in Japan, who were so much impressed, saying “there are so many things for us to learn from”. 

The things the inspectorate members were impressed with are all for customer satisfaction, with three keywords – speed, safety and hospitality or “Omotenashi おもてなし” in Japanese which was the key word used in the presentation to win Tokyo 2020 Olympics.

To the author, these show what kinds of services are required to win customer satisfaction in the Japan market for service companies but on the other hand some might be a little “too much”.  What do you think?

1. For maximum hospitality

The inspectorate members were amazed at the hospitality provided to the passengers through the bus announcements

1) Bus announcements providing ample information

When buses in many other countries do not necessarily have bus announcements, the inspectorate members were overwhelmed with the quality and quantity of information provided with this service.  These announcements are usually in woman’s voice.

The announcements not only provide what the next stop is but also what key places are near the next stop (e.g. school, hospital) as well as transfer information.

2) Bus announcements providing reminders

There are even announcements to remind passengers such as “the bus is to turn right thus will make a rocking motion, so please hold on to straps or hand rails.” 

And, to distinguish such announcement from those providing information about the bus stop, these announcements are in a man’s voice.

2. For speedy services

The inspectorate members were amazed to see the time schedule of the busses because especially at the rush hours buses arrive at a bus stop every 2 or 3 minutes, when it is something like every 10 or 15 minutes in their country.

Such operation is feasible in Japan with speedy services enabled by the following.

1) Multi-functional fare payment machine

An extremely smart, multi-functional fare payment machine is located next to the driver.  This is to provide speedy services even when Japanese buses are run by only one driver similarly to those of many other countries in a very tight time schedule.

The machine can offer change as soon as when the passenger puts coins in it, just like the vending machines of train tickets and drinks.  The machine also can change money when the passenger does not have coins.

It can handle for the fare just for one passenger each.  It can do so for up to 60 passengers at a time; therefore, if there is a group of passengers the payment can be done with minimum time.

The machine also has another unique function, which is explained in the next section.

2) IC card reader

IC card has been quite popular in Japan when riding trains and subways for years now, and the same IC card can be used in riding buses today.

So when a passenger gets on the bus from the back door and wants to pay by IC, she/he simply touches the IC on the IC reader just like she/he does so when getting on the train.  She/he again touches the IC reader on the multi-functional fare payment machine when getting off the bus from the front door near the bus driver.

3. For passenger safety

The inspectorate members were amazed at some systems they learned from first-hand experience they would not find in their country, all for safety of the passengers, which are the below.

1) So many buttons to inform “getting off at the next stop”

As soon as they got on a bus, the US member of the inspectorate started counting the number of buttons that passengers press to inform the driver that they are getting off the bus at the next stop.  Surprisingly, there were as many 35, located at variety of places - relatively high up for passengers standing up and low down where passengers seated can reach without standing up.

The inspectorate members asked the Japanese bus company staff why there are so many buttons.  The answer was “so that passengers can press the button with ease, not losing balance, when the bus is still on the move.  This means safety for the passengers.”

2) Door designed for ultra-safety

The French member of the inspectorate did an experiment about the back door (where passengers get on) and was extremely impressed with its cleverness, making it ultra-safe for passengers.  When the door started to close, he put his arm at the position that his arm would likely be jammed.  Then the door immediately opened again.  He did this experiment many times and the result was the same.

This was because a sensor is embedded in the rubber part of the door where it shuts.  As soon as the sensor detects something, it delivers the signal that the door needs to be opened instead of closed.  This is quite helpful when the driver cannot see the situation at the back of the bus, around the entrance door area.

3) Systems to monitor drivers’ skills daily

Each bus driver, before leaving their office, has a short 1:1 briefing of the route they drive for smooth operation followed by going through a check list for safety.  In doing so, they repeat a phrase of reminders that are differently every day, such as “avoid sudden braking”, “keep to appropriate speed”.

When the driver gets on the bus, he sets a recorder that records everything about how he drives, including how brakes and accelerators are used, speed and so forth.  And when he returns to the office, he brings back the recorder with him and places in an equipment.  Then immediately the “result” is displayed by graphs and charts together with the score.  In this way, his driving skill is monitored every day.

4) Training to detect veteran drivers’ possible negative habits

When in other countries like France where once the driver passes to be qualified he is never trained as the French member of the inspectorate clearly said, in Japan they regularly provide training to drivers including experienced ones to “guarantee” safety as much as possible for passengers.

The training is done on a bus with a special system, with which the points where the driver sees are monitored and displayed on a screen real-time.  Other information about how he drives are also recorded and visualized real-time and thus the trainer can immediately detect any possible negative habits of the driver. 

This is helpful when the experienced drivers find it difficult to be aware of any habits after having being in the role for so many years, which could impact negatively from safety perspective.

New Product Yet Not New with Marketing 101 in Japan

The previous article Commercializing Products Seasonally Meeting Japanese Customer Needs outlined how companies in Japan, both Japan domestic companies and multi-nationals operating in Japan, especially of BtoC, are commercializing products seasonally to meet Japanese consumers need who always expect “something new”.

 

Developing and commercializing new products so frequently in a timely manner requires much investment, budget, people and time. 

 

Is there any way of developing and commercializing a new product with virtually zero investment?

 

Yes, there is.

 

That can be done by developing a new product yet now new thus almost zero investment.

 

1. What is an example of “the new product yet not new”?

 

It is the beer in the photo, a very “clever” way of commercializing a “new” product for consumers which the author came across recently when she dined out for lunch one weekend. 

 

The photo is of a beer of Kirin, a major Japanese beer company, a new product that came out for this autumn.  The photo is a kind of POP that was placed on the table of the Italian restaurant where the author dined for lunch. 

 

It says “new product for this autumn”.  However, the beer itself is not necessarily new at all.  It is actually their regular beer, hence “new product yet now new”.

 

2. What makes this product “new yet not new?”

 

To the author, the company managed to commercialize this product by “marketing 101” to make a difference.  This is an example of what a company can do with almost no additional investment leveraging very basics of marketing.

 

 

 

1) Concept and positioning

 

The concept of this product as the author understands is “Kirin beer provided to customers in autumn, with almost zero product development cost”.

 

In the similar way, the author understands the positioning is “seasonal product sold only in autumn 2014 under a new naming and new label”.

 

2) Value proposition

 

The author understands the value proposition is something like “enjoy autumn in the similar way as enjoying beauties of nature with red and yellow leaves outdoor while enjoying beer indoor”.

 

3) Naming

 

With the concept, positioning and value proposition above, they have named the beer 秋味, whose literal translation is “autumn taste”. 

 

This naming makes consumers think the beer itself is brand new.  It also helps consumers to “enjoy autumn atmosphere and breeze even if they are indoors as if they are enjoy autumn outdoors”. 

 

4) Label on the bottle

 

In order to offer the value visually aligning with the naming, the label is designed with red and yellow leaves, the symbol of outdoor autumn.

 

All beer bottles have labels and their size is usually the same so the only investment is planning and designing of labels.  There is no need for new production line or equipment.

 

5) POP

 

They have created the POP, aligning with the label.  It is of maple leaf shape with back ground of maple leaves in red and yellow.  The naming is also clearly written.  And of course, they have also the Kirin CI logo.

 

What they included is the copy saying “beer exclusively sold in autumn”.  Campaign selling a product or for a limited time or doing a bargain for a limited time is a tactic often used in promotion.  They have adopted this tactic to the fullest although they have not specified “until when”.

 

In addition, they have added the price per glass, which is 700 JPY.  Therefore, this POP acts as an eye-catching menu providing all information covering AIDA (Attention, Interest, Desire, Action) model.

 

Planning, designing and making the POPs require some investment; however, it is far less than mass media advertising campaigns.  Also, this kind of POPs are often found in fast food and other popular restaurants in Japan so this kind of promotion is something handled without difficulty in Japan.

 

3. Would this marketing tactics work in Japan?

 

It may well not work in other parts of the world, but yes, it works in Japan, targeting Japanese consumers.  It is because they take it for granted that for foods and beverages as well as fashions, new products are launched seasonally.

 

This marketing tactics is based on what people in Japan tracditionally enjoy in autumn called Momiji-gari 紅葉狩り.  In Japan, autumn is when people enjoy beauties of nature, or red and yellow leaves in mountains, Japanese gardens, gardens of temples and shrines and parks.  That is why we have many products and services featuring this tradition in Japan.

Commercializing Products Seasonally Meeting Japanese Customer Needs

Key points to meet expectations of Japanese consumers, often said to be difficult to please, are outlined in the previous post 5 Product Requirements to Meet Japanese Consumer Needs.

There is one more critical point in developing and marketing products to Japanese consumers in success, especially in BtoC businesses.

That is, “something new”.

This is why in the Japanese market there are varieties of products coming out so frequently, with different design, colour, functions/features and so forth.

This is not only in fashion industry which products need to align with the seasons, nor consumer electronics, mobile phones and smart phones.  This is also for fast foods, beverages, sweets and snacks, and menus in popular restaurants. 

Companies in Japan, both Japanese and multi-nationals operating in Japan, make much investment in almost every season in order to meet needs of Japanese consumer needs, who constantly expect “something new”. 

Also, there are some products such as sweets only sold in a particular region; in Japanese we call them 地域限定品.  This is a tactic to provoke tourists to buy the products and such products turn out to be great souvenirs.

1.Sweets and snacks

When it is spring and strawberries are in their high season, there are variety of new sweets and snacks of “strawberry-flavoured” sweets, snacks and cakes being commercialized for a limited time.  Also March 3 is Girl’s Day and May 5 is Boy’s Day, and products associated with the days usually come out.

In summer, it might be of water melon and “summer orange”, popular in Yamaguchi prefecture.  And every summer we have variety of new summer cold desserts coming out which are sold at super markets, convenience shops, cafes and restaurants.

And in autumn, peaches, Japanese pears, grapes, Japanese persimmon and chest nuts are in their high season, and new products using them are commercialized. 

In winter, products associated with Christmas and New Year comes out.  Products associated with Christmas tend to be something western and products associated with New Year tend to be something Japanese.

2.Fast foods

McDonalds, not only have Japanese taste burger called Teriyaki as one of their regular menu, develops new products almost every season which are sold for only a limited time. 

Previously they commercialized a very simple burger with low price which was named “100 JPY burger”, and also a product which they added a small toy for foods targeting small children.  Some fast food shops do campaigns making alliances with entertainment companies.

In summer they had commercialized a burger using avocado. 

And recently many fast food shops have been using mushrooms, one of the foods in high season in autumn, in commercializing new products for autumn.  The attached photo is of McDonalds, using mushrooms with theme of Moon-Viewing 月見, the Japanese tradition on September 15.

3.Pizzas and lunches sold in convenience stores

Mushrooms are also used in commercializing autumn products among pizza shops.  The attached photo is of a pizza delivery flyer in which they feature their new “autumn” product named “Autumn Premium Quarter Four” with mushroom topping, to be sold until November 16.

 Autumn is also when Tricholoma Matsutake (a kind of mushroom we get in autumn, with great odor, and expensive) is in high season.  Matsutake mushrooms are used in commercializing new portable lunches (in Japanese called Obentoお弁当) and sold in convenience stores and supermarkets for a limited time, as well as appearing in menus in high class restaurants. 

Bamboo shoots are obtained in spring and are used in a very similar way as Matsutake mushrooms in commercializing new products of lunches in convenience stores and super markets as well as commercializing new cuisines in restaurants.

Crabs and giant pacific oysters are in their high seasons in winter.  Pizza shops often commercialize new products using crabs as their topping.  Lunches sold in convenience stores in particular sometimes feature crabs and oysters for their new products in winter.

4.Beer

Summer is when people enjoy beer the most, and “beer gardens” enjoying cold beer chilled in refrigerators outdoors as well as indoors is a major entertainment in Japan.  So in summer, all Japanese beer companies usually commercialize new products.  They usually differentiate by taste, how it is felt when drinking (beer going down the throat) and so forth. 

This year “premium” was a key word or concept in beer companies developing and commercializing new beers like the one in the photo. 

There was also a beer company that partnered with Seven Eleven a convenience store company, and a tourism company in promoting their products.  The author received a coupon of the new beer from the tourism company she used in going on a vacation with which she could buy the new beer at a Seven Eleven store near her house during the time specified on the coupon.

Beer companies also commercialize new products in winter, developing products with appropriate naming and new can or beer label suitable for winter.

5.Menus in restaurants

Combining the above approaches, as a few examples already given above, restaurants often develop new seasonal cuisine to make their menu a little different every season.

The most distinct ones are probably found in summer, autumn and winter.

In summer, they commercialize many cold cuisines like cold noodles like thin wheat noodles, cold noodle (topped with egg, roast pork, bean sprouts, tomato, and cucumber), cold soba or buckwheat noodle called ざるそば and cold ◾wheat noodle called ざるうどん and even cold spaghetti.

In summer they would also have cold desserts in their menus.

In autumn, high class restaurants and hotels would commercialize Matsutake Kaiseki, Japanese full course using Matsutake mushrooms.  We call them 秋の味覚, literal translation is “great autumn food”.  Hotels with hot spring public baths or Onsen 温泉often commercialize a package product of Matsutake mushroom full course lunch or dinner with hot spring bathing services.

In winter, similar Japanese full course cuisines and package products using crabs and oysters called 冬の味覚 (literal translation is “great winter food”) are commercialized at high class restaurants and hotels.

When Japan is blessed with 4 distinct seasons, it is a requirement to commercialize products fully leveraging what we are blessed in each season in order to successfully commercialize products meeting Japanese consumers.

5 Product Requirements to Meet Japanese Consumer Needs

Japanese consumers are often said to be difficult to please, with high expectations.  It is not only about the language issue, and this is likely to be one reason why many multi-national companies or individuals find it a challenge to enter and penetrate the Japanese market, which is regarded as attractive due to its size, stability and maturity in many industries.

If you know their expectations and what they regard as “high quality products and services”, meeting their needs, it is quite possible to succeed in make market entry and penetration in the Japanese market.

1. Durable and indestructible

Japanese consumers expect products to be durable and indestructible, from clothes and toys to home electronics and automobiles.  This is probably what we all know as “high quality products” and their expectations are maybe the highest in the world.

Should clothes start to come apart by little or screw of devices start to get a little loose, consumers would usually regard them as defects and may well make complaints.  Indeed, for example, materials used for T-shirts made by Japanese companies are usually much stronger than those made by companies of other countries.  Also, how clothes are tailored by Japanese companies excel from those made in other parts of the world.

2. Easy to use and convenient

Easy to use and convenience has been what Japanese companies been strong at, and this has been a key feature and differentiator in Japan.  This is a popular value-added feature in Japan, not only for products themselves but also for packages.

Great examples are abundant in FMCG (fast moving consumer goods).  Many canned food are of easy-to-open cans, which are just like opening a canned coke and therefore there is no need for a can opener.  

There are variety of Natto (Japanese food made from soy beans) packages to make consumers easy to pour sauce into the container without getting their hands dirty.

This concept is applied in such products as drugs, too, and easy to take medicines are often a feature.  Many OTC (over the counter) drugs are differentiated not only by efficacy but also how it is easy to take/swallow (e.g. in power, made sweet for children), as well as how quickly the medicine starts to work.

3. Same appearance and size

Japanese consumers do not accept products with even a little irregularity in appearance and size, even for things such as fruits and vegetables.  So, even fruits and vegetables sold in Japan are all of “perfect” shape, and size, packed very neatly.  Should they be “imperfect” in shape and size they are neglected during picking and packing processes in farms and factories. 

This is why crisps you would see in the west are not found in Japan.  Each piece of crisps is of different sizes which are not acceptable to Japanese consumers.  That is why many of the crisps sold in Japan are made “artificially” from potato ingredients, all in the same size and shape.  And, some are put in a tube-shaped container, emphasizing uniform size and shape.

Should the products be imperfect even by a degree not noticeable by the majority unless being told, they are sold as what we call “class B products” or in Japanese B級品.  These are sold in separate channel with discount price.  Such products range from Kimono and furniture to bread.

When Japanese consumers expects all products the same in appearance, it is not a surprise that they would never accept foreign substances in the products they buy and use.  Should they find any foreign substances such as hair in drugs for example, they would regard drugs as “low quality” in the similar way as “imperfect appearance” mentioned above - they would question the critical quality of efficacy.  In such a case it is reported to the manufacturer as “defects”.

4. Perfect finishing

Japanese consumers expect products and architectures to be of perfect finishing even at details.  This is not only for devices that Japanese companies are strong at.  In the case of drugs, even those with a little spot or scratch on tablets that human eyes cannot detect (and thus detected by video inspection) are regarded as “defects” though it has nothing to do with efficacy thus removed from the production line. 

This is the same for packages, too.  Even just a slight imperfection in package printing of drugs are regarded as “defect” and removed from the product line.  Japanese pharmacists and patients would question the quality including efficacy of drugs should the package is not 100% imperfect in their standard.

It is the same for architecture.  A Japanese person in construction industry visited a very famous modern architecture in Australia which he was extremely impressed at.  However, when he saw that lower part of a concrete wall finish is “rough”, he said “Gosh!  How rough is this finishing.  This is never accepted in Japan!”

5. Sophisticated

Consumer electronics is probably the good example of this.  When large, relatively bulky portable audio were popular in the North American market, small, compact and sophisticated ones were developed and marketed for the Japanese market.  Small and compact size has been a key feature in products such as digital camera and mobile phones, too.

Colour variation is also what Japanese consumers tend to like and expect.  Thus for consumer electronics (AV devices, digital camera, mobile phone), and clothes and bags/shoes, there tend to be so many colour variations.  There have been abundant colour variations in recent small cars by Japanese companies.  Many of the colours are quite sophisticated, similarly to consumer electronics,

Sophistication is also applied to food and drinks.  In Japan, “subtle sweetness” is preferred in Japanese and western sweets and beverages including cakes, yoghurt, pudding, cookies, chocolates, Japanese dumplings and juice.  In making bread, they always sift flour so that the baked bread would be of fine texture.  This is why sweet buns in Japan are rather like cakes in the west.  Coarse-textured food is not accepted in Japan.

One more thing about the Japanese consumers…

Japanese consumers also always expect “something new”.

This will be the topic of the upcoming article.

Profit Increase for Over 50% Japanese Companies with Successful Corporate Strategy

Osaka-Thursday, May 3, 2012

Nikkei, Japan’s leading newspaper specialized in business and economy reported today that over half of listed Japanese companies enjoyed increased profit for the fiscal year ending March 2012.

This mostly attributes to improved profitability by many companies with structural reform even under severe circumstances such as high yen, flood in Thailand and the March 11 Japan Disaster. 

As many as 10% of the companies are to mark the greatest profit in the history, when total profit amount has decreased by almost 20% from 2011.  Success and failure of corporate strategy separates winners from losers.

1.   Financial statements of which companies have been analyzed?

It is the 242 companies (excluding financial institutes and emerging market) whose financial announcements have been made by May 2.  This is equivalent to 15% of all listed companies covering 36% of marketing value.

2.   Which companies are the winners?  How many are they?

They are 121 companies, equivalent to 50% of the companies analyzed.  With more upcoming financial announcements, as many as 800 companies equivalent to 52% of all listed companies are estimated to improve profit from 2011. 

This is far greater than 455 companies (30%) in March 2002 when the IT bubble collapsed and 367 companies (20%) in March 2009 when the economic crisis proliferated worldwide.

Companies in red are only 7%, which is far less than 21% in 2009.

31 companies enjoy greatest profit in their history.  With more financial announcements to be made, as many as 153 companies equivalent to 10% of all listed companies are estimated to mark greatest profit in their history. 

Major Companies with Greatest Profit in History for Fiscal Year Ending March 2012

(Source: Nikkei, translated by the author)

Company Name / Profit (Billion Yen) / Profit Increase / Reasons for the Profitability Increase

Soft Bank / 573.6 / 10% / Strong sales in iPhone

Fanuc / 228.5 / 17% / Strong sales in automotive robots

All Nippon Airways / 68.4 / 85% / Cost reduction, increased international flights

Oriental Land / 66.2 / 25% / Increase in customers with 10th anniversary events of Tokyo Disney Sea

Kuraray / 53.9 / 6% / Strong sales in resin for car gasoline tanks

Unicharm / 48.3 / 12% / Increase in disposable diaper demand in Asia

Kobayashi Pharmaceutical / 20.0 / 6% / Strong sales in OTC

Komeri / 19.6 / 28% / Strong sales in machine tools at home centres

Fujitsu General / 9.8 / 13% / Business growth in air conditioning products in emerging markets

Kagome / 9.2 / 10% / Increase in sales of tomato juice

Start Today / 7.6 / 30% / Increase in apparel EC site users

Note: Consolidated base, companies whose financial announcements have been made by May 2.  Profit increase is from fiscal year ending March 2011.

3.   Why the winners were successful in improving their profitability?

1)   Competitive businesses and products

(1) Fanuc

Fanuc, a market leader in factory automation and robots, increased purchase order leveraging their marketing positioning of 20% worldwide market share in robots for automotive and general industry.  This led to the greatest profit in their history.

(2) Komatsu

Komatsu, a leader in construction equipment, expanded their mining machinery business that has been enjoying market share of 40%.  This compensated for negative factors such as weak business in China and high yen.

2)   Business development in emerging markets

(1) Japan Tobacco

Japan Tobacco increased sales in emerging countries including Russia, leading to increase in profit.

(2) Unicharm

Unicharm, a leader in daily commodities enjoyed strong business of disposable diapers in Indonesia market which already had market share of 50%.  The CEO commented, “We managed to maintain high profitability by winning growth market.”

3)   Structural reform

(1) All Nippon Airways

With increased competition with Japan Airlines and Low Cost Carriers, All Nippon Airways reviewed their cost structures including aircraft lease fees and personnel cost.  This resulted in the greatest profit in history after 6 years.

(2) Fujitsu General

Fujitsu General transferred their air conditioner production to Asian countries such as Thailand which led to profitability improvement.

4.   Which companies are losers? 

They are mostly the consumer electronics with underperforming TV set business. 

Their profits decreased by 18% from March 2011. 

Total loss of 7 companies that announced huge loss including Sharp, Nintendo and Kawaski Kien is as much as 710 billion yen.  This led to 20% decrease in the total net profit of the companies analyzed.  When the losses of the 7 companies are excluded, profit decrease of such companies shrinks to 9%.

5.   What is the outlook for 2013?

Profit of listed companies for fiscal year ending March 2013 is estimated to increase by double digit because the negative effects of the Japan Disaster are to have gone through by then.

Companies with competitive products are assumed to continue enjoy strong business while companies that are suffering with underperforming LCD panel business such as Sharp are assumed to remain in red.

Thus, the disparity of profitability among listed companies is likely to become even more conspicuous.

Japanese Global Electronic Companies – Why Winners and Losers?

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.

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.