Wednesday, November 30, 2011

No. 11: The asset-light approach alone is not enough (December 1, 2011)

Panasonic started to integrate TV manufacturing plants, but Sony is one step ahead of Panasonic in the asset-light approach. Sony had 15 TV assembly plants in 2004, but it promptly integrated them responding to the sale decline caused by the Lehman Shock. It has only 4 TV assembly plants at present. It improved the tangible asset turnover rate to about 7 times, increasing the rate by 1 time in five years. Sony’s current tangible asset turnover rate is well above the figure of Samsung of Korea. However, Sony’s results still remain stagnant. Sony’s consolidated operating profit is 20 billion yen this year, while it was about 200 billion yen last year.

The asset-light approach that decreases in-house production means increasing outsourcing production. From the financial viewpoint, the fixed cost (depreciation cost) changes to variable cost (purchasing cost like materials cost) in the asset-light approach. Because the price reduction is so steep in the TV business, Sony has not been successful enough in reducing the variable cost to improve the consolidated operating profit. Another factor for poor results is the heavy burden of labor cost. Samsung is expected to achieve the “sales per employee” that stands at about 61 million yen, while Sony is estimated to score the figure at about 39 million yen. This means Sony is not as successful in reducing the labor cost as it is in reducing the asset.

These two facts indicate that the asset-light approach is not enough to improve the balance between sales and number of employees. Therefore, it is necessary to formulate measures that consist of two approaches: decreasing the input (reducing the number of employees, etc.) and increasing the output (increasing sales), and allocate the capital raised by them to research and development effectively. As a matter of fact, the asset-light approach alone is not enough to improve results. Any approach is not enough alone because it has pros and cons.

Monday, November 21, 2011

No. 10: Develop your strengths (November 22, 2011)

Starting in Greece, the current economic instability is spreading very fast across boarders. Japan is no exception. However, it is noteworthy that some Japanese companies are enjoying good results and expanding business in these turbulent days. Fujitsu General recorded the highest profit in its history by concentrating its resources on the air-conditioner business. This company is famous as the company that commercialized the plasma TV for the first time in the world. However, it was not big enough to capture the market as a diversified consumer electronics maker, and it decided to focus on the air-conditioner business. Its state-of-the-art air-conditioning technology contributed to the splendid results. The same is true of Yokogawa Electric. This company specialized in measuring instruments, saying goodbye to diversification.

Toray records the highest profit in its history because its functional fibers featured by moisture absorption and thermal insulation are selling very fast. Komatsu, Japan’s leader in the heavy machinery industry, has been growing business with the help of GPS-based advanced follow-up services. Acquiring a big market share is also a big factor for successful companies. Kuraray has such as a high share of 80% in the films for flat-screen TVs. The company scored the highest profit. Thanks to the state-of-the-art technology, Fanuc also enjoys the highest profit in its history despite the fact that all its products are made in Japan in this high yen period.

The above companies remind us of the famous lesson Peter Drucker gave us. He emphasized the importance of developing your strengths.

Saturday, November 12, 2011

No. 9: Restructuring of the industry and market provides opportunities of innovation (November 12, 2011)

As Peter Drucker taught us, restructuring of the industry and market provides opportunities of innovation. In Japan, both industry and market are undergoing drastic restructuring because of the dwindling birthrate and an aging population. The manufacturing industry accounts for less than 30% of gross domestic products now. The GDP of the manufacturing sector including the construction industry decreased by 48 trillion yen and the number of workers decreased by 5,700,000 in the past 20 years. It is estimated that the number of workers will decrease another 4,000,000 over the next 10 years. It is critical for Japan to increase the productivity of the service industry and create new industries.

Gakken Holdings developed a new business field for elderly people. Taking note that pay nursing homes require a large sum of lamp-sum payment for moving in, the company renovates idle company dormitories to low-cost rental housing for elderly people, eliminating the lamp-sum payment and asking each resident to conclude a contract for the nursing service independently to keep the rent at a low level. It hit the mark. It receives lots of inquiries from companies in the manufacturing and distribution sectors that have difficulty in dealing with idle places. Actually, there are lots of idle assets that can be renovated to build nursing homes. With the development of an aging society, home delivery of water has been growing quite rapidly. It is now a market of 60 billion yen that is five times bigger than it was six years ago.

The number of new houses decreased to about 800,000 per year, which is a half in the peak period. Housing makers need to develop attractive products with features as the competition intensifies. This trend makes Elly Power, a producer of stationery batteries, even more active because houses with a storage battery introduced by leading housing makers attract wide attention nationwide. Instead of electric vehicle market, the company focused on the housing market and hit the mark. It is building a new plant to mass produce its lithium-ion batteries that can be installed in a house as an emergency power source. Idemitsu Kosan, one of Japan’s leading oil refineries, acquired a medium-sized agrichemical maker for 5 billion yen to enter into the agribio business.  

The next 100 years will be a century of energy, foods, and environment. Every company, both at home and abroad, is required to think about its business seriously, abandoning its successful experiences

Saturday, November 5, 2011

No. 8: Staying in Japan to protect the state-of-the-art technology: Zebra and Fanuc (November 2, 2011)

Founded in 1897, Zebra has been specializing in writing materials. Although overseas production accounts for about 40%, the company produces its main products in Japan. Since ballpoint pens are sold at the retailer at 100 yen each on average, they can be produced at a cost about one third in China than in Japan. Nonetheless, it decided to invest 10 billion yen over the next five years to renovate its plant in Japan. The competitive edge is the pen tip that allows for uniform and smooth writing. It examines finished products to a precision of one thousandth of a millimeter and abandons all the daily productions should one of them be found beyond this precision standard. The company believes that continuous efforts to keep the product quality contribute to improving the brand equity.

Fanuc is another example to place the highest importance on the domestic production. This company builds almost all its finished products in Japan, though it sells 80% of its products in foreign countries. Its monthly robot production will increase to 5,000 units that is twice the production of its western competitors soon. The company is in a position that producing in one plant contributes to reducing production cost and increasing competitive edge. The company is in the middle of installing production equipment in the new plant scheduled to start operations coming December. It expects to increase the consolidated profits 25% over the previous year to 150 billion yen this year, achieving the record high in its history. It increased sales to about 450 billion yen in about 40 years after the foundation, and plans to increase sales to 1,000 billion yen over the next three years.

These two companies show how important it is for a company to locate its strengths and keep asking what value it can offer to customers. This approach remains the best approach to increase the brand equity in the long run even in the days of high yen.