Friday, November 16, 2012

No. 34: The way that a Japanese medium-sized company should take (November 17, 2012)

Calbee, a coinage from calcium and vitamin, is one of Japan’s leading snack food makers. The company is enjoying a high popularity in the stock market. Its current aggregate value has grown three times since it was listed on the day of the Fukushima disaster in 2011. In the past, it had 15 plants to deliver fresh potato chips to every corner of the country, and the densely distributed production network contributed much to increasing its share in the 1970s and 1980s. With the progress of logistic technology, however, the production network became ineffective.

The new president invited by the founding family from a foreign-affiliated company rationalized the production system. He reduced the production cost by integrating the production and material procurement systems, and allocated the money available from cost reduction for sales promotion cost. The increased rebate realized by the increased sales promotion cost motivated retailers and increased Calbee’s share from 60% to 70%. Accordingly, the capacity operating rate of its plants increased from 69% to 75%. The positive growth cycle allowed the company to triplicate the operating profit to more than 15 billion yen in three years.

Calbee is very active in expanding the market overseas. It concluded a contract with PepsiCo of the U.S. to give the exclusive right to PepsiCo that markets its products supplied by Calbee on an OEM basis in North America, though PepsiCo’s requirements were rather demanding. In exchange for the scarcely profitable contract, Calbee secured stable and inexpensive supply sources of potatoes. Combined with automation of production, this contract helped the company open up a road to an operating profit higher than 10%. The company is developing the Chinese market in alliance with a local company, and conducting feasibility study in Vietnam and Indonesia. It plans to increase the ratio of overseas sales from 4% in 2011 to 30% in 2021.

The Calbee story indicates what a medium-sized Japanese company with an established technology should do in the age of globalization in whatever field it is doing business. That is, the first thing that it needs to do is streamlining the operation to reduce production cost, then it should increase the share with the help of competitive product prices to establish a dominant position in the domestic market. Then, it should develop foreign markets in alliance with a local company with a strong sales force because population decrease and aging of society is accelerating in Japan. Even a snack food can expand the market overseas, even though taste varies with the countries. What is important is not a product but an effort to make a product acceptable to local people of each foreign market. 

One of Calbee’s latest promotion videos

Tuesday, November 13, 2012

No. 33: The target is the global market (November 14, 2012)

Hitachi Materials and Hitachi Cable, each of which is a subsidiary of Hitachi, will merge next April to create a company with sales of 1 trillion yen to compete successfully in the global market. Hitachi Metals has about 40% share in the world market of high-performance metals for electric vehicles. The company has a strong competitive edge in high-quality metallic materials for autos, electric appliances, and industrial infrastructure. Hitachi Cable has a strong presence in the market of cables for electric power companies, but it has been in the red for five consecutive years because of dwindling sales. The company enjoys competitive advantage in the construction of social infrastructure including railway network and transmission network that has great demand in developing countries.

Hitachi has been placed importance on independence of each subsidiary. Each of Hitachi’s subsidiaries has a great presence in the domestic market, but Hitachi’s subsidiaries are mostly not big enough to compete in the global market. Hitachi acquired five of its subsidiaries through TOB as part of its strategy to focus more on the IT and social infrastructure business. This strategy improved Hitachi’s results dramatically and allowed Hitachi to recorded net profit of about 350 billion yen in the fiscal year ended in March 2012. However, GE of the U.S. and Siemens of Germany are far ahead of Hitachi in the social infrastructure business. Needless to say, the strategy to pursue economies of scale is one of the most critical factors to compete successfully in the global market. 

Hitachi Metals and Hitachi Cable merge to increase 
presence in the world social infrastructure market