No. 14: Who said opticians are only for myopic and hyperopic people? (December 20, 2011)

With the spread of the Internet, it is growing rather hard to quantify consumer behaviors precisely. Market research is no longer a mighty tool. Hunch and instinct are dangerous tools. However hard you may try to know in advance how much your product will be accepted by the market, no consumers can realize how wonderful your product is before they see and touch it.

JINS, an optician chain that focuses on low-priced eyewear, doubled its sales over the level in two years ago to about 15 billion yen. Given the fact that the current eyewear market shrank 30% from the peak, the results of this optician chain are rather striking. The president asked himself, “Is an optician for only myopic and hyperopic people?” He launched eyewear that blocks off blue light coming from the PC monitor supposed to deteriorate the function of the retina. He further prepared several kinds of unmagnified eyewear depending on playing scene for golfers. More than 10% of the visitors of this optician chain are neither myopic nor hyperopic.

He asked himself again, “Why does the price of eyewear depend on magnification, even though the price of shirts does not vary with body size?” In this optician chain, the price of eyewear does not vary with magnification. It varies only with the lens quality. These ideas let the chain grow business rapidly. For your information, the president is neither myopic nor hyperopic. Headquarters of this chain does not hold a regular meeting. Staff members get together and hold a meeting whenever they come across an interesting idea and discuss what they should do to create something new.

Consumers are naturally capricious. For example, McDonald's launched a hearty hamburger named Quarter Ponder despite the current health-conscious trend. It sells fast, while the hamburger it launched following the Korean boom did not sell as fast as the company predicted beforehand. What is important now seems to be an organization and company climate to create something new that surprises consumers.

No. 13: Material producers are expanding production capacity hastily to cope with growing demand for lithium-ion battery (December 18, 2011)

Toda Kogyo and Mitsui Engineering and Shipbuilding will jointly build a plant to produce newly developed a cathode material with an investment of about 5 billion yen. The new plant will be built inside the Chiba plant of Mitsui Engineering and Shipbuilding. It will start operations between January and March 2013 with an annual production capacity of 2,100 tons. The newly developed cathode material is lithium phosphate. It does not need the addition of rare metals, and it has a 10 times longer life than the existing cathode materials.

Asahi Glass will start production of cathode materials in China starting April 2012. It will invest about 1,000 million yen to acquire a local company in Jiangsu of China through its subsidiary. The Chinese company is building a plant in Wuxi for the production of lithium cobalt oxide. Asahi Glass has two plants in Japan, and the plant in China will be its first plant abroad. Because Asahi’s customers are rushing to the Chinese market, Asahi decided to branch out into China. Asahi’s production capacity will be double with the plant in China.

Ube Kosan established a joint venture company with Dow Chemical in Michigan in December for the production and marketing of electrolyte. It will build a plant with an annual production capacity of 5,000 tons that will start operations late 2012. Ube plans to build a joint venture company in China and Europe. Ube is world’s largest producer of electrolyte for lithium-ion batteries 20% share in the world market.

Japanese companies have strong presence with technological excellence in the lithium-ion battery material business. In the cathode material business, the market leader is Nichia Corp. that is followed by Toda Kogyo and Asahi Glass. Ube and Mitsubishi Chemical have strong presence in the electrolyte market. Hitachi Chemical and JFE Chemical are the two names in the negative-electrode material market, while Asahi Chemical and Ube are strongly active in the separator business.

According to the survey conducted by a public research firm, the world lithium-ion battery market will grow 3.6 times over the level in 2011 to about 4,110 billion yen in 2020. In particular, demand for in-vehicle lithium-ion battery is estimated to grow 40 times in the same period due to the spread of electric vehicles ad hybrid cars. Because the in-vehicle lithium-ion battery requires a high degree of dependability and durability, collaborative research and development is supposed to spread quite rapidly.

No. 12: Three factors to increase current profits than planned in the current turbulent times (December 14, 2011)

According to the survey conducted by Nihon Keizai Shimbun, more than half of the listed companies that will close the current account year on March 31, 2012 are expected to increase the current profits than planned. Japan has a total of 1,692 listed companies that close the account on March 31 every year, and 936 companies, or about 55% of the 1,962 companies, are expected to improve the current profits and 171 companies, or about 10%, are expected to achieve the highest current profits.

The factors that allow the 936 companies to achieve such favorable results can be divided into three categories. One is the strong domestic demand. The companies classified in this category include Softbank that is a mobile phone carrier, Yamada Denki that is the leading volume retailer of electric products, and Bookoff that is a secondhand bookseller chain, and Kameda Seika that is a famous Japanese snack maker. The second category contains companies that successfully developed markets in newly industrialized countries. They include Fanuc that is a robot maker, Uni-charm that is Japan’s leading napkin maker, Marubeni that is one of Japan’s general trading companies, and JGC that is an engineering company. The third category contains such companies as Toray, Kuraray, and Nidec, all of which are enjoying a big market share in the respective markets in Japan.

In summary, the three factors are the ability to develop the domestic market, the ability to cultivate foreign markets, and the ability to increase the share with excellent technology. In short, the efforts to focus on the fundamentals seem to have worked well.

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.

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.

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

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.