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2011-03-08 13:44:18
Japanese electronics firms
Ex-world-beaters swallow their pride and do deals with foreign rivals
Mar 3rd 2011 | TOKYO | from the print edition
JAPAN S electronics companies once epitomised its national power and defined late-20th-century consumer technology. Sony introduced the transistor radio and the Walkman. Toshiba was first to mass-produce laptops. Sharp which got its name from inventing the mechanical pencil in 1915 pioneered solar cells and LCD screens. The companies earned their fortunes from running efficient operations at home that shipped in huge quantities to the West.
But the world changed and Japanese technology firms did not keep up. They kept too many low-value activities in high-cost Japan for too long. They focused on satisfying domestic consumers with advanced features that didn t matter to customers elsewhere. And they were tardy in entering emerging markets. Over the past decade NEC and Hitachi posted returns on assets of around 2%. In an extraordinary reversal, last year Japan became a net importer of televisions and stereos (albeit often with a Japanese brand on the casing).
In recent months the electronics companies have begun to overhaul their businesses by outsourcing operations and selling poorly performing units. And as they do so, they are striking alliances with Asian rivals that they once would have regarded as inferiors.
The biggest changes are taking place at NEC, which is also the most ailing. On February 25th it agreed to sell 70% of its LCD-panel production business to AVIC, a Chinese company. A few weeks earlier NEC had partially exited the personal-computer business by creating a joint venture with Lenovo, a big Chinese computer maker. The deal is an implicit admission of failure: NEC is the top PC maker in Japan, with a 20% market share, but globally its share is less than 1%. It comes six years after IBM sold its PC division to Lenovo, and NEC s delay means it was stung with more losses and got less for the business.
Toshiba said in December that it would outsource production of some logic chips. Samsung of South Korea will get some of the work. Toshiba s decision to collaborate with a company with which it competes fiercely in flash memory, among other things, is remarkable.
Taiwan s Hon Hai (also known as Foxconn), the world s biggest outsourced manufacturer, is moving in. Last year Sony sold control of its television factories in Mexico and Slovakia to Hon Hai and transferred production to it; half of the televisions it sells are now assembled by other firms under its asset-light strategy, compared with just 20% a year ago. Hon Hai is also said to be talking to Sharp about outsourcing some LCD-panel production; and to Hitachi Display, which makes small LCD screens for mobile phones, about buying a controlling stake.
This flurry of deals shows how Taiwanese, South Korean and Chinese firms have caught up with Japanese ones. It also shows how the Japanese have realised that such foreign firms can be useful partners as well as deadly rivals. The deals let the Japanese firms exit capital-intensive, low-margin businesses in which scale is needed but the product is little differentiated. This frees them to focus on becoming premium-brand marketers of products, and providers of services allied to them, as well as on developing the next generation of gadgets or that is their hope.
Japanese electronics firms remain powerhouses of innovation. Last month, as NEC announced its foreign tie-ups, the company also trumpeted the world s thinnest mobile phone (at 7.7 millimetres) and the first contactless fingerprint and finger-vein reader for biometric authentication. NEC in particular still has a long way to go in turning itself around, but the Japanese firms technological strengths mean they should not be counted out yet.