If ever there was a company that seemed to define the phrase Japan Inc. it was Sony. Created in the rubble of post-war Japan by co-founder, the legendary Akio Morita, an early maker of such world-beating products such as the Walkman and Trinitron color television, Sony almost single-handedly invented Japanese consumer electronics.
When in 1989, at the very end of the extravagant Bubble Economy era, Sony purchased the American motion picture studio, Columbia Pictures, it literally struck fear in many Americans. Taken with other high profile investments such as the purchase of Rockefeller Center in New York, it seemed as it Japanese corporations were about to buy up everything.
But that was a long time ago in another universe. Today Sony is a pale reflection of its former self, beset with enormous loses, laying off employees by the thousands, seemingly bereft of ideas or exciting new products, seeking a savior in a young new chief executive.
Earlier this month Sony announced a projected annual loss of more than ¥500 billion, the equivalent of about US$6.14 billion dollars. It was the fourth consecutive year in which Sony had reported major loses. The company’s new chief executive, Kazou Hirai, accompanied this with a plan to cut about 10,000 jobs from a worldwide work force of about 160,000.
“It’s been several years since Sony had a hit product,” laments Yasunori Tateishi, author of a new book, Sayonara Bokurano (our) Sony, a no holds-barred examination into what went wrong with Sony and what, if anything, can be done to turn things around. While many see Sony’s core problem being lack of innovation, Tateishi thinks it is mainly structural.
“Sony has too many faces. Is it an entertainment company or a consumer electronics company? That’s the biggest problem,” Tateishi says. He goes on to say, “nobody in Japan (meaning nobody at Sony headquarters) understood movies. They had to leave things to the Americans.”
Those were the days when “synergy” was the buzzword of business schools. The acquisition of film and music enterprises by a consumer electronics company seemed a natural marriage of “content” and “hardware.” Tateishi’s advice to Sony is to basically shed its entertainment subsidiaries and concentrate again on consumer products. It would be a smaller company in overall sales but one that is better focused.
It is not as if Sony is bereft of innovative talent. It operates the Atsugi Technology Center near Tokyo, which among other things helped to the technology to turn the hit film Titanic into a new 3D release. The problem is one can’t sell this technology by the tens of thousands.
Sony’s troubles are hardly unique in Japan. The entire electronics industry is suffering. Panasonic recently announced an even bigger loss, stemming in part from its disastrous acquisition of the South Korean electronics and television producer Sanyo, which forced the company to take a huge write-down.
Elpida Memory Inc. Japan’s only maker of dynamic random access memory devices (DRAM) didn’t need to wait for the end of the fiscal year at the end of March to report loses. It filed for bankruptcy in February, reporting debts in excess of US$5 billion from the previous fiscal year ending 2011.
In declaring bankruptcy Elpida effectively defaulted on more than US$1 billion in corporate bonds, the largest such default in Japanese history. The corporate failure itself was the second largest for any company in Japan since World War II and the largest for a manufacturing company.
The Elpida bankruptcy sent shockwaves through Japan, which was already reeling from the effects on many manufacturing companies of the Great East Japan Earthquake, tsunami and nuclear power meltdown and the floods in Thailand where many maintain assembly plants. Yet the industry’s troubles far predate the earthquake.
The usual culprits are trotted out to explain the industry’s slow-motion demise. These include the strong value of the yen, cutting in exports, fierce competition from South Korean firms, especially as Seoul has concluded free trade agreements with many countries served by Japan. Samsung is now the world’s largest maker of DRAMS, with 45 percent of the market versus Elpida’s 12 percent.
These difficulties, of course, are not unique to electronics. They are shared with many other sectors of Japan’s industry. Japanese companies such as Japan Airlines, Olympus and the Tokyo Electric Power Co. are in serious difficulties. But there are several fundamental weaknesses that have accelerated the electronic industry’s fall: lack of innovation and the failure of traditional government-led mergers to work their previous magic.
No longer do Japanese companies roll out exciting new electronics products. Apple seems to announce something new and exciting practically every year. Yet when was the last time anyone heard of a new Japanese gizmo? The Sony Walkman was first introduced in 1979 and despite variations has mostly run its course. The Trinitron color television was a staple of the 1980s, but television assembly has migrated to China.
Increasingly, Japanese electronics firms have become makers and exporters of parts that go into the making of other consumer products; known as “business-to-business” (B2B) transactions. Only about 8 percent of total output now consists of off-the-shelf type consumer such as television sets, mobile phones or computer printers.
This trend has effectively turned Japan’s consumer electronics industry into makers of commodities, with all of the competitive disadvantages that term implies. “You can buy a rice ball for the price of a DRAM,” recently lamented Elpida’s president Yukio Sakamoto.
Japan used to produce world-beating electronics products. It still makes world-beating products. The problem is that it continues to make the same world-beating products – long after the rest of the world has moved on.