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Watching Japan’s tumbling giants

Feb 13, 2012 Business Daily, Strategy

“Japan’s Panasonic Corp forecast a record annual net loss of $10.2 billion on Friday, joining beleaguered rivals Sony and Sharp in a sea of red ink as they struggle to fix their broken TV businesses and overcome criticism that they have lost their way.
Panasonic said it was headed for a loss of 780 billion yen ($10.24 billion) for the year to March, dwarfing expectations for a loss of around $6.2 billion. The loss was almost entirely due to big restructuring charges and writedowns, including to its Sanyo Electric unit.
Its grim outlook follows loss forecasts at Sony and Sharp Corp – almost $17 billion combined for the three Japanese electronics firms – highlighting the impact of fierce competition from foreign rivals such as South Korea’s Samsung Electronics, weak demand and a strong yen.”

Reuters (February 3, 2012)

Last week brought the news that Japan’s giant Panasonic corporation is forecasting an eye-popping loss of US$ 10 billion. Yes, you read that right. Yes, I know that’s a third or so of Kenya’s GDP. And yes, Panasonic will not be the last of the traditional giants to tumble in this way.

Panasonic is not alone. Iconic Sony, stylish Sharp, reliable Toshiba – all are in different degrees of trouble, and the water they’re swimming in is becoming increasingly hot for all of them.

What is ailing these respected Japanese giants? The usual suspects are trotted out with ease: it’s the competitors (the Japanese firms can’t handle the more vibrant upstarts from Korea and China); or it’s the know-how (they didn’t see the new technology coming).

Both those reasons are valid, but they don’t answer the more essential questions: why CAN’T Japanese firms compete; and why CAN’T Japanese firms innovate?

To me, the blame should lie not in external factors, but in internal ones. The failures of these Japanese behemoths are not caused by exogenous shocks, but a series of slowly worsening endogenous flaws.

Take Panasonic, and think like a customer. What is it that makes you walk into an electronics shop anywhere in the world these days and actually ask for a Panasonic product? Are they the best quality? The best value? The most alluring brand? The most cutting-edge technology? Struggling for a reason? I thought so. It’s a long time since I felt a burning need to own a Panasonic product (and increasingly, a Sony, Sharp or Olympus), and I don’t think I’m alone.

I’m old enough to remember the 1980s, when the West was made to quake in its boots by the Japanese assault on its markets. The Japanese, it seemed, could offer better quality at a lower price than anyone else in the world. And so they wiped the floor with the cheaper European and American brands. However, they laid not a glove on the differentiated high-end brands: Bosch, Bose, Miele, B&O et al. Japanese brands all adopted a “me-too” approach, trying to relentlessly copy each another and drive prices down instead of up.

And so, when Korean and Chinese competitors appeared with markedly lower cost structures and access to the same benchmarked technology, it was game over for the Japanese. They could neither compete at the classy upper end; nor the price-sensitive mass-market. This is not bad luck. These failures are mishaps in strategy. Bad choices were made.

I also blame demographics. Japan has one of the world’s most aged populations. There is a severe shortage of young people. Despite this, Japan is notoriously reluctant to allow any immigration. Those again are choices. The Japanese do not wish to have many children; and they wish to protect social cohesion.

That’s all well and good, but the cost comes in the loss of creativity and innovation. A corporate sector dominated by grey-heads simply won’t come up with daring and different products. I fear there is more corporate decline to come.

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