Japan forced to reinvent itself
02 May 2008
Gordon Wong looks at how some Japanese companies are struggling to come to terms with changes in the global manufacturing order.
Think about the major influencers of the global electronics industry over the years, and inevitably Japan looms large in most people’s minds. However, as Japan’s huge electronics companies have been finding the going tough over the past 20 years, they are increasingly looking at new business models and restructuring in order to survive. The seriousness of the situation is reflected in the desperation seen in some recent moves within the industry.
In their 1980s heyday, Japan dominated the global low cost electronics consumer market. In contrast, recently South Korean, Taiwanese and in more recent years Chinese companies have become the leading operators in this space.
Examples of corporate and strategic reinvention abound in the Japanese electronics industry. Matsushita Electric Industry offloaded its entire stake in JVC, because of poor performance. To survive, JVC in turn has been forced to partner with Kenwood. Most of Sanyo’s management resigned after the company suffered significant losses over the last few years; the new management announced plans to axe several underperforming business units, including cellular phones. Sony exited the semiconductor business and has sold to Toshiba. Sharp, Japan’s largest LCD device manufacturer, is buying a 15% stake in Pioneer.
Some of these moves will probably provide short-term positive results. However, looking at it longer term, it could be a struggle if they do not improve upon their core functions such as manufacturing. It is rare that electronics companies enjoy success soon after a merger or acquisition.
Japan’s PCB manufacturers face similar market conditions. Well ahead of many industry observers’ predictions, China overtook Japan in 2006 to become the world’s largest manufacturer of PCBs. There are more than 1200 PCB enterprises in China, many of which are engaged in single-sided PCB and multilayer boards with low technology content and downstream products such as computer motherboards and lower-end consumable electronics, though this profile continues to change as China invests more into its higher-end technology capabilities.
Additionally, Taiwan has made rapid progress in board manufacturing, with Nan Ya overtaking Ibiden to become the world’s leading fabricator. Taiwan’s overall production value of boards has surpassed South Korea’s, and Taiwan has an impressive 60% of the global mobile phone board market.
To cope with the new market conditions, many of Japan’s companies have implemented innovative business models as they clamber to retain market share. While the going is undoubtedly tough and the feedback from PCB manufacturers is somewhat pessimistic, the figures indicate that they are holding their own and the measures taken appear to be having a positive effect.
Total revenue posted for 2007 from the Japanese PCB industry was US$9.5 billion, a 3.8% increase from the previous year, according to production data from Japan’s Ministry of Economy, Trade and Industry (METI). Japan saw double-digit growth rates for the first half of 2007 (as compared to 2006), with decreased demand during the second half of the year. Total production volume during 2007 increased by 1.2% over the previous year.
This growth has been attributed to consumption being fuelled by the average unit price dropping significantly during the year. Japanese PCB manufacturers focused on orders with higher margins during the first half of the year. Total production volume dropped by 1.4% from the same period of the previous year; in other words, the industry was making more money by producing less – a nice strategy, if one can pull it off.
However, they were reluctantly forced to reduce prices during the second half of the year in order to help retain market share and keep orders ticking over once business slowed. This market trend reflected that of the entire Japanese pcb industry during 2007.
As Japan shifted towards more manufacture of boards that attracted higher selling prices, manufacturers of flexible circuits switched from single-sided circuits to double-sided and multilayered circuits. Total volume for flexible circuits still declined by 2.7%, but revenue increased 3.0% during the first half of 2007 compared with H1’06. As a consequence, volume and revenue for single-sided flexible circuits dropped by 4.6% and 7.6%, respectively, and average selling prices continued their decline. Conversely, revenue from double-sided and multilayer flexible circuits continued to increase by 10.1% despite a declining production volume. Average selling prices for double-sided and multilayer circuits remained high during the first half of the year.
Results from Japan’s rigid board circuits segment were mixed. Six- to eight-layer boards were up 22.6%, and build-up boards up 15.8% compared to the same periods in 2006. However, four-, 10- and higher-layer count boards suffered negative growth for both revenue and volume compared to the same period in the previous year. Revenue and growth from double-sided rigid boards remained flat. Single-sided rigid boards are considered an insignificant product in the industry; however they still reported a 4.6% revenue growth while volume declined 8.8%.
Production data coming through for 2008 is trending downwards with declining revenues and levels of production. Production workers and management within Japan’s PCB industry are getting nervous. Although it is no consolation, with the worldwide economic slump triggered by the ‘sub-prime’ crisis now taking effect, Japan is not alone in feeling nervous about the industry’s future.
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