Land of the rising sun and sinking hearts
15 December 2008
It has been thirty years since the UK’s famous ‘Winter of Discontent’, but do the much-quoted words of Shakespeare ring true now?
Although the global economic situation is of course very different to 1978 for many reasons, we do appear to be looking at a bleak winter. Shares in General Motors have slumped following a failed bailout, and it’s a similar story for Ford. Sales of cars in the US have slowed down to a 28-year low (Worst year since 1980 for US automobile sales), and job losses are inevitable.
The electronics industry, like so many global industries, is also having to ‘streamline’, and computer manufacturer Dell hit the headlines when it declared that redundancies would be made in Ireland (Limerick tale that’s just not funny). Now, confidence in the economic situation has taken another setback, with Sony’s recent announcement that 8000 of its employees are set to be out of work by 2010.
Their aim is to make estimated total annual cost savings of more than 100 billion yen by the end of the fiscal year ending 31 March 2010. According to the company, they have ‘reviewed the investment plans outlined in the mid-term Corporate Strategy Update, with the aim of sharpening its focus consistent with Sony's growth strategy, and is reducing or postponing planned investment as appropriate. Specifically, within the semiconductor business, Sony intends to cut investment expenditures this fiscal year by outsourcing a portion of its planned increase in manufacturing of CMOS image sensors for use in mobile phones to third parties.’ Indeed, this is a view shared by the industry, as iSuppli’s research has identified (Semiconductor equipment spending to fall to six-year low).
In addition to these changes, Sony states that it has ‘decided to postpone recently considered plans to invest in production expansion at the Nitra plant in Slovakia, which is one of Sony's sites assembling LCD televisions for the European market.’ Based on such measures, the company is planning to reduce investment in the electronics business by approximately 30% in the fiscal year ending 31 March 2010, compared to its mid-term plan. This could be argued to be a rather constructive way of reducing overheads.
Furthermore, the company reports that it plans to cease production at two overseas manufacturing sites, including Sony Dax Technology Center in France which manufactures tape and other recording media. By further advancing initiatives, including rationalising its manufacturing operations, shifting and aggregating manufacturing to low-cost areas, and utilising OEM and ODM partners, Sony apparently plans to reduce the total number of manufacturing sites by approximately 10%, from the current total of 57, by the end of March 2010.
All this can only mean job cuts.
They state that through measures including the realignment of its manufacturing sites, a review of its development and design structure, and the streamlining of sales and administrative functions, Sony will implement a company-wide rationalisation that will include their headquarters. As a result, by March 2010 Sony plans to reduce its headcount in the worldwide electronics business by approximately 8000, out of approximately 160,000 employees. Sony plans to outline the anticipated impact of these measures, including anticipated expenses related to their implementation, in their updated forecast of financial results for the current fiscal year to be included in its third quarter earnings announcement, scheduled for January 2009.
So although Sony has recently lowered inventories and cut production in line with other Japanese exporters hit by weak exports to the US, Europe and more recently China, it is believed that the manufacturer is vulnerable to a weak export market because it makes about 80% of its sales overseas.
We can only speculate if the bleak outlook is going to continue, but when companies as large as Sony announce such large scale redundancies, faith in the immediate future is not going to be strong. Especially when the Bank of Japan’s quarterly Tankan report states that amongst the country’s top 10,000 manufacturers, pessimism in the economy is widespread (Economy loses confidence). We can only hope that 2009 brings positive changes.
This week’s leader was written by Paul Wolfe, EMTww’s Assistant Editor.
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