Tag: mitsubishi electric

Lessons from the decline of Japanese electronics manufacturing in the UK for the automotive industry

Although around 10,000 manufacturing jobs in Japanese electronics companies in  the UK were lost in the 1990s-2000s, about the same number have been added, either created by Hitachi Rail or in the automotive or air conditioning sectors. Japanese electronics companies such as Sony, Fujitsu, Panasonic, NEC, Mitsubishi Electric and Hitachi still all employ thousands of people in the UK.

It is a story of how industrial policy cannot ultimately stop product obsolescence, shifts of manufacturing to cheaper locations or the transformation from mass manufacturing of products to supply chain ecosystems providing solutions and services. Recent investment from Japan in the UK is in services and infrastructure, for the domestic UK market, and at least for now, the EU. But this has meant fewer jobs in the areas that voted Brexit.

Bunging £10s of millions at Nissan to compensate for tariffs was not going to stop these shifts. Over 10% of the 7,000 Nissan employ in the UK are working in design centres, not on the factory floor. Being a gateway to the EU now, even in manufacturing, needs regulatory alignment and free movement of people so suppliers can visit and base themselves at client sites and provide services and ship prototypes around the region.

The shift to electric vehicles means the car companies have to cooperate more than ever with ICT and electronics companies. Many of these ICT and electronics companies have joint European HQs spread across the UK, Netherlands or Germany, with senior management and teams scattered across the region, working virtually or at customer and partner sites. They have also integrated back office and technical support into cheaper locations such as Portugal or Poland.

Some examples of the history of Japanese electronics companies in the UK over the past 30 years:

Fujitsu

Fujitsu is the biggest Japanese employer in the UK with over 8,000 employees, 2,000 down on a few years ago, as it grows delivery and support centres in Portugal, South Africa and India and downsizes in the UK. It acquired 80% of UK’s ICL in 1990 (increasing to 100% 1998). ICL had 2,000 UK employees, 26,000 worldwide, with mainframe and PC factories in Letchworth, Manchester and the Midlands.  ICL was born out of 1960s industrial policy – the British government had a 10% stake in it for a while. To this day, Fujitsu provides a lot of  government IT infrastructure and services. Its last computer factory in Europe, in Augsburg in Germany, will shut down in 2019, retaining manufacturing in Japan only.

Hitachi

Hitachi used to employ around 1,000 people in its factory in Aberdare, Wales, making cathode ray TVs, video recorders and microwave ovens. It was shut in 2001, blaming low price competition from Asia. Hitachi has since shifted away from consumer products to infrastructure. In the UK it acquired the now stalled Horizon Nuclear Power projects in Wylfa and Oldbury and set up Hitachi Rail in the UK as the global headquarters with a new factory in Newton Aycliffe, employing nearly 2,000 people.

Hitachi employs another 4,000 people in the UK services sector – for example credit and loans company Hitachi Capital, IT consultants Hitachi Vantara and Hitachi Consulting and Vantec, providing logistics for Nissan.

Sony

Sony came to the UK in 1973, and had 2 plants in Pencoed making cathode ray TVs, employing 1,800 by the 1990s. As these started to shut down, Pencoed transformed itself into an innovation centre, developing and producing broadcast and professional equipment, employing 500-600 people.

Sony has been restructuring across Europe recently, consolidating back office functions into cheaper regions. It was still manufacturing DVDs in Enfield in the UK but this was shifted to Austria in 2017/8, reducing capital in UK by over £250m. It still employs nearly 2,000 in its music, home entertainment and interactive businesses in the UK.

Ricoh

Ricoh still has a factory in Telford (and two other plants in UK), employing the same number of people in 2018 as in 1991 – around 700 – but the product range has shifted from faxes to printers and consumables.

Mitsubishi Electric

Mitsubishi Electric acquired Apricot Computers in 1990, with a plant in Glenrothes and R&D in Birmingham, employing 442 in 1991. Glenrothes was shut in 1999, blaming cheap competition in Asia. It still has manufacturing in the UK, employing nearly 1,000 people (many of whom are non-UK EU citizens) in Livingston, at its airconditioning plant.

Panasonic

Panasonic, formerly known as Matsushita, had many plants in UK from 1970s to 1990s, employing 1,621 in Cardiff (TVs, microwaves), 469 in Gwent (electric typewriters, carphones), 160 in Port Talbot (components for TVs, video recorders, microwaves) and 63 in Reading (fax machines).  Most Matsushita/Panasonic plants in UK shut down in early 2000s, with production shifting to Eastern Europe. 1 plant remains in Wales, employing 400 people, manufacturing microwave ovens but also conducting R&D into fuel cell technology.  Panasonic has acquired Belgian IT company Zetes and Spanish automotive supplier Ficosa recently.

NEC

NEC is also shifting into IT services via European acquisitions. It used to have a semiconductor plant in Livingston (Silicon Glen, remember that?) which employed 1200 by 2001, when it shut down. NEC UK employees now number over 1000 again thanks to the acquisition of Northgate Public Services, in 2018.

Others

Oki Electric were relatively late in shutting down their Cumbernauld printer plant in 2018 – and now all production is in Asia.  JVCKenwood shut down their East Kilbride TV/CD player factory in 2008 and shifted production to Poland. Pioneer closed its CD player/TV factory in Wakefield in 2009. Toshiba had a factory in Plymouth, which used to make TVs, video recorders, but is now owned by a US company and makes air conditioners. Sharp (now owned by a Taiwanese company) still has a factory in Wrexham as does Brother.

 

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Toshiba – when did it all go wrong?

ToshibaToshiba’s profit inflation scandal only really hit the Western media headlines when President Hisao Tanaka resigned on July 21st, but the Japanese media have been covering this story since April of 2015, when the accounting irregularities first surfaced and an independent committee was set up.   Signs of trouble ahead were flagged up by me two years before that, when it was announced that Tanaka was the compromise candidate to become President, resulting from the fight going on between the outgoing President Norio Sasaki and his predecessor and chairman Atsutoshi Nishida.

Tanaka was the first Toshiba president not to come from one of the main business units, having spent most of his career in procurement.  Sasaki was from the nuclear power side and Nishida from the PC business – both areas were traditionally profit generators for Toshiba but since 2008 at least, as has become apparent recently, more dogs than cash cows.  Presumably the hope was that Tanaka, as an outsider to both businesses, would not be beholden to the factions and vested interests, and would somehow quietly restructure and clean it all up.  But of course, without his own factional support, and the old guard still in place, he was in too weak a position to do that.  It makes me even more admiring of Takashi Kawamura at Hitachi – similarly from outside the main businesses of Hitachi, but able to turn it around from its largest loss in Japanese manufacturing history.

Which actually makes it even more obvious that Toshiba must have been having problems from way back.  When I was at Fujitsu (2010-20013) we used Toshiba, Hitachi, NEC and Mitsubishi Electric as comparables in terms of financial metrics.  Fujitsu was suffering by the comparison, the only source of light relief being that NEC often did worse.  Toshiba gave the impression of somehow muddling through, without really trying anything very drastic, which given the pain everyone else was going through, does in retrospect strike me as suspicious.

Do we need to be worried about other Japanese companies?

This was the angle taken by the two UK journalists who managed to track me down while I was on holiday in Croatia last week.

Much has been made in both the Japanese and Western media of the perils of putting profit targets above all else (something which Sasaki started but Tanaka had to take the blame for) and juniors not being able to fight against senior executive pressure.  But this is not unique to Japan – look at Enron, Fifa and RBS for example.  The person to first blow the whistle on Toshiba turns out to be an internal auditor, whose warnings about the PC business were ignored by the former CFO and head of the internal audit committee. Questions also need to be raised about what the external auditor was up to all these years.

There are some European angles to the story.  For example, one of the businesses named as having inflated profits is the smart meter business.  Toshiba won an order from TEPCO (yes, of Fukushima fame) for a smart meter telecommunications system, beating Hitachi and Mitsubishi Electric.  Toshiba had acquired the Swiss smart metering company Landis & Gyr in 2011, but many doubted, given Toshiba’s history, that they really had the expertise to execute such a complex networking project.  According to Japanese telecomms experts, Toshiba ignored some key risks and costs in its low bid.  The Hitachi consortium was seen as a much better bid technically, but was 4 times the cost of the Toshiba offer.

Where then were the internal business assurance checks to prevent such a loss generating deal? According to a Toshiba executive, the internal company system had become so strong, the headquarters functions no longer had much control over them.  Some form of an internal company system was introduced by many Japanese companies (including Mitsubishi Corp when I was there in the 1990s) as a way of making lead executives from each business more accountable for profit and loss.  Again, the Hitachi restructuring under Kawamura is instructive on how to do this so that governance is strong enough to prevent each internal company from covering up its problems and cooking the books.  Toshiba may have on the surface looked like a pioneer in corporate governance, but as Nicholas Benes, Japanese corporate governance expert says “Just because you were the ambassador to Brazil, does not mean you are fit for the audit committee.” Good corporate governance has to come from within as much from without.

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To be a rich company director in Japan, be foreign or the founder

The cover story for the Nikkei Business magazine last month was on Japanese corporate governance, specifically focusing on what makes for effective use of outside directors (and citing Sony as a case of ineffective use of outside directors).

One of Japanese prime minister Abe’s policies for strengthening Japanese corporate governance has been to introduce a comply-or-explain regulation for any company listed on the Japanese stock markets with less than one outside director on its board.  The Nikkei notes that in other countries such as the USA, UK, France and Germany, regulations are stricter, requiring comply-or-explain for boards with less than half the directors as outside directors, in most cases.

Some other statistics caught my eye:

  • Outside directors of listed Japanese companies who have board level experience elsewhere – 38.1%
  • Average time served as director – 4 years
  • Average salary – Y12m (not much more than US$100K)
  • Female directors are 6.5% (159 directors) of the total
  • Foreign directors are 2.9% (70 directors) of the total
  • They spend around 10-11 hours a month on their directorial duties

Best paid directors overall for Japanese listed companies:

  1. Carlos Ghosn – Nissan (US$9m)
  2. Frank Morich – Takeda Pharma (until April 1 2014) (US$9m)
  3. Kohji Tanabe founder of U-Shin (automotive and industrial equipment) (US$7.6m)
  4. Kazuo Okada founder of  Universal Entertainment (Pachinko) (US$7.4)
  5. Tadataka Yamada – Takeda Pharma (US$7.4m)

Other foreigners in the top 30 include Timothy Andree at Dentsu (advertising agency), Roger Barnett at Shaklee (nutritional supplements company which was majority owned by Japanese pharmaco Yamanouchi and is still listed on JASDAQ), Carsten Fischer at Shiseido and Ronald Fisher at Softbank.

Companies with the most directors earning over Y100m (US$900K) were

  1. Mitsubishi Electric (18)
  2. Canon (12)
  3. FANUC (automation products) (10)
  4. Mitsubishi Corporation (8)
  5. Mitsui & Co (8)
  6. Nomura (7)
  7. Toyota (7)
  8. Daiwa Securities (6)
  9. Itochu (6)
  10. Nissan (5)

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