Ricoh

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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Octopus balls to Tokyo – why it matters where your company is from in Japan

Most countries have rival cities – usually the official capital city versus other cities which consider themselves to be the real business, historical or cultural heart of the country – think London versus Manchester or Birmingham, Berlin versus Dusseldorf or Frankfurt, Rome versus Milan, Madrid versus Barcelona. Japan is no exception and the rivalries go way back into history.

Kyoto used to be the capital of Japan, before Tokyo (or Edo as it was then) began to usurp it in the 17th century. If you ask Japanese people today about Kyoto, they joke that Kyotoites still think Kyoto is the real capital of Japan, and the Emperor is just temporarily visiting Tokyo (he moved there in 1868, when Tokyo became the official capital) – and will return one day.

Tokyo literally means the Eastern Capital and is part of the Kanto region, where the ruling feudal Tokugawa shogunate was based from the 17th century. Kanto means East of the Barrier (usually considered to be the Hakone checkpoint) and Kansai – the region where Osaka, Kobe and Kyoto are based – means the West of the Barrier (originally the Osaka Tollgate).

Before Kyoto’s reign as capital for a 1000 years, Nara (also in the Kansai region) was the capital and seat of the Emperor but is now a quiet backwater, more visited by tourists than business people. Kobe is the other main city in the Kansai region – a port with a strongly cosmopolitan feel and very close to Osaka geographically. Whilst Kyoto remains aloof and quietly superior (and has some very successful high tech companies of its own such as Kyocera and Nidec), the real battle now in business culture is between Osaka and Tokyo.

Osakans see Tokyo as standardizing, dull and full of bureaucrats and view Osaka (which historically had very few samurai but plenty of merchants) as the real money maker, with vastly superior food. Many of Japan’s celebrities, comedians and musicians come from the Kansai region too.

So what does this mean for corporate cultures? Osaka companies often have merchant roots – the joke goes, when you meet an Osakan, you don’t ask “how are you” (ogenki desuka) but “how’s business” (moukarimakka). To which the correct response is “bochi bochi denna” – a wonderfully vague way of giving nothing away, like saying “plodding along nicely thank you”. Osaka companies are brash, tough negotiators and mean with the money. “They’d skin the fleece off a gnat” said one British engineer to me, describing his colleagues in the Osaka HQ of a consumer electronics company.

Tokyo companies are gentlemanly but at the same time highly political. You need to have a good understanding of their organisation, the factions and the individual relationships to understand how to get things done. Mitsui and Mitsubishi, both Tokyo based corporate groups, are distinguished by the saying “Mitsui is people – Mitsubishi is the organisation”. It’s hard sometimes to understand how exactly this is different, but it seems to boil down to the idea that if an individual is powerful enough at a Mitsui group company, they can get things done, whereas at a Mitsubishi group company, the whole organisation has to support an action.

The other main corporate groups, Sumitomo and Itochu, are Kansai based companies. Both have strong “mercantile” roots – Sumitomo in metals trading, hard-nut, conservative and domestically focused and Itochu – strong in fashion and consumer goods, and seen as the more maverick, progressive and international in outlook. The regional cultural differences don’t seem to have been that strong between Sumitomo and Mitsui as various mergers have taken place between their respective member companies, particularly in financial services. However regional cultural differences have definitely had an impact on Astellas Pharma, the product of a merger between Yamanouchi (Tokyo) and Fujisawa (Osaka). Apparently many Fujisawa employees were horrified that Yamanouchi was going to be the dominant partner in the merger. Fujisawa had a strong tradition of innovation and had regarded Yamanouchi as “Mane-nouchi” (Mane = imitation) – a bunch of play-safe Tokyo bureaucrats.

Those who know Japan well will have spotted that there is an important region missing from this analysis – Chubu. Literally and metaphorically this is the midlands of Japan. Just like the Midlands in the UK it is the historic heart of the car industry. Nagoya is the main city, and teased just as Birmingham in the UK is for being ugly and soullessly modern. The area has the last laugh though, as it is the most wealthy in Japan – thanks to the enduring success of Toyota (so mighty their home town was renamed Toyota City) and its corporate group of suppliers such as Denso.

So, where are the top 30 Japanese companies in Europe from?

Kanto/Tokyo based companies:

• Asahi Glass
• Astellas (but Fujisawa originally Osaka)
• Canon
• Daiichi Sankyo
• Fujifilm
• Fujitsu
• Hitachi
• Honda
• Kao Corporation
• Mitsubishi group
• Mitsui group
• Nissan
• Nomura (but was Osaka originally)
• NTT group
• NYK group
• Olympus
• Ricoh
• Sony
• Toshiba

Kansai based companies:
• Horiba (Kyoto)
• Nidec (Kyoto)
• Nippon Sheet Glass (Sumitomo Group)
• Omron (Kyoto)
• Panasonic (Osaka)
• Sharp (Osaka)
• Sumitomo group (Osaka)
• Takeda Pharma (Osaka)

Chubu based companies:
• Denso
• Seiko Epson
• Toyota

Chugoku (Hiroshima etc) based companies:

• Fast Retailing/Uniqlo

Top 30 Japanese companies in Europe 2021

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Successes & Failures of Japanese cross border M&A (#3 Ricoh and Ikon)

Ricoh undertook a “10,000 person restructuring” in 2011, using the usual method in Japan of trying to force into early retirement or transfer to subsidiaries their unwanted staff. This resulted in a judgement in the Tokyo courts in favour of two Japanese Ricoh employees on their claim that they had been unfairly forced to transfer to a subsidiary.

The Nikkei Business magazine, in its recent series on the successes and failures of Japanese cross-border M&A links this domestic issue to Ricoh’s acquisition of the US office equipment distributor Ikon Office Solutions in 2008 for $1.6bn. Ricoh acquired Ikon in order to compete with Canon, particularly in trying to enter the office tablet and projector markets in developed countries. However, just as with Nippon Sheet Glass/Pilkington and Daiichi Sankyo/Ranbaxy, the sudden change in operating environment from the Lehman Shock meant that Ricoh’s resulting bloated structure with many overlaps following the acquisition became a far more acute problem.

As the Nikkei points out, Japanese companies need to recognise that following a major M&A, their own Japan headquarters needs to change its structure in order to remain strong in everchanging global business environments.

On that point, during my recent visit to Japan, I was surprised how often the idea of setting up a separate, global headquarters, possibly not even based in Japan, was brought up by Japanese executives at the various blue chip companies I visited.

Successes and failures of Japanese cross border M&A (Pilkington & Nippon Sheet Glass)

Softbank’s $21bn acquisition of Sprint, the merger of Tokyo Electron and Applied Materials and most recently LIXIL’s 3bn euro acquisition of German bathroom fitting manufacturer Grohe have provoked a two part series in the Nikkei Business magazine on the successes and failures of Japanese cross border M&A, starting with the article of 2nd December, which I read just as I was travelling to Japan to help with a post merger integration project.

Since 2000, domestic M&As have decreased, but cross border M&As have soared for Japanese companies, with a pause after the Lehman Shock in 2009-2011. Of the 15 M&As noted by the Nikkei from March 2011 to October 2013, 14 were cross border, and the majority were deals of over $1bn.

The Nikkei comments that although the reason for these acquisitions is clear (the hunt for growth outside the saturated Japanese domestic market), the post merger story has not been that rosy for many of the acquiring companies in the past decade. The Nikkei focuses on three cases – Nippon Sheet Glass’s acquisition of Pilkington in 2006, Daiichi Sankyo’s acquisition of Ranbaxy in 2008 and Ricoh’s acquisition of US company Ikon Office Solutions in 2008, to see what lessons can be learnt.

Nippon Sheet Glass/Pilkington

NSG were worried that they might be dumped by Toyota, their key customer, if they could not match Toyota’s overseas expansion. Before the acquisition of Pilkington, 80% of NSG’s sales were in Japan. Pilkington’s turnover was double that of NSG, so by acquiring it, NSG was finally able to be on equal terms with Asahi (who had previously acquired Saint Gobain). After the acquisition, the March 2008 results showed that NSG Group sales were 80% overseas, with profits at a record high. Stuart Chambers and other Pilkington executives took over the key management positions in the group and it seemed as if the company had become global overnight.

However the good times did not last, as the Lehman Shock brought about the world economic crisis, followed by the euro debt crisis, impacting the two main businesses of automotive glass and construction glass. The NSG management did not take any effective action “and then it hit us” says a Japanese executive at the time “that we knew nothing about Pilkington”. They thought it would be a growth engine, so did not do anything beyond cut employees and shut down operations.

Too focused on growth and globalization

This is where Japanese M&As often come unstuck says the Nikkei – they are so focused on the growth and globalization, they do not fully develop strategies and pathways for ensuring the M&A actually bears fruit. “We had to focus on the immediate crisis, rather than the growth of the new company” says Kazumitsu Fujii, an executive officer.

NSG did know Pilkington quite well – having held equity in the company since 2000, and collaborated on various projects together. Howerver they had not undertaken any simulation of the financial impacts of any worsening market conditions post merger. As one executive at the time says “we did not even have any thought that the economic situation would get so bad so quickly”.

Stuart Chambers resigned in September 2009, citing family pressures from being in Japan all the time – and it was felt that his heart was not really in the job.

NSG had a 4-3-3 10 year vision. The first four years were to be about integrating the two companies’ systems and cutting down the debts. The next three years were to expand sales in automotive and construction glass and the second 3 years were to be about investing in new businesses.

However the company has not managed to move on from the first phase yet. It seems that the lack of understanding and knowledge between the two companies has meant that the negative financial situation has dragged on. “We thought that once we had made the leap into being a global company, all kinds of paths would open up to us, but it was not the case” says a former employee.

The new President, Keiji Yoshikawa says “we are having to fix areas we did not see at the time of the acquisition”. Pilkington had centralised, standardized global HR management and sales systems which looked efficient at first glance, but meant that there were regional differences which were ignored.

For example, construction glass has to take account of the different climates and lifestyles, but apparently such products were not given much priority. So NSG have started to allocate budgets to projects such as fire resistant glass in Germany.

After 7 years, NSG have finally started to understand Pilkington, concludes Nikkei Business.

Standardization and taking the initiative

My personal thoughts on this, having conducted various cross cultural communications seminars for Pilkington and Nippon Sheet Glass at the time, was that the two companies knew each other pretty well. The gap was more to do with differing views and levels of experience in managing globally.

Pilkington, like many Anglo Saxon multinationals, would indeed emphasise a standard unified approach to management and product development around the world, in order to ensure maximum profitability. The Japanese view that products should be customised to suit different markets is not cost effective, in this world view.

The other issue, as is so often the case when Japanese companies acquire Western ones, is that both parties sit back and wait for the other to take the initiative – and this was amplified by the Lehman Shock – where quick and decisive action was needed. Pilkington may well have expected NSG to take the lead, whereas NSG was expecting Pilkington to have the global experience to provide the guidance for what to do in such extreme circumstances.

Last updated by Pernille Rudlin at 2022-12-09.

Tag: Ricoh