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Electrical Machinery Industry Overview

11, 01. 2004

Current State

Rapid Recovery in Business Performance Being Seen Since Around 2003 through Success in Digital Consumer Electronics Products

According to the Ministry of Economy, Trade and Industry and others, the size of Japan's electrical machinery market in 2002 was at 6.9488 trillion yen. 218,000 people were employed in the industry. This market includes what the industry calls "white goods" (large household appliances such as washing machines and refrigerators), consumer audio-visual equipment, lighting equipment and personal computers. With a total production value that accounts for more than 10 percent of Japan's overall machine industry, it can be said to be one of Japan's major industries.

Refrigerators which compete for effect, such as energy saving and lap needlessness to food, in a home-electronics store
Refrigerators which compete for effect, such as energy saving and lap needlessness to food, in a home-electronics store

Although it may differ according to how one defines the electrical machinery industry, there are basically nine major manufacturers in Japan. They are: Hitachi, Ltd., Matsushita Electric Industrial Co., Ltd., Sony Corporation, Toshiba Corporation, NEC Corporation, Fujitsu Limited, Mitsubishi Electric Corporation, Sharp Corporation, and Sanyo Electric Co., Ltd. Pioneer Corporation is sometimes also included in the list. World ranking in terms of net sales placed Hitachi top among Japanese electrical machinery manufacturers in 2002 at No. 3 in the world. Sony, Matsushita, Toshiba and NEC were also among the global top 10.

Business Performances Make Turns for the Worse upon the Collapse of the IT Bubble

With the collapse of the so-called "IT Bubble" in Japan in 2001, Japanese electrical machinery manufacturers saw unfavorable performance in the sales of telecommunications equipment and semiconductors. Performance turned to the worse, and there was a stream of electrical machinery companies that posted massive deficits. However, business performance has been making a rapid recovery since around 2003. Behind this is the popularity of digital consumer electronics. Digital consumer electronics are sophisticated versions of conventional consumer electronics products and incorporate advanced digital and electronic technology. Japanese electrical machinery manufacturers are aiming for new dramatic growth by using digital consumer electronics as leverage.

The "Three New Digital Sacred Treasures" of Japanese Households Gains Popularity at a Rapid Pace

 The "three new digital sacred treasures" of Japanese households are digital cameras, flat-screen TVs and DVD recorders with hard disks. The term "three sacred treasures" originally referred to the "three holy treasures" of the Japanese imperial family that have been passed down over the ages. In post-war 1955, the meaning of the term was extended to refer to items that were highly treasured by Japanese families at the time: refrigerators, washing machines and television sets. The term, "three new digital sacred treasures," was born in 2003 through a major boom in the sale of the aforementioned three new types of digital devices, such as the digital camera.

  With the advancement of technology and as a result of mass production, the price of digital cameras fell rapidly while performance was enhanced bringing about picture quality that was close to that of conventional film cameras. This brought about a trend from around 2003 in which general consumers began to switch from film cameras to digital cameras. Manufacturers that are especially strong in this field are Sony, the consumer electronics maker, and Canon Inc., the biggest precision manufacturer in Japan. Other companies displaying strength in the field are consumer electronics makers Matsushita and Sanyo, camera manufacturers Olympus Corporation and Nikon Corporation, and Fuji Photo Film Co., Ltd.

Japanese Manufacturers Have a 90 Percent Global Share in the "Three New Digital Sacred Treasures"

  There are two types of flat-screen TVs: liquid crystal display (LCD) TVs and plasma display panel (PDP) TVs. Sharp is demonstrating overwhelming strength in LCD TVs, while Matsushita and Hitachi are strong in plasma TVs. Sony, Toshiba, Pioneer and others are chasing these companies from behind. LCD TVs with screen sizes in the 30-inch level are selling, while hot selling plasma TVs center on those with 40-inch screens or larger. DVD recorders with hard disks (HD), another one of the "three new digital sacred treasures," are often simply referred to as a DVD recorder. Unlike VCRs that use videotape as the recording medium, DVD recorders have the capacity to record television programs digitally on its HD, which can then be burned on to a DVD. These recorders became a major hit because users can not only record a large amount of TV programs but also edit or cue up programs with ease.

  It is said that Japanese manufactures have a 90 percent share of the global market in these "three new digital sacred treasures" (digital cameras, flat-screen TVs and DVD recorders). In many cases, advanced function semiconductors - something that Japanese manufacturers are displaying strength in - are contained in these digital consumer electronic products. Japan's Renesas Technology Corporation and NEC Electronics Corporation are among those companies that excel in such semiconductors which are called system LSIs.

Mobile Phone Use Explodes with the Launch of i-mode Services

Electric shops street at Akihabara, Tokyo where many shoppers come and go
Electric shops street at Akihabara, Tokyo where many shoppers come and go

  Another product that should not be forgotten is the mobile phone, the functions of which advanced extraordinarily in the Japanese market. In 1999, Japan's NTT DoCoMo, Inc., a telecom company, launched its "i-mode" service which enabled subscribers to use the Internet with their mobile phones. This triggered the accelerated advancement of mobile phone functions, so much so that not only is Internet connectivity an ordinary function of a mobile phone today but functions for enjoying applications such as games is also starting to becoming the norm. Meanwhile, transmission speeds are accelerating.

 With the addition of digital camera functions, the shipment of mobile phones has become brisk. Today, many of the latest mobile phones come equipped with digital camera functions that are capable of taking photos of 2 million pixels or more. People use the camera functions of their mobile phones on a daily basis. As a result of increased functions, there has been an increase in mobile phone terminals that weigh more than 100 grams, and in most cases, they come equipped with large LCD screens.

Sony Launches the PSP, a New Handheld Game Console, in December 2004

  The spread of new videogame consoles is also advancing. PlayStation 2, sold by Sony subsidiary Sony Computer Entertainment Inc., became a world-wide hit. Meanwhile, the battle in handheld gaming is escalating. Sony and Nintendo Co., Ltd. had released handheld game consoles in Japan, which are popular primarily among boys of elementary school age or in their teens. (In fact, it is not unusual to see young men on the train in Japan passing their time by playing a game on their handheld game console.) With such circumstances in the background, Sony released the PSP (PlayStation Portable) that is loaded with a small disc drive in December 2004. Meanwhile, in direct competition with Sony, Nintendo released the Nintendo DS, a new handheld game console with two screens.
   Sales of such digital consumer electronics is progressing well, but conventional "white goods" such as washing machines, vacuum cleaners, refrigerators and air conditioners are having a hard time on the Japanese market. Companies want to arouse replacement demand by advancing the functions of such products.
   Japanese consumer electronic manufacturers are also facing an uphill battle in the sales of computers. With a fierce price war going on around the world, prices are falling, and Japanese companies are being left in the dust in terms of cost reduction by companies such as America's Dell Inc. Profit rates are remaining low for the Japanese manufacturers. For this reason, many are strengthening their production activities outside of Japan, such as in China and other parts of Asia as they strive to reduce costs.

History

Growth Continued for a Long Time after World War II around Telecommunications Equipment

  Japan's electrical machinery industry originally developed around telecommunications services. In 1869, government-use telegraph facilities were set up between Tokyo and Yokohama. With this as a trigger, electrical manufacturers began to focus on telecommunications equipment. For a long time after World War II, Japan's electrical machinery manufacturers continued to grow around telecommunications devices. Companies such as Matsushita, NEC and Fujitsu actively cooperated with the NTT Group , Japan's largest telecommunications group, and focused their efforts on developing models for NTT.
   During the post-war period of high growth, heavy electrical machinery, such as power generators, showed great success. A priority production system measure implemented by the government shortly after World War II included heavy electrical machinery, and this area grew in a major fashion. In the field of consumer electronics, basic home appliances such as radios, black and white TVs, color TVs, washing machines and refrigerators spread explosively. Furthermore, audio-visual equipment such as VHS format VCRs, which were developed in Japan, as well as CD players also gained popularity and spurred overseas export.

Three Key Points towards the Future

Point 1
Can New Products Be Developed?

Discount shops of various electronic instruments at Akihabara, Tokyo]
Discount shops of various electronic instruments at Akihabara, Tokyo

 Japan's electrical machinery industry achieved fast-paced recovery through the "three new digital sacred treasures": digital cameras, flat-screen TVs and DVD recorders with hard disks. However, there are some who are starting to say that these new products will have spread to most households soon and that demand may start to become sluggish. There is a need to launch innovative and attractive products that people will want to buy that will dispel such concerns. There are expectations placed on such products as Sony's next-generation PlayStation console.

Point 2
Can a Recurrence of an Excess in Supply Be Avoided?

 But then, there are also analysts who are concerned that an excess of supply over demand will occur in the future. This is because manufacturers have been making what could be said to be excessive capital expenditures in the fields of semiconductors and displays. There is a need for each company to practice moderation in their manufacturing and make efforts to prevent the recurrence of a state that the industry found itself in after the collapse of the IT bubble.

Point 3
Can the Leakage of Technology Overseas Be Prevented?

 It is said that many cases of leakage of internal technology have occurred when Japanese manufacturers advanced to other countries in Asia, such as China. Measures to prevent this are of dire need. Matsushita and Sharp are already making efforts to prevent the leakage of proprietary secrets overseas and have concentrated almost all of the plants that require advanced manufacturing processes to locations within Japan.

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