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National pride obscures harsh truth about Sharp deal

by

Special To The Japan Times

An object of pride for Japanese consumers during the 2000s was the so-called Kameyama flat-screen television set manufactured by Sharp. Named after the factory in Mie Prefecture where it was assembled, the LCD-TV came with a sticker attesting to its provenance, and many people who bought the model never removed it. The brand was so iconic as a symbol of Japanese high-tech superiority that it was referred to it as “sekai no Kameyama,” or “the world-famous Kameyama.”

Except that it wasn’t. As Atsushi Osanai, an associate professor of management strategy at Waseda University and former Sony employee, pointed out during a recent TBS Radio discussion of Sharp’s current situation, the Kameyama TV only enjoyed popularity in Japan. And even while the plant was pumping out product, it was seriously in debt due to competition from other TV manufacturers, including overseas home electronics companies. Sekai no Kameyama was nothing more than a comforting myth.

The blinkered world view that gave rise to the myth is at the heart of Japan’s reluctance to let Sharp be sold to a foreign company, namely Hon Hai Precision Industry Co. of Taiwan. Osanai says this reluctance is fed by media and government entities that despair over the loss of industry know-how, which is considered a precious national resource. The anxiety comes from a deep feeling that denies the ascendance of Taiwan, China and South Korea in realms where Japan once reigned. Domestic media never seriously discuss the fact that companies such as Samsung and Haier now dominate the global home electronics field. By the same token, they don’t even mention it when K-pop bands continually sell out Japan’s domed stadiums.

A few pundits and journalists have made the case that not only does Sharp’s likely sale to Hon Hai not signal the end of the world, but that it could turn out to be a good thing for Japan. During the TBS Radio discussion, listeners sent in questions betraying their nervousness over the deal, and Osanai, along with finance journalist Tetsu Machida, kept talking about the “reality of the world we live in,” which is quite different from the world inhabited by the listeners — or, for that matter, from that of the program’s announcer, who admitted that she still hasn’t removed the “Made in Kameyama” label from her TV either.

One listener remarked that if Hon Hai buys the ailing company, Sharp will merely become a “maker of goods.” Osanai assured him that, in fact, Hon Hai was buying Sharp because it admires the company’s knack for new ideas. Hon Hai, also known as Foxconn, famously assembles the world’s iPhones, so it is already an experienced maker of goods, but the company possesses no capabilities for coming up with new goods and systems on its own.

Osanai and Machida emphasize that under Hon Hai, the company will be able to continue doing what it does best without having to give up facilities and personnel in Japan. Moreover, the Taiwan company will help promote Sharp’s products overseas, a proposition that may confuse many Japanese. Despite the “sekai no Kameyama” image, Sharp does not have much of a profile outside Japan due to its lack of initiative.

This laziness is endemic among Japan’s home electronics firms, according to Machida. In the previous decade, when many countries were making the changeover from analog TV to digital, Japan’s communications ministry worked hard to persuade governments in Latin America to adopt Japan’s broadcast standard rather than Europe’s or China’s, and they succeeded. Thirty countries now use the Japanese standard, but Japanese electronics makers didn’t follow up on this success, saying the region was “too risky.” In contrast, South Korea’s Samsung lobbied its own government to adopt the U.S. broadcast standard so that it would be easier for it to make equipment suitable for the American market, and now they are ascendant in that market. Sony and Panasonic, once prestige brands in the U.S., have become also-rans because they took their reputation for granted.

Japanese electronics makers “have never had an overseas strategy,” according to Osanai, unlike Japanese car makers. Hon Hai will give Sharp that chance, something the Innovation Network Corporation of Japan, which had been vying with Hon Hai for Sharp, would not have been able to do.

But that’s not the only reason Osanai and Machida are glad INCJ lost out. INCJ is the government funding arm that helped set up Japan Display by bringing together the liquid crystal display divisions of Toshiba, Hitachi and Sony in order to prevent low-price competition from wiping out the industry. Ostensibly, INCJ claimed it wanted to save jobs, but Osanai says that the only jobs the funding entity is protecting is its own. As with many bureaucratic entities, INCJ’s whole purpose is to justify its existence, and with taxpayer money.

Hon Hai’s purchase of Sharp costs Japan nothing, and except for the battery division, the Taiwan firm says it will not sell off any part of Sharp, though that could change once the financing dust has settled. Japanese media say that Hon Hai wants Sharp for its display technology, but there is nothing special about Sharp’s LCDs, which have become a commodity. Price is the only consideration. As financial writer Yasuyuki Onishi said in Nikkei Business, Hon Hai is not so stupid that it would spend ¥700 billion just for LCDs. In truth, it wants to get into the IOT (Internet of things) business, by producing home appliances that can connect to the Web, and for that it needs Sharp’s know-how. Hon Hai’s rival, Haier, bought General Electric’s appliance business for the same reason.

Softbank’s popular robot, Pepper, is manufactured by Hon Hai, another fact the media rarely mentions but one that is central to the issue of Sharp’s worth to the company. “Hon Hai is just like Pepper,” said Osanai. “You can tell it what to do, but it won’t come up with ideas on its own.”

  • Steve Jackman

    Japanese companies have been losing global competitiveness and market share for a long time now as Sharp’s situation and the recent accounting scandals to hide massive losses at companies like Olympus and Toshiba shows. The Japanese seem to be the last ones to realize that “Made in Japan” long ago stopped meaning cutting edge, high quality and good value, and that instead these days it is more likely to stand for overpriced poorly designed products which are often behind the technology curve.

    It is no wonder that this change has coincided with Japan becoming more nationalistic, inward looking, xenophobic and insular. The humility, curiosity and open mindedness which built Japan into a technological powerhouse after WWII is just a distant memory now having been replaced by extreme arrogance and hubris, and we all know where hubris leads to.

  • Blair

    I must have missed all the hoopla. I have a Hitachi

  • GBR48

    Sharp had been run into the ground by executive incompetence to the point where it has the debts of a small and very badly governed nation state. Other Japanese corporates will follow if they do not reform. Even their own government want them to.

    You cannot operate in a fast-changing, dynamic global environment if you are culturally allergic to change.

    Too much of Japan Inc. is filled with people who do not have the ability to do the jobs that they have obtained through means other than merit. There is far too much corruption, internally or from external sources.

    Getting caught is not ‘increased transparency’: Olympus, Toshiba (accounting), Olympus (again-seriously, they should just add -gumi or -kai to their name), Kaketsuken (decades of falsification of blood products, which is just frightening) and Takata (safety devices killing people) are just the big names.

    Japan Inc. is refusing to reform and slowly killing itself by multiple means. This will have catastrophic consequences for the Japanese economy.

    Sharp is a well-known and well-respected international brand with good R&D. Foxconn can use that to expand. ‘Sharp’ is actually worth more to Foxconn than to Sharp itself, as it stands. They have competency and can better utilise Sharp’s various component parts. As it was, Sharp began losing money when the first employee walked in the door in the morning and turned on the lights. How much asset-stripping takes place will depend on the real state of the company. Sharp had so much debt attached to it that even its research and useful elements made it a fairly risky purchase, and Japanese companies are good at hiding things they do not want people to see.

    Endless bail-outs and INCJ-style nationalisation (which went out of fashion in the West in the 1970s, because it rarely worked) are a bad idea. It’s just using other people’s money – often public money – to shuffle all the problems, failures and dirty secrets under the tatami and paper over the cracks.

    If Japan wants to hold on to its innovation, then it needs to reform the corporate structures that apply that innovation in the marketplace. In a few cases it is happening. There is a bit of googlisation at Sony and other large companies are buying up start-ups and supplying them with venture capital to develop. Some big names are refusing to reform, covering up their failings using cash reserves to buy up more dynamic foreign companies that can bring in better revenue. The former is a better plan than the latter.

    Too many of Japan Inc.’s boardrooms are run like absolute monarchies. That just doesn’t work in a 21st century commercial environment.

  • Ron Lane

    Excellent article and equally excellent comments.

  • Ken Gai

    Sadly, either way it plays out, the negative media spin will tout either failed company or protectionist Japan. This ‘contribution’ tries to do both, starting with the title, while the jury is still out.

    Despite the boards recommendation to sell 67% of the company to Hon Hai, ultimately final approval (pending latest hiccup) will be up to it’s shareholders; read – based on financials – Not, as asserted in 3rd paragraph, “The blinkered world view.. Japan’s reluctance to let Sharp be sold”.

    This oped is so full of holes I don’t even know where to begin.. then maybe not so surprising (still disappointing) based on a quick skim of the source bios.

  • DutchCynic

    The Sharp-saga reminds me of the era when bloated US/European electronics makers were obliterated by their Japanese rivals in the 80s. Philips had a treasure trove full of patents and was at the technological forefront in consumer electronics, but could not deal with cheaper and often more sophisticated products from Japan. Consumer electronics for the most part filling up (often black) plastic boxes. Japanese have been beaten at their own game by the Koreans, Taiwanese and Chinese, who managed to develop better/cheaper sourcing networks than their Japanese rivals, who clung to the notion too long that their products needed to be made in Japan to be any good.
    If the secenario of Philips is be repeated in Japan, things do not look good for Sharp, it basically has withdrawn from consumer electronics (and lightbulbs) to focus on medical technologies. Guess for Sharp and most likely other electronics’ giants finding a renewed focus will be up ahead in the coming years.

  • DutchCynic

    The Sharp-saga reminds me of the era when bloated US/European electronics makers were obliterated by their Japanese rivals in the 80s. Philips had a treasure trove full of patents and was at the technological forefront in consumer electronics, but could not deal with cheaper and often more sophisticated products from Japan. Consumer electronics for the most part filling up (often black) plastic boxes. Japanese have been beaten at their own game by the Koreans, Taiwanese and Chinese, who managed to develop better/cheaper sourcing networks than their Japanese rivals, who clung to the notion too long that their products needed to be made in Japan to be any good.
    If the secenario of Philips is be repeated in Japan, things do not look good for Sharp, it basically has withdrawn from consumer electronics (and lightbulbs) to focus on medical technologies. Guess for Sharp and most likely other electronics’ giants finding a renewed focus will be up ahead in the coming years.

  • tisho

    if you look at the way NHK reported on this deal, you would think that Sharp is the one buying a bankrupted foreign company, the way they report on it is like Sharp is doing Foxconn a favor. Anyway, collectivist societies are backward, you can’t feel pride for something you’ve never done, and you can’t take credit for other people’s hard work.