Wed, December 01, 2021


Panasonic set to recalibrate aging business structure

Electronics giant Panasonic is set to reform its business structure by replacing its president and implementing a large-scale organizational realignment. Panasonic plans to change its president for the first time in nine years in late June, and implement a major reorganization in April 2022 in line with its shift to a holding company structure. In this series, The Yomiuri Shimbun will take a closer look at the current situation of the struggling mega company.

■ Restructuring plan 

Since the beginning of this year, there have been heated debates at Panasonic over the drastic downsizing of its television business. Meetings attended by executives have seen contrasting statements such as “Televisions should be sold only in Japan” and “We need Europe to maintain our brand power.”

In reality, Panasonic’s Viera television line has been vulnerable to sales offensives by Chinese and South Korean manufacturers for years.

According to the British research firm Omdia, Panasonic’s global market share was 1.8% in 2020, a significant drop from 7.9% in 2010. The annual sales volume for the Viera line, which once peaked at more than 20 million units, has fallen to a quarter of that — about 5 million units — over the past 10 years.

“The value of making televisions, which cannot be a core business, is diminishing,” said Panasonic President Kazuhiro Tsuga, 64, who intended to push through a radical overhaul of the company’s former moneymaker.

Panasonic discussed such ideas as withdrawing from the production and sales of televisions in its main market, Europe, and continuing to sell TVs only in a limited number of markets, including Japan, where sales are strong.

A thorough restructuring plan was formulated by Tsuga’s executive assistant, who proposed closing “all production bases except for Malaysia.”

Immediately after Tsuga took office in 2012, he took a decisive action to withdraw from the plasma TV business, which had fallen into a sales slump due to the rise of LCD panels.

Tsuga proceeded to streamline operations while posting a final loss of more than ¥700 billion for the second year in a row, and stopped TV production and sales in North America and China.

■ Negative impact 

Yet the details of the structural reform of its TV business announced on May 10 this year differed greatly from the initial plan.

According to the structural reform plan, the company will cease production at three factories in Tochigi Prefecture, India and Vietnam, but will retain four factories in the Czech Republic and other countries as television production bases.

The firm will outsource production to TCL of China, mainly for low-priced small and midsize televisions, while it will continue to produce high-end models in-house and continue to sell them in Europe, according to the plan.

The change of course comes with strong resistance from Appliances Company, an internal unit in charge of Panasonic’s consumer electronics business.

An Appliance executive claimed that the initially planned drastic reform would have a negative impact on sales of other consumer electronics, given that Panasonic’s image as a television manufacturer was firmly established.

Appliance pushed back on the initial plan after it brought Panasonic’s television business into the black in fiscal 2020 by reducing labor and other costs.

Televisions have been called the “king of home appliances.” However, Japanese-made televisions, which had been marketed as high-quality and high-performance, were losing ground in the price war with overseas competitors, and thus Japan’s electronics giants have decided to downsize or withdraw from the TV marketplace.

Hitachi Ltd. ended domestic production of televisions in 2012, and stopped selling Hitachi brand products in Japan in 2018. Toshiba Corp. sold its television business to a Chinese manufacturer in 2018.

Sony Group, for its part, has remained profitable since fiscal 2014 by focusing on the production and sales of high-priced models such as 4K televisions.

The reality is that Panasonic’s efforts are “one lap behind,” an analyst said.

The speed of the reform is reflected in the difference in business performance. Sony, which is focusing on music distribution and games, achieved record sales of ¥8.9 trillion in fiscal 2020. Meanwhile, Panasonic’s sales fell below ¥7 trillion for the first time in 25 years. Panasonic’s operating profit rate was only 3.9%, compared with Sony’s 10.8%.

It will be apparent soon whether the planned reforms are sufficiently effective.

■ Shift to holding company

Panasonic has already decided to sell off its semiconductor business, and withdraw from the production of LCD panels and solar batteries — which are what Tsuga labeled as “structurally deficit businesses.”

Panasonic has stopped losing money to some extent by carrying out the TV business reform. The transition to a holding company system is expected to be the finishing touch to its turnaround offensive.

The holding company system differs from the conventional in-house company system, in which a firm strictly requires firms under its umbrella to maintain profitability independently.

Businesses that cannot generate sufficient profits are forced to sell or withdraw from the business under the holding company system.

Tsuga will step down as president to become chairman without the right to represent the company as of June 24 in the new management lineup, leaving the task of reforming the firm in the hands of Yuki Kusumi, 56, who has served as head of the automotive business division.

“In the past, Panasonic has given extra consideration to each division, and has failed to concentrate on select businesses. The next president should have the courage to take unpopular positions,” said Takahito Osada, a specially appointed professor of business administration at the University of Marketing and Distribution Sciences.

Kusumi, together with Tsuga, led the withdrawal from the plasma television market, and has been downsizing unprofitable operations even in conflict with the firm’s clients.

Kusumi has said he likes the phrase coined by Panasonic founder Konosuke Matsushita, “It is a crime to run a deficit.”

At a press conference held after the firm decided to appoint him as president, Kusumi said, “A company also needs to make hardheaded and swift decisions to remove businesses that do not have strength.”

Published : June 15, 2021

By : The Japan News/ANN