Development Bank of Japan
Research Report
No. 34

Prospects and Challenges Surrounding Japan’s
Electrical Equipment Industry:
General Electrical Equipment Manufacturers’
Restructuring of Operations and Future Prospects

November 2002

Economic and Industrial Research Department
Development Bank of Japan

Contents
Summary ............................................................................................................................................... iii
Introduction ............................................................................................................................................ 1

I

Profitability Comparison between Major American and Japanese Manufacturers ............... 2
1. Entities Used for Analysis ......................................................................................................... 2
2. Comparison of Companies in Terms of Profitability Since the 1980s .......................................... 2
3. Time Series Changes in Japanese Manufacturers’ Profitability by Business Area........................ 8
4. Profitability Characteristics of Japanese Manufacturers ............................................................ 11II

Industry Trends by Segment....................................................................................................... 13
1. Semiconductors ....................................................................................................................... 13
2. Home Appliances .................................................................................................................... 22
3. Information and Communications Equipment .......................................................................... 27

III Characteristics of the Business Models Being Used by the Major American andJapanese Electrical Equipment Manufacturers........................................................................ 31
1. Development and Current Status of the Major American andJapanese Electrical Equipment Manufacturers’ Business Areas ................................................ 31
2. Impacts of Increasing Modularization and Outsourcing ............................................................ 34
3. Increasing Awareness of the Importance of the “Smile Curve” ................................................. 36
IV General Electrical Equipment Manufacturers’ Restructuring ofOperations and Future Prospects............................................................................................... 39
1. Recent Instances of Restructuring ............................................................................................ 39
2. Shifting of Production Activities, etc. to Other Countries ......................................................... 41
3. Increasing Business Partnerships ............................................................................................. 44
4. Japanese General Electrical Equipment Manufacturers’ Restructuring ofOperations and Future Prospects .............................................................................................. 49
5. Conclusions............................................................................................................................. 50
Appendix .............................................................................................................................................. 51
References ............................................................................................................................................ 53

Development Bank of Japan Research Report/ No. 34iProspects and Challenges Surrounding Japan’s Electrical
Equipment Industry:
General Electrical Equipment Manufacturers’ Restructuring ofOperations and Future Prospects
Summary
1. The revenues of major companies in theJapanese electrical equipment industry, which isone of the key manufacturing industries in Japan,
have been declining sharply since 2001 and mostof them are being forced to restructure their operations drastically. This report reviews the current competitiveness of Japanese electricalequipment manufacturers and investigates theindustry’s future prospects in view of the restructuring efforts being undertaken by the
manufacturers, focusing on the differences between the major American and Japanese electrical equipment manufacturers in terms of profitability and business models adopted.
2. A comparison of the major American andJapanese electrical equipment manufacturers interms of profitability shows that there were distinct changes in the 1980s and 1990s. Both thereturn on assets (ROA) and operating profit onsales of Japanese electrical equipment manufacturers were not significantly different from thoseof their American counterparts in the early 1980s,
but the differences gradually grew and became
significant in the 1990s. By segment, the operating profit on sales for American semiconductor
manufacturers and Japanese component & device
manufacturers has been high, while there havebeen marked declines in the operating profit
among Japanese general electrical equipment
manufacturers. In terms of total assets turnover,the figures for American manufacturers havebeen consistently higher than those for Japanesemanufacturers. The widening gap in ROA is theresult of the widening gap in operating profit onsales.
Regarding the contribution of each segmentto the declines in profitability of Japanese general electrical equipment manufacturers, theoverall profitability was reduced structurally by
the semiconductor segment and over the timeseries by the home appliances and heavy electric
apparatus segments. In particular, the profitability of the Japanese semiconductor segment is low(even though it has the top five companies interms of sales) in contrast with its Americancounterpart (that has five specialized manufacturers), which is the most profitable segment in
the United States.
3. With regard to the semiconductor segment,
investigation of changes in semiconductor shipment share by nationality of manufacturer revealed that the share of Japanese manufacturers
has been declining since peaking at the end of
the 1980s and the gap with the share of American manufacturers has been widening. The Japanese manufacturers have been producing a fullrange of semiconductor products, but have been
unable to maintain their market shares for products that dominate the overall semiconductor
market such as memory devices, and so their total shares have also been decreasing.
On the other hand, American manufacturers
are more specialized in the semiconductor business, and manufacturers with the highest sales
have strong areas where they hold large market
shares. In addition, their use of foundry manufacturers in other countries such as Taiwan has
helped increase their market shares.
Although capital spending on semiconductor production facilities has been vast worldwide
and continues to increase, that of Japanesemanufacturers was exceeded in 1990s by
American manufacturers and then by Asian
countries, and the gaps are widening. The Japanese manufacturers’ ratios of R&D expenditure
to sales are higher than those of American
manufacturers, but this has not improved theirrevenues. The Japanese manufacturers are now
facing difficult choices as to the positioning of
their semiconductor divisions.
One area in which Japanese manufacturers
have a dominant market share is home appliDevelopment Bank of Japan Research Report/ No. 34iii

ances and in particular audio-visual equipment,
as the domestic user base expanded significantlyin the late 1980s. The decreased profitability inthe home appliances segment is partly due to recent drops in unit prices of these products.
4. The profitability gap between American andJapanese electrical equipment manufacturers ispartly due to the differences in business model.
Specifically, the top Japanese manufacturers bysales are general manufacturers, whereas the top
American ones are specialized manufacturers.
There are also differences in business policies.
American manufacturers have been radically restructuring their businesses (i.e. eliminating unprofitable divisions and concentrating resourcesin core businesses), such as General Electric(GE) in the 1980s and IBM in the early 1990s,
while Japanese manufacturers have been expanding. Recent instances of M&A also illustratethat American manufacturers are reinforcing
their business base by focusing on existing
strengths.
The increasing modularization and otherdevelopments in the electrical equipment industry have led to an emphasis on reducing production costs rather than using more sophisticatedproduction technologies, and this has accelerated
outsourcing such as the use of EMS companies
by American PC manufacturers and the use offoundry companies by semiconductor manufacturers. Manufacturers have begun to recognize
the existence of an added value curve called the“smile curve”, a notable characteristic of PC
production processes, which has been affecting
Japanese manufacturers’ restructuring efforts.
The difference between American and Japanesemanufacturers in terms of business model as wellas the increasing modularization and digitization
have caused the profitability gap to widen between American and Japanese manufacturers.
5. Over the past several years, Japanese general electrical manufacturers have made various
efforts to restructure their operations. In particular, there were marked increases in employee
cutbacks and withdrawals from markets in 2001
as the IT recession worsened. On the other hand,
there have also been new efforts such as generalelectrical manufacturers have entered the EMS

iv

Development Bank of Japan Research Report/ No. 34

market and restructured their organizations to
speed up decision-making by introducing acompany-in-company system. Production bases
have been increasingly shifted to overseas countries in the long term, and efforts to strengthen
software and service divisions to capitalize on
the ongoing expansion of PC and Internet users
have also been increasing.
Japanese general electrical manufacturers
have been forming partnerships with each otherin maturing domestic home appliances markets
and with Chinese manufacturers in Chinese
markets that are expected to expand in the future.
In the information and communications technology (IT) equipment segment, they have been
forming partnerships with American and European manufacturers with a view to becoming a
top manufacturer that dominates competitors inindustry standards. In the semiconductor andother electronic component & device segments inwhich capital spending on facilities and R&D
expenditure are huge and increasing, Japanesegeneral electrical manufacturers have been actively building partnerships with domestic andforeign manufacturers to reduce the burden.
These moves reflect the fact that there are now
fewer profitable fields as new manufacturers
have entered the field and increased the competition.
Business partnerships in the electricalequipment industry are different from those inother industries such as between manufacturersof materials, etc. as they are formed on a segment-by-segment basis rather than as partnerships between companies or through acquisition.
Because Japanese general electrical manufacturers, unlike American manufacturers, havegrown to their current sizes by entering new
business areas, they are unlikely to shed many
unprofitable divisions rapidly and transformthemselves into an American-style specialized
manufacturer. Instead, they will tend to slowly
reinforce operations in their strong areas while
gradually shedding unprofitable divisions
through forming partnerships with domestic andoverseas manufacturers.
[Shiro Kan (e-mail: shkan@dbj.go.jp)][Mikimasa Kobayashi(e-mail: mkkobay@dbj.go.jp)]

Introduction
The ten-year period between 1990 and 2000 isseen as a decade of decline in the international
competitiveness of Japanese industry. Japanesecompanies suffered falling sales and many major firms, in both manufacturing and nonmanufacturing industries, were acquired byAmerican and European companies during thisperiod as the domestic economy slumped. In
contrast with the 1970s and 1980s when major
Japanese companies enjoyed rising revenues
and profit as their products, especially home
appliances and automobiles, sold well throughout the world, the 1990s was a major turning
point.
The electrical equipment industry, which isone of the key manufacturing industries in Japan, also suffered a loss in competitiveness in
the 1990s: both the sales of major manufacturers and the share of Japanese firms in the international semiconductor market declined.
The decline in the competitiveness of Japanese electrical equipment manufacturers ispartly attributable to the recent rise of emerging
manufacturers from South Korea, Taiwan, andother countries that have become increasinglycompetitive in various aspects including technology and brand power. In particular, the recent dramatic rise of Chinese manufacturers has
been viewed in some quarters as a threat toJapanese manufacturers. The shifting of production bases, especially for assembly processes, to developing countries to take advantage
of lower costs including labor, and the rise ofdeveloping countries’ manufacturers by acquir-ing technological competitiveness and the resultant expansion of their market shares, areinevitable. Indeed, Japanese companies developed in the same way. However, American
electrical equipment manufacturers, which
seemed to have been surpassed by their Japanese counterparts’ growth up until the 1980s,
regained their competitiveness in the 1990s andare now central players in the global IT industry; they have overtaken Japanese electricalequipment manufacturers and widened theirlead in market shares in the semiconductor andother markets and boosted profitability. Thus, it
is not an inevitable one-way process that developing countries’ manufacturers will overtake
industrialized countries’ manufacturers as thecompetitiveness gap narrows.
Major Japanese manufacturers have been
drastically restructuring since the global IT recession in 2001. Although there are some pessimistic forecasts about the future of the Japanese manufacturing industry as a whole, a simplistic extrapolation from current trends cannot
accurately forecast future prospects, as evidenced by the fact that most forecasts publishedin the 1990s were pessimistic about the futureof American manufacturers.
This report identifies, taking into accountthe above-mentioned considerations and mainly
by comparing the major American and Japanesemanufacturers in terms of profitability and business models, the factors that contributed to thedecline in the competitiveness of Japaneseelectrical equipment manufacturers and proposes measures for regaining competitiveness.

Development Bank of Japan Research Report/ No. 34

1

I Profitability Comparison
between Major American andJapanese Manufacturers
1.

Entities Used for Analysis

Perspectives
To analyze the international competitiveness ofan industry, it is necessary to define the entities(country, company, etc.) used for the analysis.
This report analyzes the competitiveness of the
top manufacturers by sales in the American
electrical equipment industry and their counterparts in Japan, in terms of profitability,
dominance in the market, etc. In this report, thenationality of a company is based on the location of the headquarters of the consolidated
company group, as manufacturers often haveproduction and sales bases internationally. With
this background, the analysis considers thevarious restructuring efforts of Japanese manufacturers.
Entities Used for Analysis
Chapter I uses the closing data of major American and Japanese electrical equipment manufacturers (consolidated closing data; the same
applies hereafter unless noted otherwise),because these data cover many years and thus
allow a sound statistical analysis. The entities
used for analysis are the top sales companies
which are headquartered in Japan or America1
and operating mainly in the electrical equipment industry.2

The analysis makes comparisons between
American and Japanese companies, as well as
between companies operating in different business areas, in terms of long-term profitability(from the 1980s to 1990s) based on return on
assets (ROA), and total assets turnover and operating profit on sales obtained by decomposing
the ROA figures.
2.

Comparison of Companies in Terms ofProfitability Since the 1980s
2.1

Return on Assets (ROA)

Figure 1-1 compares major American andJapanese electrical equipment manufacturers interms of the time series changes in ROA, which
is a main indicator of corporate profitability.
Although simplistic comparisons must be
avoided because companies use varying accounting standards, the ROA figure for 25
American manufacturers3 was roughly steadythroughout the 1980s and rose slightly in themid 1990s, whereas that for 17 Japanese manufacturers dropped between the late 1980s andearly 1990s and remained low at about 4% for
the remainder of the 1990s, hence the gap with
American manufacturers gradually widened. In
addition to this widening, American manufacturers maintained their profitability, and the gap
was already widening even in the 1980s when
Japanese manufacturers were expanding theirmarket shares with various products and increasing revenues.

1

North America: Hereafter in this report, “America(n)”refers to the United States and Canada unless otherwise
specified.
2
The range of the electrical equipment industry is wide,and has partly overlapped the general machinery, precision
machinery and auto parts industries in recent years. This
report uses a definition of the term “Japanese electricalequipment companies” that roughly corresponds with but
is slightly different from that used in the new industrial
classification of the Tokyo Stock Exchange, and defines
the term “American manufacturers” based on the standard
industrial classification (i.e. companies falling under SIC
Code 3570 to 3577 and 3600 to 3699). In terms of company size, this report uses the companies that were listed
as the top consolidated sales companies on the basis of2000 sales (17 Japanese companies and 25 Americancompanies), which are considered to occupy important
positions in American and Japanese industry. For a list of2

Development Bank of Japan Research Report/ No. 34

the companies used for the statistical calculations, refer tothe attached table. IBM is not included in the statistics,
because it was classified as a service industry company asof 2000.
3
Only 15 of the 25 manufacturers existed in 1983.

20%
25 American manufacturers

16%

17 Japanese manufacturers

ROA

12%
8%
4%
0%
-4%
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 Year

Fig. 1-1 Comparison of Time Series Changes in ROA of
Major American and Japanese Electrical Equipment Manufacturers
Notes:

1. For a list of the companies used for the statistical calculations, refer to the attachedtable.
2. Settlement terms differ between companies, especially between American andJapanese companies.
Sources: Development Bank of Japan “Financial Data Bank”; Standard & Poor’s “Compustat”

In 2001, the world, including America,
entered a serious IT recession and the ROA
figures for both American and Japanese manufacturers plunged. Because the ROA figure for
American manufacturers dropped more sharply,
the gap between American and Japanese manufacturers narrowed. The year 2001, when the IT
bubble burst, was an aberration, with consumer
spending falling dramatically after the September 11 attacks in the United States. This reportfocuses on long-term trends such as those in the
1980s and 1990s and treats 2001 as a non-average year.
Figure 1-2 compares the time serieschanges in ROA of manufacturers operating indifferent business areas.4 The ROA figure for4

In this report, the 25 American manufacturers and 17
Japanese manufacturers were classified as follows:
American manufacturers:(1) 5 manufacturers that manufacture semiconductors
and/or related products(2) 3 EMSs (see Note 6)(3) 17 manufacturers that manufacture information andcommunications equipment, PCs, etc. including 5 PC
manufacturers
Japanese manufacturers:(1) 10 general electrical equipment manufacturers(2) 4 electronic component & device manufacturers(3) 3 other manufacturers

the five American semiconductor manufacturers rose dramatically in the 1990s as Intel andother companies increased their sales, and the
ROA figure for the 17 American companies
that manufacture information and communications equipment, PCs, etc. remained steady ataround 10%. Both the ROA figures for the 10
Japanese general electrical equipment manufacturers and four Japanese electronic component & device manufacturers fell between thelate 1980s and early 1990s, but the latter rose
toward the late 1990s and reached 13.0% in
2000. On the other hand, the ROA figure for the
10 Japanese general electrical equipment
manufacturers remained low throughout the
1990s. Although the figure improved slightly
toward 2000, the profitability of Japanese general electrical equipment manufacturers was
low relative to that of American manufacturers
and Japanese electronic component & device
manufacturers, and they have not regained profitability even over the long term.

Development Bank of Japan Research Report/ No. 34

3

35%
30%
25%

ROA

20%
15%
10%
5%
0%
-5%
83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01 Year5 American semiconductor manufacturers
17 American manufacturers that manufacture IT equipment, PCs, etc.
10 Japanese general electrical equipment manufacturers
4 Japanese electronic component & device manufacturers

Fig. 1-2 Comparison of Time Series Changes in ROA of Manufacturers
Operating in Different Business Areas
Sources: Development Bank of Japan “Financial Data Bank”; Standard & Poor’s “Compustat”

2.2

Total Assets Turnover and Operating
Profit on Sales

This section analyzes the profitability of the
manufacturers selected for this research bymaking comparisons between American andJapanese manufacturers and between manufacturers operating in different business areas, interms of total assets turnover and operating
profit on sales (which are indicators obtained bydecomposing ROA).5
Figure 1-3 shows that the total assets turnover figure for American manufacturers wasconsistently higher than that for Japanesemanufacturers by a certain margin throughout
the 1980s and 1990s, although there are somevariations. This means that American manufacturers used their assets more efficiently than
5

From the relationship (Operating profit and loss / Average total assets (start and end of settlement term)) =(Operating profit and loss / sales) x (Sales / Average total
assets (start and end of settlement term)), the following
relationship is derived:
ROA = Operating profit on sales x Total assets turnover.

4

Development Bank of Japan Research Report/ No. 34

Japanese manufacturers.
In 2001, the total assets turnover figure for
American manufacturers dropped sharply andbecame lower than the total assets turnover figure of Japanese manufacturers for the first timesince 1980s. On the other hand, the operating
profit on sales for American manufacturers had
been similar to that for Japanese manufacturers
at around 8% in 1983, but rose consistently
thereafter while that for Japanese manufacturers
continued to fell, resulting in a wide gap between American (12.0%) and Japanese manufacturers (4.4%) by the year 2000. Thus, thewidened gap in ROA is largely due to the widening differential in operating profit on sales.

Total asset turnover (times/year)

1.4
25 American manufacturers
1.3

17 Japanese manufacturers

1.2
1.1
1.0
0.9
0.8
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 Year

Fig. 1-3 Comparison of Time Series Changes in Total Assets Turnover ofMajor American and Japanese Electrical Equipment Manufacturers
Sources: Development Bank of Japan “Financial Data Bank”; Standard & Poor’s “Compustat”

Operating profit on sales

16%
12%

25 American manufacturers
17 Japanese manufacturers

8%
4%
0%
-4%
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 Year

Fig. 1-4 Comparison of Time Series Changes in Operating Profit on Sales ofMajor American and Japanese Electrical Equipment Manufacturers
Sources: Development Bank of Japan “Financial Data Bank”; Standard & Poor’s “Compustat”

Development Bank of Japan Research Report/ No. 34

5

Total Assets Turnover (times/year)

3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01 Year5 American semiconductor manufacturers
3 American EMSs
5 American PC manufacturers
10 Japanese general electrical equipment manufacturers
4 Japanese electronic component & device manufacturers

Fig. 1-5

Comparison of Time Series Changes in Total Assets Turnover of
Manufacturers Operating in Different Business Areas

30%

Operating profit on sales

25%
20%
15%
10%
5%
0%
-5%
83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

5 American semiconductor manufacturers
17 American manufacturers that manufacture IT equipment, PCs, etc.
10 Japanese general electrical equipment manufacturers
4 Japanese electronic component & device manufacturers

Fig. 1-6

6Comparison of Time Series Changes in Operating Profit on Sales of
Manufacturers Operating in Different Business Areas

Development Bank of Japan Research Report/ No. 34

01 YearTangible Fixed Assets Turnover (times/year)

A comparison of manufacturers operating
in different business areas in terms of total assets turnover and operating profit on sales
shows that the total assets turnover figures forthe three American EMSs6 and the five American PC manufacturers rose in the 1990s while
the total assets turnover figure for the five
American semiconductor manufacturers fell.
There were no significant fluctuations in the
total assets turnover figures for the other groups(both American and Japanese).
With regard to operating profit on sales,
the figure for the five American semiconductor
manufacturers rose dramatically in the 1990s.
The operating profit on sales for Japanese electronic component & device manufacturers alsorose in the 1990s. On the other hand, the operating profit on sales for Japanese general electrical equipment manufacturers fell in the early
1990s and remained low, and so the gap with
American manufacturers and other Japanesecompany groups widened.
Figure 1-7 shows the tangible fixed assets

turnover for American and Japanese manufacturers. Although the turnover of Japanesemanufacturers had been higher than that ofAmerican manufacturers in the 1980s, they
were surpassed by American manufacturers in
the 1990s, which means that American manufacturers improved the efficiency of using theirfacilities in the 1990s while the efficiency ofJapanese manufacturers decreased. Figure 1-8
compares manufacturers operating in different
business areas in terms of tangible fixed assets
turnover. The turnover for American EMSs andPC manufacturers rose sharply in the 1990s,
reflecting increased sales of EMSs which do nothave their own factories7 and active outsourcing
of work to EMSs, etc. by PC manufacturers. In
contrast, no Japanese manufacturer significantly
improved its tangible fixed assets turnover during this period, due to differences between
American and Japanese manufacturers in management policies including Japanese manufacturers’ adherence to a policy of not outsourcing.

7
25 American manufacturers
17 Japanese manufacturers

6

5

4

3
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 Year

Fig. 1-7

Comparison of Time Series Changes in Tangible Fixed Assets Turnover ofMajor American and Japanese Electrical Equipment Manufacturers

Sources: Development Bank of Japan “Financial Data Bank”; Standard & Poor’s “Compustat”

6

EMS (Electronics Manufacturing Services) are contractors that manufacture and/or assemble electronics
equipment (PCs, cellular phones, etc.) without branding.
In this report, the term EMSs means EMSs as business
entities (e.g. Solectron in the United States).

7

They are reducing their apparent tangible fixed assets
by using leased factories and production facilities.

Development Bank of Japan Research Report/ No. 34

7

Tangible fixed assets turnover(times/year)

20

16

12

8

4

0
83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00

01 Year5 American PC manufacturers
3 American EMSs
5 American semiconductor manufacturers
10 Japanese general electrical equipment manufacturers
4 Japanese electronic component & device manufacturers

Fig. 1-8

Comparison of Time Series Changes in Tangible Fixed Assets Turnover of
Manufacturers Operating in Different Business Areas

Sources: Development Bank of Japan “Financial Data Bank”; Standard & Poor’s “Compustat”

3. Time Series Changes in Japanese
Manufacturers’ Profitability by Business
Area
3.1

Method Used to Statistically Calculate
Time Series Changes in Japanese
Manufacturers’ Profitability by BusinessArea

The previous comparison of major Americanand Japanese manufacturers in terms of profitability showed that the ROA and operating
profit on sales of Japanese general electricalequipment manufacturers remained low
throughout the 1990s. As each of the generalelectrical equipment manufacturers operates ina broad range of business areas, it is not possible to accurately determine from published data
which business areas are the unprofitable ones
even though total profitability is clearly low.
Although it has become possible in recent years
to grasp profitability in individual business areas (segments) to a certain extent as a result of
increased corporate disclosure, the segmentation structure used varies among companies and8

Development Bank of Japan Research Report/ No. 34

the existing published data do not cover a long
period. This section deduces the causes of thelow profitability of Japanese general electricalequipment manufacturers by segment by analyzing time series data on specialized manufacturers’ profits and other data.
The time series changes in Japanese general electrical equipment manufacturers’ profitability were statistically calculated by segment
by using, as samples, the audio-visual home
appliances, communications equipment, andheavy electric apparatus segments for which
published settlement data are available on specialized and semi-specialized manufacturers,
including the part of the general electricalequipment manufacturers’ consolidated settlement data that corresponds to these segments.
Separate statistical calculations were made forthe semiconductor segment, which occupies animportant position in all general electricalequipment manufacturers with respect to profitability. The objective was to identify which
segments of the general electrical equipment
manufacturers are unprofitable.

3.2

Summary of the Results

Figure 1-9 shows the time series changes in the
total ROA of Japanese general electricalequipment manufacturers and the ROA of eachsegment. The total ROA as well as the segment-specific ROA figures fell consistently
from the end of the 1980s to the early 1990s,
and the decreases in the ROA of the audio-visual home appliances segment were mostpronounced. In addition, the ROA of the heavy
electric apparatus segment fell below the total
ROA of the general electrical equipment manufacturers in 1994 when capital spending on
facilities by the domestic electric utility
companies passed the peak8 and remained sofor the remainder of the 1990s, dragging down
the total ROA. On the other hand, the ROA of
the communications equipment segment rose in
the late 1990s. This is attributable to the rapid

16%
12%

ROA

8%
4%
0%
-4%
-8%
88

89

90

91

92

93

94

95

96

97

98

99

00

01

Fiscal year
General electrical equipment manufacturers
Audio-visual home appliances segment
Communications equipment segment
Heavy electric apparatus segment

Fig. 1-9

Changes in the Total ROA of Japanese General Electrical Equipment
Manufacturers and the ROA of Each Segment

Note:

10 general electrical equipment manufacturers, 4 audio-visual home appliances manufacturers, 5 communications equipment manufacturers and 4 heavy electric apparatus
manufacturers
4 audio-visual home appliances manufacturers = Pioneer, Victor Company of Japan,
Columbia Japan, Aiwa
5 communications equipment manufacturers = Iwatsu Electric, NEC Infrontia, Toyo
Communication Equipment, Anritsu, Matsushita Communication Industrial
4 heavy electric apparatus manufacturers = Fuji Electric, Meidensha, Takaoka Electric
Mfg., Nissin Electric
Source: Development Bank of Japan “Financial Data Bank”

8

From “Research on Facility Investment Plans” published by the Development Bank of Japan. The total capital spending on facilities made by the 9 electric utilities
peaked at 4.9 trillion yen in FY 1993 and fell to 2.9 trillion
yen in FY 2000.

Development Bank of Japan Research Report/ No. 34

9expansion of the cellular phone market and theresultant increases in capital spending on facilities by communications equipment companies.
Figure 1-10 shows the time series changes
in the total operating profit on sales of Japanesegeneral electrical equipment manufacturers andthe operating profit on sales of each segment.
The operating profit on sales of the semiconductor segment9 fluctuated widely, making both
positive and negative contributions. These wide
fluctuations are attributable to the replacing ofold products with new products due to the decreasing circuit line width and increasing degree of integration, the market climate changes
caused by the fluctuations in supply and demand, and other factors.
Even though the profitability of thesemiconductor segment is essentially unstable
due to the silicon cycle, the profitability
remained approximately the same as that of thefour Japanese electronic component & device
manufacturers even in 1994 and 1995 whenrevenues were high (operating profit on sales =Operating profit on sales

20%

10%

0%

-10%

-20%
88

89

90

91

92

93

94

95

96

97

98

99

00 01
Fiscal year

General electrical equipment manufacturers
Audio-visual home appliances segment
Communications equipment segment
Semiconductor segment
Heavy electric apparatus segment

Fig. 1-10 Changes in the Total Operating Profit on Sales of Japanese General Electrical
Equipment Manufacturers and the Operating Profit on Sales of Each Segment
Note:

For the names of the companies used for the calculations for the semiconductor segment and thestatistical calculation method used, refer to footnote 9.
Source: Development Bank of Japan “Financial Data Bank”

9

The operating profit on sales of the semiconductor
segment of the major Japanese general electrical equipment manufacturers (Hitachi, Toshiba, Mitsubishi Electric,
NEC and Fujitsu) was statistically derived through calculations using data from “DBJ Research Report No.259”
for fiscal years 1988 to 1998 and intermediate values
taken from the Nikkan Kogyo Shimbun (Daily Industrial
Journal) and reports from securities analysts (Nikko
Salomon Smith Barney, Mizuho Securities, Nomura Securities Financial Research Center) for fiscal 1999 and succeeding years.

10

Development Bank of Japan Research Report/ No. 34

profitable segments up until 1980s, as well as
declines in the operating profit on sales of theheavy electric apparatus segment, which enjoyed stable profitability in the 1980s, contributed to the declines in profitability during the
1990s. In addition, a comparison of the profitability of major American and Japanese semiconductor manufacturers showed a wide gap in
profitability between the two, even though they
have comparatively dominated the global
semiconductor market.

were high (operating profit on sales = slightly
less than 15%). There is a large gap with thefigure (more than 20%) achieved by American
semiconductor manufacturers during the same
period, and the operating profit on sales in 1988
and 1989 when Japanese manufacturers had
more than half of the world market was not sohigh (statistically calculated value = approximately 3%). There thus appears to be thestructural problem among Japanese semiconductor manufacturers (segment) that their profitability is low even during a boom period orwhen they have strong market dominance. This
point will be discussed further in the following
chapters.
In this section, the profitability of Japanesegeneral electrical equipment manufacturers wasestimated by segment using published settlement information of some manufacturers. The
analysis revealed that declines in the operating
profit on sales of the audio-visual home appliances segment, which was one of the most

4.

Profitability Characteristics of Japanese
Manufacturers

In the 1990s, there were significant declines inoperating profit on sales for Japanese manufacturers and especially in those for Japanese general electrical equipment manufacturers, in contrast with American manufacturers that maintained high operating profit on sales. Although
the effects of the prolonged recession in the

Total assets turnover (times/year)

2.8
2.4
2.0
1.6
1.2
0.8
0.4
88

89

90

91

92

93

94

95

96

97

98

99

00 01
Fiscal year

General electrical equipment manufacturers
Audio-visual home appliances segment
Communications equipment segment
Heavy electric apparatus segment

Fig. 1-11

Changes in the Total Assets Turnover of Japanese General Electrical Equipment
Manufacturers and the Total Assets Turnover of Each Segment

Source: Development Bank of Japan “Financial Data Bank”

Development Bank of Japan Research Report/ No. 34

11

Japanese economy in the 1990s (a macroeconomic factor) on the profitability of Japanesemanufacturers cannot be ignored10, a comparison with the figures for Japanese electronic
component & device manufacturers clearlyshows that the declines in the profitability ofJapanese general electrical equipment manufacturers are serious, and may have causes
unique to the general electrical equipment industry.
Sales in the Japanese markets, which are amajor outlet for the products of Japanese manufacturers, fell in the 1990s because of therecession. All Japanese general electrical equip-

10

Sales in the Japanese markets which are a major outlet
for the products of Japanese manufacturers fell in the
1990s because of the recession. All Japanese general electrical equipment manufacturers (except Sony) depended
on these markets for more than half of total sales in fiscal
2000.
12

Development Bank of Japan Research Report/ No. 34

ment manufacturers (except Sony) depended onthese markets for more than half of total sales infiscal 2000.
The following chapters examine the segments that have been dragging down profitability in time series or relative to the Americancounterparts for reasons of low profitability,
and then examine the differences between thebusiness models used by American and Japanese manufacturers, which are considered to becorrelated with the profitability gap between thetwo groups, focusing on general electricalequipment manufacturers.

IIIndustry Trends by Segment

the world semiconductor market (by area classification based on the nationalities of the shipping manufacturers) shows that Japanesemanufacturers increased their market share in
the 1980s and surpassed American manufacturers to acquire the top share, with more than half
the world market. However, the Japanesemanufacturers’ market share peaked in 1988 to
1989 and then continued to fall, allowing
American manufacturers to catch up and eventually surpass Japanese manufacturers in theearly 1990s. The gap in market share continued
to widen throughout the 1990s, with the market
share of Japanese manufacturers at the end of
the 1990s falling to less than 30%, roughly thesame as that in 1980. In addition, there were
only three Japanese manufacturers among the
top 10 companies in 2001, as opposed to six in
1991.

The previous chapter showed that one of thereasons for the low profitability of Japanesegeneral electrical equipment manufacturers
relative to that of American manufacturers wasa wide gap between the two groups in the operating profit on sales of the semiconductor segment. In addition, in terms of segment-by-segment contribution to the sharp declines in the profitability of Japanese manufacturers in 2001, the semiconductor segment,
which suffered the sharpest declines in sales,
was the highest contributor. This chapter identifies the factors that have been dragging down
profitability by segment using relevant indicators.
1.

Semiconductors

1.1

Market Trends

An examination of the time series changes in
the market share of Japanese manufacturers in
Share
70%
60%
50%
40%
30%
20%
10%
0%
80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01

American manufacturers
European manufacturers

Japanese manufacturers
Asia and Pacific manufacturers

Fig. 2-1 Changes in the Market Shares of the American, European, Asia andPacific and Japanese Manufacturers in the Global Semiconductor Market
Source: Gartner Dataquest (April 2002) GJ02225

Development Bank of Japan Research Report/ No. 34

13

1981

World total = 14,668 million dollars
8.8%
8.1%

6.8%
Others
44.8%
5.6%
5.5%
5.3%
3.1%

1991

5.1%

TI
Motorola
NEC
Philips
HitachiToshiba
National Semiconductor
Intel
Matsushita Electronics
Fairchild Semiconductor

3.6%World total = 59,695 million dollars
8.0%
7.7%

6.7%
Others
45.1%

6.4%

6.3%
4.6%
4.5%

NEC
ToshibaIntel
Motorola
HitachiTI
Fujitsu
Mitsubishi ElectricMatsushita Electronics
Philips

3.4% 3.4%
3.9%

2001

World total = 154,909 million dollars
16.1%
T oshiba
4.4%
4.1%
Others
52.0%

4.1%
3.9%

3.1%
2.9%
2.8%

Hitachi
3.0%

NEC
3.5%

Intel
Toshiba
ST Microelectronics
Samsung Electronics
TI
NEC
Motorola
HitachiInfineon T
Philips

Fig. 2-2 Changes in the Shares of Manufacturers in Semiconductor Sales
Source: Gartner Dataquest (April 2002) GJ02226

14

Development Bank of Japan Research Report/ No. 34

IBM

Motorola

TI

Micron

Intel

Sharp

Sanyo ElectricMatsushita Electric Industrial

NEC

Sony

ers altogether held more than half the market in
1991, but their market share fell as South Korean and American manufacturers increased
their market shares through specialization, cost
reductions, etc. In 2001, the share of Japanesemanufacturers was about 20%.
Manufacturers from South Korea, Taiwan
and other Asian countries as well as Japanesecompanies from other industries (such as steel
manufacturers) entered the semiconductor
market in the 1980s, when the semiconductorbusinesses of Japanese manufacturers werebooming. The South Korean manufacturers
have expanded mainly in the DRAM segment,
and the Taiwanese manufacturers have expanded based on the foundry business model.
Meanwhile, some of the Japanese entrants fromother industries have sold their semiconductorbusinesses to specialized foreign semiconductor
manufacturers and have withdrawn from thesemiconductor market as industry conditions
have worsened.3
Fujitsu

Toshiba

Mitsubishi Electric

HitachiFigure 2-3 shows the business areas covered by American and Japanese manufacturers.
Japanese manufacturers are producing the full
spectrum of semiconductor products, while
American manufacturers are more highly specialized. In terms of market share, Japanesemanufacturers in the segments surveyed are notamong the top companies in the MOS type integrated circuit1 segment that accounts for ahigh percentage of the overall semiconductor
market, but hold large market shares for semiconductors as a whole as they produce a broad
range of semiconductor products. In otherwords, there is no area in which a Japanesemanufacturer is particularly strong. On theother hand, American manufacturers hold leading market shares in the large MOS type integrated circuit segment and other segments. Figure 2-5 shows the shares (by sales) of the
top-share manufacturers in 1991 and 2001 for
DRAM products2, which are typical MOS type
memory products. Major Japanese manufactur-

MOS memories○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ◎ ○ ○ ○MOS micro○ ○ ○ ○ ○ ○ ○ ○ ○ ◎◎ ○ ◎MOS logic○ ◎ ○ ○ ○ ○ ○ ○ ○ ◎○ ◎ ○Linear (analog)○ ○ ○ ○ ○ ○ ○ ○ ○◎ ○ ○Digital Bipolar◎ ○ ○ ◎ ○ ○ ○◎ ○CCDs (sensors)

○ ○

◎

Opto

○ ○ ○ ○ ○ ○ ◎ ◎ ○Discrete○ ◎ ○ ○ ○ ○ ○○ ◎ ◎ ○ ○○○Fig. 2-3 Sub-segments within the Semiconductor Segment◎ indicates that the manufacturer is among the top-three companies in the world interms of market share and ○ indicates a rank of fourth or lower (based on figures statistically calculated for 2000).
Source: Prepared by the Development Bank of Japan from publications of the Semiconductor
Industry Research Institute of Japan
Note:

1

MOS stands for Metal Oxide Semiconductor. MOS
type integrated circuits are integrated circuits with a
3-layer structure that comprises the semiconductor (silicon
substrate, etc.), oxide and metal layers.
2
DRAM: Dynamic Random Access Memory.

3

Nippon Steel sold Nippon Steel Semiconductors to
UMC (Taiwan) in 1998, and Kobe Steel sold KMT Semiconductors to Micron Technologies (United States) in
2001.

Development Bank of Japan Research Report/ No. 34

15

8%
5%
0%
1%

24%

MOS memories
MOS micro
MOS logic
AnalogDigital Bipolar
Sensors
Opto
Discrete15%

17%Fig. 2-4

30%

Composition of the Global Semiconductor Market (2000)

Source: WSTS statistics
1991 World total = 6,982 million dollars
13.7%

12.7%
Others45.3%

10.6%
Toshiba
Samsung Electronics
NEC
Hitachi
TI

9.5%
8.2%

2001 World total = 11,856 million dollars
27.0%
Others21.2%

Samsung Electronics
MicronHynicsInfineon T

8.5%

Elpida Memory
9.7%

19.1%
14.5%

Fig. 2-5 Shares (by Sales) of the Top-share Manufacturers in 1991 and2001 in the DRAM market
Source: Gartner Dataquest (April 2002) GJ02227

16

Development Bank of Japan Research Report/ No. 34

The loss of market share of Japanesemanufacturers to American manufacturers ispartly attributable to the foundry manufacturers4 based in Taiwan and other countries, which
specialize in contract-based production ofsemiconductors. These foundry manufacturers
have grown for the following reasons: 1) as
know-how, profits and added value associatedwith semiconductor production shifted fromsemiconductor manufacturers to production
equipment manufacturers and as market competition intensified partly due to new entries,
cost competition became a more importantmanagement issue than competition in quality
which is harder to differentiate, and 2) differentiation in design (what to produce) also became
more important for management than differentiation in quality, leading to the separation ofdesign and production (i.e. pursuing productdifferentiation and cost competitiveness separately), thus favoring firms that specialized indesign or production. Against this background,
American manufacturers, helped by the national

government (SEMATEC5) and improvementsin the competitiveness of American semiconductor production equipment manufacturers,
regained and increased their market shares byutilizing foundry manufacturers for production.
In contrast, Japanese manufacturers, which adhered to the policy of doing everything in-housefrom design to production, experienced loss ofmarket share to American manufacturers.
1.2

Trends in Capital Spending on
Facilities and R&D

Figure 2-7 shows the time series changes in thecapital spending on facilities by manufacturers
surveyed by nationality. Japanese manufacturers’ capital spending was the highest in theworld in the early 1990s but was surpassed bythat of American manufacturers and then by
Asian manufacturers around the mid 1990s as
the Japanese manufacturers’ market share fell.
The gap continues to widen.

100 million US
dollars

%

100

5

80

4

60

3

40

2

20

1

0

0
98

T SMC

99
UMC

00

01

Year

Share of global market (total of the 2 companies)

Fig. 2-6 Changes in the Sales of Major Taiwanese Semiconductor
Foundry Companies
Note:

Both companies depend on American manufacturers for 50 to 60% of theirsales.
Sources: Prepared by the Development Bank of Japan from annual reports of the 2companies and WSTS data

4

Foundry manufacturers are manufacturers that specialize in contract-based production of semiconductor
integrated circuits without developing products in-house.
TSMC (Taiwan Semiconductor Manufacturing) and UMC(United Microelectronics) in Taiwan are typical foundry
manufacturers.

5

SEMATECH (Semiconductor Manufacturing Technology Institute) is a semiconductor production research
institute established jointly by the national government
and the private sector in the United States in 1987.

Development Bank of Japan Research Report/ No. 34

17

Considering the low level of capitalspending on facilities by Japanese manufacturers relative to those of capital spending on facilities by American and Asian manufacturers
in the semiconductor industry, which is a typical facility-intensive industry, it will be difficult
for Japanese manufacturers to regain their market share (sales).
Many domestic and overseas manufacturers in the semiconductor industry have experi-

enced periodic large deficits due to the silicon
cycle and other reasons while facing the need tocontinuously increase capital spending on facilities in line with the decreasing circuit line
width and increasing degree of integration.
Specialized overseas semiconductor manufacturers are convincing their investors, who finance their operations, of the need to consider
this risk of temporary deficits as part of thenecessary investment in facilities (according to

100 million dollars

300
250
200
150
100
50
0
91

92

93

94

95

96

American manufacturers
European manufacturers

Fig. 2-7

Source:

97

98

99

Japanese manufacturers
Asia and Pacific manufacturers

Changes in Capital Spending on Semiconductor Production Facilities byCompany Nationality
Gartner Dataquest (August 2001) GJ02228
10.4%
7.3%

Intel
6.6%

TSM C group
Samsung Electronics

Others
66.5%

4.8%
4.4%

ST M icroelectronics
UM C group
OthersFig. 2-8 Shares of Manufacturers in Capital Spending on
Semiconductor Production Facilities (2000)
Source:18

00 YearGartner Dataquest (August 2001) GJ02229

Development Bank of Japan Research Report/ No. 34

%

20
16
12
8
4
0
94

95

96

97

98

99

Year

Japanese electrical equipment companies
Japanese semiconductor segment
794 American electrical equipment companies
Intel

Fig. 2-9 Changes in the Share of Total R&D Expenditure as a Percentage ofSales by Company Group
Sources: Ministry of Public Management, Home Affairs, Posts and Telecommunications “Survey of Research and Development”; publications of the Ministry of International
Trade and Industry; Standard & Poor’s “Compustat”

a Japanese general electrical equipment manufacturer). Because of the current recession in
the global semiconductor market that is forcing
other semiconductor companies worldwide tolimit their capital spending on facilities, since2001 most Japanese manufacturers have been
increasingly resorting to concentrating capitalspending on facilities in high-priority areas ordeferring facility investments while looking for
new business models including those based on
partnerships.
Figure 2-9 shows the time series changes
in total R&D expenditure by different company
groups. The share of total R&D expenditure
made by the 12 major Japanese semiconductor
manufacturers (including semiconductor divisions of general electrical equipment manufacturers) as a percentage of their total sales wasaround 16 to 18% between 1994 and 1999. Thisis much higher than the electrical equipment
industry average of 6% and is also higher than
the figures for specialized American semiconductor manufacturers. The fact that the market
share of Japanese semiconductor manufacturers

has been shrinking and their profitability has
also been low as compared to the major
American manufacturers and other groups, despite their vast R&D expenditure, is partly due
to their over-diversification which has lowered
their R&D efficiency.6
Figure 2-10 compares companies in termsof the time series changes in operating profit onsales. Rohm, which is a mid-sized,
6”Challenges for the Japanese Semiconductor Industry
and Solutions” (May 2002) published by the Semiconductor Industry Strategy Promotion Committee points out that
although Japanese general electrical equipment manufacturers have been producing a wide range of electricalequipment and electronic components and devices, their
final products (in particular information and communications equipment) have not been very competitive, as aresult of which their diversification in product range has
not brought the intended results.
In addition, the apparent edge that Japanese manufacturers have over American manufacturers in terms of theirshare of R&D expenditure as a percentage of sales is attributable to American manufacturers’ strategy of acquiring new experts and expertise and venture companies’
R&D results through M&As compared with Japanesemanufacturers.

Development Bank of Japan Research Report/ No. 34

19

50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
88

89

90

91 92

93

94

95

96

97

98 99

00

01 Year5 general electrical equipment manufacturers
Rohm
Intel
M icronTI

Fig. 2-10

Comparison of Time Series Changes in Operating Profit on Sales ofAmerican and Japanese Companies

Note:

The figures for the 5 general electrical equipment manufacturers are statistically calculated values (see footnote 9 to Chapter I). The operating profit on sales figures forRohm are consolidated figures for the entire company.
Sources: Development Bank of Japan “Financial Data Bank”, Standard & Poor’s “Compustat”

semi-specialized semiconductor manufacturer,
consistently increased its profitability (operating profit on sales) throughout the 1990s by
specializing in producing custom LSIs and diodes7 while the profitability of the semiconductor manufacturers producing the full rangeof semiconductor products remained low. The
profitability gap between American and Japanese manufacturers has been steadily growing
for many years now, due mainly to the differences in the business models used (specialization/diversification), and the rapid changes inbusiness climate as well as the wide demand
fluctuations in the memory segment (particularly DRAM) have heavily impacted semiconductor manufacturers’ profitability. Although
Japanese manufacturers have recognized theneed to concentrate in core businesses and havebeen trying to restructure under a “selection andconcentration” policy, they have been slow inselecting their core businesses and have not yet
7
Diodes are (discrete) semiconductor devices that havea junction structure which allows them to conduct electric
current only in one direction.

20

Development Bank of Japan Research Report/ No. 34

completed the selection phase. Japanese manufacturers are thus unlikely to close the gap with
American manufacturers.
1.3

Trade Trends

Figure 2-11 shows the time series changes inthe trade balance between the United States andJapan with respect to integrated circuits andother types of products. Japan had export surpluses almost every year between 1988 and2000. On the other hand, companies headquartered in America consistently surpassed those
headquartered in Japan in terms of profitability(operating profit on sales) over the same period.
These facts suggest that American semiconductor manufacturers have been 1) producing
products with high added value, 2) successfully
devising measures to achieve good profits inrelation to costs and/or sales prices and 3)
shifting production bases to developing countries and outsourcing (including utilization offoundry manufacturers).

100 million yen
10,000
8,000
6,000
4,000
2,000
0
-2,000

88

89

90

91

Audio-visual equipment

92

93

94

95

96

97

98

Communications equipment

99

00 YearIntegrated circuits

Fig. 2-11 Changes in the Trade Balance between the United States and Japan
with Respect to Integrated Circuits and Other Types of Products（←Imports ／Exports→）100 million yen

Sources: Ministry of Finance “Overview of Japan’s Foreign Trade”; Press Journal Inc. “Japan
Semiconductor Almanac”
2,000
1,500
1,000
500
0
-500
-1,000-1,500-2,000-2,500
89

90

91

92

93

Exports

94

95

Imports

96

97

98

99
00
Fiscal year

Trade balance

Fig. 2-12 Changes in the Trade Balance between Japan and the Rest of the World with
Respect to Technology-related Trade in the Electrical Equipment Industry
Note:

The industries covered are the communications, electronics and electrical measuring instrument
industries.
Source: Statistics Bureau of the Ministry of Public Management, Home Affairs, Posts and Telecommunications “Survey of Research and Development”

Figure 2-12 shows the time series changes
in the trade balance between Japan and the restof the world with respect to technology-relatedtrade in the electrical equipment industry (including semiconductors). Japan consistently im-

ported more than it exported between 1989 and
2000, in marked contrast to the large export surpluses of electrical equipment and components/devices. Although this suggests that Japanese manufacturers have no technological supeDevelopment Bank of Japan Research Report/ No. 34

21riority over other countries’ manufacturers, itdoes not prove they are technologically inferior,because the technology trade balance is determined not only by technological superiority or
inferiority (R&D capability) but also by otherfactors including individual manufacturers’ patent application strategies (applying for a patentmeans disclosing technological expertise andknow-how). As the number of patent applications made by Japanese manufacturers has been
increasing in recent years (indicating greater
willingness to fully utilize their intellectual
properties to improve profitability), the technology trade balance may improve in the future.
1.4

Challenges

As manufacturers (including general electricalequipment manufacturers) having a semiconductor business are significantly affected by itin terms of profitability, such companies are
struggling to formulate semiconductor businessstrategies and make good use of their semiconductor divisions and operations. To strengthen
their market power by regaining market shareand reducing facility investment and R&D costs
which are rising year by year, they will need tomerge operations and take other drastic action
based on partnerships, as well as improve theefficiency of R&D and concentrate resources instrategic businesses. They will also need to revise their business models in order to increase
market share by utilizing foundry manufacturers and outsourcing production processes, whilestrengthening their design divisions and reducing the burden of facility investment.
2.
2.1

Home Appliances

Declines in Unit Selling Prices

The Japanese general electrical equipment
manufacturers enjoy higher market shares in thehome appliances segment than in any other. In
particular, they hold large market shares ranging from 40 to 80% in audio-visual home appliances markets, including those for video
cassette recorders and CD players, whose userbases expanded rapidly both in Japan and overseas in the late 1980s. Given the large market

22

Development Bank of Japan Research Report/ No. 34

shares and dominance of Japanese general electrical equipment manufacturers in the home
appliances segment, this should have been oneof the most profitable segments for Japaneseelectrical equipment manufacturers, but in fact
their sales in this segment decreased from the
1980s to the 1990s, hence this segment has notnecessarily improved their profitability, as
mentioned above.
The direct reason for the inability of Japanese electrical equipment manufacturers toachieve high profit levels in the home appliances segment is the recent declines in the unit
selling prices of products. An examination of
the changes in the wholesale price indices forthe major markets over the past 10 years reveals
that the unit selling prices of home appliances
have declined much more sharply than those of
automobiles. These sharp declines havesqueezed the margins of Japanese electricalequipment manufacturers and offset the cost
reductions achieved through improvements in
productivity and the expansion of markets
achieved through increases in ownership rates.
The sharp declines in the unit selling pricesof home appliances are largely due to the shifting of manufacturing to countries where production costs are lower such as Asian countries.
The overseas production ratios are now morethan 90% for such items as color TV sets, andabout 80% of Japanese-brand products sold inJapan are imported after being manufactured
in other countries (on the basis of figures statistically calculated (by number of units) for2000). As a result of the recent increases in reverse import ratios, the domestic unit shipping
prices of home appliances have been fallingyear by year and Japanese electrical equipment
manufacturers have been forced to limit domestic production to products with high added
value such as wide-screen TV sets and to adapt
to this trend. The shifting of production bases tocountries with lower production costs, theoriginal main purpose of which was to develop
overseas outlets for Japanese products, has now
caused harsh competition in the domestic market, as evidenced by sharp rises in the overseas
production and reverse import ratios for color
TV sets, video cassette recorders, etc. over the
past 10 years.

%
100
90
80
70
60
50
40
30
20
10
0
81.3

83.3

85.3

87.3

89.3

91.3

93.3

Room air-conditioners
Video cameras
PCs

Fig. 2-13

95.3

97.3

99.3
01.3
Year and month

Video cassette recorders
CD players
Cellular phones

Changes in the Rates of Ownership of Major Electrical andElectronic Equipment (in Japan)

Note:

The figures for cellular phones are ownership rates as a percentage of the total
population. The figures for other products are ownership rates as a percentageof the total number of households.
Sources: Cabinet Office “Consumption Confidence Survey”; publications of theTelecommunications Carriers Association (cellular phones)
120%
100%
80%
60%
40%
20%
0%
90

91

92

93

94

95

Microwave ovens
Video cassette recorders
CD players

96

97

98

99

00 YearColor T V sets
Stereos

Fig. 2-14 Changes in the Market Share of Japanese Electrical Equipment Manufacturers in theMarkets for Major Home Appliances Products (by number of units)
Note:

Share of Japanese manufacturers = [Number of units produced by Japanese manufacturers] / [Total
world demand]
Sources: Prepared by the Development Bank of Japan from publications of the Japan Electrical Manufacturers'
Association (JEMA), the Japan Electronics and Information Technology Industries Association (JEITA),
and the Association for Electric Home Appliances.
Development Bank of Japan Research Report/ No. 34

23

Indices
120
100
80
60
40
20
0
90

91

92

93

94

95

96

97

Color TV sets
Video cameras
Electric refrigerators
Compact cars

Fig. 2-15

98

99

00

01 YearVideo cassette recorders
Microwave ovens
Electric washers

Changes in the Wholesale Price Indices for the Major Markets

Source: Prepared by the Development Bank of Japan from Monthly Financial andEconomic Statistics Reports published by the Bank of Japan.

35

%

30
25
20
15
10
5
0
89

90

91

92

93

94

95

96

97

98

99

00 YearAverage of the manufacturing industries
Electrical equipment
Transportation equipment

Fig. 2-16

Changes in the Overseas Production Ratios for Electrical Equipment andTransportation Equipment (in monetary terms)

Note:

Overseas production ratio = [Sales of the overseas subsidiaries, branches and divisionsof Japanese companies (manufacturing industries)] / [Sales of Japanese companies andtheir domestic subsidiaries, branches and divisions (manufacturing industries)]
Source: Ministry of Economy, Trade and Industry “Trend Survey of Overseas Business
Activities”

24

Development Bank of Japan Research Report/ No. 34

100%
80%
60%
40%
20%
0%
89

90

91

92

93

94

95

96

Electric refrigerators
Color T V sets
Stereos

Fig. 2-17

97

98

99

00 YearElectric washers
Video cassette recorders

Changes in the Overseas Production Ratios for the Major Product Categories(by number of units)

120

120

100

100

80

80

60

60

40

40

20

20

0
91

92

93

94

95

96

97

98

99

00

0
01 YearDegree of dependency on imports (%)

Overseas production ratio = [Number of units produced overseas] / [Number of units produced
domestically + Number of units produced overseas]
Sources: Prepared by the Development Bank of Japan from publications of JEMA and JEITA

Unit price (1,000 yen/unit)

Note:

Production
Shipment
Imports
Degree of dependency on imports (by number of units)

Fig. 2-18

Changes in the Unit Shipment, Import, and Domestic Production Prices ofColor TV Sets (excluding Liquid Crystal TV sets)

Note:

Degree of dependency on imports = [Imports] / [Domestic production – Exports + Imports].
The unit production prices were calculated by [Total production cost / Number of units produced]. The unit shipment/import prices were also calculated in a similar manner.
Source: Prepared by the Development Bank of Japan from publications of JEITA

Development Bank of Japan Research Report/ No. 34

25

90

35

80

30

70
60

25

50
20

40

15

30

10

20

5

10

0

0
Year
01

91

92

93

94

95

96

97

98

99

00

Degree of dependency on imports (%)

Unit price (1,000 yen/unit)

40

Production
Shipment
Imports
Degree of dependency on imports (by number of units)

Fig. 2-19

Changes in the Unit Shipment, Import, and Domestic Production Prices ofVideo Cassette Recorders

Note:

Degree of dependency on imports = [Imports] / [Domestic production – Exports + Imports].
The unit production prices were calculated by [Total production cost / Number of units produced]. The unit shipment/import prices were also calculated in a similar manner.
Source: Prepared by the Development Bank of Japan from publications of JEITA

Although declines in wholesale price indices (unit prices) do not directly squeeze manufacturers’ margins as long as they are due toreductions in production costs achieved byshifting production bases to other countries or
through other efforts by manufacturers, the declines in unit prices mentioned above arelargely due to the recent shift from selling
products mainly through manufacturers’ affiliated distributors to sales through mass merchandisers.8 This has usurped the manufacturers’ power to determine selling prices (as seenin the recent increase in the use of “open price”
for home appliances instead of “manufacturer’s
recommended retail price” or “standard retailprice”)9 and thus accelerated declines in unit
8

According to “Home Appliances Distribution Data
Pandect” (Ricks Inc.) and other data.
9
Although declines in retail prices do not necessarily
directly cause declines in wholesale prices, the total profits
of the manufacturers (including their affiliated distributors(local home appliances stores)) have decreased or have notincreased as they should have because of the recent increase in mass merchandisers’ share of total number of
products shipped.
26

Development Bank of Japan Research Report/ No. 34

prices.
From the above analysis, excessive discount competition among Japanese electricalequipment manufacturers for market share may
have been a major cause of the recent declines
in unit prices and thus the recent declines in the
profitability of Japanese electrical equipment
manufacturers in the home appliances segment.
Japanese manufacturers, which have a strong
tendency to follow each other’s moves, have
reduced their own profitability by competingwith each other for a bigger piece of the pie.
This emerging industry structure makes it very
difficult for Japanese general electrical equipment manufacturers to enjoy good profits in thehome appliances segment. Furthermore, theemergence of home appliances manufacturers
from other countries including China, which
has curbed the expansion of market share by
Japanese general electrical equipment manufacturers, as well as Japanese general electricalequipment manufacturers’ recent losses in profitability in other segments such as the semiconductor segment, have further reduced profitability.

In the future, new segments, including thedigital (information) home appliances segment,
are likely to grow significantly as the user bases
for products in such segments expand, but inview of the recent declines in the unit selling
prices of DVD players, which are hit productsin this segment at present, the increase in ownership rates for digital home appliances will not
directly translate into improved profitability inthe near future. Without strong competitorsfrom other industries or countries as in the past,
Japanese electrical equipment manufacturers
could have entered new segments or launched
new products following each other, competedwith each other for larger market share, and still
managed to secure profits. However, they must
now recognize the fact that increasing digitalization makes it difficult for them to differentiate their products in terms of quality or functions, and that they are no longer able to compete easily with emerging manufacturers inprice (costs). These conditions were absent
during the period when Japanese electricalequipment manufacturers had a competitiveedge over companies from other countries orindustries and maintained large shares of themarket for video cassette recorders (which areanalog products) where they had a head-startover companies from other countries and industries. The major challenges to be addressed by
Japanese electrical equipment manufacturers
are 1) formulating better patent and technology
policies, 2) concentrating resources in the segments where they are strong, 3) making proper
decisions as to whether and when to withdraw
from maturing markets and 4) adding profitable
operations and businesses and shedding unprofitable ones through partnerships, etc. with othercompanies.
3.

Information and Communications
Equipment

3.1

Ownership Rates and Market Shares

The typical sub-segments of the informationand communications segment of the electricalequipment industry that experienced sharp increases in ownership rate in the late 1990s are
the PC and cellular phone sub-segments. BothPCs (especially notebook PCs) and cellular
phones involve high-density technologies for
production, and are one of the strongest areas ofJapanese electrical equipment manufacturers(which have manufactured most of the “world’s
smallest” and “worlds’ lightest” products), but
in fact the market shares of the major Japaneseelectrical equipment manufacturers in the
global PC and cellular phone markets decreased
during the period between the emergence of
PCs and cellular phones and 2001. In the PC
and cellular phone sub-segments, the Japaneseelectrical equipment manufacturers’ success inmonopolizing industry standards in the home
appliances segment, including the video cassette recorder sub-segment, was not repeated.
The superiority of American and European
manufacturers in these sub-segments during thisperiod was largely because the mother market
user bases for these products in America andEurope expanded faster than those in Japan. As
a result, Japanese electrical equipment manufacturers could not significantly improve profitability and the profitability gap with American
manufacturers widened.
The fact that Japanese electrical equipment
manufacturers, which are considered to excel inproduction technologies such as high-density
technologies, lost or could not increase market
share is mainly attributable to the dominance ofa few companies over industry standards andthe increasing modularization. In the PC
sub-segment, for example, important functions
and high added value have concentrated in Microsoft’s OS products and Intel’s MPU products10, which have become de-facto industry
standards. The Japanese electrical equipment
manufacturers are good at producing thinner“products” (in terms of size), but have not beenable to decisively differentiate their products
from those of foreign manufacturers. In addition, Japanese electrical equipment manufacturers have lagged behind American manufacturers in the rate of spread of the Internet andhave totally relied on imports from other countries including the United States for software
products, which drive the expansion of the user
10
MPUs (Micro Processing Units) are integrated circuitsthat have all the functions of a CPU (Central ProcessingUnit) in one chip.

Development Bank of Japan Research Report/ No. 34

27

1
2
3
4
5

1996
Compaq
IBM
Apple
NEC
HP

1
2
3
4
5

2001
Dell
CompaqHP
IBM
NEC

Total number of units shipped in the global PC market (1,000 units)

71,334
Fig. 2-20

128,932

Top 5 Manufacturers in the Global PC Market in 1996 and 2001 by
Number of Units Shipped

Note: The numbers include the numbers of PC servers.
Source: Gartner Dataquest (February 2002) GJ02230

1
2
3
4
5

1996
Company
Motorola
Nokia
EricssonMatsushita
NEC
OthersShare (%)
26.9
20.2
12.1
8.0
6.8
26.0

1
2
3
4
5

2001
Company
Share (%)
Nokia
35.0
Motorola
14.8
Siemens
7.4
Samsung Electronics
7.1
Ericsson
6.7
Others29.0

Total number of units shipped in the global cellular phone market (1,000 units)

66,539Fig. 2-21

399,583

Top 5 Manufacturers in the Global Cellular Phone Market in 1996 and 2001 by
Number of Units Shipped

Source: Gartner Dataquest (March 2002) GJ02231

base of PCs, except for game software products.
In the cellular phone sub-segment, theadoption by Japanese home appliances manufacturers, during the transition period fromanalog to digital, of a transmission method(PDC method) which was not used in major
overseas markets resulted in a very low rate ofownership of foreign-made terminals in Japanand conversely a low rate of ownership of Japanese terminals overseas. This occurred due toJapan’s unique situation where carriers rather
than manufacturers dominate in technologicaldevelopment and market power.
In the future, international differences intransmission methods will probably vanish andJapanese electrical equipment manufacturers
will then once again be able to compete equally28

Development Bank of Japan Research Report/ No. 34

with foreign manufacturers as the Japanesemanufacturers shift to third-generation transmission methods (W-CDMA, cdma2000). The
Japanese manufacturers will therefore need toformulate business strategies that appropriately
address the changing business environment.
In the future, international differences intransmission methods will probably vanish andJapanese electrical equipment manufacturers
will then once again be able to compete equallywith foreign manufacturers as the Japanesemanufacturers shift to third-generation transmission methods (W-CDMA, cdma2000). The
Japanese manufacturers will therefore need toformulate business strategies that appropriately
address the changing business environment.

（←Imports ／Exports →）100 million yen

1000
0
-1000
-2000
-3000
-4000
-5000
-6000
-7000
-8000
94

95

96

Exports (total)
Imports (application software)

Fig. 2-22

97

98

99
Fiscal year

Imports (basic software)
Imports (custom software)

Changes in Computer Software Imports and Exports

Note:
Game software products are not included.
Sources: “Software Foreign Trade Statistics Research” published by the Japan Personal Computer
Software Association, Japan Information Technology Services Industry Association and
JEITA

3.2

BackgroundAs mentioned above, a major reason for the
failure of Japanese electrical equipment manufacturers to dominate the information andcommunications equipment sub-segment in the
1990s in the same way they succeeded in thehome appliances segment in the 1980s is theincreasing modularization. This point will be
discussed in detail in the next chapter.
One recent noteworthy development in thecellular phone sub-segment is that Japanesegeneral electrical equipment manufacturers,
which are producing cellular phones under theirown brands, are now supplying major components for cellular phones to Nokia in Finland, acompetitor that is one of the world’s top manufacturers of cellular phones. This reflects thefact the Japanese general electrical equipment
manufacturers have been forced, due to increasing modularization, to secure profits byresorting to component production and a“peaceful coexistence” approach. It also confirms that the production of state-of-the-art cellular phones requires Japanese electricalequipment manufacturers’ high-quality com-ponents with sophisticated functions, and thatthese manufacturers are focusing on thissub-segment by taking advantage of the criticalimportance of their components.
The numbers of domestically produced
PCs and cellular phones increased sharply eachyear until 2000, but have been falling since thesecond half of 2001 reflecting the IT recession
as in the semiconductor segment. In particular,
Japanese electrical equipment manufacturers
are finding it difficult to make profits in the PC
sub-segment partly due to the recent declines inunit production and selling prices. As profits
tend to concentrate in a small number of
non-final product manufacturers, some final
product manufacturers are attempting to use
more “open source” software such as Linux11
on database servers.
In addition, the 2001 settlement figures for
American and Japanese manufacturers showthat both suffered significant declines in profitability in the communications equipment segment in 2001, as in the semiconductor segment.
11
A Unix-based operating system (OS) that is available
on the Internet, can be freely reproduced and redistributed,
and is popular for business servers, etc.

Development Bank of Japan Research Report/ No. 34

29

downward trend in production, as seen in recent
partnerships among them to increase market
shares and reduce development costs.

80%

350

60%

300

40%

250

20%

200

0%

150

-20%

100

-40%

50

-60%

0
89

92

95

98

01

01.2

01.5

01.8

Unit production price (1,000 yen/unit)

Year-on-year increase in the number ofunits produced

They are now being forced to modify theirbusiness models, which worked when production was expanding, to adapt to the current

01.11

Year and month
Increase in the number of units produced

Fig. 2-23

Unit production price

Changes in the Production and Average Unit Production Price of PCs

The unit production price was calculated by dividing the total production cost by the
total number of units produced.
Source: Ministry of Economy, Trade and Industry “Preliminary Report on Machinery
Statistics”

Year-on-year increase in the number ofunits produced

Note:

140%
120%
100%
80%
60%
40%
20%
0%
-20%
-40%
-60%
93

Fig. 2-24

96

99

01.3

01.6

01.9
01.12
Year and month

Changes in the Production of Cellular Phones

Source: Ministry of Economy, Trade and Industry “Preliminary Report on Machinery
Statistics”

30

Development Bank of Japan Research Report/ No. 34

Electrical home appliances
Electronic home appliances○ ○ ○ ○
○ ○ ○

○ ○ ○

Dell

Intel

Nortel N

Lucent T

Motorola

HP

CompaqGE*IBM

Sanyo Electric

Sharp

Fujitsu

Mitsubishi Electric

Toshiba

Hitachi

A comparison of the main business areas ofAmerican and Japanese top sales electricalSony

1. Development and Current Status of the
Major American and Japanese Electrical
Equipment Manufacturers’ Business Areas

Matsushita Electric Industrial

This chapter examines the characteristics ofbusiness models being used by the major
American and Japanese electrical equipment
manufacturers, which may have further widened the profitability gap between Americanand Japanese electrical equipment manufacturers, as well as the background of the wideningof the profitability gap in the 1980s and 1990s.

NECequipment manufacturers in 2000 shows that all
top Japanese electrical equipment manufacturers by sales are general manufacturers covering
a wide range of segments, whereas the top
American counterparts are mostly specialized
manufacturers although the degree of specialization varies. This means that the distinguishingdifference (i.e. “department store” type manufacturers versus “specialized store” type manufacturers) between American and Japanesemanufacturers that was observed in the semiconductor segment is also present in the electrical equipment production industry as a whole.
Thus from an outsider’s perspective, American
electrical equipment manufacturers have distinct areas of strength, whereas Japanese electrical equipment manufacturers produce a wide
range of products but do not have a particularly
strong area.
The major American and Japanese electrical equipment manufacturers have developed
their portfolios of businesses up to 2000 along

III Characteristics of theBusiness Models Being Used by the
Major American and JapaneseElectrical Equipment
Manufacturers○○ ○ ○ ○

Industrial electronic equipment
Information equipment (PCs, etc.)
Communications equipment (cellular phones, etc.)

Electronic components and devices
Semiconductors
Liquid crystals
Heavy electric apparatus

Fig. 3-1○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○ ○ ○ ○ ○ ○ ○ ○

○ ○

○
○ ○ ○

○ ○ ○ ○ ○ ○ ○ ○ ○ ○○ ○○ ○ ○ ○ ○ ○ ○ ○ ○ ○

○

○ ○ ○

○

○

Main Business Areas of Major American and Japanese Electrical Equipment Manufacturers(excluding non-manufacturing segments such as service segments)

1. The business areas shown are the major electrical equipment businesses of the companies shown in termsof their shares as a percentage of total sales. Businesses in the non-manufacturing segments such as service
segments and non-electrical equipment segments are not included.
2. Components and devices other than semiconductors and liquid crystals are excluded.
3. GE has a wide range of production departments other than electrical equipment including industrial equipment, medical equipment, aircraft engines and plastics.
Sources: Prepared by the Development Bank of Japan from various publications and data of the companies listed
Notes:Development Bank of Japan Research Report/ No. 34

31

30%

20%

10%

0%

-10%

-20%

-30%
82

84

86

88

90

92

94

96

98

00 (Year)

Change in tangible fixed assets relative to those at the end of the previous business year
Change in number of employees relative to that at the end of the previous business year
Operating profit on sales
Change in total sales relative to those at the end of the previous business year

Fig. 3-2

Changes in IBM’s Sales, etc.

Source: Standard & Poor’s “Compustat”

rather different paths. The major Japanesemanufacturers started out producing heavy
electric apparatus, information and communications equipment or home appliances and gradually increased their scope of business by adding
new areas. But because they did not make anylarge-scale restructuring or withdrawal from amajor market while adding new businesses,
their portfolios became similar to one another.
This is another reason why Japanese generalelectrical equipment manufacturers are considered to follow each other.
On the other hand, American manufacturers tend to buy and sell their businesses likecommodities, as seen in GE’s business restructuring1 in the 1980s and IBM’s shift2 in the
1

General Electric sold businesses totaling about 10
billion dollars and acquired businesses totaling about 19
billion dollars in the 1980s. The company has generally
withdrawn from those businesses where it does not rank
1st or 2nd in the global market.
2
The total number of employees of IBM peaked at theend of the 1986 business year at 406,000. The company
made large employee cutbacks from the end of the 1991
32

Development Bank of Japan Research Report/ No. 34

early 1990s from computer businesses to service businesses. This is a characteristic of
American corporate culture.3 Recent instancesof M&A, such as those made by IBM tostrengthen their computer service businesses
and the acquisition by Intel of a communications equipment-related semiconductor businesswith high growth potential, also show the typical American approach of strengthening themanagement base around the core of existing
business year (374,000 people) to the end of the 1994
business year (220,000 people).
3
This report does not discuss in detail whether theterms “Japanese management practices” and “American
corporate culture” can be used in the same meaning as
individual companies’ management policies and corporate
cultures, but it is considered that the differences between
the United States and Japan in employment environments,
including 1) employment practices (i.e. inter-company
mobility is lower and the average duration of employment
is longer in Japan) and 2) employer-employee relationships (i.e. the average number of working days lost due tostrikes is smaller in Japan), contribute to the differences
between American and Japanese companies in management policies and practices.

IBM

Intel

TI

MicronCompaqHP

Acquisition
Selling◆ Sold the global network business to AT&T
◆ Infomix, Inc. (database business)(1,000 million dollars, 2001)(4,991 million dollars, 1999).
◆ Sequent Computer Systems, Inc.
(837 million dollars, 1999)◆ Giga A/S (communications LSI)
(1,247 million dollars, 2000)◆ Level 1 Communications (communications LSI)
(2,137 million dollars, 1999)◆ DSP Communications, Inc. (communications LSI)
(1,599 million dollars, 1999)◆ Sold the memory business to Micron◆ Bullbrown (analog semiconductor technologies)(Equity swap, 2000)(800 million dollars, 1998).
◆ TDK’s semiconductor subsidiary in the United States(575 million dollars, 1996)◆ Considering to acquire Hynics (South Korean company) (2001-)◆ Toshiba’s memory business(American Factory, 2001)◆ KMT Semiconductors(subsidiary of Kobe Steel)◆ TI’s memory business(800 million dollars, 1998)◆ Negotiating a merger with HP (2001-)◆ Sold the semiconductor business of DEC to Intel(585 million dollars, 1998).
◆ Divested the measuring instruments business,◆ Negotiating a merger with Compaq (2001-)
which accounted for 16% of total sales (1999).

Fig. 3-3

Recent Instances of M&A by American Manufacturers

Sources: Prepared by the Development Bank of Japan from annual reports and web sites of the companies listed

strong businesses. The major American manufacturers have been acquiring new experts,
R&D results and R&D know-how through acquisitions of semiconductor venture companies
in Silicon Valley. These venture companies
have contributed significantly to the R&D of
American manufacturers, thus giving rise to theapparent gap between American and Japanesemanufacturers in the ratio of R&D expenditure
to sales, as mentioned earlier.
The cases of GE and IBM are successful
examples of shifts to non-manufacturing businesses. On the other hand, Intel, which withdrew from the DRAM market to focus resources on the MPU business in the mid 1980s
and has become the world’s top manufacturer inthe semiconductor segment, is a typical example of the rebirth of an American manufacturer
through selective concentration.
The widespread embracement of M&A
and the selective concentration policy ofAmerican manufacturers means that they areretaining high-profit businesses only. This is amajor contributing factor to the widening profitability gap with Japanese general electricalequipment manufacturers, which cannot easily
undertake drastic restructuring because of theJapanese employment practice of avoiding employee cutbacks wherever possible and as a result, have not shed unprofitable and/or
low-profit businesses4. In America, certain
companies including communications manufacturers expanded rapidly in the 1990s, butsome of the former top manufacturers by sales
have disappeared from the rankings. In Japan,
on the other hand, there was virtually no change
to the list of top manufacturers by sales
throughout the 1980s and 1990s, which meansthat the industry is structurally stable but there
are very limited opportunities for emerging
companies to enter the market, in marked contrast to the situation in America.

4

The American manufacturers’ recovery in profitability
has been criticized as “a recovery at the expense of employment.”

Development Bank of Japan Research Report/ No. 34

33

2.

Impacts of Increasing Modularization
and Outsourcing

As mentioned above, whereas Japanese generalelectrical equipment manufacturers pursued expansion, their American counterparts pursued
specialization-oriented business models andracked up high profits in the 1990s. The Japanesemanufacturers were more profitable than they are
now and increased their market shares in suchsegments as semiconductors and audio-visualhome appliances and successfully developed
various new products such as CD players up to
the 1980s, but the declines and/or near-zero
growth in their profits and market shares in the
1990s suggest that the expansionary businessmodel gradually lost its superiority. To clarify thischange, it is necessary to understand the impactsof the recent progress of modularization and theassociated increased awareness of the importanceof the “smile curve.”
In this report, the term “modularization” refers to unification and standardization of standards for components and component groups(modules) that comprise electrical equipment. The
trend toward increased modularization began
when IBM started promoting unification of standards for modules to ensure compatibility between computers. Modularization is beneficial inthat it facilitates design, fabrication and assemblyby dividing a complex device containing many
components into a number of components which
are independent of each other. In the case of PCs,for example, development, design, fabrication andassembly are made easier by unifying the standards for individual modules such as CPUs
(MPU), memories, disk drives, keyboards anddisplays. That is, modularization allows more efficient new product development centered aroundcore module development and enables anyone
with the design drawing to procure the necessary
modules and components and fabricate or assemble the equipment. Highly modularizing a final
product makes fabrication and assembly technologies much less important, because the quality
and performance of the product are largely determined by those of the constituent modules.
The acceleration of modularization in the
1990s is partly attributable to the accelerationof the digitalization of electronic equipment
during the same period.
Standardization of modules (i.e. unificationof standards) for digital electronic equipment(such as CD players and DVD players) was easier than that for analog electronic equipment(such as record players and video cassette recorders5) because digital electronic equipment
is more uniform in quality, require fewer
components than analog electronic equipment

Low degree of modularization

High degree of modularization

A

B

A

B

C

D

C

D

Fig. 3-4

Conceptual Diagram of Modularization

Changes to the design of each of modules A to D are more likely to affect the designsof the other modules when the degree of modularization is low, and less likely toaffect the designs of the other modules when the degree of modularization is high.
Source: Prepared by the Development Bank of Japan
Note:

5

In this report, tape-based video cassette recorders areclassified as analog equipment.

34

Development Bank of Japan Research Report/ No. 34

600

100 million
dollars

Trillion yen
40

500
35
400
300

30

200
25
100
20

0
98

99

00

01

Year

Jabil Circuit, Inc.
SCI Systems, Inc.
Celestica, Inc.
Flectronics (Singapore)
Solectron
Reference data (electrical equipment production in Japan (right-hand scale, trillion yen)Fig. 3-5

Changes in Sales of Major EMSs

Many companies including IBM, Dell, Compaq and Nokia are outsourcing
work to EMSs.
Sources: Annual reports of the companies listed and publications of JEMA and
JEITA
Note:

ponents than analog electronic equipment anduse components that are more versatile thanthose for analog electronic equipment.
A high degree of modularization makes
cost competition strategically more important
than technological competition for management(for example, as a means of increasing market
share) because it reduces the technological gap
in terms of fabrication and assembly, andmakes it easier for emerging manufacturers toenter the market.
Cost reduction entails a shift in production
from doing everything in-house to utilizing outside sources, including the outsourcing of fabrication and assembly processes, the division ofwork between EMSs and fabless manufacturers
based on a clear definition of roles, the shiftingof production bases to countries where laborcosts are lower, and optimization of component
procurement (the shifting from “procurementfrom group companies and affiliated companies” to “procurement from outside sources”).

In the case of PCs, the concentration of important functions and high added value in Microsoft’s basic OS products and Intel’s MPU
products reduced the added value of the components and fabrication and assembly processes
other than these key devices and this increased
outsourcing (division of work based on a clear
definition of roles) in the industry to reduce
costs. In the outsourcing of work to EMSs by
IBM, etc. that was accompanied by the sellingof full factories to the former6, the efficiency
and advantages of outsourcing were enhanced
by transferring fabrication and assembly
know-how to the EMSs. As outsourcing accel6

IBM sold the entire facilities of its North Carolina andBordeaux factories to Solectron in 1992. This model has
been the mainstream approach to date in production outsourcing to EMSs by final product manufacturers. Some
investment banks are acting as intermediaries by holding
factories sold by final product manufacturers and leasing
them to EMSs, and this has been encouraging final product manufacturers and EMSs to enter into factory sale
contracts.

Development Bank of Japan Research Report/ No. 34

35

erated and EMSs expanded, final productmanufacturers gradually shifted their focus tohigh added value areas such as design, development and services.7
As mentioned above, the recent rapid expansion of the user bases for digital equipment,
which reduced the quality differences amongproducts, is another factor behind the shift from
quality competition to cost competition. In thecase of video cassette recorders, which wereoriginally analog equipment, Japanese generalelectrical equipment manufacturers dominatedthe market and then gradually moved production bases to other countries, but in the case of
DVD players, which originated as digitalequipment, production bases were moved toother countries at an early stage. This difference
is attributable to the progress of digitalizationand modularization that made it easier to fabricate and assemble the products while making it
more important to reduce the assembly cost (toreduce the selling price) as a means of differentiating products.
The recent progress of digitalization andmodularization gradually made outsourcing the
production processes more advantageous for
production efficiency than doing everythingin-house, enabling the specialized American
manufacturers to overtake Japanese generalelectrical equipment manufacturers in profitability and market share.
3.

Increasing Awareness of the Importanceof the “Smile Curve”

The semiconductor segment also experienced
shifts in business models, including increased
use of outsourcing, as the vast capital spendingon facilities and R&D expenditure continued tosoar and production know-how was graduallytransferred from semiconductor manufacturers
to equipment manufacturers. In the markets for
multi-purpose products that had become commodities such as DRAMs, the emphasis shiftedfrom technology to cost reduction. In the
7

The increasing modularization is attracting attention
from researchers as a phenomenon that has been strongly
affecting not only manufacturers’ ways of doing businessbut also their organizational structures (e.g. by increasing
modularization of organizations).

36

Development Bank of Japan Research Report/ No. 34

multi-purpose DRAM market, for example,
specialized DRAM manufacturers offering
low-cost products such as Samsung Electronics(South Korea) and Micron Technologies(United States) increased their market shares
while Japanese general electrical equipment
manufacturers, which had once forced American manufacturers out of the market, gradually
lost market share (in fact, some of them withdrew from the market in the late 1990s).8 The
1990s also saw the emergence and widespreadembracement of a new business model based on
the separation of design and production
whereby fabless manufacturers pursue productdevelopment and foundry manufacturers pursue
production cost reduction. The separation ofdesign and production that was started by andspread among American fabless semiconductor
manufacturers and Taiwanese foundry manufacturers has now been adopted by major semiconductor manufacturers. The declines in thecompetitiveness of Japanese general electricalequipment manufacturers in product development as well as cost competitiveness in themarkets for multi-purpose products, which account for a large proportion of the overallsemiconductor market, occurred because they
were slow to review their business models andadapt to the changing environment in the semiconductor business.
The increasing use of outsourcing explained above has led to increased awareness of
the importance of the so-called “smile curve”
that defines the relationship between the supply
chain and added value, and nowadays Japanesegeneral electrical equipment manufacturers arealso taking the smile curve into consideration in
restructuring their operations and businesses.

8

Oki Electric Industry has withdrawn from the market
for multi-purpose DRAMs for PCs. Fujitsu has been shifting entirely from multi-purpose DRAMs to flash memories since April 2000, and Toshiba decided in December
2001 to withdraw from the DRAM market.

Entry is difficult(oligopoly by a small
number of companies)

IBM

ServicesManagement
strategies/prospects

Core software
products

SoftwareUpstrea

Test production
Small-volume
production

Selling

Semiconductors
and devices

Foundry
manufacturers
Micron (▲20 to +50%)(30 to 40%)

Entry is easy(competition by
many companies)

Pursuing differentiation(quality, functions, etc.)

Microsoft(40 to 50%)

Intel (30 to 35%)

Modules

Production equipment/materials(Low) Added value (High)Design and development

Largest manufacturers of the segment
Fabless manufacturers

Individual(applicationspecific)
softwareproducts

Equipment fabrication
and assembly
Mass-production
products

Downstre

Flow of equipment

Fig. 3-6

Pursuing economy of scale
Shifting production bases
to other countries

EMSs (4 to 5%)
Chinese plants

Modularization and the Smile Curve

Note:

The company names are used only as examples. The bracketed figures are the (approximate) average operating profit on sales over the past 4 to 5 years.
Sources: Prepared by the Development Bank of Japan from various materials and publications

Figure 3-7 compares major American
manufacturers and major Japanese generalelectrical equipment manufacturers in terms ofthe time series changes in sales per employee.
The sales per employee (index) of American
manufacturers has been increasing faster thanthat of Japanese general electrical equipment
manufacturers, which means that American
manufacturers enjoy higher labor productivity
than their Japanese counterparts. The gap withJapanese manufacturers started widening in theearly 1990s, which is attributable to the Americans’ adoption of business models based on
selective concentration and utilization of outsourcing that enabled them to adapt to the progress of modularization.
This chapter examined 1) the differences
between American and Japanese electrical

Equipment manufacturers in terms of the business models used, and 2) the increasing modularization and digitization in recent years, whichhave greatly contributed to the widening of the
profitability gap between American and Japanese electrical equipment manufacturers. Although these two factors alone do not fully account for it, they are strongly correlated withthe widening of the profitability gap. Japaneseelectrical equipment manufacturers have been
actively restructuring their operations andbusinesses since 2001 not only in response to
the sharp declines in profitability in 2001 but
also in recognition of the importance of theabove-mentioned developments that contributed
to the widening of the profitability gap between
American and Japanese electrical equipment
manufacturers in the 1990s.

Development Bank of Japan Research Report/ No. 34

37

450
400

Index (1983 = 100)

350
300
250
200
150
100
50
0
83

84

85

86

87

88

89

90

91

92

93

94

95

96

97

98

99

00 YearSales per employee (American manufacturers)
Sales per employee (Japanese manufacturers)
Number of employees (American manufacturers)
Number of employees (Japanese manufacturers)

Fig. 3-7

Comparison of Time Series Changes in Sales per Employee of Major American andJapanese Electrical Equipment Manufacturers

Notes:

1. The figures for American manufacturers are the averages of the 12 companies that have been publishing their financial data (consolidated basis) since before 1982.
2. The figures for Japanese manufacturers are the averages of 17 major companies(individual basis).
Sources: Development Bank of Japan “Financial Data Bank”; Standard & Poor’s “Compustat”

38

Development Bank of Japan Research Report/ No. 34

IV General Electrical Equipment
Manufacturers’ Restructuring ofOperations and Future Prospects
The analyses in the preceding chapters confirmed that 1) the profitability of Japanese electrical equipment manufacturers is lower thanthat of their American counterparts, 2) the
semiconductor and home appliances businessesof Japanese electrical equipment manufacturers
are dragging down their profitability structurally and over the time series, respectively and3) the different business models of Americanand Japanese electrical equipment manufacturers as well as the quicker response by American
manufacturers to important developments including the increasing modularization contributed significantly to the widening of the profitability gap between American and Japanesemanufacturers in the 1990s. Against this background, this chapter identifies the objectives ofrestructuring currently being undertaken by
Japanese general electrical equipment manufacturers and discusses the expected improvements.
1.

Recent Instances of Restructuring

The Japanese general electrical equipment
manufacturers were constantly restructuring
their operations even before 2001. Their restructuring efforts in the past were mostly expansion-oriented such as entering new electricalequipment segments, upstream electronic component/device/material segments and downstream software and service segments, but theiremphasis has been gradually shifting to consider the importance of management efficiency.
In particular, there was a surge of seemingly
negative restructuring efforts such as withdrawals from markets and closure of factories in2001 when sales slumped as the IT recession
took hold.
In terms of type of restructuring, employee
cutbacks is the most common type among
Japanese general electrical equipment manufacturers. The purpose of these cutbacks, manyof which were started in 2001, is to reduce
fixed costs of administrative divisions and pro-duction costs. In addition, although these employee cutbacks were large-scale and intended
to be completed quickly, Japanese general electrical equipment manufacturers have been trying to accelerate and expand them, such as byexpanding the scale of cutbacks before theplanned end of cutbacks and starting cutbacks
earlier than planned.
There have also been many instances ofreorganization of operations and withdrawals
from markets (segments) due to declines in demand and worsening of the business climate. In
the semiconductor segment, in particular, Japanese general electrical equipment manufacturers have been undertaking large-scale restructuring such as withdrawal from markets andclosure of factories in multi-purpose memory
sub-segments (such as DRAM) and integrationof production processes and facilities. These
restructuring efforts show that Japanese generalelectrical equipment manufacturers are formallyembracing the approach of shedding
money-losing businesses and concentrating resources on profitable areas and businesses withhigh growth potential (selective concentration
approach). It is becoming increasingly difficult
to pursue the traditional approaches of expansion by adding new business areas and covering
the full product range.
Japanese general electrical equipment
manufacturers are also increasingly selling
factories to EMSs and outsourcing the
production processes of the factories to them.
The first Japanese manufacturer to do this was
Mitsubishi Electric, which sold its cellular
phone production factory in Georgia (UnitedStates) to Solectron in 1998, but since 2001
there have been several instances of this even in
Japan. These are positive efforts to modify thebusiness model to utilize outsourcing in
response to the increasing modularization anddigitization. Although in the past many
Japanese general electrical equipment manufacturers outsourced production through an
OEM arrangement, the selling of factories to
EMSs shows that they now formally accept outsourcing.

Development Bank of Japan Research Report/ No. 34

39

Type of restructuring
Companies that acted
Employee
Mitsubishi Electric (semiconductor segment, 2,000 people cut by 2002), Tocutbacks
shiba (18,800 cut in total for Toshiba Group), Matsushita Electric Industrial(announced(8,000 cut in total for domestic Matsushita Group), Hitachi (15,900 cut inin and after
total for Hitachi Group), Oki Electric Industry (2,200 cut by 2004), NEC2001)(semiconductor segment, 4,000), Fujitsu (16,400 cut in total for domestic andoverseas companies, factories, divisions)
Fujitsu (DRAM), Toshiba (DRAM), Hitachi (comWithdrawals
ponents/devices for PCs and CRTs)
Fujitsu (color laser printers), NEC (sale of a printerTransfers
factory), Oki Electric Industry (photomask production)
Matsushita Electric Industrial (cellular phone facReorganizatory in the U.K.), Hitachi (home appliances factorytion of opin Singapore), NEC (hard-disk factory in the Philerations
Factory closuresippines, Fujitsu (flash memory factory in the UnitedStates), Mitsubishi Electric (cellular phone factoryin France), etc.
Integration of semiconductor production
Mitsubishi Electric, Fujitsu, Hitachi, NEC, Toshibaprocesses/facilities
Production outsourcMitsubishi Electric (cellular phones), Sony (vehiing to EMS (Soleccle-mounted audio-visual equipment, etc.), NEC
Outsourcing
tron, etc.) with sale of(servers), etc.
factory
Introduction of comSony, NEC, Oki Electric Industry, Sanyo Electric,
pany-in-company
Hitachi (transformation of divisions into virtual
systems, executive
companies-in-company), Fujitsu, etc.
officer systems, etc.
Matsushita Electric Industrial (domestic listed subsidiaries), Mitsubishi Electric (American subsidiarOrganizaies), Fujitsu (network service-related subsidiaries),
Reorganization oftional reSony (semiconductor production subsidiaries), NEC
subsidiaries
forms(software development subsidiaries, divestiture of
the semiconductor division), Hitachi (divestiture of
the display division), etc.
Divestiture of producSony (Sony EMSC), Matsushita Electric Industrial
tion divisions and(Factory Center), NEC (DMS), Oki Electric Indusentries into the EMS
try (reinforcement of EMS businesses), etc.
marketShifting of production
All major Japanese general electrical equipment
bases to other counShifting of
manufacturers → [4-2, 4-3]
tries
manufacturRecruiting of SEs ining andother countries, deother activiployment of software
NEC, Fujitsu, Hitachi, Oki Electric Industry, etc.
ties to otherdevelopment bases in“Reinforcement of solution businesses”, etc.
countries
China, reinforcementof service divisions
Integration

Fig. 4-1

Business partnerships

All major Japanese general electrical equipment
manufacturers → [4-5]Background/objective(s)Fixed/production cost reduction

Deficit reduction, concentration of corporate resources in high-growthbusiness areas, strengthening of operations in strong
areas (those where thecompany has a leading
market share), production
efficiency improvement,
timely adaptation tochanges in market environments

Fixed/production cost reduction
To speed up the decision-making process, toclarify executive responsibilities
To improve management
efficiency by eliminating
redundant operations, tospeed up the decision-making process
To increase business opportunities, to promote
profitability awarenessMarket expansion, production cost reduction
To improve added value
profitability, to strengthen
software development capability (especially in weak
areas)
To address increases in thenumbers of competitors, tominimize increases in R&D
expenditure

Recent Instances of Restructuring Efforts by Major Japanese General Electrical Equipment
Manufacturers

Sources: Prepared by the Development Bank of Japan from publications, etc. of the companies listed and interviews

40

Development Bank of Japan Research Report/ No. 34

In the semiconductor segment, too, somecompanies are moving away from the traditional approach of doing everything in-houseand instead actively utilizing foundry manufacturers.
Some Japanese general electrical equipment manufacturers are introducing company-in-company systems to speed up the decision-making process, as well as executive officer systems to clarify business responsibilities.
These are crucial tasks for Japanese generalelectrical equipment manufacturers to enable
them to adapt to fluctuations in their markets
such as sharp fluctuations in the DRAM market
as well as dramatic changes in the businessclimate. Some of the major Japanese general
trading companies have also adopted these approaches, but whether the attempts by Japanesegeneral electrical equipment manufacturers,
which are designed to address problems inherent in general manufacturers covering broadbusiness areas and in large companies, are effective remains to be seen.
On the other hand, some Japanese generalelectrical equipment manufacturers are integrating or reorganizing subsidiaries rather thandivesting or spinning-off subsidiaries (by introducing a company-in-company system, forexample), to improve the efficiency of thegroup as a whole and speed up the decision-making process. Thus, Japanese generalelectrical equipment manufacturers are now
searching for the right combination of company
scale and degree of delegation of authority tomaximize management efficiency and decision-making speed.
Some Japanese general electrical equipment manufacturers are selling their factories to
EMSs and attempting to enter the EMS market
themselves to boost profits by utilizing theiradvanced production technologies and knowhow more fully, by manufacturing products forother companies on a contract basis. However,many questions remain to be answered, such aswhether there is a lack of production facilities
in Japan in the first place, whether their domestic plants with high production and labor costs
can compete with the incumbent EMSs, andwhether they can win orders from other companies in a country where most companies are still
reluctant to outsource work to companies outside their groups, even though such moves will
improve the efficiency of production divisions
by making them organizationally more independent and thus more conscious of profitability. These moves reflect their recognition of theeffectiveness of American manufacturers’
business models.
2.

Shifting of Production Activities, etc. to
Other Countries

In the process of expanding their overseas sales,
Japanese general electrical equipment manufacturers have used the following main approaches:(1) Exporting domestically manufactured
products;(2) Manufacturing and selling products in the
consumer country;(3) Manufacturing products in a country withlower production costs and exporting the
products to a third country or importingthem back to Japan.
Figure 4-2 shows, by area, the time serieschanges in the number of overseas production
companies established by Japanese generalelectrical equipment manufacturers. In the
1970s, the share of the overseas production
companies established in NIES countries as apercentage of the total was largest while in thelate 1980s, the number of overseas production
companies increased sharply, especially in
ASEAN countries, as the appreciation of the
yen accelerated. In the early 1990s, on the other
hand, the number of overseas production companies in China increased dramatically.

Development Bank of Japan Research Report/ No. 34

41

Number of companies
250
200
150
100
50
0
-70

71-75

76-80

81-85

R&D companies (overseas total)
ASEAN
EuropeFig. 4-2

86-90

91-95

96-00 Period

China
NIES
America

Changes in the Number of Overseas Production Companies Established by
Japanese General Electrical Equipment Manufacturers by Area

Source: Prepared by the Development Bank of Japan from the “Overseas Subsidiaries of JapaneseCompanies 2000” published by Electronic Industries Association of Japan (presently
JEITA)%

T rillion yen
45
40

25

35
30

20
15

25
20

10

15
10
5
0

5
0
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 Year

Overseas production (estimated)
Domestic production
Overseas production ratio (in %, on the right-hand scale)Fig. 4-3 Changes in the Electrical Equipment Industry’s Domestic Production vs.
Overseas Production
Note:

The overseas production was estimated by the Development Bank of Japan from the “Overseas Business Basic Research” published by the Ministry of Economy, Trade and Industry.
Sources: Ministry of Economy, Trade and Industry “Preliminary Report on Machinery Statistics” andpublications of JEMA and JEITA

42

Development Bank of Japan Research Report/ No. 34

10,000 people

%

6000

120

5000

100

4000

80

3000

60

2000

40

1000

20

0

0

97

98

99

00

01

As of the end of calendar year
Number of Internet users in Japan
Number of Internet user companies as a percentage of the total number of companies in Japan (scale on the right)
Number of Internet users as a percentage of Japan’ s total population (scale on the right)

Fig. 4-4 Changes in the Number of Internet Users
Source: Ministry of Economy, Trade and Industry “Communications Usage Trend Survey”

As the number of overseas production
companies of Japanese general electricalequipment manufacturers increased, their overseas production ratio increased steadily.1 In
2001, however, Japanese manufacturers closed
many of their overseas plants or liquidated
overseas production companies, as they shiftedfrom the traditional expansionary approach to afocused approach that emphasizes efficiency.
There were also sharp increases in thenumber of overseas R&D companies established by Japanese general electrical equipment
manufacturers during the 1986-2000 period inline with the sharp increases in the number of
their overseas production bases. These overseas
R&D companies were mainly set up to develop
products and services that met the needs of thelocal markets and to reduce R&D costs. In re1

A high overseas production ratio may reduce thatcountry’s domestic employment and opportunities foradding value (i.e. deindustrialization). The overseas production ratios for the manufacturing industries of theUnited States and Germany (27.7% (1997) and 32.1%(1997), respectively) are higher than the 13.4% (FY 2000)
for the manufacturing industries of Japan.

cent years, many companies are setting up
software development bases in China, which is
attractive not only because of the low costs but
also because of the high skill levels of Chinese
workers and engineers.
Japanese general electrical equipment
manufacturers are also strengthening theirsoftware and service businesses. This trend is
attributable to 1) the increasing profit opportunities as demand for after-sales service grows
alongside the expansion of PC and Internet userbases, 2) the recent declines in profitability inall production segments except the “key device” segments and 3) the increasing awareness,among both users and suppliers, of the value ofsoftware and services that have traditionallybeen built into the selling prices of hardware
products. Although many Japanese generalelectrical equipment manufacturers have already launched audio-visual software content
provider businesses and Internet service provider businesses, the growing number of Internet users, the increasing diversification in usesof the Internet, the potential growth of theInternet, as well as the expectation that demand

Development Bank of Japan Research Report/ No. 34

43

for outsourcing will continue to increase as information equipment becomes more complex,
thus increasing operation and maintenancework (in companies, for example), have beenencouraging Japanese general electrical equipment manufacturers to focus on service businesses.
In addition, the success of IBM in shifting
to service businesses in the United States has
also affected the business strategies of Japanesegeneral electrical equipment manufacturers.
The development of “solution businesses,”
which provide everything from hardware toservices as a package, to maintain and increase
hardware market shares and make up for theshrinking added value (profitability) in hardware businesses, has now become a key task forJapanese general electrical equipment manufacturers.
3.

Increasing Business Partnerships

One of the restructuring modes increasingly
being used by Japanese general electrical equip-

44

Development Bank of Japan Research Report/ No. 34

ment manufacturers is business partnerships
among themselves or with manufacturers inother countries. Although Japanese manufacturers have been using business partnerships formany years in the form of collaborative R&D,
technology transfers, mutual supply agreements,
etc., the integration of the DRAM businesses of
NEC and Hitachi in 1999 was the first of therecent attempts to strengthen, through integration, existing main businesses which have been
losing competitiveness, profitability, market
share, etc. Various partnerships are being
formed in many segments including semiconductors, but the analysis that follows only covers those in the important areas of:- home appliances- information and communications equipment- semiconductors and other electronic components and devices

Information and communications equipment

Semiconductors and electronic components/devices

Partner(s)Description of partnership

Partner(s)Description of partnership

Partner(s)Description of partnership

BHS Bosch & Siemens(Germany)

Electric washers, etc. (joint venture)

IBM (United States)

Collaborative development ofservers
Integration of hard-disk businesses(joint venture)

NEC

DRAMs (joint venture)

Fujitsu

PDP (joint venture)

Matsushita ElectricIndustrial

Refrigerators, electric washers, vacuum
cleaners, air-conditioners, etc.
(development, environmental
obligation-related activities, etc.)

Carrier (United States)

Air conditioners (joint venture)

Electrolux (Sweden)

Refrigerators, electric washers, vacuum Mitsubishi Electriccleaners, air-conditioners, etc.
(development, mutual supply of
products)
Refrigerators (technological exchanges,
mutual sale)

Home appliances

HitachiIBM (United States)

Toshiba

Midea Group (China)

Mitsubishi
Electric

ST Microelectronics (Italy, Development of Super H
France)(Microcomputer)

Siemens (Germany)

SharpDevelopment ofsystem LSIs
Toshiba

NEC

Packard Bell (UnitedStates)Matsushita ElectricIndustrial

Fujitsu

Siemens (Germany)

Collaborative development of 3G
cellular phone terminals
Collaborative development of 3G
cellular phone terminals[Dissolved] IBM (UnitedStates)Fujitsu
Collaborative development of PDAs Matsushita Electricfor European markets
Industrial
Collaborative development of 3G
Toppan Printing
cellular phone terminals
Chunghwa Picture Tubes(Taiwan)Hitachi

Hitachi

Daikin Industries

Sharp

Collaborative development of PDP
System LSIs (integration ofbusinesses)
DRAMs (joint venture)

HitachiPCs (joint venture)

Development of mobile
communication systems (joint
venture)SVA Electron (China)

TFT liquid crystals (joint venture)

Toppan Printing

Circuit substrates (joint venture)

AMD (United States)

Flash memories (joint venture)

Hitachi

PDP (joint venture)

Amkor Technology (United Semiconductor post-processes
States)Toshiba
Development of system LSIs
Casio

Collaborative development of LSI
packages

GSMC (China)

Semiconductors (technology
transfer, production outsourcing)
Semiconductor photomasks(outsourcing)
Development of system LSIs

Collaborative development ofsoftware programs for cellular
phonesMitsubishi ElectricThomson Multimedia(France)

CRTs (mutual supply)

ToshibaLiquid crystals (joint venture), CRTs

TCL Group (China)Home appliances (development,
marketing)

Sanyo Electric

Refrigerators, electric washers, vacuum

Quanta (Taiwan)

Liquid crystals (OEM procurement)

Pioneer

Audio-visual equipment (collaborative

Tohoku Pioneer, etc.

Organic EL (joint venture)

IBM (United States),
Toshiba
Toyota Industries

Collaborative development ofsemiconductors
LCD panels (joint venture)

Kodak (United States)

Organic EL (joint venture)

Sony

Ericsson (Sweden)

Sanyo Electric Maytag (United States)

Sharp

Haier Group (China)(Reference
information)
Partnerships
formedoutside Japan

Refrigerators, electric washers, vacuum NEC
cleaners, air-conditioners, etc.
(development, environmental
obligation-related activities, etc.)
Air conditioners (development, etc.)

Semiconductor photomasks

Samsung SD (South Korea) Organic EL (joint venture)

Hoya
Matsushita
Electric
Industrial

Development of system LSIs

Collaborative development ofsoftware programs for cellular
phonesCellular phone base stations(collaborative development)
IBM (United States, under (Collaborative development ofnegotiation)
computer software programs)

Fujitsu

Liquid crystals
Development of system LSIs

PCs (subsidiarization)

Alcatel (France)

Oki ElectricIndustry

Mitsubishi Electric
System LSIs (integration ofbusinesses)
IBM (United States), Sony Collaborative development ofsemiconductors
Matsushita Electric
Liquid crystals (joint venture), CRTs
Industrial

Integration of cellular phonebusinesses (joint venture)

Refrigerators, electric washers, vacuum Kodak (United States)
Digital cameras (comprehensive
cleaners, air-conditioners, etc.
partnership)(development, mutual supply)
Refrigerators, electric washers, vacuum
cleaners, air-conditioners, etc.
(development, mutual OEM supply)Home appliance marketing, technology
transfer, etc.
Compaq (United States) – HP (United States)
PCs

Samsung G (South Korea) Fuel cells (technologicalcooperation)

Micron (United States) – Hynics (South Korea)(Under negotiation)

DRAMs

Fig. 4-5 Partnerships between Major Electrical Equipment Manufacturers(joint ventures, collaborative development, etc.)
Note:
The companies shown in bold letters are non-Japanese companies.
Sources: Prepared by the Development Bank of Japan from various publications

Development Bank of Japan Research Report/ No. 34

45

In the home appliances segment, Japaneseelectrical equipment manufacturers have recently started forming partnerships among
themselves in the maturing domestic markets,in order to strengthen their recycling and environmental obligation-related activities to comply
withregulations
includingthenewly-introduced Home Appliances Recycling
Law (that took effect in April 2001), strengthen
divisions and departments responsible for developing IT home appliances for which demandis expected to increase, and avoid excessivecompetition in domestic markets. Japaneseelectrical equipment manufacturers have also
started forming partnerships with local manufacturers in China, reflecting Japanese electricalequipment manufacturers’ strategy of maintaining and increasing market share by taking
advantage of the sales channels and cost competitiveness of Chinese manufacturers, whichhave been increasing their selling power inmainland China as well as in Asian countries.
American andEuropeanmanufacturers

In the information and communications
equipment segment, Japanese electrical equipment manufacturers are forming partnerships
with American and European manufacturers aswell as among themselves. Meanwhile, the PC
sub-segment is characterized by concentrationof profits in a small number of non-final product manufacturers that dominate competitors
over industry standards such as Intel and Microsoft, partnerships aimed at strengthening
market dominance such as the merger of HP(United States), which is one of largest manufacturers in the world, and Compaq (UnitedStates), as well as partnerships between Japanese electrical equipment manufacturers andIBM that reflect the Japanese parties’ desire tostrengthen their software development and service businesses. In the cellular phone
sub-segment, Japanese electrical equipment
manufacturers, which are commercializing (andshifting to) third-generation cellular phones
ahead of the rest of the world, have been ac-

Japanesemanufacturers

Asianmanufacturers
Daikin Industries

BHS Bosch &Siemens

Electric
washers, etc.

Hitachi

Refrigerators, electricwashers, vacuum
cleaners,
air-conditioners, etc

MaytagRefrigerators, electricwashers, vacuum
cleaners, airconditioners, etc

Airconditioners

Matsushita
Electric

TCL Group

Refrigerators,
electric washers,
vacuum cleaners,
air-conditioners,
etc.

Sharp

Development,
marketing, etc.

Marketingpartnerships, etc.

Sanyo Electric

Haier Group

Audio-visual equipment
development

Pioneer

Refrigerator businessAir conditioners

Toshiba

Carrier

Electrolux

Midea Group

Refrigerators, electricwashers, vacuum cleaners,
air-conditioners, etc

Establishment of joint venture company
Partnerships through collaborative development, etc.

Fig. 4-6 Major Partnerships in the Home Appliances Segment
Sources:46

Prepared by the Development Bank of Japan from various publications

Development Bank of Japan Research Report/ No. 34

American andEuropeanmanufacturers

Japanesemanufacturers
Collaborative
development ofsoftware programs

NEC
Collaborative development of 3G cellular
phone terminals

Siemens

Collaborative development of 3G cellular
phone terminals

ToshibaMatsushita Electric Industrial
Matsushita Communication Industrial

Mitsubishi
Electric

Joint ventures,
integration ofbusinesses

EricssonSony

Establishment of joint venture company
Collaborative development and other partnerships

Fig. 4-7 Major Partnerships in the Cellular Phone Sub-segment
Sources:

Prepared by the Development Bank of Japan from various publications

tively forming partnerships with major European manufacturers to strengthen their competitiveness against Nokia, which has dominatedthe global cellular phone terminal market, as
well as partnerships among themselves to speed
up the software development process andreduce development costs.
In the area of semiconductors and otherelectronic components and devices, Japaneseelectrical equipment manufacturers have been
actively forming partnerships to reduce theircapital spending on facilities and R&D expenditure that have become vast and continue torise. As a result of the continuous shrinking ofmarket share in the 1990s and the sharp decline
in sales in 2001, the relationships among players in the Japanese semiconductor industry arechanging dramatically as can be seen in the integration of the DRAM businesses of Hitachi
and NEC, the collaborative development partnership agreement reached between Toshiba
and Fujitsu and the (planned) integration ofbusinesses of Hitachi and Mitsubishi in thesystem LSI2 sub-segment, in which Japaneseelectrical equipment manufacturers have been
more actively pursuing development, marketingand other activities than in any othersub-segment. In addition, Japanese electricalequipment manufacturers have been actively
forming partnerships in other segments as well,including advanced device segments (such as
the organic EL and PDP3 segments) which are
expected to expand, and the liquid crystal device segment. In these electronic component
and device segments, Japanese electricalequipment manufacturers have been forming
partnerships with material manufacturers (suchas the PDP partnership between Matsushita
2

System LSIs are large-scale integrated circuits thathave memory, logic, analog and other functions in one
chip and are also referred to as “system-on-chip” ICs. A
system LSI allows a system that traditionally had to beconstructed on a board to be fabricated on a single semiconductor.
3
Organic EL and PDP have already been commercialized (mainly for small- and large-sized screens, respectively) and their use is expected to increase.
Development Bank of Japan Research Report/ No. 34

47

Japanesemanufacturers

American andEuropeanAsianmanufacturers

CPU core development
Partnership dissolved

ST
Microelectronics

NEC

Matsushita
Electric
Collaborative
development of
production
technologies

Hitachi
DRAM production
joint venture
Collaborative developmentof system LSIs

Flash memory
production
joint venture

AMD

System LSI businessintegration planned

Mitsubishi
Electric

Joint venture for
the CPU for PS2

Toshiba

IBM

UMC

Sony SCEICollaborative development of next-generation memory devices
Agreed to develop system LSIs in collaboration

Fujitsu

Establishment of joint venture company
Collaborative development and other partnerships

Fig. 4-8 Major Partnerships in the Semiconductor Segment
Sources:

Prepared by the Development Bank of Japan from various publications

Electric Industrial and Toray Industries) andproduction equipment manufacturers (such as
the semiconductor photomask partnership between Oki Electric Industry and Hoya) as well,in addition to partnerships among themselves.
The partnerships in all segments share certain common objectives, such as to enhance
profitability by gaining dominant power overprices and increasing market share, as well as toreduce fixed costs through reduction of capitalspending on facilities. Although the only competitors that Japanese electrical equipment
manufacturers had to take seriously were otherJapanese electrical equipment manufacturers
and certain American and European manufacturers in the 1980s when the Japanese manufacturers had large market shares in the home48

Development Bank of Japan Research Report/ No. 34

appliances and semiconductor segments, forexample, and were technologically superior toother countries’ manufacturers, as emerging
manufacturers from South Korea, Taiwan,
China, etc. entered the market one after anotherin the 1990s while improving their technological expertise and increasing their market share,
the areas in which Japanese electrical equipment manufacturers could continue to operate
profitably by themselves were graduallysqueezed out.
The partnerships being pursued by Japanese general electrical equipment manufacturers are unique in that they are formed on asegment-by-segment basis, whereas partnerships being formed (and mergers being made)in the material manufacturing industries (suchCompany H

Company I

○

○

○

○

○

Business 1

Business 2

○

○

○

○

○

○

△

○

○

Business 2

Business 3

○

○

○

○

◎

○

○

○

○

Business 3

Business 4

◎

△

○

○

○

○

○

○

△

Business 4

Fig. 4-9Company I

Company G◎

Company H

Company F○

Company G

Company E○

Company F

Company D○

Company E

Company C

Business 1

Company D

Company B

After

Company C

BeforeCompany A

Currently the strength of Japanese general electrical equipment manufacturers is their ability
to provide a wide range of electrical equipment
including peripherals and to develop components and devices taking into consideration thecustomer needs for final products, as well as
their superiority in solution businesses (provision of products and services as a single package), where they have been actively strengthening their competitiveness. It is also possiblethat Japanese general electrical equipment
manufacturers, which have been manufacturing
PCs and cellular phones as well as a wide rangeof home appliances within their groups, may besuccessful in the growing IT home appliances

Company B

4. Japanese General Electrical Equipment
Manufacturers’ Restructuring of Operations
and Future Prospects

segment and outperform competitors by using
their expertise in integrated design and development, etc.
Another advantage of Japanese generalelectrical equipment manufacturers is that they
have spread business risks widely by becoming
general manufacturers. Their heavy electric apparatus and communications equipment businesses originally were stable profit sources supported by large and loyal customers (such as
electric utilities and large telecommunications
companies), enabling them to aggressively enter new segments. In addition, these stableprofit sources have helped them hold onto theseveral money-losing businesses yet post profits
for the group as a whole.
However, Japanese general electricalequipment manufacturers, which performed
outstandingly in the 1980s, have been overtaken
in profitability by specialized American manufacturers partly as a result of changes in thebusiness climate such as the progress of modularization and have been losing market share to
American and European final product manufacturers that have been actively utilizing outsourcing. As a result, they must now review andchange their business models which were effective in the 1980s.
It would be both difficult and unrealistic
for Japanese general electrical equipment
manufacturers to try to regain their market

Company A

as the paper and pulp industry and otherchemical industries) are between companies.
Because they cooperate as partners in some areas and compete in others (such as the cellular
phone partnerships between Matsushita and
NEC and between Toshiba and Mitsubishi andthe liquid crystal partnership between Matsushita and Toshiba), the current partnership relationships between Japanese general electricalequipment manufacturers do not necessarilyreflect their competitive relations as companies.

◎
×
◎
◎

×

×

Strengthening of Businesses through Partnerships

Note: ○ indicates that the company is operating
without a partnership.
◎ indicates that the company has one of theleading market shares, and△ indicates that the company has a low market share.
Source: Prepared by the Development Bank of Japan

Note: 〇 denotes a business partnership, and× indicates that the company has withdrawn from the business.

Development Bank of Japan Research Report/ No. 34

49

shares and improve their profitability by copying the specialized American manufacturers,
that is, by drastically reducing or integrating
their wide range of businesses. Business partnerships, which are currently being pursued by
Japanese general electrical equipment manufacturers, are the most effective and realisticmeans of simultaneously achieving 1) selective
concentration in segments where they can be
profitable, 2) sufficient market share to gain
reasonable market dominance and 3) reductions
in financial burdens including facility investment based on their current business models.
Japanese general electrical equipment manufacturers are likely to gradually build theirstrong areas while shedding unprofitable businesses through partnerships with domestic andoverseas manufacturers.
5.

Conclusions

Dissolving partnerships, such as the liquid
crystal partnership between Toshiba and IBM,the semiconductor partnership between Hitachi
and UMC and the partnership between NEC
and Thomson Multimedia for displays, suggestthat not all partnerships go smoothly.
The key factor in a partnership is whether
decisions can be made fast enough, because
there is a close correlation between decision-making speed and the effectiveness of thepartnership. Recognizing the slowness of theirdecision making, Japanese general electricalequipment manufacturers have been attempting
to speed up the process through organizational
reforms including the introduction of company-in-company systems. The effectiveness ofthese organizational reforms remains to be seen,
but fast decision-making, which is difficult
even for a single company, may well become
more difficult in a partnership between two or

50

Development Bank of Japan Research Report/ No. 34

more companies. The higher frequency of partnership breakups between Japanese and overseas manufacturers than between Japanesemanufacturers is partly because Japanese andoverseas manufacturers place different importance on decision-making speed. In particular,
for semiconductor businesses, which are subject
to wide market fluctuations as in the DRAM
market, it is necessary to develop mechanisms
for 1) making quick decisions on the timing ofinvestments and production adjustments in response to changes in business climate, etc., and2) planning and implementing sound businesses
from a long-term perspective.
Although the competition-driven dynamism of the industry as a whole may decrease
as a result of business partnerships which reduces the number of business entities (competitors) in the industry, the increasing difficulty of differentiating products as new manufacturers emerge in Asia and other countries, aswell as the increasing modularization and digitization, leave Japanese general electricalequipment manufacturers with no choice but toraise profitability by integrating businesses toachieve economies of scale. Japanese generalelectrical equipment manufacturers have recognized for some time the importance of the “selection and concentration” approach, but havein fact continued to expand into new areas without focus. A realistic and effective path forJapanese general electrical equipment manufacturers is to strengthen their core businesses
by focusing corporate resources while partnering with other companies for their non-corebusinesses.

Appendix
Companies and Company Classification Used for Statistical Calculations for Figs. 1-1 to 1-8(1)
17 Japanese manufacturers
10 General electrical equipment
manufacturers

Sales (by fiscal year, consolidated, 100 million yen)

Notation used in the text
(abbreviated notation)

Remark

1999

2000

2001

80,0125

84,17079,938

Toshiba Corporation

57,49459,51453,940Mitsubishi Electric Corporation

37,742

41,29536,490NEC Corporation

49,91454,09751,01052,551

54,84450,070

Hitachi, Ltd.

(Hitachi)NEC

Fujitsu
Oki Electric Industry Co., Ltd.

(Oki Electric Industry)

6,698

7,403

6,046

Matsushita Electric Industrial Co., Ltd(Matsushita Electric Industrial or Matsushita)

72,99476,816

68,767

Sharp Corporation

18,54820,12918,038Sony Corporation

66,867

73,14875,783

Sanyo Electric Co., Ltd.

20,143

22,41021,121

Fuji Electric Co., Ltd.

8,518

8,911

8,391

Pioneer Corporation

6,159

6,471

6,689

Omron Corporation

5,554

5,943

5,340

6,745

6,899

5,750

Kyocera Corporation

8,126

12,851

10,346

Murata Manufacturing Co., Ltd.

4,591

5,840

3,948

Alps Electric Co., Ltd.

5,469

5,731

5,403

Other (3) electrical equipment manufacturers

4 Electronic component & device manufacturers
TDK Corporation

TDK

Development Bank of Japan Research Report/ No. 34

51

(2)
25 American manufacturers

Sales (by fiscal year, consolidated, 100 million yen)
Notation used in the text
(abbreviated notation)

Remark

1999

2000

2001

5 American semiconductor manufacturers
INTEL

Intel

29,38933,726

26,539TEXAS INSTRUMENTS INC.

Texas Instruments (TI)

9,468

11,8608,201

MICRON TECHNOLOGY INC

Micron Technology (Micron)

3,764

7,336

3,936

3,714

4,708

4,080

(AMD)

2,858

4,644

3,892

Solectron

8,391

14,13818,692

Celestica

5,297

9,752

10,004

6,711

8,343

8,714

Motorola

30,931

37,58030,004

LUCENT TECHNOLOGIES INC(Lucent T)

38,30333,813

21,294NORTEL NETWORKS CORP

(Nortel N)

22,27730,293

17,531

8,268

7,680

6,793

55,712

63,872

68,093

EMERSON ELECTRIC CO

14,27015,545

15,480WHIRLPOOL CORP

10,511

10,325

10,343ROCKWELL INTL CORP

7,043

7,151

7,099

AGERE SYSTEMS INC
ADVANCED MICRO DEVICES
3 American EMSs
SOLECTRON CORP

CanadaCELESTICA INCSCI SYSTEMS INC

Communications equipment

GENERAL ELECTRIC CO

PCs and peripheral equipment

MOTOROLA INC

Home appliances, etc.

Other (17) electrical equipment manufacturers
CanadaAVAYA INC
Individual

GE

HEWLETT-PAKARD CO(HP)

42,37048,78245,226

COMPAQ COMPUTER CORP

(Compaq)

38,52542,38333,554

DELL COMPUTER CORP

(Dell)

25,26531,88831,168

8,646

9,601

6,080

6,134

7,983

5,363

CISCO SYSTEMS INC

12,15418,92822,293

XEROX CORP

19,22818,701

16,502SUN MICROSYSTEMS INC

11,726

15,721

18,250EMC CORP/MA

6,716

8,873

7,091

87,54888,39685,866GATEWAY INC
APPLE COMPUTER INC(Apple)Reference information (not included in the statistics)
INTERNATIONAL BUSINESS MACHINES CORP
Sources:52

IBM

Prepared by the Development Bank of Japan from “Financial Data Bank”; Standard & Poor’s “Compustat”; securities reports and annual reports of the companies shown

Development Bank of Japan Research Report/ No. 34

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Equipment Manufacturers’ Restructuring of Operations and Future Prospects (this issue)
No. 33 Survey on Planned Capital Spending for Fiscal Years 2001, 2002 and 2003, November 2002
No. 32 Behavior Trends of Japanese Banks toward the Corporate Sector and Their Impact on the Economy, October 2002
No. 31 Microstructure of Investment and Employment Dynamics: Stylized Facts of Factor Adjustment
Based on Listed Company Data, October 2002
No. 30 Recent Trends in the Japanese Economy: Globalization and the Japanese Economy, August 2002
No. 29 Corporate Financing Trends in Recent Years: Fund Shortages and Repayment Burden, August
2002
No. 28 Urban Renewal and Resource Recycling: For the Creation of a Resource Recycling Society, July
2002
No. 27 Labor’s Share and the Adjustment of Wages and Employment, June 2002
No. 26 Survey on Planned Capital Spending for Fiscal Years 2001 and 2002, May 2002
No. 25 Environmental Information Policy and Utilization of Information Technology: Toward a Shift inEnvironmental Policy Paradigm, March 2002
No. 24 The Changing Structure of Trade in Japan and Its Impact: With the Focus on Trade in Information Technology (IT) Goods, March 2002
No. 23 Microstructure of Persistent ROA Decline in the Japanese Corporate Sector: Inter-company
Disparties and Investment Strategies, March 2002
No. 22 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation and Prospects
of Evolution, February 2002
No. 21 Survey on Planned Capital Spending for Fiscal Years 2000, 2001 and 2002, December 2001
No. 20 Current Situation and Challenges for Cable Television in the Broadband Era, October 2001
No. 19 Recent Trends in the Japanese Economy: The Japanese Economy under Deflation, August 2001
No. 18 Introduction of a Home Appliance Recycling System: Effects & Prospects: Progress towards
Utilisation of Recycling Infrastructure, June 2001
No. 17 Survey on Planned Capital Spending for Fiscal Years 2000 and 2001, June 2001
No. 16 Revitalization of Middle-aged and Elderly Workers in Japan’s Labor Markets: Requiring the
Expansion of the Vocational Training Functions, March 2001
No. 15 Risk-Averting Portfolio Trends of Japanese Households, March 2001
No. 14 Consumption Demand Trends and the Structure of Supply: Focus on Retail Industry Supply Behavior, March 2001
No. 13 Recent Trends in the Japanese Economy: Weakness of Current Economic Recovery and Its
Background, March 2001
No. 12 Empirical Reassessment of Japanese Corporate Investment Behavior: Features and Changes
since the 1980s, based on Micro-level Panel Data, March 2001
No. 11 Survey on Planned Capital Spending for Fiscal Years 1999, 2000 and 2001, October 2000
No. 10 Job Creation and Job Destruction in Japan, 1978-1998: An Empirical Analysis Based on Enterprise Data, September 2000
No. 9

Recent Trends in the Japanese Economy: Information Technology and the Economy, September
2000No. 8

Trend of International Reorganization Affecting the Japanese Automobile and Auto Parts Industries, June 2000

No. 7

Survey on Planned Capital Spending for Fiscal Years 1999 and 2000, June 2000

No. 6

Current Status and Future Perspective of the Japanese Remediation Industry: Technology andMarket for Underground Remediation, May 2000

No. 5

Recent Trends in the Japanese Economy: The 1990s in Retrospect, March 2000

No. 4

Destabilized Consumption and the Post-bubble Consumer Environment, February 2000

No. 3

The Slump in Plant and Equipment Investment in the 1990s: Focusing on Lowered Expectations,the Debt Burden and Other Structural Factors, January 2000

No. 2

Survey on Planned Capital Spending for Fiscal Years 1998, 1999 and 2000, November 1999

No. 1

Corporate Strategies in Japan’s Semiconductor Industry: Implications of Development in Other
Asian Countries, November 1999

JDB Research Report
No. 96 Recent Trends in the Japanese Economy: Focused on Fixed Investment and Capital Stock, August 1999
No. 95 Efforts to Protect the Natural Environment in the United States and Germany: Environmental
Mitigation and Biotope Conservation, July 1999
No. 94 Survey on Planned Capital Spending for Fiscal Years 1998 and 1999, June 1999
No. 93 Towards the realization of ‘environmental partnership’: A survey of Japan’s environmental NPO
sector through comparison with Germany, June 1999
No. 92 The Impact of Demographic Changes on Consumption and Savings, March 1999
No. 91 Recent Research and Development Trends in Japanese Enterprises: Technology Fusion, March
1999
No. 90 Recent Trends in the Japanese Economy: Prolonged Balance Sheet Adjustment, January 1999
No. 89 Impact of Asset Price Fluctuations on Household and Corporate Behavior: A Comparison between Japan and the U.S., December 1998
No. 88 Survey on Planned Capital Spending for Fiscal Years 1997, 1998, and 1999, December 1998
No. 87 Foreign Exchange Rate Fluctuations and Changes in the Input-Output Structure, November 1998
No. 86 Structural Changes in Unemployment of Japan: An Approach from Labor Flow, November 1998
No. 85 Recent Trends in the Japanese Economy: Characteristics of the Current Recession, August 1998
No. 84 R&D Stock and Trade Structure in Japan, August 1998
No. 83 Survey on Planned Capital Spending for Fiscal Years 1997 and 1998, August 1998
No. 82 The Significance, Potential, and Problems of DNA Analysis Research: Establishing Public
Acceptance is Essential, May 1998
No. 81 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996, 1997
and 1998 Conducted in August 1997, March 1998
No. 80 Recent Trends in the Japanese Economy: Growth Base of the Japanese Economy, January 1998
No. 79 Information Appliances: The Strength of Japanese Companies and Tasks for the Future, January
1998
No. 78 Challenges and Outlook for the Japanese Machinery Industries: Impact of ISO14000 Series andEnvironmental Cost, January 1998

No. 77 Current Conditions and Issues of Computerization in the Health Care Industry: For the Construction of a Health Care Information Network, January 1998
No. 76 Household Consumption and Saving in Japan, December 1997
No. 75 The Direction of Japanese Distribution System Reforms: Strengthening the Infrastructure to
Support Diverse Consumer Choices, November 1997
No. 74 Foreign Direct Investments by Japanese Manufacturing Industries and Their Effects on International Trade, October 1997
No. 73 The Impact of the Changing Trade Structure on the Japanese Economy: With Special Focus on
the Effects on Productivity and Employment, October 1997
No. 72 An Analysis of Foreign Direct Investment and Foreign Affiliates in Japan, August 1997
No. 71 Recent Trends in the Japanese Economy: Stock Replacement and New Demand as Aspects of
Economic Recovery, August 1997
No. 70 Corporate Fundraising: An International Comparison, June 1997
No. 69 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and1997 Conducted in February 1997, May 1997
No. 68 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1996 and1997 Conducted in August 1996, August 1997
No. 67 An International Comparison of Corporate Investment Behavior: Empirical Analysis Using Firm
Data from Japan, France and the US, April 1997
No. 66 Housing in the National Capital: Analysis of the Market for Housing using Micro Data, March
1997
No. 65 The Environment for Locating Business Operations in Major East Asian Cities, January 1997
No. 64 Direction of Reconstruction of Business Strategy in the Chemical Industry, January 1997
No. 63 Reflection on Discussions Concerning Regulation of the Electric Power Industry: Deregulationof the Electric Power Industry in Japan and Implication of Experiences in the United States, December 1996
No. 62 Current Status and Future Perspective of the Japanese Semiconductor Industry, November 1996
No. 61 A Breakthrough for the Japanese Software Industry?: Responsiveness to Users’ Needs is the key,
October 1996
No. 60 Recent Trends in the Japanese Economy Focusing on the Characteristics and Sustainability of
the Current Economic Recovery, September 1996
No. 59 Analysis of the Primary Causes and Economic Effects of Information: Related investment in the
United States and Trends in Japan, August 1996
No. 58 Selected Summaries of Research Reports: Published in FY1995, June 1996
No. 57 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1995 and1996 Conducted in February 1996, May 1996
No. 56 Recent Trends in the Japanese Economy, May 1996
No. 55 Issues Concerning the Competitiveness of the Japanese Steel Industry, February 1996
No. 54 Changes in the Financial Environment and the Real Economy, January 1996
No. 53 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994, 1995
and 1996 Conducted in August 1995, October 1995
No. 52 Current Economic Trends: Focusing on the Appreciation of the Yen and its Effects, October
1995

No. 51 Problems Concerning the International Competitiveness of the Petrochemical Industry, October
1995
No. 50 An Economic Approach to International Competitiveness, October 1995
No. 49 Selected Summaries of Research Reports Published in FY1994, July 1995
No. 48 Strategies for Improving the Efficiency of the Japanese Physical Distribution System: Part 2,
July 1995
No. 47 Issues on International Competitive Strength of the Auto Industry, June 1995
No. 46 Problems Concerning the International Competitiveness of the Electronics and Electric Machinery Industry, June 1995
No. 45 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1994 and1995 Conducted in March 1995, June 1995
No. 44 Strategies for Improving the Efficiency of the Japanese Physical Distribution System, March
1995
No. 43 Capital Spending Recovery Scenario Cycle and Structure, August 1994
No. 42 Progress of International Joint Development between Industrialized Countries on the Private
Level, May 1994
No. 41 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993, 1994
and 1995 Conducted in August 1994 , November 1994
No. 40 Selected Summaries of Research Reports Published in FY1993, June 1994
No. 39 Recent Trends in Japan’s Foreign Accounts, April 1994
No. 38 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1993 and1994 Conducted in March 1994, April 1994
No. 37 Economic Zones and East Asia Prospect for Economic Activity Oriented Market Integration,
December 1993
No. 36 Japanese Corporate Responses to Global Environmental Issues, December 1993
No. 35 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992, 1993
and 1994 Conducted in August 1993, September 1993
No. 34 Structure of Profit to Capital in the Manufacturing Industry, September 1993
No. 33 Comparison of the Japanese and The U.S. Labor Markets, October 1992
No. 32 The Relative Competitiveness of U.S., German, and Japanese Manufacturing, March 1993
No. 31 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1992 and1993 Conducted in March 1993, April 1993
No. 30 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991, 1992
and 1993 Conducted in August 1992, December 1992
No. 29 Flow of Funds in the 80s and Future Corporate Finance in Japan, November 1992
No. 28 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1991 and1992 Conducted in February 1992, April 1992
No. 27 An Analysis of Foreign Direct Investment in Japan, March 1992
No. 26 Projection of Japan's Trade Surplus in 1995: Analysis of Japan's Trade Structure in the 80s,
February 1992
No. 25 Intra-Industry Trade and Dynamic Development of The World Economy, November 1991
No. 24 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990, 1991
and 1992 Conducted in August 1991, September 1991

No. 23 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1990 and1991 Conducted in February 1991, March 1991
No. 22 Trends of the Petrochemical Industry and its Marketplace in East Asia, March 1991
No. 21 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989, 1990
and 1991 Conducted in August 1990, September 1990
No. 20 Deepening Economic Linkages in The Pacific Basin Region: Trade, Foreign Direct Investment
and Technology, September 1990
No. 19 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1989 and1990 Conducted in February 1990, March 1990
No. 18 Petrochemicals In Japan, The US, and Korea an Assessment of Economic Efficiency, February
1990
No. 17 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1988, 1989
and 1990 Conducted in August 1989, October 1989
No. 16 Impact of the EC Unification on Japan’s Automobile and Electronics Industries, August 1989
No. 15 Industrial and Trade Structures and the International Competitiveness of Asia’s Newly Industrializing Economies, August 1989
No. 14 The Japan Development Bank Reports on Capital Investment Spending: Survey for Fiscal Years
1988 and 1989 Conducted in February 1989, March 1989
No. 13 The Japan Development Bank Reports on Capital Spending: Survey for Fiscal Years 1987, 1988
and 1989 Conducted in August 1988, September 1988
No. 12 Growing Foreign Investors’ Activities and the Future of Internationalization, September 1988
No. 11 Futures Tasks and Prospects for the Japanese Machine-Tool Industry, July 1988
No. 10 International Division of Labor in the Machine Industries Among Japan, Asia’s NICs and
ASEAN Countries, June 1988
No. 9

Trends of the Petrochemical Industry and its Marketplace in East Asia around Japan, May 1988

No. 8

The International Competitiveness of Japan and U.S. in High Technology Industries, April 1988

No. 7

The Japan Development Bank Reports on Private Fixed Investment in Japan, March 1988

No. 6

Economic Projections of the Japan’s Economy to the Year 2000, February 1988

No. 5

The Japan Development Bank Reports on Private Fixed Investment in Japan, September 1987

No. 4

Current Trends in the Japanese Auto Parts Industry in Overseas Production, July 1987

No. 3

Current Moves for Foreign Direct Investment into Japan, May 1987

No. 2

Overseas Direct Investments by Japanese Corporations, May 1987

No. 1

Current U.S. Consumption Trends, May 1987