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Other firms must learn from Sharp's setback

Publication Date : 01-10-2012

 

Even a company with cutting-edge technology and a strong brand will founder if it makes a mistake in the selection and concentration of its business. The setback of Sharp Corp., dubbed a giant of liquid crystal display panels, is a warning for the Japanese manufacturing industry.

Amid a financial crisis, Sharp has compiled a rehabilitation plan centering on cutting more than 10,000 jobs and selling its television factories abroad. Highly evaluating the plan, Sharp's main financing banks have decided to extend a total of 360 billion yen in loans to the electrical appliance company.

This has temporarily settled Sharp's cash-flow concerns and helped it move a step closer to overcoming its management crisis.

Until several years ago, Sharp enjoyed outstanding business results because of the popularity of its LCD television sets manufactured at its Kameyama plant in Mie Prefecture, known as Kameyama models.

However, amid the yen's soaring appreciation and the weak won, South Korean companies have become more competitive and captured the global market of LCD panels and TV sets, displacing Sharp as the world's leading manufacturer of those products. The marked decline in prices of LCD panels and other products also hurt Sharp.

Overconfidence causes mistake

Sharp spent a huge amount of money three years ago on construction of a state-of-the-art factory in Sakai, Osaka Prefecture, to manufacture large LCD panels. But sales did not grow as much as expected, and the factory only worsened earnings results. The firm declared record losses in its consolidated financial settlement for the business year ending in March, and huge losses are expected in the current term, too.

Success of the Kameyama plant apparently led to overconfidence, causing Sharp to go astray in planning its business strategy.

This shows the grim reality that even a prestigious company with a history of 100 years can be forced to drastically restructure its business.

First, Sharp must quickly enhance areas of its speciality including small and midsize LCD panels for smartphones, the market of which is expected to grow, and home electric appliances and copying machines. Another key factor in profitability is whether the firm can capture markets in emerging economies.

Optimism is out of the question for Sharp, and speed will be a decisive factor in overhauling the company.

Attention will now turn to partnership negotiations between Sharp and Hon Hai Precision Industry Co., a major contracted manufacturer in Taiwan. In March, Hon Hai agreed to maintain a ratio of investment in Sharp of 9.9 per cent. After the price of Sharp's stock plunged, the companies began renegotiating the partnership, but the talks have made little headway.

Competition in global market

Sharp desperately needs measures to further enhance its financial foundation through a partnership with Hon Hai and boost global sales of small and midsize LCD panels and other products. We hope Sharp will sign an agreement with Hon Hai as soon as possible. However, Sharp must be very wary of the outflow of its most advanced technology.

Japan's manufacturing industry, including electrical appliance manufacturers, are facing the yen's soaring appreciation and intensified global competition. Japanese firms must learn a lesson from Sharp's case and strengthen their competitiveness by developing strategic products that anticipate changing market demand and exploiting growing markets.

The government also has an important role to play in supporting the nation's industry. The government must curb the yen's appreciation and try to secure a stable supply of electricity by reactivating nuclear power reactors around the country. It also must initiate active trade policies such as Japan's early participation in negotiations over the Trans-Pacific Partnership free trade pact.

 

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