This week, there were two significant announcements involving major Japanese consumer electronics companies. They both had common themes, namely needs to grow revenues and profitability, as well as better compete within the new emerging global economies. They plan to do so by outsourcing design and production outside of Japan, and in my view, these announcements are yet another data point in the new structural changes involving post-recession global supply chains.
Hitachi Ltd., suffering from its worst annual profit loss in the company’s history, is turning to an outsourcing strategy to produce its televisions for the U.S., European and other markets. This move is part of a major re-structuring announced on July 1. According to a Wall Street Journal article (subscription may be required), the move is an effort to stop the bleeding within its television unit, which accounted for most of the current $1 billion-plus loss at Hitachi’s digital products division.
Like other Japan based consumer electronics companies, Hitachi had previously differentiated its television products with in-house design and sourcing of major components as well as final assembly production. The latest restructuring calls for a move toward outsourced sourcing of components and contracted manufacturing. Potentially two Hitachi-owned television assembly plants in Mexico will be sold, and a television plant in the Czech Republic will be leased out. Hitachi will only manufacture products in Japan to support its local Japanese market.
On another front, in order to compete more effectively in the new developing economies, Panasonic Corporation is planning new lines of appliance and electronics offerings tailored to appeal to ultra-cost conscious consumers. A separate Wall Street Journal article (subscription may be required) indicates that these products will be locally designed and manufactured within targeted regions, with razor-thin product margins. Similar to the Tata Nano automobile, while product features will include the bare minimum, local designers will target innovation and simplicity, providing the most attractive price and feature point for these new emerging consumers. Panasonic’s efforts reflect an admission that these margins cannot be achieved by its original Japan centered sourcing model.
In my editorial opinion commentary that I was invited to write for the 21st Century Supply Chain Blog Expert Series, I noted that in the forthcoming post-recessionary growth cycle, for certain products, the most cost efficient value-chain can trump the more costly product innovation focused value-chain. The latest moves from both Hitachi and Panasonic are I believe, are yet another acknowledgement of this evolving trend.
The benefactors will be designers and contract manufacturers who reside or operate in the new evolving economies.