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Inspired by China, Panasonic gets back to its innovative roots

Company finds founding philosophy of 'constant change' embodied by Chinese division

Panasonic director Tetsuro Homma's message to "Pursue Chinese speed, Chinese cost and Chinese style" was clear. (Photo by Kei Higuchi)

TOKYO -- Panasonic is expanding its presence in the vast Chinese market through an ethos of "constant change" -- the same approach it taught China 40 years ago, but now it is the Japanese company learning from its former pupil.

The electronics giant is building a new plant to manufacture home appliances in China, the company's first such investment in 16 years, bucking the growing trend among global manufacturers to shift production out of China amid a bitter trade war with the U.S.

Despite slowing growth of China's consumer electronics market, Panasonic believes its in-house China & Northeast Asia Company will be able to achieve strong sales growth in a market with great breadth and depth, which the company expects to be a center of innovation that will rival the U.S. in the future.

On April 1, Tetsuro Homma, a Panasonic director, was in Beijing to attend a ceremony to launch the in-house company. In giving a pep talk to local employees, Homma encouraged them to share their true thoughts. "Let it all out," he said.

Wearing a sweater, Homma came across like the founder of a Chinese tech startup and delivered a 40-minute speech in Chinese to inspire the audience, gesticulating with his hands. His message was clear: The in-house company will to all intents and purposes be a Chinese company, not just an overseas unit of a Japanese corporation. "From this day on, we will pursue Chinese speed, Chinese cost and Chinese style."

Homma was trying to translate the order he had received from Panasonic President and CEO Kazuhiro Tsuga into words that would strike a chord with the employees. In setting up a task force to create the new company in July 2018, Tsuga instructed, "Make another Panasonic in China."

Through his frequent trips to China, Tsuga had become convinced that Panasonic's future growth would depend on its growth in the country.

Panasonic has long-standing ties with China. In 1978, company founder Konosuke Matsushita met with Deng Xiaoping, who was then emerging as China's new paramount leader. Deng asked for Matsushita's help to achieve China's industrialization.

In 1979, then-Matsushita Electric Industrial founder Konosuke Matsushita, left, visited Deng Xiaoping in China. (Photo courtesy of Panasonic)

Matsushita, a visionary entrepreneur, happily granted Deng's request and told him, "We will do anything we can (to help China become an industrialized economy)." Matsushita predicted that the 21st century would be the Asian century, with China and Japan together leading the region's development and evolution.

Homma's career-long involvement in the company's Chinese operations has its origins in Matsushita's meeting with Deng, the architect of China's economic reform.

On joining the company, then called Matsushita Electric Industrial, in 1985, Homma was chosen as a trainee to become a China expert under a special training program created by the founder. Homma spent nearly three years struggling with the Chinese language. After studying from morning to night at the company's training center in Osaka for nearly a year, he was transferred to Taiwan, where he spent the first year attending a Chinese language school, and then worked for the firm's local office for another year.

Homma was the leader of the task force to set up the new unit. The team of 40, including Chinese employees, discussed the mission for eight weeks.

When encouraged to open up, the Chinese employees started airing complaints and grievances about misguided and ill-conceived instructions from the headquarters in Japan.

The company's 85 locations in China are all seen as mere outposts of business units in Japan. They have been incapable of keeping up with the changing trends in the Chinese market, missing out on many business opportunities as a result.

Since the beginning of his latest stint in China in April, Homma has been visiting Panasonic's local offices in various parts of the country to hold lunch meetings with middle-ranking Chinese employees aged around 40 to listen to what they have to say.

When he promises them that he will not tell anybody what he hears at the meetings, the Chinese employees often take the opportunity to voice their complaints with relish.

As he has visited about 20 local offices in China, Homma has heard some of the same questions come up many times, such as, "Why do Japanese make new components whenever they develop a new product?"

Panasonic's Japanese engineers design each new product from scratch, whether it is for the Japanese or the Chinese market, developing new parts with their traditional spirit of craftsmanship.

When adopted in China, this approach makes it difficult to secure parts in time. The company also demands cuts in production costs, effectively creating a mission-impossible situation for Chinese employees.

In another episode about why Panasonic needs to do more to tailor its products to the Chinese market, Homma was surprised to find that a new product to be launched in China carried such a low price tag. When he asked the reason why it could be sold so cheaply, a Chinese engineer said one feature that was popular in Japan had been removed. When Homma asked the engineer whether that was the right move to make, the reply was that the feature had no appeal to Chinese consumers.

The Chinese engineer also said he had been silent on what he really thought out of consideration and respect for Japanese engineers, as well as concern about possible effects on his position within the company. "Since you have urged us to let out our thoughts, I have taken the plunge," he told Homma.

Homma was stunned by what the engineer told him, but was also pleased, as he thought he was seeing a sign of change for the better.

Homma has opened an account on Weibo, China's leading microblogging site, and frequently posts about his business experiences in the country.

On holidays, he often visits historical sites with employees to show his commitment to learning about Chinese culture. All these efforts are aimed at changing the mindset of Chinese employees who see their workplaces as mere outposts of business units in Japan.

More than four decades since Matsushita and Deng talked about China's economic future, Homma says he now feels he may have been destined to lead the new unit in China since that day.

Betting on China's long-term growth, the Osaka-based company will spend some 4.5 billion yen ($41 million) to build the plant in Jiaxing, Zhejiang province, and is scheduled to begin production in 2021. The company forecasts annual sales of 2 billion yuan ($280 million) from the plant once it begins full-scale production.

Panasonic has been expanding its business in China since it established a joint venture company to produce cathode-ray tubes in 1987. Shipments by Panasonic total 2 trillion yen in value, the largest among Japanese companies.

But Panasonic has failed to grow in China over the past decade. "The reason is simple. Instructions from Japan have been odd," said Wu Liang, managing director of Panasonic Home Appliances (China).

Managing director of Panasonic Home Appliances (China), Wu Liang, right, preaches that "You cannot move forward if you shut your eyes to changes."

Wu, 57, is one Chinese employee whose life has changed as a result of the reform and door-opening policies introduced by Deng, which won support from Matsushita.

Born in Hangzhou, Zhejiang province, where Panasonic Home Appliances is headquartered, Wu had worked as a metal processor at a local state-run refrigerator maker until the age of 25 after graduating from high school. Running around Hangzhou's West Lake, designated as a UNESCO World Heritage Site, Wu became a marathon runner with a personal best time of just over 2 hours and 29 minutes. He ran in the Beijing Marathon in 1985 and 1986, when Japanese marathoners performed strongly.

A turning point in Wu's life came in 1987, when mulled leaving the factory and changing career.

Amid social changes taking place under the reform and door-opening policies, he enrolled in a Japanese-language school in Japan. Managing on a monthly income of 60,000 yen from delivering newspapers, he became interested in local administration and enrolled in Tokai University.

Wu worked at a number of manufacturing companies after graduation and was head-hunted in 2002 by Matsushita Electric Industrial, the Chinese unit of Panasonic at the time. Assigned to marketing home appliances, he helped Panasonic capture the biggest share of the market for warm-water bidet toilet seats, which were in soaring demand because of Chinese tourists' "explosive" shopping sprees in Japan.

Credited for his contribution, Wu was promoted in 2014 to a position in which he effectively took charge of home appliances.

"There was a mood of withdrawal from China at Panasonic at that time," said Wu. While online sales were increasing sharply in China, Panasonic was reluctant to make tie-ups with electronic commerce sites for fear of price-cutting competition.

But Wu promoted Panasonic's alliances with major local e-commerce sites Tmall and to not only supply products but also carry out product development and sales campaigns. Consequently, Panasonic sprang back to life in the Chinese market.

"You cannot move forward if you shut your eyes to changes," Wu said.

Wu describes himself as not the kind of person to tread carefully. For example, when he visited Japan in December 2016 for a meeting of Panasonic directors including Tsuga, they discussed a product which Wu dismissed as unnecessary in China. His outspoken verdict stunned other participants.

With confidence gained from successfully forging his own path in life, he does not hesitate to speak his mind.

In October, Wu opened a "Panasonic Center" showroom to display IoT home appliances in Hangzhou. He had found a vacant plot of land a prime location near the city's West Lake, a popular tourist spot, and stressed to Homma that the place presented a rare opportunity. The director was convinced, and he gave Wu the nod to open the center there.

Wu took about 100 days to open the showroom, less than a quarter of time that would be needed in Japan. The center has already been visited by 40,000 people.

"We must continue to change," Wu said, suggesting that he will accelerate the pace of reforms.

"The time taken to develop new products and services has been cut to half a year to a year from one-to- two years in the past," said He Lingjun, a young female employee at Panasonic Home Appliances. "But Chinese companies develop them in a few months."

He Lingjun, an employee at Panasonic Home Appliances, is developing services using data from connected toilets and bathroom mirrors for personalized home delivery of groceries. (Photo by Itsuro Fujino)

Lingjun is currently developing new services using connected toilets and connected bathroom mirrors that collect uric acid level and body fat data which can then be used to select and home-deliver foodstuffs tailored to individual needs. The services are planned to be launched in 2020.

Lingjun became interested in Japan after watching a TV program about "yamato nadeshiko," a Japanese term for an idealized Japanese woman, and studied the Japanese language at university. She changed her career three years ago, moving from a Japanese food maker to Panasonic, which was recruiting new workers.

"Language and skills are the same thing. As IoT connects different industries, I can make use of my experience at the food company at Panasonic," she said.

Lingjun doesn't hesitate to voice her opinions with experts such as information technology engineers and university professors, exemplifying women's highly active role in the workplace in China's new age.

Whereas Panasonic once imparted knowledge about innovation in China, today the roles are reversed. It is China that enables the continued implementation of Matsushita's vision in a company that developed a tendency for risk aversion.

In June, two months after assuming his current post, Homma committed Panasonic to a project to build a large-scale new residential area for the aged in Jiangsu Province, eastern China. He refers to the new challenge whenever he visits Panasonic plants, and says, "Each day is a new day. Let's change ourselves without fear of the social and technological changes taking place at a furious speed."

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