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Hitachi chairman talks about industry consolidation

Japan's electronics makers need to also sell services

The electronics industry isn't what it used to be. Time was when gadget makers could inspire lust in certain segments of consumerdom, charge high prices and come away with healthy profits.

These days, the electronics industry finds itself dealing with a different kind of Japanese consumer, one who cares about price and only price. As a result, the industry has fallen into a fragile situation, Hitachi Chairman Hiroaki Nakanishi recently told The Nikkei.

Opportunities will have to be found elsewhere, and Nakanishi thinks he has sniffed some out along the border where software meets hardware.  

Q: What is making Japan's electric industry so fragile?

A: Simply put, the home appliance and other markets in which Japan used to have a strong presence are now ruled only by price. Like with commodities, price determines everything. Digitization has helped newcomers to imitate market leaders with less effort. Now any business can produce a good product if it has enough money. Thus, South Korean, Taiwanese and Chinese players who can easily get financing have come to control the market.

Hiroaki Nakanishi

Corporate Japan, meanwhile, failed to merge into the new stream, spending most of its time and efforts on rather cozy rivalries among domestic competitors not too keen about overtaking one another -- as if the industry were still in the middle of the high-growth period of decades ago.

That kind of rivalry used to help lift the capabilities of Japan's manufacturers. But now, with Japan's economy shrinking in proportion to the entire world, the situation is only hampering the country's electronics players from building the kind of solid foundation that is essential to dominate the global market. For instance, there are still three heavy electric machinery makers in Japan, including a Hitachi unit. This tells us how slowly Japanese industry consolidates.

Q: Japan has long lagged the U.S. in information and cyber technologies. Can Hitachi do anything about this?

A: Because of the language barrier, Japan can never really be a leader in social media and other human-oriented online services. The English and Chinese languages have absolute advantages, so American and Chinese businesses will continue to dominate as huge platform providers.

Q: So where will you find opportunities?

A: We are committed to focusing on services that can connect things and devices online -- the Internet of Things -- rather than on connecting people.

For example, Hitachi and Daicel have jointly developed a monitoring system for the propellant that the chemical maker uses as an air bag inflator. It's in use at Daicel's production site in Hyogo Prefecture. A number of cameras and image analyzers can monitor human motions and the state of raw materials along the production line. When the system detects an irregular motion of a worker, a warning is released. The system is expected to drastically cut production defects, bring about better quality control and eventually make cars themselves safer.

Previously, manufacturers didn't care much about keeping connected with customers after selling a product. But from now on we will see more business models in which manufacturers will put more emphasis on providing after-sale services, using Internet of Things and other technologies.

Driven by the ongoing innovations in artificial intelligence, we expect that a huge chance will be created on the border between hardware and related software services.

Q: Is industry consolidation a must?

A: Historically, big consolidation efforts solely among domestic players have never succeeded. Instead, Japanese corporations should honestly evaluate their own positions in the industry and make careful but bold decisions. These could be to withdraw from the market or merge with a foreign rival, depending on the situation.

Q: We have seen mergers between Japanese companies and overseas partners that resulted in failures. What's your take?

A: We once experienced this bitter and costly lesson. Speaking from my experience in struggling to rebuild the hard-disk drive unit we had bought from IBM of the U.S., controlling a foreign partner is not an easy job. You should be determined to make tough decisions if the need arises, say, to replace the partner's management.

Q: Japanese companies are also being urged to develop global management talent. What's your plan?

A: Hitachi has introduced a unified evaluation system for employees across our global locations, allowing foreign personnel, too, to draw up their own career plans. But this is a minimal requirement for a global business. We are committed to developing a corporate environment in which employees with a variety of backgrounds will be able to make the most of their abilities.

One idea here is to dispatch all of our new [Japanese] employees to overseas locations in their early years with the company and let them work for bosses from other countries. When they get their next assignment, they will oversee foreign staff. I want to make this a regular routine.    

Interviewed by Nikkei senior staff writer Kunio Saijo

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