TOKYO -- Assuming Hon Hai Precision Industry seals its long-imminent deal for Sharp, the Taiwanese contract manufacturer will need to figure out how to revitalize the embattled Japanese electronics maker. The pair could look to another Japanese company for proof that it is possible to reinvent a business and thrive in a mature industry.
In November, Japan's government organized a public-private dialogue on investing for the future. Toyota Motor took part, as did Amazon.com of the U.S. Another participant was a textile company from Fukui Prefecture, in western Japan: Seiren.
To some, Seiren might have seemed out of place next to two of the world's biggest brands. Yet its business model attracted a lot of attention at the meeting.
From yarn dyeing to custom clothes
Seiren is raking in strong earnings despite the overall decline of the textile industry. It also runs an autoparts business, manufacturing seat materials and other products. In 2005, the company purchased the synthetic fabric unit of Kanebo, a now-defunct cosmetic, food and textile conglomerate.
When Seiren started out in 1889, it was a typical contract processing company. It bought raw yarn from textile producers and dyed it for sale. Over the years, as the industry faded, it acquired textile companies covering 16 different segments -- from fabric to knitting to sewing -- and built a comprehensive manufacturing network.
It continues to evolve. Last September, it launched a custom-made fashion brand for women at Takashimaya department stores, using a proprietary digital production system. Customers use tablet computers to choose designs and colors; Seiren then makes one-of-a-kind items at its Fukui factory and delivers them.
In an industry where 30% of products end up being sold at discounts or discarded, Seiren's inventory-free mass production method might be a game changer. The company said it had been dreaming of doing this for over 25 years, throughout the tenure of Chairman Tatsuo Kawada, who became president 29 years ago. More than two decades before Germany conceived of Industry 4.0 -- its vision of another Industrial Revolution driven by computerization -- Seiren was contemplating mass customization.
Just as Hon Hai, better known as Foxconn, wants to establish a new global business model through the Sharp acquisition, Seiren's purchase of Kanebo's synthetic fiber business was a key piece in its reinvention puzzle.
Obtaining that piece was not easy. Seiren had tried to break into the synthetic fiber business in the past, but the market was dominated by eight players. Even the Ministry of Economy, Trade and Industry wanted the company to stay out to avoid overcrowding. Prior to the Kanebo deal, one of the eight urged Seiren to back down. Yet Seiren had the financial muscle to beat other bidders.
Now, KB Seiren, the former Kanebo unit, is a pillar of the group, alongside the autoparts business. Morale among the unit's employees is reportedly good.
Why was Sharp unable to match Seiren's sustained success?
The Sharp Technology Innovation Museum in Tenri, Nara Prefecture, chronicles the company's development and shows a clear turning point in its history.
Sharp was responsible for several inventions from its establishment in 1912 through the early part of the 2000s -- Japan's first crystal radio, the world's first mechanical pencil and the first electronic calculator. Yet around 2005, the focus turned to the size and resolution of Sharp's liquid crystal displays. This was when the business model grew stale and the company began to lag behind its global rivals.
Sharp then overstretched itself to try to keep pace with competitors in Taiwan and South Korea. Its leadership, meanwhile, seems to have been mired in a power struggle and lacked the ability to adapt to the changing times.
Might things be different under Hon Hai's umbrella?
Like KB Seiren, Sharp could become an important part of the Hon Hai group, and there may be happier days ahead for the Japanese manufacturer's employees. All this, of course, will depend on the Taiwanese company's management approach.