Everett Kennedy Brown/European Pressphoto Agency
A Hitachi-built train, part of a shift to infrastructure projects.
Hoang Dinh Nam/Agence France-Presse — Getty Images
Students viewed a model of a nuclear power plant for Vietnam that was jointly designed by Hitachi and General Electric.
HITACHI, Japan — The biggest annual loss on record by a Japanese manufacturer jolted executives into action at the Hitachi Corporation, the century-old electronics and engineering behemoth that takes its name from this wind-swept industrial city on the Pacific Coast.
Since its 787 billion yen, or $9.2 billion, loss in 2009, Hitachi has staged an impressive turnaround, booking a record 347 billion yen ($4 billion) in net profit in the year through March 2012, while rivals like Sony, Sharp and Panasonic continue to struggle.
But in Hitachi, a city of 190,00 and the company’s longtime production hub, there is little celebrating. Instead, the deserted streets and shuttered workshops speak of the heavy toll levied by the aggressive streamlining, cost-cutting and offshoring that has underpinned Hitachi’s recovery.
The divergent fortunes of Hitachi and its home city highlight an uncomfortable reality: The bold steps that could revive Japan’s ailing electronics giants are unlikely to bring back the jobs, opportunities and growth that the country desperately needs to revive its economy.
The way forward for Japan’s embattled electronics sector, for now, is a globalization strategy that shifts production and procurement from high-cost Japan to more competitive locations overseas. As Japan’s manufacturing giants become truly global, a country that has so depended on its manufacturers for growth must look to other sources of jobs and opportunity, like its nascent entrepreneurs — a transformation far more easily said than done.
“Closing plants in Japan is a big deal, and we don’t take cutbacks lightly,” Hiroaki Nakanishi, Hitachi’s president and chief executive, said in a year-end interview in Tokyo. “But to return to growth, we have to cut loose what doesn’t bring profit. We have to be decisive.”
Japan is still grappling with the fallout from a decade-long, seemingly unstoppable decline of its electronics sector, once a driver of growth and a bedrock of its economy. Japan’s two biggest electronics companies, Hitachi and Panasonic, each have more in sales than the country’s entire agricultural sector, and other big electronics firms come close.
But for more than a decade, these technology companies have experienced little growth. Annual sales growth over the last 15 years at Japan’s top eight tech companies averages around zero, according to Eurotechnology Japan, a research and consulting company in Tokyo.
To blame are plunging prices across the board for their products, brought about by intense competition from rivals in South Korea and Taiwan as electronics increasingly become widely interchangeable. Overstretched and unfocused, Japan’s tech giants also ceded much of their cutting edge to more innovative companies like Apple. Japan’s failure to keep up with a shift in the industry to software and services has compounded those woes.
Above all, the high costs of operating in Japan, made worse by a strong yen, weighs heavily on exporters’ finances. In the year through March 2012, Panasonic, Sony and Sharp lost a combined $19 billion — more than the gross domestic product of Jamaica.
Still, even among its peers, Hitachi stood out for the depth of its losses. After a decade of little or negative growth, Hitachi fell first and hardest, booking its big loss at the height of the global financial crisis because of large write-downs and losses in its electronics businesses.
Local media went into a frenzy over what it called “Hitachi shock,” while the company’s shares slumped to a third of precrisis levels. Hitachi executives warned the company’s future was on the line.
“Can a massive elephant, one that has always sat on its behind instead of changing, hope to change now?” an editorial in the Nikkei business daily wondered at the time.
Hitachi’s appraisal of its operations since then, and its willingness to wield the ax to money-losing businesses, has surprised even the most dismissive of analysts.
Hitachi once had almost 400,000 employees at a thousand often overlapping and competing groups, making products as diverse as televisions, hard disk drives, chips, heated toilet seats, elevators and nuclear reactors. Under the leadership of Mr. Nakanishi, who took the helm in 2010, the company has substantially shrunk or sold money-losing businesses, including those making chips, flat-panel TVs, liquid crystal displays, mobile handsets and personal computers.
Hitachi’s Revival Isn’t So Good for the City of Hitachi
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Hitachi’s Revival Isn’t So Good for the City of Hitachi
