Firms must learn how to weather tough times
We are witnessing perhaps the worst settlement of financial accounts since the end of World War II.
This is the first time that so many of Japan's leading companies have reported massive losses across the board.
It is now the peak of the earnings season, with many major firms having announced their performances for the business year that ended March 31. The dour financial reports throw the massive impact of the global economic crisis into sharp relief.
Ordinary profits reported by firms listed on the Tokyo Stock Exchange, excluding banks and certain other businesses, are expected to drop by a total of more than 60 percent from the previous year. In particular, net profits to be incurred in the manufacturing sector as a whole are highly likely to fall into the red.
In addition, many companies predict declines in profits for the current business year ending March 2010, anticipating that it will take some time for the economy to recover.
To weather this harsh business climate, it will be essential for these companies to take steps such as cutting back on wasteful operations, strengthening financial bases and exploring new business fields that show growth potential.
Big players take big hit
Business deterioration has been particularly severe in the auto and electronics industries, which have been rocked by sluggish overseas sales and the stronger yen.
Toyota Motor Corp.'s global vehicle sales in fiscal 2008 dropped by 1.34 million units from the previous year. The firm also took a 760 billion yen hit in profit because of the yen's appreciation against major currencies. As a result, it posted a 461 billion yen operating loss, which gauges profits in a company's core business. The company also projected that its losses for the current business year would likely balloon to 850 billion yen.
To cope with the situation, the automaker will put more low-fuel cars on the market, expand sales networks in emerging economies and try to slash manufacturing costs. One of its tasks will be downsizing the firm's current production scale that currently has the ability to punch out 3 million cars in excess a year.
Hitachi Ltd. reported a group net loss of 787.3 billion yen, the largest reported among Japanese companies. In addition to slumping sales, the firm was forced to dispose of latent losses from its stockholdings and break into deferred tax assets, which had been set aside in anticipation of future tax returns.
With the aim of boosting its corporate strength, Hitachi plans to pare down its businesses and concentrate on certain fields, discarding its reputation as a general electronics manufacturer.
The country's electronics companies are having to address this common theme of "selection and concentration," which is a distinct break from the established follow-the-leader mentality. If all the big electronics firms take this course, it could force a complete realignment of the industry, following similar moves seen in the semiconductor business.
All sectors should be on guard
In the nonmanufacturing sector, the aviation industry has been hit particularly hard. Japan Airlines Corp. is expected to report a net loss for two consecutive years, putting the fate of its business reconstruction efforts into doubt once again. Attention is now focused on how its planned restructuring efforts, including pension reforms and personnel cuts, will unfold.
Domestic demand-led industries, such as railways and telecommunications, have reported relatively light damage from the recession. However, such sectors also should remain on their guard while comprehensively assessing their business strategies in anticipation of a prolonged recession.
Honda Motor Co., which saw brisk overseas sales of motorcycles, and Mitsubishi Electric Corp., which started streamlining and reorganizing its unprofitable businesses earlier than its competitors, both managed to turn profits even in these difficult times.
Companies with unique products and specialties tend to handle recessions better. It is hoped that Japanese companies will take advantage of the economic challenges they are facing today to find new sources capable of generating profits for tomorrow.
(From The Yomiuri Shimbun, May 15, 2009)