The biggest annual loss on record by a Japanese manufacturer jolted executives into action at Hitachi Corp., the century-old electronics and engineering behemoth that takes its name from a 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.
But in Hitachi, a city of 19,000 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 globalisation strategy that shifts production and procurement from high-cost Japan to more competitive locations overseas. “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 been 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. Above all, the high costs of operating in Japan, made worse by a strong yen, weighs heavily on exporters' finances. 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. Hitachi once had almost 400,000 employees at a thousand often overlapping and competing groups, making products as diverse as televisions, hard disk drives 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. The streamlining was unsparing. Hitachi has now pared its sprawling empire to 939 companies, and Mr. Nakanishi says he is far from done.
That has meant dwindling job opportunities at Hitachi and in Japan. Since 2008, the number of workers at Hitachi has fallen 17 percent to 323,500 and a third of those workers are now overseas. As Hitachi outsources more parts and materials, a whole matrix of suppliers is fading at home.
The pain is felt here in Hitachi city. It was once a bustling industrial hub, but the number of manufacturing jobs has fallen almost 20 percent over the last decade, mirroring a similar drop in the city's population.
Hitachi's only department store closed in late 2008. The city lost all its movie theaters. Its drinking district, Saiwaicho which translates to happy town was largely deserted one recent weeknight. A tall Christmas tree sponsored by Hitachi, according to its plaque, stood alone in an empty square.
Now locals are worrying about the planned merger, announced last month, of Hitachi's thermal power business with that of Mitsubishi Heavy Industries, which could lead to more job losses at a turbine plant.
Recent promises from the newly installed prime minister, Shinzo Abe, to weaken the yen have been met here with sighs that such policies are too little, too late. “Hitachi might have recovered, but what are the rewards for the city, or for the country?’’ asked Toyohiko Baba, an engineer in information technology for 40 years at Hitachi who heads a companywide employees' council that seeks to promote workers' rights. “What is the point of Hitachi's revival?’’ — New York Times News Service