Stephanie HilgefordCharlotte Ford-Cunningham

Al Renner

Pre-World War II

Goal = realize economies of scope◦ Manufacturing, distribution, and banking

industries

4 major zaibatsu◦ Matsui, Mitsubishi, Sumitomo, and Yasuda

Family-controlled monopolies

Holding company at the top of hierarchy

Wholly owned bank subsidiary

Supplied military forces

Post – World War II◦ Dissolution of zaibatsu◦ Removal of decision-making executive

Modified zaibatsu 1950s = keiretsu◦ Occupation force support because of Mao’s

communism and the Korean War Benefit

◦ Solution to last-period problem Issue

◦ Monopolistic

2 forms◦ Horizontal◦ Vertical

6 major keiretsu◦ Mitsubishi, Mitsui, Sumitomo, Fuyo, Dai-Ichi

Kangyo, and Sanwa 4 pillars of keiretsu

◦ Lifetime employment, seniority wages, enterprise unions, and consensual capitalism

1899 – company was incorporated Early 1920s – involvement with Sumitomo 1925 – ISE transferred 15% of ownership to Sumitomo 1943- Sumitomo took full control 1945- Sumitomo ordered to dissolve Mid-1950s computer industry 1960s- Honeywell collaboration 1977- C&C initiative 1996- Merger with Packard Bell 2003- NEC goes public

President: Kaora Yano Senior Executive Vice Presidents:

◦ Botaro Hirosaki and Masatoshi Major operations

◦ IT service, IT products, and network systems 166,800 employees 328 consolidated subsidiaries Operation in 44 countries

 

SWOT Analysis: NEC Corporation

Strengths:

Diversified products

Strong strategic relationship

Research and development

Strong industry position

Weaknesses:

Geographic concentration

Corporate governance issues

Declining revenues and

profitability

Opportunities:

Innovated technology

Demand for digital products

Increase efficiency

Threats:

International market competition

Global economic slowdown

Adequate protection of

intellectual property rights

Japan’s recession began in the early 1990s with the collapse of stock and land values.

Bank for International Settlements (BIS) began enforcing stricter maintenance of capital adequacy ratios for banks.

1987–1991 representing strong economic growth

1992–1996 the first five years of Japan’s economic decline

1997–2001 significant regulatory change as well as intensified economic decline.

Big Bang deregulation announced in late 1996 and implemented in fiscal year 1997.

Propping, tunneling and the role of the internal capital market present issues of the Keiretsu.

Propping Tunneling Internal Capital Market

Propping- occurs when weaker less stable firms are held up financially by the stronger firms in the Keiretsu with intra-group financing, etc.

Tunneling - occurs when powerful owners or other insiders engage in private benefit consumption to the detriment of other stakeholders in the firm.

Internal Capital Market – when propping and tunneling take place the internal capital market is compromised due to the sustainment of firms that would have failed.

No demand for products Strategies

◦ President Watanabe’s vision◦ Public works contracts◦ Adapt military technology to civilian market◦ Laid off 2,700 employees◦ Closed 3 plants and R&D facility

Outcome - Recovered in 50s due to new telecom markets

Telecom market saturation Strategies

◦ President Kobayashi’s vision ◦ Future success in knowledge based products◦ Total Quality Control movement◦ Zero-Defect movement◦ Restructured to 14 autonomous divisions

Outcome - Global expansion

Performance hurt by: Japanese recession, strong yen, US competition

Strategies◦ Expand global markets ◦ PCs sold in Europe ◦ Joint manfacturing ventures in Asia◦ Merger - Packard Bell NEC PCs

Outcome - FY 96: ◦ Net worldwide sales $41 billion ◦ 89 domestic & 38 overseas subsidiaries◦ 152,719 employees

Packard Bell NEC fails, $1.5 billion net loss

Strategies◦ Investments: 97 - $285 million, 98 - $225

million◦ NEC is majority owner◦ Pulls plug on US retail PC market◦ Closed CA plant, laid off 2,100 workers

Outcome - FY 00: $10 million net income

Kerietsu system emerged after WW II Incentivize cooperation, minimize risk, &

maximize future profits NEC a member of Sumitomo since 20s Kerietsu are less centralized and

integrated NEC’s future: IT service/products,

network systems, personal solutions, and electron devices