As a management consultant, I have many opportunities to offer advice to corporations. At the seminar today, I would like to talk about corporate growth strategies in these recessionary times, with particular focus on business diversification. The period of high economic growth is over, and Japan has become a mature market. It is in this context that corporations are searching for strategies for future growth. Should they focus on the domestic market and diversify their business? Or, should they accelerate their entry into overseas markets? Should they attempt both of these at the same time? What means should they use to achieve their growth strategy? I would like to look at these questions today using a client of mine as a case study.
|1.||Let's call the company in question Company A. Company A has 13,450 employees, and its consolidated sales for fiscal 2008 were 194.3 billion yen. The company's main business areas are heavy machinery and construction materials. The domestic market supplies 60 percent of its sales while the remaining 40 percent are from overseas markets. The company currently has no factories overseas; all its products are manufactured domestically. Through the first half of last fiscal year, the company enjoyed positive growth year on year, bolstered by strong exports in heavy machinery. The company's performance deteriorated quickly, however, in the second half of last year.|
|2.||Sales for the first quarter of this fiscal year—that is, the period from April through June—saw negative growth of 60 percent from the same period of the previous year, and operating profit was 400 million yen in the red. Even if the economy does recover, I don't think the company will be able to regain the kind of growth that it used to enjoy. Where will the company's future growth come from? I see two potential sources: The diversification of business and the increase of overseas sales as a percentage of total sales.|
|3.||Let's look at my first proposal, business diversification. At this point, Company A has only two divisions: heavy machinery and construction materials. I expect that Japan's public works projects will actually decrease from here on. For this reason, I think that the company should scale down its construction materials division and enter the field of apparatuses for manufacturing semiconductors and liquid crystals. The company can use the experience and expertise it has gained in its heavy machinery business and the customer network it has developed. If Company A leverages these positives that it already possesses, it will be able to make the transition successfully.|
|4.||The other recommendation I made was about the company's overseas business. Company A based its business projections for this fiscal year on an exchange rate of 95 yen to the U.S. dollar. It is hard to predict what will happen in the foreign exchange market, though, so I think Company A should transfer its manufacturing facilities overseas, rather than try to increase its exports. Company A's main market is the Middle East. If the company moves its factories there and exports to the surrounding area, I estimate that Company A will be able to reach a market of 300 million people.|
|5.||Company A should also consider the option of M&A. The company holds a lot of its own shares now because it bought back about 3.5 million of them in fiscal 2008. It holds some cash, as well. I think it could use these resources to acquire another company. The management should decide what field to diversify into and then select a company for possible acquisition. Of course, another option is for the company to pursue organic growth.|
Happy New Year. It is a great pleasure for me to celebrate the beginning of a new year together with all of you. I have some important messages to convey to you before kicking off the new year. The first is on the business results for the last fiscal year and the second is on the new personnel system to be launched this year. I will talk about it just in general terms and, after my talk, Mr. Gibbs, the HR Manager, will take you through the details.
|1.||First of all, I would like to thank you all for your great efforts during the last several years of restructuring. Due to the prolonged recession, we had no choice but to rationalize and streamline ourselves through early retirement and other cost-cutting programs.
It was a painful process, but you have coped with it proactively, embracing change, rather than fearing and resisting it. Thanks to your commitment and dedication, we were able to come back from the recession as a much leaner and more robust organization.
|2.||I am very proud of all of you. Remember that we are in a marathon, not a sprint. I appreciate all you are doing to support our efforts to transform the company for long-term growth.
Thanks to your great efforts, we had fantastic business results for the last fiscal year, with net sales of 38.6 billion yen, operating profit of 10.5 billion yen, and net profit after tax of 4.3 billion yen. We have achieved a positive bottom line for the first time in five years, which means that we can be aggressive again in the market, instead of remaining defensive.
|3.||Let me turn to the new personnel system that is designed to help you be more aggressive in the market. It is designed to reward high performance, so the more you do, the more you get. We are also introducing a stock option program for the manager-level and above, in addition to the existing Employee Stock Ownership Program. We are also offering special bonuses up to half of your base salary and special paid vacation to all sales people depending on their performance.|
|4.||Linkage of salary to merit means that you have to accept the need for a competitive, comparative evaluation of individuals. But personnel appraisal will be carried out not only by your supervisor alone. We will have a peer review as well. As in the past, you will continue to set your own targets and review them with your supervisors at the end of every six-month period, in order to identify any need for more training.|
|5.||The organizational structure has also been modified. We have eliminated all unnecessary reporting lines to make the structure more flat. Under the new structure, I am confident that you will feel more liberated and motivated to do your job.
Finally, I would like to emphasize that people are the single most important asset for our company. That is why the management team is committed to giving you whatever support you need. Let me say that I like to win. And I know you do too. We have most of 2012 in front of us, and we will fight hard for every sale. Thank you.