Thursday, October 26, 2006

Company Review: Sharp *)

Review of Sharp Corporation

History
Hayakawa founded Sharp in 1912 and invented the Ever-Sharp Pencil in 1915. After the pencil business was destroyed by the Great Kantō earthquake in 1923, the company relocated to Osaka and started designing the first Japanese radio sets. Later on in 1929, he developed and produced vacuum tube radios for export to Asia. He began producing televisions in 1953 and diversified into appliances and air conditioners in the 1960s. In 1961, he established a corporate research laboratory to begin research on computer, solar cells and microwave woven. One year after, the company introduced Japan’s first microwave woven. In 1964, Sharp’s introduction of the world's first all-transistor desktop calculator, called Compet, signaled the beginning of the calculator wars.

In 1970 Akira Saeki became the new president of the company. He emphasized new products that created new markets. Using the same distribution channel technology developed for calculators, Sharp quickly diversified within the information equipment business in the 1970s. It developed a broad range of office automation products, including micro-computer (1970), electronic cash register (1971), liquid toner copiers (1972), personal computers (1979), Japanese word processor (1979) and facsimiles (1980). Sharp had developed world‘s largest solar cells for a lighthouse in 1963, and further research led to a development of solar cells for satellites in 1976. The central research and development (R&D) laboratory also developed electro-luminescent (EL) displays and laser diodes.

Haruo Tsuji promoted as president when Japan faced the yen's appreciation in 1986. The company introduced new products such as electronic organizers, dual-swing door refrigerators and the first combination cordless/answering machine. It also made advances in electronic, particularly in LCD. LCD technology continues to be a key part of Sharp's product range, in both the component and the consumer-appliance sides of the business. Based on these LCDs, it introduced a number of worlds first –in the world product such as a 110-inch color LCD video projector, 8.6 inch wall mount LCD monitor and the view cam camcorder with 4 inch LCD monitor.

Management System and Strategic planning
Sharp follow the top-down management strategy. Top management of the organization consists of 20 directors who in addition to their individual assignments, coordinated functions among groups. The organizational activities are shared among eight manufacturing groups, five sales and marketing groups, an international business group, a corporate research and business group, and a number of central service groups. Basically, the strategic plans are prepared by the manager planning board for improving company to catch up the world changing of technology and management. They meet twice a month to ratify critical decision and discuss the company future.

Normally the plans are about what the company will do in 6 months, 3 years or 6 years such as how to spend the budget to research and develop new products. After the plan was set up, it will be announced from the top level to the lower level. Actually the president will announce the management policy in his new year’s statement. For instance, sharp’s long term planning named STAR 21 in 1992 which focused on develop Consumer electronic and appliance, information systems and electronic components.
All of these groups, except the International Business Group, reported directly to the five top managers. The manufacturing groups, the International Business group, and the sales and marketing groups were profit centers, while the corporate R&D group and central service groups were cost centers. Sharp Corporation had a paternalistic relationship with its employees, and top management reinforced the view that the company was a family, or community, whose members should cooperate. Employee turnover was very low in accordance with the practice of lifetime employment. If a research project or a manufacturing plant closed, researchers and workers were not laid off but transferred elsewhere in the company. The reward is on fitting in consensus and coordination.

Within the company, they have 5 laboratories that spend a lot of money in the process of research. After one laboratory can develop the new product, the technology will be transfer to other members of the group. The technology strategy will be discussed every month in the meeting, which each division will present its own project to the others. After they know the capacity of their technology and demand of customer, they will identify what should focus to develop. However, they still remain research in the technology that other companies think it is impossible, but they keep it in small scale. This is the key factor that makes Sharp successful. For instance, they continuous to study LCD and gallium arsenide laser diodes in which many companies kept up to research. Finally Sharp can share market with the big company in that time and overtake many companies.

Sharp formalized its task-force-base product to enhance the effective to transfer and integrate technology among the member company. For instance, it formed a system of gold badge project in 1977. The projects mainly focus on area where technical seed existed. After the project got the good outcome, other member company would pay back haft of the project’s expenditure when products were sold in market. The project leader can choose 20-40 staff members in his team. There were many successful researches such as CMOC chips, LCD display solar cell and software.

Overcoming Difficulties
The economic climate of the late 1990s confronted Sharp with new challenges, however. Starting in 1996, Sharp--like other Japanese electronic companies--saw its sales eroded by the high value of the yen (which made Japanese products more expensive). 'The production cost in Japan has become the highest in the world,' Tsuji complained to the Wall Street Journal. In response, Sharp shifted more of its manufacturing overseas.

As LCD technology continued to go mainstream, the prices the displays commanded began to decline sharply, falling more than 50 percent in 1996 alone. Nevertheless, Sharp continued to boost production. The company also announced that it would produce and sell notebook personal computers in the United States to complement the company's burgeoning sales of copiers to American customers. Thanks to decisions such as these, Sharp appeared to be unscathed by the strong yen and the slumping LCD prices, even as many of its competitors went through painful restructurings. Early in 1997, Tsuji announced that Sharp would increase its production of LCDs by 43.8 percent for the year and would continue to invest heavily in LCD research and development.
But 1997 inaugurated a more difficult period. Sharp's LCD products faced tremendous competition from Matsushita Electric Industrial Co., as well as from manufacturers in Korea and the United States. The competition drove down prices and raised the supply of LCDs. To top if off, Sharp had failed 'to develop new high margin products that could guarantee it a steady stream of profits,' according to the Asian Wall Street Journal. As a result, the company's profits and sales declined for the first time in five years.

Sharp's troubles only grew more intense with the onset of a severe Japanese recession in 1998 (the country's worst since World War II). Sales of Sharp's usually steady 'white goods' sector (appliances such as refrigerators, washing machines, and air conditioners) plummeted as Japanese consumers shied away from major purchases. Caught in this crunch, Sharp's profits fell another 43 percent in 1998.

Business Today
The company recorded revenues of JPY2257.2 billion (approximately $20.9 billion) during the fiscal year ended March 2004, an increase of 12.7% over 2003. The increase was primarily attributable to high sales in most business divisions of the company. The operating profit of the company during fiscal 2004 was JPY121.6 billion (approximately $1.1 billion), an increase of 22.3% over fiscal 2003. The net profit was JPY60.7 billion (approximately $0.6 billion) during fiscal year 2004, an increase of 86.3% over 2003.

But the most significant changes took place in another area of business. New president Tsuji quickly recognized the potential of LCD devices, and unflinchingly focused the company's resources on developing the technology. Tsuji committed 10 percent of Sharp's total sales revenues to research and development. With this push, Sharp soon began to add LCD screens to all its products. By the late 1980s, Sharp succeeded in producing a thin film transistor LCD--a display with impressively sharp definition that opened the door to color laptop computers and portable televisions.

As its chief competitors struggled to catch up with its advances, Sharp continued to pin its future on LCD technology. Among them are Samsung, Seiko Epson, Toshiba, Sony, Hitachi, and Matsushita. In 1995 Sharp announced that it would again increase capital investments in its electronic devices division. In particular, the company planned to pour funds into its LCD and semiconductor manufacturing operations. Sharp's goal was not merely to produce LCD screens. Rather, the company sought to place cutting-edge LCD technology at the core of the emerging multimedia field. Sharp launched a bevy of products to further this agenda, including the Mebius notebook computer, the Super High-Resolution LCD Projector, and the pen-operated infrared transmission LCD Office Station. At the same time, Sharp entered into an alliance with AT & T to jointly develop the next generation of videophone technology. In the 21st century, I envision the future will be involved with three important things--multimedia, semi-conductors, and LCDs,' Tsuji told the New Jersey Business News on January 1, 1996.

Although 65 percent of its sales are generated in Japan, Sharp has subsidiaries around the world. It established a wholly owned sales subsidiary in the United States and gradually developed a global network. It transferred labor-intensive activities overseas, establishing Production Company in Taiwan, Brazil Korea and Malaysia.

Answers of questions:
1. Why has Sharp been successful for so long?
There are many factors that support the success of Sharp as follows:
- Sharp is dedicated to two principal ideals: Sincerity and Creativity. It means that entrepreneurship and technological innovation should always be the mainstays of the company.
- Sharp has good sense of seeing the future needs of customers and investing in products that competitors do not see any profits for future.
- Sharp has a top down traditional organizational structure and long-term prosperity. A feeling of crisis also enhanced their culture of innovation. The products are functional and user friendly. Furthermore, they intentionally spend much of their income on R&D expenditures to improve their products.
- They gave importance to globalization and now operating in 18 countries. These oversees production facility were built based on mutual joint venture between Sharp and local companies. Instead of exploiting the other countries, Sharp’s willing is to prosper with them.
- They built application and implication combinations such as using LCD, flash memory and ICs to built wizard organizer as an example of seeds and needs.
- Sharp devoted much attention to production technology than its competitors. They use low cost locations for after innovation. They focused technology investment on smaller areas where they have a competitive advantage. They have long term commitment as they start investing in LCD in the sixties before the market emerges.
- They are responsive to outside inventions and ideas such as hiring outsiders and using LCD from RCA, ICs from Bell Labs.
- They differentiate in end products to make them imitated more difficult.
- Another major factor of Sharp success is its being Japanese Company. They have strong dependence upon human resources and teamwork, high mutual dependence between employers and employees, employee’s strong loyalty. As a whole, they see the company look like a family.

2. Is Sharp today an end products or a components company?
Sharp is still considered as both an end products and components company. They produce end products such as calculators, LCD televisions and household appliances and also components such as LCD panels and Integrated Circuits because they are required to acquire continuous feedback from the final customers in order to improve future products.


3. Should Sharp enter into the Intel and Apple joint venture?
It should be positive if Sharp gets involved in the joint ventures, because Intel has 85% of the flash memory market today and it is $ 130 m. market. Sharp should get flash memories from Intel to produce its own products requiring flash memories or to sell other companies. For example to build wizard organizer, the company needs flash memory and their products of LCDs, ICs and software. Also If Sharp enters into Apple Joint venture it can use these flash memories and their own LCDs to produce laptop computers and Apple software. As we know, the computer market is rapidly growing and a profitable market.

4. How is Sharp able to coordinate and integrate activities across the corporation?
Sharp Corporation has top down traditional organizational structure that is functional and make things implemented quickly. They shared responsibilities among eight manufacturing groups, five sales and marketing groups, an international business group, a corporate research and development group, and a number of central service groups. All of these groups, except the International Business Group, reported directly to the five top managers. The manufacturing groups, the International Business group, and the sales and marketing groups were profit centers, while the corporate R&D group and central service groups were cost centers. Sharp Corporation had a paternalistic relationship with its employees, and top management reinforced the view that the company was a family, or community, whose members should cooperate. Employee turnover was very low in accordance with the practice of life time employment. If a research project or a manufacturing plant closed, researchers and workers were not laid off but transferred elsewhere in the company. The reward is on fitting in consensus and coordination.

Sources:
1. Sharp Technology: Technology Strategy, Harvard Business School
2. http://www.sharp-world.com
3. http://en.wikipedia.org

*) International Technology and Management 3E (ITM) – 70674
Professor HIBARA Nobuhiko

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