Sanyo Electric
Corporate History & Strategy

Toshio Iue was the brother of Konosuke Matsushita's wife and had participated in the business from the very founding of Matsushita Electric in 1917. He held a wide range of responsibilities including sales and plant management, and was appointed Senior Managing Director when the company was incorporated in 1935. As a core senior executive during Matsushita Electric's founding period, he contributed to the company's business expansion for approximately 30 years, and Toshio Iue's presence was indispensable to Matsushita Electric's management.

Following Japan's defeat in 1945, GHQ's zaibatsu dissolution program designated Matsushita Electric as a restricted company. Toshio Iue, as a senior executive of Matsushita Electric, was also subject to the public office purge, making it difficult for him to continue business activities at the company. Iue was compelled to seek a place outside Matsushita Electric where he could leverage the management knowledge and manufacturing expertise he had accumulated over approximately 30 years.

Having been designated for the public office purge, Toshio Iue decided to become independent from Matsushita Electric. In January 1947, he founded "Sanyo Denki Seisakusho" in Moriguchi, Osaka Prefecture, and commenced manufacturing bicycle dynamo lamps at the Hojo Plant in Hyogo Prefecture, which had been transferred from Matsushita Electric. The company name "Sanyo" derives from the three oceans—the Pacific, Atlantic, and Indian—reflecting global expansion ambitions from the very founding.

The management structure comprised Toshio Iue at the helm, with his brothers Takuro Iue (Senior Managing Director) and Kaoru Iue (Managing Director). Since Matsushita Electric had already established a nationwide distribution network in the domestic market, the latecomer Sanyo Electric adopted a policy of seeking opportunities in overseas exports to avoid direct competition with Matsushita Electric. While there was no capital relationship with Matsushita Electric, some production facilities including the Hojo Plant were inherited from Matsushita.

After founding, the company concentrated on manufacturing bicycle dynamo lamps, engaging in price competition with 17 competing manufacturers in Japan at the time. By focusing on production cost reduction, the company achieved approximately 70% domestic share in dynamo lamps by 1950. Overseas, the company exported primarily to Indonesia and Taiwan from the early founding period, pursuing economies of scale through mass production by building domestic and international sales volume.

Using profits from dynamo lamps as capital for equipment investment, the company diversified into home appliances with radios in 1951 and pulsator-type washing machines in 1953. In April 1950, the company was incorporated as Sanyo Electric Co., Ltd. with paid-in capital of 20 million yen, and achieved a stock listing on the Osaka Stock Exchange in 1954. The company expanded its business domain from a specialized bicycle lamp manufacturer to a comprehensive home appliance maker with radios and washing machines as its core products.

Having secured approximately 70% domestic share in bicycle dynamo lamps, Sanyo Electric commenced radio production in 1951 as part of its business diversification. In preparation for radio mass production, the Sumido Plant was constructed in 1950, converting the site of the former Matsushita Aircraft into a production base. The domestic radio market at the time was a competitive environment crowded with small and medium-sized manufacturers, and as a latecomer, Sanyo Electric had no clear differentiating factor that would technically surpass existing manufacturers.

Sanyo Electric applied the mass production know-how cultivated in dynamo lamp manufacturing to radios, with cost reduction through economies of scale as its fundamental policy. However, with price advantages alone, there was concern about being drawn into a war of attrition with small manufacturers, and the company was compelled to achieve differentiation in product exterior and materials.

Sanyo Electric collaborated with resin manufacturer Sekisui Chemical to develop cabinets using plastic materials, which were becoming increasingly common at the time. Differentiating in both mass production suitability and appearance compared to the market's prevailing wooden cabinets, the company launched Japan's first plastic radio "Model 52" in 1952. The adoption of resin materials also contributed to reducing manufacturing costs, and by around 1953, radios had grown into the main business after bicycle lamps.

Furthermore, in 1957, a technology alliance was signed with U.S. Western Electric, achieving late entry into the transistor radio market where Sony had led the way. While Sony had developed the North American market under its own brand, Sanyo Electric chose to expand transistor radio exports through OEM supply to U.S. customers. The approach of entering new fields by leveraging external alliances rather than proprietary technology became a recurring pattern in Sanyo Electric's subsequent business development.

Having built its business foundation on bicycle lamps and radios, Sanyo Electric decided to enter the washing machine market as its next product. Hand washing was the norm in Japan at the time, and founder Toshio Iue judged that demand for washing machines that could reduce housewives' labor hours would rapidly increase. Starting in 1952, the company began investigating by disassembling washing machines from both domestic and overseas manufacturers, designating the Shiga Plant (constructed in 1950) as the development base.

After approximately one year of development and an investment of tens of millions of yen in development costs, the company successfully prototyped a round agitator-type washing machine in January 1953. However, during the development process, it became apparent that the rectangular pulsator-type washing machine developed by UK-based Hoover was easier to install in Japan's small living spaces, and its mechanism of removing dirt through swirling water currents was also better suited to Japan's washing environment.

While competing domestic manufacturers refrained from the pulsator type out of fear of infringing Hoover's patents, Sanyo Electric's engineers determined that the pulsator technology was publicly known and would not constitute a valid patent in Japan. Based on this technical assessment, Toshio Iue decided to abandon the round agitator-type development in which tens of millions of yen had already been invested and execute a complete policy reversal to the rectangular pulsator type.

In June 1953, the company completed Japan's first pulsator-type washing machine and commenced sales in August of the same year. The product was priced at 28,000 yen—approximately half the price of competitors' agitator-type washing machines—intending to penetrate the market through low pricing. Rapidly ramping up mass production at the Shiga Plant, production was scaled from approximately 30 units per month in July 1953 to approximately 2,000 units per month by December of the same year, and approximately 10,000 units per month by August 1954.

Sanyo Electric's pulsator-type washing machines spread rapidly due to their low price and ease of use, and by 1961 the company secured the No. 1 position in domestic washing machine production share. However, as Matsushita Electric and other companies followed suit and entered the pulsator segment, Sanyo Electric's share was limited to approximately 20%, and the company was drawn into fierce sales competition.

Sanyo Electric's introduction of the pulsator type caused agitator-type washing machines to virtually disappear from the market, and the standard specification for washing machines in Japan was established as the pulsator type. Despite being a latecomer, the combination of patent risk assessment and speed of mass production investment that effectively determined the market standard marked a turning point that established Sanyo Electric's position as a home appliance manufacturer.

While Sanyo Electric focused on reducing production costs through measures such as introducing conveyor belts to maximize factory utilization rates, factory employee management was neglected. "Orera wa Koko ni Tatsu" (Here We Stand), published by the Sanyo Electric labor union in 1960, describes conditions including forcing ill employees to come to work, dissatisfaction with low wages, and habitual shouting by plant managers. While the veracity of the content is difficult to verify, it is fair to say that relations between management and the production floor were far from amicable.

Throughout the 1950s, labor-management conflict intensified, and in 1958 employees formed a labor union and abandoned factory work. The lost sales opportunity amounted to 3 billion yen with direct damages reaching approximately 1 billion yen, causing the most severe management crisis since Sanyo Electric's founding. The cost of rushing business expansion manifested in the collapse of labor-management relations.

The Sanyo founding family gave up on expanding production in the Kansai region and in 1959 established Tokyo Sanyo Electric as a separate legal entity. A new Tokyo Plant was constructed at the former Nakajima Aircraft site in Oizumi-machi, Gunma Prefecture, taking advantage of the approximately 30% lower wages compared to Kansai. Since Sanyo Electric had agreed with the labor union on the principle of nationwide uniform wages, separating the legal entity was necessary to achieve labor cost reduction.

Founder Toshio Iue reflected on having been too hasty in expanding the business scale and announced a new management policy in 1961. A prolonged factory lockout implemented during that year disrupted solidarity within the labor union, and radical activities gradually subsided. This labor dispute left lasting effects on the configuration of Sanyo Electric's production bases and management structure.

As demand for the so-called Three Sacred Treasures—black-and-white television, washing machines, and refrigerators—plateaued, combined with the securities recession of 1965, Sanyo Electric's sales growth stagnated. With the maturation of the home appliance market, Sanyo Electric was pressed to develop the next growth product. Color television was a product expected to see full-scale adoption in the latter half of the 1960s, and Sanyo Electric decided on concentrated investment in color television centered on exports to the North American market.

Half-year revenue expanded approximately threefold in 4 years, from 35.4 billion yen in the November 1965 period to 112.6 billion yen in the November 1969 period, with color television exports to North America driving Sanyo Electric's performance. In 1970, the Gifu Plant was constructed as a mass production factory for color televisions, establishing a production capacity of 20,000 units per month at full operation and positioning the facility as a dedicated base for North American exports.

Not only Sanyo Electric but also Matsushita Electric, Toshiba, Sony, Hitachi, and Sharp competed in color television exports to North America, and throughout the 1970s, U.S.-Japan trade friction intensified. As the issue escalated into a Japanese color television dumping problem, Sanyo Electric was forced to cut color television production by 30%.

The limits of the business model of producing in Japan and exporting to North America became clear, and it was demonstrated that local production was inevitable for continued business in the North American market. The experience of this trade friction became the direct trigger for Sanyo Electric's acquisition of U.S. Warwick in 1976 and its decision to commence local production in North America.

From 1968 onward, Japanese home appliance companies including Sanyo Electric, Matsushita Electric, Toshiba, and Sony competed in color television exports to North America, and U.S.-Japan trade friction intensified. As the issue escalated into a dumping problem, Sanyo Electric was forced to cut color television production by 30%, and the business model of domestic production for North American export was reaching its limits. Breaking free from export dependency became an urgent management priority for Sanyo Electric.

Around 1974, Sanyo Electric President Kaoru Iue began examining local production in North America. Simultaneously, Sears—a major U.S. retailer and key customer—approached Sanyo Electric about restructuring Warwick, a joint venture subsidiary with Whirlpool. Warwick had been posting losses due to declining color television productivity, and its workforce had shrunk from a peak of 2,500 to 400 before the acquisition.

For Sanyo Electric, Sears was the largest business partner to which the company supplied the bulk of its North American television shipments, and simply rejecting Warwick's restructuring request would have meant severing this business relationship. Initially, the company envisioned cooperation in the form of technical assistance, but during negotiations led by Senior Managing Director Satoshi Iue, who was given full authority by President Kaoru Iue, the approach evolved into a full-scale acquisition through an asset purchase method.

In September 1976, Sanyo Manufacturing Corporation (SMC) was established as a local subsidiary, and in December of the same year, SMC acquired Warwick at an acquisition price of $10.32 million (3.17 billion yen). The post-acquisition ownership structure comprised Sanyo Electric at 57% and Sears at 25%, with Whirlpool withdrawing but Sears continuing to invest in the joint venture.

Local production of color televisions commenced at the Arkansas plant in January 1977. The televisions produced were primarily supplied as OEM under the Sears brand, with some also sold under Sanyo Electric's own brand. By 1980, a production system of 80,000 units per month and 960,000 units per year had been established, surpassing Matsushita Electric's 700,000-800,000 units per year and Sony's 500,000-600,000 units per year to achieve the top position among Japanese companies in North American local production.

On the management front, SMC had achieved profitability by 1980, realizing the turnaround of Warwick. The workforce grew from 400 at the time of acquisition to 1,800, and in October 1977 the Governor of Arkansas awarded SMC a commendation for contributing to local employment expansion. When Sears indicated its intention to withdraw in the 1980s, the Governor introduced Walmart to Sanyo Electric as a new business partner, providing comprehensive state government support for the business.

In the late 1980s, the home appliance market faced maturation and intensifying price competition, making it difficult to expand revenue through traditional AV equipment and white goods alone. Sanyo Electric identified the rechargeable battery business as a field combining growth potential and profitability, and from around 1990 began aggressively expanding capital investment centered on its Soft Energy Business Division. Nikkei Business (August 3, 1992 issue) reported that the battery business was growing into Sanyo Electric's "profit pillar."

With the limits of the traditional revenue structure as a home appliance manufacturer becoming apparent, the spread of mobile phones and notebook computers was expected to drive demand expansion for lithium-ion and nickel-metal hydride batteries. Rechargeable batteries were a field where Sanyo Electric had accumulated technical expertise, and the decision was made to concentrate management resources.

Centered on the Sumoto Plant on Awaji Island, Sanyo Electric invested a cumulative 66 billion yen over several years to expand production capacity and develop dedicated facilities. In FY1991, the battery business secured 8 to 10 billion yen in profit, growing to account for approximately 80% of total company profit. As the earning power of the home appliance business declined, the concentrated investment in rechargeable batteries became a turning point that shifted Sanyo Electric's revenue structure toward a battery-centric model.

However, the structure of depending on a single business domain for the majority of total company profit also carried inherent management risk. Competitors such as Sony and Panasonic were also expanding investment in the rechargeable battery market, and further capital investment and continued R&D were essential for Sanyo Electric to maintain its technical advantage.

From around 2002, the competitive environment surrounding Sanyo Electric's core businesses deteriorated simultaneously across the board. Sharp and Korean manufacturers in LCDs, Sony and Panasonic in rechargeable batteries, Chinese manufacturers in white goods, and fierce price declines across digital cameras by various companies—Sanyo Electric's businesses across the board reached an impasse. All of these were businesses requiring massive capital investment, and with management resources dispersed across all fronts, Sanyo Electric found itself at a competitive disadvantage in each business.

In LCD alone, despite investing a total of 200 billion yen, the company was outcompeted by Sharp and Korean players, making investment recovery difficult. Additionally, since these capital investments had been financed through bank borrowings, the financial situation deteriorated rapidly, and the equity ratio fell to 11% in FY2004.

In FY2005, Sanyo Electric recorded a net loss of 205.6 billion yen. The main components of the 303.9 billion yen in extraordinary losses were: investment securities valuation losses of 149.8 billion yen, restructuring costs of 82.5 billion yen, impairment losses of 42.1 billion yen (of which 27.2 billion yen was for the semiconductor business), allowance for affiliated company losses of 17.5 billion yen, and fixed asset disposal losses of 5.3 billion yen.

These loss recordings caused the equity ratio to fall to 18.7%. The auditing firm, comprehensively considering Sanyo Electric's management risks, added a "note regarding the going concern assumption" to the securities report. The structural factor behind Sanyo Electric's financial crisis was the inability to establish competitive advantage in any business despite spreading investments across all fronts.