Sanyo Electric - Company History

Leaving Matsushita after the purge, and a start in bicycle lamps

Iue Toshio (井植歳男) was the younger brother of Matsushita Konosuke's wife, and from the founding of Matsushita Electric in 1917 he served for some thirty years as its executive vice-president[1]. When the dissolution of the zaibatsu by the Allied occupation's General Headquarters made him a target of the purge from public office[2], he decided to go independent of Matsushita Electric. In January 1947 he founded Sanyo Electric Works as a sole proprietorship at Moriguchi in Osaka Prefecture[3], and began making dynamo lamps and portable lamps for bicycles at the Hojo plant in Hyogo Prefecture, which Matsushita had passed to him[4]. The name Sanyo — "three oceans" — likened the firm to the Pacific, the Atlantic and the Indian Ocean[5], a christening that already had overseas markets in view. Of his motive for going independent Iue said: after the war I knew that the work we were in had a promising future, but the more important thing was that the army and navy were gone, and there was no way to restore and build up Japan's national strength other than to revive industry[6]. The management creed he set out was to spread the risks of management against changes in circumstances, and make the business more stable[7].

Although it came in late, as the seventeenth lamp maker in the country, it carried over the volume-production methods learned at Matsushita Electric, and by 1950 it held about 70% of the domestic market for bicycle lamps[8]. In April that year the business was incorporated with capital of $55,556 (¥20m)[9], and in April 1954 its shares were listed on the Osaka Stock Exchange, followed that December by the Tokyo Stock Exchange[10]. At home it set out early on a policy of avoiding a head-on contest with his brother-in-law's Matsushita Electric and seeking a way through in exports[11]. From 1949 it began exporting dynamo lamps to South-East Asia, and within a few years its export destinations had spread across the world[12]. The policy of not competing with the family firm became, paradoxically, the soil in which its overseas orientation grew[13]. In Iue's words — the coming of an age when we can sell a housewife an electric washing machine for about $69 (¥25,000) a unit, to release her from the heavy labour of housework[14] — the outline of a product philosophy different from Matsushita's is already visible.

The jet-stream washing machine, and the turn into a full-line appliance maker

In 1951 it began producing radios[15], and the following year, together with Sekisui Chemical, launched the SF-52, the first plastic-cased radio made in Japan[16]. Radios then carried a commodity tax of 30%, and amateur-assembled sets, cheaper by exactly that tax, circulated in the market[17]. Sanyo met them with the quality and price that volume production allowed, putting out in 1952 a plastic-cabinet radio priced under $28 (¥10,000)[18]. In 1953 it decided to enter the washing-machine business[19], spending about a year of development and several tens of millions of yen to succeed with an agitator-type prototype — then changed direction, judging that the jet-stream type of Hoover of Britain suited Japan's cramped living conditions better[20]. While rival makers hesitated to enter for fear of patent risk, Sanyo concluded that the jet-stream patent would not stand in Japan and committed to volume production[21].

In August 1953 it launched Japan's first jet-stream washing machine at $78 (¥28,000), about half the price of competing models[22]. From a start of thirty units a month it expanded to ten thousand a month in a little over a year[23], and by 1961 it held first place in domestic washing-machine output. Iue Toshio said that the appearance of this jet-stream washing machine released women from the labour of the housewife[24], looking back on how his own product had changed the shape of housework in postwar Japan. Even in 1958 he was saying home electrification has only just started; the flowering is still to come[25], taking a bullish view of how much room appliances still had to spread. Having pushed its main product up into the market's standard specification within six years of founding[26], it carried that experience forward as an appetite for investing in new fields.

From radios to washers and fans: a rapid widening of the product range

With radios and washing machines as a foothold, the company widened its range of appliances[27]. In 1953 it also began producing televisions and mixers, and in later years that year came to be called the first year of electrification[28]. Sites to support the volume went up one after another: the Suminodo plant (住道工場) in September 1950, the Shiga plant that December, and the Yodogawa plant in April 1957[29]. Alongside the head-office works at Moriguchi it placed production across the Kansai region and passed the effect of volume through into product prices. In every product it avoided direct competition with Matsushita Electric, taking its own body of customers through price and through ingenuity in distribution[30]. The way it chose fields where its own strengths could work, on the premise of dividing the ground with his brother-in-law's company, was carried on into the later expansion into televisions and air conditioning[31].

By the middle of the 1950s domestic production of washing machines and refrigerators had run its first course, and the so-called three sacred treasures were beginning to spread into ordinary households[32]. With the peak of that demand approaching, the company began preparing to move its main effort to video equipment as the next area of growth[33]. In 1958 Iue Toshio said our company keeps raising output of televisions, radios, fans and the rest, and still every one of them is out of stock[34], disclosing that production could not catch up with orders. Some fifteen years after the founding in Osaka, at the point where it held a provisionally finished form as an appliance maker, it was already laying in the next pillar — a two-stage stance that shows itself in this period[35]. Success with washing machines drew on the next challenge, and the groundwork went forward ahead of a full entry into video equipment[36].

Colour-television exports to North America, and trade friction in earnest

By the early 1960s demand for the three sacred treasures had run through one cycle, and with the securities recession of 1965 on top of that, growth in domestic sales stopped[37]. The company sought a way out in exporting colour televisions to North America, and half-year revenue grew roughly threefold in four years, from the order of $97.2M (¥35bn) in 1965 to the order of $305.6M (¥110bn) in 1969. In April 1969 it built the Gifu plant as a volume site for colour televisions, intending a system of 20,000 sets a month[38], but the start-up ran late. Iue Kaoru (井植薫) looked back: completion of the new Gifu plant was delayed by about a year through the trouble over acquiring the land. Because of that we could not ride the boom in large colour sets[39]. When Japan's appliance makers all rushed the North American market at once, the trade friction developed into an anti-dumping issue, and the company accepted a cut of about 30% in output under intervention by the United States authorities. The export-heavy model and the lateness of its domestic capital spending surfaced at the same moment[40].

In 1958 a strike had cost it $8.3M (¥3bn) in lost sales opportunity and about $2.8M (¥1bn) in direct damage, the heaviest blow since the founding[41]. Reflecting that rapid growth had left the management of the plant workforce thin, it established Tokyo Sanyo Electric as a separate company in July 1959[42]. It chose the site of the former Nakajima Aircraft works at Oizumi in Gunma Prefecture because labour costs there were expected to be about 30% lower than in Kansai[43]. In July 1969 the founder Iue Toshio died[44], and from then on the structure of family management by the Iue house was carried on. By 1977 the verdict was that its share price falls far short of Matsushita Electric or Sony, of course, and also well below Sharp and the rest. Sales are growing, but there is no decisive hit product[45] — growth in the scale of revenue and weakness of brand running side by side.

Local production in North America in earnest, and a European base

As the deepening trade friction exposed the limits of a model relying on exports alone, Sears, its largest customer, approached it about rebuilding their joint subsidiary Warwick Electronics[46]. To refuse was to risk losing its largest channel, and an involvement intended as technical support grew into an outright purchase of assets[47]. In September 1976 it established Sanyo Manufacturing Corporation[48], acquired Warwick for a little over $10.6M (¥3bn)[49], and began local production of colour televisions in Arkansas. By 1980 it reached 960,000 sets a year, exceeding Matsushita Electric and Sony and making it the largest local production in North America by any Japanese company[50]. In 1981 Iue Kaoru said we will set this year's planned overseas production at $1.7bn, roughly 20% above the previous year; if the yen keeps rising we will strengthen overseas production further and work to maintain and improve margins[51], showing a readiness to raise the share of production abroad in step with the exchange rate.

The workforce of 400 at the time of the acquisition eventually grew to 1,800, and the company received a commendation from the governor of Arkansas[52]. On the back of OEM supply under the Sears brand it moved into the black, succeeding in the rebuilding of a Warwick that had been on the edge of collapse[53]. In February 1982 it acquired the British television plant of Philips of the United Kingdom[54], starting local production in Europe after North America. It also went into China early, and Iue Kaoru said this will be the first genuine manufacturing company among Japanese-Chinese joint ventures[55]. By 1984 it held seventeen China projects in all, including a plant export and technical assistance contract for refrigerators with the city of Shanghai and two joint ventures in Guangdong Province for air conditioners and colour televisions[56].

Diversifying the product range as family rule settled in

With local production in North America as a foothold, at home from the late 1970s into the early 1980s it widened into air conditioning, kitchen appliances, audio equipment and information equipment[57]. The centre of management continued to be held by the founding family, the presidency passing between brothers from the first, Iue Toshio, to the next brother Iue Yuro (井植祐郎) and then to the third, Iue Kaoru. Revenue reached $4.2B (¥1tn) during Kaoru's tenure, but he stepped down in 1985 taking responsibility for an accident with a kerosene fan heater and the recall that followed, and Iue Satoshi (井植敏), Toshio's eldest son, took over at the age of fifty-four. The structure in which the founding family kept hold of management supported nimble investment decisions while also forming the ground on which responsibility could be left unclear. Asked what he intended in China, Iue Kaoru said if they lend us a wide piece of land, we pay the rent for it, till it, then sow the seed, put on fertiliser, raise it, and after that it is fine to harvest[58], setting himself on the premise of putting down roots locally over a long period.

In the same period the technology that would become the mainstay in later years was growing in the laboratory[59]. Kuwano Yukinori (桑野幸徳), who joined in 1963 after graduating from the science faculty of Kumamoto University, took up research on amorphous semiconductors at the Central Research Laboratory established that same year[60], and for more than ten years it did not reach commercial use[61]. In December 1975, when Kuwano proposed abandoning the research, the director of the laboratory, Yamano Dai (山野大), told him we are not stopping, Kuwano, and urged him to look again at amorphous material as an energy material rather than an electronic component[62]. The small group of five in all[63] devised an "integrated" design that united the individual solar cells on an insulating substrate and connected them in series without wires, and Sanyo Electric took out the patent on it[64]. After announcing the world's first practical application in February 1979[65], it broke through the barrier of yield with a continuous separated process forming the p-, i- and n-type layers in separate reaction chambers, and entered volume production in May 1980[66].

Concentrated investment in rechargeable batteries, and internal spin-offs

In December 1986 it absorbed Tokyo Sanyo Electric[67], unifying its structure in Japan. The battery business the founding family had raised on its home island of Awaji, a quarter of a century on from the first domestic volume production of nickel-cadmium cells in 1964[68], now entered the stage of being placed at the centre of the whole company. As the market for rechargeable batteries widened with laptop computers and cordless mobile telephones, around 1990 the company under Iue Satoshi settled on it as the most promising growth field and committed to concentrated investment[69]. Following nickel-cadmium, its mainstay, it entered volume production of next-generation nickel-metal-hydride cells as well, and by 1992 batteries earned the greater part of operating profit for the company as a whole[70]. The nimbleness of a late entrant, and the speed of decision that family management allowed, made that concentration possible[71].

The scale of the investment shows in the medium-term plan: the five-year plan for the years 1991 to 1995 set out $490.7M (¥66bn) for the battery business, and the figure of a little over $74.3M (¥10bn) a year amounted to about 20% of capital spending across the company[72]. The division set a target of raising its revenue to $1.6B (¥150bn) in the year to March 1996[73]. In April 1992 it started up a plant at Matsushige in Tokushima Prefecture dedicated to nickel-metal-hydride cells, the largest in the industry, at a cost of about $71.1M (¥9bn), and took first place in the industry with a system for three million cells a month[74]. This concentrated investment lay on the line of a strategy of narrowing to nickel-cadmium rather than becoming a full-line maker including dry cells, and of holding the advantage of going first[75].

In 1992 it introduced an internal spin-off system, entrusting the framing of new businesses to each division[76], and started volume production of semiconductors at Niigata Sanyo Electric in July 1996 and of liquid-crystal panels at Tottori Sanyo Electric that December[77]. In June 1998 it entered digital cameras in earnest[78], extending its hand to digital businesses that went beyond appliances. None of these products relied on the strength of the Sanyo brand: they grew as components — batteries, semiconductors — or as OEM supply riding on other companies' products. A revenue structure that earned from components and contract manufacturing, taking the weakness of its own brand as a given, took shape in this period.

Reform under a president from outside the family, and big bets that missed

In June 1998, for the first time since the founding, a president came from outside the founding family. He was Kondo Sadao (近藤定男), who had come up through the semiconductor business of Tokyo Sanyo Electric, a side stream, and who counted as the sixth president from the first. He was the man who had led the decision to shift semiconductor production early from DRAM to consumer equipment, and he said there is a way of forcing through the fall in DRAM prices with the merits of scale, but I do not care for it (Shukan Toyo Keizai, 11 Jul 1998). He introduced an internal company system, an executive-officer system and annual salaries in quick succession, taking a hand to a corporate culture mocked as "a placid crowd". Into a business structure whose mainstay had been low-priced appliances he planted the earnings sources of core devices — rechargeable batteries and semiconductors.

That reform, however, lasted only two years. Household solar power systems produced by the subsidiary Sanyo Solar Industries between November 1996 and March 1998 had a defect of insufficient output, and in 2000 it came to light that the company had known this and had sold them with the performance misrepresented. Kondo resigned, saying I take responsibility for the fact that an act which should never occur at a manufacturer has occurred (Shukan Toyo Keizai, 4 Nov 2000). He was succeeded by Kuwano Yukinori, who in 1980 had been the first in the world to bring an amorphous solar cell into practical use. Kuwano said the solar cell is as good as my own child. I cannot bear that Sanyo Electric should be hurt by it (Shukan Toyo Keizai, 10 Mar 2001), taking the affair as a problem rooted in Sanyo's own constitution.

The large bet on liquid crystal also ended in a miss. In January 2000 it announced a plan to set up a panel plant at Tottori Sanyo Electric with total investment of $835.3M (¥90bn), but the year after completion the IT bubble burst, and with increased output from Korean and Taiwanese makers panel prices fell to less than half. Tottori Sanyo fell into the first loss since its establishment in the year to March 2002 and was driven into the first voluntary redundancy programme in the Sanyo group. In October 2004, a mere two and a half years after start-up, it gave up continuing in liquid crystal on its own and moved the business into a joint venture with Seiko Epson[79]. In December 2001 it entered organic EL through a joint venture with Eastman Kodak of the United States and put in $263.3M (¥32bn), but the volume-production technology never settled and it ended in a loss of the same order. Of the alliance with Haier of China in January 2002, Iue Satoshi said the offensive of overseas makers is about to intensify sharply even in the low-price segment (Nikkei, 9 Jan 2002).

Financial crisis, the family's exit, and absorption by Panasonic

In October 2004 the Chuetsu earthquake in Niigata Prefecture damaged its main semiconductor plant, and this coincided with a slowdown in digital cameras, a pillar of earnings, and with worsening margins in rechargeable batteries as raw-material prices rose. In the year to March 2005 it booked a net loss of $1.6B (¥172bn) and was driven into the first full-year dividend suspension since its founding[80]. The body of the injury, however, did not lie in the external environment: shareholders' equity had shrunk to $2.7B (¥288bn), a third of its peak, and the ratio had fallen to 11%. Over the fourteen years from the year to March 1991 to the year to March 2004 cumulative net profit came to just under $690.1M (¥80bn), while dividends reached about $1.4B (¥160bn) — investment and payout alike had run slack.

In April 2005 it installed the journalist Nonaka Tomoyo (野中ともよ) as chairman and chief executive, and in June that year Iue Toshimasa (井植敏雅) as president, an unusual line-up. The rebuilding plan published on 5 July that year set out cutting 14,000 people, 15% of all group employees, closing or selling 20% of domestic plants, and reducing interest-bearing debt by $5.4B (¥600bn); that December it carried out a third-party allotment totalling $2.7B (¥300bn) to Sumitomo Mitsui Banking Corporation, Goldman Sachs and Daiwa Securities SMBC[81]. Even so, in the year to March 2006 it booked extraordinary losses of $2.8B (¥304bn) and a net loss of $1.9B (¥206bn), and its finances were driven to the point where a note was attached that there was doubt about its ability to continue as a going concern[82]. The capital raising kept it from failing, but the price was that the three financial firms held more than 60% of the voting rights and a majority of the board.

In February 2007 suspicion surfaced that it had understated valuation losses on subsidiary shares in past accounts, and it voluntarily restated four years of unconsolidated results going back to the year ended March 2001. Nonaka submitted her resignation on 19 March, and Iue Toshimasa also resigned with effect from 2 April; Sano Seiichiro (佐野精一郎) took over. The Iue name disappeared from both the presidency and the chairmanship, and sixty years of hereditary management came down. After transferring the mobile-telephone business to Kyocera in April 2008[83], the company became a consolidated subsidiary of Panasonic through a tender offer in December 2009, was delisted in March 2011 and made a wholly owned subsidiary that April[84]. By 2013 the business functions behind a peak revenue of ¥2tn had been dismantled and nine-tenths of the workforce cut away. White goods went to Haier, and the lithium-ion battery technology that had started on Awaji Island was carried on into Panasonic's supply business for Tesla in the United States. A person connected to the Iue family looked back: we knew nothing at all about Haier[85].