Sansui Electric — Company History

A founding in transformer manufacture under wartime conditions

In December 1944 Kikuchi Kosaku (菊池幸作) founded Sansui Electric Works (山水電気製作所) in Shibuya, Tokyo, and began producing transformers. A transformer is the component that changes voltage, and at that time it was indispensable to communications equipment and measuring instruments. The company set out as a small back-street workshop making parts tied to military demand, in a Tokyo that stood on the very brink of full-scale air raids. In June 1947, two years after the end of the war, the works was reorganised and Sansui Electric Co., Ltd. was established. Its capital was no more than ¥180,000. Set against the reconstruction funds that large enterprises were receiving from the government in that same year, it was a start that bore no comparison in the scale of its capital. What the company possessed was nothing but skill in the design and working of windings and magnetic circuits.

In August 1954 Sansui Electric began production of stereo amplifiers. It was a decision to move from component maker to maker of finished goods. There was nothing forced about the transition. What governs the sound quality of a valve amplifier is the output transformer, and the winding technique the company had accumulated over ten years could be placed unchanged at the core of the product. In July of the following year, 1955, it also entered production of transformers for transistors, giving itself a footing in both valves and semiconductors. Lifting technology cultivated in components up into finished goods was a path that Japan's postwar electrical manufacturers followed again and again. In Sansui's case, however, the company went on afterwards concentrating its technical resources on the single product field of the amplifier, and in that it advanced differently from the general electrical firms.

The strengthening of production plant and participation in the capital market followed one upon the other. In March 1957 the head office moved to 2-chome Izumi, Suginami-ku, Tokyo, and in July 1959 the Musashi plant was newly built. In April 1960 the company absorbed Sansui Onken (山水音研) and made it the Mitaka plant. In December 1961 its shares were listed on the second section of the Tokyo Stock Exchange. Seventeen years had passed since the founding, and only seven since the start of amplifier production. In April of the following year, 1962, it began selling separate stereo. This was a way of selling in which amplifier, tuner and speaker were combined in separate cabinets, and it presupposed a market in which the buyer chose the equipment for himself. This conception of the product became the foundation of the later management concentrated on premium machines.

The swelling of exports and a place among the big three of audio

In October 1966 the company established Sansui Electronics Corporation in the United States. It placed a sales company in an export destination ahead of the domestic market. From the late 1960s into the 1970s Japanese consumer electronics greatly expanded their exports, centred on colour televisions and stereo equipment for the United States. The history of Japanese industry records this period as the result of developing, in fine detail, goods suited to overseas markets. In Sansui Electric's case the export ratio was particularly high, and the reference works record that more than 90 per cent of its products were sold outside Japan. This was not a company that made its name at home and then went abroad; it rode overseas demand from the very beginning. So long as the yen was cheap, this structure worked as a strength.

It created sales and manufacturing companies one after another and raised its standing in the capital market as well. In April 1965 it established Sansui Trans (サンスイ・トランス), and in March 1967 Sansui Onkyo (サンスイ音響) and Sansui Stereo (サンスイ・ステレオ). In May 1968 it listed on the second section of the Osaka Securities Exchange, and in the same month merged Sansui Trans and Sansui Onkyo into Sansui Acoustics (山水音響). Then in March 1970 it listed on the first sections of both the Tokyo Stock Exchange and the Osaka Securities Exchange. In March 1972 it absorbed Sansui Acoustics and Sansui Stereo, turning them into the Fukushima works and the Nagano works respectively. Companies that had been set up separately were brought back into the parent within about ten years and recast as a directly operated production system.

In the Japanese audio market of the 1970s, Trio in tuners, Sansui Electric in amplifiers and Pioneer in speakers were called the big three of audio. All three had grown as specialists in acoustic equipment rather than as one division of a general electrical firm, and the substance of the nickname lay in the fact that each was strong in a different kind of machine. An analytical article on Trio carried by the Securities Analysts Journal in 1975 gives, as an example of how equipment was then sold, the combination of our amplifier, Pioneer's speakers and Sansui's player. That a market really existed in which buyers freely combined the products of the specialist firms is borne out by material from a competitor.

The reputation of the Sansui sound and the peak of turnover

Sansui Electric's turnover reached its peak at $221.2M (¥53bn) in the year to October 1984. This was the period in which, with the integrated amplifier as its mainstay, the company earned the name — used inside the firm and outside it alike — of the Sansui sound. Management that gathered resources into premium machines made sense under the conditions of the time. In a market where buyers chose their equipment one unit at a time, sound quality itself determined the value of the goods, and continuing to keep the engineers of a specialist maker on the payroll translated directly into a difference in the product. Against the general electrical firms, which handled audio as one item in a line of household appliances, the pattern of a company making nothing but acoustic equipment holding its presence in the upper models held good at least throughout the 1970s.

This concentration had its price, however. Looking back in 1992, the former president Inamiya Tatsuya (稲宮達也) said that three conditions for the company's decline had all been present together. First, the management clung to audio alone and never put a hand to diversification. Second, the engineers were weighted towards specialists in audio and could not keep up with advanced technology. Third, the morale of the employees had fallen. Inamiya spoke of this not as the negligence of individuals but as a problem in the make of the company. Indeed, the general electrical firms that in the same period held acoustics as one part of their business were directing people and money towards video and computers. The strength of narrowing down to a single field works only while demand in that field is growing.

The rising yen, a late arrival in the popular price range, and negative net worth

One year after the peak in turnover the company went into the red. From the year to October 1985 it recorded recurring losses, and turnover thereafter fell to less than half. The height of the export ratio became, just as it stood, the width of the swing in profit and loss. With the rising yen that followed the Plaza Accord of September 1985, the yen value of the money received abroad shrank while the wages and component costs paid at home did not change. In June 1985 the Koriyama plant was separated from the Fukushima works and set up as the Koriyama logistics centre, and in August 1986 the Fukushima and Shizuoka production works and the Koriyama logistics centre were turned into subsidiaries, establishing the three companies Fukushima Sansui, Shizuoka Sansui and Sansui Logistics Service. A reorganisation that cut production and logistics away from the parent was at the centre of the response in this period.

On the product side too the company failed to hold the price range where the goods sold. In 1990 Kawachi Yasuo (河内八洲男), general manager of marketing in the domestic sales division, described what had gone before in these words: we had a strange sort of pride, and on top of that we were weak at achieving cost reductions, so in the end we could only make premium goods. The company could not place a product among the mini component systems around the popular standard price of $829 (¥120,000), and so fell outside the main battleground of the market. Under Ito Ryosuke (伊藤瞭介), who became president in February 1986, the company kept its reputation in premium machines while lacking anything in the price range that sold in volume. The height of the technology and the viability of the business were separate questions, and the state of winning on sound quality while losing on units continued.

In the year to October 1988 the company fell into negative net worth. In the year to October 1989 it recorded turnover of $160.2M (¥22bn) against an operating loss of $31.2M (¥4bn) and an after-tax loss of $46.4M (¥6bn), and the accumulated deficit swelled further. Compared with the peak year to October 1984, turnover stood at only about 40 per cent of that level. During this time the lead underwriter, Daiwa Securities, spent some two years looking for a partner, and the names of more than twenty companies — Kyocera, Toshiba, Pioneer, Kenwood, Samsung Electronics of South Korea and others — were canvassed as possible buyers. Ito acknowledged that it is a fact that we negotiated with several companies. The approach was made to the principal companies in Japan, but none of it came together.

A listed company passing into foreign ownership, and the theory that MITI staged it

On 27 October 1989, at a hotel in Kabutocho, Tokyo, the capital tie-up between Sansui Electric and Polly Peck International (PPI) of Britain was announced. More than a hundred journalists from Japan and abroad, among them the Wall Street Journal of the United States, crowded into the press conference. PPI took up a third-party allotment of new shares and secured 51 per cent of the stock. The sum invested was $113.1M (¥16bn). It came at a time when the closed character of Japan's capital market was being called into question in the Structural Impediments Initiative, and when Sony's purchase of Columbia Pictures of the United States was provoking argument, and it drew attention as a rare instance of a foreign company taking a listed Japanese company under its wing. PPI's chairman Asil Nadir (アシル・ナディア) said at the conference that the myth that Japan's capital market is not open to foreign companies has now collapsed.

The view that the government's intentions had been at work in this tie-up clung to it. Nikkei Business conveyed the opinion of a senior figure at a major securities house that the Ministry of International Trade and Industry, wanting material with which to deflect criticism over investment friction, had joined with banks and securities companies to engineer the acquisition. On the day the tie-up was announced the information leaked in advance, and because morning television reported even the date and the amount of the share issue, the schedule of signing at two in the afternoon and announcing at half past three was brought forward to a signing at half past seven in the morning — as Ito himself disclosed. The evening papers carried a statement from the Minister of International Trade and Industry welcoming the tie-up of a single private company. The truth of it cannot be verified. But that a passage into foreign ownership was convenient material for the government of the day was acknowledged by several of those involved.

Views differed as to PPI's aim. Chairman Nadir gave the brand power of Sansui Electric as the greatest advantage of the acquisition. On the other hand there was a view that what PPI was after was the manufacturing licence for VHS video that Sansui Electric had obtained from Japan Victor in June 1984. PPI had applied to Victor directly for a licence and been refused, and the reading was that it had chosen the road of entering indirectly by way of Sansui Electric. There were voices in the audio industry, further, that held the aim to be the gain on a rise in the share price. Sansui shares had climbed steeply from the middle of August 1989, and on 1 September they were bid limit-up on a turnover of 2.47 million shares. The company denied the resale theory, explaining that it had made a contract under which the new shares would be held in custody by the lead underwriter, Daiwa Securities.

A rebuilding led by a former Toshiba executive, and its interruption

The man who bore the rebuilding came from outside. Inamiya Tatsuya had served at Toshiba as general manager of the division overseeing televisions, video and audio, and had directed the first mass production of colour televisions in the industry. He left Toshiba in 1981 to found Attain Kaihatsu (アテイン開発), a designer of audio-visual equipment, took up the post of vice-president of Sansui Electric in December 1989 and became president in June 1990. The man who approached him was Huang Shih-hung (黄士弘), president of Capetronic (ケープトロニック) of Taiwan, a maker of computer components under PPI, with whom he had been associated since his days as a division head at Toshiba. After taking office Inamiya widened the differences in pay according to results, changing the system so that a gap of more than twofold could open between men who had joined in the same year. He also repeated instruction in quality control on the shop floor, cut off the causes of the defect handling that had taken up 70 per cent of the work of the sales side, and brought the rate of defects down to about a quarter.

The rebuilding of the business went forward in two directions. In July 1990 the company acquired and integrated both the Capetronic and the Imperial groups under PPI, widening its bases for production and sales overseas. On 13 September of the same year it held a launch of new products in Harajuku, showing twenty models including mini component systems and for the first time placing goods in the popular price range. The other pillar was entry into video recorders. The manufacturing licence Sansui Electric held, however, lay dormant and unused, and there was not a single engineer for it. Some fifteen people were gathered and set to learn, and shipment to the United States was managed by the summer of 1990; but the manufacturing cost quoted by the Taiwanese side was high, and the sales side put a popular machine whose going rate was 220 dollars on the market at 320 dollars. The Japanese side had no say over sales, and the product did not sell.

On the night of 20 September 1990 Inamiya learned of the upheaval at the parent company from an international telephone call to his home. The news was that PPI was suspected of manipulating its share price and that trading had been suspended on the London stock market. On 25 September Sansui shares too were bid limit-down at $4 (¥514) on the Tokyo Stock Exchange. PPI in due course reached what amounted to bankruptcy. Inamiya later said that the defeat comes down entirely to this miscalculation, and stated that with five years he could have rebuilt the company but that two were not enough, and that he had been able to carry out only 30 per cent of what he had wanted to do. Although the Grande Group of Hong Kong, which acquired the shares from PPI, asked him to stay on, he took the view that once the parent had changed it was proper to withdraw, and left the company with effect from 19 December 1991.

Manufacturing shrunk under Hong Kong capital, and a drifting head office

In June 1992 Sansui Electric sold the whole of its holding in the Capetronic group, and in the same month received a capital participation from the Semi-Tech group. It let go of the assets PPI had brought in and passed under Hong Kong capital. The man entrusted with the management was Tsumura Tetsuo (津村哲男). He had a background in founding a company in Yokohama that made and sold variable capacitors, and had long been associated with Johnny Lao (ジョニー・ラオ), a Chinese employee of the Hong Kong acoustics maker Atlas. James Ting (ジェームス・ティン), the head of the Semi-Tech group, asked Tsumura through his close friend Lao to run the company, as a Japanese who understood the management of consumer electronics. As of 1994 Sansui Electric had been in deficit for ten consecutive terms, and Tsumura said that there is no road to survival other than expansion into China.

The record of the 1990s is filled with the sale of assets and the removal of the head office. In January 1993 the company established Sansui International in the British Virgin Islands, and in February of the following month opened a branch in Kowloon, Hong Kong. In October of the same year it sold the land and buildings of the old head office in Izumi, Suginami-ku; in March 1994 it moved the head office to Fuchu, and in April 1995 to Sukagawa in Fukushima prefecture. In October 1997 it sold the whole of its holding in Sansui Incorporated of the United States as well. To Yokohama in April 1999, to Kodaira in May 2000 and to Shibuya in April 2003 — the location of the head office changed five times in ten years. The company went on letting go of saleable assets in turn and moving the functions that remained to lighter quarters. Weekly Toyo Keizai in 1997 named the company among the makers in the audio-visual industry whose very survival as businesses was in doubt.

The collapse of a parent company struck a second time. Akai Holdings of Hong Kong, to which Sansui Electric belonged, ran aground at the end of a policy of expansion, and in August 2000 received a winding-up order from the local court. The Grande Group of Hong Kong, which came in to support it, hung back from a capital participation and put up no more than the minimum necessary lending. Akai Electric, in the same group, gave up its trademark rights in exchange for a loan of a mere $9.3M (¥1bn) and applied in November of that year for the Civil Rehabilitation Act. Sansui Electric too had its trademark and patent rights pledged to Grande as security for debt. Turnover for the year to December 2000 was expected to fall as far as $18.6M (¥2bn), and the company's own negative net worth had reached $74.3M (¥8bn) at the end of June. What remained to the company was a name that had passed into other hands, and the right to use that name.

Ten years of a company that had stopped making things, and the road to bankruptcy

In November 2001 Sansui Electric received a capital participation from the Grande Group of Hong Kong. In December of the following month it closed the Fukushima plant and gave up manufacturing on its own account. In August 2002 it sold the land and buildings of that plant as well. From then on the company changed into an organisation whose main work was the management of the brand and the handling of assets. The representative director and president in this period was Nakamichi Takeshi (中道武) (the years to December 2005 through December 2009), succeeded by Murokoshi Takashi (室越隆) (the year to December 2010). Consolidated turnover was at its highest at $7.4M (¥854m) in the year to December 2003, fell to $1M (¥107m) in the year to December 2008 and thinned to $455,737 (¥40m) in the year to December 2010. Consolidated employees fell too, from 23 in the year to December 2003 to five in the year to December 2010. The annual securities report for the year to December 2010 gave no employees at all for the audio and video equipment business, the after-sales service business or the property leasing business, and listed only the five held in common across the company.

In contrast to the shrinking business, the balance sheet kept its thickness for a while. In the year to December 2005 net assets were $86.8M (¥10bn) and total assets $93.3M (¥10bn), an equity ratio of 93.0 per cent. The movement that created this scale of assets was the outlay of $73M (¥8bn) in investing activities in the year to December 2004 and the raising of $71.2M (¥8bn) in financing activities. The shareholder register too settled on the Hong Kong side. The top two holders in the year to December 2005 were Varican Investments (バリカン・インベストメンツ) with 19.98 per cent and Hi-Tech Precision Products with 18.26 per cent, and from the year to December 2008 onwards the Hongkong and Shanghai Banking Corporation held 34.34 per cent as pledgee of the Hi-Tech holding. It had become a company in which not the business but the shares themselves moved about as collateral.

In May 2010 the company sold land and buildings in Shibuya-ku and brought the business activity of its subsidiary to an end. On 2 April 2012 Sansui Electric applied to the Tokyo District Court for the Civil Rehabilitation Act. Total liabilities were $3.1M (¥248m), a scale not even one two-hundredth of the turnover of the peak year to October 1984. On 3 May of the same year its listing was cancelled, and on 27 December the rehabilitation proceedings were concluded. The prospect of financing did not open up, however, and on 9 July 2014 the company received an order commencing bankruptcy proceedings. Its liabilities at that point were about $3.3M (¥350m). The company vanished, but the name SANSUI survived under Hong Kong capital as a product brand. The company that made the goods disappeared first, and the name alone lived on as an article for sale.