Akai Electric - Company History

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Financial history 1965–1984 — revenue, cost structure, balance sheet, cash flow and key ratios, year by year →

Founded 1924
Founder Akai Masukichi 赤井舛吉
Founding location 東京都港区
Core business at founding Automotive electrical equipment and radio parts
Listed and delisted 1968–2000 — listed on the second section of the Tokyo Stock Exchange, gone with the civil rehabilitation filing of November 2000
Founding
In April 1924 Akai Masukichi founded Akai Denki Seisakusho as a sole proprietorship in Tokyo, and in July 1929 established Akai Electric. It was a components maker handling automotive electrical equipment, motors and radio parts, and after the war, in 1947, Akai Saburo raised the business again as the second generation. From 1948 it mass-produced small motors for electric gramophones and took the domestic market, but once the large makers with the advantage in volume production came in — Matsushita Electric Industrial among them — the parts alone left no profit, and in 1951 it moved to tape recorders. It was a turn from parts subcontractor to finished-goods maker, and from that point the company looked for its outlets not at home but in exports.
The Decision
To protect its margin, the company put no one between itself and the buyer. In 1956 Akai Saburo went to the United States himself, secured a supply contract with Califone Roberts, and laid down an export network of direct contracts with local agents rather than going through a trading house. Outlets that carried no intermediate margin held profitability high: by 1969 the export ratio was about 95 per cent and the agents numbered 170 around the world. Narrowing to the vertical tape recorder, which did not overlap with Sony ahead of it, also supported that network. In November 1975 it entered home video and joined the VHS camp as a latecomer, but close as the tape-drive technology was, the format itself was not something it could own. The margin won by closing the distance to the buyer could not be held on a product whose standard other firms decided.
Today
The legal person is gone, and only the trademarks move on under separate owners. The rise of the yen after the 1985 Plaza Accord struck an Akai Electric with a high export ratio directly, and in June 1986 it took in Mitsubishi Electric as its largest shareholder. Parent-company sales shrank from their peak of $364.6M (¥91bn) in the year to November 1982, and exports to North America, where the effect of the strong yen weighed heaviest, were halted in January 1989. The bearer of support passed to Semi-Tech of Hong Kong in 1995 and to Grande, also of Hong Kong, in 1999, and in the year to March 2000 the company posted a net loss of $952.3M (¥103bn) on sales of $116.9M (¥13bn) and fell into negative net worth. In November that year it applied to the Tokyo District Court for the commencement of civil rehabilitation proceedings, and the shares that had traded since the 1968 listing on the second section of the Tokyo Stock Exchange disappeared from the market. Consumer audio under the AKAI name was taken on by Grande of Hong Kong, and AKAI Professional, the equipment for professionals, by American capital.
Competition
What divided the roads was not the merit of the sound but whether a company could get onto the side that decided the format. In tape recorders Sony went first, exporting to the United States under its own brand, but by taking a different shape — the vertical machine — Akai could share the market with it. In home video, Japan Victor licensed VHS to its competitors, widened the camp and fixed the standard, and the firms without a format of their own were left to line up on the scale of their output alone. An export ratio of 95 per cent turned, in a phase of yen appreciation, straight into thin margins, and from 1986 the company took in the capital and business support of Mitsubishi Electric. Within the same audio equipment, Sony, which had rooted its own brand abroad, kept its body, while Akai Electric lost the legal person and left only the name.

Timeline

1924–1969From radio components to an export-specialised audio maker

  1. 1924Akai Denki Seisakusho founded as a sole proprietorship
  2. 1929Akai Electric established
  3. 1935Manufacture of automotive electrical equipment, motors and radio parts begins
  4. 1947Akai Electric refounded as the second company
  5. 1948Manufacture of general-purpose and small record-player motors begins
  6. 1951Entry into tape recorders, specialising in exports
  7. 1954The AT-1 tape mechanism goes on sale
  8. 1958The MS-60 stereo tape recorder goes on sale
  9. 1962The M-7 tape recorder with crossfield head goes on sale
  10. 1968Listed on the second section of the Tokyo Stock Exchange

1970–1988A late entry into video, and the collapse of margins under the rising yen

  1. 1970Reassigned to the first section of the Tokyo Stock Exchange
  2. 1973Akai Saburo dies suddenly while serving as president
  3. 1975Entry into video; margins deteriorate as the yen rises against the dollar
  4. 1981The Mitsubishi Bank provides management support
  5. 1985The alliance with Mitsubishi Electric is strengthened across the board
  6. 1986A reconstruction plan is announced, including a third-party allotment to Mitsubishi Electric
  7. 1987Development and production of audio products is transferred from Mitsubishi Electric

1989–2026Changing rescuers, and the end of an independent manufacturer

  1. 1989Exports of AV equipment to North America are halted
  2. 1995An ordinary loss of ¥2.3bn is posted for the year to November 1994
  3. 1995The Semi-Tech group provides management support
  4. 1995Chairman James H. Ting takes on the presidency; Taneda Koji 種田公二 steps down
  5. 1995A decision is taken to withdraw from domestic production of the mainstay VTRs
  6. 1999Becomes a subsidiary of the Hong Kong-based Grande group
  7. 2000A net loss of ¥102.6bn is posted and the company falls into negative net worth
  8. 2000The parent Akai Holdings is put into liquidation in Hong Kong
  9. 2000Files for civil rehabilitation at the Tokyo District Court

Founding Story

1924–1969From radio components to an export-specialised audio maker

Akai began as a maker of radio parts, vanished into wartime consolidation, and was rebuilt after the war by the founder's son around small motors for record players. The move that mattered came in 1951, when the company left components for finished tape recorders and went looking for its customers abroad. By 1969 exports were about nine-tenths of sales, and turnover had risen from $7.5M (¥3bn) to $39.4M (¥14bn) in five years.

A founding in socket radio parts, and the postwar revival of the business

The company traces its origins to 1924[1], when Akai Masukichi (赤井舛吉) began manufacturing socket radio parts in Minato-ku, Tokyo[2], at a time when demand for them was expanding rapidly. Starting a components business timed to the dawn of radio broadcasting was, for that period, a choice rich in foresight. But in the wave of wartime corporate consolidation the first Akai Electric disappeared. In 1947 the founder's son Akai Saburo (赤井三郎) revived the business and began afresh with the manufacture of small motors for record players. Prewar knowledge and postwar technique were thus handed on by the second generation. The socket radio parts business of the founding years had read accurately the demand for consumer electronics then germinating in Japan. It was an exquisite launch in which pioneering instinct and the tide of the times coincided.

In phonomotors the company briefly swept the domestic market, but as Matsushita Electric and other large household-appliance makers entered in earnest, price competition intensified. Securing continuous profit from the components business alone grew harder by the day, and the company was driven into a position where it had to search for its next pillar. Carried by the expansion of demand for electronic equipment during the postwar recovery, its management nonetheless had to confront the question of how an independent small or medium-sized maker could differentiate itself from the giants. What was required was ingenuity in carrying the technology cultivated in motors through to the next business. Recognising the limits of the components business and searching for the next pillar became the keynote of management from the early 1950s.

The vertical tape recorder, and exports to the United States in earnest

In 1951 Akai Saburo decided to enter tape recorders as a field to which the technology cultivated in phonomotors could be applied. Where horizontal tape recorders were then the mainstream in the domestic market, the company developed its own space-saving vertical machine and specialised in the vertical format, taking a position that avoided competing head-on with the majors. Judging that limited domestic demand set a ceiling on the growth of the business, Saburo set a policy early on of seeking a way through in exports, and in 1956 went to the United States himself to open up a sales network directly. A charismatic proprietor opening his own distribution was unusual among Japanese companies of the time.

In America Saburo won a supply contract with Califone Roberts (キャリホン・ロバーツ) on the spot[3], establishing the first foothold for putting the company's tape recorders into the United States market. Where Japanese appliance makers had until then expanded abroad through trading houses, Akai assembled its own export model: contracting directly with local sales agents, cutting out the intermediate margin and holding on to a high-margin structure. Success in the American market in the late 1950s became the important starting point that led on to the later widening of the sales network across Europe, Africa, the Middle East and elsewhere[4]. It was an epoch-making period in which a distinctive export model began to take firm shape as the foundation of the high-margin constitution of later years. A thoroughgoing commitment to being present on the ground grew into the company's greatest strength.

A listing on the second section of the Tokyo Stock Exchange, carried by high margins

From 1965 onwards the company recruited highly educated engineers on terms far above the industry standard, strengthening its product development considerably. It offered graduates of the University of Tokyo and the Tokyo Institute of Technology an annual salary of $5,556 (¥2m) — extraordinary for the time — drew more than five hundred applicants and organised a technical staff around them[5]. Its outlets reached beyond the United States to Europe, Africa, the Middle East and South East Asia, and by building a network of 170 agents[6] it put in place a structure that avoided excessive dependence on any single customer. It was a singular period in which unstinting investment in technical capability and the construction of a dispersed worldwide sales network were pushed forward side by side. It was a boldly decisive policy of the kind an independent mid-sized firm could take.

By 1969 exports had reached about 90 per cent of sales[7], and the company had shifted to an export-specialised structure that depended hardly at all on the domestic market. In 1968 it achieved a listing on the second section of the Tokyo Stock Exchange, and at the time of listing its net margin on sales stood at 12.8 per cent[8]. Known within the industry as a ferociously high-earning company, its flotation stirred extraordinary excitement in the securities market. Yet an export ratio of 90 per cent carried within it a vulnerability to currency movement, and that structure itself held the destiny that would strike the company's management directly in later years. This fated weakness, which would determine the company's fortunes, still appeared at the time of listing as nothing but a strength. The structural precariousness concealed beneath the brilliance of high earnings was beginning to take on an outline.

1970–1988A late entry into video, and the collapse of margins under the rising yen

Akai Saburo died suddenly in December 1973, and the succession struggle that followed left the company without the man who had held its engineers and its overseas dealers together. Sales kept climbing — from $47.8M (¥17bn) to $337.2M (¥80bn) — but profit did not follow. A late entry into VHS video brought volume without licence income, and the rise of the yen after the 1985 Plaza Accord turned the export concentration from an advantage into a structural liability.

The sudden death of the effective founder, and a management shaken by the succession

In December 1973 Akai Saburo, the effective founder, died suddenly while on a skiing trip, an event entirely unforeseen by the organisation. A struggle over the succession broke out internally around the choice of the next president, and management began to drift. The body of engineers and the overseas sales network that Saburo had built up during his lifetime rested on a personal system dependent on the founder's own command, and his absence had a serious effect on how the organisation was run. In the period after the founder's sudden death the company embodied the classic case in which the abrupt absence of a charismatic manager weakens at a stroke the organisation's very capacity to decide. The sudden death of the charismatic founder cast a long shadow over every subsequent reconstruction plan. Here the company embodied the classic case of an organisation whose capacity to decide was weakened at a stroke.

The industry environment also turned from 1965 onwards, as Sony, Pioneer, Japan Victor and other Japanese electrical makers began exporting audio equipment in earnest one after another. The export model Akai had pioneered spread through the industry as a whole, and the room for differentiation in the high-end audio market centred on tape recorders narrowed by degrees. The sharp rise of the yen against the dollar after the 1971 Nixon shock had also begun to squeeze the earnings of a company whose business structure rested on an export ratio of 90 per cent. It was a phase in which export specialisation, once a strength, began little by little to turn into a weakness. The shelf life of the export-specialised model was arriving sooner than expected amid the change of the industry as a whole.

Entry into video tape recorders, and falling behind in the format contest

The company chose the home video tape recorder as its new pillar after audio. It was a product built around a tape drive mechanism, and the technical affinity with what had been cultivated in audio was high enough; but having fallen behind in the format contest between VHS and Betamax, it could not secure licence income. By adopting the VHS format as a latecomer it expanded video sales, and by 1988 video-related business had grown to more than half of turnover — yet profitability remained at a low level. It was a phase in which sales growth unaccompanied by profit ate away at the company's financial constitution. Having joined the VHS camp as a latecomer, the company was left without the earnings opportunities available to the firms at the core of the format.

The bare fact of defeat in the format contest brought the company a long decline in profitability in the form of absent licence income, and continued to cast a heavy shadow over the reconstruction plans of later years. The reality that the distinctiveness cultivated in audio would not necessarily carry over into the new market of video was forced upon it in the first half of the 1980s. It was a phase in which the company was learning, within its own business, the bitter lesson that a high degree of technical affinity alone could not begin to close the gap with competitors ahead of it in a format war. It was a time of feeling keenly the weight of first-mover advantage. The distorted structure in which the distinctiveness built in audio and the hardship of being late into video existed simultaneously within the same firm characterised Akai in the early 1980s. The age moved on with the contradiction unresolved.

The rising yen after the Plaza Accord, and the collapse of the cost structure

As the yen rose following the 1985 Plaza Accord, the cost structure of a company whose principal base was its head-office plant in Ota-ku, Tokyo, moved close to collapse. In 1981 it had fallen into a net loss and had shifted to a footing of receiving management support from its main bank, the Mitsubishi Bank. In 1986 the management was replaced, a president from the Mitsubishi Bank took office[9], and the overseas subsidiaries in Europe and America were closed one after another. Here was the phase in which a distinctive business structure resting on an export ratio of 90 per cent turned vividly, through a dramatic reversal of the currency environment, from a strength into a structural weakness. The very foundation of the former prosperity was inverted into the weakness itself. The company's history may be said to have demonstrated to the industry at large that strength and weakness often appear in management as two sides of the same thin sheet. A change in the environment can at times reverse a company's character in an instant.

The management drawn from the Mitsubishi Bank announced one reconstruction measure after another in quick succession — opening up the domestic market, moving production bases overseas. But the export-specialised business culture and the rigidity of an organisational climate without its founder did not come loose easily, and no visible results followed. The audio equipment market itself was beginning its shift to digital at home and abroad — the CD, the MD and later the MP3 — and the technical advantage cultivated in analogue magnetic recording was in a phase of losing its value altogether. The difficulty of reconstruction became manifest as it intersected with the structural change of the industry as a whole, and hard days followed in which the company could not keep pace with the speed of the times. The speed of the industry's structural change was taking away the very possibility of reconstruction. Amid that intersection, the difficulty of rebuilding deepened by the day.

1989–2026Changing rescuers, and the end of an independent manufacturer

What followed was fifteen years of rescue attempts under changing owners — the Mitsubishi Bank, then Mitsubishi Electric, then the Hong Kong-based Semi-Tech group and Grande. Each bought time, and each narrowed the room for independent decisions, until the company filed for civil rehabilitation in November 2000 and its seventy-six years as an independent manufacturer ended. The name outlived the company: the trademarks were sold on, and Akai survives today on equipment built by firms sharing neither its capital nor its engineers.

Successive rescue attempts by the Mitsubishi Bank and the Semi-Tech group

With the reconstruction led by the Mitsubishi Bank failing to produce sufficient effect, in 1995 the Hong Kong company Semi-Tech entered as a new bearer of management support[10]. It came in as the party taking over after Mitsubishi Electric had abandoned the rebuilding[11]; but the audio and video equipment market itself had turned to structural contraction amid the wave of digitisation, and rebuilding the company's business foundation from the ground up was by this point already difficult. It was also a phase in which the reality kept being forced home that even a change of supporting party could not resist a fundamental change in the business environment. However many times the party leading the rebuilding changed, it was impossible to go against the wave of structural change in the industry as a whole. Time was no longer being granted to the company.

Under Semi-Tech's support the company attempted to move production bases to China and elsewhere and to expand through mergers and acquisitions, but it could not arrest the decline of its brand value within Japan or the decay of its capacity to develop new products. Consumer spending on audio equipment itself turned to long-term contraction, and survival as a standalone firm was pushed by degrees into a phase of practical impossibility. It followed a painful course in which the money and the time put into rebuilding were consumed to no purpose in the face of the speed of the industry's structural change. Even with the supporting party changed, long hard days continued in which attempts at reconstruction ended almost in idle spinning before that speed. It was a course in which only the consumption of money and time accumulated.

The filing for civil rehabilitation, and a line drawn under seventy-six years

In November 2000 the company at last applied for civil rehabilitation, meeting effective bankruptcy[12] and drawing a line under seventy-six years of history as an independent electrical manufacturer. It was the closing of a long road for a firm that, from its founding in 1924, had manufactured and sold vertical tape recorders, cassette decks and VHS video products around the magnetic recording technologies of tape and video. The high-margin model built on export specialisation can be looked back on as having fallen into an unsustainable structure from the point at which the mechanism went wrong in two respects: the response to currency risk, and the late entry into the VHS format contest. The long progress of a company that had marked an era as an independent mid-sized electrical maker reached its close here. For those who knew it in its days as a ferociously high-earning company, it was an end that brought home the weight of the passage of time.

It is hard to deny that the vacuum in management left by the sudden death of the effective founder Akai Saburo made correcting this business structure still harder. In excessive dependence on a charismatic manager and in a personal, individual-centred running of the organisation, the company embodied within the postwar Japanese electrical industry the classic case in which correction becomes difficult once the mechanism has begun to go wrong. The end of a firm once praised within the industry as a ferociously high-earning company, an independent mid-sized electrical maker, is still referred to from time to time as a classic case for discussing how entrepreneurial management and business succession should be conducted. Founder-dependent management and the difficulty of succeeding it determined the company's fortunes directly. It may be called an end in which the problem of succession and the structural deterioration of the business environment struck at the same time.

The sale of the businesses, and where the brand went

Through the transfer of businesses after the application of the civil rehabilitation law, part of the technical assets and trademarks the company had held passed to several operators at home and abroad. The brand name Akai is still used today on some professional sound equipment and consumer audio products, and the brand bearing the founder's name survives in a corner of the audio market in altered form, after the company as a legal person had disappeared. In the field of professional samplers in particular, product lines descending from the old company retain a measure of support among enthusiasts. The reuse of the Akai brand abroad tells of the way the old company's genes survive, transformed, within the global market. It is also a case in which the extinction of the legal person and the succession of technical assets do not necessarily coincide.

Yet hardly any trace can now be found of the company as it existed in the era when it was an independent listed firm within Japan. The distinctive export model opened up by the founder Akai Saburo, and the management method of extraordinary terms for highly educated engineers[13], are subjects that draw the interest of historians of the electrical industry as one typical figure of the independent mid-sized maker in postwar Japan. As a rare case embodying the rise and fall of the independent mid-sized electrical manufacturer, the company's history will continue to be a subject holding the interest of researchers and practitioners.

Read the full history in Japanese →

Notes

  1. インベストメント (Investment), vol. 22 no. 2 (132), May 1969↩
  2. インベストメント (Investment), vol. 22 no. 2 (132), May 1969↩
  3. 証券 新規上場会社紹介 (Shoken: Introducing Newly Listed Companies, December 1968)↩
  4. 証券 新規上場会社紹介 (Shoken: Introducing Newly Listed Companies, December 1968)↩
  5. 現代トップ経営者の事業哲学 (The Business Philosophy of Today's Top Managers, December 1968)↩
  6. オール大衆 (All Taishu, November 1969)↩
  7. 大阪経済評論 (Osaka Keizai Hyoron, December 1968)↩
  8. 大阪経済評論 (Osaka Keizai Hyoron, December 1968)↩
  9. 日経ビジネス (Nikkei Business), 9 April 1990, interview with Okada Makoto, president of Akai Electric↩
  10. 日経産業新聞 (Nikkei Sangyo Shimbun), 27 January 1995↩
  11. 日経産業新聞 (Nikkei Sangyo Shimbun), 27 January 1995↩
  12. 帝国データバンク (Teikoku Databank), report on Akai Electric Co., Ltd.↩
  13. 現代トップ経営者の事業哲学 (The Business Philosophy of Today's Top Managers, December 1968)↩

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