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NEC pioneers change in Japan electronics

Posted: 03 Nov 2008 ?? ?Print Version ?Bookmark and Share

Keywords:Japan electronics? NEC reorganization? semiconductor joint venture?

It's a clich?, but change occurs slowly in Japan.

Hajime Sasaki promised to change NEC Electronics Corp. soon after becoming chairman of the company's board of directors. Nine years later, and almost half a century after joining the company in 1961, Sasaki has unveiled the latest tactic in his efforts to reorganize the electronics giant.

By Western standards, where shareholders expect corporate reorganizations to begin within weeks of being announced and wind down in a year or so, the slow progress of NEC's decade-long restructuring is mind-boggling. By Japanese standards, though, NEC and Sasaki are on the fast track.

Sasaki's latest move is a global semiconductor process development alliance with IBM Corp. and other multinational companies. It is daring because it sends a clear signal that Japan's high-tech sector is willing to embrace a new operational model.

While the alliance does not rise to the level of an East-West high-tech corporate merger, the move brings NEC into a partnership with companies as diverse as Toshiba, foundry services provider Chartered Semiconductor Manufacturing, Freescale Semiconductor, Samsung Electronics and STMicroelectronics.

Forging alliances
The partners are responding to the spiraling costs of semiconductor process development, a situation that is forcing the industry's leading chip vendors to forge alliances with competitors and OEM customers around the world. By teaming with Big Blue and the others, NEC is acknowledging that it can no longer afford to single-handedly fund next-generation IC process development, and must share with competitors both the costs and the risks.

More fundamentally, however, the company is breaking the shackles of nationalistic pride and identity that propelled Japan to become the world's second biggest economy. However, those same strengths have proven to be weaknesses in the current global environment.

NEC is not alone. A new mindset is taking hold in Japan, one that reflects the realities of a rapidly changing global market where old local alliances have become ineffective and new ones must be forged across international borders and, if necessary, with old and even current rivals.

Again, change does not come easily in Japan. Cradle-to-grave employment is a thing of the past. Technology partnerships forged by Japan's leading high-tech companies were limited to Japan companies or banks that financed their operations.

This led to murky cross-ownership structures that were difficult to determine and impenetrable to outsiders. Faced with huge losses in the banking sector since the mid-1990s, the government and Japan's powerful central bank have been trying to untangle these industry networks with moderate success.

The biggest high-tech companies have led the way. The first step taken by many was to deconsolidate their internal operations while exploring manufacturing outsourcing outside Japan. This was followed by new alliances that have brought top high-tech companies together in joint ventures that were initially local and closed to foreign competitors.

Those internal alliances proved ineffective because they shut out research and marketing expertise, management skills and global experience that western companies could bring to the relationships.

Going global
Companies like NEC recently have been trying to end these relationships to focus instead on broader international alliances aimed at leveraging the resources available at other companies in other countries. For example, NEC also ended its optical joint venture with Sony Corp., noting that it had transferred its minority 45 percent stake in Sony NEC Optiarc Inc. to its partner.

In April 2006, the two companies pooled their optical disk drive businesses to maintain a competitive edge in that market segment. But the alliance was doomed because it followed the old corporate restructuring model: Japan-focused instead of global.

By taking over the entire optical disk drive business, Sony should be able to review its strategic options and decide whether it needs to bring in other partners or liquidate the business-another critical restructuring step that is still proving problematic for Japanese tech companies.

Selling or shuttering non-competitive and loss-making divisions and laying off workers still represents a hurdle few Japanese companies appear willing to jump.

But just as globalization compelled them to look overseas and embrace foreign partners, Japanese chipmakers won't hesitate once the business case is sufficiently compelling.

At 72, Sasaki may not get the chance to lead that charge. That will likely be up to the next generation of Japanese business leaders.

- Bolaji Ojo
EE Times

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