Matsushita Electric Industrial Co., Ltd. - Company Profile, Information, Business Description, History, Background Information on Matsushita Electric Industrial Co., Ltd.

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Kadoma, Osaka 571-8501

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History of Matsushita Electric Industrial Co., Ltd.

The Matsushita Electric Industrial Co., Ltd. is one of the largest consumer electronics firms in the world. Although the company's name is virtually unknown outside of Japan, the brand names under which Matsushita sells its products are household words. Panasonic, Technics, Quasar, and JVC are all manufactured by Matsushita. The company operates four main business segments: AVC Networks, Home Appliances, Industrial Equipment, and Components and Devices. Its product line ranges from color televisions and DVDs to washing machines, industrial robots, and semiconductors. In Japan, Matsushita is as well known as its brand names. The company's founder, Konosuke Matsushita, is hailed as the patriarch of the Japanese consumer electronics industry.

Early History

Konosuke Matsushita was born in 1895, the son of a modest farmer who lost his family's savings speculating on commodity futures when Matsushita was only nine years old. At that age, Matsushita was forced to take a job in a bicycle shop to help his family survive. When he heard some years later that the city of Osaka had installed an electric railway system, Matsushita realized that great opportunities lay ahead for the Japanese electronics industry. He spent a few years working for a light bulb factory in Osaka, and by age 23 had accumulated enough business experience to found his own company to manufacture electric plugs, with his wife and brother-in-law Toshio Iue (who later founded Sanyo Electric).

Although Japan became a major international power during the 1920s, its domestic economy developed unevenly. Matsushita's small company prospered by keeping prices low and by incorporating new technological advances into its products. For this, Matsushita became very popular with consumers. He was also popular with his workers, whom he regarded as important partners with a right to participate in decisions.

After diversifying production to include bicycle lights and electric heaters, Matsushita moved boldly to secure a position as a direct supplier to Japan's large, complex retailing networks, which were historically dominated by larger, more established companies. Matsushita introduced radio sets and dry batteries in 1931 and electric motors in 1934; by creating fierce competition through discounts, the company was able to build large market shares in these selected markets. By 1935 the company had grown to several times its original size. On December 15 of that year, it was incorporated as Matsushita Denki Sangyo (Electrical Industrial).

Japan at this time was undergoing a severe political transformation as a right-wing militarist clique rose to power. The group won support from many industrialists, including Konosuke Matsushita, because it advocated the establishment of a Japanese-led pan-Asian economic community promising great profits for Japanese companies. As a leading manufacturer of electrical devices, Matsushita benefited greatly from the government's massive armament program. It soon gained markets in Japanese-controlled Taiwan, Korea, and Manchuria, and prospered during the beginning of World War II.

After the Battle of Midway, it was clear not only that Japan would lose the war, but also that the Greater East Asia Co-Prosperity Sphere promised by the militarists would never come to pass. Matsushita, locked in an uneasy partnership with the government, saw its fortunes deteriorate with Japan's.

Postwar Growth

After the war it seemed that the company's greatest task was to maintain sales in a country so thoroughly decimated by the war that the economy relied on barter. But first the company had to deal with the American occupation authority, which not only set price controls but also attacked Konosuke Matsushita for his support of the Japanese war effort and demanded that he resign his chairmanship. The labor unions, which the occupation authority sought to preserve, strongly supported Matsushita and threatened to strike if he resigned. Hoping to avoid wider labor unrest, the authority relented.

In 1951 Matsushita traveled to America for the first time to study the "rich America" he planned to make his most profitable market. An astute businessman, Matsushita recognized that his product lines must first prove themselves in their local market. His company successfully introduced washing machines, televisions, and refrigerators in Japan in 1953, and vacuum cleaners the following year. Concerned with maintaining measured and well-planned growth, Matsushita also became the first Japanese businessman to introduce five-year business plans.

When anti-monopoly laws were relaxed after the Korean War, Matsushita was permitted to make its first major corporate acquisition in 1954, a 50 percent share of the financially troubled Japan Victor Company (JVC). It was, for Matsushita, merely an investment; JVC was to remain not only independently managed, but also Matsushita's competitor in several areas.

Matsushita moved "upmarket" early, around 1957, by introducing a line of high-quality FM radio receivers, tape recorders, and a stereo sound system developed by JVC. In 1958 the company succeeded in relaying a color television signal, and soon afterward entered the television market--an especially important market as Japanese consumers became increasingly prosperous.

Until now, Matsushita had focused on the foreign market in its growth strategies, but the company began actively working to build a solid domestic market share, confident that its sales in Japan would grow with the economy. Using the brand name National, the company established a retail network to sell Matsushita products. With income generated by domestic sales, Matsushita was able to finance an ambitious global strategy independent of the trading houses that controlled the retail system in Japan. As a result, Matsushita brand names became well known in Europe and the United States.

Cheap labor and good labor relations kept Matsushita's costs low and helped the company to build a strong following in North America. Yet, as the Japanese economy continued to grow, unemployment fell and wages rose. Predicting that rising labor costs would one day compromise its price competitiveness, Matsushita was one of the first companies to set up factories in less developed countries such as Taiwan and Singapore, where wages were lower and the local currency was more stable against the dollar.

In May 1974 Matsushita purchased the Quasar television division of Motorola for $100 million, hoping to gain U.S. market share by capitalizing on Quasar's well-known name. Quasar had begun to lose market share to more popular imports, so Matsushita made heavy capital investments to improve production efficiency. Efficiency was raised, but market share remained stagnant.

Success with VHS in the 1970s

In the early 1970s Matsushita became deeply involved in the development of a commercial home videocassette recording system, or VCR. Matsushita seemed close to an acceptable design when Akio Tanii, then head of the VCR group, saw what he believed was a far superior design under development at JVC. Tanii convinced Matsushita to delay the introduction of a VCR until JVC's Video Home System, or VHS, could be perfected and adopted. This meant allowing Sony, the company's largest competitor, to enjoy a one-year monopoly on the market.

Sony refused to share its Betamax VCR technology with other manufacturers. But Matsushita knew that despite its VCR monopoly, Sony had a limited VCR production capacity. He gambled that there would be enough pent-up demand when JVC and Matsushita entered the market for the two companies to establish VHS as the industry standard. To help this prediction come true, Matsushita made licensing agreements with RCA, General Electric, Philips (which had abandoned its own VCR design), NEC, Toshiba, and Sanyo, all of whom introduced VHS-compatible machines. Sony's Betamax lost so much market share so quickly that Sony's chairman, Akio Morita, was compelled to ask for a compromise. Konosuke Matsushita refused, telling him that such a desperate display was both unacceptable and dishonorable. Eventually even Sony began to manufacture VHS machines.

By the mid-1980s Japan's consumer market was saturated. Tanii, who had been chosen to succeed the company's popular president, Toshihiko Yamashita, advocated entrance into new markets: semiconductors, factory automation, business machines, and audiovisual devices. He noted Matsushita's inability to attract the best engineers graduating from universities and began an effort to build a talented research and development team. He also saw that Matsushita's older, "obsolete" engineers would become under-utilized, and recommended transforming them into expert salesmen capable of selling these new technologies, if not creating them. Finally, he complained that Matsushita's 600 subsidiaries and group companies were too poorly coordinated to work with each other efficiently and decided that contacts within the company should be improved in order to develop technologies more quickly and economically.

In 1989 Konosuke Matsushita died at the age of 94. He had seen his company rise from a small manufacturer of electric sockets to one of the world's premier consumer goods manufacturers. Matsushita had retired from active management of the company in 1973 and had spent his later years writing books on business philosophy--his basic philosophy, "Peace and Happiness Through Prosperity," was the focus of some 50 books.

At this time, Matsushita was under contract to manufacture a number of computers for IBM, which was historically weak in the consumer market, and expressed interest in acquiring Fujitsu, which traditionally attracted the most talented software engineers. A closer relationship with either company would strengthen Matsushita's sales in the more dynamic and profitable corporate and institutional markets. In the end, however, Matsushita looked to the United States for growth in new markets.

Matsushita was poised to remain a major consumer goods manufacturer, protected by its strong presence in the Japanese market both from competition at home and from currency fluctuations and trade protectionism abroad. The company's expansion into industrial electronics was also highly profitable. In fiscal 1989, industrial electronics represented 35 percent of sales by Matsushita's major operating units. Tanii's initiatives positioned the company for growth. He did much to dispel the notion that Matsushita was merely an imitator of more original companies, but continued to look for ways to transform the company.

Changes in the 1990s and Beyond

Intense competition forced Matsushita to put its strategy into action in the early 1990s when a wave of merger activity hit both the electronics and entertainment industry. Competitor Sony Corp. acquired Columbia Pictures Entertainment Inc., and Time Inc. and Warner Communications Inc. joined forces. Matsushita began looking for its own deal and in November 1990 began negotiations with MCA Inc., a Hollywood studios company. MCA eyed the deal as crucial to its growth strategy, especially since its peers had grown significantly over the past several years through mergers of their own. After hammering out the terms of the deal, Matsushita agreed to pay $6.13 billion--$66 per share--for MCA.

The company faced challenges in the following years due in part to high costs related to the merger and falling demand for its low-margin audio and video products. To make matters worse, Japan's economy was faltering. Akio Tanii stepped down in 1993 and was replaced by Yoichi Morishita, who immediately began to restructure the company. It was apparent that the benefits of the MCA merger had failed to reach fruition and in 1995, Matsushita sold 80 percent of MCA to Seagram in a $5.7 billion deal. The company reported a $531.1 million loss in fiscal 1996 as a result of the sale.

A July 1998 Business Week article summed up Morishita's actions, reporting, "He has reduced the company's emphasis on low-margin consumer electronics, from 50% to 35% of sales, and moved into more lucrative areas of digital technology." The article continued, "Already a leader in digital cellular phones, Matsushita is grabbing Sony's market share in digital cameras and maintaining dominance in digital video discs (DVD). Most importantly, it is enhancing its growth potential by becoming a key supplier of parts for the next generation of mobile phones, DVDs, and digital TVs." Profits continued to fall over the next several years, however, as the Asian economic crisis took hold. Undeterred, the company continued to forge ahead, acquiring stakes in mobile phone venture Symbian and Mobile Broadcasting, a digital satellite firm.

Matsushita entered the new millennium with additional changes on the horizon. Kunio Nakamura took over as president in 2000 and Morishita became chairman. As part of its revitalization strategy the company slashed jobs, shut down unprofitable factories, and looked to develop new products while phasing out poor performing items. Management focused on revitalizing the Panasonic brand and began to heavily market DVD recorders, flat-panel and plasma televisions, and cell phones, especially Internet-ready handsets. Its operations were organized into four business segments: AVC Networks, Home Appliances, Industrial Equipment, and Components and Devices.

While the company posted its largest-ever loss in fiscal 2002, its sales and earnings began an upward climb during the following year. Nakamura--named Forbes Global Businessman of the Year in 2004--was confident that Matsushita was on track to remain one of the largest consumer electronics manufacturers in the world. Intense competition with Sony was sure to continue in the years to come. With a focus on new product development and a solid management team in place, Matsushita appeared to be ready to meet its challenges head on.

Principal Subsidiaries: Matsushita Battery Industrial Co., Ltd.; Matsushita Electronic Components Co., Ltd.; Panasonic Factory Solutions Co., Ltd.; Matsushita Industrial Equipment Co., Ltd.; Panasonic Communications Co., Ltd.; Panasonic Mobile Communications Co., Ltd.; Matsushita Ecology Systems Co., Ltd.; Matsushita Kotobuki Electronics Industries, Ltd.; Victor Company of Japan, Ltd.

Principal Competitors: Hitachi Ltd.; Samsung Corporation; Sony Corporation.


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