Stephanie Hilgeford Charlotte Ford-Cunningham Al Renner

 Pre-World War II  Goal = realize economies of scope ◦ Manufacturing, distribution, and banking industries  4 major zaibatsu ◦ Matsui, Mitsubishi, Sumitomo, and Yasuda

 Family-controlled monopolies  Holding company at the top of hierarchy  Wholly owned bank subsidiary  Supplied military forces

 Post – World War II ◦ Dissolution of zaibatsu ◦ Removal of decision-making executive  Modified zaibatsu 1950s = keiretsu ◦ Occupation force support because of Mao’s communism and the Korean War  Benefit ◦ Solution to last-period problem  Issue ◦ Monopolistic

 2 forms ◦ Horizontal ◦ Vertical  6 major keiretsu ◦ Mitsubishi, Mitsui, Sumitomo, Fuyo, Dai-Ichi Kangyo, and Sanwa  4 pillars of keiretsu ◦ Lifetime employment, seniority wages, enterprise unions, and consensual capitalism

 1899 – company was incorporated  Early 1920s – involvement with Sumitomo  1925 – ISE transferred 15% of ownership to Sumitomo  Sumitomo took full control  Sumitomo ordered to dissolve  Mid-1950s computer industry  1960s- Honeywell collaboration  C&C initiative  Merger with Packard Bell  NEC goes public

 President: Kaora Yano  Senior Executive Vice Presidents: ◦ Botaro Hirosaki and Masatoshi  Major operations ◦ IT service, IT products, and network systems  166,800 employees  328 consolidated subsidiaries  Operation in 44 countries

SWOT Analysis: NEC Corporation Strengths:  Diversified products  Strong strategic relationship  Research and development  Strong industry position Weaknesses:  Geographic concentration  Corporate governance issues  Declining revenues and profitability Opportunities:  Innovated technology  Demand for digital products  Increase efficiency Threats:  International market competition  Global economic slowdown  Adequate protection of intellectual property rights

 Japan’s recession began in the early 1990s with the collapse of stock and land values.  Bank for International Settlements (BIS) began enforcing more strict maintenance of capital adequacy ratios for banks.  1987–1991 representing strong economic growth

 1992–1996 the first five years of Japan’s economic decline  1997–2001 significant regulatory change as well as intensified economic decline.  Big Bang deregulation announced in late 1996 and implemented in fiscal year 1997.

 Propping, tunneling and the role of the internal capital market present issues of the Keiretsu.  Propping  Tunneling  Internal Capital Market

 Propping- occurs when weaker less stable firms are held up financially by the stronger firms in the Keiretsu with intra-group financing, etc.  Tunneling - occurs when powerful owners or other insiders engage in private benefit consumption to the detriment of other stakeholders in the firm.  Internal Capital Market – when propping and tunneling take place the internal capital market is compromised due to the sustainment of firms that would have failed.

 No demand for products  Strategies ◦ President Watanabe’s vision ◦ Public works contracts ◦ Adapt military technology to civilian market ◦ Laid off 2,700 employees ◦ Closed 3 plants and R&D facility Outcome - Recovered in 50s due to new telecom markets

 Telecom market saturation  Strategies ◦ President Kobayashi’s vision ◦ Future success in knowledge based products ◦ Total Quality Control movement ◦ Zero-Defect movement ◦ Restructured to 14 autonomous divisions Outcome - Global expansion

 Performance hurt by: Japanese recession, strong yen, US competition  Strategies ◦ Expand global markets ◦ PCs sold in Europe ◦ Joint manufacturing ventures in Asia ◦ Merger - Packard Bell NEC PCs Outcome - FY 96: ◦ Net worldwide sales $41 billion ◦ 89 domestic & 38 overseas subsidiaries ◦ 152,719 employees

 Packard Bell NEC fails, $1.5 billion net loss  Strategies ◦ Investments: 97 - $285 million, 98 - $225 million ◦ NEC is majority owner ◦ Pulls plug on US retail PC market ◦ Closed CA plant, laid off 2,100 workers Outcome - FY 00: $10 million net income

 Kerietsu system emerged after WW II  Lifetime employment, seniority wages, enterprise unions, and consensual capitalism  NEC a member of Sumitomo since 20s  Kerietsu are less centralized and integrated  NEC’s future: IT service, IT products, and network systems