Sharp Seeks Solutions To Its Financial Crisis In Essay.

Case Study: Sharp Corporation

Discuss about the Sharp Seeks Solutions To Its Financial Crisis.

The global economic and commercial scenario has experienced considerable changes and modifications owing to the changes in the economic, social, demographic as well as industrial and technological patterns along with the changes in the taste and preferences of people across the globe. International phenomena like that of Globalization, trade liberalizations along with technological and infrastructural developments has contributed in making global economic and commercial environment more integrated and inclusive, with almost all the major economies of the world connected in terms of trade and economic as well as socio-political relations (Dunning, 2014). With increased trade liberalization and removal of trade barriers, more and more businesses have started expanding their domains in different countries, both in terms of selling their products in the unexplored markets as well as in terms of setting up partial or full operational units in new economies in order to take advantage of the productive opportunities and cost efficiencies in such economies (Wild, Wild & Han, 2014).

With more businesses going global as well as with markets for each industry increasing, the businesses in each industry face immense dynamics in the demand and supply side. While the fast-changing preference patterns of the demands are attributed to the demand side dynamics, the supply side dynamics include huge increase in competitive environment for each business (Kaynak & Ali, 2012). Thus, to stay afloat and gain sustainability and profitability in the global and competitive markets, the businesses need to ensure cost efficiencies in production, operations and appropriate strategy frameworks for expansion in profitable area as stagnating to one market can lead to stagnation of the companies themselves.

Keeping this aspect of global commercial scenario into consideration, the concerned report ties to analyse the operations of one of the dominant electronic commodities producing company, Sharp, which has over a decade emerged to be amongst the top-notch players in the global electronic markets, especially operating in the domains of mobile handsets and television sets. The company is also known to be one of the leading manufacturers of liquid crystal display (LCD) screens in the global market. However, in the recent period, the company has faced several issues, both economic as well as performance related which has led to some amount of stagnation of its operational framework. Keeping this into consideration, the report tries to analyse the prospects and potential which the concerned company, Japanese by origin, can have in the markets and operational framework of one of the leading global economies, China.

Problems Faced by Sharp in the Recent Period

As discussed above the company in consideration, the Sharp Corporation, in spite of its immense success in the electronics market, has been experiencing several considerably crucial problems over the last few years, to understand which it is of immense importance to get an overview of the company as a whole and its operational framework, which is provided as follows:

With its origin in Japan and headquarters in Sakai, the Sharp Corporation was founded in September 1912, with mechanical pencil being its first product and invention. The company, however, has emerged as one of the primary designer and manufacturers of different electronic products, with a global clientele. The company, since 2016, has been a part of the Foxconn Group, which is based in Taiwan (Edgington & Hayter, 2013). Currently the multi-national electronic corporation enjoys revenue of 2050 trillion Yen (2017) and employs nearly 42,000 employees across the globe. The company operates primarily in Japan and Taiwan but also has a worldwide market.

Although the concerned company ventures in nearly all domains of electronic products, it particularly specializes in mobile handsets, television sets and is one of the primary ones to efficiently utilize the revolutionary technology of Liquid Crystal Display (LCD) and had been a leading supplier of LCD screens to many eminent companies including that of Apple. In 2013, Sharp became the tenth largest companies in the television manufacturing industry in the global scenario in terms of the global market share, along with its consistent position in the television market of Japan (Sharp-world.com, 2018). Apart from that, the company has been often considered as one of the most popular telephone brand in the market of Japan, being the third largest in the country in this domain. The market share of the company, in the television market of Japan can be seen as follows:

As is evident from the above figure, the concerned company has enjoyed considerable market share in the television sector of the country. Apart from the that the company has also enjoyed significant share in the mobile phone market of Japan, which can be seen as follows:

From the above figures it is evident that the Sharp Corporation has emerged as one of the primary electronic companies in Japan and has also enjoyed considerable sales in the television markets of the countries other than Japan.

In spite of all the success and expansion of the company, in the last few years the company has been facing a decrease in the economic profit and revenue structure, with its revenue as well as net income decreasing considerably with high fluctuations over the years, as can be seen from the following figure:

Reasons Behind the Crisis

As can be seen from the above figure, the total revenue of the company, which had been increasing steadily till 2007, experienced a steep fall in 2008-2009, with the revenue remaining at a comparatively lower level from that time. A more depressing picture can be seen from the aspects of the fall in the operating and net income of the company as can be seen from the following figure:

As can be seen from the above figure, both the annual operating income as well as the net income of the concerned company had been decreasing drastically in the recent period, with the trends showing immense negative trends in the recent period. Numerically, if averaged over the last fourteen years, the company has incurred an average yearly loss of nearly 38 billion yens (Bensalhia, 2018). This has even led to an immense decline in the share values of the company, as the same experienced a massive decline in the share value in 2009 and the company is also experiencing a debt repayment of nearly 510 billion Yen, thereby making it an issue of immense concern amongst its stakeholders and also in the company itself.

There have been several reasons, both exogenous as well as endogenous which has led to deterioration in the company’s profitability and sustainability, which are discussed as follows:

1. a) Decline in the television market of Japan-With the television subsidy expiring in 2011, the market for television of Japan shrank considerably, with the decline being immense in the Flat-Panel television market as can be seen from the following figure:

As is evident from the above figure, the share in the flat panel TV market of Japan has been decreasing abruptly from 2009. Apart from that the total sales of the television units have also been decreasing drastically over time as can be seen from the following figure:

Together, this shrinkage of the television industry in the country, has led to a considerable fall in the demand for the same in the country, which in turn has led to the decrease of revenue generation of the Sharp Corporation in the country itself.

1. b) Loss of global share in the television market-Apart from the loss in the television market in Japan itself, the company has also been losing its global market abruptly in the face of tough competition from the globally competitive television producers in the international framework which can be seen as follows:

The above figure makes it clear that with time and with increase in the market share of highly competitive and cost-efficient television manufacturers like Samsung and LG Electronics, the sales as well as global market share of the concerned company, the Sharp Corporation has declined considerably, which in turn is one of the primary reasons behind the economic and financial crisis faced by the concerned company in the last few years (Dunnett, 2013).

1. c) Loss of Market in America-The company in consideration has also experienced considerable decrease in the size of its previously expanding television market in the boundaries of North America, much of which can be attributed to the increase in the sales of products of popular brands like Samsung, which can be seen as follows:

As is evident from the above figure, Sharp Corporation, in the contemporary period had only 2.1% share in the television market of North America, due to which the company has also taken the decision to walk out of the television market of the country, which in turn indicates towards the loss of a part of global television sector of the company in consideration.

1. d) Internal weaknesses in business models-Apart from the loss of market in face of excessively competitive global environment and a shrinking television market of Japan, there exists several weaknesses in the internal operational framework and business models of the company. The primary ones being as follows:

• The company had over the years excessively focussed on concentrating its manufacturing base in Japan itself with the notion of “Product in Japan” and sell across the globe. This thereby has led to the concentration of the production components like that of highly improved technologies, capital and others in Japan itself and only allocation of assembly of products in its overseas plants.
• The LCD technology, which initiated in Japan and in which the concerned company specialized, soon penetrated to other countries and with other companies, especially Korean and Taiwanese ones adopting it fast, the Sharp Corporation started experiencing steep competition.
• In spite of producing commodities of equal qualities like those of Sony and Samsung, Sharp started finding it difficult in from the other global giants’ face value, in the aspect of convincing the consumers the same.
• Sharp was never a player in the cathode ray tube-based technology in the television industry, which in turn compelled the company to buy the CRT tubes from its competing companies itself, thereby leading to even more decrease in the cost efficiency of the company (Pertierra & Turner, 2012).
• The “making in Japan, selling overseas” model worked efficiently till the time the company specifically targeted the local markets of Japan with little sales abroad. However, as the company tried to increase its sell to other countries, the company felt the brunt of exchange rate turmoil. To produce their products, Yen were used with the products then being sold to other countries in terms of their local countries. However, in the recent period, the value of Yen strengthened considerably as can be seen from the falling exchange rates of the same, compared to the US dollars:

Thus, with the increase in the value of Yen, the overseas revenues of the company decreased in terms of Yen.

• The high taxes and infrastructural costs in Japanese economy also crippled the cost efficiency of the concerned company, in terms of competitive advantages in the global scenario.

All the above-mentioned aspects had led to the need for a change in its overall strategic framework, both in terms of shifting of operational as well as production bases of the company in other countries, to increase the cost effectiveness of the company and to take advantage of competitive economies of other manufacturing and technologically robust countries. One of the primary countries in consideration of the company, for the shift of manufacturing and production operations, is China (Forrester, 2013).

The company has already moved to some extent in this aspect, as can be seen from their steps of initiating talks with IRICO and CEC. IRICO has been the largest producer of cathode ray tubes in China, the component in which the company lacks productive advantage. On the other hand, China Electronics Corp, being a state-owned company, has agreed to form an alliance of USD 2.9 billion, where the Sharp Corporation has to license its updated IGZO technology.

Keeping this into consideration, the following section of the report tries to overview the economy and industrial as well as commercial aspects of China and its advantages in the policy as well as labour and population structures, especially in the technological industry aspects of the country.

The economy of China, has developed considerably with time and has over the recent period emerged as one of the most eminent and influential economies in the global scenario. Being one of the primary socialist market economy, the country ranks as the second largest economy in the world and is considered among the fastest growing economies across the globe, with the average growth rates being nearly 10% over the last three decades.

One of the primary reasons behind the growth of the economy of the country, especially in the aspects of technological, industrial and manufacturing sector, specifically after 1950, can be considered to be the reforms which the country took to modify its economy out of its traditional framework post 1949 (Shambaugh, 2013).

The economy of China experienced a considerable shift to a Socialist framework, with the development of a countywide and huge socialist industrial complex in the economy under the direct control of the government, thereby curbing the dominance of the private sector. To boost the growth of the economy with the help of the development of the industrial and production sector of the country, the government adopted a “Big Push Strategy” for development, which was characterized by shift of the capital and productive resources from the labour-intensive sectors to the capital-intensive ones. The primary features of such a robust development strategic framework of the country are as follows:

• Focus on heavy and primary capital-intensive industry development
• Direct control of the government over major parts of the economy
• Highest priority on industrialization of the economy
• High allocation of resources into construction and infrastructure industries for building new factories
• Restricted consumption to increase savings thereby increasing investment for industrial development (Young, 2015)

The robust increase in the investment in the industrial development of the country led to the creation of a robust capital-intensive industrial base, with companies producing high technological products, the fruits of which are being enjoyed by the economy of the concerned country over the last few decades. The economy has developed a robust industrial sector and also a growing service sector over the years, which can be seen from the contribution of these sectors to the GDP of the country over the years:

This, in turn indicates towards the presence of a robust industrial sector and capable infrastructural and technological framework in the country, which in turn can be a beneficial aspect for Sharp Corporation to shift its operations in the country and involve into partnerships with the already established Chinese companies.

Another aspect of China, which may also be beneficial for the concerned company, is the presence of an active and substantial labour force in the country, which has increased and remained consistently high in the country over the years as can be seen from the following figure:

As is evident from the above figure, with the increase in the working age population of the country, over the years, the labour supply of the country has also increased substantially, with the supply being visibly more than the level of urban employment in the country, which in turn indicates towards substantial unemployment in the country, especially in the urban industrial areas (Dorn & Hanson, 2015).

As can be seen from the above figure, the rate of unemployment, though decreased to a considerable extent, still remains high, which in turn leaves an excess supply in the labour market, the advantage of which, in terms of low wages and productive efficiencies can be taken utilized by the Sharp Corporation if they intend to shift their operational bases in the country (Guthrie, 2012).

Apart from the development of the industrial and business sectors, the recent corporate sector reforms of the country are also noticeable. As per the Company Law, 1994, the State-Owned Enterprises, now have the privilege to diversify their ownerships and can also create business ties with other businesses. The law also makes provision for creation of creation of a common legal framework for all the firms, which makes the potential tie ups of Sharp Corporation with the SOE, named CEC more convenient (Lull, 2013). On the other hand, the IRICO, already enjoying economies scale in the production of cathode ray tubes in the country, the potential tie ups of Sharp Corporation with these companies can help in the increase in cost efficiency as well as performance of the concerned company and can also be beneficial in the crisis period of the country, in the aspect of opening a whole new market for the company in China.

With the increase in the demand for televisions as a whole and smart TVs in specific, in China over the years and a strong projection of an increment in the coming years, the probable entry of Sharp Corporation in the Chinese markets and its potential coalition with the already existing and robustly operating Chinese companies can prove to be considerably beneficial for the company (Keane, 2015).

Conclusion 

From the above discussion, it can be asserted that the Sharp Corporation, in spite of being one of the primary Japanese as well as global electronic companies, specializing in the television industry, has been experiencing loss and financial crisis in the face of acute global competitions and inherent weaknesses in operation and investment decisions. The company, has been planning to venture in the domains of Chinese economy, with the objective of both transferring a significant share of its operational and manufacturing activities in the country as well as to explore the demand side of the unexplored market of the country in the coming years. The potential tie ups and chances of coalitions of Sharp with the Chinese electronic giants can prove to be beneficial for the company, given the pro-industrial structure, easily available labour supply as well as beneficial corporate structures of the country can be utilized appropriately by the company.

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