International Operations and Development of Mitsubishi Electric

THE INTERNATIONAL OPERATIONS AND FUTURE DEVELOPMENT OF MITSUBISHI ELECTRIC

1. INTRODUCTION

The Mitsubishi Electric Corporation is a multi-national concern which develops, manufactures and distributes a broad range of electrical equipment in fields as diverse as home appliances and space electronics. The company was established on the15th of January, 1921. Its headquarters is based in Japan, with a paid in capital of 175,820 million Yen and consolidated net sales of 3,309,651 million Yen. Its total assets are worth about 3,225,223 million Yen. Its employees total about 100,000 worldwide.

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In total, its business segment consists of Energy and electric systems 21.9%, Industrial Automation Systems 19.4%, Information and Communication Systems 18.7%, Electronic devices 4.7%, Home Appliances 21.4%, and Others 13.9%. The pie chart below shows the various business segments of Mitsubishi Electric.

1. Energy and Electric Systems

The major products and services under this business segment are turbine generators, waterwheel generators, nuclear-power equipment, electric motors, transformers, power electronics equipment, circuit breakers, gas-insulated switchgears, switchgears, supervisory control and protection systems, large-scale display equipment, water treatment facilities, accelerators, ozone-related equipment, transportation equipment, elevators and escalators.

2. Industrial Automation Systems

The major products and services under this business segment are programmable logic controllers, inverters, AC servos, graphic operation terminals, induction motors, magnetic contractors, moulded-case circuit breakers, earth leakage circuit breakers, distribution transformers, electric meters, uninterruptible power supplies, industrial sewing machines, computerized numerical controllers, electrical discharge machines, laser processing machines, industrial robots, clutches, car audio products, car navigation systems, electrical automotive equipment, and car electronics equipment.

3. Information and Communication Systems

This consists of wireless communication equipment, mobile handsets, wire communication equipment, air traffic control equipment, satellite communication equipment, satellites, radar equipment, antennas, guided projectiles, fire control systems, waveguides, rocket electronics equipment, aircraft electronics, medical electronic equipment, thermal heads, tetrodes, commercial-use display equipment, broadcasting equipment, data transmission equipment, information systems, and systems integration.

4. Electronic Devices

These include power devices, power modules, RF elements, optical elements, optical devices, display monitors, cathode-ray tubes, LCD displays, and printed circuit boards.

5. Home Appliances

The products and services in this business operation are colour televisions, projection televisions, video projectors, VCRs, DVDs, room air conditioners, package air conditioners, refrigerators, fan heaters, electric fans, washing machines, ventilators, photovoltaic power generating systems, electric water heaters, fluorescent lamps, lighting fixtures, clean-air heaters, compressors, freezers, humidifiers, dehumidifiers, air purifiers, air-conditioning systems, and vacuum cleaners.

6. Others

These include distribution, real estate, advertising, materials procurement, and services.

The operations of the Company in Japan are relatively significant in comparison with the company’s worldwide operation. Net sales for the year ended March 31^st, 2004 are geographically broken down as follows: Japan – 71%, North America – 9%, Asia (excluding Japan) – 11%, Europe – 7% and Others – 2%.

Manufacturing operations are conducted principally at 23 sites (Parent sites only) located in Japan and at overseas sites located in the United States, United Kingdom, Thailand, Malaysia, China, and other countries.

2. THE ORGANISATIONS INTERNATIONAL OPERATIONS

2.1 Energy and Electric Systems: The social infrastructure systems in this business sector posted declines in both orders and sales for the fiscal year of 2004, in relation to the previous year. This was attributable to the tight constraints placed on public spending and capital investment among Japanese electric power companies and to the spinning off of power transmission and distribution businesses and of a business producing electrical equipment for manufacturing plants.

In building systems, business activity improved in South Korea, while the number of large–scale construction projects in Tokyo Metropolitan area decreased. Consequently, orders and sales did not differ greatly from the previous year. Net sales in this business segment amounted to 797.4 billion Yen, which was a 7% decrease compared with the previous fiscal year, while operating income fell 33.5 billion Yen to 25.9 billion Yen.

2.1a Strategic Targets: This is to accelerate business development on a global scale and strengthen the global organization. Target mainly the Chinese and the U.S. markets for the power and transportation businesses. This includes targeting overseas markets, mainly in China and elsewhere in Asia and in the Middle East, for the building systems business.

To reinforce strategically vital businesses by further strengthening the business bases of the power products, transportation, public infrastructure, and other mainstream businesses. Also, to reinforce research and development activities in developing strategic products, such as machine-room-less elevators.

Expansion of energy solutions, total building solutions, and other solutions-based business fields.

2.2 Industrial Automation Systems: In the factory automation systems business there was greater demand for semiconductor manufacturing equipment from the automobile, liquid crystal panel, and semiconductor manufacturing sectors. This resulted in an increase in orders and sales of programmable logic controllers, AC servos, and computerized numerical controllers, in the Japanese market and abroad, specifically in China, Taiwan, and South Korea.

In the automotive equipment business, sales of car navigation systems, onboard electronic toll collection units, and alternators and starters for domestic and overseas automobile manufacturers all rose.

Compared with the previous fiscal year, net sales in this segment increased 11% to 709.7 billion Yen, and operating income increased 8.4 billion Yen to 66.4 billion Yen.

2.2a Strategic Targets: The main goal here is to sharpen Mitsubishi Electric’s competitive edge by concentrating management resources on core businesses.

Progress has been made from being the No. 1 in the Asian region to being the No. 1 in the world, in the strategy for the factory automation business. Optimize the global operations of the automotive equipment business and actively develop Mitsubishi Electric’s global strategies.

To increase efforts to develop new businesses based on Mitsubishi Electric’s heightened integration. These new businesses include integrated solutions, car-multimedia, and eco-factory operations.

2.3 Information and Communication Systems: Orders and sales in the telecommunications equipment business rose because of increased Japanese and overseas mobile handsets sales. Information systems and service business showed an upward trend due to an expansion of information systems outsourcing and systems integration businesses.

Sales in its electronics systems business also exceeded those of the previous fiscal year, although orders decreased as a result of a temporary downturn in the number of government projects being undertaken.

Compared with the previous year fiscal year, net sales for this business segment decreased 1% to 681.8 billion Yen, and operating income was 0.5 billion Yen, an improvement from an operating loss of 27.3 billion Yen in the previous fiscal year.

2.3c Strategic Targets: Strengthening the business structure of the mobile handset business by honing Mitsubishi Electric’s competitive edge through the further development of Mitsubishi Electric’s distinctive technologies.

Bolster strong solutions-based businesses. These businesses include, Enterprise Resource Planning for the manufacturing sector and secure network solutions.

To accelerate the development of advanced technologies, such as IT-related technologies, space systems, and defence-related technologies.

2.4 Electronic Devices: The semi conductor business recorded an increase in sales of laser diodes for recordable DVD players and of power modules for semiconductor manufacturing equipment and for industrial machinery bound for Asia, especially China. However, the impact of spinning off system memory businesses caused orders and sales for the fiscal year under review to decrease.

In the liquid crystal business, orders and sales increased because of greater sales of small and medium-sized products, such as display equipment, to the industrial and mobile handset sectors and of large-screen panels for overseas markets.

Compared with the previous fiscal year, however, net sales for the electronic devices segment decreased 63% to 170.4 billion Yen. The segment recorded an operating loss of 4.7 billion Yen, improving a significant 48.4 billion Yen from 2003.

2.4d Strategic Targets: In this sector the company aims to expand synergistic effects through technological collaboration with Renesas Technology which is joint venture it embarked upon with the Hitachi Corporation.

The implementation of strategies such as strengthening the power devices business by targeting the three business areas of industrial equipment; civil – use equipment, which includes PCs and telecommunications-related equipment; and automotive products and intensify tie-ups with in-house system business divisions to expand the business of mobile handsets; DVDs; and space, defence, and satellite systems in the high-frequency and optical devices business.

2.5 Home Appliances: The sales of home air conditioners and colour televisions fell in the fiscal year, however, overall sales by the home appliances segment remained consistent with the previous year.

This was the result of an increase in sales of ventilators, solar power generation systems, electric water heaters, refrigerators, and DVD-related products in Japanese market and of home and package air conditioners for overseas markets.

Compared with the previous fiscal year, net sales slipped 1% to 782.3 billion Yen, and operating income was 19.3 billion Yen, a decrease of 16.9 billion Yen.

2.5e Strategic Targets: The acceleration of global business development by using air-conditioning products and large-screen visual information systems as the driving force.

The expansion efforts in digital home electronics business, including DVD recorders and LCD TVs.

They have also intensified efforts to market photovoltaic home-use generators, electrical water heaters, ventilation fans, and other ‘Electric – Powered Home’ related products.

3. BALANCED CORPORATE MANAGEMENT AND GROWTH STRATEGIES

3.1 Balanced Corporate Management: In an aim to ensure sustainable growth and to establish a robust managerial basis, the Mitsubishi Electric Group promotes a philosophy of maintaining a ‘balanced corporate management’ structure, comprising three particular areas of focus: growth potential, profitability and efficiency, and soundness.

From this perspective, Mitsubishi Electric is implementing business restructuring in response to changes in the operating environment while also pursuing improvements that strengthen its manufacturing competitiveness, such as in quality, cost, marketing, and technological development capabilities.

In addition to restructuring, which includes business reinforcement and streamlining, Mitsubishi Electric is promoting continuous efforts to further reduce fixed costs, lower the cost of production, improve financial standing, and apply growth strategies.

3.2 Growth Strategies: Mitsubishi Electric has two major strategies which they are implementing as concrete measures to realize sustainable growth. They are, the ‘VI Strategy’ and the ‘AD Strategy’.

The VI Strategy is a means to ensure growth potential by strengthening individual businesses. The Mitsubishi Electric Group aims to use its strengths in transportation systems, elevators and escalators, industrial automation equipment, automotive products, satellites, and other fields to further strengthen the strategies of all its individual businesses.

While reinforcing cross-sectional corporate support for development, manufacturing technologies, and materials procurement, the company intends to efficiently apply key technologies and expertise to increase synergistic effects to further strengthen its operations.

The AD Strategy is a strategy aimed to bolster the solutions business in a number of business fields. To further increase added value, Mitsubishi Electric is making every effort to provide one-stop solutions that fulfil customer needs in environmental and energy solutions, total security solutions, and display solutions by combining all of its technologies, experience, and knowledge gained from developing, manufacturing, selling its competitive products and services.

The company is concentrating its efforts on business expansion from a global perspective in an aim to foster and strengthen operations that will prosper on the world stage.

Mitsubishi Electric aims to further bolster its business structure through greater global integration and by tying together its worldwide management infrastructure through manufacturing collaboration between mother factories and local plants as well as through a variety of perspectives, including those of marketing, research and development, and financial support.

Through this the Mitsubishi Electric Group is combining its technologies and expertise to cooperatively promote its growth strategies and attain greater performance in the future.

The VI Strategy is to bolster corporate support by implementing development support, production technology support, materials procurement, task force support, sales information support, logistics support, intellectual property support, information systems support, and all these lead to managerial improvements measures. These strategies are carried out with regard to the companies various business segments, in which ‘growth by strengthening individual business strategies is the main goal’.

The AD Strategy is with regard to developing proposal-based business centred on strong operations. This relates to environmental and energy solutions, total security solutions, display solutions, intelligent transportation systems, location-based services, and home network solutions, whereby its primary objective is the growth by strengthening solutions-based business in various business segments which the company operates.

4. FACTORS THAT AFFECT THE PERFORMANCE OF THE MITSUBISHI GROUP ARE:

4.1 Foreign currency exchange rates: Fluctuations in foreign currency markets does affect Mitsubishi Electric’s sales of exported products and purchases of imported materials that are denominated in U.S. dollars or euros, as well as its Asian production bases’ sales of exported products and purchases of imported materials that are denominated in foreign currencies.

4.2 Stock Markets: A fall in stock market prices may cause Mitsubishi Electric to record impairment losses on marketable securities, or cause an increase in retirement benefit obligations in accordance with a decline in the fair value of pension assets.

4.3 Supply/demand balance for products and procurement conditions for materials and components: A decline in prices and shipments due to changes in the supply/demand balance may adversely affect Mitsubishi Electrics Information and Communication Systems, Electronic Devices, and Home Appliances segments. In addition, increases in material prices due to a worsening of material and component procurement conditions may adversely affect all of Mitsubishi Electric’s operations.

4.4 Fund Procurement: An increase in Yen interest rates which has happened in recent times, i.e. the value of the Yen is high, would increase Mitsubishi’s interest expense.

4.5 Important patent filings, copyrights and patent-related disputes: The mentioned may adversely affect related businesses when they least expect it.

4.6 Disruptive change in technology, development of products using new technology, timing of production, and market introduction: These all adversely affect the performance in Mitsubishi Electrics Information and Communication Systems, Electronic Devices, and Home Appliances segments.

4.7 Business Restructuring: The Company may be forced to record losses due to the implementation of restructuring programmes or measures on its global networks.

5. ISSUES SURROUNDING THE ORGANISATIONS FUTURE DEVELOPMENT

The strategies in which Mitsubishi Electric has had to investment in, adopt, and adapt to, in order to remain competitive for its future development to be secure, has been in research and development, Intellectual property policy, and Environmental activities.

5.1 Research and Development Policy: The Company focuses its research and development efforts on honing the competitiveness of its principal businesses in line with its two growth strategies. Under the VI Strategy, it aims to strengthen the growth potential of individual businesses and to further distinguish itself in the competitive businesses of elevators and escalators, factory automation equipment, automotive electric and electronic components, satellites and others.

Under the AD Strategy, the Company aims to create solutions businesses, such as environmental and energy management systems solution and integrated security solutions, combining a variety of technologies related to two or more business fields.

The research and development efforts within the company are shared widely as intellectual assets to improve development efficiency. It also promotes the acquisition of intellectual property rights that are associated with its business and development strategies.

It concentrates on acquiring of intellectual property rights with global applications and strives to develop standards based on patents to bolster the competitiveness of its operations.

It also promotes the utilization of knowledge gained from around the world through its research and development activities; joint initiatives with cutting edge research institutions in Japan and abroad; participation in national projects; and collaboration among industries, government entities, and academic institutions.

5.1a Advancement of Research and Development Activities: The diagram below shows research and development activities which Mitsubishi Electric invests in and promotes both domestically and internationally.

Mitsubishi Electric’s research and development organisation comprises research centres that are associated with corporate Research and Development, including the Advanced Technology R&D Centre, Information Technology R&D bases in the United States and Europe, and research and development divisions affiliated with each business domain.

In addition, the company proactively works to develop global standards, promote academic conferences, and participates in national projects and joint research projects with universities and academic institutions in Japan and abroad.

5.2 Intellectual Property Policy: The Company recognizes its intellectual property (IP) as vital management resources for the development of its business and integrates its business and R&D activities with its IP activities.

The company owns approximately 35,000 patents and files about 8,000 applications every year in Japan and overseas for a portfolio of competitive patents around the world.

At the Company’s headquarters strategies are formulated, whereby critical issues are addressed, applications are made with regard to intellectual property rights, and licenses for patents for the entire company are registered. Each business segment works to execute its individual IP strategies.

Its Intellectual property policy focuses on creating intellectual property (IP) that strengthens its business competitiveness. The company aims to bolster its strategic IP practices by designating critical themes for important company-wide business projects and major R&D projects.

A crucial element of its future business competitiveness to the use of their technologies on an international scale, in which they are redoubling their efforts to patent the technologies that have become part of such international standards.

The acquisition of overseas IP rights plays a critical element to the globalization of their operations, and such IP activities are coordinated among the overseas operational bases, research centres and affiliated companies. They are at the present moment focusing their activities on mainland China in order to bolster their operations in the region as a whole.

A major factor here is the prevention of the infringement of intellectual property rights. The company works closely with the relevant industry associations and government bodies to enforce this. The idea is to increase internal awareness of how to manage trade secrets and prevent the outflow of technologies by formulating company rulebooks and having them distributed to all employees.

In this way, the Company is strengthening its IP practices worldwide which indirectly underpin its operations deployed all over the world.

6. ENVIRONMENTAL ACTIVITIES FOR THE COMPANY’S FUTURE DEVELOPMENT AND ACCEPTANCE ON A WORLD-WIDE SCALE.

6.1 Contributing to the environment through products and business activities

Eco Products: EcoMonitorPro is a device that measures, in one-second or one-minute intervals, the amount of electricity consumed by a particular facility or production line at a plant or building.

By collecting and analyzing such data, it is possible to evaluate how much energy is used to produce one product unit in a specific process and to identify wasteful standby power requirements and unnecessary lead currents. In this way, EcoMonitorPro identifies areas that can be improved upon to conserve energy.

Additionally, the market for photovoltaic power generation systems is quickly expanding amid rising awareness of environmental preservation. Mitsubishi Electric has developed lead-free photovoltaic battery modules, an essential part of these systems, to reduce the environmental impact during the manufacture and disposal of photovoltaic power generation systems.

6.2 Philanthropic Activities

The Mitsubishi Electric Group engages in far-reaching philanthropic activities in Japan and Overseas as part of fulfilling its responsibility as a corporate citizen. It takes a long-term view on philanthropic activities based on the belief that sustained efforts are essential to having a lasting positive impact for its future presence and development in the different countries where it operates.

Five main areas of activity are:

1. Social Welfare: Provide support and grants for physically handicapped people and medical support for the elderly.
2. Regional Communities: Contribute to the creation of regional communities through the inspiration and creativity of employees.
3. Global Environmental Preservation: Participate in forestation, waste removal, and recycling.
4. Science and Technology: Promote the scientific development of young people.
5. Sports and Culture: Make life more interesting.

The Socio-Roots fund of the Company is a matching gift program in which the company donates an amount equal to that donated by the employee, thus doubling the goodwill of the gift. Donations are made through the fund to a variety of social welfare groups that are operated by the national government, regional organizations, schools, or non-profit organisations.

7. MAJOR OPERATIONAL ALLIANCES

With regard to the business environment in the fiscal year ended March 31, 2004, the rise in consumer spending as a result of tax cuts in the United States led to a revival in the corporate sector from mid-year onwards. This was centred on the U.S. and East Asia.

As the year drew to a close, a simultaneous worldwide economic recovery appeared to be well underway. As for the Japanese economy, despite ongoing deflation, the high value of the Yen and concerns about stagnating consumer demand, in the latter half of the fiscal year, the business environment showed a marked improvement as manufacturing activity and private capital expenditure were boosted by the revival of overseas demand.

This lead to the Mitsubishi Electric Group to promote structural reforms aimed at improving and strengthening profitability in each business segment. A considerable portion of the semiconductor business was spun off to form a joint venture with ‘Hitachi LTD’, focusing mainly on system LSIs.

The newly formed company, Renesas Technology Corporation (Renesas) opened for business on April 1, 2003. Additionally, on October 1, 2003, a new joint venture with Toshiba Corporation, Toshiba Mitsubishi-Electric Industrial Systems Corporation, was established from the spinning off of an electrical equipment business for manufacturing plants.

Throughout the year 2003, Mitsubishi Electric has been moving business operations and overall financial standing. These included the inventory reduction project, measurements to improve their financial position so as to be competitive globally. The joint ventures lead to a reduction in operating costs by the utilization of the dynamism of overseas suppliers and promoting Value Analysis (VA) activities with major suppliers.

As a result of this, the Company posted net sales of 3,309.7 billion Yen and operating income of 92.7 billion Yen during the fiscal year ended March 31, 2004. Income before tax amounted to 84.8 billion Yen, and the Company returned to full profitability with a net income of 44.8 billion Yen.

The joint venture with Hitachi and Toshiba has lead to increased marginal profit for the firm and also reduced operating costs associated with various products which the company manufactures on a worldwide scale.

SUMMARY AND CONCLUSION

This report has looked at the Mitsubishi Electric Corporation with regard to its International operations, strategies, and products it produces. It mentions the five business operations which it’s involved in, namely, energy and electric systems, industrial automation systems, information and communication systems, electronic devices, home appliances and other business operations.

It also elaborates on the different strategic targets which the corporation implements in order to remain competitive in the various business segments. Additionally, it looks at the balanced corporate management and growth strategies, which the company promotes in order to sustain its competitive edge.

The factors that affect the performance of the Mitsubishi Electric company namely foreign currency exchange rate; stock markets; supply/demand balance for products and procurement conditions for materials and components; fund procurement; patent filings, copyrights, patent-related disputes; change in technology, timing of production; and business restructuring, are all examined here.

We have also talked about the issues surrounding the organisations future development, namely, research and development policy, and intellectual property policy. The environmental activities for the company’s future development and acceptance on a world-wide scale, namely, contributing to the environment through products and business activities, and philanthropic activities are mentioned.

Finally, we looked at the major alliances it has formed with Hitachi, and the Toshiba Corporation, in order to reduce operational costs, and increase profitability in the International world-wide markets for semi-conductors.

It will be worthwhile to conclude that Mitsubishi Electric does have a sound and viable business strategy which it has enforced and implemented to its own business advantage. This can be seen in its investment in research and development, intellectual property policy, and its business alliances with Toshiba, and Hitachi in order to reduce operating costs and generate more revenue for itself. This has been reflected in profits generated for the fiscal year ended 31 March 2004. The growth strategies which the corporation initiated, has allowed the company to realign itself with its business operations on a world wide scale. This has benefited the corporation as a whole. Therefore, the future development of the products which the corporation manufactures in order to stay in business is very bright.

BIBLIOGRAPHY

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