JEI's Spin on the News

Chainsaws Nowhere In Sight

Tuesday, September 8, 1998

Hitachi, Ltd. and several other Japanese manufacturing concerns announced corporate restructurings in early September that gave the appearance that they are coming to grips with the protracted slump — and probably structural shift — in demand for their products. Hitachi, saying it faced a severe corporate crisis, announced a reorganization and plans to reduce employment by 4,000 people by the end of next March. One of its rivals, Fujitsu, was said to be on the verge of closing a semiconductor plant in in the home district of British prime minister Tony Blair. In what some analysts described as the biggest manufacturing bankruptcy in postwar Japan, Toa Steel Co. announced that it would liquidate by next March. The Toa story received prominent mention in the American press.

What is striking about all these examples, however, is how reality contrasts with first impression. Hitachi's labor force reduction comes to less than 6 percent of its total employment and comes nowhere close to matching the recent moves of Texas Instruments to sell an entire division or of huge Korean semiconductor makers to merge operations. Even less do the moves resemble those of such American corporate executives such as "chain saw" Al Dunlop, the former head of Sunbeam , who slashed several times as many employees in percentage terms and trimmed product lines, already less extensive than Hitachi's, dramatically.

Nor are the Japanese examples other than Hitachi cited above meaningful examples of restructuring. Even Nihon Keizai Shimbun, Japan's leading economic daily, ridiculed the efforts of Fujitsu and other electronics makers to trim foreign operations, implying that the companies cannot claim serious restructuring until they target domestic facilities in a big way. Toa's liquidation will result in only about a third of its 1,300 workers losing their jobs, no capacity being abandoned and no need for banks to write off a yen of their loans to Toa. In fact, the move probably best is understood as relatively minor organization by NKK Corp., which already held a majority of Toa's stock and will now absorb the smaller firm's debt and most of its facilities, employees, customers and physical plant.

Sunbeam's dismissal of Mr. Dunlop suggests that trims can come too quickly and be too extensive even for American stockholders and boards of directors. Not a few analysts suggest that Japanese companies, however, are living in a a past in which corporations protected worker welfare by avoiding layoffs or shutdowns. Whatever one thinks of Mr. Dunlop's policies, one point he has made repeatedly to interviewers is at least partially correct: sometimes the way to protect jobs most effectively is to accept sizable cuts in employment in order to ensure corporate survival. Perhaps he should seek an audience for this message in Japan.

"JEI's Spin on the News" are the opinions of one of more members of JEI's staff and do not necessarily represent the views of the organization.

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