Update 3: Inspire the Next

Hitachi and Tokyo, March 20, 2009

OK, deep breath, this is going to be a long trip and not one for the faint of heart.

Hitachi is by far the largest of Japan’s quintet of what we in the research industry refer to as major industrial electronics companies—Hitachi, Toshiba, Mitsubishi Electric, NEC, and Fujitsu. It posted Y11.23trn in sales in FY3/08, which is not far short the next two largest firms (Toshiba at Y7.66trn and Fujitsu at Y5.33trn) combined, and at end-FY3/08 had a staggering 390,000 or so employees scattered around the world.

In a fiercely contested field, it also strikes me (and I have been translating research on them all for over nine years now) as the worst run of the quintet, although NEC takes some beating. Toshiba has a lamentable loyalty to its viciously cyclical flash memory chip operations, but it does at least rank top three by sales globally in the industry and seems reasonably competitive in them. It also took what struck me as a reasonably sensible step in 2007 to smooth out the cyclicality and boost its nuclear ops by acquiring Westinghouse Electric. Mitsubishi Electric has a relatively focused product portfolio, as evinced by its modest – for this company – sales of Y4.05trn, and even expects to eke out a profit in FY3/09, the only one of the quintet to do so. Mitsubishi group companies are generally better managed than most Japanese firms, with the dishonourable exception of that punchline to a joke, Mitsubishi Motors. Fujitsu has been doing a reasonably solid job of reinventing itself as the IBM of the east (on a much smaller scale), getting out of hardware to a degree and focusing on the much more lucrative areas of software and services. NEC (sales of Y4.62trn) is perhaps the most colorless of the lot – it simply leaves no concrete impression at all. Forced to say anything, I suppose it’s relatively good at wireless communication systems but should have got out of its consumer operations, such as mobiles and notebook PCs years ago.

But Hitachi, ah Hitachi! Everything about Hitachi is both hugely Japanese and mildly irritating. Take for example the corporate slogan, “Inspire the Next”, about which I have been giggling for the best part of a decade now. Here’s the company’s explanation of why they left at least a word out.

http://www.hitachi.com/about/vision/brand/inspire.html

Even the explanation is irritating, I find—the gratuitous capitalization, overuse of quotation marks, and lack of copy editing (read the last few words) bespeak of a corporate organization that doesn’t quite know what it’s doing. Swing back to the very first page that visitors encounter as the gateway for the global portal and there are more causes for irritation.

http://www.hitachi.com/

First, savour the nauseating photo of the girl with the seedling [sadly she’s been removed since this was written, but the pic and slogan are just as dire] and the catch-copy “To leave the next generation a healthier global environment”. No one does greenwash as well as the Japanese, and no Japanese company does greenwash better than Hitachi. Perhaps someone at Hitachi would care to explain what the excavators, wheel loaders, dump trucks, and cranes made by major listed subsidiary Hitachi Construction Machinery, 20% of whose sales come from China, are doing to make the Chinese and global environments healthier. But then again, perhaps not.

Returning to the Hitachi global portal, scroll down and you’ll notice, under Topics, several disturbing departures from English language orthodoxy in the press releases (if they are no longer there, trust me they were in March):

Hitachi announces changes to top managements
Hitachi announces the decision on year-end dividend

as well as intrusive bureaucratese:

Hitachi announces outcome of tender offer relating to Hitachi Koki shares and change of subsidiary

I point this out not merely to mock the English, although it is my full intent to do that too, but to point out that it is clear that among the nearly 400,000 employees, the company couldn’t find one to get the job done right, or what is more likely, there is a Japanese person with questionable powers of English making arbitrary pronouncements about correct usage in control of the global portal. Which has to be deeply worrying for a company that generates 42% of its revenue overseas. It also suggests overweening arrogance and insularity, something anecdotally confirmed by a friend of a friend with a PhD in semiconductor engineering, who applied for a job there and was greeted with suspicion bordering on hostility that someone with a PhD would anyway be applying for a job, and that the PhD in question was earned from—say it ain’t so—a foreign university! PhD? We don’t need no stinking PhDs!

Other things grate, too: while I can just about understand what EVA (enterprise value added) is, I really have no idea what Hitachi’s take on it, Future Inspiration Value, pretends to be, at least from the arrangement of the words. This is what Hitachi claims it to be in one of its annual reports:

FIV is Hitachi’s economic value-added evaluation index in which the cost of capital is deducted from after-tax operating profit.
After-tax operating profit must exceed the cost of capital to achieve positive FIV. Under this Rule, businesses that generate
negative FIV for two consecutive years are designated as requiring caution. Thereafter, if a restructuring plan is not approved or positive FIV is not generated within two years of approval of a restructuring plan, we take bold measures.

(The atrocious translation, no doubt also interfered with, allows the Japanese original to shine through to these sensitive eyes). Well, Hitachi, you better start taking those “bold measures” right across the business. I suspect FIV won’t be accorded much attention in the 2009 Hitachi annual report.

Buried far down in Hitachi’s ideology, and if a company can be said to possess an ideology, Hitachi is that company, lies a deep, and deeply unsettling, attachment to “monozukuri”, which it translates as “manufacturing”, a word which literally means nothing more complicated than “making things”, and which I’d prefer to render as something along the lines of “industrial craftsmanship”, if that isn’t too oxmoronic. Here’s a link to the Hitachi Industrial Vocational School (a high school to produce—I fear—factory drones, in Hitachi City):

http://www.hitachi.co.jp/Div/tech-school/index.html

The text next to “Make a dream” says, very roughly, “Making a dream comes from monozukuri (making things)”, while the text below says, roughly, “Go for it! (Become a) pro at monozukuri!”

I may be wrong, but I suspect there’s only so far you can go up the manufacturing food-chain, only so high a bough on which you can perch, before some rookie from South Korea, Taiwan, or even, perish the thought, China, comes along with a chainsaw to the trunk. Japan of course made it very, very far up the manufacturing food-chain (though not quite as far as Germany), but naturally the higher you climb, the further you fall. Japan may yet prove me wrong, but I wouldn’t bet the farm on it. While the global financial crisis (can’t someone come up with a better name for it and quick) may be giving the idea something of a battering, I can’t see how in a globalized economy (assuming we stay globalized, which is up in the air) developed nations can hang on to industrial bases, save perhaps in a few highly complex areas such as aviation and low-rent areas where transport costs outgun the benefit of manufacturing in low-cost economies—toilet paper, maybe. Yet Japan in general refuses steadfastly to concede on this—it’s unfair of me to single out Hitachi as exceptional—and the manufacturing sector still accounts for about double the size of the economy than it does in any other, say, G7 country. You knew all this anyway, I just feel sometimes I have to write it down because no one here is listening. You might think the February export number—down 49.4% year-on-year— would learn them, but not yet I fear.

My final Hitachi irritant, albeit a minor one, is the Hitachi Foundation:

http://www.hitachifoundation.org/

That it was founded in 1985 to “enhance the wellbeing of economically isolated people in the United States” says all you need to know about very dated Japanese triumphalism. I wonder how the Japanese polity would react to General Electric setting up an NPO in Japan to enhance the wellbeing of, say, ethnic Koreans? Now might be the right time for Hitachi to focus laser-like on the wellbeing of its own employees and the communities in which they live, if my visit to Hitachi City is anything to go by.

So Hitachi, where did it come from, where is it now, and where is it going? I think it would be most illuminating to look at where it is now, which is in a very deep pickle, before we look at where it came from and where it is going.

Hitachi, as I’ve already said, is a leviathan, maze-like in its complexity. Start at the apex with Hitachi Seisakusho, which has an incredible 910 subsidiaries below it, which include at least 22 listed subsidiaries and affiliates, some of which are giants in their respective industries: Hitachi Chemical, Hitachi Metals, Hitachi Cable, Hitachi Maxell, Clarion, and Hitachi Construction Machinery, to name but a few. The bigger subsidiaries have scores of subsidiaries of their own, creating a Russian doll-like structure of worlds within worlds. One of the crazy consequences of having so many of the bigger subsidiaries listed is that in the good years, when Hitachi itself makes reasonably good levels of operating profit, is that it all trickles away in minority interest before it reaches the bottom line.

Now I’m no expert on corporate structures, but it strikes me as insane that year after year Hitachi should have been giving away its earnings in dividends to the minority shareholders in its bevy of listed companies and would have been much better advised using money earned in the good times to make at least some of them wholly-owned subsidiaries. I have no idea, really, though what Hitachi’s management’s thinking is on this one, because in Japan’s consensus culture they never seem to be called on it.

So thanks to these arrangements, Hitachi, for all its vast size, scarcely makes any money in the good times and loses absolutely staggering amounts in the bad ones. By the time FY3/09 results are in it will have lost, netting out the profits and losses, Y1trn over the last decade. I haven’t done the maths but the figure wouldn’t be vastly different for the last two decades. And needless to say, FY3/10 is not going to be pretty.

The losses are magnified by the three problem children businesses of Hitachi Global Storage Technologies (HGST), the flat-panel TVs, and the chipmaker Renesas Technology. HGST was created in 2002/2003 when Hitachi bought the bulk of IBM’s hard-disk drive operations, a deal which I thought at the time looked dumb and has indeed proven to be, as HGST has bled money almost every quarter since. “This business had experienced a sluggish period for rather a long time from January 2003 when HGST started” as the annual report ruefully notes with typically misplaced understatement. The problem with the TVs? I guess essentially modest market share in an industry where economies of scale are all important, a high cost base in Japan, and the pretty much complete lack of a brand. Renesas was created in 2003 when Hitachi and Mitsubishi Electric put some of their chip operations together but retained stakes of 55% and 45% respectively. Now here the strategy should have been the reverse of what I recommended with the listed subs—viciously cyclical industry, dubious competitiveness of resultant entity—solution? Get it away from me, get it away, preferably by a listing in the boom times when investors can be gulled more easily. But oh no… Note that over the last cycle, Hitachi has made essentially no attempt to do more than tinker at the edges with this trio, whereas the ruthless round-eye businessmen would have been selling or closing.

Let’s have a look at the news since the start of the year, which has been almost remorselessly grim. There are 99 stories at the Nikkei on-line about Hitachi since January 1, of which I’ll select just a handful for comment.

The year starts with a January 16 Nikkei forecast of a Y100bn+ net loss on problems at Renesas.

Hitachi Faces Y100bn-Plus Net Loss As Chip Operations Slump
TOKYO (Nikkei)—Hitachi Ltd. (6501) is expected to report a group net loss of more than 100 billion yen for the year ending March 31, weighed down by red ink at a core chipmaking unit, The Nikkei learned Thursday.

Slow sales of automobiles and cellular phones have severely curtailed demand for chips used in such products. Factory utilization rates have declined at chipmaker Renesas Technology Corp., in which Hitachi holds a 55% stake. Renesas had been projected to turn a 9.5 billion yen net profit, but is now seen sustaining a 200 billion yen loss.

Hitachi had forecast an operating profit of 410 billion yen, up 19%, and a 15 billion yen net profit.

Hitachi responded sniffily to this one, as Japanese firms are wont to do, putting out a press release saying that the story was not based on anything they had told the paper.

Which was pretty silly really, as a fortnight later they came out with their own forecast, for a Y700bn net loss.

Hitachi Now Expects Y700bn Loss In FY08

TOKYO (Dow Jones)—Hitachi Ltd. (6501) said Friday it now expects a Y700 billion loss in the year ending March 31, becoming the latest major Japanese electrical machinery maker to sharply cut its fiscal year results forecast due to a plunge in demand.

Hitachi said it aims to cut Y200 billion in fixed costs by the end of next fiscal year, which ends March 2010.

The company plans to do that partly by laying off or transferring around 7,000 workers globally: 4,000 of those in its automotive system group, which has been hurt by falling auto sales, and the other 3,000 from its flat panel television and other consumer electronic product operations.

TOKYO (Nikkei)—Hitachi Ltd. (6501) slashed its fiscal 2008 profit guidance Friday, saying it now expects to post a 700 billion yen group net loss for the year ending March 31 amid free-falling sales.

The loss would be the third in three years for the company and the largest ever for a Japanese manufacturer, topping Nissan Motor Co.’s (7201) 684.3 billion yen net loss for the year through March 2000.

Hitachi had initially projected a 15 billion yen net profit for the current fiscal year. A loss of 700 billion yen would blow away one-third of its capital base.

TOKYO (Nikkei)–Hitachi Ltd.’s (6501) projected 700 billion yen net loss for fiscal 2008 stems from across-the-board sales declines, but restructuring costs and a host of other charges also loom large.

“Since October, business conditions have worsened at an unprecedented speed,” President Kazuo Furukawa told a news conference Friday.

Hitachi actually upgraded its operating profit forecast that month, only to see orders tumble broadly soon after. The company now expects sales of 10.02 trillion yen, with declines in all seven divisions of its vast manufacturing operations.

On top of this, the firm expects to book a 140 billion yen loss to reflect a projected 200 billion yen net loss at equity-method affiliate Renesas Technology Corp., in which it owns a 55% stake.

Hitachi also plans to book 150 billion yen in write-downs on plant equipment and other restructuring-related charges. Valuation losses on securities holdings are seen topping 40 billion yen, while tax expenses are projected to rise to 330 billion yen, up 250 billion yen from an earlier forecast.

There are a few things to take away from this trio of (abbreviated) articles. From the first, note the utter inadequacy of the company’s response. There is simply no way that FY3/10 will not be as bad for it than FY3/09 will have been, and that must have been apparent at the end of January. Cutting Y200bn in fixed costs isn’t going to restore your company to profit in these circumstances. Note also the laying off or transferring of 7,000 workers, or, as the Nikkei neglects to say, less than 2% of the global workforce. In some ways I admire Japanese companies’ reluctance to cut labour at the first sign of trouble—it’s a very complex issue—but ultimately it’s all part and parcel of imperial management aggrandizement, I’m afraid.

From the second, note the unusually strong language used to describe the seriousness of the loss: “A loss of 700 billion yen would blow away one-third of its capital base.” This is the ultimate problem—Hitachi’s equity had fallen to a relatively paltry Y1,710bn at the end of the third quarter, down Y460bn in nine short months and set for huge further impairment at the end of FY3/09. I don’t have the figures to hand to calculate the run rate, but my guess is the lights would go out in the summer of next year as the company finds itself in a state of negative net worth. Not that any of this will be allowed to happen, of course. From the third article, note the tax expenses of Y330bn—this relates to the booking of deferred tax assets, a nastily arcane area of accountancy, but what it boils down to is that the message to Hitachi from its auditors is that they don’t see it making a profit over the next three to five years to allow it to book the offsetting deferred tax liabilities.

And the investor response? The Nikkei headline says it all.

Monday, February 2, 2009
Hitachi Shares Sink On Loss Warning; Lowest Since 1980

Soon after, we have Hitachi announcing predictably disastrous Q3 numbers, on February 3, with a net loss of Y371bn for the quarter. Will they do anything with the TV unit? Not according to the following day’s Nikkei. Feel the complacency.

But “it may be hard to turn around TVs” in the next fiscal year starting in April given a continued heated price competition, said Toyoaki Nakamura, Hitachi’s senior vice president. However, he added, the company has no plans to drop the business. “TVs are a main player” in a living room.

Elsewhere, the article mentions the subsidiary issue.

In recent years, Hitachi has been weighed down by its huge number of affiliates and subsidiaries. The outbreak of the global economic crisis in recent months has only exacerbated the detrimental effects of the company’s unwieldy structure.

To address the problem, Hitachi plans to reduce its number of consolidated units to no less than 600 by March 2010 from 910 in March 2008.

Someone at the Nikkei has finally woken up to the ridiculous corporate pyramid. Sadly, the subsidiary reduction reference contains a typo—it only plans to reduce the 910 to some 800. Once again, note the lamentable paucity of the response to the crisis.

By early March, it’s time for unpaid leave:

Wednesday, March 4, 2009
Hitachi Seeks To Turn 1 Workday A Month Into Unpaid Day Off

Sensible in a way, to protect jobs, but nowhere near enough.

A few days later, we’re back in fantasy Hitachiland:

Tuesday, March 10, 2009
Hitachi: Tender Offer To Buy Hitachi Koki Succeeded

Hitachi Koki is a listed affiliate maker of power tools, which have been doing pretty well until pretty late in the downturn, especially in emerging economies, thanks to burgeoning DIY demand, and it was profitable through to the end of 2008, which is not something that can be said about many (Japanese) machinery companies. Even so, by turning the affiliate into a subsidiary, Hitachi is going to bring more of its impending losses onto its own balance sheet at a time when it cannot afford to do anything of the sort.

Back to the subject of pay: can you really afford to do this, Hitachi?

Thursday, March 12, 2009
Hitachi, Toshiba, M’bishi Elec To Keep Automatic Pay Raises

Meanwhile, the corporate Kool-Aid flows like water, as Hitachi increases its stake in already loss-making Hitachi Kokusai Electric further, allowing it an even more generous slice of those losses:

Thursday, March 12, 2009
Hitachi: Tender Offer For Hitachi Kokusai Electric Successful

Finally, on March 16, we have the less than earth-shattering announcement of changes at the top.

Kawamura To Double As Hitachi President, Chairman

TOKYO (Nikkei)—Hitachi Ltd. (6501) said Monday it will appoint Takashi Kawamura as its new president to succeed Kazuo Furukawa.

Kawamura, 69, currently chairman of Hitachi subsidiaries Hitachi Plant Technologies Ltd. and Hitachi Maxell (6810), will also assume the post of Hitachi chairman, the company said.

Furukawa will step down and become vice chairman, and Etsuhiko Shoyama will resign as chairman.

Kawamura, at 69, is seven years older than Furukawa. In the rest of the world, companies in trouble tend to reach for younger generations (well, younger than retirement age) to run the business, and indeed it sometimes happens here, too. With a fair percentage of Hitachi’s revenues derived from consumer-oriented businesses, and it being like, well, in theory, a cutting-edge tech company and all, you might have thought that someone moderately in touch with trend-setting, wired younger consumers would have been tapped. How naive. Japan lesson #1: never underestimate the power of the oyaji (late middle-aged man) gerontocracy. The Nikkei responds with typical hard-hitting, incisive treatment.

Seasoned Team To See Hitachi Through Tough Times

TOKYO (Nikkei)–Hitachi Ltd. (6501) has decided to entrust a team of veteran managers with leading turnaround efforts amid the crippling economic downturn.

Takashi Kawamura, chairman of Hitachi Plant Technologies Ltd. (1970) and Hitachi Maxell Ltd. (6810), will become Hitachi’s chairman and president April 1. At the same time, current President Kazuo Furukawa will become vice chairman, while current Chairman Etsuhiko Shoyama will step down from the post.

The three men spoke in a news conference here Monday. Excerpts from the news conference follow.

Q: Can you explain why you are stepping down from the position of president?

Furukawa: I thought we should create a management team with strong leadership to recover from an extremely tough situation.

Shoyama: Transforming a crisis into an opportunity is what Hitachi does. It appears that appointing younger management teams is a trend of the times, but we decided to tap veterans this time around to bring back the strong Hitachi.

Q: This reshuffling of top management goes against a Hitachi tradition of giving the president a long reign.

Shoyama: There is no rule that says that Hitachi presidents serve for 10 years. Today, our president’s term is up for renewal every year.

The economy has been changing very rapidly, and we put together a team that is best suited to the situation. Although Mr. Furukawa will step down after three years, I’m sure he feels as if he has served 10 times longer in the dog-year business world of today.

Kawamura: Defense is our priority now. Normally, a company’s operations should be 60% offense and 40% defense. But today, we should be 40% offense and 60% defense. We need to protect our business first to prepare for the next move. To this end, we have decided to depart from our tradition, including executive appointments, and created a team with wealth of experience.

On March 20, Hitachi decides to step in with around Y30bn for Renesas, which is blowing through capital even more vigorously than Hitachi is.

Money-Losing Renesas To Raise Y50bn By Issuing New Shares

TOKYO (Nikkei)–Hitachi Ltd. (6501) and Mitsubishi Electric Corp. (6503) have decided to purchase a total of roughly 50 billion yen in new shares from Renesas Technology Corp. by the end of the month to shore up the semiconductor joint venture’s capital base, The Nikkei learned Thursday.

Message to Hitachi: You haven’t got the cash, and even if you had, a combined Y50bn is nowhere near enough to save a company that has burned up almost its entire Y250bn in capital in a year!

This one baffles me a bit—the Japanese banks are presumably now no longer keen to touch Renesas with the longest of bargepoles, but I don’t understand why Hitachi didn’t go straight for the government teat. I guess it may have been pride, though it’s really, really too late for that.

And finally, proof positive that the company is beyond salvation.

Facing Huge Net Loss, Hitachi To Hire 40% Fewer Workers

TOKYO (Nikkei)–Hitachi Ltd. (6501) said Thursday that it plans to hire 850 workers in fiscal 2009, a drop of about 40% from estimates for the previous year.

The firm intends to take on 650 personnel fresh out of universities and technical colleges, a decline of 32%, and 150 new high school graduates, down about half on the year. These workers would start in spring 2010. It also plans to accept 50 midcareer employees throughout fiscal 2009, a third of the previous year’s tally.

The hiring of grads is political torchpaper, unfortunately, and in the contest of wills between the (rest of the) establishment and Hitachi (and any other big Japanese company), Hitachi would probably not have been allowed to get away with a graduate hiring freeze. Besides, it’s a matter of macho pride for incumbent managers to outhire—Hitachi is probably quietly fuming that it plans to hire fewer grads than much smaller but healthier rival Mitsubishi Electric.

So this is the gigantic, dismal mess that Hitachi now finds itself in. Where did it come from?

Well, to find out at least some of the answers to that I decided to crank up the S2000 for a day-trip to the eponymous city of its birth and a spot of industrial archaeology.

Sitting in the car on a sunny early spring Saturday, I pulled the map book open to discover that Hitachi wasn’t where I thought it was at all. My knowledge of the geography of Ibaraki Prefecture has always been a bit shaky—this was only the second time in my life that a place within its borders was my destination—and I had assumed somehow that Hitachi sprawled somewhere over the middle of the flat southern part of the prefecture, whereas it is 10km or so north of the end of the Kanto plain, by which stage the mountains are already crowding down close to the sea. It looked smaller on the map than I had imagined, too, although the city borders, I was to discover, sprawl over a sufficiently large territory for there to be a couple of hundred thousand people within them. Hitachi was the old historical name for a province that occupies northeast Ibaraki, and there are a fair few towns with Hitachi in their name: Hitachi Omiya, Hitachi Ota, and Hitachinaka, for example. But the one we are interested in is Hitachi itself, where in 1905 the fourth son of a rich merchant family from Yamaguchi at the south-east end of Honshu, Fusanosuke Kuhara, who had already made something of a success in the mining business at the Kosaka gold and silver mine in Akita Prefecture, in the deep north, bought the Akasawa (“red field”—how appropriate) copper mine and renamed it the Hitachi Copper Mine. Kuhara went on to have an illustrious, if compromised, career in Japanese politics, before and after the war, finally dying at his vast Tokyo residence in 1965 at the ripe old age of 96. He, however, is not the principal agent in the drama. Ibaraki-born Namihei Odaira, of less wealthy stock, arrived at the mine in 1906 as chief engineer, helping to electrify the plant and employ other talented engineers, before founding Hitachi Seiskausho as the machinery division of the mining operations in 1910, at first producing 5hp motors.

Back briefly to the mine: in 1914 and at its peak in the 1960s it was captured by the oblong photos on this webpage:

http://kirara-hitachi.web.infoseek.co.jp/kankou/kannkou/9nikkou/entotsu.html

The acidic sulphurous gases given off by the mine’s smelter devastated the surrounding hills and no doubt the health of the people who worked at the mine; by the sixties the giant stack, under construction in the photo from 1914, had helped regenerate the hillsides somewhat, by spreading the pollution further and wider. The mine itself was closed in 1981, the stack collapsed in 1993, and what you can see in the photo below is the stack rebuilt at a third of its original height. It seems that the smelting operations, at least, continue, although the firm running them is now a subsidiary of a company called Nippon Mining Holdings, which although wedded to Hitachi through this umbilical cord of desolation, doesn’t to my knowledge have especially close corporate ties with it.

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While the greenery may have been superficially replenished, I can say from first-hand experience that the hillsides in the immediate vicinity still look brutally despoiled, with lifeless steams poisoned by garbage and industrial substructures—the remains of a brick wall here, a row of derelict houses there.

But on with the story of Hitachi, on which I’m no expert, but which you can glean from the company’s own website:

http://www.hitachi.com/about/corporate/history_1910.html

Note that the history focuses almost entirely on a series of apparent technological achievements; there’s no mention even of sales of the millionth example of this widget or that doohickey, let alone anything as vulgar as profit.

So, 99 years on, how do things look for Hitachi’s centennial year? Arriving in Hitachi City, I aimed out of fast-ingrained habit for the station. Getting slightly lost, I came across a cement factory busily ruining the Pacific view.

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Hitachi Cement (why does it exist?) has just the one plant, and the website looks as though it was designed by a teen with learning difficulties in 1996.

http://www.hitachi-cement.co.jp/

From the employment information link (second down on the left), you learn that they pay graduates as much as Y207,960 a month! Why, that’s nearly GBP1,460/month at current (distorted) exchange rates, and two years ago it would have been GBP900/month. Guess there may be a shortage of FIV here. Looking forward to the, ahem, “bold measures”.

The area around the station was the by now customary zone of devastation—the street leading perpendicularly off it, which would usually be called the shotengai, is rather classily broad and lined with cherry trees, but at a rough guess about two-thirds of the stores were shut for good and the rest were hanging on by the skin of their teeth. I walked the length of it on both sides and could only find three places to eat, which is ridiculous for Japan and a town of this size. I eventually settled on a slightly forbidding soba/udon restaurant, and I’m very glad I did, as I hope the photo conveys.

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The restaurant was awash with sepulchral gloom: the woman in the nurse’s hat waited the tables and the only sound, apart from the TV, was her barking orders to her husband at the stove, The customers—men in working uniforms of drab grays and gray-greens—dribbled in solitarily, slurped, read manga, and ambled out, while all the while the spring invitational high school baseball tournament, desperately trying to persuade Japan that it has a demographic future, was coming across the airwaves. I savoured the scene, slurped my stuff, and then did some ambling out of my own, pausing only to note that the old cathode-ray TV—of course—was a Hitachi. Having predicted to myself from afar that it would be, the confirmation sent a smirk across my face that would have been entirely lost on its audience. How in this country cultures don’t collide.

The station-front area was remodelled in 2004, to include this turbine testament to Hitachi, the company.

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I then discovered a pedestrianized high street sort of affair, running parallel to the old shotengai, anchored by a big, six-storey Ito-Yokado pseudo-department store on one side and a smaller I-Y topped by a multi-storey car park on the other. Even though it was a Saturday afternoon on a three-day weekend, the “mall” was almost entirely deserted.

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Stumbling into a part of the smaller I-Y side, I came across this nugget.

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The English threw me for a moment (who wouldn’t it throw?), but as the paper gold bullion bars stacked on the shelf just about suggest, this is a kind of a pawnshop inviting Hitachi-ers to trade in their precious metals for cold, hard cash. Though like almost everywhere else in Hitachi City, where there should have been people, there were not, just empty chairs.

The pedestrianized street feeds down to a plaza, dominated by the monument to folly that is the Hitachi Civic Center.

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Again I smirked on coming across it: never in this country have I seen as distinct a disconnect between Bubble dreams and present day realities. I asked the girl at reception inside when the center was built, knowing full well the answer before I was told. There was a pause, and I realized after a moment that she was looking down at her calculator— even though I had asked in perfectly decent Japanese, even though she had understood immediately, she could not comprehend that I would be able to understand the answer if she gave it in era name years. As soon as I twigged what she was not computing, I let her off by saying which Heisei year, at which she relaxed and answered “Heisei 2″—1990—as if there could have been any other reply! From some points around town the civic center bears a passing resemblance to a nuclear reactor, which may even have been intentional, given Hitachi’s long involvement in all things nuclear.

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It’s difficult to convey the sheer size of the main Hitachi plant on the south side of town; all I can say is that it took 20 minutes to drive around it, at a fairly rapid clip. At one corner it was possible to discover what at least some of it actually does: this is a testing facility for internal pumps for advanced boiling water nuclear reactors.

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I abandoned my tour of the town here, headed south on the traffic-clogged highways, past a seemingly endless procession of Hitachi subsidiaries, not without some comical moments as I struggled to separate town and company: Hitachi Milk, now was that part of the industrial combine or not? Was there no aspect of life for which the Hitachi hydra did not have a head? Eventually I reached Tokaimura, where Japan’s first and so far only nuclear criticality incident occurred in 1999.

http://en.wikipedia.org/wiki/Tokaimura_nuclear_accident

South of Tokaimura, by accident more than design, I ended up heading towards the bright lights of Mito, the prefectural capital, and by the time I got to the city, with its glowing strips, German luxury car dealers, and more diversified economy, memories of Hitachi were fading fast.

Hitachi is perhaps Japan’s ultimate company town, a term rendered in Japanese as “jokamachi” (literally “under the castle town”), and I think it’s important to be alive to the feudal implications of that. It’s closest rival is Toyota City down near Nagoya, which even went one better than Hitachi, and changed its name to Toyota in celebration of the company, rather than the other way around, but which has not been suffering until very recently.

In Hitachi City, the merging of company identity and city identity is so complete that it is difficult for the outsider to separate the two: who, for example, runs the city’s buses, I wondered, which are operated by a company called Hitachi Dentetsu (Hitachi Railroad)? The answer is Hitachi the company: Hitachi Dentetsu is a 58% owned subsidiary. I can think of no real parallel to this in Britain or the rest of the west. And it’s not just outsiders that have the problem: apparently locals refer to the company as Nissei, using an alternative reading of the “hi” in Hitachi and the “sei” in “Seisakusho”, and the town as plain old Hitachi. Allegedly 40% of the households in the town have a member who works for Hitachi, which when you add in the 25% or so who are retired, the 20% or so who work for the government, and the 15% or so who work in small businesses or retail, means pretty much everybody in private-sector employment.

Another thing that struck me about the place was that it was almost impossible to imagine having fun in it after sundown: in the center there’s a karaoke parlor and a couple of restaurants that look as though they might spark up after dark, but that was about it, unless there’s entertainment to be had at the three oversized business hotels scattered around the center of town, which seems unlikely. Maybe due to the compressed geography, there are not even any strip malls or big-box retail outlets on the outskirts of the city. Nor are there even—as far as I could tell on an admittedly brief visit—any remotely plush residential zones for the senior managers. What else was there not? Well, quite a lot: where, for instance, is the Hitachi Museum, in this its hometown, celebrating a nigh-on century of achievement? Where, even, was there a showcase exhibit or a store for the latest in Hitachi products to encourage the locals to buy Hitachi? Nowhere to be found. Perhaps the company feels that the bond is so strong between town and “gown” that there’s simply no need. That wouldn’t surprise.

So, to return to the final question, where is Hitachi going? Well, over the immediate future, I anticipate a wider net loss figure than the Y7bn that the company is already forecasting for FY3/09, which is anyway the largest ever for a Japanese manufacturing company; although industrial electronics company profits are notoriously difficult to predict, there’s been no good news in the last couple of months that would lead any sane person to expect better rather than worse. FY3/10 promises more of the same, more erosion of owners’ equity, steeper drops in sales, and more pain all around. The Moody’s bond rating remains, incredibly, at AA- and the CDS spread at a scant 2.4%, so bankruptcy is not within Mr. Market’s sights yet, even though Hitachi was selected as one of 17 firms facing a “Golden Week crisis” by the March 25 evening Nikkan Gendai rag. More likely, sometime later in the year Hitachi will tap the government for a few billion dollars, the government will cave, welcomingly, and the Japanese debt-to-GDP ratio will take one more step closer to 200%. With almost all government debt held by domestic financial institutions, no one will care particularly, and we’ll all plod on down the path of remorseless decline.

Inspire the next!

7 responses to “Update 3: Inspire the Next

  1. Thank you very much for the very interesting blog. I grew up in Japan (Japanese mon – from Hitachi! and American dad) and spent numerous summers there in the 60s and 70s. It was really a “factory” town then, and as you said, the noxious fumes greeted you as you got off the Joban Line. The smaller streams that ran from the mountains close by were already devoid of any life. Having said that, the town was bustling – there was “life” all around, as Japan geared to stock every home here and abroad with their products. Even back then, everything was HItachi then too. I went back a few years ago, and saw what you did. I never went back. I have relatives there (a recent mayor is a relative!), but it is one of those memories that is best kept as a pleasant memory. HItachi is a behemoth that got arrogant during the bubble years and don’t even know that half the Korean companies have passed them many years ago.

  2. I translated a puff piece for Hitachi once. At the end came the incomprehensible slogan, “Inspire the Next.” I left it on the end of the paragraph, by itself. The client called to ask me to “work it into the last sentence.” I had to explain that the slogan is gibberish, and since it isn’t English there isn’t any way of incorporating it into an
    English sentence, is there?

  3. As bemusing as Hitachi’s slogan

    “Inspire the Next”

    is, I suggest that Kyoto-based Shimadzu’s

    “Access to Your Success”

    trumps it.

    • Controversial. “Access to your success” seems to be quite widely used in the (illiterate) English-speaking world. And I can forgive Shimadzu, which is a relatively small-beer corporation, more than I can Hitachi.
      Shimadzu’s current website catch-copy is “For the Well-being of both Mankind and the Earth”. How sweet.

      The greatest corporate website I ever came across was that of baby goods maker Pigeon, which once carried an article titled “Titty President’s brave fight” about then president Yuichi Nakata’s six-year “titty
      pilgrimage” around Japan to suckle at the breasts of expectant mothers in order to devise the perfect breast pad. If only it still existed.

  4. In the late 90s I got to work with a Hitachi subsidiary in a project that was funded by the government as a stimulus measure.

    I didn’t know where the money came for the project at the time, but the government made the grants to quasi-governmental Agency X which then contracted out the primary development work to 4 of the big players, each with their own network of OEMs coming together to create separate products.

    Kinda fun really, this was an edutainment product so their was plenty of friendly competition to see who could create the best product.

    Beats workin’.

  5. I worked in Hitachi in 1997, and the place was exactly as you describe. I never enjoyed living there, and I felt guilty about that, as I’ve enjoyed everywhere else I’ve lived in Japan – Kurobe, in Toyama, as well as the Noto Peninsula and eventually Tsuruga.

  6. Tokaimura, where Japan’s first and so far only nuclear criticality incident occurred in 1999.
    Ah in the spirit of decline which I do so enjoy in this blog, we can chalk up a
    new milestone? Fukushima 11/3/2011, although as of this post the dust(Strongtium) hasn’t settled yet.

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