Depth report

　　

Both General Electric and Toshiba no longer manufacture incandescent lamps, and both have sold their home appliance businesses. However, the former has become the 11th largest company in the world in terms of total stock market value, while the latter is facing a crisis of disintegration due to accounting fraud and losses in nuclear energy business.

    Why did Toshiba fall? The reason seems to be the method of making money. In other words, Toshiba and General Electric have clearly formed a watershed in what is called the business model.

    Hideki Wakabayashi, an analyst in the home appliance and electronics industry who authored the book "Business Focus", said, "The life cycle of a product is 5 to 10 years, and the scale of production is in the thousands to tens of thousands of businesses. Japanese companies rarely fail. Areas of expertise".

    As Toshiba's current crisis, nuclear power products have a cycle of 20-40 years. This cycle is very long. But there is no competition with South Korean, Taiwanese and Chinese companies. Toshiba's acquisition of Westinghouse Electric (WH), a US nuclear power company, was in the mid-2000s when the Japanese home appliance industry was clearly in decline.

    At that time, the theory of the distribution of added value in the manufacturing industry called the "smile curve" was very popular. The upstream core components, development, downstream sales, service and other fields have higher added value, while the midstream assembly process has lower added value. The curve is very similar to the shape of a person's mouth when smiling.

    Observing this smiling curve, we can find that the left end is occupied by Intel of the United States, the right end is occupied by companies such as Apple, and most of the Japanese home appliance and electronics companies are located in the middle assembly part. In order to get rid of this severe environment, Japanese companies such as Toshiba are promoting a strategy of selection and concentration, and the first to bear the brunt is power generation equipment and other heavy power businesses. Although both belong to the assembly field, there is less competition with Asian companies, and stable income is expected. Japanese companies believe that even if the product has a long mid-term life, as a Japanese company that is good at adjustment, it should be better in this field than in the digital industry, which must make huge investment judgments. As a result, this has become a trap.

    On the one hand, what does GE do? During the heyday of Japanese companies in the 1980s and 1990s, General Electric expanded from the manufacturing industry such as assembly to finance and broadcasting, and promoted business restructuring.

    But General Electric has also suffered a crisis. In the fall of 2008, GM reduced its dividend for the first time in 70 years due to the Lehman crisis, and at the same time lost its AAA rating and fell into a situation where it could only issue government-guaranteed corporate bonds. The financial business, which accounts for 30% of sales, instantly plunged the company into darkness.

    At that time, Toshiba was also facing a financial crisis due to the Westinghouse Electric M&A case of more than 600 billion yen, and was on the verge of bankruptcy. He even joined hands with regulators to discuss the implementation of a specific person's capital increase to sovereign wealth funds in the Middle East.

    However, at the time, the two companies were lucky to survive. The formation of polarization is after that.

    Toshiba was unable to continue to obtain orders due to the Fukushima nuclear power plant accident in 2011. What every possible means is proposed is the acquisition of construction companies and orders for related projects. Due to the special expectation of obtaining orders for nuclear power plants, he ventured into unfamiliar fields without detailed investigations, and the results continued to be deeply involved. This is the background of the Toshiba crisis.

    In the same period, General Electric proposed the "inverse smile curve," which is to adopt operations that reverse the smile curve. General Electric sold most of its financial business. We will refocus our focus on manufacturing, but strive to achieve a business that combines the Internet and heavy electrical equipment to make money through services.

    For example, in the field of aircraft engines, General Electric installs sensors on its own products around the world to collect data during flight such as sound and vibration. Taking one flight between Tokyo and New York as an example, the amount of data collected reached about 2 trillion bytes (TB), which is equivalent to 2000 years when converted into newspapers. The company then analyzed the data and taught airlines how to eliminate delays and failures in flight operations. In 2016, the operating profit margin of the manufacturing department reached 15%, which is also at a very excellent level worldwide, and what constitutes the support is the service business that starts after product sales.

　 There is a saying called "information asymmetry". It refers to the position of being able to obtain information that the other party can't know, and the state of occupying a dominant position. General Electric has gained a favorable position through big data analysis and has built a business model that has an overwhelming advantage in the quality and quantity of information relative to its customers.

    If you have an advantage in the amount of information, risks can be prevented before they happen. Through AI (artificial intelligence) to analyze the characteristics and life of products and parts, when signing quality assurance and maintenance contracts with customers, you can minimize your own burden and risk. Kazuhiko Toyama of the Japanese consulting company "management of co-creation of the foundation" said, "Competitive companies refer to companies that do not sign contracts that suffer losses. The representative case is General Electric."

　 On the other hand, the "contracts" signed by Toshiba on mergers and acquisitions (M&A) and receiving orders are eager to achieve results, and there are many cases in which the other party has a large amount of information to act in a hurry. Therefore, it is impossible to see through the hidden risks.

    The "majestic and magnificent way of making money" that Edison never forgets should refer to a business that can make full use of the asymmetry of information. Observing human history from the perspective of information, we can find that from letterpress printing → telecommunications → telephone → Internet, after each technological innovation, the asymmetry between people will strengthen or disappear. Although the Internet has finally eliminated the information gap between people, in the era of the Internet of Things, a huge asymmetry will be formed between people and machines. General Electric, which paid attention to the value and importance of information before, built a mechanism to make profits, while Japan lags behind. Perhaps it is the Toshiba crisis that highlights this point.