Toshiba apologised yesterday for over-reporting its income statements from 2008 onwards, having delayed calculating its full-year financial results and setting up an independent investigation panel back in May. You’ll want to think more about its position as a Japanese vendor and global supplier.
The only coverage of Toshiba’s woes I’ve read today are by financial analysts, who reflect on the findings of an independent panel set up by the company in May, which will delay the publication of its full-year results until August. The company admits to overstating its income before tax by ¥151.8b in the period between its 2008 and Q3 of its 2014 financial years. When estimating that this equates to $1.2b, they’re taking today’s exchange rates – you could add another $500m if you take into account the dramatic fall in the value of the Yen over the period.
Many of the senior managers of Toshiba have resigned and it’s likely the company will be fined by Japanese regulators. This isn’t the first financial crises among Japanese public companies – for instance Olympus was fined ¥700m, with 3 of its execs given suspended prison sentences, for hiding losses over a 13 year period from the 1990s.
Life is tough for Japanese multi-national companies for a number of reasons.
The Yen has been through a period of rapid decline against the $US (see Figure opposite). While Japan isn’t the only country in which this has happened it has reduced the standing of its major suppliers on the world stage, turning reasonable financial results into significant declines if assessed in constant dollars.
As in other regions Japan was badly hit by the 2008 financial crisis, but it also suffered badly from the Great Earthquake of 2011 – both of these affected the size of its ITC market (see Figure below).
Within Asia Japan has no monopoly on global vendors as Samsung, Huawei, Lenovo, China Telecom and others succeed with (arguably) more modern products.
So what should Toshiba do to restructure itself? As you can see from our figure at the top of this paper its IT and non-IT businesses are roughly equal.
One approach to its problems might be to jettison its older businesses in the pursuit of a new strategy: following Siemens and Motorola who have essentially given up IT products altogether, or Nokia which has given up everything but networking. However I think that is unlikely given its status as a full-range Japanese supplier.
Toshiba has major assets as one of the last remaining hard disk manufacturers and it also has major opportunities in solid-state storage. It could chose storage as its main IT focus.
Its status as an industrial (as well as an IT) company gives it a great advantage as the Internet of Things market develops.
If deference of decision-making was one reason for its current problems, perhaps it could learn from the apparent openness of start-up companies in restructuring its business.
In common with every other supplier in the world Toshiba will need to become more agile in the future as IT becomes embedded in business and government processes.
I have no doubts that Toshiba will recover from these latest troubles. Eventually the Japanese market should recover as well from the triple whammy of credit crunch, earthquake and currency decline. Despite the need to tighten up corporate governance and financial reporting, Japan remains far ahead of the standards in most other Asian countries, where financial scandals of this kind often go unreported.