ã€Global Technology Reporter Wang Huan】 “The word “make money†is very dignified and magnificent for Edison.†The inventor Thomas Edison, who is widely known as the founder of GE, seems to use the term "make money" often. And Edison learned how to manufacture incandescent bulbs, and Fujitsu City, one of the founders of Toshiba, was used to mass-produce in Japan. "Japan Economic News" reported on March 31st that General Electric and Toshiba are no longer producing incandescent lamps. Home appliances business is also sold. However, the former has become the 11th largest global company in terms of total stock market value, while the latter is facing a disintegration crisis due to accounting fraud and loss of nuclear energy business.
Why Toshiba fell? The reason seems to lie in the way to make money. In other words, Toshiba and General Electric clearly formed a watershed in what is known as the business model.
Woo Lin-soo, an analyst in the household appliances and electronics industry who has a book on “business focus,†stated that “Products with a life cycle of 5 to 10 years and production scales of thousands to tens of thousands of businesses are rarely failed Japanese companies. Areas of expertise".
The cycle of nuclear power products that are the source of Toshiba’s crisis is 20 to 40 years. This cycle is very long. However, there is no competition with Korean, Taiwanese and Chinese companies. Toshiba’s acquisition of the US nuclear power company Westinghouse Electric (WH) was the mid-2000s when the Japanese home appliances industry declined significantly.
At that time, what was very popular was the distribution theory of manufacturing value added called "smile curve." The added value of the upstream core components, development, and downstream sales and service areas is high, and the added value of the assembly process in the middle reaches is low. The curve is much like the shape of a person's mouth when smiling.
Observing this smiley curve, we can see that the left end is occupied by Intel of the United States and the right end by Apple, and most of the home electronics and electronics companies in Japan are located in the intermediate assembly section. In order to get out of this severe environment, Japanese companies such as Toshiba are advancing selection and concentration strategies, and the heavy electric business such as power generation equipment is the first to be blamed. Although it belongs to the field of assembly, it has less competition with Asian companies and is expected to obtain stable returns. Japanese companies believe that even if the product has a long life, it is better for a Japanese company that specializes in adjustment than a digital industry that must make huge investment judgments. As a result, this has become a trap.
On the one hand, how did General Electric do it? In the 1980s and 1990s of Japanese companies' heyday, General Electric expanded its business from assembly and manufacturing to finance and broadcasting.
However, GE has also experienced a crisis. In the fall of 2008, GM had reduced its dividends for the first time in 70 years after the Lehman crisis. At the same time, it also lost the AAA rating and fell into a situation where corporate bonds guaranteed by the government can only be issued. The financial business, which accounts for 30% of sales, quickly turned the company into darkness.
At that time, Toshiba also faced a financial crisis due to Westinghouse's acquisition of more than 600 billion yen, and was on the verge of operating bankruptcy. They even joined hands with regulators to discuss third-party private placement of sovereign wealth funds in the Middle East.
However, at that time, the two companies were lucky enough to survive. The formation of polarization is after that.
Toshiba could not continue to receive orders because of the 2011 Fukushima nuclear power plant accident. Doing everything possible is proposing orders for M&A construction companies and competing for related projects. As he was particularly looking forward to obtaining orders for nuclear power plants, he was involved in unfamiliar territory without detailed investigations and the results continued to sink into them. This is the background of the Toshiba crisis.
In the same period, General Electric put forward the "reverse smile curve", which is the operation to reverse the smile curve. GE sold most of its financial business. We will shift our focus to the manufacturing industry, but we will strive to achieve a business that combines Internet and heavy-duty equipment and makes money through services.
For example, in the field of aircraft engines, General Electric installed sensors on its own products around the world to collect flight-time data such as sound and vibration. Taking a flight from Tokyo to New York as an example, the amount of data collected reaches about 2 trillion bytes (TB), which translates into a newspaper equivalent of 2,000 years. The company then analyzed the data and taught the airline flight operations methods to eliminate delays and failures. In 2016, the operating profit margin of the manufacturing department reached 15%, and it is also at a very good level from a worldwide perspective. What constitutes support is the service business started after product sales.
There is a saying called "asymmetry of information." Refers to the status of being able to obtain information that cannot be known to the other party and occupy a dominant position. GE obtained a favorable position through big data analysis, and built a business model that was overwhelmingly superior to the quality and quantity of customers.
If you have an advantage in the amount of information, the risks can also be prevented. Through AI (artificial intelligence) analysis of product and component characteristics and even life, when signing quality assurance and maintenance contracts with customers, they can minimize their own burdens and risks. According to Mr. Toyama Kazuhiko, a Japanese consulting firm, who runs a business-to-business foundation, “Competitive companies are those that do not sign a loss contract. The representative case is General Electric.â€
On the other hand, Toshiba's "contracts" signed in mergers and acquisitions (M&A) and acceptance of orders, etc., are in a rush to achieve success, and there are many cases in which the other party has rushed to act under a state where the other party has a lot of information. Therefore, it failed to see through the hidden risks.
Edison's obsession with the "dignified and magnificent ways of making money" should refer to businesses that can make full use of the asymmetry of information. Observing human history from the aspect of information, we can see 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, there will be great asymmetry between people and machinery. Prior to this, General Electric, which took note of the value and importance of information, built a mechanism to take advantage of this, while Japan fell behind. Perhaps the highlight of this is the Toshiba crisis.
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