Matsushita: The Electronic Giant Wakes Up

It's getting lean, going digital--and worrying Sony

For years, Matsushita Electric Industrial Co., the world's largest consumer-electronics maker, never got much respect. Compared with the hip, innovative Sony Corp., Matsushita and its stable of Panasonic-brand TVs and VCRs looked like a lumbering giant trying to follow the leader. In the tradition of large Japanese manufacturers, it let front-runners set the trends. Then it simply reproduced the technology.

Not anymore. Since taking over as president in 1993, Yoichi Morishita has engineered a radical restructuring of Matsushita that is turning it into a more innovative and profitable enterprise. By carrying out the company's most ambitious overhaul ever, he has turned the Osaka-based company into a world leader in digital electronics. "I've cut away the excess and left the muscle," Morishita says.

DIGITAL TIGER. Since Morishita took over, he has reduced the company's emphasis on low-margin consumer electronics, from 50% to 35% of sales, and moved into more lucrative areas of digital technology. Already a leader in digital cellular phones, Matsushita is grabbing Sony's market share in digital cameras and maintaining dominance in digital video discs (DVD). Most importantly, Matsushita is enhancing its growth potential by becoming a key supplier of parts for the next generation of mobile phones, DVDs, and digital TVs.

As a result, Matsushita's bottom line is looking better. Profit margins have risen from 2.8% when Morishita took over the helm to 4.3% in fiscal 1997, when the company earned $2.6 billion on sales of $60 billion. He hopes to reach 7.5% by 2000. But this year could be difficult, given the recession in Japan, where 50% of Matsushita's business is based. That makes it imperative, says Morishita, to invest in technology. "Only the technological front-runners will survive," says Reiji Sano, head of global R&D, which is budgeted for 6% of sales.

Some believe Morishita should restructure even further if his company is to prosper in a digital, networked future. "Matsushita has such an impressive array of key technologies that it should have higher profits," says Kimihide Takano, senior analyst at Dresdner Kleinwort Benson in Tokyo. The problem, he says, is typical of many Japanese electronics companies--not enough focus. But Masami Fujino of Jardine Fleming argues that Matsushita's big product range means "it's poised to reap profits when products are all integrated."

Back in 1993, Morishita, a skillful organizer who had proved himself as a sales manager, was chosen over more senior executives by Chairman Masaharu Matsushita. Sales had fallen as competition from low-cost Asian makers intensified. In the U.S., the managers of MCA Inc., the entertainment conglomerate that Matsushita had acquired in 1990, threatened an insurrection. At home, a nonbank subsidiary, National Leasing Co., had been crippled with nearly $3 billion in bad loans.

MCA SOLD. Morishita wasted no time. He phased out the bad loan unit and revamped headquarters, pruning one managerial layer. In 1995, he sold 80% of troublesome MCA, which runs Universal Studios Inc., at a $1.2 billion loss.

As part of a plan to bring in innovations from U.S. venture firms, he is setting up an R&D center in Silicon Valley. On the drawing board are networked products, such as the TV-PCs of the future. "The most promising area for growth is digital networks," says Sano. "American venture businesses are making it a reality, so they are important in our business strategy."

Recently, Morishita has introduced reforms that are revolutionary by Japanese standards. Matsushita plans to be the first major Japanese company to extend employee stock options and to link management incentives to stock performance. Morishita is also in the process of switching to pay based on merit rather than seniority.

Matsushita's emergence as a nimbler player has startled competitors. Two years ago, Sony officers smirked at the mention of stodgy Matsushita. Today, admits Sony CEO Norio Ohga, "Panasonic is such a powerful competitor that business from now on will be very tough." Clearly, no one's smirking now.

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