Between Osaka and Kusatsu City in Japan?s Shiga prefecture, there are many long tunnels, highways dotted with high walls, quiet meandering roads and lotus ponds. The calmness of the terrain is suddenly punctured once inside electronic giant Panasonic?s imposing air conditioner factory in the region. Amidst a soundscape of pulsating machine noise, workers in blue shirts, jackets and caps join, punch and drill metals, run plastic injection systems, assemble components, test finished products for quality before packaging it off in large cardboard boxes.
This is an advanced plant. It uses the latest technology and innovative processes, which reduces overhead costs while speeding up production. Yet, counter-intuitively, robots?machines that perform tasks on its own?are on the decline in Panasonic?s factories. Much of the assembly and component lines are still automated but manual labour is on the rise elsewhere. Market shifts have been working against robots. Fastchanging consumer demand, much of it from emerging nations, has meant that factories need to quickly adjust many new product lines. Robots are typically programmed for one function and large volume production; they need a painful, time consuming re-booting.
Growing demand from emerging nations like India has also resulted in another significant change?a cultural shift in the company?s rigid, precision-obsessed factories. They are learning to tweak products for other countries, or what in globalisation?s rulebook is called localisation. ?Our factories are very strong. They believe they are No. 1. This is wrong. All products they manufacture may not work in other countries. Now, factories listen to us,? president of Panasonic India Daizo Ito quips, during a dinner meeting at the Ritz-Carlton in Osaka, an old-world hotel with a distinctive feel of 18th century English nobleman?s Georgian home.
Panasonic?s factories have little choice; India, growing at 8%, is too huge a market to let go. Localisation is fast becoming a cornerstone in the firm?s strategy to catch up with aggressive Korean rivals. While Panasonic, globally a $107 billion mammoth, enjoyed good mindshare in India in the 80s, it lost its footing in the following decades as it focused more on China and western economies. The slip-up shows in today?s revenue numbers: while Panasonic clocked just R3,200 crore in fiscal year 2010, both the Korean consumer electronic multinationals, LG India and Samsung, generated a topline of near about R16,000 crore during the year. Both the firms have a far greater market share of air conditioners, televisions, refrigerators and washing machines; they have far bigger network of partners and service centres, deep penetration into the regional market and cheaper products that Indian consumers can lap up at will. Both the firms are growing fast; LG expects to grow 25% in 2011 while Samsung is eyeing 40% growth.
So how can localisation win the game for Panasonic? Daizo Ito feels that as the ?think global, be local? mantra hums across the company, it could cross the psychological billion dollar threshold this year and post R5,500 crore in revenues, a growth of 72% over 2010. He wants a 10% marketshare in the country, focusing on home appliance products, television, cameras and business to business (B2B) products. Today, in air conditioners and television categories, it has a single digit marketshare, of about 8%.
Ito is therefore hiring local talent who knows the India market better, is collaborating with domestic firms, investing heavily in local factories that can dish out cheaper and more customised products. A new R1,125 crore plant in Jhajjar , about 30 km from Gurgaon, will be ready in November 2012?it would manufacture air conditioners, washing machines and welding equipment. The firm?s old factory in Chennai only makes rice cooker and mixer grinders.
The firm?s forecast of sales growth in the country is now married to growing local production. Take this: Panasonic expects to sell 3,56,000 air conditioner sets in the country in 2011, mostly made in Malaysia. By 2015, the firm expects to locally produce 7,72,000 sets, growing its sale more than four times in the country during the period to 15,25,000 units. In washing machines, 1,84,000 sets are expected to be sold in 2011. This will grow to 4,49,000 in 2015; 2,33,000 of them will have the Made-In-India tag.
?Local manufacturing will help the company position its products with more competitive pricing. Hitherto, Japanese brands though considered technologically superior in India have been considered to come at a price premium,? Deepa Doraiswamy, industry manager of automation and electronics practice at market research firm Frost & Sullivan says.
Collaboration with Indian companies, meanwhile, will help Panasonic expand into tier two and three towns while filling vital gaps in its offerings. ?In the security segment, we have the camera for surveillance but we need collaboration from Indian firms to provide software. Energy management is one target area on the storage side. We can work with Indian firms to make cheaper solutions. Indo-Japan collaboration can give us a chance to win against the Koreans,? Ito says, somewhat confidently.
However, the top guns at Panasonic?s headquarters in Osaka, where red carpets and majestic chandeliers give the place a royal look, would hardly be happy with just a localisation strategy. They have thought up a repertoire of products that look many years ahead; where green innovation would be a competitive differentiator and where American and European and not Korean firms alone would be its primary adversary. These would include foraying into the healthcare equipment market where GE and Philips rules, selling solutions for a model society of the future where IBM and Cisco make a big noise today, and marketing more welding systems where a motley of companies from China, US, Europe, Japan and India participate. About 70% of the firm?s revenues come from the business to consumer (B2C) segment currently. Bosses in the company want more diversity of revenues, a 50-50 divide between B2C and B2B.
To understand a futuristic product line, there is no better place to visit than the firm?s Kasai Green Energy Park, in Japan?s scenic Hyogo Prefecture. In October last year, Sanyo, a Panasonic group company, completed building the park that has now become what the company says is ?a large testing site for the realisation of a low-carbon society??the park showcases customers energy solutions. One megawatt of photovoltaic modules are embedded onto the walls and rooftop of the park?s main building, generating enough electricity for 30 households; a lithium-ion mega battery system stores power; a solar charging station, designed like a tree, awaits cars at the park gate; a solar parking lot nearby generates electricity through PV modules, stores it in rechargeable batteries to be used for charging electric bicycles; as one walks into a general store inside the park, LED lights can switch on automatically; a kitchen management system can ensure that the delicious fatty tuna for a plate of sushi remains safe and healthy. All these, the company guides, are what a model society of the future should look and behave like. An entire town or city can adopt these solutions to reduce carbondioxide and wastes, locally produce and consume energy, be secure and create an efficient social infrastructure.
Some of the tenets being talked about are similar to IBM?s ?Smarter Planet? initiates and Cisco?s ?Smart+Connected Communities.? However, Hiroshi Hanafusa, a charismatic, marshal arts practicing executive at Sanyo?s Smart Energy Systems Division, is not worried. ?IBM doesn?t have battery management systems which is important,? he says. ?The demand for better battery systems are increasingly rapidly after 3/11(Tsunami hit Japan). Panasonic will attack Japan first next year before going global with its solutions,? he adds.
It is not certain when the full range of energy creation, energy storage and energy management products would be introduced in India and there is little clarity on what the go-to-market would be. Company executives say that they are bent on making Panasonic the No.1 green innovation company in the electronics industry and that energy saving technology would eventually be its biggest selling point. Growing energy bills and power scarcity will make more and more Indians tilt towards products that pinch them less. ?We have to develop energy-saving LCD TVs that meet the demand for loud audio and strong bass of Indians. We have to develop new solutions for low water quality and water shortages and expand enlivenment technologies such as heat pump technology, inverter technology and energy management,? Machiko Miyai, executive officer, Corporate Environment Affairs Division, tells. Panasonic has introduced some of these energy saving products into the market in bits and pieces.
The firm, meanwhile, has commissioned a research to understand the Indian market for green products. Globally, it is pursuing recycle-oriented manufacturing to make the best use of resources, minimise overall resource used to make products lightweight while pursuing zero waste emissions at plants. Panasonic?s new factory in Jhajjar, when it opens in 2012, could therefore become the most advanced model-eco-conscious factory to be developed in India. Products manufactured would be RoHS complaint?a directive on the restriction of the use of six hazardous substances in electrical and electronic equipment, adopted by the European Union.
Among conventional markets, a new sector for Panasonic in India would be healthcare where it currently sells only blood pressure equipment. ECG machines and blood bank equipment are in next. In other B2B products such as welding systems, the firm is already present in the country but sees unprecedented growth with the expansion of domestic automobile, construction, shipbuilding, rail and other industrial firms. Koichiro Masai, president of Panasonic Welding Systems says that India is at the same stage where China was in 2000-2001. The group is expanding its sales network to garner more marketshare.
Panasonic?s positioning strategy is also falling in place, something that may help the firm regain the mindshare it lost to Korean firms post the 80s, Deepa Doraiswamy says. ?Panasonic is heavily investing in creating mindshare for its brand. In the current fiscal alone, it?s investing almost R 600 crore on various brand building and marketing initiatives. Strategies include using different brand ambassadors to target different mass consumer segments,? she notes. The acquisition of electrical accessory firm Anchor has helped Panasonic not only position itself as a key player in the electrical accessories market but also helped it gain better market visibility through the brand.
?Panasonic is leveraging the Anchor brand to launch newer emerging products like LED lighting that have tremendous potential in the Indian lighting industry. The LED lighting market in India is expected to grow in excess of 48% CAGR till 2018 touching revenues in excess of $1.5 billion by 2018 from a meagre $75 million currently. By targeting and launching products in this explosive growth market, Panasonic can have an edge over the other conventional consumer durable players and also expand its product markets beyond just consumer durables and home appliances,? she says.
2018 is also Daizo Ito?s favourite for other reasons. In 2018, Panasonic will be 100 years old. By that year, its energy saving products could substantially reduce carbondioxide emissions of 120 million tonnes. By that year, if Panasonic can consistently clock an annual growth of 30% in consumer durables and potentially much more in newer categories, the firm could beat both LG and Samsung in India. Ito smiles at that thought.