Developing a Winning China Strategy

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					                                                                              SEC China010821BJ-Toshiba




CONFIDENTIAL


Brown Goods and PC
Competitor Analysis:
Toshiba
                             SAMSUNG ELECTRONICS CHINA
                             (SEC China)




August 20, 2001



This report is solely for the use of client personnel. No part of it may be
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organization without prior written approval from McKinsey & Company.
This material was used by McKinsey & Company during an oral
presentation; it is not a complete record of the discussion.
                                                                           SEC China010821BJ-Toshiba


OVERVIEW OF COMPETITOR ANALYSIS FRAMEWORK

         1. Background information         4. Value chain strategy
         • Location      • Starting year   Focus on
         • Registered    • Number of       • Marketing,
           capital           employees       advertising and
         • Management • Era analysis         promotion
           team                            • Distribution (channel
         • Equity                            and sales force)
           structure




         2. Strategy                       5. Organization and ownership
         • Mission                         • Organization structure
         • Vision                          • Ownership structure
         • Corporate strategy




         3. Product/market                 6. Financial performance
         • Key product offerings           • Sales
         • Market position                 • Profit




                                                                                                  1
                                                                          SEC China010821BJ-Toshiba


BACKGROUND INFORMATION

        1. Background information         4. Value chain strategy
        • Location      • Starting year   • Focus on
        • Registered    • Number of         – Marketing,
          capital           employees         advertising and
        • Management • Era analysis           promotion
          team                              – Distribution (channel
        • Equity                              and sales force)
          structure




        2. Strategy                       5. Organization and ownership
        • Mission                         • Organization structure
        • Vision                          • Ownership structure
        • Corporate strategy




        3. Product/market                 6. Financial performance
        • Key product offerings           • Sales
        • Market position                 • Profit




                                                                                                 2
                                                                      SEC China010821BJ-Toshiba


BACKGROUND INFORMATION – TOSHIBA
    (As of September 30, 2000)
             Established:             1875 by Hisashige Tanaka


             President & CEO:         Tadashi Okamura


             Total Assets:            US$51,578 million

             Shareholders’ Equity:    US$10,054 million


             Number of employees:     190,000 worldwide

             Domestic Plants,         Production facilities: 25
             Branches Offices         Branch offices: 35
             And Other Facilities:    Sales offices: 23


             Overseas Plants,         Offices: 10
             Branches Offices         Manufacturing companies: 42
             and Other Facilities:    Subsidiaries & affiliates: 72




Source: Toshiba website, Lit search
                                                                                             3
                                                                                                 SEC China010821BJ-Toshiba


BACKGROUND INFORMATION – DALIAN TOSHIBA TELEVISION, LTD

  Location:                           Dalian, Liaoning Province


  Starting year:                      1996


  Registered Capital:                 US$30 million


  Products:                           21’ – 34’ color TV (CRT, Projection, Flat)


  Unit Sold:                          color TV 1 million sets, 50% export (Year 2000)

 Number of employees:                 2,000

 Joint Venture Partners                                           Type

 • Toshiba                                                        Foreign Juristic Person's Shares


 • Toshiba (China) Co.                                            Foreign Juristic Person's Shares


 • Dalian Daxian (Group) Co., Ltd.                                Domestic Juristic Person's Shares


Source: Company website, Lit search
                                                                                                                        4
                                                                              SEC China010821BJ-Toshiba


TOSHIBA’S CORPORATE MANAGEMENT TEAM

                                                         iValue Creation Company CEO:
                                                         Tsutomu Kawada
                                                         e-Solutions Company CEO:
                                     Corporate project   Hiroo Okuhara
                                                         Social Infrastructure Systems
                                                          Company CEO: Tsuyoshi Kimura
                                                         Digital Media Network Company
                                                          CEO: Atsutoshi Nishida
                                      Corporate staff
                                                         Mobile Communications Company
                                                         CEO: Tetsuya Mizoguchi
                                                         Power Systems & Services
                                                          Company CEO: Toshiyuki Oshima

          President & CEO                                Semiconductor Company CEO:
          Tadashi Okamura                                 Takeshi Nakagawa
                                                         Display Devices & Components
                                                          Company CEO: Eisaburo
                                                          Hamano
                                     Corporate support   Medical Systems Company CEO:
                                         services         Masamichi Katsurada
                                                         Home Appliances Company CEO:
                                                          Makoto Nakagawa
Source: Company Report, Lit search
                                                                                                     5
                                             SEC China010821BJ-Toshiba


HISTORY OF TOSHIBA




Source: Company website, Literature Search
                                                                    6
                                                                                             SEC China010821BJ-Toshiba


TOSHIBA’S DEVELOPMENT WENT THROUGH THREE STAGES
                 1875-1939                     1939-1978                      1978- PRESENT
                                                  Becoming Industry              Meeting worldwide
                    Business Building
                                                  Leader                         competition

Organization      • Two Japanese               • The company grew             • Toshiba shifted direction by
structure           electrical equipment         rapidly and became a           investing heavily in IT
                    manufacturers                market leader in the           segment. The organization
                    merged in 1939 to            electrical and electronic      became increasingly global,
                    create Toshiba.              industry. However, the         employing 190,000 employees
                                                 organization became            world-wide with annual sales
                                                 more bureaucratic.             over ¥ 5 trillion.

Corporate         • Technological              • The company continued        • IT focus, diversification,
strategy            innovation accounted         to be innovative in the        innovation and globalization
                    for the companies’           early years, producing         are four key elements of
                    successes. One of            many firsts in the             Toshiba’s corporate strategy.
                    the founders was the         industry. However, It lost
                    so-called Edison of          its innovator image in the
                    Japan.                       70’s .

Product                                        • Numerous leading             • Toshiba is intensively focusing
Development • Main products                      products in the electrical     on IT-related business (i.e.
& Technology included                            and electronics areas.         telecom and internet),
              transformers, electric             Examples includes              meanwhile, leveraging its
              motors, light bulbs,               Japan’s first vacuum           legacy businesses to generate
              radio receivers, and               cleaner, first fluorescent     stable income
              cathode-ray tubes.                 lamp, first radar, etc.
Source: Literature Search; McKinsey Analysis
                                                                                                                    7
                                                                                          SEC China010821BJ-Toshiba


DEVELOPMENT OF DALIAN TOSHIBA’S TV BUSINESS IN CHINA
                 1996-1997                    1998-2000                   2001
                                                Establishing                 Becoming Toshiba’s Key
                    Business Building           Leadership in PJTV           Global TV Production
                                                Market                       Base
Key initiative    • Founded as a joint        • Focused on high profit    • Toshiba decided to relocate its
                    venture in 1996,            margin PJTV segment,        digital TV production to Dalian
                    construction was            and competed on             and invested ¥300 million to
                    completed in 1997.          technology, service and     expand capacity from one
                  • Conducted accurate          management rather than      million units to 1.5 million units
                    market forecast and         price.
                    implemented just in       • Strengthened customer
                    order inventory             service
                    management.



Key results       • Inventory turn-over       • Revenue and profit grew   • exported 800,000 units to
                    less than two days.         50% annually. Became        Japan.
                  • Made profit the next        the No. 1 market share
                    year.                       leader in PJTV segment.




Source:Literature Search; McKinsey Analysis
                                                                                                                 8
                                                                                                 SEC China010821BJ-Toshiba


TOSHIBA WILL FURTHER INVEST IN IT INDUSTRY IN CHINA
Background information

               •   Invested companies in China            23
               •   Total investment                       RMB 6 billion
               •   Chief representative                   Pintianxinzheng (pinyin)
               •   Total number of employees              over 10,000
               •   Importance of China

                          “Apart from Japan, Toshiba divides global market into four regions,
                          America, Europe, China and the rest of Asia. China is the only
                          region made up of one single country"
                                                    Chief representative of Toshiba in China

               • Future investment plan
                          "To support China's 10th 5-year plan, we will enlarge our investment
                          in IT industry…. Toshiba has the world-leading LCD related and
                          semiconductor technology. The amount of each investment will
                          exceed I billion USD."
                                                    Chief representative of Toshiba in China




Source: literature research, interview
Source: Literature research, interview                                                                                  9
                                                                                        SEC China010821BJ-Toshiba


TOSHIBA IS THE LEADING PLAYER IN NOTEBOOK MARKET BOTH
IN CHINA AND GLOBALLY

Era analysis of Toshiba in Notebook



                  Time                   Key milestones
                  1985                   Introduced the first notebook in the world

                  1990                   Introduced STN notebook

                  1993                   Introduced color TFT notebook

                  1994                   Introduced Pentium-empowered notebook

                  1999                   Ranked number one in China notebook market for 4 years

                  2000                   Ranked number one in world wide notebook market for 7 years




Source: literature research, interview
                                                                                                             10
                                                                               SEC China010821BJ-Toshiba


STRATEGY

           1. Background information           4. Value chain strategy
           • Location        • Starting year   • Focus on
           • Registered      • Number of         – Marketing,
               capital         employees           advertising and
           • Management • Era analysis             promotion
               team                              – Distribution (channel
           • Equity                                and sales force)
               structure




           2. Strategy                         5. Organization and ownership
           •   Mission                         • Organization structure
           •   Vision                          • Ownership structure
           •   Corporate strategy
           •   Market position




           3. Product /market                  6. Financial performance
           • Key product offerings             • Sales
                                               • Profit




                                                                                                     11
                                                                                       SEC China010821BJ-Toshiba


TOSHIBA’S MISSION AND VISION




              Corporate mission
              “We, the Toshiba Group companies, based on our total commitment to
              people and to the future, are determined to help create a higher quality of
              life for all people, and to do our part to help ensure that progress continues
              within the world community"




              Corporate vision
              “To grow with excellence as the leading-edge, internet-ready enterprise
              globally by accelerating innovation with agility, and to create a 21st century
              of success hand in hand with our customers"




Source: Company website, Lit search.
                                                                                                            12
                                                                                                 SEC China010821BJ-Toshiba


THREE STRATEGIES PROPEL TOSHIBA TO BECOME A GLOBAL HI-TECH
LEADER IN THE NEW MELLIMUM
                                             Accelerate the speed of innovation
                                             • Management Innovation (MI2001) is a
                                               major initiative being promoted
                                               throughout Toshiba Group. It is aimed at
                                               advancing creative destruction and
                                               competitive superiority




                                                                   Toshiba as a
 Champion market-centric                                          leading-edge,
                                                                  internet-ready    Be internet-ready
 management                                                                         • Digital Manufacturing, a new
 • Customer Relationship                                         global leader in
                                                                      hi-tech         system, will be introduced
   Management and Supply                                                              throughout the Toshiba
   Chain Management                                                                   Group
   systems will be deployed                                                         • An IT infrastructure for
   to cover company-wide                                                              collaborative engineering will
   operations.                                                                        be established
Source: Lit search, external interviews: Toshiba Annual Report
                                                                                                                      13
                                                                          SEC China010821BJ-Toshiba


ASSESSMENT OF TOSHIBA'S CURRENT STRATEGIC POSITION – SWOT



        Strengths                       Weaknesses
        • Broad and diversified         • Less customer focused
          product portfolio             • Weak brand name in cutting-
        • Strong presence in Asia         edge information technologies
        • Strong R&D and                • Unbalanced global presence
          manufacturing capabilities



       Opportunities                     Threats
       • Global digital convergence     • Bureaucratic management
       • Emerging technologies,           style
           i.e., Internet, 3G           • Its core semiconductor
       •   China joining WTO opens        business is a cyclical
           doors to foreign companies     commodity business
                                        • Behind the curve in key IT
                                          developments




                                                                                               14
                                                                             SEC China010821BJ-Toshiba


THERE ARE TWO SUCCESSFUL MODELS IN THE CHINA CTV MARKET,
DALIAN TOSHIBA FOLLOWS THE SONY MODEL


    The Konka Model                            The Sony Model
    • Capital intensive, aggressive growth     • Zero in on the high end, high profit
      through economies of scale in              segment of CRT TV market with a
      manufacturing and in the sales force       strong brand able to command price
    • From 1993 to 1998 Konka acquired TV        premiums
      manufacturers: North east Du Dan Jian,   • Not in a strong presence in unit market
      San Xi, An Suo, Chong Qing factories      share, but the top brand when
      to bulk up                                consumers respond for the brand
    • Grew capacity by 2 million units from     quality and reliability
      1993 to 1998                             • Corporate philosophy unwilling to
    • Through economics of scale and            sacrifice profits for larger market share
      aggressive pricing Konka was able to      (vast different from Chinese players)
      grow market share from 3% to 11%         • Future target focused on higher end,
      from 1995 to 2000                         cutting edge technology TVs e.g. PJTV,
                                                Digital TV, LCD and PDP which have
                                                significantly higher profit margins.




Source: Lit search, McKinsey analysis
                                                                                                  15
                                                                                                          SEC China010821BJ-Toshiba


TOSHIBA SHIFTS ITS STRATEGIC FOCUS TO APPLICATION SOLUTION
AND CUSTOMER SERVICE IN CHINA NOTEBOOK MARKET
Toshiba notebook strategy* in China

           Mission            To be the most responsible IT product application solution and
                              service provider
           Strategy evolvement

                               Time          Strategic focus

                               1996          • Product itself

                               1997          • Channel development

                               1998          • Application

                               1999          • Customer service

                               2000          • VIP certification focusing on core customers
                                             • Channel development into 2nd tier geographies
                                             • Application solution of "mobile office" concept
      * Toshiba notebook strategy in China is co-developed by Digital China, Toshiba’s exclusive notebook chief-
        distributor in China
Source: literature research, interview
                                                                                                                               16
                                                                          SEC China010821BJ-Toshiba


PRODUCT/MARKET

        1. Background information         4. Value chain strategy
        • Location      • Starting year   • Focus on
        • Registered    • Number of         – Marketing,
          capital          employees          advertising and
        • Management • Era analysis           promotion
          team                              – Distribution (channel
        • Equity                              and sales force)
          structure




        2. Strategy                       5. Organization and ownership
        • Mission                         • Organization structure
        • Vision                          • Ownership structure
        • Corporate strategy




        3. Product /market                6. Financial performance
        • Key product offerings           • Sales
        • Market position                 • Profit




                                                                                               17
                                                                              SEC China010821BJ-Toshiba


TOSHIBA’S GLOBAL NET SALES BY BUSINESS SEGMENT
Yea 2000 (¥ billion)

                                         Others
                                         ¥473
                                                             Information &
                         Home                                Communications &
                         Appliances                          Industrial Systems
                         ¥660                   7%           ¥1,858
                                          10%
                                                       28%


                    Electronic          23%
                    Devices &
                    Components
                    ¥1,477                             23%
                                                9%

                                                              Digital Media
                                                              ¥1,518
                                       Power Systems
                                       ¥571


Source: Toshiba web site, Lit Search
                                                                                                   18
                                            SEC China010821BJ-Toshiba

DALIAN TOSHIBA's KEY TV PRODUCT OFFERINGS
       Color TVs (inch, model no.)
       • Projection TV Series: 43’ – 61’
           –   61D9UXC
           –   50D9UXC
           –   43D9UXC
           –   50D8UXC
           –   43D8UXC



   • Flat TV Series: 21’ – 34’
       –   34D8UXC
       –   34D6DC
       –   29D8UXC
       –   29D6DC
       –   29D3XC
       –   25D6XC
       –   21AF6C


 • CRT TV Series: 21’ – 29’
   –   29D2DC
   –   29D2XC
   –   25D2XC
   –   25E3DC3
   –   21D2NC




  Source: Company website, Lit search
                                                                 19
                                                                                             SEC China010821BJ-Toshiba


DALIAN TOSHIBA’S MARKET POSITION IN CHINA’S CONVENTIONAL CRT
TV MARKET: NO. 5 MARKET SHARE LEADER
Market share by sales, %




                         100%              100%
  Others                  6.3%                 6.4                 Key trends        Rationale
  Rowa             1.9                  2.0
  LG                       2.0                 2.4
                           2.2                 2.2
  Panda
  Jinxing
                           3.0
                           4.0
                                               3.3
                                               4.6                 • Industry        • Top five players in the
  Skyworth-RGB             4.2
                           4.2
                                               3.9                   undergoes         market –Changhong,
  Xoceco                                       4.9
  Philips                  6.6                 5.0                   further           TCl, Konka, Hisense,
  Haier
  Panasonic
                           7.0                 5.7                   consolidation     Skyworth,controlled
                                               7.3
  Hisense                  7.0                                                         41.6% of the market in
                                               7.5
  Toshiba                  7.4                                                         1999 grew to 43.7% in
  TCL                      9.6                 9.3                                     2000
  Changhong                9.7                11.7                 • Foreign         • Local players increased
                                                                     players lose      market share from 65%
  Konka                   11.2                10.9
                                                                     market share      in 1999 to ~67% in
                          13.7                                       to local          2000
  Sony                                        13.0
                                                                     players

                         1999                 2000
Source: GFK, McKinsey Analysis, External interviews: Konka, Sony, Toshiba
                                                                                                                  20
                                                                                                                  SEC China010821BJ-Toshiba


DALIAN TOSHIBA’S MARKET POSITION IN CHINA’S PJTV MARKET: NO. 1
MARKET SHARE LEADER
Market share by sales
Percent                                                                          Key trends              Rationale
                                                                                • Established MNCs,      • High-end producers with
                                                                                  Toshiba, Sony will       superior technology in
Local (Konka                   100%                    100%                       continue to dominate     pixel resolution and
Changhong, etc)                    ~4                    ~3                       market                   brightness
Other MNCs                         ~5                    ~3
                                    1                     6
Hitachi                                                                         • Local players start    • Local players expected
Panasonic                          15                    14                        establishing           to acquire key PJTV
Samsung                             7                                              themselves by 2005     technologies as of 2003
                                                         10

                                                                                                         • As comparison,
                                   33                                                                     Changhong alone now
Sony                                                     32
                                                                                                          controls ~ 20% of large
                                                                                                          screen CRTV market,
                                                                                                          local players likely to
                                                                                                          gain similar share in
                                   35                    32                                               PJTV market
Toshiba


                                 1999                   2000



Source: GFK, internal interview, literature search, external interviews: Sony, Panasonic, Toshiba
                                                                                                                                       21
                                                                                                SEC China010821BJ-Toshiba


PJTV PLAYERS’ STRENGTHS AND WEAKNESSES

    Company                             Strengths/weaknesses
    Toshiba                             • Strong brand name
                                        • Aggressive sales and marketing


    Sony                                • No. 1 brand name
                                        • Premium market with highest industry profits


    Samsung                             • Strong quality in resolution and brightness
                                        • Solid position in the market
                                        • Comparable technology with Japanese counterparts


    Other MNCs:                         • Possess the technology, but yet to establish themselves in market
    Panasonic, Philips, etc.


    Local companies: TCL,               • Lack the key technologies for PJTV components – tubes and screen
    Konka, Hinsense, Haier,             • Low-end brand have resulted in low sales volume
    Changhong                           • Will fill up the technology gap by about 2003



Source: Lit search, McKinsey analysis
                                                                                                                     22
                                                                              SEC China010821BJ-Toshiba


TOSHIBA HAS A FULL-LINE PROUCT OFFERING IN NOTEBOOK,
COVERING LOW-END TO PREMIUM SEGMENT
Key product offerings


                              • Satellite Series 2800 (13.3", 14.1", 15.0")
                              • Portege Series (7220CT, 3480CT, 3490CT)

                              • Tecra Series (8100H, 8000J, 8200)

                              • Satellite 1750 (13.3")
                              • New satellite 2800 (13.3", 14.1",15.0")

                              • Satellite Pro 4600 (13.3", 14.1", 15.0")

                              • New Satellite Pro 4600 (14.1")

                              • Satellite 3000 (13.3")



Source: literature research
Source: Literature research                                                                        23
                                                                          SEC China010821BJ-Toshiba


TOSHIBA IS STRONG IN EDUCATION, LARGE AND MEDIUM BUSINESS,
BUT PARTICULARLY WEAK IN GOVERNMENT
Sales by customer segments
Percent of units shipment (000s), 2000


                           100% =             73                 484
                           Small office            3.8     3.5
                           Home             5.5                  3.7
                                                             4.8
                           Education           8.4
                                                              10.9
                           Small business     8.4

                                                             22.2
                           Large business
                                             27.4


                                                             23.5
                           Medium
                           business           28.8


                                                             31.4
                           Government         17.8

                                            Toshiba      Market average


Source: IDC                                                                                    24
                                                                                       SEC China010821BJ-Toshiba


TOSHIBA IS GENERALLY A MEDIUM TO HIGH-END PLAYER,
PARTICULARLY STRONG IN USD 2.5-3.5K PRICE BRAND
Sales by customer segments
Percent of units shipment (M), 2000                                                           Toshiba's
                                                                                              market share
                 100% =         0.11               0.12         0.17         0.08


               Others                                                         12.2
                                20.2                             24.2      0.1
                                                   26.6 0.1
                                                                                 9.8
                                             1.4                                 3.8
              Founder           17.9                 6.6                       7.1
                  Dell                                           13.9
                          0.7          3.5
                 Acer           2.2
              Toshiba            9.2               16.1          10.4
                 IBM      0.9
                                                   13.3                      56.5
                                                                 24.5

                                                   11.1
                                48.8
                                                                 13.5
                                                   22.7
              Legend                                             12.1        10.4

                            Low               Medium          High         Premium
                            (0-2k)            (2-2.5k)        (2.5-3.5k)   (>3.5K)

Source: IDC                                                                                                 25
                                                                           SEC China010821BJ-Toshiba


VALUE CHAIN STRATEGY

         1. Background information         4. Value chain strategy
         • Location      • Starting year   • Focus on
         • Registered    • Number of         – Marketing,
           capital           employees         advertising and
         • Management • Era analysis           promotion
           team                              – Distribution (channel
         • Equity                              and sales force)
           structure




         2. Strategy                       5. Organization and ownership
         • Mission                         • Organization structure
         • Vision                          • Ownership structure
         • Corporate strategy




         3. Product/market                 6. Financial performance
         • Key product offerings           • Sales
         • Market position                 • Profit




                                                                                                26
                                                                                                                  SEC China010821BJ-Toshiba


 TOSHIBA CHINA TV BUSINESS HAS A PRODUCT LINE ORIENTED VALUE
 DELIVERY SYSTEM


                                                                Marketing                                       After-Sales
         R&D                    Manufacturing                                        Distribution
                                                                & Sales                                         Services


 Digital media
 Digital Media
                                                                    Dalian Toshiba TV Co.
 Network Co.

• Toshiba Digital            •Dalian Toshiba is          •Dalian Toshiba and its   •Dalian Toshiba           • Toshiba (China) helped
  Media Network              responsible for TV    4 subsidiaries in Dalian,       primarily uses sales        set up the after-sales
  Company is                 production. 30% parts Beijing, Shanghai and           forces in its four          service network, and
  responsible for            come from China       Guangzhou are                   subsidiaries to sell TV     Dalian Toshiba is
  Color TV R&D                                     responsible for                 products directly to        running the network and
                                                   marketing and sales             retailers. It also uses     responsible for PNL.
                                                                                   distributors in certain
                                                                                   regions such as
                                                                                   Chongqing.




  Source: Literature Search, Konka web site, team analysis
                                                                                                                                       27
                                                                                             SEC China010821BJ-Toshiba


DALIAN TOSHIBA’S TV DISTRIBUTION CHANNEL




     Dalian Toshiba TV Co.
      Manufacturing Plant
                                                                              Retailers:
                                                                             Hyper/super-
                                                                              market: 10%

                                         70%          Subsidiary             Designated
       Dalian Subsidiary                              Sales Force            Stores: 25%             Consumers
       Beijing Subsidiary
      Shanghai Subsidiary                30%                                 Dept. Stores:
     Guangzhou Subsidiary                            Distributors                 30%
                                                                              Specialty
                                                                              Stores: 35%




Source: McKinsey Literature Search, external interviews, McKinsey analysis
                                                                                                                  28
                                                                                          SEC China010821BJ-Toshiba


TOSHIBA ADOPTS THE NATIONAL CHIEF-DISTRIBUTOR PRACTICE IN
NOTEBOOK BUSNIESS IN CHINA

                                           Marketing and       Sales and           After-sales
        R&D              Manufacturing
                                           branding            distribution        service



                                OEM                         Digital
          Toshiba                             Toshiba                  Dealers        Toshiba SH
                            Toshiba SH                      China


       • Toshiba R&D   • Toshiba SH      • Digital China    • Digital China        • Digital China
                       • OEM: Renbao,      (for Toshiba       – Centralize key       – Major
                         a Taiwanese       notebook only)       accounts across        responsibility
                         OEM player      • Toshiba              different products
                       • Digital China                        – Centralize SI for
                                                                                   • Toshiba SH
                                                                                     factory
                                                                key accounts
                                                                                     – Parts' inventory
                                                                (banking, tax)
                                                                                     – Ancillary hotline
                                                              – Be in charge of
                                                                channel develop-
                                                                ment and
                                                                management




Source: interview                                                                                              29
                                                                                           SEC China010821BJ-Toshiba


TOSHIBA HAS POSITIONED CHINA AS A KEY R&D BASE

R&D

                          • Three-layer structure of Toshiba R&D

                            – First layer focusing on technology trends in the next 3-5 years
                            – Second layer focusing on multi-media technology and
                              technology trends in the next 2-3 years
                            – Third layer focusing on product development

                          • Toshiba R&D in China

                            – Established "R&D department" in Beijing, April 2001
                            – Plan to develop it into "Toshiba (China) R&D center” in October
                              2001 which will be the third overseas R&D center of Toshiba
                            – Plan to have 250 people this year and expand to 500 people
                              in R&D center in 2005




      *   The other two R&D centers are in the UK and the US respectively
Source:   Literature research                                                                                   30
                                                                                      SEC China010821BJ-Toshiba


TOSHIBA HAS OUTSOURCED THE MAJOR PART OF NOTEBOOK MANU-
FACTURING AND ITS DISTRIBUTOR IS CAPABLE OF CUSTOMIZATION
IN CONFIGURATION
Manufacturing



                Parties involved           Responsibilities
                Toshiba SH                 • Assembling production to cover total volume
                                             sold in China
                                           • Assembling production for expert

                OEM (Renbao)               • Major part of notebook manufacturing

                Digital China              • Customization for big-batch order according to
                                            customers' individualized demand for hardware
                                            configuration




Source:   Literature research, interview                                                                   31
                                                                                                     SEC China010821BJ-Toshiba


UNDER STRONG COST PRESSURE, DIGITAL CHINA AND TOSHIBA ARE
PUSHING TOWARDS MORE FLATTENED CHANNEL STRUCTURE

 Channel strategy                • Pay sufficient attention to fast-growing customer segments, such as
                                   education and home, as well as major segments, such as government and
                                   business
                                 • Expand into 2nd-tier geographies and enhance channel
 Channel Structure                                                         Channel Cost
                                                                           Percent of retail price
                                 Digital China

                                                                                >> 10

                      Core distributors   Specialty shops    Industry
       Direct
                           (~ 50)           (over 100)      distributors                    >10
                                                                                                        8-10


                          Second tier                                                                                   5-8
                            dealers
                          (hundreds)




                                  End users                                    Before     1997-        1999-        Future
                                                                               1997       1998         2001         expecta-
                                                                                                                    tion of
                                                                                                                    manu-
Source: CCID, interview                                                                                             facturers
                                                                                                                         32
                                                                                               SEC China010821BJ-Toshiba


DIGITAL CHINA IS BUILDING UP AN ADVANCED NATION-WIDE
DISTRIBUTION NETWORK TO FURTHER CUT DOWN COST
Distribution



                Key initiative             • Build up a nation-wide logistics system

                Total investment           • RMB 65 million

                Three-tier                 • 3 first-tier centers in Beijing, Shanghai and Guangzhou
                structure                  • 7 second-tier centers
                                           • Third-tier components

                Detailed practice          • Providers deliver to three first-tier centers
                                           • Inventory is distributed among all the three tiers with
                                             inventory cycle shortening from first tier to the third
                                           • SCM management is through IT network




Source:   Literature research, interview                                                                            33
                                                                                              SEC China010821BJ-Toshiba


DESPITE CONTINUOUS IMPROVEMENT, TOSHIBA NOTEBOOK’S
CUSTOMER SERVICE STILL LAGS BEHIND IN CERTAIN ASPECTS
Customer service



          Major                      • VIP certificate
          initiatives
                                      For A-class customers, Toshiba notebook guarantee includes
                                      response within 10 hours, and repair finished within 20 hours,
                                      otherwise offering a backup notebook

                                     • On-site service

                                      On-site service is offered in Beijing, Shanghai, and Guangzhou



          Competitor’s
                                     • Dell and Acer offer 4-hour response commitment
          offerings
                                     • Dell offers on-site service in major cities in China



       * Footnote
Source: Literature
Source: Source research, interview                                                                                 34
                                                                             SEC China010821BJ-Toshiba


ORGANIZATION AND OWNERSHIP

         1. Background information           4. Value chain strategy
         • Location        • Starting year   • Focus on
         • Registered      • Number of         – Marketing,
             capital         employees           advertising and
         • Management • Era analysis             promotion
             team                              – Distribution (channel
         • Equity                                and sales force)
             structure




         2. Strategy                         5. Organization and ownership
         •   Mission                         • Organization structure
         •   Vision                          • Ownership structure
         •   Corporate strategy
         •   Market position




         3. Product /market                  6. Financial performance
         • Key product offerings             • Sales
                                             • Profit




                                                                                                  35
                                                                                             SEC China010821BJ-Toshiba


TOSHIBA’S CORPORATE STRUCTURE
                                                                   Japan   Foreign Country

                                                 iValue Creation
                                                 Company
                                                                                  Other JV
                                                 e-Solutions Company
                             Corporate project
                                                 Social Infrastructure
                                                 Systems Company
 Statutory Auditors                                                            Dalian Toshiba
                                                 Digital Media                 TV, Ltd
                              Corporate staff    Network Company
Board of Directors                               Mobile Communications
                                                 Company
                                                 Power Systems &
                                                 Services Company
 President & CEO                                 Semiconductor
                                                 Company
                                                 Display Devices &
                                                 Components Company               Other
                             Corporate support                                  Subsidiaries
                                                 Medical Systems
                                 services
                                                 Company
                                                 Home Appliances
                                                 Company
Source: Lit search, team analysis                               Japan      Foreign Country
                                                                                                                  36
                                                                         SEC China010821BJ-Toshiba


TOSHIBA’S MAJOR SHAREHOLDERS
(As of September 30,2000)


         Entity                                        Percent Outstanding


        The Dai – ichi Mutual Life Insurance Company        3.94%
        The Sakura Bank,Ltd.                                3.88%
        Nippon Life Insurance Company                       3.36%

        State Street Bank and Trust Company                 2.55%

        The Chase Manhattan Bank NA London                  2.28%
        The Sumitomo Trust and Banking Co.,Ltd.             2.27%
        Mitsui Mutual Life Insurance Company                1.88%
        Employees Stock Ownership Plan                      1.68%
        The Mitsubishi Trust and Banking Corporation        1.65%
        The Nippon Fire & Marine Insurance Co.,Ltd.         1.55%




Source: Toshiba website
                                                                                              37
                                                                                 SEC China010821BJ-Toshiba


TOSHIBA HEADQUARTER HOLDS THE MAJORITY OF ITS NOTEBOOK
MANUFACTURING JV IN CHINA

Ownership structure




               Toshiba                     Toshiba China Co., Ltd          Shanghai Jinqiao



                              80%                     10%                  10%



                                    Toshiba Computer (Shanghai) Co., Ltd




Source: Literature research                                                                           38
                                                                             SEC China010821BJ-Toshiba


FINANCIAL PERFORMANCE

         1. Background information           4. Value chain strategy
         • Location        • Starting year   • Focus on
         • Registered      • Number of         – Marketing,
             capital         employees           advertising and
         • Management • Era analysis             promotion
             team                              – Distribution (channel
         • Equity                                and sales force)
             structure




         2. Strategy                         5. Organization and ownership
         •   Mission                         • Organization structure
         •   Vision                          • Ownership structure
         •   Corporate strategy
         •   Market position




         3. Product/market                   6. Financial performance
         • Key product offerings             • Sales
                                             • Profit




                                                                                                  39
                                                                                        SEC China010821BJ-Toshiba


TOSHIBA’S OVERSEAS SALES AND R&D EXPENDITURES
                                                                                      R & D Expenditures
                                                                                      Percentage of Net Sales

    Overseas Sales                                      R&D Expenditures
    (¥billion)                                          (¥billion)


                     CAGR=
                      4.7%
                                           ¥2,235
                                                                                         ¥344
                               ¥2,116
        2,000      ¥2,040                               320      ¥323          ¥317

        1,500                                           240


        1,000                                           160
                                                              5.9%          6.0%      5.8%
        500                                             80


        0                                               0
                     1998        1999            2000                1998      1999          2000
Source: Toshiba 2001 Annual Report, Lit search
                                                                                                             40
                                                                                    SEC China010821BJ-Toshiba


TOSHIBA’S HISTORICAL REVENUES AND PROFITS
Yen billion


Net Sales                                                Net Income



                                                                                       CAGR = 9.4%
                                           CAGR = 1.9%



                                                                                                 96
                                                          67
                                                                        *
   5,522      5,458      5,301     5,749         5,951            15


                                                                             -9    -33


   1997       1998       1999      2000          2001    1997    1998       1999   2000        2001




Source: Toshiba 2001 Annual Report, Lit search
                                                                                                         41
                                                                                     SEC China010821BJ-Toshiba


IN 2000, DALIAN TOSHIBA’S UNIT SALES IN CHINA WAS 7% OF
CHANGHONG’S UNIT SALES, BUT DALIAN TOSHIBA’S GROSS PROFIT IN
CHINA WAS 89% OF CHANGHONG’S GROSS PROFIT


         Unit Sales                                       Gross Profit
         thousand                                         billion RMB



                                 7,500




                                                                            1.1
                                                             1.0



                500


         Dalian Toshiba       Changhong                Dalian Toshiba    Changhong




Source: 21st Century Economic report, March 19, 2001
                                                                                                          42
                                                                                  SEC China010821BJ-Toshiba


DESPITE OF STRONG GROWTH OF TOTAL MARKET, TOSHIBA NOTEBOOK
HAS EXPERIENCED STAGNANT GROWTH OF 4.4% ANNUALLY
Notebook revenue (RMB billions)



              Total China market                       Toshiba in China

                                          98-00 CAGR                             98-00 CAGR
                                            Percent                                Percent

                                   10.6      48.6                                     4.4



                                                                          1.7
                                                         1.6
                        6.1                                      1.5
                4.8




                1998   1999    2000                     1998    1999      2000




Source: IDC                                                                                            43

				
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