Sony consolidates, increases local content

Posted on June 1, 1996 
Filed Under Julian, Nikkei Electronics Asia

By Julian Matthews

In March 1996, Sony Corp announced that it planned to source components from Malaysian companies for its 73 factories worldwide. Sony Corp chief executive officer Norio Ohga said Sony is looking towards sourcing locally instead of depending on Japan for its materials.

Addressing a Sony sponsored procurement forum in Malaysia recently, Ohga says his company recognized the significant growth of the Malaysian component industry in recent years and would make it a top priority to promote procurement of local parts.

The shift in policy to source locally is also expected help tip the trade balance scales in favor of the host country, says Ohga, adding that Sony is expected to lend its expertise to establish the component suppliers and ensure the company’s high production standards are met.

Sony Malaysia comprises five manufacturing plants, three of which are in Perai and two in Bangi, with a combined workforce of about 18,000. Products manufactured include television sets, audio and video equipment, and computer parts and components including floppy disk and CD-ROM drives, all of which are marketed worldwide.

In 1995, Sony Corp’s Malaysian operations contributed about US$3.6 billion of the US$44 billion in worldwide sales of the global electronics firm. The firm anticipates a 10% increase in sales this year.

Sony Electronics Malaysia Sdn Bhd managing director T Tokita says the group currently imports an average of 50% of its components from Japan. The remaining 50% is sourced locally, of which 20% is derived from Malaysian companies and the rest from foreign-owned suppliers in the country.

Tokita says local content for new products is lower than those that are more mature. “New products contain about 20% locally-sourced components while for matured products, about 55% to 60% of the components can be sourced locally,” he says, adding that the parts procured locally are mostly plastic components while the more specialized high-tech parts are imported.

Masaaki Saito, general manager for the material division for both Sony TV Industries (M) Sdn Bhd and Sony Video (M) Sdn Bhd, says the companies were keen on sourcing locally to reduce costs. “We also need not maintain a large inventory of components as they would be easily and quickly available,” says Saito.

Sony Malaysia was an early supporter of the government’s Vendor Development Program (VDP), which encourages multinational companies to adopt and nurture local companies as component suppliers, and has enlisted the services of 15 local component suppliers under the plan. But, Saito says, these suppliers offer only the lower technology parts and components. “We want more high-tech parts from them as well,” he says.

In recent years, Sony has also become increasingly reliant on local expertise and design compared to its early years when it was solely dependent on Japanese engineers.

Sony Malaysia currently sponsors local engineers to be trained in Japan, Europe and the US. It has also established a television design centre in Bangi, Selangor and is in the midst of establishing a floppy disk drive design centre in Perai, Penang.

Sony is not unique in its position. Other Japanese giants such Matsushita Electric Industrial Co Ltd and Sharp Roxy Corp, firmly entrenched in Malaysia, are pursuing similar strategies in the region.

Addressing a seminar recently, Matsushita Electric Industrial Co Ltd director of operations for Asia, Oceania and the Middle East Katsuro Sakakibara said: “Business in Asia is becoming more self-contained from research and development to production to marketing.”

Sakakibara says Matsushita, the world’s largest consumer electronics company, sold 44% of its Asia-made products locally in 1994 with 25% exported to other Asian countries without production bases. “We see Asia as a place not only to produce, but to market our products,” he says.

Multinationals are also slowly and surely striving to increase local content in design for its products. Sharp Roxy Corp recently announced the release of its latest range of midi-compo products which was entirely locally designed and developed at its R&D centre in Sungei Petani, Kedah. Shipped to the US in March, the new product, which combines the features of a radio, cassette player and compact disc player, comes in three models priced between US$179 and US$229.

This year , Sharp Roxy Corp Malaysia Sdn Bhd plans to hire more staff, install state-of-the-art Computer-Aided Design (CAD) equipment and double its yearly allocation of US$1 million for the two-year-old R&D facility. The group, which comprises six companies, expects sales to grow about five to 10% this year, up from the US$1.6 billion in 1995.

Problems Inhibit Industry Growth

Industry observers say the local electronics industry faces a number of limiting factors hampering its growth in the coming years. Among these are over-reliance on imported capital, raw material and intermediate goods, the lack of transfer of technology from foreign to local firms, lack of investment in research and development, and shortages of both skilled and unskilled labor with increased competition among employers for the scarce workers.

Sanwa Research Institute chief economist Takashi Sobata noted the advance of Japanese manufacturers into Asia started in Singapore and Malaysia because of relatively good infrastructure. But limited population and local demand and rising labor costs are pushing investments into neighbouring Thailand, Indonesia, Myanmar, Vietnam and the Philippines, he says.

Sobata says Japanese companies are also expected to face escalating competition from the planned import tariff cuts under the ASEAN Free Trade Agreement (Afta). The Association of Southeast Asian Nations (ASEAN) aims to gradually whittle down tariffs to between zero and five percent from the year 2000 to 2003. Another factor to affect manufacturing trends in the coming years is the withdrawal of the Generalized System of Preferences (GSP) by the US government.

Published in Nikkei Electronics Asia, June 01, 1996

by Julian Matthews, Malaysian correspondent

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