Written evidence from Matsushita Electric
Europe (HQ) Limited
INTRODUCTION
1. Matsushita Electric Europe HQ Limited
welcomes the opportunity to submit evidence to the Welsh Affairs
Select Committee's inquiry into manufacturing and trade in Wales.
We are a long-standing inward investor in Wales, with a tradition
of partnership with the community and high quality employment.
We therefore value the committee's interest in this important
area, and are at the committee's disposal in seeking to make a
constructive contribution to this debate.
2. Matsushita has appreciated the efforts
of the UK Government to create the right conditions for Wales
to be a suitable location for investment in high technology businesses
like ours. Wales enjoys considerable natural societal benefits,
including a generally high quality of life, a strongly motivated
workforce and a public service infrastructure.
ABOUT MATSUSHITA
3. Matsushita Electric Europe HQ Ltd is
the European subsidiary of Matsushita Electric Industrial Co Ltd,
the owner of the internationally recognised Panasonic brand. The
company was founded in 1918 by Konosuke Matsushita on the following
basic business philosophy:
"Recognising our responsibilities as industrialists,
we will devote ourselves to the progress and development of society
and the well-being of people through our business activities,
thereby enhancing the quality of life throughout the world."
4. By revenue, Matsushita is the fourth
biggest electronics and electrical equipment company in the world,
with 2002-03 sales of $61.7 billion and 288,000 employees worldwide.
We manufacture some 15,000 different products. Our sales by product
category in 2002-03 were as follows:
|
| AVC Networks | 60%
|
| (Video and Audio Equipment) | (27%)
|
| (Information and Communications Equipment) |
(33%) |
| Home Appliances | 16%
|
| Industrial Equipment | 4%
|
| Components and Devices | 20%
|
|
5. In Europe, Matsushita employs some 13,000 people,
with 2002-03 sales of $8.3 billion.
COMPANY RESTRUCTURING
AND BUSINESS
STRATEGY
6. The 20th Century manufacturing model of mass production
and mass sales had delivered steady growth right up to the early
1990s. But the bursting of the economic bubble in Japan, increased
competition from other countries in the Far East and the introduction
of business information technology had a major adverse impact
on Matsushita. In the year ended 31 March 2002, the company experienced
a loss of $3.2 billion, the first ever recorded in its more than
80 year history.
7. This triggered significant changes in company organisation
and structure, with a reorganisation based on business domains
category and a flattening of management structures. 13,000 early
retirements took place in Japan alone. Manufacturing also underwent
reform, moving away from automated lines to cellular manufacturing,
and through the integration of manufacturing bases.
8. Matsushita is now focused on growth through improved
focus on value adding, for example through the provision of components
and devices and services and solutions, and innovation. The changes
have begun to improve sales volumes and market shares for the
company's products.
9. Matsushita is now geared to securing global number
one status for key products, like DVD recorders and plasma display
panels, while continuing to innovate with the introduction of
next generation products, like car navigation systems and iris
recognition cameras. The development of products with a strong
element of know-how, which cannot be imitated by our competitors,
is a key goal. This adds impetus to research and development activities.
Our traditional strength in and reputation for the highest standards
in engineering is central to our future.
10. The company's operations outside Japan are now seen
as the major growth engine for the business internationally. In
addition, Matsushita is in the process of unifying its products
and marketing behind a unified Panasonic brand.
MATSUSHITA IN
EUROPE AND
WALES
11. Matsushita began sales operations in Europe in the
1960s, and now has 15 sales operations, 13 manufacturing companies,
five research and development centres, and eight other sites across
the continent. Its European headquarters are London and Wiesbaden.
12. Matsushita manufactures in Wales, Spain, Belgium,
Germany, Poland, the Czech Republic and Slovakia.
13. Matsushita has been in Wales for 30 years, and, as
such, is one of the country's most long-standing inward investors.
Our operations are as follows:
|
| Company | Products
| Location | Staff
|
|
| Matsushita Electric (UK) Ltd | Colour TV, Set-Top Boxes, Computers, Microwave Ovens
| Cardiff | 1,050
|
| Panasonic Communications Company (UK) Ltd |
DECT (telephones), PBX | Newport
| 558 |
| Matsushita Electronic Components (UK) Ltd |
Car Speakers | Port Talbot
| 200 |
| Matsushita Electronic Magnetron Corporation (UK) Ltd
| Magnetrons (for microwave ovens)
| Cwmbran | 37
|
|
14. Matsushita's investment policy is based on the aim
to be close to the markets in which we operate. The key factors
in investment decisions are:
— transport and infrastructure;
— availability of a skilled workforce;
— support of the local community;
— availability of suppliers.
15. Our manufacturing operations enjoy a number of strengths,
including:
— our reputation for high quality components and
finished products;
— our worldwide market leadership and market share
in key products; and
— our ability to provide technical support to customers
in the local market.
16. We have a variety of supplier relationships in Wales,
with firms in Cwmbran, Cardiff, Newport, Brynmawr, Blackwood,
Aberdare, Bedwas and Wrexham.
17. We have been members of the Welsh Electronics Forum
since its inception, and have sat on its council in a bid to provide
the perspective and input of a large manufacturer. The aim of
the WEF is to help the electronics sector move up the value chain,
thereby raising its performance and profile. Our goals are to
generate confidence in the sector's resilience, capacity to innovate
and competitiveness.
18. In September 2003, we worked with the Welsh Assembly,
the Welsh Development Agency, ELWA [Education and Learning Wales]
and other public sector organisations to develop a joint understanding
and approach for the electronics sector in Wales. After a series
of facilitated "brainstorms", the WDA is set to present
the findings to the Minister of Economic Development Andrew Davies
as the next stage in the process.
COLOUR TV AND
SET-TOP
BOX MANUFACTURING
IN CARDIFF
19. The UK has suffered in the early years of this century
very severe competition and price erosion, which, given fixed
costs, have increased the pressure of maintaining and continuing
a manufacturing base in this country. In short, the climate for
investment is difficult indeed.
20. Against this background, Matsushita Electric (UK)
Ltd (MELUK) has today (23 January 2004) announced that it is beginning
a process of consultation with its staff and their unions over
a proposal to cease colour television and set-box manufacturing
at its site in Cardiff. Around 600 staff could be affected. This
proposal does not affect the production of microwave ovens and
notebook computers also undertaken at the site.
21. This proposal has arisen after careful consideration
of recent performance and future projections. The company deeply
regrets having to make this proposal, but it is firmly committed
to consulting fully with its employees before a final decision
is taken.
22. The proposal arises out of significant trading losses
(£2 million in the year ending 31 March 2003) resulting from
increasing competition and price erosion of 20%-30% a year in
our key product ranges. In short, the company is therefore unable
to operate these colour television and set-top box businesses
profitably.
23. This is despite a complete overhaul of the business,
its management, working patterns and manufacturing processes,
resulting in:
— the achievement of improved production targets;
— reductions of 20% in material costs;
— faster manufacturing, through "cell"
production, shorter production lines, co-location of key activities,
and taking more production in-house; and
— lower manufacturing costs.
24. Variable costs have been driven down as far as they
can. A committed and skilled workforce has risen to the challenge
of remaining competitive. Indeed, these steps have increased the
longevity of certain operations at Cardiff. However, our fixed
(largely labour) costs, together with steady reductions in cash-terms
factory gate prices have triggered losses, which are unsustainable.
25. If the proposal to cease production at Cardiff is,
after consultation, implemented, manufacture of colour televisions
and set-top boxes would be transferred to the Czech Republic—where
labour costs are significantly cheaper than in the UK.
FUTURE OF
MANUFACTURING AND
TRADE IN
WALES
26. Our focus for the future is on moving our activities
higher up the value chain. What this means in practice is an increased
focus on components and devices, and services and solutions.
27. Together with the activities we have already described
at our Cardiff site, we are continuing in-car acoustic research
at our plant in Port Talbot, where we manufacture car speakers.
One of the success factors in our telephony business in Newport
is our ability to develop the necessary functions for our customers,
tailored to reflect regional and local needs. Because of this,
we maintain the ability to develop technology through research
and development on site.
28. We also believe that there should be an increased
focus on the attractions to young people of further education
and vocational training, rather than a simple drive to increase
access to university education, without an appreciation of the
real needs of industry.
29. It is also important to understand that large companies
are themselves changing in their operations and nature. We have
seen a major shift of mass production into Central and Eastern
Europe, while our UK based operations go in pursuit of higher
value added products and activities. Our own operations here have
been broken down into smaller, more accountable business units.
This is an essential means of improving turnover and profitability,
for example, as has happened with our computer products operation.
30. The needs and the nature of the so-called large manufacturer
have therefore changed. The move from volume to value is central
to this change. Products need to deliver high value added to the
customer in their final configuration, and new generation products
demand high skills and new technology in their development.
31. The old school of thought in economic development
of supporting large manufacturing operations through central or
devolved government, in order to create large numbers of manufacturing
jobs, will not have a place in a modern Wales.
32. In our respectful view, the challenge for Government,
therefore, is to create a manufacturing culture and reputation
in Wales, which attract research and development, develops high
skills within people, and is underpinned by a successful education
system. To do this, public and private sectors need to work together
to foster:
— research and development;
— industry forums within Wales to examine and promote
the spread of best practice; and
— flexible working to adapt to demand patterns in
the consumer electronics market.
33. Matsushita is committed to helping the people of
Wales, the UK Government and the devolved authorities to rise
to that challenge.
Matsushita Electric Europe (HQ) Limited
23 January 2004
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