JVC Report

Feb. 25, 2000

Management Reforms for Fiscal 2000

Victor Company of Japan, Ltd. (JVC) launched a major management reform program in fiscal 1999, and will be adding new reform initiatives during fiscal 2000. The key development this year is a reorganization of JVC into "companies." The new organization will reduce fixed costs, facilitate the shift of production offshore, enable the reorganization of domestic production systems, and promote "selection and concentration" in businesses undertaken. JVC also looks to the reorganization as a means of focusing its development strengths on high value-added digital and networking products, and of speeding up its operations and decision-making.
The end result of these reforms will be to normalize JVC's accounts and accelerate its shift into digital and networking areas.
As part of programs to cut its fixed costs, JVC targeted the elimination of 1,500 positions during 1999, but recent projections indicate that 1,900 will be shed. JVC has already begun to shift production of conventional television sets to other countries, as well as much of its parts production. In addition, it has been reorganizing its movie business, HJT (Hughes JVC Technology; a company producing professional projectors), JMUK (JVC Manufacturing UK Ltd.; producing television sets) JBR (JVC do Brazil Ltda.; Brazilian sales subsidiary), and other affiliates, and jettisoning unprofitable areas.

Below are the highlights of fiscal 2000 reforms.

1. Management reforms

(1) 10.0 billion yen cut in parent-level fixed costs

Staffing cuts will give JVC an estimated total of 11,000 workers on its payroll at the end of fiscal 1999. The company previously had a target of slimming itself to 10,000 by the end of fiscal 2001, but will be accelerating this effort with a package of early retirement benefits, outplacement support, and personnel loans for management-level employees.

JVC looks for a total of more than 10.0billion yen in fixed cost savings from staffing cuts, reductions in management bonuses and wages, and the sale of facilities rendered idle by reorganization.

(2) Offshore production, reorganization of domestic production

JVC will expand its efforts to relocate production offshore. Products newly slated for offshore production include VHS-C camcorders, professional camcorders, and other professional systems and equipment. The company has a target of increasing its overseas production ratio from the current 50% to approximately 60%. In conjunction with this it will also be reorganizing its domestic operations for greater efficiency.

JVC looks for a total of approximately 10.0 billion yen in improvements from these efforts to build an exchange rate-neutral system.

(3) Reorganization of television division

JVC began to shift production of conventional television sets offshore in fiscal 1999. It will be continuing and expanding these efforts in fiscal 2000, and reorienting domestic capacity towards ILA and other high value-added products. For European television production, it will utilize more outsourcing, allocating half of its supply to Europe for this. These efforts will bring cost savings and also facilitate the reorientation of domestic development resources towards high value-added products. As broadcasting goes digital, JVC will consolidate its television and video divisions to develop and market new visual products better suited to the new forms of broadcasting.

(4) Acceleration of reforms

JVC is transforming itself into a "digital, networked company." To accelerate this transformation, it is delegating greater authority to its division heads, overhauling the product-by-product structures within its divisions, bringing direct links between the R&D and business divisions, and overhauling its head office functions. These reforms are embodied in the new "companies system" that will be introduced on April 1 as a means of restructuring profits and accelerating operations and decision-making.

JVC will create four "business companies" within its organization: the AVM (AV & Multimedia) Company, C&D (Components and Devices) Company, Media Company, and Software Company. It will also create three "regional companies:" the Americas Company, European Company, and Asia, Middle East and Africa Company.

2. Strategy for digital, networked markets

JVC sees the shift to digital and networked products and businesses as the key to higher added value and profits. It will be developing new products and services using digital and networking technologies, and will be concentrating its resources on these areas.

During fiscal 1999, digital and networked products accounted for approximately 40% of parent-level sales. JVC will be raising that to approximately 50% during fiscal 2000. It expects core products such as DVC (consumer and professional), disc audio, and digital media, and also strategic products such as ILA, D-VHS, high-resolution digital still camera printers, VIL circuit boards, optical wireless LANs, and broadcasting encoder/decoder equipment to bring a 10.0 yen billion increase in profits in fiscal 2000 compared to fiscal 1999.

Over the next two or three years it will be expanding its offerings in these product categories as it transforms itself into a high value-added company.

Below is an overview of JVC's product strategy.

(1) Within the content of digitalization and networking, JVC's development strategy will focus on expanding the application of its proprietary "ILA" display technology from large-screen equipment to small, portable home-use equipment. It will also embark on more aggressive sales of ILA elements to outside firms as it widens its product line. JVC will adapt its ILA televisions for high-definition broadcasting, and will, in addition, market them as "new network displays" worthy of a position at the center of the digital and networked age. This product development initiative will be the core strategy for the "home audio-visual network" business.

(2) In light of the intermingling of audio-visual information and data and the increasing diversity and volume of information being processed, JVC will concentrate on a "New Network Strategy" that will create new products and systems for the digital, networked age. This strategy will include D-VHS, DVD, and the rewritable optical disc applications that will be a driving force in this market.

(3) JVC will promote the integration of computer and information technologies with audio-visual technologies through such products as digital video cameras, Internet cameras, and mobile computers. Its goal for the "digital network mobile" business will be to create a unique world of consumer information electronics that will make audio-visual spaces both more personal and more mobile.

(4) For the "network information services" business, JVC will use its expertise and technology in the music and content areas to develop and expand music and video distribution services already in operation.

(5) For the "network media device" business, JVC will develop BIOSs and OSs suited to networked, digital audio-visual equipment, and expand sales of its proprietary optical wireless LAN technology, its digital recording discs and other media, and its VIL circuit boards (which are a key component in compact, high-performance digital mobile terminals).

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