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The Honolulu Advertiser
Posted on: Sunday, August 26, 2001

Successful electronics maker keeps costs low

Bloomberg News Service

OSAKA, Japan — Saddled with a name most consumers don't recognize and based in a nation known for $100 cab rides and $7 cups of coffee, Japan's Funai Electric Co. has become the biggest VCR maker by pinching pennies better than its rivals.

President and founder Tetsuro Funai, ranked as the world's 312th-richest person by Forbes with a fortune estimated at $1.6 billion, scolds managers at Osaka-based Funai's overseas plants if they waste working time by coming to meet him at the airport. The 74-year-old takes a train or walks to appointments when he's visiting Tokyo on business.

Such thrift has helped Funai's company win contracts to make televisions, computer printers and other consumer electronics under such brand names as Emerson and Lexmark. Royal Philips Electronics NV, Europe's largest consumer-electronics maker, yesterday said it will farm out its VCR production to Funai and fire 1,000 workers in Austria and Hungary.

"The president doesn't mind losing say, 100 million yen ($830,000) in a venture like R&D," said Kazuhiko Uzaki, an Okasan Securities Co. analyst, who has a "neutral minus" rating on Funai's shares. "But he can't stand people who waste one yen, two yen, neglecting those sums as a small amount of money."

The rise of 40-year-old Funai Electric, which says it makes 28 percent of the world's VCRs, comes as Aiwa Co. and other Japanese makers of low-end electronics are struggling to compete with Korean and Chinese rivals on prices. Aiwa is trying to sell bonds and last month sold new shares to raise money to reorganize amid a third straight year of losses.

Aiwa also has tried to cut costs by shifting production to low-wage plants overseas, which is no longer unusual for Japanese manufacturers. Funai, which makes 95 percent of its products abroad, in such countries as China, Malaysia and Mexico, takes cost cutting further by squeezing every expense possible out of its foreign factories.

"We're no longer in a time when just going overseas brings you success," said Hiroyuki Matsumoto, a Kokusai Securities Co. analyst. "Making money requires more than that."

Funai keeps its costs low enough to make money largely through a production system Tetsuro Funai learned on a 1976 visit to Toyota Motor Co.

One key to the system is daily monitoring of production lines, said Funai spokesman Naoyuki Takanaka. At the end of each day, factory managers check how often and how long each line was idled. If they find that a line has problems, they solve it. If a line is working smoothly without any shutdowns, managers either increase its production or cut the number of workers.

This approach helped Funai increase VCR production to 22.1 units a day for each worker in 1999, up from 6.9 in 1993.

The company's cost-control efforts go beyond the production floor. Funai's office workers pay for their own coffee and other drinks in office vending machines. Employees who travel on business are expected to work until the end of their shifts, then travel back to Osaka on their own time.

At a time when bigger-name rivals are struggling —Matsushita Electric Industrial Co. and Sony Corp. reported losses in the quarter ended June 30 — Funai expects its earnings to rise.

Much of the growth stems from contract manufacturing. About 65 percent of Funai's production is under other companies' names, including Wal-Mart Stores Inc.'s Emerson brand.

Low-end electronics like those made by Funai are less vulnerable than expensive products to the economic slowdowns now taking place in the United States and Japan, the world's two largest economies.