Toshiba Corporation is one of Japan's oldest and largest producers of consumer and industrial electric and electronic products. In addition to its position as the world's leading maker of notebook personal computers, Toshiba is among the global leaders in semiconductors and LCDs. More than 60 percent of the company's net sales are derived domestically, with about 16 percent from North America, 11 percent from Asia (not including Japan), and 10 percent from Europe. Toshiba is considered one of Japan's sogo denki, or general electric companies, a group that is typically said to also include Fujitsu, Hitachi, Mitsubishi Electric, and NEC Corporation. With a history that dates back to the 19th century and a product line that extends from semiconductors and electromedical devices to consumer electronics, home appliances, and nuclear power plants, Toshiba has played an active role in Japan's rise to the forefront of international business.
Toshiba was formed through the 1939 union of two manufacturers of electrical equipment, Shibaura Seisaku-sho (Shibaura Engineering Works) and Tokyo Electric Company, Ltd. The older of the two, Shibaura, traced its roots to Japan's first telegraph equipment shop, Tanaka Seizo-sho (Tanaka Engineering Works). Hisashige Tanaka, who has been called the 'Edison of Japan,' established the business in 1875. The business climate in which the company began, however, was far from the atmosphere in which it later operated. During the late 19th century, Japan lagged far behind Britain, France, Germany, and the United States in industrial development. Besieged with economic problems resulting from the overthrow of the Tokugawa government in 1869 and a tremendous influx of imported goods and machinery that threatened her fledgling industries, Japan was vulnerable to colonization. Confronted with the task of strengthening its faltering industries, the new government was quick to respond.
In October 1870 the Ministry of Industry (Kobusho) was formed and subsequently acted as a catalyst for the country's industrial development. In its attempt to integrate contemporary technologies into Japan, the government concentrated on hiring foreign engineers, technicians, and scientists to instruct domestic engineers in operating imported machinery; the government also sent its own engineers abroad to inspect manufacturing techniques with the intent of selecting machinery and manufacturing techniques for use in Japanese industries.
The integration of foreign technologies was first put into practice by Tanaka Seizo-sho. The company's 1,300-horsepower steam engine, copied from blueprints of an English counterpart, was successfully constructed in a plant in Kanebo, Japan. This venture convinced Japanese industrialists of their potential for technological advancement through the adoption of foreign technology and its adaptation to domestic skills and resources.
Tanaka Seizo-sho embraced this concept in the 1880s, determining that paying outright for technological knowledge was the most expedient means to upgrade its technological capabilities. This strategy helped the company expand into the manufacture of transformers, electric motors, and other heavy electric equipment in the 1890s.
Tanaka Seizo-sho made its own discoveries as well during this period, originating Japan's first hydroelectric generators in 1894. By 1902 the company's own technological capabilities had produced a 150-kilowatt three-phase-current dynamo for the Yokosuka Bay Arsenal, marking one of the initial transformations from foreign to Japanese-based technology, and the beginning of the company's rise to the forefront of international business. The company, which adopted the name Shibaura Seisaku-sho in 1904, developed Japan's first X-ray tubes in 1915.
While Shibaura and other Japanese corporations were growing in strength and increasing their capabilities, they were deeply debilitated by the advent of World War I. As the war began, Japanese manufacturers were cut off from Germany, England, and the United States, major suppliers of machines, industrial materials, and chemicals, forcing them to turn to one another for necessary materials and machinery to keep their fledgling industries alive. The hardships experienced during this period had long-term advantages, however, for they forced Japanese industry into self-sufficiency and paved the way for the country's industrial advancement.
Shibaura continued to grow in the interim between world wars, and merged with the Tokyo Electric Company, Ltd. in 1939. Tokyo Electric had also been established before the turn of the 20th century. Originally known as Hakunetsu-sha & Company before adopting the Tokyo Electric name in 1899, the firm was founded in 1890 by Dr. Ichisuke Fujioka and Shoichi Miyoshi. Hakunetsu-sha had distinguished itself as Japan's first manufacturer of incandescent lamps. The newly merged company, named Tokyo Shibaura Electric Company, Ltd., soon became widely known as Toshiba (the company officially adopted the name Toshiba Corporation in 1978). The company's pre-World War II Japanese innovations included fluorescent lamps and radar.
During the late 1940s, Japan rapidly passed from a period of self-isolation and self-reliance into a period of largely benevolent occupation and advocacy. With the assistance of the Japanese government and its citizens, the American Occupation Authority instituted social and economic reforms, and poured resources into postwar financial markets. Japan's readmittance into the international trading community gave it access to overseas markets for manufactured goods and raw materials. The glut of raw materials available at the time enabled Japan to obtain necessary commodities in large quantities at favorable prices and, consequently, to regain its financial and industrial strength.
In this more favorable climate, Toshiba once again began to flourish. The company's shares were first listed on the Tokyo Stock and Osaka Securities Exchanges in 1949. Backed by the powerful trading house of the Mitsui Group, the company's financial status was well secured. Starting in the 1950s, Toshiba began a program to strengthen its competitiveness in both the domestic and international markets. The company produced Japan's first broadcasting equipment in 1952, launched Japan's first digital computers in 1954, and developed Japan's first microwave ovens in 1959.
Yet it would be some time before modern business policies affected the company in any fundamental way. Toshiba executives were criticized for their rigid adherence to a feudal system of hierarchy and status. Top officials maintained lax working hours and were far removed from any operational business. An indisputable separation between a superior and his subordinates made the exchange of ideas virtually impossible. To reduce the burden of responsibility on any one executive, numerous signatures were needed to approve a document. Thus innovation was easily stymied in a chain of bureaucracy.
In the early 1960s, these internal problems were compounded by an economic recession. In one year Toshiba's pretax profits slid from $36 million to $13 million. To halt any further erosion, a radical change was in order. For only the second time in Toshiba's history the company sought an outsider to aid the ailing business. The company's board hired Toshiwo Doko to take charge of the company. Doko had won acclaim as the architect of the 1960 merger of Ishikawajima Heavy Industries and Harima Shipbuilding & Engineering Company, which formed the world's largest shipbuilder, IHI.
When he joined Toshiba as president in 1965, Doko retained his title as chairman of IHI. The combined status ranked Doko as Japan's leading industrialist. These two companies had shared interests prior to Doko's appointment at Toshiba; IHI owned over ten million shares in Toshiba and Toshiba controlled over four million shares in IHI. After Doko became president, Toshiba raised its stake in IHI as both companies shared executives on their boards and established trade agreements. This exchange, a keiretsu hallmark, strengthened Toshiba's financial standing.
Doko's other corrective measures included the reduction of Toshiba's dependence on borrowed capital. This was aided by the U.S.-based General Electric Company's agreement to purchase all of Toshiba's capital issue. General Electric's interest in Toshiba dated back to before World War II, but had declined in the intervening years. The infusion of capital enabled Toshiba to expand and modernize its operations.
The new company president also initiated a comprehensive campaign to export Toshiba products around the world. By establishing independent departments, the company could better facilitate the export of consumer and industrial goods. Major contracts were finalized with U.S. companies to export generators, transformers, and motors, as well as televisions and home appliances.
Other streamlining efforts took the form of expanding the sales force, hiring new management, and consolidating operations. By 1967 Toshiba controlled 63 subsidiaries and employed more than 100,000 people; the company ranked as the largest electronic manufacturer in Japan and the nation's fourth largest company. But in light of the dramatic expansion of such domestic competitors as Sony Corporation and Hitachi in the 1970s, Toshiba's performance was generally considered mediocre.
In 1980, a new president, Shoichi Saba, brought renewed vigor to the company. Trained as an electrical engineer, Saba funneled vast resources into research and development, especially in the areas of semiconductors, computers, and telecommunications. In October 1984, Toshiba formed an Information and Communications Systems Laboratory to develop and integrate office automation products. That same year, Toshiba was responsible for the world's first direct broadcast satellite. The company's R & D investment paid off handsomely in 1985, when Toshiba won the global race to develop the first one-megabyte DRAM memory chip. By 1987 the company was producing almost half of the world's one-megabyte chips.
Utilized in equipment from stereos to computers, semiconductors soon became an important part of Toshiba's portfolio. In 1986 alone, Toshiba's semiconductor facilities experienced a 55 percent increase due to contracts in France and West Germany, as well as burgeoning domestic demand. For the first time in its history, Toshiba surpassed its closest competitor, Hitachi, to become the second largest semiconductor manufacturer in the world, behind NEC Corporation.
Joint ventures and agreements with both Japanese and foreign corporations facilitated technology exchange. In 1986 Toshiba entered into a joint venture with Motorola for its Japanese production of computer memories and microprocessors. The two companies became involved in the collective development of microcomputer and memory chips based on the exchange of technology, and also developed a manufacturing facility in Japan. Efforts of this type facilitated the development of voice recognition systems and digital private branch exchange systems (PBXs), which transmit telephone calls within private buildings. Through a 1986 agreement with AT & T, Toshiba began marketing these systems throughout Japan, as well as assisting that corporation with technological insight.
In the same year, Toshiba entered into an agreement with IBM-Japan to market their general purpose computers domestically. Through this arrangement, Toshiba marketed its own communications equipment with IBM-Japan's computers, selling to governmental agencies, local governments, and other institutions to which IBM (as a foreign interest) had previously been blocked. An additional marketing contract with IBM introduced the first PC-compatible laptop computer, the TJ3100, to Japan, and met with great success. By 1991, Toshiba had garnered over one-fifth of the laptop market.
The area for which Toshiba became best known was its consumer products division, which grew at a rapid pace in the 1980s through acquisition and innovation. In April 1984 Toshiba reorganized the production, marketing, and research and development sections of its video and audio products, incorporating them into one centralized location. While sales of standard consumer products such as VCRs, compact disc players, televisions, and personal cassette recorders continued to grow, Toshiba was quick to capitalize on new markets as well. In 1986 the company entered the home video market, creating a wholly owned subsidiary and introducing 110 new video titles to the Japanese market. That same year, it inked an agreement to supply cable equipment to American Television and Communications Corporation.
Although Toshiba was best known in America for its computer-related and consumer products, it had a wide range of additional business ventures. Among Japanese corporations, Toshiba was a leader in the production of advanced medical electronic equipment. In 1986 the corporation initiated the supply of blood chemical analyzers, used to detect liver and kidney disease, to Allied Corporation, a leading U.S. chemical manufacturer. Other accomplishments suggested Toshiba's technological foresight in solving global and domestic problems. Toshiba began production of equipment for uranium fuel enrichment for use in nuclear power plants, marking an important step towards Japan's acquisition of a domestic nuclear fuel supply.
These many successes realized under Shoichi Saba were overshadowed by a 1987 scandal involving Toshiba Machine, a subsidiary half-owned by Toshiba. According to Washington sources, the subsidiary sold submarine sound-deadening equipment to the then communist Soviet Union. The equipment made detection more difficult and forced NATO to modernize its antisubmarine detection equipment. While Toshiba claimed that it was not able to control the subsidiary's daily operations, the sale broke a Western law concerning the sale of technologically advanced equipment to Communist countries. Two executives at the subsidiary under investigation were arrested and four top-ranking officials resigned. The Japanese government prohibited the subsidiary from exporting products to the Soviet Union for one year and repealed its right to sponsor visas for visiting personnel from Eastern-bloc countries. Amid growing protests in both Japan and the United States, Toshiba President Sugichiro Watari issued a public apology to the United States. Then, on July 1, 1987, both Watari and Chairman Shoichi Saba tendered their resignations from the Toshiba Corporation in the wake of a U.S. Senate vote to ban the import of Toshiba products for three years. Joichi Aoi, a former senior executive vice-president, assumed Toshiba's presidency.
Ironically, the anti-Japan mood roused by this episode may have revitalized morale at Toshiba. Perhaps to compensate for the loss of the U.S. market, Chairman Aoi led the company's energetic expansion into global markets. In the latter years of the 1980s, Toshiba began offering its integrated circuit technology to the Chinese Electronics Import and Export Corporation to assist in development of television production. A 1991 joint venture with General Electric furthered this effort, with a special emphasis on large home appliances. The company also won a contract worth ¥12 billion to build a color television assembly plant in Russia, marking Moscow's first agreement of this nature with a Japanese company. Thus, in spite of losing up to ¥5 billion as a result of the U.S. embargo, the company's net income nearly doubled, from ¥61 billion in 1987 to ¥121 billion in 1990. Toshiba's fiscal triumphs were capped with the 1991 naming of chairman Joichi Aoi as Asia's CEO of the Year.
But with the new decade came new economic imperatives, especially those created by a global recession and the rising value of the yen. While Toshiba's annual revenues remained essentially flat from 1990 to 1994, the electronics giant's profits declined more than 90 percent to ¥12 billion, their lowest level in well over a decade.
Toshiba Chairman Aoi and President Fumio Sato employed a variety of strategies in the hopes of reversing this downward course. A 1993 reorganization focused on fostering interaction between and flexibility among the company's hundreds of operations. In line with industry trends, the leaders worked to shorten product development cycles, lower production expenses, and more closely monitor consumer demands. They also moved to further diversify Toshiba's consumer product line, 50 percent of which was still in color televisions. The company worked to shift its emphasis to such high-potential products as cellular communications, multimedia, and mobile electronics. Amid all these changes, however, the company planned to continue its liberal use of strategic alliances for mutual benefit.
One of the company's key alliances in the early 1990s was with Time Warner Inc. In 1992 Toshiba spent $500 million for a 5.6 percent stake in Time Warner Entertainment, a subsidiary of Time Warner that owned cable television systems, Home Box Office, and Warner Bros. studios. The two companies began developing an industry standard for DVDs, or digital videodisks, CD-like disks capable of holding full-length films for play on television screens via players. By the mid-1990s, the Toshiba/Time Warner format became the industry standard, beating out a rival format developed by Sony and Philips. Toshiba then introduced its first DVD players and DVD drives for computers in 1996, becoming the first company to do so. In another alliance with a U.S. firm, Toshiba and IBM agreed to spend $1.2 billion to build a plant in the United States where 64-megabit DRAM memory chips would be made.
In June 1996 Taizo Nishimuro took over as president of Toshiba. With a background in marketing and multimedia Nishimuro became the first chief not to have an engineering background. The new president already faced the difficulty of contending with a Japanese economy in a prolonged state of stagnation, a situation soon compounded by the fallout from the Asian economic crisis, which erupted in mid-1997. The company's consumer electronics and semiconductor sectors, facing fierce international competition, were buffeted by sharp declines in prices and demand. As a result, for the fiscal year ending in March 1999, Toshiba suffered its first net loss in 23 years, a loss totaling ¥13.9 billion ($112.9 million).
In September 1998, even before these dismal results were released, Toshiba unveiled a multiyear restructuring plan that was radical by Japanese standards. About 6,500 jobs would be trimmed by March 2000 through attrition and hiring cutbacks. The most dramatic changes were a wide-ranging restructuring of operations. The company began placing some of its more peripheral businesses into joint ventures with other firms. In January 1999 its glassmaking subsidiary (a direct descendant of one of the company's founding light bulb businesses) was merged with a subsidiary of Asahi Glass. Another of Toshiba's early business areas, electric motors, was the subject of another tie-up that same month, when the company and Mitsubishi Electric merged their large electric motor divisions into a joint venture called TMA Electric Corporation. In the area of nuclear fuel operations, Toshiba joined with General Electric Company and Hitachi to form Global Nuclear Fuel in January 2000. Yet another joint venture was formed with Carrier Corporation of the United States in the area of air conditioners. Toshiba also sold certain noncore units outright, such as its domestic automated teller machine business, which was bought by Oki Electric Industry Co., Ltd. in April 1999.
Another key move was the reorganization of the company's 15 rambling divisions into eight business groups (or 'in-house companies'), each of which was given more independence and autonomy. The new structure was designed to speed decision-making at what had been a fairly bureaucratic company, and for the same reason the size of the firm's board of directors was reduced from 34 to 12. The number of subsidiaries and affiliates was also drastically reduced from about 1,000 to 300. Aiming to place a greater emphasis on corporate profitability, Toshiba began to link executive pay more closely to performance. In another move to enhance profitability, the company adopted on a wide basis the Six Sigma quality approach made famous by General Electric and its longtime head, Jack Welch, leading to $1.3 billion in cost savings by 2000. Finally, at a company that had traditionally been engineer-focused, and where engineers essentially designed products for themselves, a new emphasis was placed on customer-driven new product development.
In the midst of implementing this sweeping reorganization, Toshiba suffered a potentially major setback when it decided to settle a class-action lawsuit that had been brought against the company in the United States over an allegedly faulty floppy disc drive used in more than five million Toshiba laptop computers. Although Toshiba denied that it was liable for the problem and said that there was no evidence that any data had been lost or corrupted due to the problem, Nishimuro decided to settle the suit, fearing that a jury trial could result in a judgment approaching $10 billion--potentially bankrupting the company. The company therefore agreed to a $1.1 billion settlement in October 1999 and was roundly criticized in some quarters for 'caving in' too quickly.
The settlement led the company to post another loss for the year ending in March 2000--a net loss of ¥28 billion ($264.2 million). In June 2000 Nishimuro became chairman of Toshiba, while Tadashi Okamura took charge as president and CEO. Okamura, who also had a background in marketing, had been in charge of the sprawling Information and Industrial Systems and Services group, which included everything from telecommunications equipment and control systems to medical systems and elevators and escalators. Under Okamura's leadership, Toshiba continued to place noncore businesses into joint ventures, including rechargeable batteries, elevators, and satellites. The troubled and risky semiconductor sector was also targeted for alliances, including a tie-up with arch-rival Fujitsu.
As it was swinging back to profitability in 2000 and 2001, the 125-year-old Toshiba looked to the future with an increased emphasis on information technology and with a focus shifting to several areas within that sector: media cards, mobile applications, networked home appliances, digital broadcasting services, Internet services, and electronic devices for the automobile. By devoting more resources to these emerging areas, Toshiba hoped to place itself on a faster, more profitable growth track in the early 21st century.
Principal Subsidiaries
Kitsuki Toshiba Electronics Corporation; Kyodo Building Corporation; Toshiba Building & Lease Co., Ltd.; Toshiba Chemical Corporation (57%); Toshiba Device Corporation; Toshiba Engineering Corporation; Toshiba Home Technology Corporation; Toshiba Lighting & Technology Corporation; Toshiba Plant Kensetsu Co., Ltd. (56%); Toshiba TEC Corporation (50%); Toshiba America Consumer Products, Inc. (U.S.A.); Toshiba America Electronic Components, Inc. (U.S.A.); Toshiba America Information Systems, Inc. (U.S.A.); Toshiba America, Inc. (U.S.A.); Toshiba Display Devices Inc. (U.S.A.); Toshiba International Corporation (U.S.A.); Toshiba (UK) Ltd.; Toshiba Europe GmbH (Germany); Toshiba Electronics Malaysia Sdn. Bhd.; TEC Singapore Electronics Pte. Ltd.
Principal Competitors
Hewlett-Packard Company; Sony Corporation; International Business Machines Corporation; Hitachi, Ltd.; Fujitsu Limited; Compaq Computer Corporation; Mitsubishi Electric Corporation; NEC Corporation; Matsushita Electric Corporation; Dell Computer Corporation; Samsung Group; Gateway, Inc.; Sun Microsystems, Inc.; Sharp Corporation; SANYO Electric Co., Ltd.; Pioneer Corporation; Daewoo Group; Intel Corporation; Lucent Technologies Inc.; Nokia Corporation; Telefonaktiebolaget LM Ericsson; Koninklijke Philips Electronics N.V.; General Electric Company.
Further Reading
Abrahams, Paul, 'Toshiba Soars As Deep Restructuring Bites,' Financial Times, November 9, 1998, p. 25.
Abrams, Judith, 'Toshiba Eyes New Media Frontier,' Dealerscope Merchandising, July 1994, pp. 24-25.
Brull, Steven V., and Andy Reinhardt, 'Toshiba's Digital Dreams,' Business Week, October 13, 1997, pp. 76+.
Carlton, Jim, 'Toshiba's U.S. Laptop Unit Fights to Regain Lost Turf,' Wall Street Journal, February 8, 1999, p. B4.
Eisenstodt, Gale, '`We Are Happy,' Forbes, May 8, 1995, p. 44.
Fulford, Benjamin, 'Gadget Colossus,' Forbes, January 8, 2001, pp. 238-40.
Guth, Robert A., 'How Japan's Toshiba Got Its Focus Back,' Wall Street Journal, December 28, 2000, pp. A6, A7.
------, 'Toshiba Plans Strategic Shift to Fast Growth,' Wall Street Journal, February 17, 2000, p. A12.
Holyoke, Larry, 'How Toshiba's Laptops Retook the Heights,' Business Week, January 16, 1995, p. 86.
Johnstone, Bob, 'Industry: Quick As a Flash,' Far Eastern Economic Review, January 7, 1993, p. 57.
Keenan, Faith, and Peter Landers, 'Staggering Giants,' Far Eastern Economic Review, April 1, 1999, pp. 10-13.
Kunii, Irene M., 'Toshiba Tries to Reboot,' Business Week, July 24, 2000, p. 26.
Landers, Peter, 'Broken Up: Japan's Biggest Players Get Serious About Restructuring,' Far Eastern Economic Review, February 11, 1999, p. 50.
Meyer, Richard, 'Power Surge,' Financial World, April 3, 1990, pp. 42-46.
------, 'Asia's CEO of the Year: Joichi Aoi of Toshiba--`We Just Stay with It,' Financial World, October 15, 1991, pp. 50-54.
Pasztor, Andy, and Peter Landers, 'Toshiba Agrees to Settlement on Laptops,' Wall Street Journal, November 1, 1999, p. A3.
Sato, Kazuo, ed., Industry and Business in Japan, New York: Croom Helm, 1980.
Schlender, Brenton R., 'How Toshiba Makes Alliances Work,' Fortune, October 4, 1993, pp. 116-20.
Tanzer, Andrew, 'The Man Toshiba Hung Out to Dry,' Forbes, September 7, 1987, pp. 96-98.
Uchida, Michio, 'Toshiba Bounces Back,' Tokyo Business Today, June 1989, pp. 14-19.
Young, Lewis H., 'Why Toshiba Likes the Component Business,' Electronic Business Buyer, December 1994, pp. 52-56.
— April Dougal Gasbarre; Update: David E. Salamie
