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Source: www.asiaecon.org |

SONY STRUGGLES IN MIDST OF JAPANESE RECESSION


  While Japan has been expecting to enter a recession because of the global financial crisis, recent developments such as the fall in exports and lower domestic demand, accompanied by growing levels of struggling businesses, have caused the Japanese government to express fears of a recession more threatening than they had hoped.


 

While Japan has been expecting to enter a recession because of the global financial crisis, recent developments such as the fall in exports and lower domestic demand, accompanied by growing levels of struggling businesses, have caused the Japanese government to express fears of a recession more threatening than they had hoped.

 

The contraction rate of the world’s second largest economy by 1.8% is four times bigger than previously estimated ones, which rises fears of a long recession, possibly the longest Japan has ever seen throughout its history. GP Morgan revealed that the recession had already hit Japan by the end of 2007.

 

The Japanese economy, which is heavily reliant on exports, will continue contracting during this global crisis until the fourth quarter of 2009, where it will hit a record high not seen since World War II.  This contraction is mainly due to the cutting off of production by major manufacturing firms as a result of declining global demand.

 

In response to these troublesome times, the Japanese government decided to increase its spending, whith expenditures reaching$216 billion and constituting around 3.6% of Gross Domestic Product (GDP). Moreover, GDP data show that the economy contracted by 0.5% between July and September of 2008 which is much higher than the expected 0.1% rate

 

Amid these struggling economic conditions, Sony Corporation announced its lay off of 80,000 employees accompanied by rigid budget cuts, where Sony decided to lower its investments by $1.1 billion especially in those areas where success was not overwhelmingly met. Sony declared its intentions to lower investments in electronics by 30% of the projected investment rate and to cut down current production by 10%. Moreover, Sony aims at lowering the number of total employees, which is currently at 160 thousand world wide, by 5%.

 

For the past years, Sony has been operating at an economic loss of $1.1 billion annually because of declining sales, and the appreciation of the Yen, which is the first loss recorded within the past 14 years. Furthermore, Sony’s stock prices fell by 9% resulting in a $22 billion loss in stock market share. Stock prices for Toshiba Corporation, Sony’s major competitor,  also fell by 8%, indicating dull losses for the 2009 fiscal year.

 

The Nikkei newspaper said Toshiba’s operating loss will likely be around 200 billion yen, against the company’s October forecast of a 150 billion yen profit and a projection of a 31 billion yen profit in a poll of 16 brokerages by Reuters Estimates. Toshiba also suffers from weak demand for flat TVs and personal computers.

 

The decline in domestic demand, the main symptom of the recession, has caused an increase in electronics inventory, thus lowering their prices which in turn hurt Sony’s revenues in transportation, cinema, and insurance tremendously. Reuters reported that Sony will experience another $1.1 billion loss in fiscal year 2009 which will end in late March instead of a projected profit of $2.2 billion.

 

According to London’s The Times, sources within the company have described the reductions in the global workforce as a “scared cow-slaying” plan. Analysts believe Sony’s directors will be forced to pursue an even more aggressive restructuring plan than the initiative to reduce it’s global workforce.

 

Source: www.asiaecon.org |


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