2. Radical Transformation Without Sanctuary
1986-
(1) The Burst of the Economic Bubble
- 1994
- Japan's economic bubble has burst, leaving the future uncertain. Our company resolved to rigorously strengthen our corporate structure over a concentrated three-year period. President Tsuneo Ishimaru took the lead, formulating “DENSO Principles for Structural Change Response ” as our activity directive.
In the mid-1980s, the Japanese economy enjoyed unprecedented prosperity, known as the “bubble economy.” However, in 1991, the sharp decline in stock and real estate prices triggered a rapid descent into recession, marking the “collapse of the bubble economy.”
- Deep DiveThe Collapse of the Bubble Economy
- The collapse of Japan's “bubble economy” was triggered by the Ministry of Finance imposing a “total volume control” on land-related loans to financial institutions in 1990. This led to a nationwide decline in land prices the following year, which also caused a stock market crash. The increase in non-performing loans held by financial institutions led to a credit crunch, severely impacting corporate performance. The term “restructuring” became widely used to describe the widespread movement to reduce surplus personnel.
The automobile industry was also severely affected, leading to efforts to eliminate excess production capacity. In 1993, an automaker decided to close its main plant.
Although Japan's exports remained robust after the bubble burst, the yen appreciated due to speculative movements, starting around 1993. By April 1995, the yen reached an all-time high of 79.75 yen to the dollar, threatening the survival of export-oriented companies such as those in the automotive and electronics industries.
Our company's performance was directly hit. The fiscal year 1991 results showed “reduced sales and reduced profits,” a first since our founding. The goal of achieving “2 trillion yen in consolidated sales by 1995,” as outlined in our DENSO Principles, became unattainable.
To cope with the rapid increase in automobile production, we had made significant capital investments and hired a large number of employees, which, while initially a strength, turned into a high-cost weakness. We urgently needed to change direction, correct our course, and implement new recovery measures.
In such circumstances, long-term, carefully considered business plans were no longer useful. With the very survival of the automobile industry in question, our reforms had to be executed immediately.
Faced with an unprecedented sense of crisis, we decided to draft new DENSO Principles. The new DENSO Principles, set to cover a three-year period until 1996, focused on actions that would deliver definite results. Previously, our DENSO Principles mainly addressed how to respond to changes in the external environment. However, this time, the challenge was not just a single phase of change but a complete structural shift in the Japanese economy. The new DENSO Principles needed to transform the entire company structurally, not just strengthen parts of it. We had to achieve significant results in an extremely short time.
Traditionally, our company made important decisions after thoroughly listening to opinions from all internal levels. However, for the formulation of these new DENSO Principles, we adopted a top-down approach, emphasizing speed as the key.
In January 1994, President Tsuneo Ishimaru formulated and announced our first short-term, concentrated Principles, “DENSO Principles for Structural Change Response.”
Reference：Overview of DENSO Principles for Structural Change Response
- Ensuring business growth necessary for maintaining management.
- Strengthening product competitiveness.
- Creating a global business structure resilient to yen appreciation.
- Transforming into a lean business structure to overcome severe circumstances.