Aiwa Co., Ltd. Business Information, Profile, and History

Company Perspectives:

Known and trusted by customers worldwide, the Aiwa brand is a powerful, competitive marketing tool. This is crucial given that Aiwa's products compete in the standard price range, where most products are sold. Brand image builds trust in a product and clarifies the value it contains. The company has succeeded in popularizing the Aiwa identity, one that has become synonymous with value, through a clearly defined low-cost operations strategy. Aiwa's reputation for price and quality as well as design has helped the company to capture high market shares around the world.

History of Aiwa Co., Ltd.

Aiwa Co., Ltd. is a leading manufacturer of audio products, including headphone stereos, minicomponent stereo systems, portable stereo systems, minidisc players, CD and cassette players, and car stereo systems. Nearly 86 percent of company revenues are derived from such audio products. The company also makes and sells visual products, such as VCRs, color televisions, DVD players, and digital satellite television tuners; this sector accounts for about 12 percent of sales. In the "other" category responsible for the remainder of sales, Aiwa is involved in the production of computer peripherals devices, such as modems, terminal adapters, and speakers, and of what the company terms "life amenity products," such as air cleaners and humidifiers. Aiwa manufactures more than 89 percent of its output outside of Japan, with a heavy emphasis on the lower-cost southeast Asian nations of Singapore, Malaysia, and Indonesia. The company is also heavily dependent on overseas sales, with more than 80 percent of total revenues being generated outside Japan, with 43 percent in North and South America, 25 percent in Europe, and 13 percent in areas of Asia outside Japan and in other regions. Although officially an affiliated company of consumer electronics giant Sony Corporation, which owns 50.6 percent of the company, Aiwa prides itself on its independent operation and competes head on with Sony in several product categories.

Early History

Aiwa has somewhat obscure beginnings. The company was founded in June 1951 as AIKO Denki Sangyo Co., Ltd., a maker of microphones. In June 1958 the company's stock was registered for over-the-counter trade. It changed its name to Aiwa Co., Ltd. in October 1959. The following year saw the opening of a factory in Utsunomiya, a town located about 60 miles north of Tokyo. Its stock was listed in the second section of the Tokyo Stock Exchange in October 1961.

A key development came in February 1964 when Aiwa introduced the first Japanese cassette tape recorder, the TP-707. Cassette recorders, players, and decks became the company's core product area, and remained so through the late 1970s. In February 1967 Aiwa established another factory in Iwate. Two years later Sony Corporation purchased a majority interest in Aiwa, which became an affiliated company of Sony. Aiwa nevertheless continued to operate in a largely independent fashion, and its stock remained publicly traded.

During the 1970s Aiwa made an aggressive push into overseas markets. In late 1970 the company formed a joint venture company in Hong Kong called Aiwa/Dransfield & Co., Ltd. The Middle East was identified as a key arena for export growth, and Aiwa in 1973 established a joint venture in Lebanon called Aiwa Sales & Service Co. The company's timing was propitious, as the oil crisis that soon began made the Mideast a more attractive market because of the onset of recession in Europe and North America. By mid-decade Aiwa claimed an approximate 30 percent share of the Middle East tape recorder market. Aiwa also made an early move into overseas production, with the establishment of a factory in Singapore in late 1974. The following year Aiwa opened the Utsunomiya North Factory (the other Utsunomiya factory became known as the South Factory) and its stock was listed on the first section of the Tokyo exchange.

Later in the 1970s the Middle East became a less attractive market as both competition and political instability increased. Aiwa moved quickly to lessen its dependence on the troubled region, targeting Europe and North America for expansion. From 1976 through 1978, the firm established sales subsidiaries in the United Kingdom, Germany, and the United States. By the end of the decade, sales in Europe and North America accounted for 65 percent of all exports, a substantial increase over the approximate 50 percent levels earlier in the decade. In the late 1970s Aiwa also expanded its product line into the area of minicomponent stereo systems, an increasingly popular segment of the audio market; Aiwa's mini systems provided high quality sound and power and such sophisticated features as digital displays in a space-saving small package that included a radio tuner, cassette deck, turntable, amplifier, and speakers. By this time the company was also selling high-priced amplifiers, tuners, and other full-size rack-type audio components. For the fiscal year ending in November 1979, Aiwa posted net profits of ¥244 million (US$1 million) on sales of ¥38.5 billion (US$157.8 million).

In mid-1980 Aiwa ventured into another hot product category, that of headphone stereos (made popular by Aiwa's parent and its Sony Walkman), with the launch of the TP-S30, which featured stereo recording and playback functions. With its increased marketing to the industrialized countries of Europe and North America, Aiwa moved some of its production closer to that important area by opening a manufacturing plant in South Wales in September 1980.

Late 1980s Recovery from Near Bankruptcy

In 1981 Aiwa entered the video area for the first time, when it began production of videocassette recorders in Japan. Unfortunately, following the lead of its parent, Aiwa adopted the Sony Betamax format. Although introduced a year earlier, the Betamax lost out to the VHS format in a battle to determine which would be the industry standard. Compounding Aiwa's difficulties were intense domestic competition and an extremely strong yen, the latter of which made products produced in Japan more expensive in export markets. For the year ending in November 1986, Aiwa was in the red for the first time in eight years, posting a pretax loss of ¥5.17 billion on sales of ¥57.4 billion, forcing it to forego its dividend for the first time in 14 years. Aiwa was teetering on the verge of bankruptcy. Even its pioneering introduction of the first digital audio tape (DAT) system in March 1987 held little promise. Although DAT was initially seen as a threat to the booming CD industry because users could record--not just play--on DAT systems, the technology never really caught on.

Helping to pull Aiwa out of this tailspin was Hajimi Unoki, who was brought in from Sony to become the company's new deputy president. Unoki helped initiate a number of restructuring efforts. Hoping to achieve ¥2.5 billion in annual savings, Aiwa slashed its workforce through voluntary retirements from a high of 3,100 in 1985 to 1,300 by 1988. The company also consolidated its head office facilities, which had been spread among four different locales in Tokyo. In addition, it integrated three of its domestic manufacturing plants, with the Utsunomiya South plant converted to a technology center in early 1989.

Most critically, however, Aiwa aggressively shifted more of its production overseas, to counteract the effects of the strong yen. Production at its plants in Wales and Singapore was increased, with the manufacture of compact disc (CD) players added to the line of products coming out of the Wales facility. An expansion of the Wales facility was completed in March 1989. In Singapore, Aiwa added two more factories in Jurong, with Jurong West opening in February 1987 and Jurong East in September 1988. Through these and other moves, Aiwa increased its overseas production to encompass 50 percent of overall production. By the early 1990s, following the establishment of a new manufacturing base in Johor Bahru, Malaysia, this ratio at times reached as high as 80 percent, by far the highest such figure in the Japanese audiovisual industry. Aiwa returned to profitability and resumed payment of dividends in the early 1990s thanks largely to its shift to lower-cost, lower-wage overseas production--a shift that others in the industry soon imitated. Much of the credit for the turnaround was given to the aggressive Unoki, who was named president in 1989.

1990s and Beyond

By the early 1990s, Aiwa had also expanded its line of products. In mid-1993 Aiwa gained control of Core International Inc., a U.S. maker of computer peripherals. The company also found success--and increased its presence in video equipment--with a line of TV-VCR combination units. The pioneer in this area had been Matsushita Electric Industrial Co., which introduced the first such product in 1983. Aiwa was able to capture a large portion of this market by following with a full line of TV-VCR models, each of which included special features, such as a satellite tuner and a bilingual receiver. According to Shunichi Otaki, writing in the April 1994 issue of Tokyo Business Today, this follow-on strategy was a key to Aiwa's prosperity: "The secret of Aiwa's success lies less in creating new technology than in refining existing technology and delivering new products in a price range that will satisfy today's discount-hungry consumers. This contrasts sharply with the approach of other makers such as Sony, which have always pursued the high end of the market, shunning discounts and straining to create a prestigious brand name."

While many of its competitors struggled in the early to mid-1990s from the effects of the prolonged Japanese economic downturn, Aiwa remained profitable through the end of the decade. The company continued to shift its manufacturing base outside of Japan, with its overseas production ratio nearing 90 percent by the end of the decade. The increased capacity came from expansions of the Malaysian factory in 1994 and of the South Wales facility in 1995, and from the establishment of two manufacturing subsidiaries in Indonesia--P.T. Aiwa Indonesia in 1996 and P.T. Aiwa Dharmala in 1997. By the late 1990s the company employed more Malaysians than Japanese. Taking this fact a step further, Unoki, in an interview with Claire Leow published in the May 16, 1994, issue of Business Times, summarized the dramatic changes he had helped engender at Aiwa during his tenure: "I don't think Aiwa is a Japanese company anymore. In total production, 90 percent will soon be from overseas subsidiaries. In sales, 70 per cent to 85 percent come from overseas. In total employment, 75 percent are non-Japanese." Unoki went on to say that "a company doesn't need to belong to any country. It has to make money. Shareholders put money [in] and look for returns on investment." Aiwa shareholders were in fact rewarded well for their investment, as return on shareholders' equity from 1994 through 1998 was never lower than 11.7 percent and was as high as 20.9 percent.

As Aiwa approached the new millennium, its most successful product area to date had been its minicomponent stereo systems. In the 1990s these systems typically featured an amplifier, tuner, CD player, and dual cassette deck. Aiwa was the clear global market leader in this category, with a 30 percent share. In the United States, Aiwa had captured about half of the market by the late 1990s. While the company continued to find success in its core audio sector, that sector alone in the long run would be unable to keep Aiwa growing. New products were clearly needed. In the Japanese market, Aiwa found success in the late 1990s with a variety of products, including modems and terminal adapters; small, 14-inch to 21-inch "personal-use" color TVs; digital tuners used to receive satellite television broadcasts; and minidisc (MD) players. As was typical of Aiwa products, the TVs, though in the lower price ranges, offered a number of convenient features, such as front panel AV input jacks and onscreen displays. Also typical was Aiwa's approach to the MD, a recordable disc smaller in size than a CD. Introduced in 1992, the MD reached critical mass in Japan only in 1995, at which point Aiwa vigorously entered the category, introducing a line of portable MD players as well as incorporating MD players into minicomponent systems and portable radio cassette decks.

Overseas, Aiwa began a push into the car audio market in 1997 with the introduction in North America of a line of car stereos, speaker systems, and CD changers. Sales were soon expanded to Europe and South America. The car audio products were initially produced on a contractual basis, but in February 1999 Aiwa began direct manufacturing of the products at a company-owned factory in Indonesia. Later in 1999 Aiwa's U.S. subsidiary introduced a line of DVD players, DVD being the latest video technology attempting to supplant the ubiquitous VCR, or at least find a successful place alongside it. By this time the company had also entered the market for what it called "life amenity products," such as air cleaners and humidifiers. Among the products in the prototype stage at the end of the millennium were a personal digital assistant, a portable stereo with a built-in DVD player and video screen, and a small, Internet-centered computer. While still focused on audio, Aiwa appeared to be positioning itself for the long-expected convergence of the consumer electronics and personal computer sectors, which would perhaps take place in the early 21st century.

Principal Subsidiaries: Aiwa Iwate Co., Ltd.; Aiwa Hanaizumi Co., Ltd.; Aiwa Akita Co., Ltd.; Paulownia Co., Ltd.; Aiwa Trading Co., Ltd.; Aiwa Wales Manufacturing Ltd. (U.K.); Aiwa Electronics Malaysia Sdn. Bhd.; P.T. Aiwa Indonesia; P.T. Aiwa Dharmala (Indonesia); Aiwa Singapore Ltd.; Aiwa America, Inc. (U.S.A.); Aiwa (UK) Ltd.; Aiwa France S.A.; Aiwa Deutschland GmbH (Germany); Aiwa International Ltd. (Hong Kong); Aiwa Taiwan Electronics Co., Ltd.; Aiwa Gulf FZE (United Arab Emirites); Aiwa Latinoamerica (Panama) S.A.; Aiwa Nederland B.V. (Netherlands); Aiwa do Brasil Ltda. (Brazil); Aiwa Hong Kong Ltd.; Aiwa Research & Development, Inc. (U.S.A.); Aiwa Digital Technology, Inc. (U.S.A.); Aiwa International (Thailand) Co., Ltd.