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Four key strategies to put Yamaha ahead

Interview - May 6, 2016

Yamaha began when its founder, Torakusu Yamaha, repaired an imported reed organ in 1887. Since then, it has grown to become the world’s largest comprehensive musical instrument maker and has expanded into the sound, music, audio, semi-conductor and even golf businesses. President and Representative Director Takuya Nakata takes a look at the company’s rise and explains its four-part strategy to further develop its three business segments to hit its ambitious 10-year targets.



What has been your impression of the effects of Abenomics and what action now needs to be taken to improve and further revitalize the economy and how positive are you about Japan’s longer-term future and prospects?

If you’re strictly talking about the Japanese economy, I believe that we operate in a system where you can’t really be optimistic about it for two reasons. First of all, Japan is very much an export-oriented society and therefore the strengthening of the yen has been putting some pressure onto our economic performance. At the same time, if you talk about the weakening yen, this implies that our foreign customers will increase as well, thereby enhancing growth. But the situation is still volatile. We cannot know if we can still be very optimistic about our future to come.

Alongside the policies pushing for Abenomics and abiding by them, we decided to go with a base up of our wages two years in a row as well, and this kind of approach might be very much possible for larger corporations, but it is still unsure if this can be achieved by SMEs. So I believe that, depending on how this goes, if it goes in a better direction, the general population will move toward consumption and will follow along as well. I intend to take responsibility for this movement as a corporation.


What in your opinion have been the key factors that have contributed towards the success of Yamaha over the years?

Yamaha has been taking on many challenges over the years, guided essentially by its pursuit of sound excellence and the delivery of music to the Japanese society. We have been formulating a high-level passion towards this goal, in the form of introducing music to this country.

With the pursuit of this sound and developing this principle, I believe that this has largely followed the principle of trying to flourish in the minds of the people. By abiding by this principle, we decided to not limit ourselves to just the musical side of the business, but also to things that can achieve this in other shapes and forms, like semi-conductors and golf clubs, and originally our motorcycle business that also originated from this side, which eventually became its own entity.

You might ask, “Why do you go ahead with making semi-conductors?” Well, it’s all because we were in pursuit of manufacturing better quality instruments. For example, we manufactured the first electronic organ in 1959. Back then we were the first one who made electronic organs using transistors, however the transistors back then were very unstable. In order to achieve a better quality product, we decided to go forward with manufacturing semi-conductors by ourselves that would later be able to achieve a better quality final product.


In terms of the spirit or philosophy of the company, when Mr Yamaha initially established the company, what are some of the styles or the manners in which you manage your operations, which are still true today?

Our founder Torakusu Yamaha had a strong will that he wanted to introduce instruments to Japanese society. This is very much what we’ve focused on and what we continue to focus on. The fourth president Gen’ichi Kawakami developed this idea even further, going forward with making a more prosperous society for Japan. So the two ideas were combined together and have been passed on to this day.


Yamaha’s share price over the past three years has moved from ¥654 per share to more than ¥3,300 today, marking an incredible rise of more than 500%. What, in your view, have been the key drivers behind such growth and how does the group now look to both consolidate and sustain this growth over the long term?

I believe that kind of stock price we’re getting from the market means the stock market could very much view us in a favorable manner, which we are pleased with. Four years ago our stock prices weren’t performing very well, and were among the lowest in our history, so it is a large adjustment that has occurred. One factor that has contributed to this is the fact that we have become more profitable over the years.

Since the Lehman Shock, Yamaha has been experiencing a multitude of difficulties and has been going through multiple stages of reconstruction. Over the past three years such structural reforms have ultimately led to this kind of growth. The depreciated yen, in addition, which was partly brought by Abenomics, has also contributed to the improved performance of our operations.


Can you take us through the various ways you are innovating in the segments in which you operate?

One of the strengths of Yamaha is that we have a multitude of technologies in-house, ranging from sensory technology to our material processing technology to our digital signal processing technology. I believe that we are able to leverage this technology together to make something even better, and we are in the course of building a structure to make it happen.

Until three years ago, all business lines were segregated based on product categories, but then we decided to abolish that system and shifted to the system that would help transcend the previously existed cross-departmental borders and function more effectively.


What are some of the new concepts and ideas being worked on at the moment, which will keep Yamaha competitive over the long term?

If you look at instruments, there are acoustic as well as electronic versions, and Yamaha has been embracing them both in its operations. While we have been evolving both of these, we’re also going forward with integrating these two types of instruments. For example, if you take a piano, there is an acoustic piano that has strings within the instrument. However, there is also a digital piano as well that has been growing rapidly due to its functionality, where you are able to freely adjust the volume and you’re able to turn it down during the evening and you’re able to have various sounds as well besides a simple piano sound.

In addition to this, we have been introducing products that integrate all of these ideas together. We have an acoustic piano with strings, hammers, soundboard, and actions, but we’re able to control the volume and output as well. Not only on and off, but also with adjustable volumes. It has digital sound source inside but instead of using the conventional speakers, we use devices called transducers to vibrate the soundboard. The performer enjoys a sense that the entire instrument produces the sound.

We also have a guitar called the TransAcoustic guitar that has been a product of such evolution that we just released recently at the trade show in Germany. It’s an acoustic instrument, but inside its body it has a device that vibrates and also digital sound source. It looks like a normal acoustic guitar, a six-string guitar, but then you’re able to do things that you might be able to do on a 12-string guitar and also an electric guitar as well.


You also have this technology that aids you in aging the wood for your instruments. Perhaps you can tell us a bit more about that?

This is called Acoustic Resonance Enhancement (A.R.E.) technology and it uses atmospheric pressure in order to age the wood material. We knew from experience that guitar products make much better quality sound after 30-40 years—so-called vintage guitars. We took an engineering approach to analyze the composition of wood and we realized that it changes as time passes.

So the guitarist for Queen, Brian May, realized that if he used wood material that was placed by a fireplace, he found that it made a better sound, and there was indeed a reason for this. So not only did we discover this, we researched exactly how we could change the composition of wood and we were able to solidify this into formal technology. The guitar to which this technology is applied is highly evaluated. In Ginza we have the Yamaha Hall. The stage flooring is made out of wood material that has undergone this process, which easily transmits the vibrations from musical instruments and contributes greatly to a venue’s acoustics.


How do you coordinate your research and development in line with how your products are being developed? How do those two departments work together?

We have R&D divisions under the Technology Unit where they do research on technologies that might take many years, and we take the results from this division and pass that on to the product development divisions under the Development Unit. The Development Unit takes care of technology that will take only two or three years maximum to make into a final product; but for technology where more time needs to be taken in order to come up with a new product, then we let the Technology Unit take care of it first at a different level from the product development.

This is the basic strategy that we implement and with this kind of approach, we are able to come up with a new product every single year.


On April 13, 2016, you released your new midterm management plan “Next Stage 12”. Could you explain what was achieved over the last midterm plan and what now are the key areas of focus and priority for the company?

We were able to achieve all of the numerical targets outlined in our last management plan, including ¥430 billion in sales, ¥30 billion in operating income, 7% in operating income ratio, and 10% in ROE. We were able to clear all of these goals as a result of structural reforms we had implemented. We also set aside four key business strategies:
1/ expanding sales in the electronics business domain,
2/ accelerating growth in emerging markets as well as China,
3/ strengthening cost-competitiveness,
4/ developing new businesses.

We were able to achieve the first point, the expansion of our electronics operation, as well as the third point, reducing costs, specifically by ¥7 billion. Regarding the second goal of growth in emerging markets, as well as China, we were able to have some results in China. However, because of the crisis situation in Russia and South America, emerging economies had a sluggish growth.

Besides such macroeconomic factors, there are certain points that I believe need to be addressed for our sales efforts too. We were not able to make progress as we had planned in establishing and expanding optimal sales networks in each region. This is something that will be further addressed in our next term plan.

Regarding our fourth point, on developing new businesses, we have gone through M&A with two companies in the United States. We were not able to produce results over the last period, but we intend to further address this in the next period.

One of the main focuses of this next plan is to take the Yamaha brand to the next stage. I believe that by strengthening the brand, profitability will increase, which is why we set an operating income ratio target of 12% as a KPI. I believe that by elevating your brand, you will be also able to achieve further profit.

In order to strengthen the Yamaha brand, we have defined four key strategies in our medium-term management plan. First of all, we would like to develop products with distinctive individuality: enhance our products’ differentiation points, as well as deliver new values. Secondly we need to enhance customer interaction: address marketing through a more regional-based approach and reduce the distance between our customers and us. Thirdly, we intend to continue with our cost-reduction efforts. We plan to reduce our costs by the same factor that we achieved last time. Fourthly we’re aiming for a new form of globalization. At this point at the end of the last fiscal year, our overseas sales accounted for over two-thirds of our entire operations. In 32 different countries we have subsidiaries and branches active across the world. Given this situation, I believe that Yamaha has not attained full globalization yet and that’s why we stated this as one of the four key strategies. In order to move forward with globalization, the utilization of local talent is crucial: I believe one of the reasons why Japanese companies struggle with globalization is because Japanese staff try to do everything by themselves. As we already have over 50 years of history operating overseas in 32 different countries, we have plenty of local talent. I believe that we will be utilizing these sorts of talents in top-management positions as well in the future. I believe that it is absolutely inevitable and imperative to ensure that we use local efforts for good marketing.

So these are the four key strategies that we’re trying to go forward with, and on an operational pivotal point, we have three business segments. We have been developing businesses for further enriching peoples’ lives and establishing a comfortable society, by utilizing Yamaha’s core competencies of technology that crosses over sound and people. So the first business segment is the musical instruments to enrich people’s lives, and the second is audio equipment for establishing a comfortable society for the people. The third one is industrial machinery and components, which we have defined at the start of our new medium-term plan

Regarding our musical instruments, given that the market isn’t growing that much, we know that it is important to further strengthen the brand and thereby generate more profit, specifically by an operating income ratio of 15%.

Regarding the audio operations, given that the market still has growth opportunities, we intend to further grow our revenues, so that the operation will be comparable with that of our instrument operations.

In the third area of industrial machinery and components, we have been focusing on semiconductors previously. Going forward, we intend to extend this business to a solution-based operation by offering components: transform the business from a semiconductor manufacturer to a solutions vendor.

Musical instruments and audio equipment businesses account for about 90% of our total sales, but we intend to further solidify the remaining 10%. We have been providing sound LSIs to automotive manufacturers until now, but there has been an issue of a high amount of noise inside these vehicles. By utilizing the know-how of Yamaha, we are able to address this issue; we are offering total sound solutions to achieve pleasant and comfortable sound environment as the connected cars are becoming more popular as well as mobile phones. I believe that there is a growing need for enjoying music in the car, and this is something that we can go into.


Almost two-thirds of Yamaha’s sales are made overseas and the North American market represents almost 20% of these. What is the company’s focus on further expansion and growth across this market and what are the strategies to aid the company gain a stronger foothold in the United States?

In the US market, we have over 30% share of pianos, as well as wind instruments. For digitalized instruments we have a 50% share; however for the guitar market, which is the largest market there, our shares are so very limited. So I believe that we still have plenty of challenges in the guitar market, and we want to further expand this business.

In the audio segment, I believe that there is still a lot of growth potential and growth opportunities in the market, both in the consumer market, as well as the commercial market. We first thought that the consumer audio market in the United States had already stagnated, but we were wrong. We have been focusing on component-type audio where there’s a receiver as well as a speaker. The market for component-type audio, indeed, seemed to be not growing much. On the other hand, the connected audio and the multi-room audio markets have been showing tremendous growth. We were struggling in the beginning, but now we are putting products into this market continuously, so that might lead to further profitability and be our important business.

Professional audio is another field that has plenty of growth opportunities and thereby we are focusing much on it. Of professional audio, products used for live concerts are the area where Yamaha has strengths. But in addition to this, we intend to expand business of equipment for conference rooms as well as meeting rooms of companies. The market of products for companies’ meeting rooms has been growing because they need conference phones. For this reason, last year we acquired a company in Boston called Revolabs. We are strongly moving forward with the production of new products.


How does the support of big artists help you to grow and establish Yamaha as an international brand?

Supporting artists is a very important side of Yamaha, and something we intend to further strengthen. Especially pop music, and artists like Elton John; I believe that we already have a very solid relationship in this field regarding piano players. On the other hand, as I mentioned early on, we are still a bit weak in the guitar field, and we want to further strengthen the area thorough our R&D facilities in New York, Nashville, and California.


Where you see the future of global Yamaha in 20 years?

We already have an established goal for the next 10 years, and that is to become a global and indispensable entity for society. For specific KPI we have set an operating income ratio target of 20% in 10 years. I believe that this is not an easy goal, but if you look at all the high-end brands around the world, for example, Apple has 30% for an operating income ratio, Coca-Cola has 23%, and so this is the level that we’re aiming for.


What is your final message to readers?

Our corporate philosophy is “with our unique expertise and sensibilities, gained from our devotion to sound and music, we are committed to creating excitement and cultural inspiration together with people around the world”, and we state “Sharing Passion & Performance” as our corporate slogan. I believe that we are able to continue delivering new value to the world and “Sharing Passion & Performance” through our products. We want everyone to continue to have high expectations for Yamaha and the Yamaha brand.