After four decades of prosperity, Japan was hit by an economic b0mb in 1991. Worse, no foreigner could be held responsible for it; none except Japan

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Hitachi, the then largest producer of electrical equipments and computer chips announced a loss of 100 billion yen and job cuts of 4,000 during FY1998, its firsts after World War II! There were many others too joining it over the cliff. Toshiba, the country’s second largest electronics group being one as Yoshihiko Wakumoto, the-then Senior VP, Toshiba Corp. confessed, “In 1991, one market after another turned bad. Our pre-tax profits for FY1991 may be down a whopping 42%...” That year, Toshiba announced its first loss since 1950, blaming plummeting prices of semiconductor chips and computer accessories. The news also caused semiconductor-related stocks to fall further on the Nikkei. Another victim which came crashing was Matsushita Electric which also announced losses for the first time in decades. Not to be forgotten, blue chips like Sony, Fujitsu and NEC also experienced falls of over 40% in operating profits during 1991. The worst hit were Japan’s security houses, which were facing the brunt of a falling stock market. Of the few that survived the crash, one Nomura Securities, which was once the country’s most financial venture announced a 80% fall in annual profits. One of the biggest impacts however was on Toa, Japan’s second-largest electric furnace steelmaker which announced its winding-up post debt accumulation of 250 billion yen!

In short, no sector was left unpunished. The domestic auto average sales fell below 5 million in the years that followed the recession. Nissan on an average lost 4.2% in monthly sales and as a result cut jobs and reduced working hours. Sony too lost a shameful $156 million during 1991, its first ever! This also forced the company to reduce its capital spending by $2.15 billion and R&D spending by $1.8 billion. As Kenichi Ohmae, MD, McKinsey & Co. Japan asserted, “This is the first time we have experienced an asset-based recession. Nobody knows how deep it is,” indeed, Japan was hit by a shock wave that caused years of havoc.

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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