Globalizing Operations to
Survive

Yoshihisa Toyosaki J-Star

Today, the automotive industry is in turmoil. In 2007, Toyota Motor Corporation had overtaken General Motors and had become the leading car maker in the world. The hybrid car, which was developed to protect the global environment, has lost its distinction. Japanese automobile makers are currently focusing on the development of cars with safety-, comfort- and low-energy- consumption features as the primary criteria. With car electronics becoming the nucleus of the next-generation, manufacturing cars that can guarantee the above criteria over a long period of time has become imperative. It should be noted that both automobile manufacturers and semiconductor manufacturers are mutual partners in the new supply chain development.

Figure 1 Automobile industry's growth in the global market (Source: Development Bank of Japan & J-Star)

Deceleration of American business conditions and the world economy
The automotive and semiconductor industries are directly influenced by the global economy. The problem of the sub-prime loan has greatly affected international financial markets. It will become impossible to contain the effects of the deceleration in the American and international economy in 2008. The emerging economies of Europe, China and India will not be able to avoid the impact of the deceleration and it has also been predicted that the Japanese economy will show a slowdown in its growth rate by 1%. The effect of the American subprime loan crisis is sure to prevail for the next five years. If real-estate growth in the American economy slows down, the American economy will go into recession and it will be impossible to avert the subsequent Japanese recession. If the American economy enters a recession it would last for another 7 years. However, an optimistic scenario is that, in spite of the American deceleration, rapid growth will continue in developing countries such as China and India and the global economy will expand favorably and continuously.
The influence of the American deceleration will be less than that has been in the past and developing countries will have powerful influence on the global economy. A large part of the population in developing countries, especially India, China, Vietnam, is young. Credit card usage and consumer financing by the youth in these countries is low and their financing liability is protected. These factors are conducive to potential consumer growth in future. The Chinese government is strengthening relations with Venezuela and Africa by offering rare metals and natural resources, which have put an end to the epoch of the American strong hold and the new developing economies are a testimony to that.

Primary Risk factors for the Japanese automobile industry
It is obvious from the quarterly accounts for the period July-September 2007 that General Motors had a loss of 4.4 trillion yen and Toyota made a profit of 942.4 billion yen. The Japanese enterprises were considered to have an overwhelming sway over the automobile market. It was for this reason that the U.S. - Japanese semiconductor agreement, which exerted political pressure on Japanese enterprises, was signed in 1986. The Japanese semiconductor industry was turning out to be a major threat to the U.S. semiconductor industry. The American Semiconductor Industry Association (SIA), formed in June 1985, filed a suit with the United States of America Trade Representative (USTR) on the basis the Omnibus Trade and Competitiveness Act 301 provisions (super 301 provisions). The intent was to curb illegal imports of Japanese semiconductor products at cheap prices into theAmerican market. The USTR awarded an interim decision in May 1986 on that suit. In order to avoid the continuation of friction in trade relations, the Japanese side signed and sealed the Japanese-American semiconductor agreement in July 1986. Future risks for the Japanese automobile and semiconductor industries depend on the U.S. presidential election of 2008. In 1993, the Clinton Administration initially adopted harsh measures against Japan based on Article 7 of the Omnibus Trade and Competitiveness Act and warned Japan against the illegal trade of semiconductor products. At that time, in order to avoid friction in trade relations, Japan raised the value of yen and made efforts to adopt global economic standards which favored the American capitalist system. Currently, with liberalization, intense competition with banks, increasing credit risk and the crisis created in the banking system, business confidence has eroded, and economy has fallen into deflation. In spite of this, Japan continues with its policy of liberalization. Japan could not make the most of the past experience. In order to keep up with the global environment, it is necessary to manufacture hi-tech automobiles.

Considerable growth in the manufacture of automobiles in Asia
merican survey company - the number of automobiles manufactured worldwide (apart from buses and bigsized trucks) between 2001 and 2005 was 6 million, and the annual average percentage of automobile production increased by 3.8 %. In 2007, the number of automobiles manufactured increased to 6.4 million, and it is expected to reach 6.7 million in 2008 and to 7.5 million in 2010.The growth rates in the interim period may be as high as 3.7%. The newly emerging markets are the motivating factors for the existing global market. The annual expansion rate of China's automobile market is expected to be around 11% in the year 2010 with the number of automobiles manufactured nearing 9 million. In Asia, the markets in India and Thailand are expected to grow to the levels seen in Japan, China and Korea. The automobile manufacturing in India and Thailand is expected to witness a 10% growth with a production of 6 million vehicles. The number of vehicles manufactured in India will rapidly increase twofold, from 1.6 million to 3 million. In 2012, Asia will gain an overwhelming majority occupying more than 40% of the entire world market. (Figure: 2)

Figure 2 The expanding Asian automobile market (Source: CSM Worldwide)

Changes necessary for internal automobile development
Japanese youth are becoming increasingly obsessed with electronic products. Their desire is not to possess an automobile that is ranked as the topmost with respect to various functions, but to have a virtual communication-facilitating mobile and digital device. The factors responsible for the unsatisfactory sales figures of the automobiles are the quality disparities among company brands, life-style changes, and anxiety over the future automobile advancements. The first Japanese company to surpass operating profit of more than 2 trillion yen was Toyota Motors. The number of passenger cars sold in the domestic market was 1.46 million in 2006, which was around 97% of that in the previous [s1]year. That number has continuously been declining in the last 2 years. Nissan sold 0.65 million vehicles, during 2006, which ranged to about 87% while Honda sold 0.64 million, which was about 97%. The Japanese economy seems to have reached the state 'where no more cars can be sold'. Automobile manufacturers in Japan have set a target of 10 million passenger cars each for the domestic and overseas markets, and the production proceeds accordingly. In spite of that, sales within the country have been cut down to 5 million. The Japanese automobile industry, which seems to be in good condition, is in reality shaky at its base.
In addition, demographics of the advanced countries indicate an increased presence of an aged population; this will cast a shadow on the development of the automobile industry. The 2005 world population statistics revealed the following aging structure: 28.3% were below the age group of 15; 64.4% were in the age group of 15-64; and the statistics of individuals older
than 64 varied in different countries - in Japan, it was 20.1%; 19.7% in Italy; 18.8% in Germany, 9.4% in Korea, and 7.7% in China. Japan is an ageing society, and hence there has emerged a necessity to develop automobiles that are both environment-friendly as well as suitable for the aged. Toyota's oneseat Concept Car [i-REAL] is considered a good model.

Decrease in the growth rate of the semiconductor market
　In 2008, the growth rate of the semiconductor market will be low compared with 2007. According to estimates, it is expected that the growth rate will continue to remain significantly
low. The major factors responsible for this decline in growth rate are sub-prime loans, the economic recession worsened by the United States, high oil prices; and the development of traditional semiconductor markets reaching saturation. The semiconductor market growth rate in 2008 is estimated at 4.2% and is expected to be 3.9% in 2009 and 4.6% in 2010. The future growth rate is expected to be between 4% and 7%. The world economy will be softening during the period 2010 to 2015. Globally, semiconductor manufacturers are venturing into new domains such as energy and sensor technologies. In the future, Japanese semiconductor manufacturers,
entering a mature phase in the market, must seriously think of reorganizing priorities in order to survive. In other words, it would become indispensable to design a modern business strategy
suitable for the modern market mechanism. The presence of strategic marketing for the regional market is the major difference between Japanese semiconductor manufacturers and overseas global semiconductor manufacturers. The marketing strategy and successful lobbying of Japanese automakers are the reasons behind their development. The future is bleak for the semiconductor market with no possibilities of rapid expansion. But a rapid growth rate can be expected of the micro market. The new field connecting [s2]the automobile industry with the micro chip industry opens avenues for growth.

Strategy focusing on SiC devices
It is necessary for the Japanese automobileindustry and the semiconductorindustry to positively tackle environmentaltechnology, as a discriminatoryconversion step of competitiveenterprise, by adopting a strategy focusingon SiC devices. It is difficult topopularize the automobile technologyof the next generation with just the'environment-friendly' catch phrase(Figure 3). In many cases, the targetmarkets for current technologies/products already exist. We have tocross many hurdles while improvingthe price-to-performance ratio of nextgenerationtechnology to capture amarket share equivalent to that of thecurrent technology. However, it isvery difficult to cross this hurdle becauseexisting technology/product hasbeen in the market for a long periodand often the enhancement of the performanceof the product/technology isinexpensive.

Figure 3 Graph depicts differences in CO2 gas emission levels for fuel cars, and electric cars using the next-generation auto technology (Source: Daiwa Institute of Research Ltd.)

Figure 4 SiC power devices' estimated use in the market and the energy conservation effects

Widespread usage of the MEMS sensor
Bridgestone's Contact Area InformationSensing (CAIS) analyzes the roadsurface using a high-speed sensor that islocated on the back side of the tireand employs a new technology thatdetects car movement using a strainsensor. The measured data is transmittedthrough wireless connection tothe computation center and is thenprocessed. The high-speed sensor detectsconditions such as black icewherein the road surface is frozen andinvisible to the naked eye and notifiesthe driver about the impending danger,using a sound signal. As the strainsensor directly measures the tiremovements, safety is improved by theusage of a slippage control device(ESC) that controls the steering, engineand brakes. The high-speed sensorand the strain sensor located insidethe CAIS make use of Micro-Electro-Mechanical Systems, or MEMS, technology.The MEMS device used incars currently uses 50% silicon and50% non-silicon components. In thenext 3-5 years, usage of silicon componentsin MEMS will reach around 60%(Figure 5).Although there has been greatprogress in Monolithic Microwave IntegratedCircuits (or MMIC) incorporatedin milli-wave radars used incars, the GaAs device, which is the basicchemical semiconductor, is costlyand can be loaded only in high-endcars. However, almost all car makersare adopting measures for further developmentto achieve environmentalconservation, safety and a higher comfortlevel. Milli-wave radars are beingused on a large scale. It is essential todesign milli-wave radars, which aremost cost-effective.Commercialization of SiGe devices,which can be achieved through a verylow cost process, should be realized in2008. Despite the car manufacturers'attention toward development of expensiveactive safety applications usingmilli-wave radars, there seems tobe progress in passive safety airbags,and value-adding components. In Europethere has been a growing demandfor high-end cars but in Japanthere is higher demand for mid-endcars and SUVs.

Figure 5 World market for MEMS devices (Source: J-Star)

Expectations for next-generation auto technology
There has been a lot of focus onhybrid cars as part of the next-generationauto technology in view of the increasingimportance for environmentalprotection. Basically, there hasbeen a concurrent development of hybrids,electric cars, battery cars, bioethanol and other new, state-of-the-arttechnology. In the short run, we expectto see an increased usage of hybridcars. The use of clean diesel results inthe widespread use of medium-sizedand large-sized cars even in regionsother than Europe. The use and scopeof bio ethanol will be expanded in agriculturaleconomies and it is expectedto make a valuable contribution assubstitute for petrol. But it might alsoaggravate the food problem. Temporarily,we hope to see more developmentsin hybrid cars with lower associatedcosts. There is a possibility ofmoving to electric cars in the 2008-2010 timeframe, as a result of rapiddevelopment of lithium ion batteriesand high performance capacitors. Ifsafety and low cost can be achievedwith lithium ion batteries, gasoline engineswill become obsolete and thereis a chance that hybrid cars may becomeeven more popular.Japan is way ahead in terms of automobilesemiconductor devices andmechatronic techniques. Similar todigital power, if easy-to-use digital devicesare introduced, we can zero outthe competition between companies,which will result in a no-profit situationfor the industry participants in avery short period of time. New overseascompanies are expected to make entryinto the market if we convert electricmotors and mechatronic technologyinto modules. SiC power elements,MEMS loaded in the three -dimensionalsystem and image-processing technologyshould all be integrated into ablack box.Therefore, it is important to have atechnical strategy that can developJapanese automotive technology thathas not been converted into modules.There has been rapid progress towardmaking automotive technology moreelectric, and semiconductor technologyis going to become the core automobiletechnology. The Japanese autoindustry has been presented to theworld as safe, secure and energy conservingwith a view to contribute tothe world. It is now critical that weachieve a business model that helps inthe building and creation of this new industry.

Author: Yoshihisa Toyosaki Mr. Yoshihisa Toyosaki is the president ofTokyo-based research and consultation companyJ-Star Global Inc. Mr. Toyosaki has marketedLSI technology, IP techniques and the EDAthat operate the ASIC process and packagetechnology for LSI Logic. This was possible afterhigh-speed logic and memory were developed atFairchild and Philips NV. He was also involvedin the development of the CPU forPlayStation 1. Later, he worked as an analyst forGartner, Inc., and then as a chief analyst/consultantat iSupply Corporation.Mr. Toyosaki founded iSuppli Japan andwas its CEO. He was also the vice-president ofthe U.S.-based iSuppli. He is also a member ofthe Technical Council for New EnergySources and Comprehensive Industry TechnologyDevelopment. He acts as a private advisorto Governor Matsuzawa in Kanagawa prefecture.He is also a member of the [Looking atthe Future Japanese industry] group promotedby the LDP.He is also well-recognized as one of the topminds and analysts in global semiconductormarket, the logic/micro component IP market,and in multi-media devices.