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UNCLAS SECTION 01 OF 02 TOKYO 000309 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/J, EEB 
STATE PASS USTR FOR MBEEMAN 
DOC FOR KROTH, DLEE 
 
E.O. 12958: N/A 
TAGS: EIND EINV ETRD PGOV JA
SUBJECT: SONY EXECUTIVE ON CHALLENGES TO JAPAN'S 
ELECTRONICS INDUSTRY 
 
REF: TOKYO 232 
 
TOKYO 00000309  001.2 OF 002 
 
 
Sensitive But Unclassified.  Contains Proprietary Information. 
 
------- 
Summary 
------- 
 
¶1. (SBU) Sony reports serious concern within Japan's 
electronics industry about actions various governments have 
taken recently that restrict or could restrict trade.  He 
included in his assessment adoption of the "10   2" rule in 
the U.S. and reports of possible "Buy American" amendments to 
the Stimulus Package.  He rejected critical comparisons of 
Sony and Nintendo appearing in the business press saying 
performance has varied between the two companies because each 
follows a very different business model.  Sony will cut 
production and jobs in Japan as part of an urgent effort by 
firms in the sector to lower production costs.  Actions by 
governments that increase the time it takes to get products 
to market have also been harming Japanese electronics 
manufacturers.  End Summary. 
 
¶2. (U) EMIN met February 3 with James Toyama, Sony Deputy 
General Manager for International Public Affairs and Trade 
Policy Committee Chair for JEITA, the Japan Electronics and 
IT Industry Association.  The conversation covered the 
economy and electronics markets, measures Sony is taking to 
address dramatic changes in its operating environment, and 
Sony's primary policy concerns. 
 
---------------------------- 
Concerns about Protectionism 
---------------------------- 
 
¶3. (SBU) Concern over actual and possible protectionist 
measures stood at the top of Toyama's agenda.  He cited 
worrying moves in India, Russia, China, Europe, and 
elsewhere, noting the negative precedent should larger 
developed countries like the U.S. adopt measures others could 
see as protectionist.  He then raised the U.S. "10   2" rule 
and said adoption of the "Buy America" provisions reported in 
the press could have ongoing negative consequences. 
 
¶4. (SBU) Toyama listed other concerns as well, including 
India raising select applied tariff rates, Russia's disputes 
with Ukraine and Georgia, China's consideration of new 
encryption standards, and the EU's customs reclassification 
of products covered by the WTO Information Technology 
Agreement.  From business' perspective, such moves could 
easily trigger many more protectionist actions, Toyama said. 
 
-------------------- 
More Difficult Times 
-------------------- 
 
¶5. (SBU) Taking a look at Japan's electronics sector in 
general, Toyama said it is important to differentiate how 
different companies have been affected by the global 
downturn.  He rejected criticism in a January 28 Wall Street 
Journal article that Sony operates too many product lines and 
lags behind competitors.  Nintendo, the only major Japanese 
electronics manufacturer to report a profit in the 
October-December quarter, licenses production to others, 
Toyama said, and this model for mitigating some risk seems to 
serve the company well in the current market.  In contrast, 
Sony has a more diversified model with a broader range of 
products in which it manages factors such as research and 
development and domestic/foreign production differently 
across distinct product lines.  Despite the current 
headlines, Sony feels this model is effective in the 
longer-term.  Toyama explained Sony carefully manages its 
production allocation to consider factors besides labor and 
logistics costs as products move through their lifecycle, 
 
TOKYO 00000309  002.2 OF 002 
 
 
e.g., the need for engineering support and protection of 
sensitive IPR. 
 
¶6. (SBU) In talking about production and cutting costs, 
Toyama said Sony and the Japanese electronics industry as a 
whole must lower their respective break-even points.  Sony 
recently announced plans to cut another 8,000 out of 160,000 
jobs world-wide by March.  This announcement comes on top of 
the nearly 10,000 already cut during the 2005-07 period. 
Sony will reduce investment in its electronics business by 
roughly 30 percent by March 2010, as well as discontinue or 
delay projects in areas such as semiconductors and LCD 
televisions.  The company recently announced it will cut its 
total number of manufacturing sites by 10 percent, from 57 
currently, by March 2010 and will cease production at the 
Sony Dax Technology Center in France. 
 
------------------------------------ 
The Importance of Trade Facilitation 
------------------------------------ 
 
¶7. (SBU) Toyama also raised concerns with measures that 
complicate product development and distribution in the IT 
sector.  Changes in government regulation and slower 
logistics negatively affect the sector's 
production-distribution cycle and the current economic 
environment has magnified risk to the industry from holding 
inventory or taking longer to get products to market.  He 
cited as risks the lack of commercial credit, exchange rate 
movements, and changes in consumer demand.  While Toyama does 
not see the bankruptcy of retailer Circuit City by itself 
affecting Sony sales significantly, the possibility of 
additional retailers going out of business adds another risk 
factor.  He complained that governments had worked hard 
during the 1990s to help reduce times to market, and now 
these gains are under threat. 
ZUMWALT