Yamaha Corporation Final Document PDF

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Yamaha Management Group Project...

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MANAGEMENT 30060 Company Analysis:

History

Corporate structure

Organizational structure, culture and leadership

Financial performance

Corporate strategy

Competitive strategy

JULIA ARBEX RIANI DANIEL FREDERIC BESTHOF DIEGO CASSINA TANGUY HERBETTE

CLASS 15 Group 3

MARIE-CLAIRE KRISTINE LENHARD ANGELA PELUSI

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INDEX 1. History…………………………………………………………………………………………....... 3 1.1

Yamaha Corporation

2. Corporate structure……………………………………………………………………………….. 5 2.1

Ownership structure

2.2

Board of directors

2.3

Nominating, Audit, Compensation Committee

2.4

Governance structure

2.5

Agency problems

3. Financial performance……………………………………………………………………………. 8 3.1

Profitability

3.2

Financial Strength

3.3

Liquidity

3.4

Stock information

4. Organizational structure, culture and leadership……………………………………………… 10 4.1

Organizational structure

4.2

Organizational culture

5. Corporate strategy………………………………………………………………………………... 12 6. Competitive strategy……………………………………………………………………………… 13 6.1

Porters Five Forces Analysis

7. Bibliography………………………………………………………………………………………...15 8. Exhibits……………………………………………………………………………………………...16

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HISTORY 1887-1900 The history of Yamaha Corporation began in 1887 when the company founder Torakusu Yamaha created his first reed organ and would later become a pioneer in the production of Western musical instruments in Japan. Fascinated by western science and technology, Torakusu was asked to repair a reed organ in a local elementary school and recognized its business potential. His first prototype organ was however heavily criticized for its poor tuning. Never giving up he took up studies for music theory and tuning until he was able to complete the organ. 1889 Torakusu became Japan’s first manufacturer of Western musical instruments establishing the Yamaha Organ Manufacturing Company. As a result of the company’s incorporation on October 12, 1897 the company’s name changed to Nippon Gakki Co., Ltd. The demanding studies of tuning while holding a tuning fork inspired the corporate trademark of 1898 which portrays a Chinese phoenix holding a tuning fork in its mouth. 1900-1955 In the early 1900s Yamaha saw potential in the more inexpensive upright pianos, which were gaining popularity in U.S. homes, therefore switching its focus to these new instruments. The original logo was replaced by three tuning forks representing the company’s origin as a reed organ manufacturer, as well as the cooperative relationship linking the three pillars of the business: technology, production and sales. The first world war greatly allowed Yamaha to expand as the Asian market was cut off from its original European suppliers. During that time, it expanded its product base adding harmonics to its production and set record sales and astonishing growth numbers despite a general recession. This was due to piano sales doubling within 1919-1921. In 1948 Yamaha’s business expanded due a decree by the Education Ministry mandating musical education for Japanese children. As a result, Yamaha Music School was founded in 1954 to popularize Western music in Japan and create a customer base starting from a very young age. In 1949 the company listed its shares on the Tokyo Stock Exchange. After World War II, the remnants of the company’s war-time production were repurposed to the manufacture of motorcycles. As the motorcycle division was split from the original business, Yamaha Motor Co. was founded in 1955 and became the world leader in water vehicle sales and accounts for the second largest motorcycle sales in the world. 1955-1980 Yamaha chose to expand globally and invested in its first serious export push, establishing an overseas subsidiary in Mexico. Due to the low prices and high quality of the company’s products, the business was able to capture a large market in the United States. As a result, in 1960 the Yamaha International Corporation (current Yamaha Corporation of America) was formed. Due to the technological developments, Yamaha began developing electronic instruments in 1959, establishing itself as a serious electronic firm, ready to tackle the growing demand for electronic keyboards and audio components. In 1968 Yamaha issued market priced shares in Japan for the first time.

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1980-2000 In 1987 the company's name was changed from Nippon Gakki Co., Ltd. to Yamaha Corporation as a celebration of the 100th anniversary of the firm. In the same year the corporation acquired a stake of 51% of its competitor Korg, which was then bought out by Korg six years later. One year later, Yamaha accounted for the shipping of the world’s first CD recorded and it acquired Sequential Circuits, an American synthesizer company. 2000-2018 The record company called Yamaha Entertainment Group was created in 2001. Despite six archers won gold medals in Olympic Games using the company’s archery products, the archery product business was closed down in 2002. In the same year Yamaha Music & Electronics (China) Co., Ltd. and Yamaha Music Holding Europe GmbH were established and three years later Steinberg Media Technologies GmbH was bought. In 2007 Yamaha-Kemble Music (UK) Ltd. split up into Yamaha Music U.K. Ltd and Kemble & Co. Ltd caused by Yamaha buying out the minority shareholding of the Kemble family in Yamaha-Kemble Music (UK) Ltd. One year later the acquisition of Bösendorfer Klavierfabrik GmbH was announced after the NAMM Show in LA. After spending 125 years in business in 2012, Yamaha Music Japan Co., Ltd. was established in 2013. As of 2018, Yamaha is now one of the 225 companies of the Nikkei index and is the world’s largest piano manufacturer.

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CORPORATE STRUCTURE Yamaha Corporation is a multi-business firm with many subsidiaries and locations worldwide. Thus, the company’s day-to-day business has an effect on many stakeholders, both primary and secondary. The following is a short analysis of the relationship between the company and its stakeholders. 2.1 Ownership Structure Stakeholders: Yamaha stays true to its slogan of “Sharing Passion & Performance”. It promises “Customer Oriented and Quality Conscious Management”, “Transparent and Sound Management”, “Valuing People” and “Harmony with Society” to all its stakeholders. The company highly appreciates the needs and opinions of all stakeholders, trying to integrate them into its corporate activities. To measure the success of the communication between stakeholder and the Yamaha Corporation, the firm hires external experts that give opinions, ideas and issue a final report about the company’s corporate social responsibility on a yearly basis. Customers: Yamaha’s key responsibilities are to provide safe and secure products and services of value with universal design and appropriate information, support and protection of customer privacy and personal information. Yamaha’s endeavour to put the needs of its customers first has resulted in the company being awarded 1st place in the customer satisfaction survey published by Nikkei Business Publications, scoring top for reliability and operability. Despite the company being able to consolidate its foothold in the music entertainment industry due to its wide customer reach and its broad operations across 32 countries, it should be noted that Yamaha still relies heavily on its home Japanese market for the majority of its revenues. Local Communities: Yamaha has many business activities and partners in various countries and regions of the world. There, it considers environmental conservation and holds the highest standard of complying with regional laws, ordinances and international standards. Yamaha’s presence in different countries all over the world is seen as a possibility to take initiatives to promote human rights and contribute to regional and local communities. Together with the United Nations Global Compact, Yamaha organizes activities to support development in communities and encompass social values. Shareholders: Yamaha operates on a global scale and has many shareholders. (Exhibit 1) Since the firm highly regards the requests of its shareholders, the enterprise aims for a fair and speedy disclosure of information. Moreover, presentations on the company’s medium-term management plan, quarterly earnings presentations and presentations for individual investors, as well as business briefings and facilities tours are offered to further inform shareholder of the companies’ doings. Its basic policy is to pay continual and stable dividends to shareholders, while considering a proper balance of retained earnings necessary for investments to boost future growth. The company is focusing on the achievement of a consolidated dividend pay-out ratio of 30% and above. Employees: Yamaha aims at creating a work environment focusing on the individuality and sensitivity of the people working at Yamaha. It sees its key responsibilities in providing fair treatment and evaluation to its 5

employees, ensure the health and safety of its employees facilitated through trainings and support of diverse working styles. As time management is vital, employees are required to work at a fast pace, while enduring tight shifts. Since a performance-based pay system has been implemented, receiving bonuses and benefits has become more challenging. Labour unions ensured a fair(er) treatment of the majority of employees. In the past, the company has unfairly favoured Japanese employees, but there has been a recent effort to hand out more top management positions to foreign ones, incentivizing the latter to carry out their work duties with a higher level of earnestness. Business Partners: Yamaha aims at working hand in hand with its business partners, in order to deepen their mutual understanding and build a trust-based relationship to archive their common goals. Apart from working alongside with audio and IT contractors, Yamaha has acquired various companies specializing in the manufacture of musical instruments and audio equipment to accelerate its growth. Global Environment: Yamaha tries to reduce its environmental burden and takes an active stance in the dialogue with NGOs and local communities that help prevent pollution and preserve water resources and conserve biodiversity. In recent years, Yamaha established an Eco-Products program developing alternative materials that are environmentally friendly. Beside the development of technologies that reduce the emitted greenhouse gases, Yamaha Forest is one project supporting education and tree-planting aiming for the general environmental conservation. Yamahas Boards: Yamaha has transitioned from a company with a Board of Corporate Auditors to an organizational model with three Committees (Nominating, Audit and Compensation) on June 2017 in order to better clarify the separation of roles between business supervision and business execution. As required by Japanese Law, the three Committees consist of a majority of outside directors, most of which are independent. Therefore, the company is able to ensure highly transparent and objective supervisory functions. 2.2 Board of Directors The Board comprises of nine members (six of which are outside directors), chosen for their expertise, the high ethical values and their great sense of fairness and integrity. Its main concern is to promote the company’s sustainable growth and enhance its enterprise value over the medium-to-long term while taking into consideration Yamaha’s relationships with all its stakeholders. Moreover, it supervises the overall management of the company by inspecting the performance of executive officers and directors and makes fundamental decisions regarding basic management policies, laws, regulations and the rules of the Board of directors itself. Moreover, it should be noted that the presence of Japanese directors and executives is highly dominant. 2.3 Nominating, Audit and Compensation Committee Nominating Committee The Nominating Committee consists of four members (three of which are outside directors). It decides on the content of the proposals for the selection/dismissal of directors (to be submitted to the General Shareholders’ meeting) and on the content of the proposals for the selection/dismissal of Executive and Operating officers (to be submitted to the Board). Furthermore, it administers succession plans for the Chief Executive officer and other major officers of Yamaha.

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Audit Committee The Audit Committee is composed of four members (three of which are outside directors). The Chair of this Committee is chosen from a group of independent outside officers. It conducts audits regarding the establishment and the operational status of the internal control systems. If necessary, it conducts further audits to determine the legality and validity of the Executive officers and directors’ governance and it reports its opinions regarding the aforementioned matters to the Board. Additionally, the Committee is given the authority to demand the termination of an executive officer or of a director’s actions should they deem it problematic from a legal point of view or doubt the officer’s actions validity. Compensation Committee The Compensation Committee is formed by four members (three of which are also outside directors). It formulates the policies related to the remuneration (and determines it) of directors, executive and operating officers. The compensation of members of the Board and of the executive officers consists of a basic compensation, a bonus reflecting the short-term performance of the company and a restricted stock compensation, while outside directors, directors of the Audit Committee and the officer in charge of the Audit Committee will solely receive a fixed basic compensation. 2.4 Governance Structure Yamaha is a widely held firm and it is characterized by a tall hierarchy and a high order of management. Throughout the years, the company has formed various partnerships with many different organizations, such as with the “United Nations Volunteers.” In addition, “Yamaha Cares” has been launched with the main goal of fundraising in order to donate money to various institutions, such as a paediatric hospital, several schools (regarding after-school programs offering musical experiences) and the American Cancer Society. Moreover, a high amount of money has been raised by the corporation for food donations for the “Disaster Stockpiling” to the food bank Fujinokuni. Furthermore, the “Yamaha Symphonic Band” has shown effort to help individuals from regions affected by natural disasters; as an example, it held special concerts for the city of Morioka in 2016. Additionally, it has stated its support for the UN Global Compact ten principles in four areas: Human Rights, Labour, The Environment and Anti-Corruption. It has done this while promoting business and social activities based on its sustainability concept, such as the respect for human rights and the environmental preservation. Yamaha also collaborated with Yamaha Motor Co., Ltd to boost its brand image in the South Asian markets; mainly India, Taiwan, Vietnam and Malaysia. 2.5 Agency Problems One of Yamaha’s basic policies is the safeguard of equal rights and the equal treatment of all shareholders. Some agency problems might arise in this regard, since there could be conflict of interests between shareholders and the managers. Depending on the objective of each shareholder, a possible agency problem could regard Yamaha’s donations and social welfare activities. Since the company’s interest for such causes has led to the spending of significant sums of money, shareholders may not accept this choice as it would lead to lower dividends. Moreover, other shareholders could object the corporate social responsibility aspect of the company. For example, over the course of March 2013 to March 2017, Yamaha donated 40 pianos, 1,112 portable keyboards, 43 AV (Audio-Video) systems and approximately ¥500,000 of electric keyboards to 48 schools. While some shareholders could have deemed such engagements as a waste of money with a huge opportunity cost, others could have praised the company for giving back to the community. Despite these (possible) agency problems, Yamaha exerts a huge amount of effort into the facilitation of shareholders, whether it regards voting (voting dates are set 3 weeks in advance, electronic platforms are provided in order to vote) or company presentations for individual investors.

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FINANCIAL PERFORMANCE From 2008 to 2017, Yamaha showed a generally positive development. The strong decrease of the general performance in fiscal 2009 and the following years was caused by the global economic recession in 2007/2008, induced by the U.S. mortgage crisis combined with the increasing prices of raw materials and crude oil, and the strong appreciation of the Yen. However, Yamaha managed to continue its positive development after 2013. The following analysis is based on Exhibits 2-5. 3.1 Profitability The ROA steadily increased after the sudden drop in 2009, reaching a top value of 9.4 % in 2017. This very good return on assets is due to rising profit margins in the last years which are high enough to compensate the decline in total assets turnover. This is shown with the net income to net sales ratio which increased from 1.1 in 2013 to 11.4 in 2017. The increasing profit can be explained by declining cost of sales which are strong enough to offset the declining sales also negatively impacted by foreign exchange rates. Precisely, the transfer of music school management to Yamaha Music Foundation negatively affected the sales of musical instruments, while the decrease in sales in electronic businesses and the consequences of ceasing operations at a facility in the resort business caused a decrease in sales of other business segments. The increasing earnings are predominantly caused by a decline in the cost of sales as well as a decrease in selling, general and administrative expenses between 2008 and 2017. More specifically, revising selling prices and lowering costs for musical instruments, as well as substantial growth of PA equipment and ICT devices in the audio equipment segment, and the recovery in electronic devices and golf businesses for other segments caused an increasing operating income. The operating income to net sales ratio increased from 6 in 2008 to 10.9 in 2017 and shows together with the rising gross profit to net sales ratio the offsetting effect of the declining costs over the decreasing sales. The decline in total assets turnover from 0.97 in 2013 to 0.82 in 2017 can be explained by a not very high and decreasing Inventory turnover from 4.61 in 2013 to 4.41 in 2017. Since Yamaha sells a lot of its products through retailers, the company has to have inventory stock on its hands at any time. This together with decreasing sales in recent years causes the low Inventory turnover rate. However, the increasing Receivable Turnover from 7.69 in 2013 to 8.37 in 2017 is good and suggests that Yamaha has no problems when it comes to cashing in sales. The Payable Turnover increased from 17.23 2013 to 21.96 2017 and indicates the time Yamaha has to pay its suppliers. The increasing value shows that suppliers are gaining back confidence in Yamaha’s ability to meet liabilities after the recession in fiscal 2009 and following years. Influenced by the return on assets, the ROE shows a similar development. After the sudden drop in 2009 and following years, the return on equity steadily increased, reaching a top value of 14.0 % in 2017. This shows the increasing return on shareholders’ investment which is due to rising profits. This is very good to drive up the share price, increase the market capitalization and support further growth of the firm. 3.2 Financial Strength The interest coverage ratio experienced a steep positive development, increasing five-fold between 2008 ...