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A Closer Look at Sharp in Appliances at the Time of its Acquisition

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Following the announcement in February 2016 of the acquisition of Sharp Corp, Hon Hai Precision Industry Co Ltd, trading as (Foxconn Technology Group), has been pursuing regulatory approval of the deal in key markets. In late May 2016, Taiwan, where Foxconn is headquartered, cleared the takeover following antitrust checks. It is believed that the Japanese government will also eventually approve this acquisition, reflected in the fact that Innovation Network Corporation of Japan (INCJ), a public-private partnership in which the Japanese government holds critical sway, did not actively challenge Foxconn when bidding for Sharp. Mentioned more frequently in the news recently for its display business as being the key asset that attracted Foxconn, Sharp actually established its name globally through its consumer appliances business, even though this was its second smallest division by revenue.

With strong sales from Southeast Asia, Sharp’s consumer appliances global retail sales volume increased by 3% between 2014 and 2015, maintaining its 19th place in the global ranking by sales volume of consumer appliances. With 51% of its retail volume sales in major appliances and 49% in small appliances in 2015, it held a balanced mix of major and small appliances. Sharp has maintained its worldwide reputation for its global leadership in air purifiers, supported by its Plasmacluster technology, invented in 2001. Its Plasmacluster technology was further developed and extended to refrigeration appliances, air conditioners and even personal care appliances. Constituting 18% of Sharp’s total appliances sales volume in 2015, refrigeration appliances is Sharp’s core appliances business, contributing more than 50% of total revenue.

Sharp Corp: Consumer Appliances Sales Volume Breakdown by Category 2015

Consumer appliance sales volume by category

Source: Euromonitor International

In 2015, three out of the top five markets for Sharp by sales volume of consumer appliances were in Southeast Asia, namely Indonesia, Thailand and Vietnam, which registered volume CAGRs of more than 6% in the 2010-2015 period. To take advantage of tax benefits, enjoy lower labour costs than in Japan and save on shipment costs, Sharp built production plants in Thailand, the Philippines and Indonesia, and selected Malaysia as its regional headquarters for marketing and sales. In contrast, its largest market, Japan, and fourth largest market, the US, recorded volume CAGRs of less than 3% in consumer appliances in 2010-2015. As a result, Sharp’s reliance on Asia Pacific has been increasing, reflected by data showing that 66% of its major appliances and 98% of its small appliances were sold in Asia Pacific.

sharp top 10 markets by consumer appliances retail volume sales

Source: Euromonitor International

However, the financial difficulties reported by Sharp in 2014 continued into 2015. Its Japanese appliances sales were slowed down by weakening domestic demand due to sluggish economy recovery and a sales tax increase. Internally, the company’s hierarchy meant that Sharp was slow to respond to market and technology trends. The external market factors and internal financial and structural factors caused it to cut research and development expenditure and reduce the size of its workforce, which saw it fall behind in terms of competitiveness in the area of connected appliances. After October 2015, Sharp underwent a significant restructuring, removing the product and device administration level to give more autonomy to divisions and to form a consumer electronics group to leverage synergies between the appliances business and digital information equipment and communications systems. In early May 2016, Foxconn appointed its vice-chairman Jeng-wu Tai as the new CEO of Sharp in order to help push through further restructuring at Sharp in order to revitalise the business.

sharp corporate structure before and after foxconn acquisition

Source: Euromonitor International

Looking ahead to its market strategy for revival, Sharp is recommended to focus on emerging markets, such as Indonesia, projected to record a 9% volume CAGR in consumer appliances in 2015-2020. In addition, Sharp should leverage its leadership in air purifiers to grow sales in India and China, addressing the increasing air pollution issue. With its name established by microwaves in the Middle East, especially in Egypt and Israel, Sharp is advised to launch air conditioners in Morocco, which was projected to see the fastest growth in air conditioners in Middle East and Africa, to leverage the solid air cooling demand supported by hot weather and increasing household incomes. With more women joining the workforce and an influx of expatriates, the United Arab Emirates was projected to register a 10% volume CAGR in built-in dishwashers in 2015-2020, the fastest growth rate in Middle East and Africa. Since consumers there value energy efficiency, Sharp is recommended to improve the A+ efficiency of its two dishwasher models launched in the United Arab Emirates in 2015 to A+++ in order to compete with Whirlpool and LG, which have already done this as a means to grow sales. For more details, please refer to the Sharp global company profile.

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