And yet, Hitachi stumbled. Prolonged domestic recession was undoubtedly part of the reason, but Hitachi was supposed to be recession-proof. Instead of nimbly responding, as it had in the past, it appeared lead-footed, and unable to respond decisively to the challenge of Silicon Valley entrepreneurs, domestic specialists and emerging Asian competitors. This chapter explores reasons why it was unable to respond decisively, as well as Hitachi's attempts to cope with the changing environment prior to 1998, paying particular attention to employment and industrial relations considerations. This background is necessary to understand the more far-reaching measures adopted after 1998, which are explored in chapters 10–12.

What went wrong?

Recessionary environment

Various explanations may be offered of Hitachi's stumble. Obvious causes are not hard to find. Semiconductors, which generated almost half of corporate profits in 1995 (and even more in the 1980s), had slumped as the bottom fell out of the DRAM market, and accounted for half the 1998 loss. Consumer electronics were pushed into the red by weak domestic and Asian demand following the Asian Crisis. And electric power and industrial systems, always a steady earner, struggled to break even in a period between major orders. Previously, when one segment was in a slump other segments were able to make up for it – an advantage of being a general electric company. This time, however, key segments were hit simultaneously.

The ‘general recession’ explanation assigns most of the blame to external conditions, and calls for a measured response.