Copier and printer maker Ricoh Co will cut nearly 10 percent of its staff to try to boost profits, a move that shows underperforming Japanese companies are stepping up efforts to compete with global rivals.
Ricoh said on Thursday the restructuring included slashing 10,000 jobs from its global workforce of 109,000, cutting unprofitable products and consolidating factories.
Japan's already weak economy has slipped into recession, hit by the triple blow of the devastating earthquake, tsunami and nuclear disaster on March 11.
The earthquake has ended any lingering complacency at Japanese companies that have been behind the curve in restructuring and in M&A, said Macquarie strategist Peter Eadon-Clarke.
It has reminded people of the limited opportunities at home and of the need to build successful global operations.
Last month, Panasonic Corp said it would cut 17,000 jobs and close up to 70 factories globally. Camera and medical equipment producer Olympus has also said it would shed jobs.
The restructuring could help Ricoh, which has long promised but failed to deliver cost cuts, fend off competition from firms such as Xerox and Canon Inc.
Ricoh is targeting operating profit of 210 billion yen in the financial year to March 2014, more than triple the 60 billion yen it posted in the past year, ending in March, when sales fell 4 percent to 1.94 trillion yen.
The company's shares closed up 4.1 percent after surging as much as 7.4 percent on the news of the job cuts.
Over the past 10 years, Ricoh shares have fallen about two-thirds, Canon has gained about 15 percent and Xerox is up about 3 percent during this time. Ricoh is down 26 percent so far this year in a broader market that has lost a smaller 7 percent of its value.
Analysts said the job cuts marked a welcome change in direction for a company that has until now refrained from major restructuring, despite lagging rivals in terms of profitability.
Ricoh has been dragging its feet on restructuring and has finally started moving. The market has been worried how it would deal with its bloated cost structure after acquisitions, said Kazuyuki Terao, chief investment officer at RCM Japan.
There are more companies out there that need to carry out restructuring. Some successfully engineered a recovery by restructuring after the Lehman shock. I expect those that did not restructure then will do so this time around.
Ricoh, whose offices span 180 countries, faces an uphill fight as companies in mature economies tighten their belts. Research consultancy Gartner does not expect a full recovery in Japan's corporate IT spending until 2013, with growth sluggish in the United States and western Europe.
On top of that, Moody's Investor Services said Japanese companies could permanently lose global market share because of supply chain disruptions from the March 11 disasters.
Ricoh, whose toner production lines were damaged in the earthquake, said in a statement the job cuts were expected to boost operating profit by 140 billion yen ($1.7 billion) in the year ending March 2014.
We have become a big company and need to re-engineer our corporate structure throughout to become more muscular, Ricoh President and Chief Executive Shiro Kondo told a news conference. We have done very little pruning of unprofitable businesses, and we need to pull out of some.
Ricoh bought U.S. office equipment distributor Ikon Office Solutions for $1.6 billion in 2008 in a bid to grab market share from rival Canon, but has yet to clear its network of overlapping operations, Kondo said.
BLOATED WORKFORCE, WEAK MARGINS
While Ricoh's staff grew by 43 percent over five years, its operations stayed in the red in key areas such as fast-growing China, while margins in office copiers slumped on fierce competition and a dearth of new hit products.
Some of the companies that suffered from the eastern Japan quake may need to go through restructuring, said Hiromasa Yonekura, chairman of Japan's biggest business lobby Nippon Keidanren.
But some companies said they would still not cut jobs.
We won't do such a thing. Canon has not cut any employee in its 74-year history. That is a source of pride, Fujio Mitarai, chairman & CEO of Canon, told Reuters.
With an operating profit margin of 3 percent in the past business year, Ricoh is less efficient than its Japanese rivals. Konica Minolta had a margin of 5 percent while Canon managed a profit margin of 10 percent. It now targets a profit margin of 8.8 percent in the year to March 2014.
Ricoh said last month it expects its operating profit to rise 16 percent to 70 billion yen in the business year that started in April on sales of 2.09 trillion yen, up 7.6 percent.
I know that we have a reputation for not delivering on our midterm targets. This time we will keep our promise, Kondo said. We need to slim up, become healthy.
(Additional reporting by James Topham and Taiga Uranaka in TOKYO and Maneesha Tiwari in BANGALORE; Editing by Nathan Layne, Anshuman Daga and Dean Yates)