Epson 2007 Annual Report Download - page 50

48 Seiko Epson Corporation
(9) Expanding businesses overseas entails risks for Epson
Epson is continuing to expand its businesses overseas; 68.1% of its consolidated sales for the business
year ended March 2007 were overseas sales. Epson has production bases all over Asia, such as in China,
Indonesia, Singapore and Malaysia, and in the United States, the United Kingdom, Mexico and Brazil. It
has also established many distribution companies all over the world. Epson’s employees overseas as of
March 2007 accounted for approximately 70% of its overall employees.
Epson believes that this global expansion has many merits that makes it possible to undertake market
activities that precisely ascertain the market needs of each individual region and leads to the securing of
high cost-competitiveness through cuts in production costs and reduced lead times. There are, however,
unavoidable risks related to producing and selling overseas that come with expanding businesses over-
seas, some of which are changes in government laws, ordinances, or regulations related to production
and sales, social, political or economic changes, transport delays, damage to infrastructure (e.g., power
supply), restrictions on currency exchanges, insufficient skilled labor, changes in regional labor environ-
ments, changes in taxes, regulations or the like protective of trade, and laws, ordinances, regulations, or
the like related to the import and export of Epson products.
(10) The intense technological innovation required of Epson entails risks
Because Epson is engaged in manufacturing and selling products that require advanced technologies,
technology is an extremely vital element of Epson’s businesses. Epson possesses core technologies—for
example, ultra-fine, ultra-precise processing technologies, low-power consumption technologies, thin-film
technologies, surface treatment technologies, high-density mounting technologies, digital control tech-
nologies and digital color image processing technologies. By evolving and fusing these technologies,
Epson has been able to manufacture and sell products that meet customers’ needs, thereby developing
the presence for itself that it has today.
But because the rate of technological innovation required in most of the fields in which Epson is
engaged is so intensely fast, in order to respond swiftly to customer needs responding to changes in tech-
nology, Epson sometimes must make long-term investments or capital spending based on product pre-
dictions. Thus, while Epson is making every effort to respond to such intense technological innovations,
such as by striving to grasp the needs of the market and customers in all of its businesses and being
actively engaged in medium-term joint product development projects with major customers, particularly in
the electronics devices business, there is no assurance that these efforts will succeed. If they do not
succeed, Epson’s results could consequently be adversely affected.
(11) The short lifecycle of certain products makes Epson vulnerable to certain risks
Epson is manufacturing and selling products that generally have short life cycles, such as consumer prod-
ucts. Epson has its own group distribution network throughout the world and is taking various measures,
such as trying to understand through its distribution subsidiaries and branches the needs for different
products in each region, and striving to reduce lead time by establishing production bases in regions close
to consumers. But if the transition from existing products to new products does not go smoothly, Epson’s
results could consequently be adversely affected.
Factors affecting whether the transition to new products goes smoothly include delays in the develop-
ment or production of Epson’s new products, competitors’ timing in introducing their new products, the