Isuzu 2016 Annual Report Download - page 21

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other unforeseen contingency affecting supplier facilities, it is possible
that Isuzu may be unable to source these items in sufficient volume.
Shortages or delays in the supply of parts and other materials could
have a negative impact on the Group’s performance and financial
position. It is also possible that a tight supply-demand situation would
result in price increases for raw materials and other supplies, which
could also have a negative impact on the Group’s performance and
financial position by triggering rising costs if the increases cannot be
absorbed internally, for example through improved productivity, or
passed on to sales prices.
6. Research and development
The business environment in which the Isuzu Group operates is
expected to reflect intensifying competition and the diversification of
product needs among individual markets. In order to prosper in this
type of environment while pursuing a manufacturing business that
supports transport, it will be essential for the Group to undertake
research and development initiatives that supply advanced technologies
and products based on a precise understanding of market needs.
However, failure or delay in achieving the required level of technological
sophistication or assessing market needs properly could have a negative
impact on the Group’s performance and financial position.
7. Product defects
At its plants both inside and outside Japan, the Isuzu Group
manufacturers products according to the strictest globally accepted
quality control standards. However, in the unusual event of a
large-scale recall or product liability award (the Group is covered
by product liability insurance, but in the case of costs exceeding
insurance coverage), there could be a negative impact on the Group’s
performance and financial position.
8. Joint ventures
The Isuzu Group engages in business in some countries in the
form of joint ventures due to legal and other requirements in
those countries. Changes in the management policy, operating
environment, etc., of these joint ventures could affect their
performance, which could in turn produce a negative impact on the
Group’s performance and financial position.
9. Disasters, power outages, and other interruptions
Although the Isuzu Group regularly conducts disaster prevention
inspections and facilities examinations at all sites in order to minimize
the potential of a negative impact due to an interruption in the
manufacturing process, it may not be possible to completely eliminate
or minimize the impact that would arise from a disaster, power
outage, or other interruption.
Additionally, a new H1N1 virus or other infectious disease pandemic
could pose significant obstacles to the Group’s production and sales
activities.
10. Securities investments
The Isuzu Group invests in securities to produce, sell, and distribute
its products as well as to build and maintain good relationships with
its business partners. For marketable securities, a downturn in share
prices could have a negative impact on the Group’s performance
and financial position. In addition, if the financial condition of the
companies in which Isuzu has invested, including through non-
marketable securities, were to deteriorate due to factors such as a
worsening business environment, this could have a negative impact
on the Group’s performance and financial position.
11. Fluctuations in accounting estimates
The Company develops “liabilities associated with retirement
benefits,” “deferred tax assets,” and other estimates as necessary in
compiling its consolidated financial statements in line with rational
standards. However, due to the uncertain nature of estimates, actual
results may vary from estimated amounts, and this could have a
negative impact on the Group’s performance and financial position.
12. Potential risks associated with international activities
and foreign ventures
The Isuzu Group conducts its manufacturing and marketing
activities in a broad range of overseas markets in addition to the
Japanese domestic market. The following risks are inherent in such
overseas business development and could have a negative impact on
the Group’s performance and financial position:
• Unfavorable changes in the political or business climate
• Difficulties in recruiting and retaining personnel
• Inadequate technological infrastructure could have a negative
impact on the Group’s manufacturing activities or its customers’
support of its products and services
• Potential negative tax consequences
• Social unrest stemming from terrorism, war, natural disasters or
other factors
13. Limits on intellectual property protection
The Isuzu Group has accumulated technology and expertise that
differentiate it from its rivals; however, in certain regions due to legal
restrictions the Group is unable to fully protect, or can only partly
protect, its proprietary technology and expertise through intellectual
property rights. As a result, the Group may be unable to effectively
prevent third parties from using its intellectual property to make
similar products.
14. Legal requirements
The Isuzu Group is subject to various government regulations
in the countries in which it does business, such as business and
investment approvals, statutes related to national security, tariffs,
and other import and export regulations. The Group is also
subject to legal requirements concerning areas such as commerce,
antitrust, patents, consumer rights, taxation, foreign exchange,
environment conservation, recycling, and safety. Unexpected
changes or interpretations of these regulations could have a negative
impact on the Group’s performance and financial position. Exhaust
emissions regulations are generally being tightened amid growing
environmental awareness. Since substantial investment is required to
comply with these regulations, failure to generate sufficient sales to
recover this investment could have a negative impact on the Group’s
performance and financial position.