Omron 2014 Annual Report Download - page 45

86 Omron Corporation Integrated Report 2014 87
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8
) Risks Associated with R&D, Patent Rights,
and Other Intellectual Property Rights
The Omron Group continues to create new products that
achieve greater levels of value by adhering to technical
standards. However, when developing products in response to
standards that are still in the process of being formulated, there
is a possibility that details of the finalized standards may differ
from those at the drafting stage. In such situations, additional
R&D investment may be required, which could have an impact
on the Group’s operating results and financial condition.
The Omron Group researches the intellectual property rights
of third parties when conducting R&D and design activities.
Nevertheless, a dispute could arise during business activities
if a third party claims that the Group has violated its intellectual
property rights. In regard to relationships with employees as
well, the Omron Group has developed systems to compen-
sate employees for inventions and addresses such inventors
in an appropriate manner. Regardless, disputes regarding the
value of an invention could arise with inventors.
In regard to brand management, it is possible that the Group
could suffer damages should a third party use the “Omron”
brand in a fraudulent manner and manufacture and sell
products similar to those of the Group. In recent years, there
has been a rise in the use of domain names similar to “Omron”
overseas. The Group has initiated prompt and appropriate
countermeasures against such fraudulent use. Nonetheless, it
is difficult to comprehend fully and take action against all
aspects of improper domain name registration, so the danger
exists that fraudulent business activities using “Omron” or a
similar domain name could damage trust in the Group. A
serious dispute due to such inappropriate use of the Omron
Group’s intellectual property could have an impact on the
Group’s operating results and financial condition.
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9
) Production
The Omron Group has manufacturing bases outside Japan,
including in China as well as in other Asian countries, and
supplies products to customers worldwide through its interna-
tional sales offices. To ensure continued manufacturing
stability, the Company has established and is executing the
measures called for under its BCP, which covers the entire
supply chain from production through logistics, including IT.
Nonetheless, disaster, disease, labor disputes, deterioration of
public order, terrorism, international relations issues, and other
disturbances can cause a partial or full cessation of production,
which could have an impact on the Group’s operating results
and financial condition if supplies to customers are disrupted.
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10
) Purchasing and Procurement
Obtaining raw materials and parts of sufficient quality in a
timely manner and in necessary quantities is absolutely essen-
tial to the Group’s manufacturing. Therefore, we stringently
select suppliers for reliability. Nonetheless, limits on supply or
other supply issues could arise in such cases as significant
supply chain disruption due to an accident or a disaster, the
imposition of supply limits or cessation due to management
issues at the supplier, or a broad increase in market demand.
In such cases, difficulties in changing suppliers, securing
additional suppliers, or switching to different parts under such
conditions could have an impact on the Group’s operating
results and financial condition.
While the Group contracts with suppliers to determine prices,
the market prices for such materials as petrochemicals, steel,
silver, copper, rare earths, and other raw materials are linked to
increased demand in emerging countries as well as the influx of
capital into these countries. Resulting price increases can affect
manufacturing costs and could have an impact on the Group’s
operating results and financial condition.
The Omron Group is expected to respond to various,
increasingly more complex expectations from customers and
society in areas across the entire supply chain. These expecta-
tions include addressing conflict mineral issues and making
business activities more eco-friendly. The Group requests that
suppliers adhere to CSR-compliant procurement policies.
However, in the event that suppliers are unable to respond to
these demanding standards, the Group’s ability to procure
necessary materials and products may be impeded, and sales
of the Group’s products may suffer as a result. Such a situa-
tion could have an impact on the Group’s operating results and
financial condition.
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11
) Quality Assurance
The Omron Group develops and manufactures products and
provides services in accordance with its ISO-certified quality
control system. A Groupwide quality check system is in place
that entails quality inspections and other activities aimed at
the ongoing improvement of the quality of the Group’s entire
line of products and services. Through these efforts, the
Group seeks to maximize customer satisfaction by providing
higher quality products and services based on its “quality-first”
principle. However, as it is virtually impossible to predict all of
the conditions under which Omron products will be used, it
has become difficult to guarantee that defects or that recalls
will not occur. Changing conditions in Japan have necessitated
greater attention to consumer protection. Product quality is
also increasingly a major issue overseas. The risk of a recall
due to a major product defect or the inability to conduct appro-
priate first-response and other emergency measures to the
materialization of such risks could adversely affect Omron’s
reliability or brand image, and sales could decline as a result.
Such a situation could have an impact on the Group’s operating
results and financial condition.
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12
) Environmental Conservation
The Group must comply with a wide variety of environmental
laws and regulations, including those related to climate change,
air and water pollution, hazardous substances, waste, product
recycling, and the contamination of soil and groundwater. In the
future, it is possible that the Group will face difficulty in
complying with environmental laws and regulations, meeting
additional obligations for measures to improve the environ-
mental soundness of operations, or responding to other expec-
tations. These factors, or some unforeseeable circumstance,
could result in the Group incurring additional environment-
related expenses. Furthermore, the Group’s operations could
be halted due to violations of environmental regulations or
customers could be lost due to failure to comply with environ-
mental regulations. These situations could have an impact on
the Group’s operating results and financial condition.
A number of items may pose risks and influence the Omron
Group’s management results and financial condition
(including share price), and Omron believes these items may
substantially affect investor decisions. Note that items refer-
ring to the future reflect the Omron Group’s forecasts and
assumptions as of June 25, 2014, the release date of its
Yukashoukenhoukokusho (Annual Securities Report filed
under the Financial Instruments and Exchange Act of Japan).
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1
) Economic Conditions
The Omron Group conducts business worldwide, and its opera-
tions are affected by changes in macroeconomic conditions,
trends in markets related to the Group’s business, and fluctua-
tions in economic conditions in Japan and overseas. Therefore,
such factors may have an effect on the Group’s operating
results and financial condition. Furthermore, we assume that
the ratio of overseas business will continue to increase as the
Group actively expands globally. Accordingly, the Group
maintains a solid structure resistant to changes in the external
environment by, for example, coping with foreign exchange risk
by expanding overseas production and increasing local procure-
ment to improve the balance of foreign currency denominated
income and expenditures. We also hedge foreign exchange risk
through short-term forward contracts executed with financial
institutions. Nonetheless, rapid fluctuations in the exchange
rates of currencies, such as the U.S. dollar and the Euro, as well
as a protracted period of yen strength, could have an impact on
the Group’s operating results and financial condition.
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2
) Legal and Regulatory Risks
The Omron Group operates worldwide and is therefore subject
to a wide variety of laws and regulations, including labor laws,
personal data protection laws, security trade control regula-
tions, laws against bribery, and anti-monopoly laws. Our compli-
ance efforts include training and education programs for our
employees and others. Nonetheless, instances in which
additional expenses are incurred to ensure compliance in the
event of the enactment of new laws or regulations, changes to
existing laws or regulations, or the adoption of stricter interpre-
tations of laws or regulations could have an impact on the
Group’s operating results and financial condition.
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3
) Natural Disasters
The Omron Group has established a business continuity plan
(BCP) that formulates necessary safety measures and steps to
facilitate business continuity and the early restoration of opera-
tions in the event of a disaster, including earthquakes in the
Nankai Trough or directly under the Tokyo metropolitan area, as
well as hypothetical events, such as the outbreak of new influ-
enza viruses. The Group and its business partners maintain
operating bases around the world, making it virtually impossible
to completely avoid the risks that would arise from an unfore-
seen disaster, infectious disease, pandemic, or other calamity.
Especially considering the fact that disasters have recently
been becoming greater in scale, a major event of an unforeseen
scale could impact Group operations by, for example, causing a
reduction of business, which could have an impact on the
Group’s operating results and financial condition.
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4
) International Relations
The Omron Group actively conducts such business activities
as production and sales in overseas markets. The Group may
be subject to operating difficulties in countries outside Japan
related to possible social unrest due to factors including differ-
ences in culture or religion; political turmoil and uncertainty in
economic trends; differences in business customs in areas,
such as the structure of relationships with local businesses;
issues regarding country-specific laws and regulations;
changes in tax systems; security trade control regulations; and
terrorism, armed conflicts, and other political circumstances.
These operating difficulties associated with overseas opera-
tions may have an impact on the Omron Group’s operating
results and financial condition.
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5
) Human Resources
Cross-border and cross-corporation personnel movements and
opportunities for employees of a variety of nationalities to work
together are expanding in line with increasing globalization.
Accordingly, labor troubles may arise due to differences in
culture, customs, and treatment. In addition, the Company is
exposed to risks including the inability to secure a sufficient
number of superior candidates for management-level positions
to proceed with the localization of management and the possi-
bility of a rise in employee wages in Asia. The materialization of
such risks could have an impact on the Group’s operating
results and financial condition. Furthermore, the Group could be
adversely affected by risks related to occupational health and
safety, such as occupational accidents that impact employees
or facilities. The materialization of these risks could have an
impact on the Group’s operating results and financial condition.
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6
) Management of Funds
The Omron Group raises funds by issuing commercial paper and
other means. Therefore, financial market instability, rising interest
rates in Japan, or a rating agency downgrade could result in
restrictions on fund-raising and an increase in financing costs,
which could affect the Group’s operating results and financial
condition. In order to maintain flexibility in capital expenditures
and M&A at the global level, as well as to improve capital
efficiency, the Group pays close attention to the level of cash
reserves and the deployment of funds. Cash reserves are held as
working capital or as a source of funds for business investment
and are not employed for financial investment purposes.
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7
) Information Security
The Omron Group possesses operationally important informa-
tion and obtains confidential personal information and informa-
tion on its business partners in the course of business. The
Omron Group is taking steps to reinforce control over the
information the Group handles and further improve employee
information literacy with the goal of preventing misappropria-
tion of that information by third parties due to theft or loss.
Nonetheless, it is possible that leaks of such information could
occur due to unforeseen circumstances.
The Group is strengthening countermeasures for cyber-
attacks against its information systems and reinforcing IT
governance. Regardless, damage, alteration, or leaks of
important data, system stoppages, or similar incidents caused
by cyber-attacks surpassing the assumed system security
level could have an impact on the Group’s operating results
and financial condition.
Business and Other Risks
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