Omron 2005 Annual Report Download - page 47

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These various risks associated with overseas operations may
have a negative impact on the Omron Group’s operating results
and financial condition.
3. Exchange Rate Fluctuation
The Omron Group has 97 overseas affiliated companies and con-
tinues to reinforce its business operations in overseas markets,
such as China for which major market growth is anticipated in the
future. The percentages of consolidated net sales accounted for
by overseas sales during the fiscal years ended March 2004 and
March 2005 were 38.3 percent and 39.9 percent, respectively,
and Omron expects further increases in the overseas operations
ratio due to factors such as production shifts. The Omron Group
seeks to hedge against exchange rate risk in such ways as bal-
ancing imports and exports denominated in foreign currencies.
Exchange rate fluctuations, however, could have a negative
impact on the Group’s operating results and financial condition.
4. Product Defects
The Omron Group is committed to the management philosophy
of maximizing customer satisfaction, and implements the philoso-
phy by providing the best quality products and services based on
the Group’s motto of “quality first.” The Group has strict quality
control standards in place, and develops and manufactures its
products accordingly. The Corporate General Affairs Division of
the parent company conducts quality audits, and a Group-wide
quality check system is in place for the ongoing improvement of
the quality of the Group’s entire line of products and services.
Nevertheless, there is no assurance that all of the Group’s prod-
ucts are without defects, and that recalls will not occur in the
future. Large-scale recalls and/or product defects resulting in lia-
bility-related damages could impose huge costs, could severely
influence evaluations of the Omron Group, and could result in
reduced sales. Such events could exert a negative impact on the
Group’s operating results and financial condition.
5. Regulated Chemical Substances
The Omron Group currently manufactures products with materi-
als containing regulated chemical substances such as lead and
cadmium that will be banned from use in the EU from July 2006.
At present, in cooperation with suppliers the Omron Group has
nearly completed an investigation of the status of regulated
chemical substances in all of the components and materials the
Group uses, and is accelerating efforts to switch to substitute
components and materials that do not contain regulated chemical
substances. The Omron Group has constructed an IT system to
support the steady, efficient implementation of the investigation
of materials and components and the switch to substitute materi-
als and components, and is working to make Omron Group prod-
ucts throughout the world “environmentally warranted products”
by the end of March 2006. However, delays in the switchover due
to shortages of substitute parts and materials could impact nega-
tively on our operating results and financial condition.
6. Information Leakage
All aspects of the operations of the Omron Group depend on per-
sonal computers and an IT environment, including production,
R&D, sales, and management, with external data exchange being
conducted in the course of sales and procurement activities. With
recent rapid advances in the Internet and large-capacity media,
moreover, there is an increasing possibility that important internal
information such as customer information could be leaked to out-
side of the Group. The Omron Group is strengthening its security
measures to prevent external entry into its internal information
systems, and a special committee has been established center-
ing on the Corporate General Affairs Division. Steps are accord-
ingly being taken to reinforce control over the information we han-
dle, and to further improve employees’ information literacy.
The Omron Group acquires information (including information
on individuals) regarding the private and credit information of cus-
tomers and other entities and other types of classified informa-
tion through its business processes and important information in
the course of business. The Omron Group is strengthening secu-
rity to prevent external entry into its internal information systems
and misappropriation by third parties, and a special committee
has been established centering on the Corporate General Affairs
Division. Steps are being taken to reinforce control over the infor-
mation the Group handles, and to further improve employees’
information literacy.
Unanticipated leakage of internal information, however, due for
example to invasion of internal information systems using tech-
nology exceeding implemented security levels, could exert a neg-
ative impact on the Omron Group’s operating results and financial
condition.
7. Counterfeiting of Omron Group Products
The Omron Group has accumulated technology and expertise
allowing it to differentiate its products from those of its competi-
tors. However, it is impossible to completely protect all of the
Group’s intellectual property consisting of proprietary technology
and expertise, due to legal restrictions in specific regions, includ-
ing China, and conditions that allow only limited protection. At
present, the Omron Group is working on intellectual property pro-
tection against imitation products, through such measures as the
placement of full-time personnel (including local staff) in Shanghai.
However, it is possible that the Group will not be able to complete-
ly prevent third parties from using its intellectual property in the
manufacture of imitation products.
In China, skills in the methods needed to manufacture and sell
imitations of the Omron Group’s products improve each year,
and organizations that manufacture and market counterfeit prod-
ucts have become extremely troublesome. The circulation of
low-quality counterfeits that fraudulently use the Omron Group
brand in Asia, including China, could damage trust in the Omron
Group’s products and the Group’s brand image, and could exert
a negative impact on the Omron Group’s operating results and
financial condition.