Omron 2009 Annual Report Download - page 60

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Business and Other Risks
Regarding a number of items described in the Status of
Business and the Status of Accounting of this report, some
items may pose risks and influence the Omron Group’s
management results and financial condition (including share
price), and Omron believes that these items may sub-
stantially affect investor decisions. Note that items referring
to the future reflect the Omron Group’s forecasts and
assumptions as of June 24, 2009 (date of submission of
the Securities Report).
(1) Economic Conditions
The primary business of the Omron Group is consumer
and commercial electronic components used in the man-
ufacture of electrical and electronic equipment, as well as
control system equipment used by manufacturing sectors
and in capital investment-related areas. Accordingly,
demand for Omron Group products is affected by eco-
nomic conditions in these markets.
Both in Japan and overseas, therefore, market forces
affecting suppliers to, and purchasers from, the Omron
Group can result in the contraction of demand for our prod-
ucts, thereby possibly having a negative impact on the
Group’s operating results and financial condition.
(2) Risks Accompanying Overseas Business Activities
The Omron Group actively conducts business activities
such 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 fac-
tors including differences in culture or religion, political
turmoil and uncertainty in economic trends, differences in
business customs in areas such as the structure of rela-
tionships with local businesses and collection of
receivables, specific legal systems and investment regu-
lations, changes in tax systems, labor shortages and
problems in the labor-management relationship, terrorism,
wars, and other political circumstances.
These 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 120 overseas affiliated companies
and continues to reinforce its business operations in over-
seas markets, such as China, for which major market
growth is anticipated in the future. The percentage of con-
solidated net sales accounted for by overseas sales during
fiscal 2008 was 49.7%, and Omron expects further increas-
es in the overseas operations ratio due to factors such as
production shifts. The Omron Group seeks to hedge against
exchange rate risk, for example by balancing imports and
exports denominated in foreign currencies. Exchange rate
fluctuations, however, could have a negative impact on the
Omron Group’s operating results and financial condition.
(4) Product Defects
Based on its core corporate value of “Working for the ben-
efit of society,” the Omron Group has declared maximum
customer satisfaction to be one of its management philoso-
phies and implements it by providing the best quality
products and services based on the Group’s motto of
“Quality first.” In particular, the Group has established
strict quality control standards and built a quality control
system, and develops and manufactures its products
accordingly. 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, taking into consideration of any changes
arising in the clients’ environment, there is no assurance
that all of the Group’s products are without defects, and
that recalls will not occur in the future. Large-scale recalls
and/or product defects resulting in liability-related dam-
ages could impose huge costs, severely influence
evaluations of the Omron Group, and result in reduced
sales. Such events could exert a negative impact on the
Group’s operating results and financial condition.
In addition, to respond to an EU directive banning the
use of lead, cadmium, and certain other chemical sub-
stances in electric and electronic products in the European
Union from July 2006, the Omron Group, in cooperation
with its suppliers, is in the process of investigating the sta-
tus of regulated chemical substances in all of the
components and materials the Group uses, and is accel-
erating efforts to switch to substitute components and
materials that do not contain regulated chemical sub-
stances with a view to completely eliminating regulated
substances from all the Group’s products throughout the
world in order to make them more environmentally friend-
ly. However, delays in the switchover beyond customer
deadlines due to a late response by suppliers in providing
substitute components and other factors could result in
liability-related damages or a violation of the EU directive,
which could have a negative impact on the Omron Group’s
operating results and financial condition.
(5) Research and Development Activities
Based on a policy of securing a balance between growth
and income, the Omron Group invests aggressively in R&D
as part of its technology-centered business operations for
the realization of sustainable growth. As a result, the R&D
expenses ratio remains at approximately 8%.
The Omron Group strives to increase the new product