Omron 2010 Annual Report Download - page 70

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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 23, 2010 (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 114 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 2009 was 50.7%, 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 com-
mitments 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 has built a quality con-
trol 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.
While Omron takes every precaution against the occur-
rence of defects, it is virtually impossible to guarantee that
defects will not occur, including defects that arise due to
the changing environments in which the products are used,
or that recalls will not occur in the future. Japan’s revised
Consumer Product Safety Act and the recent creation of
the Consumer Affairs Agency and the National Consumer
Affairs Center of Japan have elevated corporate responsi-
bility and awareness of consumer protection issues.
Product quality is also a major issue overseas as defects
that require large-scale product recalls or that carry dam-
age compensation liability beyond the coverage capability
of product liability insurance could not only incur substan-
tial costs to the Group, but could also seriously damage
trust in the Omron Group and brand. Such a situation could
lead to declining sales for the Group, and has the potential
to negatively impact 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 has been taking
steps to eliminate those substances from all of the Group
products worldwide. In cooperation with its suppliers, the
Group is investigating the status of regulated chemical sub-
stances in all of the components and materials the Group
uses, and is accelerating efforts to switch to alternative
environmentally-friendly components and materials.
Despite these efforts, risk exists that a quality control
oversight at a supplier or other incident that compromis-
es the content integrity of a Group product could result in
damage compensation liability or a directive violation that
could negatively impact the Group’s operating results and
financial condition.