May 8, 2013Appetite grows for UK pension saving

Appetite for pension saving at Britain’s biggest companies is proving better than expected, with nine out of 10 workers staying in company plans after being automatically enrolled, according to a new study.
The news will be welcomed by the government, which launched its automatic enrolment initiative in October with indications that almost one in three new savers could "opt out".
The initiative was set up as the number of savers in occupational pensions fell to a record low. It means employers now have a duty to sign eligible staff into a company pension scheme, with savers then given the right to opt out.
Research released last year by the Department for Work and Pensions had suggested the reform would not be overwhelmingly supported, with 70 per cent of workers likely to continue saving after being enrolled.
However, a study released on Tuesday by Towers Watson, the pension consultants, found that take-up rates in FTSE 100 companies after AE were "typically exceeding 90 per cent".
"Take up at this rate is a huge success," says Will Aitken, senior consultant with Towers Watson. "It is still early days, with AE still to roll out to midsize and small employers, but the result so far is better than hoped for."
The annual study, which gathered data from more than 90 per cent of FTSE 100 employers, is the first substantive indication of the impact of AE. DWP is not due to release figures until later in the year.

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FT

April 26, 2013Will Co-Op pull out of banking?

For Lloyds, the Co-Op’s decision not to buy 631 branches with £25bn of deposits from it should not be too damaging.
The European Commission is forcing Lloyds to dispose of this operation, which is being rebranded as TSB, to promote competition, and that will still happen - by floating the separated business on the stock market.
But for the Co-Op and the banking market, the ramifications are much more serious.
The Co-Op’s board yesterday decided that the new regulatory burdens being placed on banks and the weakness of the economy makes banking a much less attractive business.
It will now review its existing banking operations, under a new chief executive who arrives on 1 May, and I am told that it could decide to withdraw from banking completely.
That would be a huge blow to the Treasury and Bank of England, which had hoped that the Co-Op would become a powerful competitor to the big banks.

UPDATE 8:35 BST
To be clear, the Co-op isn’t going to withdraw from banking tomorrow, so there is no reason for Co-op depositors to feel they are going to be left high and dry.
The outgoing chief executive, Peter Marks, says the Co-op will develop its banking operation over the long term.
But I understand there is a possibility it will get out of the business in an orderly way, after the new chief executive, Euan Sutherland, has had a chance to review it.
And here is one important reason why the non-bankers on the Co-op’s board are nervous about getting bigger in banking: they are acutely aware of how the non-bankers at HBOS, Sir James Crosby, Andy Hornby and Lord Stevenson, were pilloried by MPs earlier this month for making a total horlicks of their bank.
Most important, however, is how the Co-op’s withdrawal from the Lloyds deal highlights the tension between the government’s twin ambitions - of making banks safer through increased and improved regulation and promoting competition.
The Co-op apparently took the view that it could not adequately cover the costs of the increased regulatory burden on banks, even when enlarged by the Lloyds deal, in the UK’s worsened economic climate.
And here is perhaps the most telling fact. The Co-op was buying a bank from Lloyds that is far better capitalised than its existing bank, so it would actually have been strengthened, in a prudential sense, by buying the 631 TSB branches and £25bn of deposits.
But even with that huge incentive, it could not persuade itself that pressing on with the acquisition made commercial sense (and this from a co-operative, whose profit motive is less acute than most PLCs).

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April 25, 2013BoE opens Funding for Lending door to buy-to-let landlords

Buy-to-let landlords could be the biggest beneficiaries of the Bank of England’s expanded Funding for Lending Scheme, providing another state-backed fillip to the property market.
The BoE gave the go-ahead on Wednesday for banks tapping its new funding mechanism for small- and medium-sized businesses to be allowed to lend the money on to property investors.

Under the FLS, the bank defines SMEs as companies with an annual turnover of less than £25m.
To encourage banks to lend, every pound of additional net lending to SMEs during the remainder of this year will entitle them £10 of access to cheap funding - and £5 next year.
Rob Wood, chief UK economist at Berenberg Bank, said although the extension of the scheme is intended to boost lending to SMEs in particular, it will also spur the housing market.
"It could be a no-brainer," said Mr Wood. "Lend to a landlord - collateral easy to price - and get 10 times that lending back as essentially free funding, then recycle some of that back out again on mortgages or BTL."
Landlords have already benefited under the existing FLS as banks and building societies have passed on lower borrowing costs. The average buy-to-let rate has fallen from 5.09 per cent in August, when the FLS was launched, to 4.28 per cent today, according to figures from Moneyfacts, the financial data provider.
This helped push buy-to-let lending up 19 per cent last year, with the number of buy-to-let mortgages reaching its highest level in four years.
While most of the government’s recent initiatives have been targeted at reinvigorating the housing market by helping owner occupiers, FLS is the only scheme that has not specifically excluded buy-to-let investors.
"Since the credit crunch the traditional highly geared buy-to-let landlord has been very much sidelined," said Lucian Cook, director of research at Savills. "FLS could give buy-to-let landlords greater access to cheaper debt, allowing them to stretch their equity and widen their portfolios."
Some have criticised the move for helping landlords at the expense of first-time buyers. Angus Hanton, co-founder of the Intergenerational Foundation think tank, said: "Rather than helping younger home buyers, the extension of the Funding for Lending Scheme will serve principally to increase bank lending to buy-to-letters, increase prices and further undermine Mr Cameron’s grand plan for a ‘property owning democracy’."
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ft.com

April 24, 2013Stoke £1 homes on sale in plan for city

The first of hundreds of homes in Stoke-on-Trent that were bought for demolition as part of the previous Labour government’s urban regeneration programme are being offered for sale for just £1 each in an effort to revive the city.
The £3m project is the first attempt by the city’s Labour-run council to address the disastrous legacy of the housing market renewal initiative. More commonly called the Pathfinder project, the initiative saddled Stoke-on-Trent and several other English cities with portfolios of derelict properties and empty sites when the housing market turned.

In Stoke-on-Trent, successful applicants will be offered loans of up to £30,000 on low interest rates to refurbish the two- and three-bedroom terraced homes that were originally built for workers from the surrounding ceramics factories. Eligible residents must submit applications by May 12, with the properties then randomly allocated.
"The programme is not about selling council properties or just reoccupying these properties but rather about regenerating the area and creating a community," Stoke-on-Trent city council said. The first 35 houses are in two streets close to the old Royal Doulton ceramics factory.
Councillor Janine Bridges, in charge of housing, said its so-called empty cluster homes project would not recoup the cost of buying out the original owners at the top of the market but would provide an opportunity for young families to get on the property ladder without the need for a costly deposit.
Abi Brown, leader of the Conservative group on the council, welcomed the plan but predicted that even at £1 the council may find it hard to sell the properties.
Around the city’s old Middleport pottery, being restored under a £9m project led the Prince’s Regeneration Trust, the fallout of the failed Pathfinder project is clearly visible, with whole streets now boarded up.
Ironically nearby, Steelite International, the UK’s largest ceramics manufacturer that last year acquired the historic Crown Derby business, is expanding its factory on land once occupied by terraced houses cleared under the Pathfinder project.

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ft.com

April 23, 2013Pub tenants get help under code of practice

New proposals to help pub tenants struggling to pay rent or beer prices have been unveiled by the government. They include a new code of practice and the backing of a "powerful" adjudicator after complaints about abuse of the "beer tie".
So-called "tied pubs" are required to buy supplies - often at high prices - from pub companies that own the pubs.
Half of the "tied pubs" in the UK earn less than £15,000 a year, said Consumer Minister Jo Swinson.

The Department for Business, Innovation and Skills said it hoped that the new proposals would help to save tenants £100m a year.
The code will apply to companies that own more than 500 pubs, to focus on an area of the industry where 90% of complaints are received, it said.

Pub tenants get help under code of practice
The adjudicator would have the power to enforce the code, investigate breaches and deal with disputes through possible sanctions and fines. The new proposals may also allow tied pubs to have independently picked guest beers.

Pubs under pressure
Business Secretary Vince Cable said: "We gave pub companies every chance to get their house in order. But despite four select committee reports over almost a decade highlighting the problems faced by publicans, it is clear the voluntary approach isn’t working."
"Pubs are small businesses under a great deal of pressure, many of which have had to close. Much of that pressure has come from the powerful pub companies and our plans are designed to rebalance this relationship," he said.
Jo Swinson said the government was "committed to stamping out abuse of the beer tie and helping British pubs to thrive".
"It has been a huge concern of mine that pubs, often the hub of our communities, are closing down at an alarming rate. What is also shocking is that the figures show that almost half of tied pubs earn less than £15,000 a year, and struggle to make ends meet because of rising beer prices and rent. "I have heard about a variety of unfair practices such as large unjustified increases in rent, and am clear that this sort of behaviour is not good enough.
"These proposals will put a fairer system in place and will make sure that tied pubs are no worse off than free-of-tie pubs," she added.

Pubs ‘quango’
Dave Mountford, a branch secretary for GMB, the union for tied tenants, said: "The test for tied tenants is whether this code is drafted in such a way that it will bring down rents to the same level as free-of-tie pubs."
"GMB want to ensure that pub [chains] are not allowed to put up rents by the backdoor by overcharging for products tenants are tied to buy from them."
A spokesman for Punch Taverns, the largest bar and pub operator in the UK, said: "We will be looking at the contents of today’s announcement in detail, but we remain confused by the government’s attitude to pubs.
"This year’s Budget provided much-needed support to Britain’s pubs, but the government is now proposing a state-backed pubs quango.
"A founding commitment of the Coalition was to reduce regulation, but ministers now seem intent on wrapping Britain’s pubs in red tape."

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April 15, 2013The top five accountancy errors made by small businesses

The top five accountancy errors made by small businesses

Getting into bad habits with your business bookkeeping is a downward spiral that could cost you time and money, as well as make dealing with your business finances unnecessarily complicated. Here’s some common errors and how to avoid them.

Leaving it too long
Bookkeeping isn’t the most enjoyable of business tasks. There’s always something more fun to do, like marketing, building your network of customers or even just making coffee. But it won’t go away, and HMRC can fine you for not keeping accurate records for your business. And the longer you leave it, the harder it becomes to get through all that paperwork.

Set aside an hour a week to do your books so that you always have timely, accurate information about your business’s profit and cash, and so that bookkeeping never becomes too gargantuan a task.

Garbage in, garbage out!
Make sure you do your bookkeeping accurately, otherwise you don’t have a hope of having any useful information about your business, and also your accountant’s bill will be much higher because of the extra effort they have to spend to unjumble the mess.

You may think you have a great way of collating your finances, but are you sure you categorise all of your expenses properly? Is your system more outdated and confusing than it needs to be? And, even if you use a dedicated piece of software for your bookkeeping, perhaps you’ve been inputting your invoices and bills incorrectly, and giving your accountant a headache because they have to tidy the data up for you.

Make sure you’re using a simple, robust system that makes it easy for you to input all of your data accurately and efficiently, and make sure you don’t make any changes in the way you log your figures from month to month. That way your accountant can easily check the figures for any errors.

Inconsistency

If you have transactions in your business that repeat regularly, such as a monthly subscription, make sure you put these in the same category each time, otherwise when your accountant comes to check that you’ve entered all your costs and claimed the maximum allowable amount for tax, they’ll have to spend extra time finding those costs that have gone into different places - which again means a higher bill for you.

For example, if you subscribe to an accounts package, don’t classify it Computer Consumables one month and Subscriptions the next. Stick to one cost category to avoid unnecessary confusion and make it easier to log that subscription when importing your bank data into your accounts.

Over-complication

There may well be areas of your bookkeeping software that aren’t relevant to your business, for example not every business has to issue invoices. That’s absolutely fine. Don’t waste time by posting entries you don’t need.

For example, if you’re not taking time to pay a supplier, you don’t have to post a bill into your accounting system. If you’re paying on the nail, you can just record that transaction as a payment from the bank instead.

Too much manual effort

You don’t have to post every single transaction manually, either.

Make use of expense management software such as Receipt Bank to photograph your expenses on the move and have them automatically upload into your accounts, saving you the hassle of keeping your receipts.

And why waste time downloading bank statements and uploading them? Check to see if the online accounting system you use has bank feeds available for your bank, as this will allow you to pull your bank data automatically into your accounts.

Bookkeeping will never be the most exciting task in your business, but it doesn’t have to be the worst either!

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smallbusiness.co.uk

April 10, 2013Carrying on banking

Imagine an Ealing comedy of our time - a very British fiasco in which a gang of blithering incompetents take part in an elaborate reverse heist.

They take over the running of a bank and proceed to throw colossal amounts of money out the door, unclear where it’s coming from or what they’re going to do to get it back.

Pick a fine cast of character actors; a greedy, ambitious Yorkshireman who thinks he’s the brains of the outfit: the amiable toff, who’s nice but dim: the quiet Scotsman who appears, wrongly, to be good with numbers: the impressionable younger one who blunders in off the street and is handed control just as events are about to blow up in their faces.

They rent a place on the Mound in Edinburgh from a little old lady who owns a would-be guard dog.

It could rumble them, but is too easily intimidated or distracted into running off in the wrong direction. In any case, its teeth are rotten.

You’re imagining "HBOS: the movie". It’s a story that leaps off the pages of the report of Parliament’s Banking Standards Commission, issued today.

Lights, camera, lending
I’ve read many pages of reports and analysis of what went wrong in the Great Credit Crunch and Banking Crash. This one stands out as a cracking page turner.

It’s partly because its authors - MPs and members of the House of Lords, improbably including the new Archbishop of Canterbury - have an unsparing turn of phrase, of which more later.

It’s also because they’ve made this a story about the people at the top of Halifax Bank of Scotland, and their individual and collective roles in driving it spectacularly over a cliff.

And it’s because the story, once stripped down to its essentials, is quite a simple one.

As they put it: "Whatever may explain the problems of other banks, the downfall of HBOS was not the result of cultural contamination by investment banking. This was a traditional bank failure pure and simple. It was a case of a bank pursuing traditional banking activities and pursuing them badly." Really badly.

Can’t say ‘no’
The new material in this report is in the figures. We knew they were big. But did you know they were this big?

The Commission reckons shareholders lost 96% of the company’s value, and only saved the remnant because the Government stepped in.

HBOS losses between 2008 and 2011 ran to £46bn. Break that down, and you find the corporate division, led by Peter Cummings, has had to face up to £25bn in impaired loans. That’s a fifth of everything on its books.

You may recall that Cummings was reported saying, in October 2007: "Some people look as if they are losing their nerve, beginning to panic even in today’s testing property environment; not us."

He had, by this time, moved HBOS from, in 2002, having the biggest single name loan under £1m, to a position where nine individuals had loans in excess of £1bn. The focus was in the most vulnerable areas: commercial property, hospitality and retail.

The Commission’s verdict: "The picture that emerges is of a corporate bank that found it hard to say ‘no’."

Big bad loans
But the problems were not limited to his division. HBOS set off for Australia, aggressively. There, it lost 28% of its loan book, or £3.6bn. Likewise, it went into Ireland, where it lost around £11bn, or 35% of loan value.

Anglo Irish Bank was the stand-out catastrophe in Ireland, with 48% losses, but HBOS was second worst by a wide margin. The much-maligned Royal Bank of Scotland, through its Ulster Bank subsidiary, took half the scale of loss of its Edinburgh rival.

In HBOS’s retail division - the mortgage-based business at which Halifax had long been market leader - the damage wasn’t nearly as bad. The Commission reckons impairments in the three years after collapse came to £7bn, out of £255bn.

(Note: that’s with a more benign residential housing market than in, for instance, commercial property, but the housing market correction probably hasn’t ended yet).

Overall, HBOS is reckoned to have sustained 10.5% losses on the £435bn loan book it had, pre-crash, in 2008.

The comparable figure for RBS is £8bn lower - that is, £37bn. At 5.1%, that’s less than half the scale of HBOS losses.

It’s worth noting, while mentioning RBS, how different the two collapses were. They were both about greed for growth, ambition and unmanaged risk, but the Royal Bank story was one of an over-dominant individual and a vast organisation mired in over-complexity which no-one understood; HBOS was about a group dynamic that failed at doing the really simple stuff that anyone should have understood.

"Wildly ambitious"
So what had gone wrong? In the words of the bank’s own finance director in 2004, it was "an accident waiting to happen" - words which no-one seemed to do anything about.

There was the wrong culture: it was brash in pursuit of a "wildly ambitious growth strategy". There was a lack of controls for risk: "The risk function was a cardinal area of weakness," and this was "a matter of design, not accident". No-one stayed long atop the risk management division: instead, ambition took them up the career ladder and off to the moola-making divisions.

There was a lack of controls of different divisions from the centre, and of the necessary banking skills at the top. Andy Hornby came in from retail, having been at Asda; other key figures were from insurance. The top team were "incapable of even understanding the risks that some elements of the business were running, let alone managing them".

Shareholders and ratings agencies failed to spot what was going on, or to provide a challenge to management.

And there was a lack of oversight from the regulator, the Financial Services Authority: it was "thoroughly inadequate… not so much the dog that did not bark, as a dog barking up the wrong tree".

Underlying this report is an implicit challenge to the successor regulator to the defunct Financial Services Authority, which has yet to publish its own report into HBOS: produce a robust report like this one, rather than the bland one produced by the FSA on the Royal Bank.

Brash and corrosive
And what of the individuals in this extremely expensive Ealing comedy production? It’s understood that Peter Cummings is comfortable with the findings. That’s not surprising. He’s the only person in the entire banking fiasco who had already been punished by the regulator, with a £500,000 fine.

This report doesn’t let him off the hook, but it impales others alongside him. And it calls for powers for regulators to punish former directors, rather than accepting an assurance that they’re off quietly to spend more time with their pensions, and, er, not to worry, chaps, they won’t be troubling the financial sector again.

Sir James Crosby, although he retired in 2006, is hauled back into the frame, taking the blame for "sowing the seeds of the bank’s destruction" by his ambitious growth strategy, and with a "brash" and "corrosive" culture.

Andy Hornby exited finance with the crash, and soon turned up on £1m-a-year as head of Alliance Boots (the chemists), before shifting to Gala Coral, the leisure-to-bookies firm.

He’s no longer being dismissed as the poor guy who jumped on board when it was too late to stop the train wreck. He "proved unable or unwilling to change course", and is placed firmly in the stocks of shame.

But there’s a special place there for the one man who was chairman of HBOS, from wildly ambitious beginning to sticky end: "Lord Stevenson has shown himself incapable of facing the realities of what placed the bank in jeopardy from that time until now".

The report goes on: "The corporate governance of HBOS at board level serves as a model for the future, but not in the way in which Lord Stevenson and other board members appear to see it. It represents a model of self-delusion, of the triumph of process over purpose".

And having reported, incredulously, that the deputy chairman, Sir Ron Garrick, thought HBOS to have been blessed with "by far and away the best board I ever sat on", the report concludes:

"Membership of the board of HBOS appears to have been a positive experience for many participants. We are shocked and surprised that, even after the ship has run aground, so many of those who were on the bridge still seem so keen to congratulate themselves on their collective navigational skills".

There is "profound regret" that the FSA failed to find punishments to fit the incompetence and wrong-doing in Scotland’s two biggest banks.

The Banking Standards Commission has demonstrated, however, that ridicule isn’t such a bad substitute.

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BBC

April 8, 2013Avoid using HMRC as an unauthorised overdraft or face the consequences

Many company directors are far from alone when they allow their company to be in significant arrears with payments to HMRC for VAT, PAYE, Corporation Tax or CIS.

Often seen as the creditor to pay last, delaying payment to HMRC is a risky strategy to employ and has inherent risks. These risks are threefold: firstly the company’s ability to trade could be removed, secondly the directors’ veil of limited liability could be challenged and thirdly directors run the risk of disqualification.
In opting not to pay HMRC and prioritise other creditors, the directors will be, in the eyes of HMRC and Insolvency Practitioners, treating the Crown purse as an unauthorised overdraft. In the current climate this is frowned upon to say the least.
Failure to discharge arrears to HMRC could result in their issuing a winding up petition whereby the company will likely enter into liquidation and its ability to trade will be curtailed almost immediately upon the serving of the petition. HMRC have other remedies such as Walking Possession which is often utilised in the first instance.
Furthermore, the Company Directors Disqualification Act 1986 attaches particular significance to "non-payment of Crown debts to finance trading". In a formal insolvency, the Insolvency Service has the capacity to seek Director Disqualification Orders for a period of 2 to 15 years. Whilst there are a raft of differing matters of poor conduct which could lead to a disqualification, non-payment of Crown debts is a commonly utilised one. Recent examples include a 4 year disqualification for non-payment of two years’ worth of tax at £386,000 and a ban of 2 and half years for non-payment of tax at £186,000 over a 2 year period.
The lesson is clear, open communication with HMRC at the earliest opportunity. This will not only increase the prospects of continuing to trade but also likely decrease the prospect of personal liability or disqualification on the part of the directors. Addressed early enough, HMRC may show flexibility through schemes such as their Time to Pay.

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Lawrence King

April 5, 2013SMMT: UK March car sales beat expectations

UK new car registrations outperformed expectations in March, jumping almost 6% against a year ago, the Society of Motor Manufacturers and Traders (SMMT) has said.
The SMMT said March, when new number plates are released, was typically a strong month for car registrations.
However, the increase this March is well above the almost 2% recorded at the same time last year.
The UK figures defy the EU trend, which remains downwards.
There were 394,806 registrations of cars with the new 13-plate, a 5.9% increase year-on-year, supported by strong demand for private registrations, which rose 7.8%.
Private registrations accounted for 51.7% of the market, followed by fleet (43.5%) and business (4.8%).

Encouraging
Volumes were at their highest since the 2010 Scrappage Incentive Scheme and the increase represents the 13th consecutive month of growth.
However, registrations are still 12.1% below the 2007 pre-financial crisis market total.
The March figures took total registrations for the year-to-date to 605,198, a 7.4% increase on 2012.
SMMT interim chief executive Mike Baunton said that despite continuing concerns about the economy, "consistent monthly growth in the market is an encouraging sign of returning consumer confidence".
He said that motorists had been attracted to forecourts by "new models and the latest technologies".
Registrations of petrol-fuelled cars have risen by 12.1% so far in 2013, outselling diesels. This was spurred by growth in the small car and private sector markets, the SMMT reported.
Registrations of alternatively fuelled cars dipped in the month, but rose by 2.9% in the first quarter.

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BBC

April 3, 2013What happened to Japan’s electronic giants?

Japan’s electronic giants once ruled the world. Sony, Panasonic, Sharp were household names. Now those same companies are in deep trouble, losing billions of dollars a year. How have the mighty Japanese companies fallen so low? The BBC’s Rupert Wingfield-Hayes in Tokyo looks at what went wrong.
If you want to get an idea of what’s gone wrong with Japan’s electronics industry go for a ride on the Tokyo metro.
The Tokyo metro (or a lot of it) now has 3G mobile reception. But you’re not allowed to talk on your mobile phone on public transport in Japan, so everyone in my carriage was busily texting away on their 3G devices.
And what particular device were they using? A quick survey of the carriage I was in found about 80% were holding an Apple iPhone.
That’s admittedly not a scientific result - but the evidence is pretty stark. Where once everyone would have been listening to a Sony Walkman, today it is Apple and Samsung that dominate, even here on Sony’s home ground.
The evidence can also been seen in their financial results. Japan’s electronic giants are bleeding red ink.
Sony may make a small profit this year, its first since 2008. Panasonic (formerly Matsushita) is expected to post a $9bn (£6bn) loss this year. Sharp, which is much smaller, is losing money so fast it will not survive another year without a major infusion of cash. So what went wrong?

Digital challenge
According to Tokyo-based economist Gerhard Fasol, the Japanese giants were overtaken by the digital revolution. The Japanese giants, he says, actually built their empires on making complex electrical machines - colour televisions, radios, cassette players, refrigerators, washing machines.
Yes, they contained electronic components, but they were basically mechanical devices.
But then came the digital revolution, and the world changed.
"The Sony Walkman is a classic example," Gerhard Fasol says. "It has no software in it. It is purely mechanical. Today you need to have software business models that are completely different."
The digital revolution not only changed the way electronic devices work, they changed the way they are made.
The whole manufacturing model shifted as companies moved production to low-cost countries. That has put huge downward pressure on profit margins for Japanese manufacturers.
"Look at Apple," Mr Fasol says. "They make iPods and iPhones."
"Apple makes at least 50% profit margins on those. People say iPhones are made in China, but maybe only 3% of the value of an iPhone stays in China."
"So it’s hard to become rich today on the scale of a Panasonic just by manufacturing - you have to do a lot more."

Un-Japanese
Unfortunately neither Panasonic nor Sharp responded to our repeated requests for interviews, so instead I went to see the boss of another Japanese manufacturing giant.
Hiroaki Nakanishi is the 66-year-old English-speaking president of Hitachi Corporation.
When he took over the reins at the 100-year-old engineering giant in 2010 it too was bleeding red ink. Mr Nakanishi immediately decided to do something very un-Japanese. He closed or sold loss-making divisions, most of them in consumer electronics.
"Digital technology changed everything," he says.
"In the television industry it means that just one chip is now needed to produce a large and high quality TV picture. So now everybody can do it."
"That means the new players from Korea and China, they now have the advantage."
Hitachi had built its reputation on having the best technology. But now competition has switched to who has the best sales and marketing strategy, and the biggest advertising budgets. Mr Nakanishi says the Japanese companies just couldn’t keep up.
"The structure of the industry had completely changed," he says. "We could not adjust to such an environment. So that is why I gave up those segments."

Brain country
Mr Nakanishi decided to return Hitachi to its core business: heavy engineering. Gas turbines, steam turbines, nuclear power plants, high-speed trains, these are the areas he believes Hitachi can still be a world beater, especially in the developing world.
"In developing countries they don’t have specific planning and construction know-how [for big infrastructure projects], but we have," he says.
"It is not simply a case of selling machinery, but also the engineering, planning, even sometimes the financing of a project. That total process, that is our most important advantage."
Mr Nakanishi’s strategy is working. Hitachi is back in profit. Hitachi trains are the front-runner in the competition to replace all of the UK’s fleet of inter-city high-speed trains.
But it will not be as easy for the others.
Sony is the strongest of the three. But even Sony makes far more money today out of selling life insurance than it does out of making electronics. Panasonic and Sharp have less to fall back on.
Gerhard Fasol says that once again, just as they did back in the 1950s and 60s, the Japanese companies need to learn from America.
"It’s no coincidence that many of the most successful companies today are in Silicon Valley," Mr Fasol says. "Companies like Cisco or Oracle are not affected by the Korean competition. Japan has to become a brain country. It’s a country like Switzerland or England."
"You have very high education and very clever people so you have to use that. Sometimes that value can be captured through manufacturing, but in other cases through software. And software has been neglected in Japan."

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