Cleanliness is next to quality, rules the company doctor: David Bowen hears a little of the homespun business philosophy prescribed by Kazuyoshi Ishizaka, the saviour of Trio Kenwood

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The Independent Online
KAZUYOSHI Ishizaka, OBE, a wise old Japanese businessman and former high- powered banker, is a company doctor. This will come as a surprise to those who believe that all Japanese companies are paradigms of management, and never need curing. But as he tells it, Trio Kenwood, the consumer electronics company that he rescued 10 years ago, was suffering from problems that sound all too familiar.

'The management was insisting on keeping up high dividends, regardless of profit or loss,' he says. 'To do that, it had to appear to make a profit, which it did by disguising its accounting.' For instance, Mr Ishizaka says, the company would sell products to its subsidiaries, to keep apparent sales up.

And did it use the famous Japanese techniques, such as just-in-time stock-keeping? 'Oh no, not at all] Not at all]'

It was, of course, too good a story to last, and Kenwood has now fallen into line with the mainstream of Japanese industry. Its sales this year will be about Y220bn (pounds 1bn), and it is forecast to make profits of Y6.5bn. This, at a time when the Japanese electronics industry is going through its roughest period ever, is more than respectable.

Kenwood's main problem in the UK is an unusual one: how to convince people it does not make food processors. The company has no links with the British kitchen equipment company that until 1989 belonged to Thorn EMI. Until five years ago it was not allowed to use the Kenwood name in Britain, and stuck to its former Trio tag. Then Mr Ishizaka came to an agreement with Thorn: now the British Kenwood can sell its machines in the countries where the Japanese own the name; and the British consumer can buy a Kenwood stereo system or car radio.

But there is still likely to be confusion, which is one of the reasons why Kenwood is trying to raise its profile with schemes such as the International Classical Music Awards, which it is co-sponsoring with the Independent.

Like so many Japanese companies, Kenwood was born out of the ashes of the Second World War. It was called Kasuga Musen Denki (musen means, literally, wire-less) and made components for the Japanese broadcasting company, NHK. Its strengths were technical - it developed some of the first FM receivers and transistorised stereo amplifiers, and in the mid 1950s started to sell them in the US. It used the Trio brand name in Japan, but its Californian distributor suggested that Kenwood, the name of a local town, would be more memorable in the States.

Trio Kenwood built up a formidable technical reputation, operating at the very top of the consumer hi-fi and radio ham business. One of its turntables retailed for pounds 1,500 in the 1970s.

But reputation was not enough, and when the yen appreciated at the end of the Seventies, it was unable to cope. The banks wanted someone to take it in hand, and found Mr Ishizaka, who was coming to the end of his banking career. He had spent some years in London (hence the OBE), and was known for his efforts to open up trade links with Japan.

He was shocked by the state of the company, and spent the first year trying to discover exactly what condition it was in. It took five years before the real loss was fully revealed: it amounted to Y13.5bn, which compared with a paid-in capital of less than Y2bn.

As the sources of loss were revealed, they could be tackled: loss-making areas could be cut out, stocks - piled all over the place - sorted out. At the same time, Mr Ishizaka applied some of the home-spun philosophy that characterises so many Japanese businessmen. 'I have a somewhat strange theory that to make a product with the best quality, the best way is to have a clean factory,' he says. 'Those working there will then become more precise.'

Kenwood came back into profit in 1985, by which time it was starting to operate more like a proper Japanese company. The next year, industry was put under immense pressure by the Plaza Accord, which nearly doubled the value of the yen against the dollar. Mr Ishizaka says that Kenwood was 'lucky', because he decided the yen was undervalued and suggested a few weeks before the agreement that the company should sell dollars forward, saving it vast sums.

Like other Japanese companies, it has, however, had to bow to economic realities, and now has a factory in Singapore. For a rather different reason - to jump a protectionism fence - it also has an assembly plant in France.

Kenwood is one of the smaller Japanese electronics companies. Its sales are barely one twentieth those of Matsushita, and a tenth of Sony's. In the past year Japan's electronic industry has been hit by recession for the first time. Sony went into loss, and Matsushita talked of the need to limit competition to preserve profits. So far Kenwood has been unaffected. 'I don't know why,' Mr Ishizaka says. 'Maybe we will follow them in a year's time, so let us be ready.'

He thinks Kenwood can compete against the giants by sticking to what it knows: its main products are now upmarket CD and car audio systems, but part of its history is rooted in communications, through its ham radio systems. He believes this should be developed, perhaps in the cellular radio market.

Although he is chirpy about Kenwood's immediate prospects, Mr Ishizaka is less sanguine about the future of Japanese manufacturing industry. 'I recently visited Hong Kong and Shanghai,' he says. 'I came back and told our president that within half a century I thought we might be behind them. He laughed, and said he thought we might be behind them within 30 years.' But Mr Ishizaka is not too despondent about that. 'Japan is slowing down,' he says. 'That is a good thing.'

(Photograph omitted)