Slow Downsizing After Mergers of Individual Loss-Making Parts and Components Divisions

In this section, we focus on the consequences of M&A of disintegrated in-house parts and components businesses. Renesas Electronics, a hodgepodge of semiconductor divisions, suffered prolonged losses after M&A. Drastic downsizing in employment after Innovation Network Corporation of Japan (INCJ), a government investment fund, taking control of distressed Renesas, successfully restructured its business. On the other hand, the inopportune and easy collection of loss-making LCD divisions, that is, the birth of JDI led by INCJ, did not result in a new sustainable display company. Irrespective of post-M&A losses, JDI expanded production capacity rather than downsizing. Moreover, the company failed to drastically downsize employment promptly even when the new plant turned out impaired assets. At last, foreign investors withdrew the bailout plan due to debt overhang. Despite this, Japan has been supporting loss-making JDI. The slowdown in the smartphone market due to a prolonged smartphone life cycle, overcapacity in the smartphone industry, the new entry of the display manufacturers of China, and the widespread adoption of OLED by smartphone makers are responsible for JDI’s declining sales and consecutive losses. Renesas is specialized in semiconductor manufacturing, and JDI has a single segment of small-medium LCD. Their slow employment adjustment in response to poor post-M&A profitability is in support of the employment consideration hypothesis for stand-alone Japanese firms.