Over-reliance on Chinese market backfires: Omron set to lay off 2,000 employees in 2024

Fan Jen-chih, Taipei; Willis Ke, DIGITIMES Asia 0

Credit: AFP

Japan's electronics and electrical equipment maker, Omron, has unveiled a significant organizational reform policy that targets a reduction of 2,000 employees in 2024, with 1,000 in Japan and another 1,000 overseas. According to a Nikkei report, this marks the second major layoff in Omron's 90-year history, surpassing the 1,460 job cuts made after the dot-com bubble burst in 2002.

The reason behind this restructuring can be found in Omron's latest 2023 fiscal forecast (April 2023 to March 2024). The company has revised its projections downward for the second time, slashing its consolidated net profit estimate by 98% year-on-year to JPY1.5 billion (US$9.976 million). The poor performance reflects numerous issues necessitating comprehensive improvement, including the urgency to reduce personnel expenses and refine its current market and product strategies.

Reports from various Japanese media outlets attributed Omron's sharp performance decline in fiscal year 2023 to several key factors. Notably, the company's disproportionate emphasis on the factory automation market for semiconductors and automobiles has resulted in neglect of essential daily necessities markets such as food and medical products. Moreover, an overly aggressive expansion into the Chinese market and a relative disregard for the European and American markets have left Omron's performance vulnerable to regional and sector-specific fluctuations.

Previously, Omron benefited from robust demand from advanced product factories in China, particularly in semiconductors, automotive, and electric vehicle (EV) battery sectors, buoyed by the country's proactive industrial development policies. However, supply chain disruptions stemming from the pandemic since 2020 and trade tensions with the US, have dampened order volumes from China. Intensifying competition from local Chinese manufacturers has compounded Omron's challenges, leading to a significant performance downturn compared to previous years.

Despite working hard to streamline its product portfolios by phasing out low-end equipment, Omron's efforts have been offset by the global semiconductor market's recessionary phase in 2023. With approximately 200,000 products in its catalogs, Omron finds itself unable to sustain its workforce of 28,000 employees worldwide, necessitating layoffs as a preliminary step to implementing strategic reforms. These reforms aim to bolster the medical service business among other initiatives, halt the performance decline, and facilitate a rebound.

As reported by Nikkei, Omron's layoffs are slated to take effect before July 2024, with associated expenses to be reflected in the fiscal year 2024 financial statements. Subsequent strategic adjustments will extend until September 2025. With the medium-term business strategy goals for fiscal year 2024 now deemed unattainable, the company is poised to revise these objectives. An updated midterm business strategy spanning fiscal years 2026 to 2030 is currently in the formulation stage and will be unveiled alongside these revisions.