Nidec Founder Shigenobu Nagamori Comments on Outsourcing in the Household Appliance Manufacturing Industry

Following the announcement on April 24 that Nidec has agreed to acquire Whirlpool Corporation's compressor business, Nidec founder and CEO Shigenobu Nagamori addressed the media and investors at a press conference held in Tokyo and shared his view on the trend of outsourcing in the household appliance manufacturing industry.

“In the ‘80s and ‘90s, many home appliance manufacturers produced all of the components for their washing machines, refrigerators, air conditioners etc. in-house. The reason for this is twofold: first, technological innovation had not yet reached the point where it would be difficult to compete with specialized suppliers; second, no major suppliers dedicated to specific components, such as electric motors, existed in the first place.

“A lot of things have changed since then, and this model has been reconsidered by many home appliance manufacturers as a result of technological advances that make in-house production of components difficult and inefficient. Numerous companies have seen their component manufacturing divisions and subsidiaries fall into the red and Nidec has a history of acquiring these slumping businesses and turning them around. We combine their capabilities to create one big supplier that can manufacture components for many different companies and access a bigger market.

“The automotive business is another good example of this. Many car manufacturers used to produce all major parts in-house but recently this has become less and less profitable. It makes more sense for these companies to sell their component divisions to reliable and capable suppliers who then become part of their supply chains, and this is just what they have started doing. Even the largest automobile manufacturers only have about 10%, 5% or 3% of the global market share and producing components in-house for such a small portion of the market is simply no longer realistic. Specialized suppliers on the other hand, can capture market shares of up to 50%, 60% or even 70%.

“Many home appliance manufacturers still produce compressors in-house but this is about to change; it is not a question of “if,” but “when.” Take the shift from AC to DC motors that is happening in the compressor market for example. A large portion of companies do not have experience with this technology so it simply makes more sense from a business perspective to outsource the design and manufacture of compressors to specialized component suppliers instead.”