Sony to Cut 17,000 Jobs in Bold Restructuring

Japanese corporate stalwart Sony Corp., in a move that effectively defines a strategy for Japan to recover from its long recession, announced a broad retrenchment today that calls for the elimination of 17,000 jobs.

Sony’s action is the deepest and most important restructuring in Japanese industry so far and, because of the great esteem in which Sony is held here, it is likely to serve as a model for other large Japanese companies.

The Sony shake-up, which has major implications for the global entertainment industry, is especially striking because the company is in relatively strong financial shape, analysts said.

“It shows how big Japan’s problems are,” said Garry Evans, strategist with HSBC Securities. “Sony now becomes the de facto standard. Restructuring is no longer just a fashion; it’s now a real movement.”

Cutting down the number of factories, reducing people and reorganizing deep-seated company problems are a prerequisite for getting the world’s second-largest economy back on track, many economists believe.

Despite the worst recession since World War II, a prolonged and intractable crisis that poses an ongoing threat to the global economy, Japan has generally resisted the tough steps prescribed for it by U.S. and European critics, including the Clinton administration.

A growing number of Japanese firms, their backs to the wall, have begun eliminating jobs, ending the postwar promise of “lifetime employment.”

Before Sony’s action, the biggest such step had been taken by NEC Corp., which recently moved to eliminate 15,000 jobs.

U.S. companies really started to take off a decade ago when they made restructuring a full-time job, not just a necessary evil, said Darrel Whitten, strategist with ABN Amro. “That really hard-wires those changes,” he said.

Sony’s move stands in marked contrast to a rising number of other recent layoff announcements in Japan. Analysts say other examples, such as NEC’s announced 15,000 cuts last month, came only after the companies got into trouble.

Sony is a major player in the U.S. entertainment industry. Its U.S. subsidiaries, based in Los Angeles and New York, include major studio, music and game operations.

A spokesman for Sony Pictures Entertainment in Los Angeles, one of Hollywood’s major studios, said he does not expect the cutbacks to apply to the U.S. entertainment businesses.

Sony suffered through a series of rough years after buying Columbia Pictures and other U.S. film and television assets, leading to a multibillion-dollar write-down. But in the last two years, the film division has performed solidly.

Other U.S. business include Sony Music Entertainment and Sony Computer Entertainment.

Sony commands such a special position in tradition-bound Japan in part because it has been a global technology leader--creating entire new industries--in a nation famous for gradual refinement and steady, if uninspiring cost reductions.

Sony also was among the first Japanese companies to globalize its operations. And on the labor front, it was one of the first companies here to offer its employees incentives linked to performance and to otherwise chip away at the lifetime-employment system.

Sony will cut 10% of its group work force of 170,000 people within four years. The company said it will not have any outright layoffs but will instead pare its payroll through attrition, although analysts believe it will eventually be forced to fire people in more direct fashion.

Sony also said it will make Sony Music Entertainment (Japan) Inc. and two other units wholly owned subsidiaries and turn its Sony Computer Entertainment--maker of the PlayStation video game machines--into a full subsidiary.

In a break with Japanese tradition, Sony will give minority stockholders a premium over the market price for their shares.

While this is common practice in the United States, in Japan shareholders carry a very small voice and are often in effect forced to sell their minority stakes at a discount. Sony, which has some 40% of its shares held by foreigners, may help bring more modern merger and acquisition practices to Japan and reduce corporate waste.

“Most M&A; is taken out at a discount but Sony’s doing it at a premium,” said Charles Lambert, analyst with Jardine Fleming (Asia) Ltd. “We could start seeing businesses run more efficiently.”

Sony’s announcement today in Tokyo also unveiled a bureaucratic shake-up that, among other things, will reorganize the company around what promises to be a mega-hit product, its recently released PlayStation II.

Analysts say the new PlayStation’s graphics, rumored DVD capability and top-notch audio capability will turn the once-niche world of video games into a full entertainment world, akin to what Sony’s Walkman did to audio sound.

“The PlayStation II is changing the rules of engagement,” said Darrel Whitten, strategist with ABN Amro. “They’ve come out with an incredible product and now they’re figuring out the best way to leverage it into the marketplace.”