New Year’s Message by the President Osamu Inoue (2018)

Happy New Year to you all!

1. Review of political, economic, and social incidents in Japan and the world, and the outlook for the New Year

I would first like to look back on 2017. In January, Mr. Donald Trump became President of the United States. Shortly after his inauguration, he announced his decisions to review NAFTA and to withdraw from the TPP and the Paris Agreement. In this way, existing international frameworks are being challenged by the debut of the new U.S. president. In China, on the other hand, Mr. Xi Jinping was reelected in October as President of the People’s Republic of China. China’s economic, trade, and diplomatic policies deserve close and careful observation, particularly the One Belt One Road Initiative.

Last year also saw increasing geopolitical risks, as evidenced by terrorist attacks in the Middle East and Europe, as well as North Korea’s nuclear and missile tests. This year, the global situation is likely to remain critical since various potential risks continue to exist in global society and the world economy.

Last year, the Japanese economy gradually expanded, supported by a steady growth in exports and inbound tourism. On the other hand, consumer spending did not recover as strongly as had been expected. Amid the continuing aging of the population, the Japanese government is being urged to steer the country wisely to restore the nation’s fiscal health while maintaining the current social security system.

Meanwhile, we see radical changes in almost all aspects of our lives, caused by the progress of information technology and the advancement of globalization at a greater speed than ever before. In our business, we see growing demand and expectations from society. Related technologies and business models are evolving fast. Sumitomo’s 400-year history testifies that a company should adapt itself to changing trends in order to survive. This is clearly set forth in the Sumitomo Business Spirit: “Sumitomo shall manage its activities with foresight and flexibility in order to cope effectively with the changing times.”

2. Three requests for 2018

Based on this recognition of the global situation, I would like to request that throughout the year you will strive to meet the following three requirements.

2-1. Promotion of workplace diversity and the growth of Sumitomo Electric as a global corporate group

The first requirement concerns the promotion of diversity in your workplaces and ensuring the growth of Sumitomo Electric as a global corporate group.

To ensure that the Sumitomo Electric Group continues its growth as a global corporate group, it is essential that the Group utilizes a wide diversity of human resources. I understand that the respective companies and departments have already taken various initiatives of their own, including the utilization of the SEI Group Global Executive system, the organization of management seminars to promote capacity building for women staff, and the introduction of a telework system. In addition to these initiatives, however, more should be undertaken to promote the diversity of human resources in our workplaces.

Concerning women empowerment, the Group announced numerical targets and concrete action plans up to the end of FY 2017. We expect to achieve the numerical targets in terms of both the proportion of women among newly recruited employees and the percentage of women in management.

In the following years, we will continue to set new numerical targets to further promote women’s mainstreaming. I hope that you will strive to achieve the set goals.

To advance the empowerment of non-Japanese employees and to enable their participation in management decision making, please create a workplace environment where they can fully exert their potential. To this end, please promote short- and long-term dispatching programs for staff from overseas Group companies to Japan.

In the work style reform program, designed to promote workplace diversity and strengthen our corporate structure, the Group-wide numerical targets for 2017 were set at less than 2,000 hours for total annual working hours and at least 15 days on average for annual paid leave actually taken by employees. As a result of the commitment shown across the Group, the program proved to be effective. This year, I ask each of you to review your own work style and to improve your business efficiency and productivity. Together with your superiors, please consider which tasks are unnecessary and how you can cut your working hours. To managers and leaders of the various sections, I would like to ask you to exert your leadership in promoting work style reform by considering the special characteristics of the business in your respective units or departments.

2-2. Thorough implementation of legal compliance

The second requirement concerns the thorough implementation of legal compliance.

As you are already aware, last year saw many scandals involving major companies, including century-old industrial giants. These companies have lost the long-established confidence of society due to various cases of misconduct, such as the falsification of product data and the inspection of products by unauthorized technicians. Since the Sumitomo Electric Group supplies a wide variety of products to markets in around 40 countries, we must always keep in mind that our Group is never free from the risks of non-compliance.

Compliance with laws, regulations, and various other rules is the absolute requisite that any company must meet in order to maintain societal trust and ensure its sustainable growth. Even a seemingly minor mistake or error can sometimes develop into a critical problem that could endanger a company’s survival. I hope that you all recognize this risk thoroughly. If you become suspicious of any conduct you are engaged in, stop doing it and ask yourself whether or not it accords with the Sumitomo Business Spirit. Make sure that you “do not act rashly or carelessly in pursuit of easy gains,” and that you are “placing prime importance on integrity and sound management.” To managers and leaders, I would also like to ask you to create an open atmosphere at your respective workplaces. Please work to create an open, lively, and friendly workplace environment to ensure that your subordinate staff can consult with you about even small matters.

I would also like to ask you to establish a system that is effective in preventing the occurrence of non-compliance problems. For example, please incorporate inspection and governance processes into business flows and ensure that these processes work properly. Also, periodic rotation of task assignments can help prevent misbehavior.

2-3. Improvement of SEQCDD indices

Thirdly, I would like to ask you to improve the SEQCDD indices; that is, the indices of Safety, Environment, Quality, Cost, Delivery, and Development.

Since the SEQCDD indices represent the soundness of our management, the respective Group companies and departments are expected to set appropriate numerical targets for each index, and work to fulfill the targets.

Concerning “Safety,” we still had many accidents that caused injuries to workers. The breakdown of these events shows that the number of accidents caused by faulty facilities is increasing. Strictly speaking, I doubt if factory supervisors are fully aware of their own responsibilities. Please ask yourself whether or not you are forcing the front-line workers or urging them to fulfill their assigned tasks. Please pay meticulous attention to the front line, and if you find any problem, resolve it in a timely manner. To all workers at manufacturing sites, I would like to ask you to heighten your sensitivity toward safety issues, and work to eliminate any unsafe practices in order to protect yourselves.

Concerning “Quality and Cost,” I am concerned that insufficient preparation for launching new products is causing a recurrence of the same problems, such as disturbances at manufacturing sites, lower yields, and increasing costs for ensuring quality. Before starting the mass production of new products, I ask you to assemble the wisdom of staff across your company, and work to achieve high built-in quality in the production process. Moreover, the number of customers’ complaints and “total loss” within the Group remains flat, or is increasing slightly. I understand well that the challenge level differs from product to product. Even so, I truly hope that you will set lofty goals and strive to achieve them through the implementation of concrete initiatives, with patience and persistence.

As regards “Development,” I ask members of the development team to adhere to the users’ viewpoint. In other words, priority should be on user satisfaction, rather than developers’ satisfaction. As I stated earlier in this greeting, market demand is changing at an amazing speed. Accordingly, may I remind you that timely and speedy product development is essential to meet users’ needs.

Thus far, I have asked you to fulfill the three requirements for this year. They are:

– Promotion of workplace diversity and the growth of Sumitomo Electric as a global company,

– Thorough implementation of legal compliance, and

– Improvement of SEQCDD indices.

We have only three months left before the termination of the Mid-Term Management Plan VISION 2017. Please work to achieve the planned performance levels first, and then strive to achieve the numerical targets set in VISION 2017. Never give up, but take a proactive approach, and enjoy your day-to-day tasks at your respective workplaces.

Lastly, I would like to conclude this message by expressing my sincere wish that this year will be a very happy one to you and yours. Happy New Year and may you stay safe.

Thank you.

Osamu Inoue, President & COO

Sumitomo Electric Industries Ltd.