Business Risk Factors
Of matters related to the business overview, financial details and other information outlined in the securities report, we have identified the following key risks that could have a material impact on the financial position, business performance, and cash flows of our consolidated subsidiaries.
Note that forward-looking statements herein are based on the Group’s judgment as of the end of the fiscal year under review.
In addition, no risk of significant issues have been recognized at this time.
- Competitive environment
- New business development
- Potential impact of currency fluctuation on business performance
- Risks associated with supply chains
- Risks associated with overseas business development
- Risks associated with legal restraints and litigation
- Risks associated with the occurrence of disasters
- Risks related to information management
- Risks associated with securing human resources
- Risks associated with COVID-19
The digital device field in which the Group primarily operates is facing a decline in product prices due to the emergence of major companies and manufacturers from emerging nations as well as shortened product life cycles, despite the market size expanding along with the development of digital technologies and networks. Although the Group aims to create customer value through solutions, its business performance could be adversely affected by the fierce competitive environment, by factors such as a decline in sales and deterioration in earnings due to increased R&D expenses and promotion expenses. Measures implemented to tackle these risks includes paying close attention to market circumstances by working closely with channel partners, as well as focusing on developing strategic solutions.
New business development
The Group has been continuously engaged in market research, R&D activities and investment for developing new businesses with the aim of achieving sustainable growth by changing its business structure in a flexible manner in response to social change. Our medium-term business plan covering the three-year period beginning from FY2021 outlines our efforts for creating new businesses with the aim of transforming our business portfolio. However, due to many uncertain factors related to new businesses, there are possibilities of changes in market environments beyond our expectations, misreading of market needs, delays in research and development, emergence of leading alternative technologies, or failure in generating synergies expected from collaborations with partner companies for each new business. Accordingly, launching new businesses may be impaired due to such various factors, and recovery of investment amounts may be delayed or impossible. In addition to making objective assessments of the future prospects for new business investments as a measure to tackle these risks, we are also verifying the returns on these risks.
Potential impact of currency fluctuation on business performance
Overseas sales account for approximately 90% of consolidated net sales and as such, the business performance of the Group is affected by foreign currency exchange rate fluctuations.
We consolidated our mass production capabilities to the Thai plant from FY2021, and we are also raising our overseas procurement ratio for parts in order to further mitigate foreign exchange risk.
Risks associated with supply chains
Dependence on certain suppliers
Of materials, etc., procured to manufacture the Company’s products, there is a high dependency on certain suppliers. Difficulty in procuring materials, etc. from these suppliers for various reasons may adversely affect production of the Company’s products. As a measure to tackle these risks, we conduct appropriate reviews of our suppliers and are working to reduce these risks.
Concentration of production facilities
Since we shifted to a one-base production system at the Thai factory from FY2021, there is a possibility that production will be suspended in the event of a disaster or political instability in Thailand. Although the plant in Japan does not have mass production capabilities, it continues to provide prototyping, small-volume production, pilot production prior to product launch, and other functions in Japan, as part of a system we have in place that allows production to continue even in emergency situations.
Procurement of raw materials and parts
A prolonged global shortage of semiconductors and other electronic parts or worsening of the parts procurement environment may lead to a rise in manufacturing costs due to increased procurement costs, as well as a loss in sales opportunities due to delays in delivering goods to customers, and thus may adversely affect the business performance of the Group. As a measure to tackle these risks, we are focusing on reducing unit costs by reviewing our supply chains and improving production efficiency.
Risks associated with overseas business development
The Group is engaged in overseas business mainly in the United States and Europe. For this reason, changes in legal restraints, etc., or invocation of unexpected regulations, may limit the business activities of the Company. In addition, occurrence of social or economic turmoil or natural disasters, etc., may adversely affect the business performance and financial standing of the Group. On the tax front, concerning transfer pricing taxation, etc., the business performance of the Group may be adversely affected depending on discrepancies in the interpretation of laws and regulations.
The situation in Ukraine will affect sales and other activities due to economic sanctions and restrictions put in place by each country, but the impact on the Group’s business performance and financial standing is expected to be minimal as of the filing date of this securities report. We will be implementing the required measures to address the expected risks like ensuring the safety of Group employees, increasing parts, materials and logistics costs, and concerns related to cybersecurity.
Risks associated with legal restraints and litigation
In the conduct of its business in Japan and overseas, the Group has established an internal control system and risk management system and works to comply with various laws and regulations. However, regardless of reason, the business activities of the Group may be judged to be in violation of laws and regulations, or there is a possibility that a lawsuit may be filed against the Group over issues related to product liability or intellectual property rights, etc. Depending on the development and result of the foregoing, the brand image, business performance and financial standing of the Group may be adversely affected.
Roland DG Brasil Ltd. (“DBR”), a consolidated subsidiary of the Company, has been investigated by the Brazilian tax authorities in connection with the import and sale of the Company’s inkjet printer products, and has received a notice of additional tax due, including customs duties, for the said products. DBR objects to the findings of the authorities and has filed complaints against the decision in September 2018 and in November 2018, to assert its legitimacy.
Risks associated with the occurrence of disasters
The Group is engaged in production and sales activities in Japan and overseas. Should disasters such as earthquakes, floods, typhoons, fires, wars, and infectious diseases occur in these regions and cause damage to the Group or its business partners, this could interfere with the Group’s business activities and affect its business performance and financial standing. As a measure to tackle these risks, we have developed a BCP (business continuity plan) to ensure that in the event that a disaster occurs, damage is kept to a minimum and that business is resumed as soon as possible.
Risks related to information management
The Group has established Information Systems Management Regulations/Global Information Security Management Regulations, and is working to prevent information leakage and address system intrusion from the outside. However, should information system stoppages, information leakages or other issues occur due to unforeseen circumstances, this could affect the Group’s business performance and financial standing. As a measure to tackle these risks, we are developing the appropriate technology and internal management systems for information management, and providing training for employees.
Risks associated with securing human resources
In its quest to be a company that continually creates value-added markets on a global scale, the Group recognizes the need for securing and training innovative human resources who share the same corporate philosophy as well as personnel capable of playing an active role on the world stage. A shortage of these human resources could adversely affect the Group’s business performance and financial standing. As a measure to tackle these risks, we are implementing reforms for working and training styles like appropriately revising personnel systems and promoting the reskilling of employees, to provide a more stimulating and amenable workplace.
Risks associated with COVID-19
The rapid spread of COVID-19 worldwide is significantly affecting the business activities of the Group that is operating on a global scale. If a country or region in which the Group operates implements a lockdown or any other policy measures that limit economic activities to prevent the further spread of COVID-19, it could interfere with the Group’s business activities and adversely affect its business performance and financial standing.
The Group has set up a COVID-19 Task Force in February 2020 and has since been practicing thorough safety and sanitation management in order to prevent the spread of infection, giving prime consideration to the health and safety of our customers and employees. In the meantime, we will step up efforts that would lead to new approaches of doing business in the world with and after COVID-19 with a view to ensuring business continuity, such as introducing remote work, staggered working hours, flextime, and other flexible work arrangements, proactively hosting online events, and increasing contact points with our customers using websites and social media.