NECE

International Financial Economics: Case 1

Case 1: NEC Electronics

Faas Gelens 10034714
Tanguy Wagenaar 10243690
Tom Hayje 10025332
Guoxiao Xia 10825746
Daan Sliepenbeek 10834990

1

Corporate Strategy and Business Development

Question 1A
Characteristics Kereitsu
Definition Kereitsu: set of companies with interlocking business relationships and shareholdings.
Two kinds of Keiretsus

Horizontal:

Vertical:

- Set up around a Japanese bank

- Group of companies within horizontal Keirersu

- Company at the top with significant control over each company

- Link suppliers, manufacturers and distributors

- Subsidiaries in different industries
- Link between different entities

2

Corporate Strategy and Business Development

Question 1A
Similarities NEC Corporation and Keiretsu

-

NEC maintained roughly 340 subsidiaries

-

Business relations, i.e. NECE supplies chips for other subisidiaries. -

Set up around Japanese bank: Sumitomo Mitsui Bank

-

NEC has subsidiaries in different industries

3

Corporate Strategy and Business Development

Question 1B
Issues that may arise under Keiretsu system for:
I.

Financiers:

- Low investor protection
- Large investors represent their own interest

II.

Owner:

- Large investors are not diversified
- Limited competition > inefficient
- Too easy access to capital > inefficient

III.

Suppliers:

- Limited competition > inefficient
- Inflexibility
- Innovation inevitably
- Transfer pricing instead of competitive pricing

IV.

Employees

- Less likely to dismiss unproductive employees
- All employees of same stock > loss of competitiveness

4

Corporate Strategy and Business Development

Question 2
The fundamental value of NECE shares
Valuation based on Multiples:
- First calculate the EBITDA per segment by the proportion of the sales
- We used the average of the multiple for the MCU segment
- We used the lowest multiple for the Commumication segment (this segment was not doing well)
- We deleted the