Business and Other Risks
Among all the issues related to business operations and accounting noted in the securities report, the business risks that could affect the G-TEKT Group's financial condition and management results are outlined here. We recognize that these risks may have significant influence on investor decisions.
Changes in the Market Environment
The G-TEKT Group has business operations in a number of countries around the world, including Japan, China, and other parts of Asia, as well as North America, South America, and Europe. In addition, the G-TEKT Group supplies products to local automakers and related auto parts manufacturers. A decline in the willingness of consumers to make purchases due to an economic downturn or tax or cost of living trends in these markets could result in fewer automobile sales, which could affect the business performance of the G-TEKT Group.
High Dependency on Specific Customers
Honda Motor Co., Ltd. owns more than 20% of the total voting rights of the G-TEKT Group and qualifies as one of G-TEKT's “other affiliates.” Honda and associated group companies account for around 70% of G-TEKT's consolidated sales. G-TEKT maintains a capital relationship as well as an ongoing and stable business relationship with Honda, and strives to develop products tailored to customer needs through development and mass-production proposals based on involvement in the planning and development of new vehicle models. G-TEKT works to increase orders from Honda and is promoting the expansion of sales channels to other companies. The production and sales trends of the Honda Group, inside and outside of Japan, along with their business strategy and procurement policy may have a significant effect on the business performance of the G-TEKT Group.
The G-TEKT Group is expanding business operations outside of Japan. These countries and regions are subject to the approval of unforeseen laws or regulations or changes to them; differences in legislation, laws, and ordinances of each country; the implementation of various government policies such as foreign currency restrictions, investment and tariff policies; changes in the political or economic situation; and delays or suspension of procurement, production, or sales of materials and components due to factors such as changes in the social or labor environment, including rising wages. These situations could affect the business performance of the G-TEKT Group.
Competitors and Price Competition
The G-TEKT Group's business operations are exposed to market and price competition with many other companies. The G-TEKT Group strives to increase competitiveness by accurately identifying different customer needs in each region, proposing price-competitive development, and always supplying customers with the products they require. However, there is no guarantee that in the future the G-TEKT Group will be able to maintain or increase market share.
Foreign Exchange Rate Volatility
The G-TEKT Group produces locally in other countries at subsidiaries and exports some products and components, including selling manufacturing equipment, such as dies and jigs, to customers outside of Japan. We strive to mitigate foreign exchange risk using foreign exchange forward contracts and by other means, but sudden or significant volatility in foreign exchange rates could affect the business performance of the G-TEKT Group.
The G-TEKT Group is focusing on the research and development of auto body and transmission components. However, if we are unable to predict changes in customer needs or develop new and appealing products or supply them in a timely manner, or if demand does not materialize as expected, this could negatively affect growth and profitability and additional investment burdens could affect the financial condition and business performance of the G-TEKT Group.
In addition, if the use of new materials spreads in the fields where the G-TEKT Group is active, these new materials could compete with the G-TEKT Group's products and could in turn affect the business performance of the G-TEKT Group.
Impact of Disasters, War, Terrorism, Strikes, and Restrictions on Electricity Use, etc.
The G-TEKT Group has set up plants inside and outside of Japan where manufacturing equipment is used, such as press and welding machines, and hires employees locally to manufacture and sell automotive components. These activities may be affected by natural disasters such as a major earthquake, flood, tsunami or tornado, etc.; the outbreak of infectious diseases; warfare and terrorism; mass movements; labor issues including strikes involving local employees; and restrictions on the use of electricity or power. If these were to occur, the procurement, production, and sale of raw materials and components could be delayed or stopped, which could affect the business performance of the G-TEKT Group.
The G-TEKT Group designs and manufactures in ways that comply with laws and regulations and that follow international standards for quality control, and strives to continually improve quality. However, there is no guarantee that all products will be free of defects and no losses will be incurred in the future. Depending on the nature of the defect, the G-TEKT Group may incur costs or suffer serious impact to the business reputation, which could affect the financial condition and performance of the G-TEKT Group.
Procuring Parts and Purchasing Products
The G-TEKT Group relies on specific suppliers inside and outside the Group for the procurement of mainstay components and purchased products. If these materials cannot be procured because of the shutdown of operations at these suppliers, the G-TEKT Group's business performance could be affected as a result.