Risks associated with the core business model
The Group’s businesses are centered on products and services based on intellectual property (IP), such as characters. The Group’s operating results may be affected by changes in the popularity of specific pieces of IP or related trends. Therefore, the Group operates in diverse business areas in different regions around the world while leveraging its wealth of IP to diversify risk and achieve stable earnings.
Risks associated with overseas business expansion
The Group is aggressively expanding its operations overseas. This initiative exposes the Group to a variety of risks, including business risks associated with regional characteristics, such as local media and distribution systems; risks associated with intellectual property rights, such as those related to counterfeit products; and risks associated with fluctuations in exchange rates. In order to minimize business risks, the Group conducts sufficient research, develops necessary organizational structures, and formulates countermeasures before making inroads into an overseas market. With respect to intellectual property rights, the Group works with local government agencies and other authorities to identify counterfeit products, promote enhanced recognition of genuine products, etc. To deal with foreign exchange risks, the Group uses forward contracts when necessary to reduce the risk of short-term fluctuations in the exchange rates of major currencies.
Retaining and developing personnel
Operating in the fast-changing entertainment industry, the Group needs personnel who can respond effectively to rapid changes on a global scale. The Group implements various measures aimed at employing and developing excellent personnel, such as actively recruiting new graduates around the globe and strategically relocating personnel across regional and business borders. The Group also focuses on various types of training programs designed to develop the next generation of employees.
Risks associated with diversification of platforms and customer needs
The Group’s Network Entertainment Business as well as Visual and Music Production Business are exposed to risks associated with delays in changing their business models in response to diversifying product/service platforms and customer needs. The Group moves ahead with its IP Axis strategy, which focuses on IP, while conducting ongoing state-of-the-art research in order to respond swiftly to the increasing diversification of platforms and customer needs as it works to maximize the value of its IP.
Decline in domestic birthrate
The continuing decline in Japan’s birthrate may affect the financial results of the Group in the future. Accordingly, the Group has been expanding the scope and target of its business activities in Japan and is aggressively taking steps to expand its business scope and geographic area of operation overseas.
Concentration of production and quality control
The Group’s Toys and Hobby Business, most of whose products, particularly toys, are manufactured in China, have the risk of higher production costs, country risk stemming from the regional concentration of production, risks associated with product quality control, etc. In response, the Group is working to reduce production costs and diversify its production bases into Southeast Asia and other regions. Additionally, the Group is fulfilling its corporate social responsibility as a group of companies thoroughly committed to quality and safety by establishing stricter quality standards based on relevant regulatory restrictions and industry quality and safety standards in all of its business fields, and regularly conducts C.O.C. (Code of Conduct) audits on contracted producers via third-party organizations.
Natural disasters, accidents, and other disasters
The Group’s performance may be affected by a natural disaster, accident, or other kind of disaster. In anticipation of the occurrence of an incident that may cause significant damage to Group operations as a result of a major disaster, etc., the Group has outlined a basic policy for Group business continuity planning and is working to develop a group-wide business continuity plan (BCP) as well as business continuity management (BCM) system that will enable it to achieve a rapid recovery and resume operations.
Additional risks include changes in laws and regulations, defective or deficient products or services, leaks of customer information, litigation associated with business activities, and increased production costs etc. as a result of higher crude oil prices, as well as the effect of the changing economic environment on consumer trends. The Group maintains information and risk management systems and works to strengthen its operating foundation in order to minimize the impact of any of these risks on its performance in the unlikely event that they should materialize.