Chinese companies are buying Japanese home appliance manufacturers, specifically Toshiba and Sharp, which, despite decades of international marketing, have been bleeding red ink for years. Why are the Japanese companies struggling? 

Last year, Toshiba's home appliance sector lost two billion yuan, in a revenue drop of 27 percent from 2014. China's Midea corporation announced last week it would acquire Toshiba's home appliance subsidiaries for some 470 million dollars. The deal is expected to be completed this June. Industry insiders say the sale to Midea doesn't so much mean that Toshiba wants to give up its technology .

"The production chain of the electronics industry is quite long. It includes core parts and lower-end parts. China already has the capability to produce the basic parts and Japan still has the advantages on core parts. If the company cuts the production chain to invest in other high-end areas such as medical appliances, it will bring the company more profits," said Yuan Tangjun, Director/Global Investment & Trade Institute of Fudan Univ.

Toshiba is not the only Japanese home appliance manufacturer which is selling itself. According to the Japanese finance paper Nikkei, another home appliance giant Sharp faced a deficit of 200 billion yen last year -- that's about 11.6 billion yuan. Last week, Taiwan-based manufacturer Foxconn became Sharp's largest shareholder -- acquiring 66 percent of its shares. Most of the Japanese home appliance companies we spoke to but not want to appear on camera, but one of them did -- and he agreed with Professor Yuan about the motives for the Japanese sales.

"When companies find they are facing dangers in the market and can't ensure their future development, they should definitely use their advantages in talent, technology and experience to enter into new areas. Facts show that if manufacturers only produce traditional home appliances or low-profit products, they can't avoid being eliminated. Expanding into new business and investing in new products are the only ways to say goodbye to deficits," said
Shimomura Makio, President/Fujitsu Shanghai.

Another major factor for the Japanese divestitures is probably rising costs in China. Both Toshiba and Sharp have factories in China, which were set up when Chinese labor costs were much lower than they are now. Experts believe that escalating labor costs in China in the past few years may be part of the reason for the lack of profits in Japan.

"Japanese home appliance brands established factories in China in the late 1980s and early 1990s. Japanese brands are still popular, both among Chinese consumers or global purchasers. But you can only earn a little because both the technology of home appliances and their markets are quite mature. In newly developing countries such as China, labor costs are increasing and that may cause some deficits for Japanese. They'd rather cut the home appliance sector off and shift to other countries," Yuan said.