Consider the problem of a Japanese workstation vendor who is trying to price an 88 Key workstation around $3700 street price in the US. The hypothetical vendor is shipping a device at a pre-determined US dollar price point when the value of the dollar falls precipitously over a brief period (Euro also - forgive me, Europeans; I'm trying to keep this simple enough for the Americans
). They have to make engineering design decisions about two years ahead of the market. Korg's design decisions were made as the value of the dollar was falling rapidly, and they were (necessarily) conservative. In order to match the US (or European) street price of the Yamaha XF or the Roland Fantom G, Korg had to design for a projected production cost about 30% lower than the competitors. In many respects, that set of facts
defines the engineering challenge that Korg faced in bringing the Kronos to market.
The end result has to succeed based on what people like
you think
now, and I make no apology for Korg. Life is hard, and in such matters fickle. Still, I think we should pause in our bitching just long enough to acknowledge that the Korg engineers have achieved something truly amazing when taken in light of these constraints. It's not perfect, but the result you see, considering the constraints, is something of a miracle. That buys you about a week in the market. After that, you still need to pay your $1.35 to get on the subway in New York.
So much for the problem statement. Now let's look at a few minor roadblocks that have cropped up recently:
Just as they were ready to release the product, Korg got hit in rapid sequence by (a) the Tsunami, and (b) the regrettable death of Tsutomu Katoh (the founder). Korg is privately held, and in consequence Tsutomu Katoh's family now faces liquidity pressure to deal with Japanese death taxes. And now the company faces a six month shipping delay on a key product
after the product is announced and production on the M-50 is ramped down. The problem of the carrying expense for that delay is hard to describe with any sort of justice. Combine it with declining revenues from the preceding product and you could readily be looking at the death of
any well-run company. At this point,
everything depends on your banker.
Japanese banking relationships rest on the kireitsu model, which is to say that Korg's banking support was largely built on the
personal relationships between Tsutomu-san and his bankers. Seiki-san
can inherit those relationships by demonstrating competence, but he does not do so by default. Korg is in a position right now that a Japanese person might describe as "(indrawn hiss) very difficult", and urgently needs to demonstrate the ability to sustain revenue and innovation. For those of you who haven't worked with people in Japan, "very difficult" translates approximately into English as "completely f*ck*ng impossible".
Just as a minor example, consider what would happen if Korg were to temporarily lose the ability to get low-rate financing on invoiced, consignment freight. That is: items that are being transported under the usual and customary international freight terms. That is: every single Kronos unit presently sitting on a freighter in the Pacific or in a Korg USA warehouse. It's an accounting nightmare. It would effectively force Korg to carry two or three months of unsold product on the books
as expense. This, of course, would make the company non-profitable, with predictable impact on their corporate debt rating and consequent bank interest rates.
You can safely assume that Korg's competitors are doing their best to get inside the Korg banking relationship to cause just this sort of disruption. That's very scary to Korg. I can't say what Japanese bankers would do, but I know that
I would not lend to Korg today on the basis of previous relationship.
Tsutomu Katoh was that rarest of things in Japan: a deep and disruptive innovator in a culture that selects at all points for continuity and non-disruption. Seiki Kato is a strong and experienced manager, but has no publicly available history of innovation. His term of leadership at Korg has been characterized by a reversion to a more conservative and inward-looking Japanese-style company. Financially, Seiki-san is doing everything right. He
had to ship those units, data wheel be damned, because he had to get them off the capital line on his books at almost any cost (and to Korg's credit, they have avoided the practice of keeping multiple sets of books!). But from an innovation standpoint he is struggling. Where Tsutomo-san looked for best in breed anywhere, Seiki-san has allowed key outside relationships, including key innovation and engineering relationships, to decay to the point of outright breakage.
So if I were a competitor, I would go and whisper to Korg's bankers about key external IP relationships, isolationist thinking, and the apparent return of feudal-era outlook at Korg. I would wonder what this means for the future of a company that has started a disruptive transition, but seems to have lost the outward-looking perspective to capitalize on it successfully. All of these thoughts would be correct and pertinent, but it doesn't really matter whether they are correct or not. They are sufficient to cause key bankers to pause for re-assessment, and in a world with technology cycles that occur on an 18 month time frame, that is enough.
So the question really isn't "what is the build quality of the Kronos". The question is: can Korg make enough money out of the Kronos as-is to get around to the Kronos successor?
I truly hope so. I like and respect the work that they have done, and I think that with the right kind of leadership they could pull it off.
End of hijack, with apologies. I've seen a lot of bitching without perspective, and I finally hit tilt. We now return you to your regularly scheduled thread topic.
