HONYAKU Center Inc.

In the industries to which major clients such as patent firms, pharmaceutical companies, manufacturers, government agencies, and financial institutions belong, changes in legal systems, economic fluctuations, industry restructuring, or clients' shift toward in-house operations could cause significant fluctuations in demand for translation, staffing, and interpretation services. Clients' narrowing of outsourcing partners could also lead to reduced orders. The Group seeks to diversify this risk by maintaining a diverse industry and client base.

In the translation business, new services utilizing ICT including AI, such as machine translation, are being introduced one after another, and any delay in responding to technological innovation would directly lead to a decline in competitiveness. The Group is engaged in research and development of machine translation technology and internet-related technologies, but if substantial investment is required to develop new technologies, this could affect its business performance and financial condition.

The translation, staffing, and interpretation businesses all have low entry barriers, and intensifying competition for orders from new entrants and existing competitors carries the risk of large-scale price competition and fierce competition to secure excellent registered staff such as translators and interpreters. This could lead to lower order amounts and higher cost of sales, adversely affecting business performance.

The staffing business operates under a license from the Minister of Health, Labour and Welfare based on the Worker Dispatching Act, and changes to this or other laws, enactment of new laws, or changes in legal interpretation could constrain business operations. In addition, tightening or expansion of legal regulations across the translation and interpretation businesses in general could affect business performance.

Translation source documents entrusted by clients may contain important confidential management information, and any leakage could lead to claims for damages and loss of trust. The Group has implemented measures such as obtaining ISMS certification (ISO27001), confidentiality obligations through written pledges and outsourcing contracts, entry/exit management with security locks, and regular training, but the risk of information leakage due to unforeseen circumstances cannot be completely eliminated.

If defects, errors, or delivery delays occur in the deliverables of translation, interpretation, foreign patent filing support, or medical writing services, this could cause significant damage to clients and lead to claims for damages or loss of trust. The Group has implemented sufficient staffing arrangements, delivery and quality control using dedicated systems, and internal re-checking of translated materials, and has not received any claims for damages related to content to date.

The translation, staffing, and interpretation businesses each depend on outsourcing to registered staff such as freelance translators and interpreters, and if sufficient registered staff cannot be secured in both quality and quantity, service provision capacity will decline. In addition, delays in securing and developing excellent employees could affect business performance due to labor shortages or decline in service quality.

If a translation source document entrusted by a client infringes on a third party's copyright, the Group, which performed the translation, could also be held liable for damages. The Group confirms with clients when it is clear that copyright belongs to a third party, and while no copyright-related disputes have occurred to date, it is difficult to completely eliminate this risk.

The Group may make investments, including corporate acquisitions and capital participations, for the purpose of strengthening or reinforcing its business, but if the expected benefits or synergy effects cannot be secured, this could adversely affect business performance and financial condition. Integrating corporate culture and management strategy with the acquired company poses a challenge, and failure of the integration process is a risk factor.

If large-scale natural disasters such as earthquakes or floods, or man-made disasters such as fires or terrorism occur, business activities of the Group and its client companies could be disrupted, potentially affecting business performance and financial condition. In the interpretation business, there is also a direct risk of reduced sales due to cancellation or postponement of international conferences. The Group has formulated a business continuity plan (BCP) and established measures to respond to emergencies.