by Akio Morita
The people at Delmonico didn’t like that, and we decided the only way to resolve the difficulty was to end our relationship. They wanted a big settlement— three hundred thousand dollars to break the contract— and as we resisted they gradually came down a bit in their demand. At more than one point I was ready to settle. I thought they would not go lower. But Ed Rosiny was not ready to settle, and I went along with his judgment. He said, “Give me one more day and I’ll get it down to one hundred thousand dollars.” Sure enough, he managed to bring the settlement down to seventy-five thousand dollars. I asked him how much his fee was and he said, “Twenty-five thousand. I’ll take my fee out of their money!” I got to like him even more. It was a lot of money for us to pay then, but the principle was important to me, and I was gratified to see that my American teachers felt the same way I did, that we had to get out of that deal even if it cost us heavily. In the end, we found ourselves buying back Delmonico’s complete inventory of our radios, about thirty thousand units, as part of the settlement.
When you talk about production figures and annual shipments and sales on paper, thirty thousand doesn’t sound like very much of anything in the consumer electronics business. But in the bitter cold of February in New York City in 1960, the small staff of what was soon to be Sony Corporation of America was faced with several truckloads of radios, each radio packaged in its attractive display carton, of course, increasing the bulk. The thirty thousand looked like a million to us. We hadn’t considered the actual work involved, and we hadn’t hired anybody to help us.
Irving Sagor had offered us the Agrod warehouse for storing the radios, and when the trucks arrived on a freezing February morning, there was nothing for us to do but put on work jackets and start lugging the goods into the warehouse. About five of us worked from mid-morning until about four o’clock the next morning. We were exhausted by the time our thirty thousand radios had been neatly stacked on skids, and we shuffled into the office for some instant coffee. Our warehouseman, Charlie Farr, who is still with us, turned down the offer of coffee and went home to Brooklyn to get some rest. One of our group decided he wanted to check the stacks of boxes again and went back into the warehouse from the office. When he had done his recounting, he came back into the office side, but as he opened the door he inadvertently set off the burglar alarm.
The security guards came bursting in and caught us redhanded, sipping coffee, a soiled and weary looking band of Japanese and one American. It was hardly the burglary scene they expected, but it looked suspicious to them nevertheless. Irving Sagor was one of our crew of executive laborers, and since he was the only American in the crowd he tried to explain to the security guards that we were the management of the company. The guards cast a wary eye on our dirty work clothes and weren’t buying it. We couldn’t reach Farr, who knew the code numbers for the burglar alarm system, because he was still on his way home, so we sat around staring at each other until Sagor got the idea of opening the safe. That idea bothered our captors for a minute until Sagor showed them he actually knew the combination. He opened the safe and showed them the company papers that identified himself and our operation. The guards accepted the proof grudgingly and left, shaking their heads, but the experience made us all begin to feel more like members of a family.
III
I was soon virtually commuting between Tokyo and New York. As executive vice president, I couldn’t afford to be away from Tokyo for long, but as the man who was establishing our company in the United States, I couldn’t afford to spend too much time in Tokyo either. I began to feel that to establish our company more firmly in the U.S. I had to get to know the country better, and even though I had many good friends in America I felt I needed to know more about how Americans lived and how they thought. To make the company name more common in the U.S. was one thing; to understand Americans would be more difficult. But I realized that my future and the future of my company would depend a lot on the United States and on other international business. Slightly over half of our production was going abroad already, and I was struck with the idea that our company had to become a citizen of the world, and a good citizen in each country where we did business. We had to know more than the market statistics and sales data.
I decided to found a company called Sony Corporation of America. Back in Tokyo, Ibuka and Kazuo Iwama, who was later to become president, were skeptical, not to mention the small cadre of Sony employees and executives we had assembled in New York. I was convinced it was the right thing to do, and nobody could come up with very good reasons why we shouldn’t do it. We would be able to set up our own sales network, be our own distributor, and develop our own expertise in marketing. My colleagues in Tokyo decided that since I knew the American scene best they would leave it up to me. It seemed a long-range project, in any case, and so we decided to do it when the proper time came. As things turned out I didn’t have long to wait.
We had been requesting permission from the Ministry of Finance to remit five hundred thousand dollars to the United States for future use, but we didn’t know when and if the ministry would authorize it. Unexpectedly, the permission came through just at the time when we were considering establishing the American company. So we officially established the Sony Corporation of America in February 1960, with capital of five hundred thousand dollars; sixteen months later, we offered two million shares of Sony common stock in the U.S. market as American Depository Receipts (ADR). It was a profound learning experience for me. Although Tokyo Electric Power Company had issued bonds in the U.S. market before the war, we were the first Japanese company to offer its stock in the United States and it was made possible by the then-new system of ADR. Under the ADR system, the shares of stock are held in the country where they are issued, but the receipts for an offering of shares are deposited with an American financial institution, and they can be traded in the U.S., just like regular domestic shares.
Our bank and Nomura Securities, whose executives knew us well, and the American firm of Smith Barney and its president Burnett Walker thought we should be in the American market, and we were intrigued by the possibility of raising capital with a stock offering in the U.S. We discussed it in the fall of 1960 in Tokyo, and Smith Barney agreed to be the co-managing underwriter, with Nomura Securities.
The work may have been the hardest I ever had to do. We had to comply with the Japanese commercial code, the rules of the Japanese Ministry of Finance, and the American Securities and Exchange Commission. It was all new and very strange and complicated. Fortunately, Prime Minister Hayato Ikeda was pleased with the idea, because he was an internationalist and this would be a first for Japan, a first postwar capital liberalization. His positive attitude had a lot to do with convincing the conservative, traditional thinkers at the finance ministry that they should approve our request. We had to work fast. We put together a good team: myself and our staff at Sony; Ernest Schwartzenbach of Smith Barney , who represented the underwriters: John Stevenson of the law firm of Sullivan and Cromwell. which he now heads; Yoshio Terasawa of Nomura Securities, who had just returned from his honeymoon in February 1961 (and. as things worked out. was so busy with this project that he didn’t see his bride for the next four months!).
We were working on the “red herring.” the preliminary prospectus, and w e had a difficult “time explaining our way of doing business to the satisfaction of the SEC. We had to do a lot of things that were new to me. For example, we had to change our accounting methods to comply with the consolidation system used in the West and therefore consolidate our figures for the first time. After seeing how it worked, I had to agree with one of our American colleagues, who asked. “How can you possibly know the health of your company if you don’t consolidate?” We are much better off for having learned to consolidate, and after our experience, consolidation became the standard reporting method in Japan.
We had to translate all of our contracts into English and explain the company on paper in minute detail. The first thing that puzz
led the lawyers and accountants was that many of our contracts specified that if. during the life of the contract, conditions changed in a way that affected the ability of either side to comply with the terms, both sides would sit down and discuss the new situation. This kind of clause is common in Japanese contracts, and many companies do much or even most of their business without any contracts at all. However, it looked alarming to people who did not understand the way business is conducted in Japan. I guess this was the first real perception gap we came up against. The American side could not understand how we could sit down together and talk in good faith if the two parties were having a major disagreement.
More serious in the eyes of our underwriters was our method of finance through the traditional Japanese system of short-term loans. It is customary in Japan for a company to operate on a large number of renewable ninety-day loans. Someone said, “How can you run a business on so many short-term loans? If the bank calls them, you are out of business.” We explained that the bank would not call them, that this is the traditional way to get the cheapest money. It gave Japanese firms a lot of flexibility; you can renew if you need to, or can pay off the loan if you no longer need the money. The banks pay very close attention to the companies they are supporting and are careful about making the loans in the first place. But our American colleagues wanted to see guarantees in writing from the bank that the loans would be renewed. I explained that there is trust between the bank and the company, but they said they would prefer to see the trust replaced with something in writing. Eventually they came to understand and accept the way we did things. We learned a lot, too.
After three months of day and night work, when we thought we had everything solved on the home office side in Tokyo, we moved to New York for the final details leading up to registration. The Tokyo Stock Exchange closed at 3 P.M., which was 2 A.M. in New York. We had to keep a close eye on the Tokyo stock market because if the stock price fluctuated too much we might have difficulty with the SEC, so every night we worked up to at least 2 a.m. at the Nomura Securities New York office, where the last thing we would do is talk to Tokyo and check on the market. I would then take the subway back to the apartment hotel where I was staying, which happened to be on East Fifty-sixth across the street from the Gaslight Club, and every night when I came home about 2:30 or so, worn-out and weary, I would find the front door locked and would have to ring the bell for the doorman. As my stay lengthened into weeks, he began marveling at my stamina and looking at me with a kind of sly admiration every morning as I dragged myself home.
Finally he said to me one night, with a chuckle, “I sure don’t understand where you get the strength to spend every night ’til two-thirty in the Gaslight Club.” We were so tired by the time it was over we could hardly stand. Finally the day came when we had to decide the price. This meant we had to get the final closing price at Tokyo, which was at 2 a.m. in New York, get the approval of the underwriters, actually Ernie Schwartzenbach, put the price into the prospectus, and have it printed immediately. Then a lawyer had to take the 6 a.m. train to Washington (there was no very early morning air shuttle in those days) to file it with the SEC at 9 a.m. Then if it was filed and approved, the lawyer had to get on the public phone at the SEC and call New York, and we could release the ADRs to the market. But by late on the final day Ernie Schwartzenbach was dead on his feet. Since only the price was yet to be decided, and the formula for doing that was already set, he decided to go home and get some rest. “Why don’t you call me when you get the price,” he suggested. “I can give my approval from home instead of waiting around here.”
It sounded like a good idea. Schwartzenbach went home and lay down on his couch with the telephone beside him and immediately went to sleep. But when we called him he was sleeping so soundly we couldn’t wake him up. We rang and rang and rang. No answer. Time was running out. Nomura, Tokyo, and I had all agreed on the issuing price—I’ll never forget that it was $17.50 for one ADR, which consisted of ten shares—but we had to have Schwartzenbach’s approval. The phone kept ringing, he kept sleeping in his living room in Great Neck, and we were all looking at our watches, trying to think what to do. Sam Hartwell, Ernie’s assistant, got the idea that since Schwartzenbach was also the mayor of Great Neck, we could call the Great Neck police and have a patrol car go to the house and wake him up. Great idea, we thought. But it happened that only the week before some nut in Great Neck had been harassing the mayor and the police chief with crank phone calls, and so when Hartwell called, he got a cool response. In fact, at first they laughed at Sam’s plea. It took a long time to explain what had happened, and finally they believed him and dispatched a policeman to wake up the mayor.
I was worn out when it was all over, but I was pleasantly shocked to see the result: a check for four million dollars from our first overseas stock offering. I had never seen such a big check. When I finally got home, for almost two weeks I was so tired I could hardly get out of bed. Later we published a very detailed book as a kind of bible or text for Japanese companies that wanted to issue shares on the American market, and it became quite popular. When Schwartzenbach retired from Smith Barney in 1966, I jumped at the chance to hire him as Sony America’s president, replacing me, while I moved up to chairman. He knew about as much about Sony as I did after going through our stock offering experience, and he held the post until he died in 1968.
IV
Back in 1960 I had opened a showroom in the Ginza district of Tokyo where potential customers could handle and try out our products with no salesman around to try to sell them anything, and it was becoming quite a popular place. Its advertising value was enormous. Because we were new we had to introduce our company to the Japanese just as we would have to introduce ourselves to Americans and later to Europeans.
To have a showroom in New York became a goal. I surveyed the city and realized that if the people I wanted to reach were people who had money and could afford to buy our rather high-priced products, Fifth Avenue was the place to find them. I strolled up and down Fifth Avenue in mid-Manhattan looking at the people and the shops. It was very impressive: Tiffany, Cartier, Sak’s Fifth Avenue, Bergdorf-Goodman. I narrowed down my search to the east side of Fifth Avenue between about Forty-fifth and Fifty-sixth because it then seemed the most elegant part of the street.
While I was searching for a suitable ground-floor spot to rent, I noticed that flags of many nations were on display, but not the Japanese flag. I decided that when we opened our showroom we would be the first to fly the Japanese flag on Fifth Avenue.
It took me two years to find a really suitable place, and we had to settle for rather small quarters, but I drew the original design myself and mirrored one wall to make it look bigger. Working on that showroom and trying to absorb the rhythm of American life, it struck me that if I were really to understand what life was like in America, and if we were going to be successful as a company in the giant American market, we would have to do more than establish our company on American soil. I would have to move my family to the United States and experience the life of an American. When I was alone in New York, I received many invitations and got to know many people, but I knew that as a family man in America I would enrich that experience because wherever I went, to the country club and to weekend parties or dinners, American families were together. Many invitations came to Mr. and Mrs. Morita, and I learned that a single male is often a problem for the hostess. If we lived in the U.S. as a family, we would get to understand the people as visiting foreigners cannot.
I kept this thought to myself, but as time went on, I became more and more convinced that I had to do it. The United States was open and progressive, and New York had become the international crossroads of the world. I brought my wife Yoshiko to New York for the opening of the showroom in October 1962, and at the height of the excitement during our opening I realized that this was the time, and I said bluntly, “Yoshiko, we are moving to New York.” She knows me very well and she didn’t even act v
ery surprised. I knew that as a city person born in Tokyo, she could handle the move to another big city and the change in life-style, although she spoke practically no English. She determined she would make the best of my plan, and she actually did things that amazed everyone, even establishing a business of her own as a result of the move. I knew she could handle it because I had left her alone a great deal in Tokyo during my business travels, and she not only took care of the house and the children but acted as my confidante and business liaison when I was out of town. I would often call her with news and messages to be delivered at the office and elsewhere, and I frequently consulted with her.
In the United States many things would be different, but I knew that her personality and her determination would help her make a success of it; she has many friends abroad now because she turned out to have an exceptional gift for adapting to new people and places and a knack for being an unofficial international diplomat. It is all the more admirable, I believe, because Yoshiko grew up without any real interest in foreign countries and had no great desire to travel, although she was good at cooking French food. She came from a samurai family that went into the bookselling and publishing business at the end of the Tokugawa era and expanded into a large chain of bookstores. The company, Sanseido, today publishes the popular “Concise” line of foreign language dictionaries, an idea that originated with her father. The Concise dictionaries are also the most popular line with high school and college students.
