Made In Japan

by Akio Morita

In today’s fast-moving and interdependent world, we have to look for ways to get to know each other better; we need to talk with, exchange views with, and attempt to understand each other. We can argue and dispute, but we must approach each other as equals and do it with the objective of learning about, and trying to solve, our problems. I know it is difficult for some Westerners to believe that an Oriental country has reached such economic heights—Japan is the only one, so far—but it was not done with mirrors, and the system will not collapse tomorrow. Japan is in the world community for good and is contributing in a worthwhile way to the welfare of the world’s people. That is why I have devoted so much time to participating in binational and multinational groups concerned with trying to find means of understanding one another.

  In Japan we live under conditions of high density and we know we have to give some leeway, some freedom, to our competitors. We must make compromises. The sense of compromise is a key element of our legal system and of our relations with one another. We know that in many situations we have to sacrifice some of our desires. In the United States, there is little of that sense of compromise, as far as I can tell. Americans more often than not—or at least the ones I have met these past forty years—tend to be convinced of the correctness of their own opinions, their own way of doing things. History has shown them to be very good at many things, and, after all, we have learned a lot from America. But I think Americans must learn to compromise and listen more.

  In Japan the most successful leader in business is not the man who goes around giving detailed instructions to his subordinates. It is the man who gives his subordinates only general guidelines and instills confidence in them and helps them to do good work. With this attitude he gets more original performance and new ideas.

  If you go through life convinced that your way is always best, all the new ideas in the world will pass you by. Americans tend to think that the American system is the way things should work all around the world, but they should not be blind and deaf to how things are done in other countries. Many American companies that have seriously studied the way things are done elsewhere have improved their productivity and stabilized their work force by combining what they learned abroad with their own ideas.

  When General Motors entered into its joint venture with Toyota Motor Company to make small automobiles in California, the first agreement of its kind, the actual operating of the plant was left up to the Japanese partner so that GM could study Japanese management methods and how they worked in the United States, a very wise move.

  I suppose it is natural when something goes wrong to look for the blame somewhere else, seldom at home. During the height of American complaints about Japan’s closed markets in telecommunications I happened to be at the same meeting in Hawaii as Bill Brock, who was then the U.S. special trade representative. We began talking about the issue and he said right away, “There is a huge imbalance in telecommunications equipment. Japanese equipment sales in the United States are eleven times higher than American telecommunications equipment sales to Japan!” He was shocked by this big figure, as he should have been. “Why don’t the Japanese buy our equipment?” he wanted to know.

  In 1985, the market for telecommunications equipment in Japan at that point was not nearly as open to foreign vendors as the American market was to foreign makers of this kind of equipment—that much was true. But it seemed to me that the Japanese market was about to open wide because the Japanese telephone monopoly corporation was in the process of becoming a private corporation. I was right, too. Despite some residual problems, Japan and the United States are now the two most open telecommunications markets in the world. As a matter of fact, to cite one simple example, Japan is the only nation in the world outside the U.S. where you can buy a U.S. telephone, plug it into the phone jack in your house, and use it. Unfortunately, most American phones are now being made in Singapore.

  But I had something very serious to say to Mr. Brock. “You know, Mr. Brock,” I said, “the kind of equipment we are talking about is not equipment bought by the general public; it is goods bought by experts in high-technology equipment who know their field very well. These people do not buy on a whim or impulse or based on only surface appearance or price.” He had to agree with that. “So if the American telecommunications equipment makers produce such good equipment that you think the Japanese should be buying it, why are the American telecommunications operators buying Japanese equipment instead of American equipment? You should be asking the American companies this question instead of blaming us for selling too much.” I reminded him that you cannot sell what people do not want to buy.

  When I helped General Motors make their first capital investment in Japan, I thought they would use their Japanese partner to help sell GM cars in Japan instead of continuing to rely on only one agent to sell their cars all over the country, as they do to this day.

  Instead GM asked their Japanese partner to make engines to send to America, and they eventually asked them to send a small car to the U.S. They later wanted an exception from the voluntary restraint agreement that Japanese makers made to help the American industry, so they could get even more cars. So did Lee Iacocca of Chrysler, who was for a while one of the most outspoken advocates of drastically reducing Japanese exports to the United States. (As it turned out, a 1986-model Japanese small car imported by GM won the highest rating for fuel economy of any car sold in the U.S.)

  I think this is not the way for American industry to develop its own competitiveness and solve the trade imbalance problem. I gave a talk recently at the Massachusetts Institute of Technology, and I pointed out that our plant in California supplies 85 percent of all our TV sets sold in America; the rest are small sets we send from Japan. And we even export picture tubes from America to our factories in Japan. Dozen of Japanese firms are operating in the U.S., making cars and trucks and auto parts, musical instruments, machine tools, electronic devices, television sets, zippers, soy sauce, and for these companies it is something of a compromise to be producing there. I know, because we sacrifice some profits on goods made in the U.S. for that market compared with goods we ship from Japan. We do have an advantage in speed of delivery, of course, and there are other advantages, but Japanese companies producing in the United States are contributing to the U.S. economy in many ways: Japanese imports are reduced, jobs are created, technology transfer takes place, and service networks are developed.

  At the same time, American semiconductor companies now producing in Japan send large quantities of goods to the United States, either to their own companies, like Texas Instruments and Motorola, or to be sold to other companies. But those shipments increase Japanese exports and add to the trade imbalance. About a third of what Japanese companies sell to the U.S. is industrial products bought by American companies, not sales to consumers. As a matter of fact, the latest 1985 figures show that among exports from Japan to the U.S., nineteen billion dollars, or about one-third of Japan’s total exports to the U.S., represent shipments of U.S.-affiliated companies’ original equipment made here with U.S. company names on it, and parts. Also, many companies from European Economic Community countries have major tie-ups for original equipment manufacture in Japan, and those shipments are included in the export figures from Japan, as of course they should be. Companies in West Germany, Britain, France, Belgium, and the Netherlands sell Japanese-made copying machines at home with their own corporate name on them, for example. The United States and Italy have companies selling machine tools the same way. The U.S., France, Britain, and West Germany have companies marketing construction equipment made for them in Japan. And three American robot makers have their robots made here.

  I think it is also worth saying, while I am on the subject, that contrary to the general perception, there are literally thousands of American and European companies doing business in Japan. The American Chamber of Commerce alone has nearly six hundred member companies, and one hundred and fourteen of the two hundred largest companies on the
Fortune 500 list hold majority ownership in their Japanese subsidiary. MITI figures show that operating profits, as a percentage of sales, of foreign subsidiaries in Japan are consistently higher than those of Japanese corporations in the same business.

  It appears to me that if foreign companies have their problems competing with Japan, it is often as much a failure of that industry as it is a success of Japanese industry, and Americans or Europeans should not blame Japan for making good and attractive products. I realize it was once impossible, then very difficult, in the past to establish a wholly owned business here or even a joint venture, but whatever the historical justification or lack of one, times have changed, and many of Japan’s critics are woefully out of date. I mentioned earlier that no American companies at all were interested in our compact disc player technology, not a single one, and yet this is the technology of the future, with standards agreed upon by all the major Japanese and European makers.

  While we are moving into the next generation, American companies are clinging to the old twelve-inch black analog record, which will soon be as outmoded as the standard play 78-rpm record is today. When others cannot see the opportunities and refuse to get into a business, this gives us a great advantage. But I dislike it when there are complaints then because somebody else had the foresight to go into the business and capture the market. American companies should not turn their backs on this technology and give it up, because it will lead to many other applications, not just the reproduction of music.

  Ironically, some of the technology that made this new recording breakthrough possible was pioneered in the United States, but American companies nowadays seem more interested in service industries than in turning new technologies into attractive products that will be enjoyed by a vast number of consumers. A theme that I feel must be struck over and over again is the danger to America of exporting its production. Rather than devoting their attention to making products competitive over the long haul, many American managers are still prone to looking for good merchandise at the lowest prices to produce quick profits. This results in a growing number of American firms seeking Japanese and other makers as the source of supply of products with American brand names. A certain amount of this kind of sourcing may make good sense for a corporation and even for world trade. But the danger is that a manufacturer might be forfeiting his rights and responsibilities.

  While many Americans seem willing to ignore the arrival of a new era, the French have a punitive approach to it. I must confess I admired their shrewdness and wit when they decided they would slow the shipment of Japanese video cassette recorders into the country in 1983. They made the port of entry for VCRs the tiny inland town of Poitiers, where the French finally stopped the ancient Saracen invasion, and they stationed only nine customs agents there. They required the agents to examine each set very carefully before approving it, reducing the number of Japanese sets allowed into the country to, well, not even a trickle, hardly a drip. Of course the government was free to move the customs location anywhere it pleased. But putting it where they did, the site of the Battle of Tours, which stopped an invasion in the year 732, is very witty and typically French.

  At the time, the French and other European makers had been bringing OEM (products made in Japan with the European makers’ names on them) sets into Europe, but they had been slow to develop their own, with one or two companies being exceptions. Because of my experience over the years, I was not surprised to see that their first reaction against us was to raise the tariff; when that failed to stop the flow of goods, they virtually shut down imports by the Poitiers plan. The Germans got really upset about this, because they didn’t want their goods stopped at Poitiers. They said openly that if products from EEC countries also had to pass through Poitiers, they would get mixed up with Japanese products and they would be paying the same penalty. Originally that was the intention; the French said all products had to pass through Poitiers. But under pressure from the Germans, the French relented and ruled that only products from non-EEC countries would have to go through Poitiers. That meant Japan alone was the target. We knew it, of course.

  Actually, I was amused by the Poitiers stunt. French audacity is a great strength, and I think Japan should have a little more of the same kind of boldness in its diplomatic and economic relations. A French minister of trade, though, very unwisely said during that time, “We can live without Japanese products.” Well, of course. I mean, I suppose Japan can live without French cognac and champagne and the $1.2 billion worth of goods we imported from France that year. (Japan sold $1.9 billion worth of goods to France in the same year.) It is just not wise for government officials to speak that way. Otto Lamsdorff, who was then the German economics minister, and I were chatting about it at the time and he joked, “Why don’t you Japanese retaliate by making the inspection point for cognac at the top of Mount Fuji?”

  Japan still has some confusing and complicated barriers to trade, but Japan is the only major industrialized country that is actively moving to open its markets, step by step, always forward, never backward, while some others have been reinforcing their protectionist practices. I find many Americans think there are no American barriers to trade, when in fact there are many—almost half of what we send to the United States is under some form of restraint. But I have to say here that it is true that the U.S. is the most open market in the world, overall, and I think it is important for the future of world trade that it remain that way. I said so to Ronald Reagan in 1985, when I was in the U.S. on a successful mission to convince several states to abolish worldwide unitary taxation of foreign subsidiaries. Of course Reagan did not need my advice; he is very clearly on the record as a champion of free trade. And I have vowed to do what I can to help, as I have during the past forty-odd years.

  If you try to avoid or soften competition by political intervention, you negate the whole concept of the free trade and free enterprise system. I have been lobbying in Japan to increase healthy competition by eliminating government intervention through old regulations that still exist. It is only by competition that the dynamism of the free enterprise system can be maintained. Therefore, those of us in management must not be tempted by the easy solution of looking for government help in suppressing competition. We must see that competition is fair and try to be frank with each other in order to understand both sides of the situation clearly. This does not mean that if you “understand” the Japanese point of view you will always, or even most of the time, agree that it is right. But it is more constructive to air the issues than simply to decide that you are right and that there is no need to hear any other viewpoints. We have to remember, after all, that this is not war; we are in business, and you cannot do business with a warlike enemy, so we should all try to talk common sense.

  There are attitudes among even well-meaning people that have nothing to do with attempting to understand what is happening in the world today. I have had American and European parliamentarians tell me that they understand the issues and even concur on some points with the Japanese, but that they have to face political reality and must appear to be tough before their constituents who may have lost jobs “because of Japanese exports.” An American senator may very easily talk about letting Japanese automobiles sit on the dock in Yokohama, but as long ago as 1983 there were 111,550 Americans directly employed by Japanese subsidiaries in the United States, 21,700 in Europe, and 27,000 in Asia. And that does not include the car dealers or electronics dealers and salesmen and servicemen in the field working for their own companies and selling Japanese goods. Of course, those employees may not be in the senator’s constituency.

  A few years ago, at the Japan-U.S. Businessmen’s Conference in Hakone in the foothills of Mount Fuji, Mike Blumenthal, the former secretary of the treasury, who later became chairman of the Burroughs Corporation, and I decided we didn’t want to eat the buffet dinner one night. I took my wife, and we grabbed Orville Freeman, the former secretary of agriculture, and his wife, and went to a stea
khouse for a fine dinner and an evening of good conversation. The next day at our meeting my friend Blumenthal made some of the most preposterous statements I had ever heard on the subject of the yen and dollar exchange-rate issue. He repeated the old and untrue argument that the Japanese were maneuvering behind the scenes to manipulate the yen rate so it would remain undervalued. I spoke out very forcefully on the subject and took issue with Blumenthal.

  Investigation by the U.S. Treasury later failed to find a shred of evidence that the Japanese were manipulating the yen, and the then-treasury secretary Donald Regan said so publicly. At the Hakone meeting my countrymen were very much surprised to hear this jarring note of disagreement in the midst of the bland and pleasant conference. At these meetings the Japanese usually like to sit politely, saying little or nothing, and thus fail to make new friends. That is a major Japanese problem, to my way of thinking. At the recess, some of the younger Japanese came up to me and said they appreciated my defense of the Japanese position, but some of the older Japanese came to me shaking their heads: “You were rude to our guests who have come from so far away to be with us,” they said.

  That evening the Japanese were in for another confusing scene. We had a reception on a boat on Lake Ashi, and a Japanese TV crew came aboard and asked me for an interview about the conference. They said they wanted an American to join me in the interview. So while they were setting up, my wife went to Mike Blumenthal and asked him to join me for the interview. He agreed and we discussed our difference of opinion on television. Some of the Japanese were surprised that after our argument in the meeting we could still be friends. For the Japanese, disagreement often means the end of a friendship. Often the Westerner will argue with you, I keep trying to explain, just because he is a friend. When they shut up and refuse to discuss something, then the real danger point has arrived. If Westerners and Japanese are ever going to understand each other, the Japanese will have to be as frank as the Americans are in discussing problems and putting forth their viewpoints. We have been very poor at this in the past, businessmen as well as politicians, and we do not seem to be learning fast enough.