From: fester@etorofu.island.COM ()
Subject: Re: Please give your opinions...
Originator: fester@etorofu
Organization: Island Graphics, Marin County, California
Date: Tue, 17 Nov 1992 22:43:56 GMT

n regard to the recent discussions about this article, I WILL give my
point by point opinions on it. I have only the "1/2" part of the article,
so if someone would email me, or repost 2/2, I'll get to that. As the 
article is extremely long, I will not comment on the whole thing at once.
One thing to get out of the way immediately: most of the valid points in
this article were presented first and better, as well as thoroughly 
documented, in Karel van Wolferen's _The Enigma of Japanese Power_. I find
the lack of attribution of the original author of this post to be guilty of
intellectual dishonesty by virtue of taking passages out of that book without
giving that author credit.

> ECONOMIC STRATEGY, WHAT IT ALL MEANS:

>      Many people ask, what is a national industrial strategy. Some people
> claim it is a form of socialism or communism. Nothing could be further
> from the truth. Again, the best explanation is by example.

>      A few years ago Japanese industry co-ordinated a successful attack to
> take over the entire world commercial supply of LCD computer screens by
> selling them at 1/3 the price to make them, (PBS Frontline, "losing the
> war with Japan") and waiting for the US upstarts who invented them to go
> bankrupt. As a result, today all LCD screens in any non military computer
> in the world are made in Japan. This is a very strategic component because
> it will be used in portable computers, medical imaging equipment,
> videophones, HDTV, touch sensitive visual programmable fridges and
> stereos..etc. 

a) who makes the military LCDs? b) the Japanese seem to have painted themselves
into a corner HDTV-wise, so this might be a wash c) and I believe quite a 
bit of the medical imaging technolgies will be of the HDTV varities.

>     If you are a non Japanese maker of any of the above items, this is
> very bad for you, because you will have to go to the Japanese to buy these
> screens to put into your product (say a portable PC computer). However,
> the Japanese companies also want to make these products too (entering your
> industry is part of their long term strategic plan (which is 200 years
> long)). As a result, they want to make you uncompetitive. They do this by
> selling these screens to you at a price higher than they sell the same
> screens to Japanese PC makers (which might even be the same company as the
> screen maker). They can do this because they have destroyed the US
> competition. You are forced to go to them if you want these screens. 

??? It may be noted that in several instances, the Japanese have scaled back
their production of (especially workstations) their own computers, and are
now marketting/licensing American products.

BTW, is their ANT documentation on this "200 year strategy" Just my personal
opinion here, but if the Japanese are making LCD dominance a lynchpin of 
their "strategy" for 200 years (or any product, for that matter), they are
likely going to be somewhat disappointed.

>      You need these screens though so your PCs can compete with the
> Japanese PCs which will be on the market soon, so you must buy them as
> there is no other supply. This means though, that your PCs are more
> expensive then the Japanese ones because you are paying more for your
> critical components than the Japanese companies are paying. ...You lose...

Trust me, if the price in Japan is that much lower, these screens will 
"miraculously" become more cheaply available here. Or, is the former charge
of Japan selling cheaper in the US (dumping) no longer applicable?

>      Besides offering to sell you the screen at some ridiculously high
> price, the Japanese will often offer to manufacture your entire product at
> a reasonable price and put your name on it. For example, the Mac Powerbook
> portable computer is not a Mac at all, but really a SONY.

By the same token, several Japanese things would not be Japanese but (eg)
Texas Instruments.

>      This type of deal is really nice for Japan because it gives the
> Japanese companies the rest of the technology to make your product
> (besides the strategic component). This also makes you dependant on them
> for all your manufacturing (because your factory is now closed, your
> workers unemployed and new ones too hard to train quickly). Finally, your
> Japanese supplier can bypass you entirely at a future date and sell the
> computers they make for you, but with their own name on them. They do this
> in the factory your sales helped them to build in the first place.
> Mitsubishi did this to Chrysler with cars, first it was the Eagle Talon,
> then later the Mitsubishi Eclipse....both cars are identical, but really
> Mitsubishi's.

Chrysler pulled out of the deal, not Mitsubishi. 

>      The LCD screen monopoly is what enables Japanese companies have such
> a large market share in portable PCs which use these screens yet almost no
> market share in desktop PC computers (which don't need these screens).
> Japan hasn't been able to take over the desktop PC market because its
> still advancing too quickly and they have no monopoly on any critical
> components in these machine. As a result, this industry can still belong
> to America. America is able to hold on rapidly advancing industries
> through innovation, but Japan cannot. This is because by the time Japan
> copies a foreign design, it is already obsolete. Japan has poor luck
> trying to hit a moving industrial target and will usually miss. So long as
> an industry moves fast enough, and the Japanese don't succeed in taking
> hold of some critical component of that industry, the US will be able to
> hang on to it until it slows down or matures, then the Japanese can
> successfully take it over.

NEC has a very high market share in desktop PCs, and is about 50% in Japan.

But, for the moving target business, who (other than the Japanese) was moving
with transistors in the early 60s? Seems like they run when others sit still.

>      By focusing on taking over markets like LCD screens, critical
> computer chips, high precision machining, and auto manufacturing, Japan
> has significantly reduced America's ability to make these things in time
> of national need. Japan lost world war II because they had a poor
> manufacturing base (they had to stockpile for 4 years before starting
> World War II). They have learned very well from that mistake, which now
> America is are making.

Of course, this completely ignores that America STILL manufactures more than
Japan. 

>      This example shows why something like LCD screens are a strategic
> component and why Japan needs to dominate this industry. This is what is
> meant by a famous Japanese phrase: 'business is war'. Key markets
> overlooking industries are like peaks overlooking cities. The strategy in
> a business war and economic war is the same, and the outcome is the same.
> Domestic factories are gone because the industry has been killed
> economically (rather than being bombed), workers are out of a job, and the
> target country has much less power and safety in the world. It is like a
> real war, but less bloody.

I believe the "business is war" is not, originally, a Japanese saying. And if
the workers are all out of work, WHO buys the products?

> THE ECONOMIC WAR, A SUMMARY OF THE MASTER PLAN:

>      Free world trade is a good thing for all countries. Generally,
> countries raising protectionist barriers against each other is very bad.
> This in fact, helped cause the 1929 depression. What is happening now
> hough is worse. Although some will tell you that US and Japan are
> practising free bilateral trade, this is not true. Today, Japan and
> America have basically a one-way trade relationship. Japan closes their
> market towards us, but we don't towards them.

No, free trade is usually not good for developing nations, and this is why 
protectionist measures are tolerated by the advanced nations in the developing
ones.

>      Some say that Japan has a national strategy to control economically,
> what it could not get militarily 50 years ago. An impulsive claim perhaps.
> But, today, I am not so sure. 

Given that their military strategy was ASIAN dominance, and this article claims
their current economic strategy is WORLD dominance, it would seem the author
is indeed unsure.

>      Some may think that only America is having trade problems with Japan
> right now. This is not true. Most other industrial countries in the world
> are in the same predicament. Today, Japan has a huge trade surplus not
> only with America, but with almost every other country in the world it
> trades with. This happens when Japan buys less in products from other
> countries than the other countries buy from Japan. This is bad because it
> means Japan takes money out of America's economy and use it for their own
> purposes (such as buying our real estate, or companies).

This is not quite true. What Japan does is buy raw materials and sell finished
products. BTW, Japan runs a deficit with mainland China, a fact they are not
happy about.

>      Japan's trade surplus is no accident. It is not the result of
> Japanese efficiency, American laziness or anything else the Japanese
> government officials may tell you on the TV. The real cause is this: Japan
> trade patterns are not bi-directional in the common sense where two
> countries buy each others exports and a happy state of affairs results.
> Japanese policy is to intentionally use foreign cash profits not to buy a
> foreign country's exportable products, but rather its capital assets like
> companies and real-estate, while preventing the other countries from doing
> the same thing in Japan. This enables Japan to get wealthy and powerful
> extremely quickly while still being more inefficient and averse to
> business risk than its trading partners. When 'whiners and Japan bashers'
> claim Japan is 'cheating', the following is what they are trying to say.
> Here is an explanation of how it works.

a) why would they want to buy companies that are either going out of business
or in a nation where everyone is unemployed? b) the Japanese seem to be 
thoroughly burned in the real-estate business c) this "extremely quickly" has
been at least a 30 year time span.

> -->Defense:

>      There is a three tier economic defence which the Japanese use. First
> is a set of laws which severely restrict/prevent foreign ownership and
> control of Japanese companies and assets in Japan. As a consequence, GM
> must sell their cars through Isuzu and Ford through Mazda. Chrysler
> doesn't sell many cars in Japan. Long ago Ford used to have a large market
> share in Japan but the government closed their operations and forced them
> out of the country. Today, foreigners typically cannot own Japanese
> companies, especially those in strategic industries such as manufacturing
> and technology. It is because of these laws and regulations that you hear
> about so many 'joint' ventures between US and Japanese companies, where
> the venture is intended to help the US company penetrate the 'difficult'
> Japanese market. These joint ventures really enable the Japanese companies
> to get foreign technology without having to invent it themselves. The
> foreign company gets only a token market share in the Japanese market in
> return. 

Yep, market share is typically divided. However, as mentioned before, there
are ways around it. And BTW, Isuzu asked GM to take over the company. GM
refused, though they may take over the truck division.

>      It was in this way the Japanese companies learned from the US
> companies how to make TV's in the 1960's. More recently, the Japanese
> government recently forced Texas Instruments to join a venture with SONY,
> where SONY got technology in exchange for TI being able to sell some of
> their products in Japan.

TI also received some large cash payments. From several companies.

>      The second defense mechanism is the wide 'cross holding' of stock
> shares between the companies in Japan. This basically works by having the
> Japanese companies print up lots of shares and exchanging equal values of
> these shares with other Japanese companies. This is very cheap for the
> companies there to do. As these shares are never given up or sold, they
> are effectively taken out of circulation. Because companies own such a
> large percentage of each others shares, it is impossible for a foreign
> firm or individual to accumulate enough shares (51%) to take over a
> Japanese company. As a result, a foreign takeover of a major Japanese
> ompany has never occured. 

a) if such a takeover would be illegal, why bother with this to keep out 
foreigners and b) Sansui is now British and c) Isuzu has asked GM to buy it
out completely.

>      A side note of all this is that Japanese companies are able to think
> long term because they don't have to answer to stock holders at the annual
> shareholders meeting. Because so many shares are cross held, private
> shareholders tend to be not so significant in number and hence not a
> threat to the board. This is why US companies must worry about short term
> performance so much, often at the expense of wiser long term decisions.
> Japanese companies do not have to worry about this, so they tend to invest
> much more in the future than we do and hence are much more successful.

Strangely, I thought this paragraph would have mentioned the yakuza, being
famous for disrupting shareholder's meetings and all.

>      The final defense system is a well set up structure of government
> laws, behaviour and corporate co-operation which prevent foreign companies
> who get around the first defence system from succeeding to make money by
> selling products in Japan. The government delays foreign entry of goods
> through lots of intentional customs and other regulatory snafu's as well
> as red tape designed to hinder a foreign company to the point it becomes
> non competitive in the Japanese market place. 

This red tape is also used on Japanese companies operating in Japan.

> -->Offence:

>      The offensive strategy is also a three tiered system. Firstly,
> government (through the powerful Ministry of International Technology and
> Industry) and corporations co-ordinate and select targeted strategic
> industries which they want to enter, or take over. 

Fine.

>      Secondly, they obtain the basic technology (often from the current
> foreign firms in the industry), then copy and improve upon it. They do
> trials and further improvements in the Japanese home market which is
> protected against encroachment by foreign firms which may be already
> established in the rest of the world within that particular industry.

Well, they ARE improving it.

>      The final and most critical stage in the offensive system is the
> practice of product dumping in order to gain market share overseas (ie.
> Matsushita, Hitachi...below). Japanese companies will initially export a
> product overseas at a price usually lower than it costs to make it. The
> same product is usually sold in Japan at a higher price so the Japanese
> company doesn't go bankrupt. This lets the Japanese companies increase
> their marketshare as foreign buyers tend to buy the lowest price quality
> product. This places stress on non-Japanese competition. Sometimes the
> foreign competition is a well deserved target (ie. poor quality US autos),
> but more often they are not. Once the foreign competition has given up, or
> has been sufficiently weakened and the Japanese dominate that industry,
> they bring the prices to a level reflecting cost of manufacture and
> development and move on to the next market they want to take over. Using
> this technique, the Japanese can enter and take over in a short while,
> almost any industry they choose no matter how unrelated (which they have
> done). Their system is virtually foolproof as long as you have trading
> artners and individual consumers who tolerate or don't understand the
> dynamics of what's really happening.

See comment below.

>      It should be noted that raising the price of a good within Japan in
> rder to pay for dumping in the foreign country is becoming less and less
> prevalent as the Japanese companies today have enough cash to finance
> dumping in the foreign country strictly from cash reserves. Once they have
> wiped out the foreign competition, the profits start to roll in.

Wait a second. First, they artificially raise the price in Japan to pay for
all this takeover, now they don't?

>      In some ways this is America's fault as Japan has taken advantage of
> the open US market, as well as its tolerance to Japan's closed market in
> order to help them rebuild their country after WWII. Ironically, America's
> best scientists and engineers are working for military projects, whereas
> theirs are working on commercial ventures, where the war is actually being
> > waged. 

How is this ironic? Anybody remember the USSR? All those tanks and missiles?

> SUCCESS DOESN'T ALWAYS COME THE FIRST TIME:

>      Sometimes, the Japanese will fail at first to enter a market. For
> example, the Japanese auto companies entered, and retreated from the US
> auto market several times before making their successful onslaught. During
> the intervals that they were not so active in the US market, they were
> learning from their mistakes, improving, refining and testing their
> products in their protected home market, preparing to enter the US market
> again at a later time, which ultimately they did.

Pity, then, that the US manufacturers didn't learn as quickly.

>      This strategy is still used today. For example, recently the Hitachi
> company, a major Japanese telecommunications maker announced it was
> withdrawing from the US telephone switching market (large specialized
> computers used by telephone companies to make your phones work). It would
> be foolish on the part of the US telecommunications makers to believe that
> they have defeated Hitachi (some actually believe they have) because
> telecommunications is a Japanese government designated strategic industry
> and Hitachi will most certainly be in it in the future. As happened in the
> auto industry, Hitachi is at home right now refining and improving their
> products based on what they learned from their last campaign in America.
> They will be back stronger than before. I know this because I saw some of
> their new and upcoming products when I was Japan. Once their improvements
> are complete and proven in the home market, they will re-enter the U.S.
> market, possibly surprising America's domestic makers.

And it should be noted that AT&T is selling technology to NTT; hardly seems
that Hitachi has impressed the Japanese much more than they impressed the 
Americans.

> INNOVATION:

>      A serious problem, which the Japanese themselves have acknowledged is
> the lack of originality and innovation. This is quite notable when you
> look at the companies' histories. The Toshiba company in Tokyo has a big
> science center with a time line of its history on a wall.  On it were its
> achievements. It read something like 'transistor imported into Japan 1950,
> manufactured here in 1953', 'teletype imported 1931, manufactured here
> 1935'...etc. There were no inventions, only refinements. Hitachi, NTT (the
> telephone company), Nissan and Matsushita had similar 'timelines' in their
> centers with quotes like above. 

I have not heard Japan accused of lack of innovation. In fact, Drucker
quite clearly states that they ARE innovative, if you consider consumer 
electronics, etc. BTW, as far as 'refinements' are concerned, such mere
refinements in speed of chips made graphics a viable possibility.

>      This happens because inventing means failure (for a time at least)
> and no guarantee of success. Because the Japanese cannot be seen to fail
> (this is shameful and very bad in Japan), they do not invent. As their
> companies become more powerful, I wonder who would be around to make the
> discoveries like xerography, the transistor and LCD TV (all invented in
> USA). I found 2 Japanese government sponsored organizations in Japan with
> the task of short circuiting this problem. 

Actually, the Ministry of Education is trying to address this, with limited
success. But, how did the Japanese get HDTV in the first place?

>      One, the Technology Transfer Institute, specializes in finding small
> companies around the world with new technology and helping Japanese firms
> buy the technology. If the Japanese firm wants it but can't buy it, they
> sometimes steal it by patenting similar items copied from the foreign
> company's original and then intimidating/bankrupting the small company
> through a blizzard of legal action. If the company is publicly traded, or
> the owner wants to sell, the company is bought outright by the Japanese.
> America, unlike Japan, makes no effort to protect its strategic companies
> from foreign takeover. Imagine your small company and its patents versus
> the attorney war chest of Mitsubishi Industrial Company. 

Happens. And if the case is tried in US courts, they sometimes win.

>      This is actually what happened to Fusion Systems a small American
> firm which invented and patented a new way to get spray paint to stick on
> pop cans (PBS Frontline, "American Game, Japanese Rules"). Mitsubishi
> bought one of this firm's machines and came out a few months later with
> one of their own. The small firm sued. Mitsubishi then made many small
> modifications to the machine (not improvements, just voluminous iterative
> changes), patented all of them and sued the company many times over (for
> each patent). Mitsubishi just waited for the Fusion Systems to run out of
> money defending them all (and offered to drop the cases if the small
> company sold them the rights to the machine). 

>      If Japan can't get technology this way, they get it free from public
> foreign research. A Japanese institution exists which is called the 'Japan
> Research Foundation'. It actually does no research, but translates foreign
> research papers into Japanese for the Japanese companies to use.

Actually, wouldn't this be the FIRST way to do it?

>      A major reason for getting foreign research this way is that Japanese
> universities themselves don't do much research. Their equipment is
> extremely outdated (in contrast to corporate labs). These schools are
> literally straight out of the third world (possibly the last physical part
> of the third world still in Japan). University is a place for students to
> drink and party before joining a company for life. At the University of
> Tokyo, the most prestigious university in all of Japan, the buildings are
> in extreme state of disrepair. Stench of raw sewage permeates and leaks
> down the hallways of the buildings and the (often drunk) students live in
> extreme squalor. Academics did not seem to be taken seriously by the
> students who were too busy drinking or playing sports. The libraries were
> almost devoid of students. Some buildings like the Library for American
> Studies were very nice, but many others were in shambles. Half of all the
> windows in many of the buildings were broken and glass was strewn about
> the floors. There were no working safety/fire control systems. Electricity
> wires were hanging exposed in hallways and lighting was not functioning
> (for many years it seemed) in parts of buildings. Old gas stoves were
> running unattended in kitchens with cardboard covering broken windows.
> Piles of garbage and wrecked cars were strewn about the campus and behind
> buildings. Nothing had been painted or cleaned in about 20 years. The
> grass hadn't been cut in a very long time and had reached full height.
> Cats and other creatures lived in some of the buildings. The school
> swimming pool was a filthy algead mess. If this seems unbelievable, one
> can get off at Todai-komaba station in Tokyo and go see for themselves.
> This is all the more extremely surprising as the rest of the country is so
> rich and modern, more so than most parts of America today. 

>      There is an important reason for all of this. In the world,
> universities typically do research to advance learning and science for the
> world. This is extremely expensive to fund, and is a lousy way for a
> country to get the most value for its money, so Japan does not do this.
> The Japanese government makes no effort to seriously support its
> universities. Furthermore, unlike their U.S. counterparts, Japanese
> companies give no money to universities. This does not mean that Japan
> does not value basic university research. Quite to the contrary. It is far
> cheaper to let the other countries' schools and governments do and pay for
> asic research (which is published openly to the world) and to simply
> translate and read their papers. 

Except, of course, that Japanese companies ARE funding American academia.

>      Japanese research money and results stays in the corporate and
> government labs, where it may be kept secret from the foreign countries,
> which are the enemy in the economic war. Japan does do research (lots of
> it actually), but not for public dissemination and world advancement.
> Research is done to gain advantage over their rivals. Last year, the
> oshiba Company alone spent more on research than was spent (privately and
> publicly) in all the country of Canada. This is the fundamental reason why
> Japan refuses to fund universities and diverts it to corporate research
> instead. It is something we must understand. 

If this is the case, then why is it that they must rely on foreign research?

>      Ironically, it may not be a weakness of theirs that their
> universities are so awful. If they know that they can get research from
> America for free, they are smart to put their money in their private
> company labs instead where they can use it against the US companies.

If the American companies are all going to go bankrupt because of the Japanese
competition, who will pay for this research? And how does this tie in with the
200 year plan?

>      In spite of all this, Japanese workers still get an excellent
> education. This is because education up to (but not including) university
> is very good and extremely well funded. In great contrast to the
> universities, the elementary, secondary and tertiary schools are very well
> stocked with the best of equipment, facilities and teachers. They are as
> nice as anything in America. Furthermore, highly specialized training
> programs are provided to newly hired workers when they join their
> companies. This makes up for the weakness of the Japanese university
> system. 

I am not aware that the primary schools have the "best of equipment" etc.

>      A further point to this, companies do not to give grants to charities
> (nor universities). Corporate citizenry doesn't not exist in Japan in the
> way we know it here. This is why it is extremely rare to find Japanese
> corporate run foundations in Japan or America. This is also why it is
> extremely unusual to see for example, a PBS program sponsored by a
> Japanese company (though recently, this is changing for the US branches of
> Japanese firms as they learn how important Americans relate charity to a
> company's image).

This being the case, perhaps they will learn better how to get along in the 
world.

> ....Continued in Part 2/2;JAPANYES

Don't have Part 2/2, so I can't address that. I trust this is enough to start
with.

Mike
-- 
Disclaimer - I'm only doing what the little voices tell me to do.