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ABAS: Annals ofBusiness AdministrativeScienceVol. 4, No. 1, January 2005

Junjiro SHINTAKU

Sustainability of Competitive Advantage:
Accumulated Experience and Discontinuous Technological Change1

http://www.gbrc.jp© 2005 Global Business Research Center

ABAS: Annals of Business Administrative ScienceVol. 4, No. 1, January 2005

CHIEF EDITOR

Junjiro Shintaku

University of TokyoEDITORIAL BOARD

Makoto Abe
University of Tokyo
Takahiro Fujimoto University of Tokyo
Makoto Kasuya
University of Tokyo
Hotaka Katahira
University of Tokyo
Nobuo Takahashi University of Tokyo
Technical Editor: Maki Nishida, Global Business Research Center

ABAS: Annals of Business Administrative Science is published quarterly in January,April, July, and October, by Global Business Research Center, Marunouchi, Chiyoda-ku, Tokyo,
JAPAN. http://www.gbrc.jp

Annals of Business Administrative Science Vol.4, No.1 (January 2005)

Sustainability of Competitive Advantage:
Accumulated Experience andDiscontinuous Technological Change
Junjiro SHINTAKU
Graduate School of Economics, University of Tokyo
E-mail: shintaku@e.u-tokyo.ac.jp

Abstract: A discontinuous technological innovation destroy the existing technologicalsystems and alter the regular competitive balance even in a stable mature industry.
In the color TV set industry, a discontinuous technological change from vacuum
tubes to transistors and ICs was observed in the 1970’s. The effect of adiscontinuous change in the color TV set industry is analyzed through comparative
study of Japanese and American firms.
Keywords: discontinuous technological change, refraction of experience curve, colorTV, homogeneous competitive behavior

1. Introduction

the 1970’s, and the automobile and electronics

After World War II, many Japanese industries wereindustries in the 1980’s.

started up by introducing advanced technologies

According to Vernon’s product life cycle theory,

In due course, Japanese

exports from developing countries to the U.S.

firms, which have acquired the capability to produce

increase in mature industries where the focus ofcompetitive products at low cost, began to export

competition is not technological innovations but

their products. Remarkable increase of Japanesemanufacturing cost (Vernon, 1966). In fact theexports caused trade friction between the U.S. in theJapanese wage was much lower than in America but

textile industry in the 1950’s, as well as in the steel

the cost advantage of Japanese firms have beenindustry in the 1960’s, the color TV set industry inundermined due to raising wage and strong yen sincedeveloped in the U.S.

1Shintaku
the 1970’s. Competitiveness of Japanese industries

II. Color TV Industry in the U.S. andafter the 1970’s cannot be ascribed only to cheap

in Japanlabor but also to other factors such as discontinuous

In Japan, production of color TVs and broadcasting

technological innovations (Shusa & Kuwada, 1988).

of full-color programs started in 1960, which was six
years behind the U.S.

Followers rarely surpass the leaders in theFigure 1 shows theonconsumption and production of color TV in the U.S.

traditional technological systems. The leaders areand in Japan. Japanese product life cycle lagged

able to sustain their competitive advantage because

behind the American one. However, Japanese

they have longer experiences and more cumulative

production volume increased rapidly in the lateresources than the new entrants or the small share

1960’s and exceeded the U.S. in 1970. This wasfirms. Such situation is clearly exemplified by theascribed not only to the growth of Japanese market

experience curve effect. Once a firm gained a large

but also to the increase of exports especially to theshare, its strong cost position would be secure.

U.S.

phaseofincremental

innovations

basedtechnological

Most Japanese TV producers except Sony wereinnovation which destroy the existing technologicallicensed for the basic TV technologies from RCA.

systems often alter the regular competitive balance.

RCA developed a color picture tube called shadow

Even in a stable mature industry, competition would

mask and introduced the color TV set to the market

again become fierce by a discontinuous change. Forfor the first time. Many of the other American firms

example, in the 1970’s, the watch and color TV set

as well as the Japanese firms were licensed for theindustries experienced competitive turbulence byshadow mask technologies from RCA. Shadow mask

applying semiconductors.

became the dominant design of color picture tube

However,adiscontinuous

both in the U.S. and in Japan. Each firm made an

In the color TV set industry, a discontinuous
technologicalchangefromvacuum

tubes

effort to improve the quality of TV set and to reduce

totransistors and ICs was observed in the 1970’s.
JapaneseTV

producerswhichlead

thisFigure1. Color TV Industry in U.S. and Japandiscontinuous change gained competitive advantage

Million Units
10over pioneering American producers (Baba, 1989;

8Peck & Wilson, 1982; Sciberras, 1982). In the6following sections, the effect of a discontinuous

42change in the color TV set industry was analyzed
throughcomparative

studyofJapanese

0and1960

American firms.
21963

1966 1969 1972 1975 1978
Production
Consumption
JAPANUSAJAPANUSASustainability of Competitive Advantage
manufacturing processes.

production cost based on this dominant design in thePerformance of TV was drastically improved,1960’s.
Major reason for the increase of Japanese

under which consumption of electricity reduced toexports in the late 1960’s was low labor cost. Labor

one third and field call rate reduced to a quarter. Thecost was the crucial factor for TV production at that

quality of pictures also improved.

time because much labor was needed to assemble theThe change in process improved reliability ofelectronics circuit and the final product. An averagecolor TVs and reduced cost. First, the cost of parts

wage in Japanese TV industry was $0.5 per hour

was reduced because cost reduction rates ofcompared with $2.72 in the U.S. in 1968 (Peck &transistors and ICs were much higher than the rate ofWilson, 1982). Most of the Japanese color TVs

vacuum tubes. Second, the number of parts reduced

exported to the private label market in the U.S.

to one third. Third, the labor productivity was

where low price was regarded as important.

remarkably improved due to the automated insertion
machines and the inspection machines.

However, Japanese advantage in labor costbecame smaller in the 1970’s. American TV

With these drastic changes, a significant part ofproducers started foreign production in cheap labor

the past experience became obsolete, which had acountries such as Taiwan and Mexico around 1970.

great impact on the cost structure. Figure 2 shows

Yet the cost advantage of Japanese TV sustained andthe experience curves for the color TV industry inexports to the U.S. rapidly increased to 2.96 millions

the U.S. and in Japan. Both two curves are refracted

in 1976. Many American firms exited from TV

but the refracted point and the learning rate in eachbusiness or were acquired by foreign firms after
1974. The share of American producers in the U.S.
market declined to 56% in 1980.

III.

Discontinuous

Figure 2. Experience Curve for Color TV
1,000

TechnologicalCurveColorTVindustry

facedaUSA

Index of Average Factory Price(1970=100)

Change and Refraction of Experience
discontinuous

1961
1965

parts changed from vacuum tubes to transistors and65
70100

technological change around 1970. Core electronic

Japan

70

75
75

8484ICs. Accordingly, assembly line of the printed circuit
10boards shifted from labor intensive to automated.
Thesechange

affected

bothproduct0.1

110100Industry Cumulative Volume (millions)and31000

Shintaku

Table 1. Learning Rate of Color TV

Figure 3. Experience Curve by TV Type in U.S.
10,000

2nd period

USA

96.4% (1961-1967)

96.4% (1968-1984)

Total

Japan

92.4% (1962-1970)

61.1% (1971-1984)

Table & Portable

Average Factory Price(constant $, 1982=100)

1st period

period are different as shown in Table 1. The second
learning rate is much lower than the first one in each

Console1,000

1962 1962

8484

84

country. And the learning rate in Japan is slightly
100

lower than the one in the U.S. in either period. These

0.1

1101001000

Industry Cumulative Volume (millions)refraction and differences are statistically significant
at 1% level.
The cumulative production volume in Japanconsistently fierce in both countries through thecaught up with the American one in 1978. The cost

1960’s to 1970’s. Third, in the U.S., the productionin Japan might have been higher before 1978 if theshare of the table and portable type TVs, which werelearning rate and the factor costs were the same.

cheaper than the console type, increased from 15%

Labor cost in Japan increased in the 1970’s but thein 1965 to 62% in 1974. If this increase was thelearning rate has drastically decreased. This change

major reason for the refraction of American

gave a big chance to the Japanese firms.

experience curve, each experience curve by TV typeIt was for the discontinuous technologicalwould not be refracted. However, the experiencechange as mentioned above that the experiencecurve of the console type is similarly refracted as

curves were refracted. Of course, other factors mightshown in Figure 3. Most of all Japanese color TVs

have affected this refraction because Figure 1 has

have been the table and portable types since theused the price data at an industry level. For example,1960’s.

either the decrease of the number of competitors, theincrease of the share of low price segment, or theIV.

ResponseofAmericanandintense price competition might refract the industry

Japanese Firms to the Discontinuous

level experience curves.

ChangeFirst, the number of competitors was stable in

The response of the Japanese firms to thisJapan. The number of competitors began to decrease

discontinuous change was quick and aggressive,in the U.S. in 1974: several years passed 1967, thatwhile the response of the American firms wasis, the refracted point. Second, price competition wasrelatively negative. This difference led the Japanese4

Sustainability of Competitive Advantage
using ICs. This corresponds to the refracted point offirms to gain a great competitive advantage.

the Japanese experience curve.

Generally, a newly developed discontinuous

After the oil crisis in 1973, Japanese TV

technology is applied to a specific product segment
newproducers made efforts to reduce costs. Simplifying

technologies are immature and their possibilities arecircuit design by using various ICs, they reduced theuncertain. After the possibilities of a new technology

number of parts. Moreover, in the late 1970’s, they

become clear and its performances are improved, theautomated the assembly line where 65% to 80% of

new technology is adopted by other firms andcomponents were assembled by automated machines.

applied to wide range of products.

As a result, productivity drastically improved asbypioneering

firms

atfirst,becauseshown in Table 2.

In Japan, Hitachi first introduced a fullytransistorized color TV, which was a 15-inch model

In the U.S., Motorola first introduced a fullyin 1968, and developed a complete line of fullytransistorized color TV named Quaser in 1969 andtransistorized models in 1969. Hitachi’s market share

all of its models changed to this type in 1969.

suddenly increased from 10% in 1967 to 14% in

However, its products were focused on the large

1969. Other Japanese firms quickly introduced fully

consoletransistorized models in 1970 and all models

transistorized

released in 1971 were this type of TV, some of which

high-performance product. 86% of its total sales wassegment

becauseTV

Motorolaas

Table 2. Productivity of Japanese TV Industryyear

1974

1975

1976

1977

1978

No. of Parts

750645

465

443

430

Automated PCB Assembly

16%

43%

55%

57%

75%

Man-hours per Set
3.48
Source: Gregory (1985), p. 117.

2.71

1.46

1.29

1.15

Table 3. Comparison of Response in U.S. and Japan
JapanU.S.

Leader:Hitachi (1968-69)

Motorola (1967-69)

Applied Product Line:

Full LineHigh Grade

Overall Completion:

1971

1976

Speed of Improvement:

Quick

Slow

Design:Integrated in a Few Parts

Module Design

Process:

Automation

Labor Intensive

5high-priceregardedandShintaku
the sales of 23-inch models.

Figure 4. Color TV Market Share in U.S.

Other American firms did not take such a quick%30

response as the Japanese. RCA and Zenith, which25

had a large market share, were four to five years

20

behind Motorola. The share of fully transistorized

15

color TVs in the U.S. market increased from 25% in

101972 to 100% in 1976. American firms that were six

5

new technology completed.

1984

1983

1982

1981

1980

1979

1978

1977

1976

1975

1974

1972

1970
1971

industry lagged five years behind when shift to the1973

0years ahead of the Japanese at the start of theZenith

RCAGE

Magnavox

Sylvania

QuaserPhilcoAdmiral

Note: Market share by sales volume.
Sources: 1970-80: Peck and Wilson (1982), p. 199;
1981-84: Itagaki (1987), p. 50.

Moreover, American firms adhered to thetraditional module-type design and labor-intensiveprocess. Module-type design, in which several parts

Figure 5. Color TV Market Share in Japan

are installed as modules, is reasonable for products%
30

that are apt to malfunction. However, it became

25

useless when the defect rate has drastically declined

20by ICs and automated assembly lines.

15
10

Table 3 summarizes the differences between

5Japanese firms and American firms.

Magnavox

PhilcoAdmiral1978

1977

1975

1974

1984

1982
1983

GE

Quaser

1980
1981

RCA

Sylvania

1972
1973

V. Homogeneous and Heterogeneous

1976

Zenith

1970
1971

1979

0

Note: Figures based on monetary value of production.
Sources: Nihon maketto shea jiten (1970-1984).

Competitive Behavior
When existing firms face discontinuous change, thespeed and scope of switching and the subsequent
improvements as well as the timing of introduction
are important to gain and sustain competitive

pressure on firms to switch quickly in a large scale.

advantage as mentioned above.

Yet, not only the market structure but also the firm’s

Nevertheless, existing firms tend to be cautious

perception of competition affects the behavior ofabout switching because there are sunk cost of pasteach firms.

resources and uncertainty in a new technology. ThisIn the early 1970’s, the concentration ratio of

attitude is reasonable with regard to the risk if thetop three firms in the color TV market was aboutfirm monopolizes the industry. Competition will put

50%, both in the U.S. and in Japan. But the relative
6Sustainability of Competitive Advantagecompetitive situation was different as showed inlearning curve. Harvard Business Review, 52(5),Figure 4 and Figure 5.

109-119.

In the U.S., RCA and Zenith had great share

Anderson, P., & Tushman, M. (1990). Technologicalcompared to other firms. RCA and Zenith had full

discontinuities and dominant designs: A cyclicalline of products but differentiated themselves bymodel of technological change. Administrative

picture tube and high reliability respectively. OtherScience Quarterly, 35, 604-633.

small share firms such as Motorola focused on theBaba, Y. (1989). Characteristics of innovating

specific niche market to survive. Totally, each firm

Japanese firms: Reverse product cycles. In M.

has differentiated itself and the heterogeneous

Dodgson (Ed.), Technology, strategy and the firm:

structure was established. Under these situations,Management and public policy (pp. 25-37).

each firm could independently make a decision.

Harlow, UK: Longman.

On the other hand, in Japan, shares wereDay, G., & Montgomery, D. (1983). Diagnosing therelatively close and most of the firms had similar

experience curve. Journal of Marketing, 47(2),line of products. Under such homogeneous structure,

44-58.
Foster, R. (1986). Innovation: The attacker’s

successful behavior of a certain firm is followed byadvantage. New York: Summit Books.

the others because others feared to be shaken out ofGregory, G. (1985). Japanese electronics technology:

the industry. This accelerated the switching to new

Enterprise and innovation. Chichester, UK: Wiley.

technologies and subsequent improvements.

Henderson, R., & Clark, K. (1990). Architectural

The variety of products would be richer inheterogeneousmarkets

thanininnovation:

homogeneousThereconfiguration

ofexistingmarkets. Nevertheless, the speed of evolution in theproduct technologies and the failure of establishedindustry toward a specific direction such as a changefirms. Administrative Science Quarterly, 35, 9-30.

from vacuum tubes to ICs would be increased in

Itagaki, H. (1987). Kara TV sangyo no taibei

homogeneous markets. The firms competing inshinshutsu. In T. Sasaki, & H. Esho (Eds.), Nihon

homogeneous markets could gain competitive

denshi sangyo no kaigai shinshutsu (pp. 37-72).

advantage over the firms in heterogeneous markets if

Hosei Daigaku Shuppankyoku.
Nihon maketto shea jiten. (1970-1984). Yano Keizai

their chosen direction is correct.

Kenkyujo.
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