18

An underlying reason for American entries into joint ventures with Japanese companies is simply a desire to "expand internationally" and "to build up an operation in Japan and the Far East for the long run." One recent study indicates that these motivations for the longer term future are stronger in the eyes of American companies than are immediate growth and profit objectives.

—WELDON B. GIBSON,
executive vice president,
Stanford Research Institute
and
president, SRI-International

In the American view of the Japanese-American experience on joint ventures, we must keep clearly in mind the natural desire of American companies to own, operate, or control the endeavors in which they may be involved. Japanese companies, of course, have much the same desire, particularly in their foreign investments.

In summarizing American experience with Japanese joint ventures, it is helpful to consider the basic motivations of American companies in entering into bilateral arrangements with Japanese concerns. As one might expect, the evidence is not clear-cut. The two reasons most often mentioned by American concerns as leading them to enter into joint arrangements in Japan are (1) providing some access to the rapidly growing Japanese economy, and (2) a profit outlook to rates as high or higher than might be obtained from a similar investment in the United States.

Some American companies in technologically based industries apparently have entered into joint ventures in Japan so as to make further use of their research and development programs without making substantial cash investments abroad. Several companies have made joint-venture arrangements with the hope that products could be manufactured in Japan for export markets. Others have made the move in an effort to hold or develop new markets in Japan and elsewhere. Still others have entered into partnership arrangements for major engineering and construction projects.

Although the basic motivations for American entries into joint ventures with Japanese companies cannot easily be measured statistically, it does appear that an underlying reason is simply a desire to "expand internationally" and to "build up an operation in Japan and the Far East for the long run." One recent study indicates that these motivations for the longer term

It is interesting to lay these motivations of American companies alongside their views concerning motivations of Japanese firms when they consider joint ventures with foreign concerns. The evidence is much more clear-cut than in the case of American motivations. American firms believe that two lines of reasoning predominate within the Japanese business community. The first is to acquire technology, and the second is to obtain capital. Although this is not surprising, it seems apparent (at least in the eyes of American companies) that fully half of Japan's more recent joint-venture investments with foreign firms has been brought into being by the Japanese with these two points uppermost in mind.

A third, but less important, motivation attributed to the Japanese is a vague desire to establish a continuing relationship of some type with an American company. Objectives such as growth, higher profits, supply sources and diversification apparently exist in many cases but are believed in the USA to be well down the scale in the Japanese view. American companies with joint-venture experience in Japan believe that in some cases the basic motivation from the Japanese side was simply to meet the wishes of the Japanese Government in lines of endeavor considered essential to the nation's economic growth.

## An Overall View

Based on information obtained from American companies during the last year on experiences with Japanese-American joint ventures, one might expect that a brief overall appraisal would be possible. This is not easy to do because of the diversity of circumstances. However, a brief statement reflects the general view

SRI INTERNATIONAL, NO. 13 THE JAPAN-CALIFORNIA ASSOCIATION REPORT

held by many American companies having had at least three years of experience in one or more joint-venture arrangements.

The statement within the box applies particularly to the vast middle group of companies after excluding the few immediate successes and the occasional failures or

dissolutions. The wording is simply a synthetic message that might come from the chief executive of an American parent company of a Japanese-American joint venture—recognizing that its application varies considerably from case to case.

This statement brings to the forefront three types of problems confronting American companies on joint-venture arrangements in Japan. One involves a relationship with the Japanese Government; one refers to the process of establishing effective working affiliations with the Japanese partner; the third pertains to the inherent difficulties of operating in an unfamiliar business environment.

American companies with experience in Japan overwhelmingly hold the view that among these three groups of problems the most difficult and time-consuming is the one involving negotiations with government. They seem to feel that they can and do work out quite effectively the company-to-company problems and the adaptation to Japanese business practices. But they have real difficulty in a great many cases in convincing the Japanese authorities that a proposed joint venture—or a change in an existing venture—should be approved.

Nevertheless, a large majority of the American companies now engaged in Japanese joint ventures are glad they took the step, and most of them view the future prospects quite favorably. In many respects, the American view is summarized by one chief executive who has said—"Arranging a joint venture directly with a Japanese company is not easy, but the Government makes it especially difficult." Even so, many American executives would agree with another executive who has said "notwithstanding the frustrations and difficulties we have encountered from time to time, we would repeat the exercise."

## A Typical Report of a U.S. Chief Executive on a Joint Venture in Japan

"Our Japanese venture is now working quite well; it has not come up to our original profit expectations, but it is making a profit. The negotiation time with our partner and with the government took far longer than we thought necessary. Negotiations with the government were especially complicated and indeed exasperating. Then, once approval was obtained on a satisfactory basis, a host of operating problems arose. We simply did not appreciate fully the impact of Japanese practices in production, marketing, financing, personnel administration, budgeting, and forecasting on profitability of the enterprise. We were anxious, in particular, to initiate new marketing programs but these ran counter to many Japanese approaches. With goodwill and cooperation on both sides we have been able to work out most of the problems. We think the company will grow and prosper. Our relationship with our Japanese partner is good but we do have problems with the government in making occasional changes in the joint-venture agreements."

19

20

Negotiations with Government

Much has been said and written during the last two
or three years concerning capital liberalization in
Japan particularly with respect to the formation of
joint ventures with foreign companies. Numerous
statements have been issued by the Japanese Govern-
ment describing various policy moves toward greater
freedom on capital imports by foreign private enter-
prises. Furthermore, many Japanese groups from the
business community as well as from Government while
traveling abroad have explained at some length the
new liberalization policies being developed in Japan.
Instances are cited from time to time on joint ventures
involving foreign majority ownership.

Some beneficial moves have been taken by the
Japanese Government in this respect, and the trend is
widely applauded in the foreign business community—
particularly in the United States. However, this is only
part of the story and perhaps is only a minor part
when viewed in the light of attitudes of American busi-
ness executives as a group. A basic view exists in the
United States among those companies experienced in
Japanese-American business relationships that imple-
menting action by the Japanese Government falls far
short of explicit and implied statements of policy. One
recent study of the American view emphasizes that
"the Japanese process of validation . . . is a strict im-
pediment to the establishment of foreign interests in
Japan." This is not to suggest or imply in any way that
the Japanese Government does not have a perfect right
to place restrictions on foreign investments. However,
the statement is clear that many American companies
believe Japan goes too far in this respect.

Many American companies feel from experience
that negotiations with the Japanese Government take
an inordinate amount of time and effort, that the

basic "rules" or "guidelines" are too vague, that the
Government often enters the picture as a "third party"
on details that should be resolved on a company-to-
company basis, and that Government officials are in-
clined during the negotiation process to give "advice"
for voluntary changes rather than clear-cut decisions
from the Government itself. Furthermore, some com-
panies apparently feel that even their contemplated
Japanese partners often do not take a sufficiently
strong stand with the Japanese Government, particu-
larly when the American partner is not participating
in the negotiations.

A view also exists in American business circles that,
even with some of the announced liberalization poli-
cies in Japan affecting the inflow of foreign capital, the
control over joint-venture arrangements may increase
rather than diminish. This belief is based on the de-
clining importance of technical agreements in the
foreign-investment process and the rising significance
of joint-venture arrangements.

Although some American companies have been able
to work out quite effectively the whole process of nego-
tiations with the Japanese Government on joint ven-
tures (perhaps partly in light of Japan's basic need for
the endeavors involved); and even though this sum-
mary report does not reflect total American experi-
ence, the number one problem seems clear beyond any
reasonable doubt. This is simply that many American
companies believe that joint-venture negotiations at
the Government level are unduly complicated, and
that, in many cases, they defeat or discourage initia-
tives that may well be in Japan's basic interests.

These remarks do not in any way imply that there
are not good and valid reasons for many of the controls
on foreign investment exercised by the Japanese Gov-
ernment. Perhaps some of the American view arises

simply because Government reasons and objectives are
not clearly understood, at least at the outset of a joint-
venture initiative. But the fact remains that there is a
certain image of "exasperation" associated with the
validation process in the eyes of American investors.

It is not my purpose here to suggest what might best
be done to remove some of the basic restraints or bar-
riers without altering policies which Japan considers
necessary or fundamental to her national objectives.
However, if Japan does indeed wish to accelerate
American foreign investment in joint ventures and
otherwise, the Government (with the support of the
Japanese business community) might well seek views
and suggestions in an organized manner from Ameri-
can companies experienced in the country. Most of
these firms would welcome an opportunity to present
constructive ideas as a public service without regard
to purely private interests. A joint initiative in this re-
spect might well be taken by a combined group repre-
senting both American and Japanese business and, of
necessity, the Japanese Government.

The Partnership

One important reason why serious attention should
be given to the "government negotiation" problem in-
volving joint ventures in Japan with American and
other foreign companies is simply that this should open
the door to many more productive business affiliations
in Japan's interest as well as in the interest of foreign
companies. The general view among American com-
panies experienced in Japanese joint ventures is that,
on the whole, the partnership-affiliation problems can
be and are solved satisfactorily, especially when there
is goodwill on both sides. American executives repeat-
edly express the view that they have "a happy rela-
tionship" with their Japanese partners.

Many officials of American corporations experienced
in Japanese business affairs lay great stress on the im-
portance of what they call "a long courtship" in es-
tablishing a joint-venture affiliation. This is merely a
way of saying that a great amount of time spent in
seeking out just the right partner is exceedingly im-
portant to both parties in an established venture.

Several executives have mentioned the advisability
of studying carefully in advance any possible "clash of
objectives" in a proposed joint venture. In some cases
difficulties arise because the fundamental objectives of
the partners (including their parent companies and
subsidiaries) were not fully recognized by both parties
at the beginning. For example, a Japanese partner
that seeks only technology or capital may not find a
sound long-term affiliation with an American partner
that seeks in the main through the joint venture to
merely establish a so-called "beachhead" in the
Japanese market.

Also, several American firms have emphasized that
a great amount of time should be spent on a proposed
joint venture in thinking through the long-range plans,
marketing programs, and financial operations for the
new endeavor. Another point mentioned by several
companies is arranging at the outset for a well-under-
stood process of dissolution in the event either or both
parties wish to disengage.

Another point on partnership arrangements that
seems strong in the minds of American executives
based on their experience with Japanese joint ventures
is making sure in advance that a highly capable
Japanese top executive is placed in charge of the ven-
ture. Also, some American firms emphasize that at
least one highly competent American executive, who
is dedicated to the endeavor and to the Japanese scene
(as well as having influence at company headquarters

21

22

in the USA), should be assigned to any new joint venture in Japan.

Some American companies consider it important at the outset of a venture to see that the managing partner in Japan does in fact transfer capable people to the new joint enterprise. Undoubtedly, this view exists also within Japanese business circles in their contemplation of joint ventures with foreign companies.

Many American companies have emphasized that they are able to resolve production and marketing problems with their Japanese counterparts by arranging for teams of specialists to work together for varying periods in both Japan and the United States.

The marketing problem seems to trouble American companies more than any other facet of their relationships with Japanese partners. Their natural impulse is to establish direct marketing channels with clearly announced pricing policies. They often become impatient with the trading company concept while at the same time recognizing its value in the Japanese economy.

Also, many American parent companies feel that current joint-venture practices with Japanese operating management works against the introduction of proven techniques and procedures based on American experience. Cost accounting and information systems

## Advice from Experience

One of the questions posed during recent months to many American companies with experience in Japanese-American joint ventures involves advice they might offer to any American firm contemplating such a relationship for the first time. The composite advice can be summarized as follows:

* Consider carefully whether or not the company does indeed have some technological superiority to bring to the joint venture, particularly since this is the most important input the American partner can provide with respect to long-term security of his investment.

* Select the right Japanese partner for the joint venture with great care, making sure that the true objectives of both parties are known and understood. Engage in a great amount of advance planning for the operation.

* Obtain at the very beginning the best possible assistance on legal, tax, and accounting matters after making sure the firms are sophisticated and well accepted on the Japanese scene.

* Recognize that the American company must have available one or more highly competent, emotionally adjusted, experienced executives who are ready, willing and able to live and work in Japan with a high degree of enthusiasm.

* Maintain an attitude of patience and cooperation with government authorities in negotiating approval of the joint venture but at the right time stand firm on a solid basis of facts when matters of high importance and of principle are involved.

* Once the joint venture is formed, concentrate on determining what is and is not practicable on the Japanese scene with respect to management practices and then attempt by persuasion and demonstration to obtain the desired results.

* Rely heavily on your Japanese partner and do everything possible to create an environment of mutual trust and confidence, particularly since nothing of long-term significance can develop without an atmosphere of goodwill.

* Give major attention to maintaining good communications between the parent companies so that potential problems can be foreseen and resolved before they in fact become a threat to the venture.

* Be prepared for a long-term investment with prime emphasis on long-term rather than short-term profitability.

23

are often cited as examples where, for the most part, Japanese practices carry over fully to the joint venture. Some American executives are inclined to accept the situation as inevitable and perhaps most appropriate. Most, however, feel that much more can be done by their Japanese partners to assimilate useful American managerial methods.

American companies with experience in negotiating and operating joint ventures in Japan often emphasize the importance of clearly establishing at the outset with Japanese partners the policies, practices, plans, and so-called "ground rules" that will apply to the new venture. Most companies hold the view that once an agreement is established, Japanese companies are meticulous in conforming to it. This is merely another way of stressing the "long courtship" and planning concepts mentioned earlier.

In spite of various management problems that arise from time to time, the evidence is overwhelming among American parent companies that they can and do cope successfully with company-to-company problems once the government negotiations have been settled. Perhaps this reflects a growing confidence by American executives in their understanding of the Japanese business scene.

## The Business Environment

Much has been said and written about the unusual and complex nature of the Japanese business environment from the American viewpoint. The situation involves many practices that are indeed strange to one not familiar with the Japanese business scene. Questions arise about the concept of "group responsibility" in decision-making, business entertainment, employment and promotion practices, the Japanese attitude toward direct selling, a certain rigidity in business

dealings according to management positions, financing policies, the reserve with which many Japanese conduct business negotiations, and many other points.

If one wishes to do so, the so-called "business environment" problem can be expanded at length. This would not, however, give a proper perspective on the joint-venture situation. As perplexing as many of these features of Japanese practice are to some American companies (particularly those entering negotiations for the first time), the aggregate American view is that they can be handled successfully. The voice of experience in the USA emphasizes that they can be and are overcome by "depending on the Japanese partner." Thus, one comes back to the importance from the American viewpoint of selecting the right partner.

The principal and ultimate conclusion of this summary seems quite clear. American companies want more joint ventures with Japanese firms; they are confident of their ability to work out the company-to-company relationships. They recognize and feel they can cope with unfamiliar business practices in Japan. They have confidence in Japan's economic and political future. They have great respect for Japanese business and industry and for Japanese business acumen. But, right or wrong, they feel as a group that the Japanese Government unduly complicates the picture and that the same national objectives could be achieved with less regulation, particularly of details.

American executives recognize Japan's concern about the threat of foreign economic control or domination, but they believe that Japan's surveillance of foreign investment is far greater than is necessary, even with no change in national objectives. Whether this is right or wrong is not so important for the moment. What is significant is that many American executives believe this to be the case. ■

There is a good future before our two nations
(Japan and the United States) as world
partners. Problems, misunderstanding, and
criticisms exist, but as long as we have the
courage to discuss them and the energy
to work toward mutually agreeable solutions,
they are not overwhelming. The variety
of capabilities and viewpoints that we
bring together can strengthen our
joint relationships and efforts.

—RUDOLPH A. PETERSON, president,
Bank of America, N.T. & S.A.

It is imperative that the businessmen of
our two countries—being intimately familiar
with their respective situations—should
apply all their resources and wisdom
to seek solutions to economic frictions,
without jeopardizing the stable political
ties and mutual trust between us.

—YOSHIZANE IWASA,
chairman of the board and president,
The Fuji Bank, Limited

... Japan is now the third economic power in the world—behind only the United States and the Soviet Union. Given present rates of projection, by ten more years she will have a per capita income equal to the United States as of 1969, and by 1990, if one carries on with these projections, Japan may well have the highest per capita income in the world.

—U. ALEXIS JOHNSON,
U.S. Undersecretary of State
for Political Affairs

STANFORD RESEARCH INSTITUTE

Menlo Park, California 94025 • U.S.A.

Printed in U.S.A.

International Economic Policy Association

1625 EYE STREET, NORTHWEST, WASHINGTON, D. C. 20006

December 18, 1970

STERLING 3-2787

The Honorable Henry A. Kissinger
Assistant to the President for
National Security Affairs
The White House
Washington, D.C. 20500

Dear Henry:

As you see by the stationery, I have changed professions again: from government to professor of political science and now to economist! In the last-named capacity, I have participated in the Association's recent survey of Western Europe; and I enclose a copy of the report herewith. Since I know that your extra reading time ranges between plus and minus zero, I call your attention particularly to the summary section, pages 1 through 7. This includes a necessarily oversimplified chart on "The European Profile in 1970-71." In view of the current visit by Mr. Heath, you might also be interested in the analysis of the United Kingdom, beginning on page 8, and the prospects for Britain's entry into the Common Market, discussed on page 34.

We also say in the report that the current problems of aid, trade, investment, the dollar and foreign and defense policy have to be put into the same frame of political reference. Probably only the President can do this and thus negotiate with responsible partners for a truly cooperative international system in the seventies!

With best personal regards,

Enclosure: "Europe in 1970"

THE SECRETARY OF COMMERCE

WASHINGTON

February 4, 1972

Honorable Henry A. Kissinger
Assistant to the President for
National Security Affairs
Executive Office of the President
Washington, D. C. 20500

Dear Henry:

The months and the task ahead will keep
us in close contact, but I could not close
out my Cabinet service without a personal
note of great appreciation for your helpful
understanding over these past three years.

Your help on the many matters we have
dealt with, and the way in which you have
always given it, have my warmest thanks.

In my new capacity I know that our
mutual cooperation will go on just as it
has, but this is a time when I want to say
it has been a pleasure to work with you in
the business of government.

Best personal wishes for the future.

DR. JOSEPH R. STAROBIN
WHITMAN ROAD - P. O. BOX 163
HANCOCK, MASS. 01237

June 1, 1971

Dr Henry A Kissinger
The White House
Washington, D C

Dear Dr Kissinger:

I shall be in Washington
this Sunday afternoon through Tuesday noon,
and I am wondering whether you are curious
to spend a half hour talking with me.

We have not done that in
almost two years, as you will remember.

My plans will take me in
a few weeks to western Europe where I shall
be talking with Xuan Thuy and Mme Binh, and
it is possible that I may be going much further
east as well. Back in 1952, as you may not
know, I lived in People's China for a year,
and the fellows now running things, drawing
up the lists of prospective guests, are the
ones who invited me at that time. They are
old friends.

If this interests you at
all, I shall be at the home of Henry Fleisher
in Silver Springs 301 589 3771, as of Sunday
afternoon. If I may, I shall take the liberty
of checking at your office Monday morning.

DEC 13 1968

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December 10, 1968

Dr. Henry Kissinger
Center for International Affairs
Harvard University
Cambridge 38, Massachusetts

My dear Professor,

As an old Defense Policy Seminar graduate, I was delighted to hear of your choice by President-elect Nixon. I remember spending many afternoons listening to you articulating the problems and frustrations inherent in efforts to translate academic reflection and criticism into policy and action. Now these problems have met a protagonist worthy of their complexity.

I myself feel it unfortunate that it will not be Governor Rockefeller who will be the beneficiary of your considered advice. I know many of my associates at this firm, from Oscar Ruebhausen on down, share my disappointment. Had the Governor won, Adlai Stevenson's comment would have been a *propos*: "I regret that I have but one law firm to give to my party."

Of course the purpose of my letter is not merely congratulatory. Since my Harvard days, and particularly since my graduation in 1964, I have been a great admirer of both you and your work. Listening to you and Stanley Hoffmann made my weary trek through the Government Department at Harvard bearable. I have since always harbored in the back of my mind a desire to follow through with my beginnings on Divinity Ave. Your selection as presidential advisor has rekindled this old flame.

I graduated with a magna in government (international relations) from the College, class of '64, going on to the law school at Columbia. As indicated by the letterhead, I am presently an associate at Debevoise. The firm is marvelous, and one of the best attributes is the encouragement given to its young lawyers who seek satisfaction through public service.

Dr. Henry Kissinger

-2-

My training in international affairs has come mainly at the feet of people like yourself, Tom Schelling, Stanley Hoffmann, Mel Croan, etc. Though I wrote my honors thesis ("Limited Strategic Nuclear War") nominally under your direction for bureaucratic reasons I never did understand, my considerable guidance was at the hands of Doug Bailey (who, incidentally, seems to pop up everywhere; will he be with you?) I was a member of both the DPS and the bi-weekly battle over Europe conducted by Kissenger, Hoffmann, et al. At Columbia I kept my hand in as a member of the International Fellows Program (rather weak stuff after the DPS, although the yearly journey to the Hudson Institute never failed to entertain) and through a summer in Europe with Andy Cordier of the Columbia School of International Affairs.

I have experienced before the excitement of Washington, having spent a summer internship at Defense. I had been looking forward with great anticipation to another summer working with John McNaughton when these plans were scotched by his tragic airplane death. The wanderlust of policy discussions at the center will never be out of my system, I fear.

Many paragraphs later, I finally end. Undoubtedly you have dozens, hundreds, of letters such as this. In any event, please file this in the appropriate spot. I would imagine the first roadblock in the task of translating the academician into the policy-maker is the interminable problem of personnel. I wish you success in this as well as the more arduous tasks to come.