Made In Japan

by Akio Morita

  It was this kind of innovation that Ibuka had in mind when we wrote a kind of prospectus and philosophical statement for our company in the very beginning: “If it were possible to establish conditions where persons could become united with a firm spirit of teamwork and exercise to their hearts’ desire their technological capacity,” he wrote, “then such an organization could bring untold pleasure and untold benefits.”

  He was thinking about industrial creativity, something that is done with teamwork to create new and worthwhile products. Machines and computers cannot be creative in themselves, because creativity requires something more than the processing of existing information. It requires human thought, spontaneous intuition, and a lot of courage, and we had plenty of that in our early days and still do.

  And so we set out to build our own sales and distribution network, as a way of getting our message directly to the consumer. We used the old distribution system where it was useful, but we set up our own outlets and dealt directly with our dealers where we could. That way we could get to know them personally and make them understand the value of our products and the uses to which they could be put. Our salesmen became communicators and encouraged the retailers to do the same.

  II

  Our first transistor radio of 1955 was small and practical—not as small as some of our later efforts, but we were very proud of it. I saw the United States as a natural market; business was booming, employment was high, the people were progressive and eager for new things, and international travel was becoming easier.

  I took my little $29.95 radio to New York and made the rounds of possible retailers. Many of them were unimpressed. They said, “Why are you making such a tiny radio? Everybody in America wants big radios. We have big houses, plenty of room. Who needs these tiny things?”

  I explained what I had learned in looking around me in the United States. “There are more than twenty radio stations in New York City alone,” I said, “and, yes, the houses are big—even big enough for every family member to have his or her own room where he or she could turn on this tiny radio and listen to whatever pleases him or her without disturbing or bothering anybody else. Of course the fidelity isn’t as good as a large unit, but it is excellent for its size.” Many people saw the logic of this argument, and I was happy to be offered some tempting deals, but I was cautious and more than once I turned down what looked like a chance to make big profits. The buyers thought I was crazy, but even though our company was young and I was inexperienced, time has shown that I made the right decisions.

  The people at Bulova liked the radio very much and their purchasing officer said very casually, “We definitely want some of these. We will take one hundred thousand units.” One hundred thousand units! I was stunned. It was an incredible order, worth several times the total capital of our company. We began to talk details, my mind working very fast, when he told me that there was one condition: we would have to put the Bulova name on the radios.

  That stopped me. I had vowed that we would not be an original equipment maker for other companies. We wanted to make a name for our company on the strength of our own products. I told him I would check with my company, and in fact I did send a message back to Tokyo outlining the deal. The reply was, “Take the order.” I didn’t like the idea, and I didn’t like the reply. After thinking it over and over. I decided I had to say no, we would not produce radios under another name. When I returned to call on the man from Bulova he didn’t seem to take me seriously at first. How could I turn down such an order? He was convinced I would accept. When I would not budge, he got short with me.

  “Our company name is a famous brand name that has taken over fifty years to establish.” he said. “Nobody has ever heard of your brand name. Why not take advantage of ours?”

  I understood what he was saving, but I had my own view. “Fifty years ago,” I said, “your brand name must have been just as unknown as our name is today. I am here with a new product, and I am now taking the first step for the next fifty years of my company. Fifty years from now I promise you that our name will be just as famous as your company name is today.”

  I never regretted the decision not to take what is called an original equipment maker (OEM) order because the decision gave me added confidence and pride, although when I told Ibuka and the other executives back in Tokyo what I had done some of them thought I was foolish. But I said then and I have said it often since: it was the best decision I ever made.

  While making the rounds I came across another American buyer who looked at the radio and said he liked it very much. He said his chain had about one hundred and fifty stores and he would need large quantities. That pleased me, and fortunately he did not ask me to put the chain’s name on the product. He only asked me to give him a price quotation on quantities of five thousand, ten thousand, thirty thousand, fifty thousand and one hundred thousand radios. What an invitation! Now I could recoup what I had lost in refusing the OEM order. But back in my hotel room, I began pondering the possible impact of such grand orders on our small facilities in Tokyo. We had expanded our plant a lot since we outgrew the unpainted, leaky shack on Gotenyama. We had moved into bigger, sturdier buildings adjacent to the original site and had our eye on some more property. But we did not have the capacity to produce one hundred thousand transistor radios a year and also make the other things in our small product line. Our capacity was less than ten thousand radios a month. If we got an order for one hundred thousand, we would have to hire and train new employees and expand our facilities even more. This would mean a major investment, a major expansion, and a gamble.

  I was inexperienced and still a little naive, but I had my wits about me. I considered all the consequences I could think of, and then I sat down and drew a curve that looked something like a lopsided letter U. The price for five thousand would be our regular price. That would be the beginning of the curve. For ten thousand there would be a discount, and that was at the bottom of the curve. For thirty thousand the price would begin to climb. For fifty thousand the price per unit would be higher than for five thousand, and for one hundred thousand units the price would have to be much more per unit than for the first five thousand.

  I know this sounds strange, but my reasoning was that if we had to double our production capacity to complete an order for one hundred thousand and if we could not get a repeat order the following year we would be in big trouble, perhaps bankrupt, because how could we employ all the added staff and pay for all the new and unused facilities in that case? It was a conservative and cautious approach, but I was convinced that if we took a huge order we should make enough profit on it to pay for the new facilities during the life of the order. Expanding is not such a simple thing—getting fresh money would be difficult—and I didn’t think this kind of expansion was a good idea on the strength of one order. In Japan we cannot just hire people and fire them whenever our orders go up or down. We have a long-term commitment to our employees and they have a commitment to us.

  Of course I was also a bit worried that if I quoted a very low price for one hundred thousand units, the buyer might say he would take one hundred thousand but would initially order only ten thousand at the one hundred thousand unit price as a test, and then maybe he wouldn’t order any more.

  I returned the next day with my quotation. The buyer looked at it and blinked as though he couldn’t believe his eyes. He put down the paper and said, patiently, “Mr. Morita, I have been working as a purchasing agent for nearly thirty years, and you are the first person who has ever come in here and told me that the more I buy the higher the unit price will be. It’s illogical!” I explained my reasoning to him, and he listened carefully to what I had to say. When he got over his shock, he paused for a moment, smiled, and then placed an order for ten thousand radios—at the ten thousand unit price—which was just right for him and for us.

  I was lucky in those days. I didn’t have much experience in business and I didn’t have a boss looking over my shoulder, so wh
en I decided to come up with that quotation nobody could say no to me in the company. I made company policy as I went along. Later we certainly welcomed such large orders.

  I was not the only Japanese doing business in New York in the middle fifties. Many, if not most of them, relied on the giant Japanese trading companies that understood foreign markets and had established offices overseas. That wasn’t good enough for me, because none of the trading houses knew my products and my business philosophy.

  I think it is ironic that American businessmen now complain about our complex Japanese distribution system, because when I was first planning to export to the United States I was astonished and frustrated by the complexity of marketing in America. It always comes as a surprise to American businessmen when I tell this to them. But the accepted way of getting Japanese goods into the U.S. in those days was to hand over your goods to an experienced Japanese trading company with offices in the States. The trading company would ship the goods to an American port, where their agent would clear customs, then move them to a distribution company, and then to the wholesalers, and then to the retailers. The time consumed in shipping and the demands for servicing in such a big country staggered me. But I never considered the size of America or the English (or French or German) language to be a nontariff barrier.

  I can understand the frustration of American and other foreign businessmen facing the Japanese distribution system and the complex Japanese language because it must seem as complex to them as the American system and language did to me several decades ago, but many of them have successfully figured out ways to work outside the traditional established system; that was what I felt I had to do in the United States. We needed a distribution route in which the message of our new technology and its benefits could be more easily and directly passed on to the consumer. It took us a long time to find the way. We also had to learn some hard lessons.

  I was lucky enough to be introduced to Adolph Gross by my old Japanese friend, Shido Yamada. Gross was a manufacturers’ representative, and he had a company called Agrod Company, located at 514 Broadway. When I told Gross about my company and what we were trying to do, he said he liked the sound of it and he immediately agreed to represent us. He even offered me some desk space in his office, and the relationship grew into a personal one as well as a business one; he was a good friend and a teacher to me. I was fortunate to find several good teachers in the United States. One of them I met in Tokyo, a Hawaiian-born Japanese-American named Yoshinobu “Doc” Kagawa, an American citizen who came to Japan as a lawyer with the economic section of the Occupation forces. When the Occupation was over in 1952, he opted to stay on in Japan and represented some Japanese companies, including the Toho movie company. I asked him to advise my company, and when I came to the States on some of my early trips he came with me. So I had good teachers, Adolph Gross, “Doc” Kagawa, and then probably my best teacher, Edward Rosiny, who was Gross’s lawyer and became mine.

  Adolph Gross and I became very close, although he was in his late fifties and I was only in my thirties. He was a kind, intelligent, unpretentious, soft-spoken man who liked a good joke and was full of integrity. He was interested in international business, and in fact he was already importing some high-quality European electronic goods, including the fine German-made ELAC turntable, which was popular with early hi-fi enthusiasts. He talked to me for a long time the day we first were introduced: he wanted to know everything about me and my company and its philosophy. In a short time I learned a lot about American business practices from him. He explained America and America’s business world to me, including some very7 practical information about the image and character of the different stores and the best ways to do business in America. He also kept trying to Americanize me or at least to give me some worldly polish and sophistication.

  One day he asked me casually if I wanted to see Fair Lady, which had just opened on Broadway and was already the hit show of the season. I said. “Certainly I’d like to see it, Adolph, but I’m sure I couldn’t get a ticket—the show is a sellout!” He said. “Never mind that,” and in no time he had a pair of tickets. They must have cost him one hundred dollars each, a lot of money for a theater seat any time, but a fortune to me, at least, in 1957. We worked late the night of the show and went directly to the Mark Hefiinger Theater. It was a new and exciting experience for me to be with that audience at the biggest show of the season. Adolph was blase about it. As soon as the lights dimmed and the orchestra struck up the overture, Adolph turned to me and said. “Akio, goodnight.” He slept all through this marvelous show in his hundred-dollar seat.

  When Adolph Gross died suddenly of a heart attack in London in 1958, we were all devastated. I have always felt my debt to him strongly and think of him as my American father. Mrs. Gross is still very close to our Sony family, and we always ask her to all the anniversary functions of Sony America.

  I didn’t meet Edward Rosiny, Gross’s lawyer, until after we lost Gross, and I also then met Irving Sagor, who was the accountant for the Gross business. I learned about American business accounting and law from these fine men. I needed someone I could trust when I began to think of establishing Sony America, and these two men were the finest teachers and helpers to me. Since Sagor was a CPA, he was able to see that my tax affairs were being properly handled. Eddie Rosiny and I became like brothers, working together, eating together, playing golf (he got me into his country club in Spring Valley, N.Y.), handling business problems together. Among other things, Eddie taught me about American business contracts, something almost unknown in Japan.

  In the early days I would come to New York and take a cheap hotel room, and because my English was not good and because I had little money I would eat in the automat or a cafeteria, where I didn’t have to speak to anybody, fumbling around in English. When I first brought Doc Kagawa with me to the States and began taking him to the automats and booking us into inexpensive hotels, he let me know this would not do, that for our own pride and the dignity and prestige of the company name we had to operate at a higher level. He showed me that it was better to stay in the cheapest room in the best hotel than to stay in the best room in the cheapest hotel. He insisted that I eat in good restaurants and learn to appreciate the differences in food and service. When we would travel around the U.S. on our meager budget, we would sometimes have to share one room, but we always stayed in the better hotels. In New York I stopped eating at Horn & Hardart’s and moved up to Stouffer’s. The 666 building on Fifth Avenue in midtown was new then and Stouffer’s was on the top floor. (When we lived in New York when my daughter was a child, Naoko got to love this restaurant and its view of New York. Just a few years ago when I took an apartment on the forty-eighth floor of the Museum Tower, the first thing she noticed from our windows was the 666 building where she once had so many good meals. She remarked how from our tower apartment now she could look down at it but when she was a child it seemed to be up in the clouds with ail of New York below her.)

  The value of having fine teachers like Doc Kagawa is beyond estimation. Most Japanese businessmen who visited the United States in those days tended to be clannish and learned about the country from the other Japanese businessmen who had preceded them. But it doesn’t take much analysis to see the inadvisability of this approach. Despite a couple of years of living in a foreign country, these Japanese businessmen were still strangers; following their advice was like the blind leading the blind. I was learning about America from people who were right at home in America and had twenty-twenty vision.

  As executive vice president of my company in Tokyo, I had many things to do and the job of selling our products in the United States was more than I could take on as a one-man show. I had discussed the problem with Gross, and on his advice I appointed Delmonico International as the distributor of our radios. The relationship with Delmonico was fine for a while, but it wasn’t long before I began to worry about it. As our name became better known and sales increased, the people at Delmonico
seemed more interested in low price than in quality. It got to the point where we would find ourselves haggling over the cost of the imitation leather case and whether we could make it a few cents cheaper. They frequently asked us to produce some inexpensive radios that they could sell at high volume at big discounts. That was not my style, and I said so. We were not interested in producing low-quality goods just to make money.

  When we announced to the world that we had succeeded in making the world’s first transistorized television set at the end of 1959, Delmonico, without even consulting with us, began advertising that they were going to be handling it. I was alarmed by this, because I did not like the way things had been going, and I could see disaster ahead if our relationship continued. Before the ink was dry on their ad campaign, I told Delmonico that I had no intention of marketing television sets through them. I was afraid our great new TV sets, the first of their kind in the world, would be merchandised cheaply or even discounted. What I had in mind for my product line was an image of class and high quality, which really represented the products.

  We had quite a fight over this. Thanks to Ed Rosiny, we avoided a long, drawn-out court battle, but we did have to negotiate for a long time and it cost a lot of money. We pointed out to Delmonico that we had signed a contract with them for radios at a time when we knew television would follow—we were actually working on TV at the time but we didn’t know when we would be able to come out with it—but we had not specifically mentioned TV to them. I had known that one day we would get into the TV business, so I cited the patent filing date to prove my point. That meant we were not giving Delmonico the right to our TV sets, and in fact were exempting or omitting TV purposely from the Delmonico sales contract.