Made In Japan

by Akio Morita

  He was assigned to the Sony accounting division— quite a change, you might think, from the artistic side of the record business—and some might have wondered whether he could make it or not, but I believed he could. His attitude is very Japanese, despite his international upbringing:

  “All jobs are basically the same. You have to apply yourself, whether you are a record A&R man, a salesman on the street, or an accounting clerk. You get paid and you work one hundred percent to do the job at hand. As an A&R man, I was interested and excited and happy, but naturally as long as you are satisfied with your work and are using your energy, you will be happy. I was also very excited about the accounting division. I found out something new every day, struggling with a whole bunch of invoices and the payment sheets, the balance sheet, the profit and loss statement, and working with all those numbers. I began to get a broad picture of the company, its financial position and what is happening day to day and which way the company is heading. I discovered that that excitement and making music at the studio are the same thing.”

  In the late sixties a European Commission internal memo on Japan was leaked, and a great stir was created because it referred to the Japanese as “workaholics” who live in “rabbit hutches.” There is no doubt that inadequate housing is a major problem in Japan, and nobody could deny that the Japanese are probably the hardest working people in the world. We have many holidays in Japan, but only about the same number as the United States. We do not give long summer vacations, even to our schoolchildren.

  At Sony we were one of the first Japanese companies to close down our factory for one week in the summer, so that everybody could take off at the same time. And we long ago instituted the five-day, forty-hour week. The Japan Labor Standards Act still provides for a maximum forty-eight-hour workweek, though it is soon to be revised downward, and the average workweek in manufacturing is now forty-three hours. But even with up to twenty days of paid vacation a year, Japanese workers managed to take fewer days off and spend more days on the job than workers in the United States and Europe.

  It was only in 1983 that banks and financial institutions began to experiment with the five-day week, closing one Saturday a month, and eventually the whole nation will move closer to the five-day week. Still, International Labor Organization data show that Japanese work longer weeks and have fewer labor disputes than workers in the U.S., the U.K., France, or West Germany. What I think this shows is that the Japanese worker appears to be satisfied with a system that is not designed only to reward people with high pay and leisure.

  At Sony we learned that the problem with an employee who is accustomed to work only for the sake of money is that he often forgets that he is expected to work for the group entity, and this self-centered attitude of working for himself and his family to the exclusion of the goals of his coworkers and the company is not healthy. It is management’s responsibility to keep challenging each employee to do important work that he will find satisfying and to work within the family. To do this, we often reorganize the work at Sony to suit the talents and abilities of the workers.

  I have sometimes referred to American companies as being structures like brick walls while Japanese companies are more like stone walls. By that I mean that in an American company, the company’s plans are all made up in advance, and the framework for each job is decided upon. Then, as a glance at the classified section of any American newspaper will show, the company sets out to find a person to fit each job. When an applicant is examined, if he is found to be oversized or undersized for the framework, he will usually be rejected. So this structure is like a wall built of bricks: the shape of each employee must fit in perfectly, or not at all.

  In Japan recruits are hired, and then we have to learn how to make use of them. They are a highly educated but irregular lot. The manager takes a good long look at these rough stones, and he has to build a wall by combining them in the best possible way, just as a master mason builds a stone wall. The stones are sometimes round, sometimes square, long, large, or small, but somehow the management must figure out how to put them together. People also mature, and Japanese managers must also think of the shapes of these stones as changing from time to time. As the business changes, it becomes necessary to refit the stones into different places. I do not want to carry this analogy too far, but it is a fact that adaptability of workers and managements has become a hallmark of Japanese enterprise.

  When Japanese companies in declining or sunset industries change their line of business or add to it, workers are offered retraining and, for the most part, they accept it eagerly. This sometimes requires a family move to the new job, and Japanese families are, again, generally disposed to do this.

  III

  Who owns a company anyway? Is it the managers, the shareholders, or the workers? The question is not as simple as it sounds. In Japan we feel that the company must be as much concerned with the workers as with the shareholders. I understand very well the importance of stockholders. We have many of them, and more than 40 percent are non-Japanese. The duty of management is to use their funds effectively and to give them a return on their investment greater than they could have realized if they had used it themselves in some other way. But this does not always mean dividends. It could also mean growth in the value of the stock they hold, which is considered more important than dividends in Japan, since the tax rates on growth of the value of the stock are lower than rates on dividends. A company that reinvests in itself instead of paying out dividends will in the long run be returning more to the shareholders, and certainly more than many companies in the United States and Europe that pay dividends out of fictitious profits.

  Sometimes fights between companies, especially in takeover attempts, can lead to some strange battles that drain the vitality from companies. The unfriendly takeover hasn’t yet happened in Japan, though one major case was pending at the beginning of 1986 but failed by midyear, and many businessmen think this tactic, common in America, may one day take hold here.

  My argument with the American system in this regard can be illustrated by the case of a joint venture company founded with only four million dollars more than fifteen years ago in Japan. The company became phenomenally profitable very quickly and began paying handsome dividends, yet retained plenty of earnings. In fact, by 1985 the company had built two new plants completely out of retained earnings, without resorting to any loans, and there was still over one hundred million dollars in retained earnings in the bank. Then the American partner’s parent company came under attack by a corporate raider, and to fend off the raider the company had to buy its own stock at a very high price. To do this they needed cash, and their eyes fell on the joint venture company in Japan and its earnings. They told their partner in Japan that they wanted an immediate dividend declared, taking more than three-fourths of the retained earnings, so they could fight the takeover. The Japanese partner didn’t want to sacrifice the earnings, but the pressure was so intense he could not resist.

  In Japan we believe one of the most important things in a company is the workers’ morale; if the workers lose their enthusiasm for the company the company may not survive. The employees view loss of retained earnings as a threat to their job security. We feel a company that sells its assets has no future. It seems to be difficult for some Westerners to understand this idea we have in Japan that the company belongs not only to the shareholders and the managers. The shareholders can take their money out any time they wish. In America the managers can leave when their contracts expire, and the workers can drift in and out. But I believe in most cases workers want job security, even in the United States and Europe. The workers are the people least able to defend themselves and yet they are indispensable to both management and shareholders.

  In the sixties and seventies, when Japan was becoming more liberal and international in outlook, there was a defensive spirit in the country. Some old-line businessmen were against letting foreign companies in at all and wanted more and more barriers e
rected. I was going the other way, and I tried to encourage liberalization and the entry of foreign goods into the country. I established Sony Trading Company and began importing foreign goods, all sorts of things, from refrigerators to Falcon jets and sundries, and I hoped to see more foreign companies on Japanese soil.

  I first established in Sony America a division called “U.S. Sell to Japan Division,” and we did a lot of advertising for companies that wanted to sell products to Japan. At first I thought there was no real enthusiasm on the U.S. side, but the inquiries began pouring in and eventually we had eleven thousand of them, some from top U.S. companies such as Whirlpool Corporation and the Hoover vacuum cleaner company. We began bringing many products into Japan, but we had some problems with our suppliers. Whirlpool, for example, made a fine large refrigerator, but its motor ran on the American voltage system of one hundred and ten volts. In Japan our standard voltage is one hundred volts. We told Whirlpool that they should change the motors in the units they ship to Japan, and until they did we had to install a voltage converter in each unit they shipped to us. It took five long years for Whirlpool to start replacing the standard U.S. motor with one that was usable in Japan. In the beginning the Whirlpool machine was bigger than any refrigerator available in Japan, and although it was noisy and vibrated, it sold well. But Japanese makers began building bigger refrigerators, too, and their designers were more sensitive to the need for quiet running mechanisms for use in our small Japanese houses, where kitchens are not normally very far from the bedrooms. Unfortunately, the American refrigerator was not able to maintain a competitive edge in the market.

  At present, we are devoting much of our energy to importing helicopters made by L’Aerospatiale of France. For the 1986 Tokyo summit of industrialized nations, we were able to sell three large Aerospatiale Super Puma helicopters to the government for VIP use. In fact, of the four hundred and thirty-nine helicopters in Japan in October 1985, one hundred and thirty-six were Aerospatiale machines. We also became agents for Falcon jet aircraft, but unfortunately there are few airports in Japan and the transportation ministry regulations are strict, so we have had few sales. The reason, I believe, is that the distances in Japan are not great and commercial carriers have a very effective system. Sony is the only company in Japan that owns a corporate jet, aside from the newspaper companies.

  My activities abroad for Sony and as a member of the Morgan Guaranty Trust International Council, the Pan American board, and the IBM World Trade board put me in contact with many fine businessmen from all around the world, many of whom have become good friends of long standing. I suppose it was natural, then, that I was called on to help Texas Instruments come into Japan. I had known Pat Hagerty of TI since 1955, when we discussed a possible joint venture. Even though it never worked out, Hagerty and I became close friends. When TI developed integrated circuits (IC), everybody in the electronics business in Japan was interested in the technology. At that time (1968), TI’s chairman was Mark Sheppard, and he was adamant about how TI would make its entry into Japan: he would not sell any IC licenses to a Japanese company unless TI had its own wholly-owned company in Japan. TI wanted to come in to manufacture ICs and sell them in the Japanese market, too.

  But under the existing Japanese regulations, the only way TI could come in was through a joint venture with a Japanese firm. TE’s technology was well respected, and having TI in Japan, many realized, would be a good thing for our industry and for the nation. Besides, lots of companies wanted that IC technology. And so I was approached to try to work out a compromise. I offered TI a joint venture with Sony—we were also a maker of semiconductors—and the Ministry of International Trade and Industry seemed agreeable to the arrangement by which we would sell our 50 percent in three years. We hit a snag when the TI side said they needed a guarantee in writing from the government saying that the sale of our 50 percent of the company would be approved three years hence. Getting a government agency to approve something in advance is a challenge in any country. “You must trust us,” I told one of the TI negotiators, but he insisted it had to be on paper. We finally created a satisfactory written document that just barely managed to satisfy the American lawyers. TI ran the joint venture as though it were wholly owned and did a very fine job of it, which was what we intended, and as we had assured the TI lawyers, our share was sold to TI three years later.

  Some years after the Texas Instruments joint venture went through, I helped General Motors chairman James Roche in his negotiations to buy 35 percent of Isuzu Motors. It was the first major automotive deal of its kind and had to be handled very discreetly in those days. The mood in Japan in April 1971, when James Roche arrived, was very defensive. Newspaper headlines speculated on the motives of this giant company, and the terms they used had military overtones. They talked of “invasion” and “bridgehead” and speculated that Roche was coming to take over Isuzu Motors.

  What had stirred things up was a visit by Henry Ford II just before the Roche visit in which, at a Tokyo press conference, Ford criticized Japan severely on the slow pace of its trade liberalization. In fact, Ford was quite blunt and his bluntness irritated many people. I knew James Roche as a fellow member of the Morgan Guaranty Trust International Council, and while the trip was being prepared, I was asked by the Morgan representative in Tokyo to advise Roche, brief him when he arrived, and help arrange some appointments for him. I thought it was a good idea, because the Ford visit could have been counterproductive for those of us who were trying to promote liberalization and less parochialism in the country. Another antagonistic performance might set back the cause of liberalization and internationalization for years.

  I wanted Roche’s first impression on the Japanese to be a positive one. The day Roche arrived, I rented a room at the Tokyu Hotel at Haneda Airport. Reporters waiting at the airport were told that Mr. Roche was tired and that he would want to wash up and rest for a half hour at the hotel before meeting them. I went to the room early so that I was not seen by the press and was waiting in the room when Roche arrived. I spent the half hour briefing him. I had arranged his appointments with Kiichi Miyazawa, the minister of international trade and industry, and with the chairman of the Chamber of Commerce and Industry, which became headline news events. I had prepared the shape of his first press release, his press announcements, and a kind of script of the questions I thought he would be asked at the press conference. His aides had many questions, and we discussed everything in great detail. I suggested that he explain GM’s interest in Japan and his current mission with a soft touch, because at that time Japan was in a rather tense mood, as though suffering from an allergy.

  The press saw the story of GM’s interest in Japan as one of the most important stories of the postwar era, and the papers were fighting each other for exclusive pictures and information on what GM was planning to do. I advised Roche to say flatly that GM was not interested in taking over Isuzu Motors, which it was not, and he did so. As it turned out, all the questions I had anticipated were asked, and Roche took my suggestions on how to answer them. At that time a foreign company needed government approval to buy more than one-third of a Japanese company, and I helped smooth the way with industry and the government figures who were concerned with the GM-Isuzu plan. The plan worked smoothly and with little adverse publicity.

  Many years afterward, I was delighted to learn that GM continued to be grateful for my advice. Several years ago I was invited to lunch by the head of GM Japan, who told me he had been reading the company files before he came to Japan and said, “I know very well how much GM owes you.” It gave me a great deal of pleasure and encouragement for the future to know that some giant companies such as GM can show those human qualities we think Japanese companies excel in rather exclusively. After Roger Smith became chairman of GM, he visited Japan and asked to come chat with me. He thanked me for what I had done for GM more than ten years before.

  IV

  The primary function of management is decision-making an
d that means professional knowledge of technology and the ability to foresee the future direction or trends of technology. I believe a manager must have a wide range of general knowledge covering his own business field. It also helps to have a special sense, generated by knowledge and experience—a feel for the business that goes beyond the facts and figures—and this intuitiveness is a gift only human beings can have.

  I was having lunch in New York one day with Professor Peter Drucker, the management expert, and Bill Bernbach, the advertising man whose agency created many fine campaigns for us, including the popular and successful “Tummy TV” series. The subject of management came up, and Drucker said, “When I speak with Japanese managers they don’t seem to me to be rational in their thinking. The strange thing, though, is that they end up coming to the correct conclusions. How is that possible?”

  Bernbach pondered it for a while. “My profession is advertising and I don’t know much about business administration,” he confessed. “But in order to make rational decisions, you have to know all of the facts and the environment that surrounds the facts. But it is probably impossible for a human being to know everything. American managers may believe that they are rational, but they are only rational on the basis of the facts that they have come to know. There are bound to be lots of facts and environmental factors that they don’t know. If these are missing, it is natural that no matter how rational a conclusion might seem, it’s going to be off base.