by Akio Morita
Share of market is more important to Japanese companies than immediate profitability. If the purchase of an expensive new piece of machinery will depress short term profits but can be expected eventually to increase the company’s share of the market, the decision will almost always be to make the investment in the long-range future of the business.
This interest in building for the future in order to stay competitive became a source of trade friction in 1985. Japan’s semiconductor makers continued to invest in new plants and equipment at a time when the world market was in decline and American companies were laying off workers and closing down capacity.
Outwitting an opponent in some clever deal is not what the Japanese are interested in. A legendary samurai intellectual martial arts expert named Miyamoto Musashi once wrote a book on the strategy of combat, and when it was reprinted in an English-language translation as A Book of Five Rings a few years ago, it became a cult book among some foreign businessmen who were told that a study of this thin volume would reveal the key elements—the secret—of how to win the business battle with Japan. One New Jersey bookseller’s catalog even described the book as “Japan’s answer to the Harvard MBA.”
But the answer to the Harvard MBA is not a book by an ancient swordfighter. It lies on the shelves and the showroom floors of stores all around the world: good quality products that people want and in such variety that any consumer whim can be satisfied. This is how Japanese goods managed to take so much of the U.S. market. And I would say that the best way to compete with the Japanese would be to examine the successful Japanese products for design and construction and innovative concepts. We did not “invade” the American market as it is sometimes charged; we just sent our very best products to America, products that were recognized for their quality and price. These products were the survivors of the competition in the Japanese marketplace.
Since we began making the world’s first featherweight headphones to go along with our Walkman stereo player, we have made more than fifty million sets and the number of models grows. In Tokyo today, you can see and try out more than two hundred different models of headphones by a dozen makers at a single store. The variety of models of televisions, video cassette recorders, laser disk players, CD players, video cameras, still cameras, cars, vans, motorcycles, scooters, computers, printers, leisure goods, household appliances, clothing, and communications equipment—the list is almost endless—is the greatest in the world. And because Japan’s consumers are fussy, we cannot sell anything that is not of high quality. After-sales service is crucial; we still make house calls, and the company that lets up on any aspect of production or delivery or service will lose customers. An American in the cosmetics business was shocked to hear that it is not unusual for a wholesaler in Japan to send a single lipstick by messenger all the way across the city to a retailer with a waiting customer. If he didn’t, it was explained, he might lose the retail shop’s business. Nearly 70 percent of today’s Japanese consumers live in the urban corridor from Tokyo, on the main island of Honshu, to Fukuoka, on the southern island of Kyushu. Reaching these consumers, who all see the same network television programs and read the same national newspapers, is easy. Satisfying them is hard. And the high rate of competition among Japanese companies for their disposable income is where we have honed our competitiveness for international trade battles. Japan’s one hundred and twenty-one million people are more and more urbanized—only 12 percent are employed in primary work such as farming, and about 80 percent of those farmers earn part of their income in non-agricultural jobs. When we established the Sony Corporation, half of all Japanese were employed in the primary industries. We could see the increasing sophistication of the consumers as our business developed; it became easier to sell higher technology as more and more people came into the city from the farm.
From the beginning, Ibuka and I knew that we were after quality above all. When we came to the American market, we made sure that we had service personnel trained to handle the problems that might come up, and we charged high enough prices to support that effort. Today we have secured markets in the United States and Europe, and I keep telling my managers that we must not be complacent about what we have achieved, because everything is changing very rapidly, not only in the field of technology but also in people’s perceptions, thinking, fashions, tastes, and interests. Any company that is slow in grasping the meaning of these changes will not survive in the business world, especially in the high-technology electronics field. Complicating things is the fact that it is hard to predict change, not that it has ever been easy.
When Ibuka and I introduced Betamax to the market in 1975, we established our marketing policy to promote the new concept of time-shift. It was my idea that we had to create a market for the video cassette recorder by educating people and giving them new ideas. I gave speeches telling people Betamax was really something new. “Now you can grab a TV program in your hand,” I said. “With the VCR, television is like a magazine—you can control your own schedule.” This is the concept I wanted to sell. I knew the competition would soon be upon us, and I wanted to beat it and move people into VCR as fast as possible. I was thrilled with the idea myself. After all, we had been working toward this for twenty-five years.
People were so impressed with television from the earliest days and were so aware of its impact that they didn’t think much about TV’s major drawback, which is that no matter how good or entertaining the programs are, the information is flowing away as fast as it is being received. If I miss reading my magazine or The New York Times or Asahi Shimbun today, I can pick it up tonight and get exactly the same messages with the same initial impact. But even though TV carries a strong impact, if you are not there to see it, you lose everything, and in that case TV has failed in its mission to inform and entertain people.
In the fifties and sixties, popular programs in the United States and later in Japan caused people to change their schedules. People would hate to miss their favorite shows. I noticed how the TV networks had total control over people’s lives, and I felt that people should have the option of seeing a program when they chose. The television broadcasters should not be upset because the programs would be seen with commercials, only at a different time. Of course, to them it meant that people would not be watching the current show and its commercials while they were catching up with the news or the entertainment program they had missed earlier. But it was that control of people’s lives that I felt was unfair.
In any case, when we introduced the concept of time-shift with our Betamax, we were hit immediately with a lawsuit by Universal City Studios, Inc., and Walt Disney Productions, because they said that taping from the air violated their copyrights. Of course we fought that. Some motion picture executives, equally shortsighted, were against us, too, saying people would build up libraries of films that would hurt the movie companies’ interests.
We won the lawsuit, although it took eight years and we had to carry it all the way to the U.S. Supreme Court. And I was delighted to have the Supreme Court use my phrase, “time-shift,” in its ruling that taping off the air does not automatically infringe copyright laws. The concept of time-shift has now become common, and although the phrase sounds like something new, any tape recording of a speech, or musical performance, or news event, or any film, including your home movies, represents time-shift. I have been dealing with time-shift all my life, from the time my mother and I listened to those old classical records, to when Norio Ohga said he needed a vocal mirror. Introducing the concept to video had to await the right equipment. Our video cassette recorder was the first vehicle available to the general public to bring the concept of time-shift to video. Our Japanese competitors were right behind us. We had no American competitors.
II
The continued vigorous competition we have in Japan has also changed the way we look at how we work. In the past, it was important to produce a large stock of a product at the lowest possible cost, but now the life cycle of o
ur products is getting shorter and the cost higher, and if we build up huge inventories, we may find ourselves with a stock of outdated goods. The premium is now on how quickly and efficiently we can get a new product onto the assembly line. In the past we could run a particular model for a year and a half or two years; now we must change models in just half a year, and often sooner. Sometimes it seems like a great waste to put so much investment, so much sophisticated technology, and so many highly complex procedures into such a short cycle, but if we try to lengthen the product cycle and market a model longer by sticking to an old design, our competitors will be in the marketplace with a new model trying (and perhaps succeeding) to take the business away from us. So in design work and in the application of new technology, we have to be ingenious, and on the production lines we have to do a lot more educating of our employees so that they can quickly learn to work on new models without confusion with the old.
I reminded my managers at a worldwide meeting in 1985 that our major competitor came onto the market in Japan with a small compact disc player only seven months after we introduced this new technology in 1984 with our small CD-5 player. In fact, the competing machine was even a bit smaller than ours. Initially, we had not produced enough stock of the new tiny CD player—it was an instant hit—before other small players began to appear on the market, so we were short just at the time we needed to have big stocks on hand. Fortunately, our customers who couldn’t get the tiny model CD-5 bought out all of our more expensive models instead, so the story had a happy commercial ending for us. Then we announced a new player, which is even thinner than our competitor’s model, and a lot of accessories, including one that will play CDs through a car radio from a tiny FM signal transmitter. It is frequently said in Japan, quite rightly, that the thrust of Japanese industry in the seventies and eighties has been toward things that are light, thin, short, and small. We expect that this will hold for the future as well.
I keep urging my staff to try to figure out ways to cope with the speed of change and turn it to our competitive advantage, because it is obvious that change is a constant and you cannot turn it around, slow it down, or frustrate it. The problem this makes for the production side of an enterprise is obvious: you must keep educating the production people. And the pressures are also very heavy on the marketing people, who are being called on to market products that didn’t exist before or models that have new and unfamiliar features.
In the competitive struggle for the biggest share of the market, all sorts of unscrupulous things can take place, including industrial espionage. In this age there are some businesses, even in Japan, dedicated to information access for industrial espionage. The more we become an information-oriented society, the more accessible all kinds of information become. For example, there is no sure method of protecting software now. Once software is created and put into use, it can easily be stolen. We used to think that patents could be used to protect software. The Japanese government had a dispute with the United States over this and reluctantly agreed that software should be regarded as intellectual property and not as industrial property and that therefore copyright law, not patent law, should apply. But in reality how can you tell if something has been stolen when that something is virtually invisible? I believe software is unique and requires some new form of protection; neither patent nor copyright laws seem right to me. This is a difficult area, but I think new concepts are needed.
In California’s Silicon Valley, the trade in information is very lively—consultants by the hundreds, newsletters, and magazines all offer information. During the early development of computers, inventors were notorious for some of the things they did, such as bribing nightwatchmen to allow them into the labs and workstations where they could examine the circuitry of a rival machine.
California is crawling with people attempting to sell technical information. Consultants spend a lot of time digesting government contract awards, research grants, literature from technical meetings, and other sources in order to be able to give or sell advice to manufacturers. Some of the shady ones are always attempting to buy data from employees of progressive companies, and big money is said to be available for an employee who will pass out company secrets. Several Japanese companies have been involved in buying such secrets, and some were caught in an FBI sting operation back in 1982, when representatives of two Japanese computer makers and more than a dozen Americans were involved in the sale of data on a new IBM computer design. I have laid down strict rules against this kind of practice.
The absurd aspect to me is that every year in the United States hundreds, or maybe thousands, of technicians, researchers, and executives of American high-technology firms are given layoff notices, are fired, or just quit. When they go to a new company, they take on a new allegiance and they bring with them all the previous company’s secrets, or all the ones they were allowed to know. Without the loyalty that comes with long-term employment, it seems to me impossible to ever stop the kinds of leaks and thefts that American business suffers every day through disloyalty and dishonesty.
We are so careful with our secrets that we are constantly reminding our people not to talk about their work in public. This is a problem in Japan where it is a custom for section chiefs, foremen, and others to relax after work over drinks and dinner with their coworkers. Tongues oiled by beer, sake, and whiskey do tend to wag, and the friendships that develop from these sessions, I believe, are valuable. But obviously the information that might slip out to be heard by an eavesdropper could be quite damaging.
At Sony we are protected from this, to a great extent, by our own company-run, nonprofit bar called the Sony Club, although it was not established to prevent information leaks. I started it when I realized managers were spending too much money to entertain their subordinates. (We encourage this kind of entertainment because it fosters the family spirit.) The Sony Club is in an unmarked building near our headquarters, and only Sony people are allowed in, so that at any time everybody in the place, every bartender, cook, waitress, and service person, is a Sony employee. Nobody else, no matter how important, is ever admitted. Executives from section chief up get a credit card for the club, and their bar bills can be automatically deducted from their paychecks. Besides all of its obvious advantages for economy and reinforcement of our feeling of solidarity in the company, we also have a barrier to the leakage of company secrets.
I learned very early in the United States never to listen to ideas from outsiders. Some companies, eager for a competitive edge, might grasp at an outside idea, but I always felt it was a mistake that could create severe legal problems. If you listen to some idea peddler and then say, “I know that. I’ve been doing it that way for a long time,” you still might be in difficulty if you do anything remotely like his suggestion. Edward Rosiny, my first legal teacher in the U.S., made me promise never to listen to outside ideas. The only way to do this, he insisted, was to look at ideas from patents. If a patent had been granted, we could ask to see the data describing it in detail, since it would be a protected matter on public record. Then we could evaluate the idea and decide whether we would like to license it.
Rosiny told me of one New York company that was hit by a lawsuit when a man told the president of the company he had a surefire way for the company to double its business. He was dismissed as a crank, but some months later the company decided to raise its prices all across the product line drastically. The crank filed suit. This was his idea, he said. His surefire plan was to double the business by doubling prices. He lost the suit, of course, but it took time and money to deal with it. I did not want to be involved in such nuisance suits.
III
It worries me that the idea of business competition seems to have been lost in many places in the non-Communist world. In Europe, and especially in France, there are people in power who believe that one company making a product under state ownership is sufficient to supply them with what they need. The European system still generally emphasizes decreasing co
mpetition to increase profits. They like to have a monopoly with a small number in control. It does not work to the advantage of the consumer or the employee.
In the United States they cheer people who take risks—venture capital is available in America as nowhere else on earth. Venture capital is still not freely available in Japan, probably because our big companies are horizontal in structure and have the resources to fund their own new projects. This puts the small entrepreneur at a disadvantage, but he, just as we at Tokyo Tsushin Kogyo did back in the forties, must find a market niche and go after it with new ideas. Some are doing this today, though now it is more difficult in a highly technical business like ours than it was forty years ago because the amount of investment needed is very large. Banks are still reluctant to lend money to unknowns, although venture capital is becoming more available. We were fortunate that we could start with so little money, and we were lucky to have had such a distinguished group of advisers to give us credibility with potential investors. Our true capital was our knowledge and our ingenuity and our passion, and I think those qualities are still salable today.
It is a pleasant surprise that China has begun to understand the free market system in agriculture and some services and is allowing some free market competition. The Soviet Union, too, has flirted, off and on, with the idea of introducing some capitalist incentives into their system, but the Chinese under Deng Xiaoping are very serious about it.