by Akio Morita
In 1979 I flew to Beijing in our Falcon jet to make a call on Chinese government leaders. My friend Henry Kissinger helped to arrange for me to meet with Deng. My trip was originally one of those “paying respects” visits, and the planned meeting with Deng was not made public. China has been a customer of our products for quite a while and for several years the giant billboard at the corner of Wangfujing Street and Chang An Boulevard in downtown Beijing, adjacent to the Beijing Hotel, was devoted to advertising our products. Besides visiting with officials, I was also going to take a look at the state of Chinese modernization, and particularly at their electronics industry. I went to Shanghai, where I had a chance to visit some factories and talk to a lot of people, and then did the same in Beijing. My hosts were surprised to get the news that the top man wanted to see me.
I spent an hour with Deng Xiaoping, sitting in big overstuffed armchairs in a huge room with high ceilings and Chinese murals in the Great Hall of the People. He was full of questions about how my company had grown so fast in such a short time, and he wanted to hear some of my opinions and suggestions on China’s modernization, which was just getting under way then. The Chinese were beginning to look to Japan for technological help. I told him frankly that there was a lot of inefficiency in the then-new modernization projects. “You are wasting a lot of valuable time and money,” I told him, “which I know you can’t afford.” For an hour, with two interpreters, we discussed the situation, although he made me do most of the talking. He didn’t show very much emotion, but during our discussion he ordered his top officials in the electronics division to meet with me later to get more details.
At the end of the seventies, the Chinese push to modernize was done with a great amount of enthusiasm. Their bureaucrats and experts traveled to Japan, the United States, and Europe and began buying up factories and technologies that could only be utilized by people with skills that were in very short supply in China. They signed contracts for construction of facilities they could not even supply with enough electric power. Worse, everywhere they went they insisted upon seeing the most modern, automated equipment, ignoring the fact that their own first need was to give employment to their growing population and that therefore they should be concerned about building labor-intensive industries. Visiting Chinese always wanted to see Japan’s most automated factories, its latest computerized systems. They tried to buy many things that were wisely denied them because they could not have handled them in that stage of their development. Soon some of the companies that had supplied equipment and plants to the Chinese were being criticized for “overselling.” It was not their fault; the Chinese insisted that they knew what they wanted. Sometimes two competing ministries or divisions bought duplicate equipment, not realizing what they were doing.
I was frank with Deng. I told him I had visited a factory in Shanghai and found a very early model automated soldering machine not being used because the quality of the solder was so poor that the parts it soldered were not usable. I found people sitting around smoking and talking at assembly lines, unable to work because the right parts were not being delivered to them in time. In their rush to modernize, the engineers and managers indulged their personal interests, so they would buy a machine, or even a whole plant, without attempting to coordinate the activities of the whole industry toward any kind of goal.
In one Shanghai plant, I was surprised to see a brand-new automated machine removing the insulation from the ends of wires to be soldered into electrical circuits. Wire-stripping like this is a simple operation that can easily, and economically, be done by hand. The machine was so fast that if it ran for only one shift it could yield enough wire to last the factory for a whole month, hardly the kind of machine that will help solve the unemployment problems of China. There was no engineering management. In their rush to “modernize,” they were buying ready-to-operate plants outright from Japan to make color television tubes, integrated circuits, and other parts. But there was no overall plan for how all these plants and their equipment would coordinate. And in designing products they weren’t concerned enough with local conditions and what the people needed, and could use, all crucial design criteria.
And then the government announced a new law, permitting joint ventures between foreign companies and Chinese government-owned companies. Under the joint venture law they said they were ready to admit private ownership, remittance of a “reasonable” amount of profit abroad, some freedom of foreign ownership, and foreign top management. But a basic problem even today is that the Chinese are not comfortable with the way business in general works in free nations. For example, on wages, they unilaterally decided that a person who worked in a joint venture company would be paid more than a Chinese who works in an ordinary state-run plant. The reason, I was told, was because a worker in a joint venture factory would be required to work much harder than the workers in ordinary Chinese government-run enterprises, which are well known for their inefficiency. I told them this pay differential idea was a mistake, that joint ventures should begin with wage levels that are equal to those of the government-run businesses, and any increase should be granted only after there was some definite improvement in efficiency and productivity.
They also hoped to earn foreign currency by exporting the products made for the home market in the new plants. It seemed such an elementary mistake from our point of view that it would not need commenting on, except that they seemed to be thinking about it seriously. I pointed out that if they wanted to make consumer goods for the Chinese public, such as televisions and radios and home appliances, those goods must be simple, utilitarian, and economical. They would have to be adjusted to suit local conditions, like power supply, and would have to be very sturdy to withstand the heat and humidity of some regions of their enormous country and the dryness and cold of others. The goods would also have to be easy to repair, I said, because if they could distribute goods widely, they would still have a tough time building a service network over such an enormous portion of the earth. This means that the goods would have to be designed for durability and would have to leave the factory perfectly produced and tested for reliability. Quality control would be essential, if they really cared about serving their people. But reliability and durability have always been a problem in China, where the stories of breakdown are topics of general conversation.
They should understand, I told them, winding up, that such sturdy, simple goods would never be competitive in sophisticated free-world markets, where consumers looked for other features. “If you want to earn foreign currency in the electronics industry,” I told them, “there is only one way to do this. You have to do assembly work for foreign companies on a complete knockdown basis, merely adding your inexpensive labor at first. It would be impossible to make goods for the domestic market and goods for export at the same plant.”
I admire Chinese courage and determination. They have learned a lot about modern industry in a short time, but they have a long way to go. Japanese and European products are now competing on the local markets in China, in limited areas. But the contrast in quality and design between anything produced locally and the foreign goods is still striking, although Chinese goods have improved and I am confident that the improvement will continue. The joint ventures at work now making foreign-designed products seem to be progressing. Many Japanese and European companies are happy with the work they are having done there in the textile trade, such as Hanae Mori, Yves St. Laurent, and Pierre Cardin. By 1985 Chinese textile exports had reached four billion dollars.
But the factor that has energized Japan to produce ever-new and better products, as it energizes large segments of the American industrial and commercial establishment, competition in the local marketplace, is still missing. And without that spur, progress is hard to achieve. In the eighties the liberalization in the service trades—it became legal to open a bicycle repair shop or a tearoom, for example—began to give some sense of competitive improvement to the people. Control of many government en
terprises was taken from the iron hand of the Communist party leader and put back into the hands of professional managers who, at least, knew something about the business in which they were engaged. And a return to competitiveness may be on the way. In some places, ironically, competition has arisen with the aid of the Japanese. A munitions factory in Chongqing is assembling Yamaha motorcycles and motorscooters, and a competitor is producing Honda products, carrying the long-standing domestic battle to yet another country.
Since 1979, the Chinese government has achieved remarkable success in increasing productivity in the agricultural area with the introduction of a market mechanism, socialist style. The rural development policy also resulted in a reasonably smooth shift of the labor force into labor-intensive light industries. In the modernization process of big state-owned industries, however, the outcome has been different and this sector still lags.
I My China experience wasn’t my first look at a Communist industrial establishment. My wife and I had been invited to the Soviet Union five years earlier. Yoshiko and I were advised before we left for Moscow to take bottled water and towels and toilet paper because conditions were said to be primitive in the Soviet Union. But it was a needless precaution. We received nothing but the red carpet treatment from the minute we arrived. At the airport, a big black Chaika limousine drove right up to the plane to get us. We didn’t even have to bother with the usual immigration and customs formalities. There was a female interpreter for Yoshiko and a male interpreter for me, in addition to our guide and hosts. They tried to be very accommodating and were with us every minute, it seemed.
At one point Yoshiko said, “I would like to eat some piroshki.” The interpreters looked at each other, puzzled. “Piroshki,” said her interpreter, patiently, “is what the laborers eat—it is not something that you should eat.” But Yoshiko insisted and after much discussion between the interpreters and many phone calls, we were finally taken to a place where laborers were standing around eating piroshki. We joined them and enjoyed those delicious little pastries filled with meat and vegetables.
Our host was Jerman Gvishiani, who was then deputy chairman of the Council of Ministers for Science and Technology, and is now deputy chairman of the State Planning Committee. He is a friendly, sophisticated man who speaks perfect English. I had met him in San Francisco at a party given by Steve Bechtel, Sr., right after a meeting sponsored by the Conference Board and Stanford Research Institute. I was amazed to see this Russian playing marvelous jazz piano and circulating with such ease and suavity in a capitalist environment.
In the U.S.S.R. he was just as expansive. He insisted we try dishes from his home country, hearty peasant food. He took us to see factories in the suburbs of Moscow and Leningrad, and I watched them making radios and television picture tubes and assembling television sets. I saw everything there was to see, but I was not impressed. The Soviets were then eight to ten years behind Japan and the West in their consumer electronics technology. They worked with crude tools and awkward and inefficient production technology. It was obvious to me that the lack of quality and reliability was directly attributable to the indifferent, plodding attitude of the workers and a management that had not figured out how to motivate the engineers and the production workers. Even the Soviet citizens make ironic jokes about how badly designed and poorly made things are, but I believe quality has improved since my visit.
At the end of the trip, my host brought me to his office, where he was joined by an official from the Ministry of Communications and a group of bureaucrats. Gvishiani smiled and said to me, “Now, Mr. Morita, you have seen our factories and you understand our ability. We don’t have inflation or wage increases in our country. We have a very stable labor force. We offer to share this with your country in the form of subcontracts.”
He seemed very proud of what he had shown me, and perhaps for someone who had watched the Soviet people struggle along through the years, the progress seemed phenomenal. But I was not encouraged by what I had seen.
I looked around the room at the faces waiting for me to say something. I asked Gvishiani if I could really say what was on my mind. He said that I should, by all means. And so I did.
“I am going to tell you the truth,” I said. “In Japan we used our top talent and our best brains and spent years seeking ways to increase the efficiency and the productivity of even such a simple thing as a screwdriver. We have racked our brains and made detailed studies and experiments to decide just what is the exact and precise temperature for a soldering iron in each particular application. You do not make any such effort here; there appears to be no need to do it, because nobody seems to care.
“Frankly, Mr. Gvishiani, I am very sorry to criticize anything after you have been such a fine host and shown me all around, but I must tell you that I could not bear to see Sony products being produced under such conditions as you have here. I cannot offer you our product technology yet.”
He took it quite calmly and motioned to one of his assistants who proudly handed him a small, crude, boxy Soviet-made black and white transistorized television receiver.
“Mr. Morita,” he said, “this is a television set we are now planning to sell in Europe. What do you think of it, please?” Again I had to ask him, “May I really say what I think?” He nodded.
I took a deep breath. “Mr. Gvishiani, there is wonderful artistic talent in the Soviet Union,” I began. “Your musicians, your dancers, your artistic heritage are grand and your performers are world-renowned. You are fortunate that you have both technology and art in your country.
“But why don’t I see both exhibited in this television set? Since you have art and technology in the Soviet Union, why do you not combine them to come up with wonderful things? Frankly, gentlemen, knowing what we know of the market and consumer preferences, we would not consider such an ugly television to be merchandisable.”
There was a moment of stunned silence and then Gvishiani turned to the communications ministry official: “Will you please respond to Mr. Morita’s comments?”
With all seriousness, the official said, “We understand what you are saying, Mr. Morita. But art is not under our jurisdiction!”
It was an incredible answer. I started to feel bad and I said, “Oh, I understand that. I have said all that I wanted to say. If you give me one of these televisions, I will bring it back to Tokyo with me and let my engineers give you our recommendations as to how it could be improved.” I did, and our engineers wrote a long report back suggesting some redesign of circuitry and other ways to improve the set. But no Sony technology.
Although the idea of true competition for the consumer’s benefit has not made much headway in the Soviet Union, the experiment in China may stimulate it. But right now the Russians and the Americans have another kind of competition, and this military competition is a major drain on both economies, despite the spinoff effect of defense technology. In the Soviet Union technology seems centered on such things as the space program and the defense program, certainly not on consumer goods. Design and even technological quality lags where the public is concerned.
We do a lot of business with the Soviet Union in broadcasting station equipment. Sony is the largest maker of this kind of equipment in the world. Of course, we sell only with the approval of the Coordinating Committee for Exports to Communist Areas. Similarly, we also do a great deal of business with China in broadcast equipment. We are often asked for technology through licensing agreements by both countries, particularly for Trinitron television tube technology. But we still do not produce anything or allow anything to be produced in the Soviet Union or China under our name. A long time ago Fiat sold a factory and car-making technology to the Soviet Union, and as a result many cars turned up all over Europe that looked just like Fiats but were really only the inferior Soviet version. Fiat’s reputation suffered because of this, and we don’t want the same thing to happen to us.
I spoke to Gvishiani in Salzburg a couple of years later during the music f
estival. “You must come visit us again,” he said to me. But I have not had another opportunity.
IV
Having said so much about how competition has worked to make our industry great, I must admit there is another side of the picture, which is that excessive competition is at work in our society today. It exists in education and in social life, and it has actually destroyed many young lives. The competition for a place in school is intense. And because entrance to the “best” schools is based completely on merit, the only way to get in is through competitive examination. This has led to the making of Japan’s famous “education mothers,” who force their children into a very difficult and cheerless life of drill and study. Some years ago, when we moved into a new house in the Aoyama district of Tokyo, I discovered there was a prep school for kindergarten in the neighborhood.
The University of Tokyo is perhaps the most famous institution of higher learning in Japan, and it can be proud of its many thousands of brilliant graduates, who have been prime ministers and top bureaucrats and diplomats and leading businessmen. But a former president of the university said to me one day, “The freshmen arrive here after a lifetime of cramming and they are completely exhausted.” It is a sad joke in Japan that for many students, almost no learning takes place at university. Once the students have entered the university they have worked so hard to attain, they assume they have achieved their goal in life. They are so tired out that they have no will left or feel no need to study further. Almost no one ever fails once he has made the grade into a university. In Japan university is very difficult to get into and easy to pass out of as a graduate; in the United States and Britain it is the opposite: easier to get into but more difficult to graduate from.