by Akio Morita
I did not tell Namiki that the Prince of Wales had urged me to look at Wales when and if we decided to manufacture in Britain, and I was as surprised as anybody when Namiki came up with the recommendation for Wales. Clearly, it was the best site. It was close to the big markets, such as London, Birmingham, Manchester, Bristol. We also knew that a motorway, or highway, was being planned and that transportation from the port of Southampton by road and rail was good. We also got a good package from the government. After Namiki had made his recommendation, which we accepted, I told him about the prince, and though we actually started production at the Bridgend plant in June 1974, we held the official opening in December, when the prince could be present.
We were of course worried about strikes in the U.K., and what a transit strike, for example, would do to our production, so we made sure our employees got to work despite transit strikes or slowdowns by using our own buses to pick them up and bring them to work every morning. We did away with any notions of hierarchy at the plant, as in Japan, by having no special dining room for executives or supervisors and no reserved parking places. Of course we wanted everybody to wear our Sony jacket, and there was some resistance at first from our service engineers, who in Great Britain traditionally wear a long white smock. We didn’t make wearing the jacket mandatory, but before long just about everybody was proud to be wearing the jacket, including the men in the white smocks. The notions of hierarchy broke down.
In the United States we didn’t even have to advertise for workers when we established our plant at Rancho Bernardo Industrial Park north of San Diego. Of course our name was known by the time we broke ground and finally opened in August 1972. Hewlett-Packard, NCR, and Burroughs were all manufacturing there, and they assured us that hiring was very easy. We set up a temporary office to take applications after ground-breaking in 1971—we got a lot of publicity as the first such Japanese venture in the United States, so the “advertising” was free—and we had quite a backlog of applicants to interview when we were ready to hire.
We did run an ad for managers in Chicago, and the plant manager, Junichi Kodera, interviewed twenty applicants, all experienced people with other companies such as RCA and Zenith, but the more we thought about it, the more we realized that hiring a manager with experience in TV was not such a good idea. We wanted our new operation to use the same basic methods we used in Japan, although we knew we would have to modify them somewhat, but we insisted that we had to have the same quality from the first set off the end of the assembly line that we got in Japan. People with TV manufacturing and assembly backgrounds in U.S. companies, I thought, might have trouble adapting to our system. To make sure we wouldn’t have any conflicts with old habits, we decided not to hire anybody who had TV or home appliance background. We got our managers from other manufacturing fields and trained them the Sony way in Japan. We also hired our first assembly-line employees from among those who had had no experience in manufacturing operations.
We had difficulties at first, of course. Our assemblyline workers were mainly women who had not worked on this kind of job before. We interviewed each one carefully several times before we made the selection. Each supervisor and the prospective employee who would work on that team could look each other over before the hiring took place. We hired only thirty people for the core group, and we began by assembling sets from parts shipped from Japan. We knew we would have difficulty doing things our way from the beginning, because there was a need for written instructions for each operation. In Japan our basic assembly manuals were never updated because people stayed on the various line jobs for a long time and they learned and taught the newcomers how to do each operation or group of operations. Changes in technique were constantly being made without being written down in any manual.
We also discovered that sometimes new employees couldn’t keep up with the pace and might miss an operation. In Japan if someone misses doing something the next person down the line will catch it and correct it. But we discovered in San Diego, working with our new employees, that we could not depend upon the people down the line automatically to look for and correct earlier mistakes or omissions. So we devised a system in which an operator who couldn’t do a certain operation would mark the missed operation, not as a penalty, but in order to alert another station to finish the job. Solving problems like this took three or four months.
We found our American workers, like the British and French workers, to be excellent after training. But our system at San Diego had a built-in flaw. We had set up our pay scales to compensate more for the most difficult jobs: one pay rate for an entry-level assemblyline job, a higher pay scale for a different and more difficult job on the line, and a still-higher one for line jobs adjusting the sets after assembly. Naturally, worker morale was high, and they wanted to move up to the top job category and get the highest pay rate. In Japan workers are content to move between jobs on the line, and they are paid by seniority, not by job classification, so we did not have the problem that developed in the U.S., where we found that we could not get our repair rate below a certain point because our basic assemblers were all newcomers just learning the job and naturally were missing operations. To minimize job hopping, we adjusted the system in San Diego so that a worker could stay on the same job and earn more money. Some of those early employees are still with us. They are our core staff at San Diego. We have not laid off a single employee there, even during the difficult period after the 1973 oil embargo.
I wrote earlier about how we had to be more demanding in our specifications to get the American workers (and British, too) to give us the standard we wanted. We found a higher diversity of dexterity among the American women on our assembly line than among Japanese women, so we had to compensate for it, finding the right person for each job. I visited the San Diego plant very frequently in the early days and often the management would ask me to give a talk to the employees, usually taking about ten minutes at lunchtime. I would tell them about the Sony philosophy, or about whatever popped into my head. Mainly, I wanted to be visible to them, to show them that the company was not faceless, and to make them feel like members of our family, which they are. Kodera and the others who were running the plant said it became easy to manage because top management was so well known to everybody.
III
In this way we expanded our trade and development overseas. While doing it, I was always conscious of reactions to the volume of our trade, as in Britain and the United States, where it seemed not only logical but also prudent to create employment in the places where we sell our products. This has been a main problem abroad for Japanese makers, whose success in manufacturing and marketing attractive consumer products has caused so many problems. Sometimes our critics talk of “torrential” exports from Japan and complain that they cannot compete. It is a complex subject, of course, but for years I have been unhappy with the situation in which we become the only suppliers, or we get so far out ahead that none of our competitors abroad can catch up.
When we began making tape recorders in Japan, we held all the crucial patents and we had 100 percent of the market. But it might have been self-defeating to continue that monopoly. We began licensing, and soon we had only 30 percent of the market, but it was a much bigger market. It gives us no sense of comfort that there is no domestic American maker of video tape recorders or compact disc players; in fact it bothers me a lot, because with competition we could expand the market and hasten the development of new models. Without competition there is less incentive to innovate.
It would be good to talk about this with our competitors, but antitrust laws in the United States make it impossible for heads of competing businesses to get together and discuss future trends and mutual problems. By contrast we have been doing this very thing in a friendly manner in Britain for a number of years. Lord Thorneycroft, the chairman of Pye Electronics, headed the British delegation and Sony’s Noboru Yoshii headed the first Japanese delegation.
We started these conferences
because of my concern about one nation’s industry getting such a long lead on the rest of the world’s industry back in the late sixties. This was dramatized to me in the early seventies when we began doing research on video tape recording (VTR). We joined with Philips to work in the same direction on this project. To me, VTR was the next logical product while color TV was reaching its peak. Obviously, we were not the only people working on the new technology; many companies had started R&D and were already filing patent applications on the recorder. Even though it seemed clear to the Japanese makers that VTR was going to be big, there was a reluctance in America and in Europe. Only Philips and a couple of other firms were interested. Philips seemed to be in a hurry and moved into the consumer market with a machine that was not right for home use, I felt, and they were not successful with it. They finally licensed from Japanese companies. In the meantime we had perfected our product and other Japanese companies followed. Then the same American companies that had never even bothered to do the spadework and make the investment to get into the market themselves began buying OEM products from Japan, and some of them were complaining to their congressmen that Japan’s exports were becoming “torrential.”
I tried to convince my colleagues and competitors that to avoid future trade problems it would be better to have European makers and American makers aware of the future prospects and available technology, as well as estimates of the probable public demand for specific kinds of products for the coming decade. With this knowledge, they could do their R&D on their own and be able to compete. If they could not compete, they wouldn’t have much to complain about, since they would have had the benefit of the judgment of their competitors about which way the market was heading.
What will the consumer need in the next ten or twenty years? This is what I felt top management should be concerned with—the future technological trends, which technologies will be useful, or necessary, and what kind of standards we should be thinking of. This kind of talk could only benefit consumers, it seems to me.
I proposed such a meeting in a chat with Viscount Etienne D’Avignon, who was then vice president of the Commission of the European Communities in charge of industrial affairs. He was visiting Tokyo, and we talked about trade problems and cooperation in industry, and I gave him some suggestions. I told him that Japan was working on products that would not be on the market for at least ten years. With video, for example, I told him, “Ten years ago everyone in Japan was working on video. When we introduced it at Sony, everyone followed. But look at your European industry. Because almost nobody was working on video, no company had products ready to market when the Japanese companies began selling them. Your importers began buying these machines from us in large amounts, and then you get angry and refer to our exports as a type of torrential downpour.”
I told him I didn’t want to dwell on the past, but I said, “Your companies just do not know what will happen in the future. We are thinking about directions ten years from now and your industry should be doing the same. Why don’t you arrange with Japan to get those at the top of related industries to sit down together and have discussions?” He thought it was a good idea. I also discussed it with Dr. Wisse Decker, then the chairman of Philips, Europe’s biggest electronics maker. He was in favor of it also.
Back in Tokyo I discussed the idea with Shintaro Abe, a top politician, who was then minister of MITI, pointing out that naturally we would not be talking about prices or market share. But such a meeting, I felt, should be sponsored by governments, not the industry associations of the nations, in order to avoid any antitrust complications. I proposed that a record of our deliberations would be made, and it would be available to companies that did not attend. Formally, Abe asked the Keidanren to get involved through the relevant committee, and they agreed. Then Abe contacted D’Avignon, and in 1982 the first meeting was held in Brussels. The second meeting took place in Tokyo in 1984 and the third in London in 1985. These meetings have helped us understand each other better, for one thing. But I am not sure that they are breaking down the traditional patterns of European business behavior.
Years ago I was told by a European friend that if you had a fine book manuscript and you knew you could sell one hundred copies of the book, the European publisher’s reaction would be to print ninety-nine copies. To print one hundred and one copies, said my friend, would be going against the European sense of propriety. The Japanese view is this: we would keep printing those books and sell as many as we could.
The more we printed, the cheaper the price could be, and with promotion and education, we could create more demand and get more books into the hands of more and more people.
Our view of our business is that when we develop a new process, or a new device, we want to make something with it. If we look upon an invention merely as something clever, or as an academic exercise, it is of little benefit to anyone. We believe it is important to use the technology we have to create products that people can use. This is my theory of the three creativities: the creativity of technology, of product planning, and of marketing that I mentioned earlier. The electronics industry has a unique advantage: because of technological advancement, we can create completely new things—the auto makers can’t do it, the furniture makers can’t do it, the airplane makers can’t do it. We can make things that didn’t exist before and show people how these things can enrich their lives.
But I must say the first meeting of competing companies in Europe had its trying moments. At our first session, the Japanese side made various presentations on future technologies. A European delegate said, “Wait a minute, you are not talking about consumer electronics at all—you’re talking about high technology. That has nothing to do with consumers.”
I responded, “Oh, no, that is where the mistake is. You see, in ten years what you now call high technology will be in use in the hands of consumers.”
He still didn’t get it. “You mean that in ten years’ time high technology and the consumer industry will become one?” he asked.
“No,” I said, “it’s not quite that way. In ten years’ time, what we call high technology will be different from today’s high technology. So what we call high tech today will soon become ordinary, usable technology in the hands of the consumers, perhaps your customers.” Only a few years ago, nobody could imagine that they would have lasers working for them in their home.
I think we finally got through to them in that first meeting after this exchange, and the subsequent meetings have been smooth. I have repeatedly stressed that industry must promote broader trade through new technology and that the owners of the technology should spread it with licensing. In the compact disc case, Sony and Philips jointly licensed many other people, and that is why the business is expanding, although it has been slower than it should have been as a result of initial reluctance from some fainthearted managers. I am encouraging people in other industries to work as diligently as we are on R&D, inviting them to join us to create a market. We are not getting enough takers from America and Europe, but we really learned about this from America and Europe, where they have forgotten their own lessons.
Another example of the impediments to expanded trade is the unitary tax that is on the law books in several states in the U.S. This tax requires a company subsidiary of an overseas firm to report its worldwide earnings and to be assessed on the basis of the total company’s business rather than on just the business transacted in the state. Submitting all this bookkeeping in itself is a costly thing, and paying high taxes on a subsidiary that is losing money even if the company as a whole is making a profit does not seem fair. I have always felt that business should pay its share of taxes and abide by all the laws and rules of the host country. But the unitary tax, which was championed by Edmund Brown, Jr., when he was governor of California, seemed to me to be an attack on foreign business. A handful of other American states had passed similar laws or were planning them, and some of us in the Keidanren decided to speak up about this. A survey o
f member companies in the federation showed that of eight hundred and seventy companies, about one hundred and seventy of them were either thinking of expanding into the United States or had plans to do so. But the unitary tax made every potential investor think twice before committing himself to establishing a plant in the U.S.
At the time, there were about twenty representatives of American states with offices in Tokyo, and we talked with all of them, explaining our thoughts about investment in facilities in the U.S., making it plain that it was our consensus that the unitary tax would be an impediment to investment and that that would mean no new jobs or construction contracts or any new tax revenue for the states at all. We also wrote to all the governors of unitary tax states, and every one invited us to come and visit his state. In 1984, we put together three delegations to visit the U.S., not as an anti-unitary tax task force, but as a Keidanren “committee to investigate the investment situation based on the environment.” We visited twenty-three states, almost half of the U.S., dividing up the states among us. My group was given some of the most critical states, including Oregon, Indiana, and California.
Much to our surprise, and despite a lot of the critical talk we had been hearing from Washington, our reception was tremendous. In Oregon the governor publicized the visit through the media, including TV. The state used five helicopters and took us in pairs to see potential plant sites and to give us a look at the landscape. They treated us generously.