Made in Japan

MADE IN JAPANAkio Morita and SONY AKIO MORITA, EDWIN REINGOLD, MITSUKO SHIMOMURA

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Made in Japan - Page 1

1. On May 7, 1946, a new company was formed in Tokyo called Tokyo Tsushin Kogyo or Tokyo Telecommunications Engineering Corporation. Today, that company, renamed as Sony Corporation, is one of the worlds most successful consumer electronics company, but at the time of establishment, the companys prospects seemed far from certain. The founders of the company were Masaru Ibuka, a 38-year old electronics designer, and Akio Morita, then 25-years old with a background in physics. The new companys first offices were on the third floor of a bombed out department store in downtown Tokyo. (The Second World War with Japan ended with Japans surrender on August 15, 1945, following the dropping of an atomic bomb on Hiroshima on August 6, 1945. The devastation of Tokyo at that time was extensive, with an estimated 46-percent of the population having had their houses and factories destroyed). The new employees of Tokyo Telecommunications sat around for weeks debating what to do to make some money to survive. Since food was in short supply, they decided to develop a rice cooker which used the electrical connectivity of wet rice to good effect. Once the rice was cooked, it would no longer be moist, and the electrical circuit would be broken. Despite building several prototypes, the product was never perfected and never released onto the market. Ibuka, however, came up with a better idea. He developed a short-wave adapter that could be fitted to AM radio receivers enabling the listener to hear the short-wave radio broadcasts. In post-war Japan, the product was very popular, and the company was soon selling a good volume of adapters. The company also manufactured and sold replacement parts for phonographs, small heating pads and a variety of other products. The objective, however, was always to get into the manufacture of high-tech equipment. Therefore, when the Japan Broadcasting Company put out a tender for audio mixing units and studio broadcasting equipment, Ibuka submitted a bid which was ultimately accepted because Ibuka had a close friend who was in charge of engineering reconstruction at Japan Broadcasting. When Ibuka was delivering the mixing unit to Japan Broadcasting, he saw a tape recorder machine manufactured by Ampex and using magnetic tape manufactured by Minnesota Mining and Manufacturing Company, 3M. He arranged for an American officer to bring the tape recorder over to his factory, to demonstrate it to his workers. Everyone liked the idea of going into manufacturing tape recorders except the company accountant. Eventually, though, even the company accountant signed on to the idea. The only problem, though, was the fact the company knew nothing about how to manufacture magnetic tape. Ibuka, Morita and a young engineer Nobutoshi Kihara set about learning how to make magnetic tape. Their first idea was to use coated cellophane, but the material stretched too easily distorting the sound. They also tried using craft paper as the base onto which the magnetic coating was applied. That was partially successful, but once they were able to source some better plastic material, they were then able to start producing magnetic tape of consistent quality and durability.

Finally, in 1950, the company released its first tape recorder -a big, boxy machine weighing 35 kg (approx. 75 pounds) priced at 170,000 yen (about US$470). The machine worked well, but nobody knew what a tape recorder was or what they could do with one. I then realized that having a unique technology and being able to make unique products are not enough to keep a business going. You have to sell the products, and to do that you have to show the potential buyer the real value of what you are selling. I was struck with the realization that I was going to have to be the merchandiser of our small company. We were fortunate in having a genius like Ibuka who could concentrate totally on innovative product design and production while I learn the merchandising end of the business. -- Akio Morira To sell the tape recorders, Morita started looking for specific applications. He demonstrated a machine to the Japan Supreme Court, and they immediately bought 20 units since stenographers were in extremely short supply. A smaller, sturdier unit was also developed for schools so they could add Japanese soundtracks onto the 16mm educational films being used. Gradually, sales volumes started to build. Around this time, the company also got caught up in its first patent dispute. The new tape recorders were built using an AC bias recording system which had been developed and patented in Japan by Dr. Kenzo Nagai of Anritsu Electric, a subsidiary of Nippon Electric Company (NEC). Ibuka and Morita bought half-ownership of the patent in 1949, and discovered that Dr. Nagai had applied for a U.S. patent on the technology in 1941, but with the outbreak of the war, this patent application had never been processed. When the Balcom Trading Company of Tokyo imported some tape machines from the U.S. using the AC bias recording system, Sony took them to court for patent infringement and won after a 3-year court battle. By 1952, the tape recorder market was starting to consolidate, and Ibuka decided to go to the U.S. to see for himself what uses of tape recorders were catching on, and to learn more about manufacturing magnetic tape. The trip was only partially successful -- most manufacturers refused to allow visitors into their plants. But it was hugely successful in another way -- while in the U.S., Ibuka visited William Shockley at Bell Laboratories where the transistor had just been developed. Ibuka was told a license for the transistor might soon be available, and he returned to Japan full of ideas about how to organize his entire company to take advantage of this new technology. Sony, by this time, had 120 employees including about 40 graduate engineers. A licensing agreement for the transistor was signed in 1953 in New York by Morita on behalf of the company. A licensing fee of $25,000 was paid, and Morita went on to tour the United States and Europe looking for new ideas for the company. Ibuka, meanwhile, worked on developing high-frequency transistors which could ultimately be used to produce a compact, transistor radio. The companys goal was to produce a radio small enough to fit into someones pocket -- something that would never have been possible without transistors. Around this time, Ibuka and Morita also decided they wanted to develop a new company name which could also double as a brand name. The companys current name in Japanese was Tokyo Tsushin Kogyo Kabushiki Kaisha -- a real mouthful. Since the English translation -- Tokyo Telecommunications


Engineering Company -- was not much better, it was decided to think of a completely new name. Since sound in Latin was sonus, the Japanese had a slang word for bright sound they called sonny. Due to the fact in Japanese, sohn-nee means to lose money, Matsuda finally came up with the idea of calling the company Sony. The name was perfect, because it didnt mean anything in any language and therefore, could be easily used in any country in the world without problems. Sony released the first transistor radio in 1955 and its first small pocket transistor radio in 1957, proudly carrying the new brand name. By January 1958, the companys name was changed to Sony Corporation and in December 1958, the company was listed on the Tokyo Stock Exchange. 2. Although our company was still small and we saw Japan as quite a large and potentially active market, it was the consensus among Japanese industrialists that a Japanese company must export goods in order to survive. With no natural resources except our peoples energy, Japan had no alternative. And so it was natural for us to look to foreign markets. Besides, as business prospered, it became obvious to me that if we did not set our sights on marketing abroad, we would not grow to be the kind of company Ibuka and I had envisioned. We wanted to change the image of Japanese goods as poor in quality, and, we reasoned, if you are going to sell a high-quality, expensive product, you need an affluent market and that means a rich, sophisticated market. -- Okio Morita Around this time, Sony Corporation had great difficulty in raising sufficient financial backing to fund the companys growth. Despite the fact the company had strong connections in a chairman who was a former chairman of Mitsui Bank and former cabinet ministers and other well connected businessmen on its board of advisers, the company still struggled to gain acceptance. The company was also gathering a reputation as the guinea pig of the Japanese electronic manufacturers. Sony continually was first to market with new innovations, such as the transistor radio and the first solid state TV set in 1959. Other, larger manufacturers would sit back and see whether markets emerged for those products. If they did, they would then jump in, releasing competitive products. As Sonys successful track record became better known, the larger manufacturers were waiting shorter and shorter periods of time before entering new markets. To keep Sony at the leading edge, up to 10-percent of the companys sales were committed to research and development. Our plan is to lead the public with new products rather than ask them what type of products they want. The public does not know what is possible, but we do. So instead of doing a lot of market research, we refine our thinking on a product and its use and try to create a market for it by educating and communicating with the public. -- Akio Morita To develop international sales operations, most Japanese companies tend to work through Japanese trading companies. By contrast, Morita decided Sony would set up its own sales offices, with the first being established in New York. Morita also

resisted the urge to move the company into OEM deals -- making a radio and putting someone elses brand name on it -- at this time as he was keen for the Sony brand name to gain recognition first. Morita gradually started to build a network of business associates from various manufacturers representatives, lawyers and accountants. That way, he gradually built up a network of trusted advisers who were familiar with the American business scene, and who could offer worthwhile advice on the best way to build business there. The strategy worked well, and by 1960, about half of Sonys turnover was derived from markets outside Japan. Morita decided to form a U.S. subsidiary, Sony Corporation of America, to develop its own sales network and to act as a distributor for Sony products. The company was established in February 1960, with a share capital of $500,000. In late 1960, Sony Corporation also decided to raise equity funding in the U.S. capital markets by selling Sony common stock as American Depository Receipts (ADRs). Working in association with a U.S. underwriter, a U.S. attorney and a Japanese securities company, the stock offering was highly successful, raising more than $4 million. That same year, Sony also opened a showroom in the Ginza district of Tokyo, where people could get familiar with Sony products without any sales pressure. The idea was so successful Morita thought he should duplicate it in New York. And, to oversee the operation, Morita decided he and his family should move to New York so he could become more familiar with his potential marketplace. Sony also continued to add more products to its range of consumer electronics. Early videotape units were large, expensive and used mainly by broadcast stations. Ibuka set out to develop a small system that could be installed in homes. By 1969, the Sony U-Matic video recorder was released, featuring three-quarter inch wide video tapes. The company then perfected a home video unit, using a self contained half-inch video tape cassette about the size of a book. In color television technology, Ibuka had another team working on the technology that would later come to be called Trinitron -an innovation in which the electron beams generating the TV picture were packaged in one compact, highly efficient unit. The new technology debuted in 12-inch and 7-inch TV sets -- niche markets everyone else had ignored while they turned out larger and larger color TVs. Sony also briefly entered the solid state desktop calculator market, but with the realization a number of companies were planning on entering that market which would generate pressure to discount sharply to secure market share, a decision was made not to continue in this market. (Sonys policy was always to charge a premium for its products.) A year after the establishment of Sony Corporation of America, Sony also established Sony Overseas, S.A. based in Zug, Switzerland, to handle the marketing of Sony products in Europe. Within a relatively short period, Sony UK, Sony France and Sony Germany were established. The company also opened a showroom on the Champs Elysees in Paris, set up Sony-CBS Records and established a new research center in Japan. Sony also bought property at a busy intersection in the Ginza district in downtown Tokyo, and constructed a building. Since they were allowed to build anything higher than eight stories, they built a shopping center which had eight floors above the ground and six floors below ground level. Two of these floors were used to set


up a Tokyo version of one of Pariss most famous restaurants, Maxims de Paris. By 1971, Sony was now shipping so much product to the U.S. that it became clear setting up a U.S. factory would make good business sense. The company ultimately decided on a West Coast location for the factory in Rancho Bernardo, an industrial park on the outskirts of San Diego, California. I believe it is a mistake to open a factory overseas without first having a sales and marketing system established and knowing the market very well. My view is that you must first learn the market, learn how to sell to it, and build up your corporate confidence before you commit yourself. And when you have confidence, you should commit yourself whole-heartedly. -- Akio Morita 3. There is no secret ingredient or hidden formula responsible for the success of the best Japanese companies. No theory or plan or government policy will make a business a success: that can only be done by people. The most important mission for a Japanese manager is to develop a healthy relationship with his employees, to create a family like feeling within the corporation, a feeling that employees and managers share the same fate. Those companies that are most successful in Japan are those that have managed to create a shared sense of fate among all employees, what Americans call labor and management, and the shareholders. I have not found this simple management system applied anywhere else in the world, and yet we have demonstrated convincingly, I believe, that it works. The emphasis on people must be genuine and sometimes very bold and daring, and it can even be quite risky. But in the long run, no matter how good or successful you are or how clever or crafty, your business and its future are in the hands of the people you hire. To put it a bit more dramatically, the fate of your business is actually in the hands of the youngest recruit on the staff. -- Akio Morita The Japanese concept of lifetime employment was really the result of the policies introduced by the Occupation Forces at the end of the Second World War. New laws, including a written constitution, were enacted by the Japanese Diet or Parliament. The Japanese tax system was also overhauled, introducing much higher personal income taxes. And the Japanese zaibatsu conglomerates, the giant interlocked holding companies which had controlled much of the economy, were disbanded. As a result, a more egalitarian society emerged, in which everybody thought of themselves as being middle class. The new tax system had a graduated income tax rate, which highly penalized anyone who earned a lot of money (up to 85-percent of income was taxed, in fact). At the same time, the new laws made it difficult to fire anybody. As a result of these two factors, executive salaries in Japan are only (on average) about eight times that of other workers. Companies pay for many items, in order to avoid the high marginal tax rates. Therefore, the combined effect of all these measures was to encourage Japanese companies to hire staff with a long-term view, rather than to follow the Western perspective that staff can be replaced at any time.

The reason we can maintain good relations with our employees is that they know we feel good about them. In the Japanese case, the business does not start out with the entrepreneur organizing his company using the worker as a tool. He starts a company and he hires personnel to realize his idea, but once he hires employees he must regard them as colleagues or helpers, not as tools for making profits. A manager must consider a good return for the investor, but he also has to consider his employees, or his colleagues, who must help him to keep the company alive and he must reward their work. The investor and the employee are in the same position, but sometimes the employee is more important, because he will be there a long time whereas an investor will often get in and out on a whim in order to make a profit. The workers mission is to contribute to the companys welfare, and his own, every day of his working life. He is needed. -- Akio Morita When Sony was first formed, most of its employees were hand picked. They were invariably attracted by Ibukas dreams of products and technology, and frequently joined the company to work alongside him to make the dreams materialize. The company always did things in an unorthodox way, and was prepared to change direction until everyone felt comfortable. Sony had no company song, although the company did have a vision statement of key statements which every employee was expected to learn. A company will get nowhere if all of the thinking is left to management. everybody in the company must contribute, and for the lower level employees their contribution must be more than just manual labor. We insist that all employees contribute their minds. -- Akio Morita Sony does not instill in its managers a belief they are special people elected to lead stupid people to do incredible things. instead, everyone is encouraged to contribute suggestions and ideas, without blame or recrimination if the idea doesnt pan out in practice. Similarly, the company is also careful about increasing staff numbers in boom times, because there is never any reason to lay people off when sales slow down. In fact, during recessions, Sony is much more willing to sacrifice profits than to fire trusted and valuable employees. Managers, in the Sony system, are judged not by their bottom line results but by how effectively they can get every member of their team to contribute, and their ability to blend everyone into a coordinated performance. Achieve that consistently and the bottom line will always take care of itself. In many companies, sales companies actually discourage innovation, because that means re-educating the sales force. This is an expensive exercise, usually including R&D expenditure, increased advertising and sometimes new facilities for the manufacture of the new products. It also obsoletes existing product lines. In profit conscious companies, particularly those where compensation is tied directly to profitability, sales managers will prefer not to innovate. The challenge, therefore, is to get sales people to think long term and not to focus on projects that will come to fruition in the immediate future. Once you have a staff of prepared, intelligent and energetic people, the next step is to motivate them to be creative. For a long time, the Japanese have been branded as imitators rather than creators. But I think it would be downright foolish to say that


what Japanese industry has accomplished in the past forty years has been anything but creative. -- Akio Morita One of the distinctive features of Japanese creativity is that it is driven by changes in the consumer marketplace rather than by defense industry expenditure. Many U.S. and European technology breakthroughs are spin offs from defense work funded by the government. In Japan, by contrast, technological innovation goes hand in hand with commercial viability. In addition, Japanese universities tend to be far more independent that American universities. That makes exchanges of human resources and research facilities between universities and the private sector more difficult. The challenge of unleashing creativity in employees is also ever present for most Japanese companies. The Sony approach to achieving this is to always set tangible targets -- clear challenges that will require leaps forward to be realized. One of the most important management functions for an industrial company is that the managers must give goals to the engineers constantly. That throws a challenge out to the management to make certain the goal they set is correct, and to the engineers to develop whatever is needed to achieve that goal. Both areas are important if the company is to succeed commercially. 4. Sony has many lawyers in the company today, and is involved with many law firms in America and elsewhere, but if we listen to lawyers too much, we cannot do any business. The lawyers role is very important for the businessman, but I also think that it poses a danger. Even if the lawyers think of all possible risks, an unpredictable thing may happen. If you have so many lawyers, they have to find business, which sometimes they have to create. Sometimes, nonsensical lawsuits are generated by lawyers. In the United States, everybody sues everybody. -- Akio Morita in address to Harvards Kennedy School of Government In the United States, there are more than 500,000 lawyers, with 39,000 new graduates every year. In Japan (with roughly half the population of the United States), there are 17,000 lawyers with about 300 new graduates each year. The integration of lawyers into the business climate of the United States is an impediment to efficiency, and creates a legalistic climate of mutual mistrust and loss of confidence. It creates an unnecessary handicap on entrepreneurial efforts. By the same token, the Japanese approach to work is distinctively different from the American concept. In the U.S., workers have been conditioned to a system in which they sell their labor for a prearranged price -- they either deliver what they promise or expect to get fired. In Japan, workers are promised job security and the management are expected to find innovative ways to keep workers motivated. In the Japanese system, money is just one possible motivator, and often responsibility and a sense of accomplishment will be far more effective motivators. In fact, most Japanese workers opt for long-range security over any other factor. They will readily take a job that has lower starting salary and guaranteed yearly increases than a job that pays more in the first few years but has to be reviewed on a regular basis to decide whether or not to continue the program.

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 be in the long run returning more to the shareholders, and certainly more than many companies in the United States and Europe that pay out dividends on fictitious profits. -- Akio Morita One of the most important assets a company can have is the morale of its workers. From that context, paying out retained earnings as dividends can be a negative if the workers perceive that as a threat to the future stability of the company. A company that sells its assets isnt considered to have a bright and prosperous future. Workers want job security first and foremost, and are almost always willing to forego other benefits in the pursuit of security. To offset the projectionist attitude that has characterized Japanese business in the past, Sony launched two initiatives: 1. The Sony Trading Company was established to import and market foreign goods in Japan. The company later came to handle a wide range of products, from refrigerators to business jets. 2. A division was established in Sony called US Sell to Japan Division. That division advertised for companies that wanted to sell products to Japan. In addition, Morita also undertook consulting with companies that wanted to break into the Japanese market but didnt know how to go about it. As a result, Morita helped Texas Instruments set up a manufacturing plant in Japan, and assisted General Motors negotiations to buy a 35-percent stake in Isuzu Motors. The primary function of management is decision making and 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 facts and figures -- and this intuitiveness is a gift only human beings can have. -- Akio Morita My profession is advertising, and I dont know much about business administration but in order to make rational decisions, you have to know all 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 and lots of facts and environmental factors that they dont know. If these are missing, its natural that no matter how rational a conclusion might seem, its going to be off base. Compared with this, Japanese managers seem to have an oriental "sixth sense". Probably, instead of putting one fact with another, they grasp a


general idea as a whole and then use this information, together with that "sixth sense", in making decisions. This way, they have a better grasp of the general idea that one can only get through careful reasoning. -- Bill Bernbach Most westerners are familiar with the concept that Japanese companies run by consensus. That doesnt mean a spontaneous group impulse. Most consensus comes from the top down. Once a decision has been reached through consensus in a Japanese company, irrespective of where the idea originated, everyone is committed to devoting every reasonable effort to achieving the result. The other advantage of the consensus approach is that the middle managers (who expect to be running the company in 10 years time) can develop and implement plans that will position the company advantageously in the future, rather than generating immediate results. Therefore, smart companies should be actively encouraging their most promising up-and-coming employees to be forthright and expansive in where they think the company should be heading. Americans idolize the turn-around manager -- the outsider who can be brought in by a new board of directors to close factories, lay off employees and take the company in new and exciting directions. By contrast, in Japan, this type of restructuring is considered to be a huge embarrassment for a company and a disgrace. It is the equivalent of killing a companys spirit. Americans also try to remove the human element out of business decisions as far as possible. Japanese managers consider the key to high efficiency and productivity is to foster a close cordial relationship between the management and the employees, which in turn builds company morale. 5. The glory and the nemesis of Japanese business, the lifes blood of our industrial engine, is good old-fashioned competition. It is a severe kind of competition, and sometimes it is so severe that I am worried about its export to other countries. We Japanese are competitive not only in business but also in life. But there exists a fine line between competition and destructiveness. In China, they say you should not break a persons rice bowl. In Japan, it is understood that you must not destroy a worthy competitor -- you must leave him his honor, his face. Still, Japanese companies are often cutthroat, and it is this keen competition at home that makes our companies so competitive abroad. In business competition, as fierce as it is, the unwritten understanding of competition for a share of the market is not for a single company to greedily take everything. However, if a company simply cannot compete, its competitor will not keep it afloat. -- Akio Morita For all Japanese companies, competition is a fact of business. That local competition builds the muscle that serves Japanese companies well when they compete in foreign markets for goods and services. For most Japanese companies, market share is more important than immediate profitability. Due to the fact Japanese consumers tend to be fussy, Japanese manufacturers cannot afford to sell anything in their local markets that is not of the highest possible quality. As more and more people move from the farms to the cities in Japan, it becomes easier and easier to sell them high technology

products for their homes and offices. At one time, a key business objective was to manufacture a large stock of products at the lowest possible price. Today, however, people tastes change so rapidly the premium is now on getting new products into the marketplace as quickly and effectively as possible. Model changes now occur on much shorter cycles in order to stay competitive. The key principle is that change will be a constant in the years ahead -- and you should find ways to make it a competitive advantage rather than worrying about how to slow it down. 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 did 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 it is now 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 saleable today. -- Akio Morita Free, open and unhindered competition is the key to the development of industry and technology. Any interference with the competitive nature of markets should be minimized. restrictions and arbitrary limitations should be dismantled as rapidly as possible. Only a free and open market can deliver the ultimate verdict on the viability (or otherwise) of products and services. 6. We Japanese are obsessed with survival. Every day, literally, the earth beneath our feet trembles. We live our daily lives on these volcanic islands with the constant threat not only of a major earthquake, but also of typhoons, tidal waves, savage snow storms, spring deluges. Our islands provide us with almost no raw materials except water, and less than a quarter of our land is livable or arable. Therefore, what we have is precious to us. And that is why we have learned to respect nature, to conserve, to miniaturize and to look toward technology as a means of helping us survive. Akio Morita To most Japanese, conservation is more than a good idea -- its considered a sacrilege to waste resources unnecessarily. Japan has rebuilt so rapidly since World War II because the country has built up considerable expertise in crisis management skills by dealing with numerous natural disasters that have befallen the country. When the Arab oil embargo hit Japan in 1973, the companys manufacturers began competing to see who could cut power consumption the most for their consumer products. For any company to survive in business for an extended period of time, they must keep improving everything they offer to the public, and that takes new technology. And to take advantage


of new technology, a company has to lose any bias towards avoiding the use of technologies that were developed elsewhere. But success doesnt come merely by doing something different. You also have to add everything that is required to make a business out of a new development. And then you have to keep updating the product, or else your competitors will move ahead of you. I believe the reason Japans industry has advanced as far as it has is that the companies thought they were behind and so, in effect, they went to school, learning up-to-date techniques, paying "tuition" for imported technology. But what you learn in school only becomes useful when you add something to it that is yours, and you do it yourself. The challenge for all companies, not just ours, is in management of the new technologies, the new developments and new products. We will need a lot of new ideas. We will have to put all of our technologies together to create the complete systems we will need in the future. Knowing how to make the best use of your engineers will be the test of whether a company will succeed in the coming age. Technological management will be the key to success for companies anywhere in the world in the coming years. -- Akio Morita To achieve the goal of encouraging inter-department cooperation, Sony uses these techniques: 1. A monthly R&D meeting is held, attended by senior management and department heads. At this meeting, reports on the progress of various research projects are considered, and decisions are made whether to continue or abandon projects under way by the company. 2. Once a month, a technology symposium is held. Division heads and researchers discuss the work theyre doing. This allows work done by one division to be accessed by other divisions within the company. 3. An R&D Planning and Coordination Division has been created within the company structure. This Division is responsible for the management of all company funded development and research projects. 4. Sony regularly invests venture capital into projects undertaken by staff who are seconded away from Sony to work with start-up companies. 5. Once a year, Sony holds a technology fair at which all divisions of the company are expected to display their latest products. Only Sony staff are admitted to the fair, and engineers and technicians are expected to be on hand to answer questions about their products. The idea of these initiatives are to avoid duplication and to keep control over R&D expenditure. The precise direction in which all of this will head is hard to guess. Obviously, information systems combining television, computers and communications will become commonplace in the home. We are in the midst of a cultural and social revolution. And it may be more and more difficult to impress people as time goes on, because even today, although the fact that we can pick up the phone and dial directly all the way around the world is a wonder to people of my generation, younger people whose memories do not go back very far dont seem to give it a second thought. -- Akio Morita

7. I believe the world economic trading system is in great peril and the squabbles over specific trade issues and between countries only mask the real problems that are below the surface. I believe the main problem is with our money. In order to have economic activity in a free and open economic system, you have to have buying and selling at appropriate prices. The prices will be affected by supply and demand, of course. Thats the simple basis of the free economic system. If I sell a product worth a thousand yen to someone in the United States or Britain, I expect to be paid the dollar or the sterling equivalent of a thousand yen. The rate at which that exchange is made must be fair and should reflect the relative competitiveness of the different nations industries, because I believe that industry should be the primary factor in setting the value of the nations money. When US president Richard Nixon devalued the dollar in 1971, all currencies, including the yen, were allowed to float free of the old fixed-rate limits, and the yen immediately became about 15-percent more expensive against the dollar. I thought the floating system would, by international agreement, be monitored, and that rates would not be allowed to fluctuate too far or be influenced artificially. What we didnt count on was that a factor other than the competitive power of our goods -- namely, money traders -- would begin to affect the value of world currencies. Money speculators used one criterion only for buying one currency and selling another -- profit. This resulted in a constant changing of rates that has nothing to do with industrial competitiveness. In this situation, the price of our goods became a matter virtually beyond our control. -- Akio Morita Business people use money as a scale by which investment decisions and economic activity can be recorded. When returns on investment become subject to arbitrary factors, there is a disincentive to make further investment. The foundation of any economy lies in any nations industrial base. If investment in building that industrial base ceases, industry will collapse. The natural activity of companies is not to generate currency trading profits, or to carry out mergers and acquisitions. The natural role of industry is to improve existing products and to develop new products. With the oil shocks of 1973 and 1979, vast amounts of money were moving to oil exporting nations. The U.S. responded by tightening the money supply and increasing interest rates to combat inflation. These ,moves, in turn, caused investments to flow into the U.S. to take advantage of those high interest rates. As a result, some American companies found they could generate better profits by trading money rather than by manufacturing and marketing goods. Therefore, Americas industrial infrastructure was weakened as many companies have even moved production capacity off shore. Initial attempts to correct the exchange rate fluctuations were made in 1985, with the result the yens value increased by more than 35-percent against the US dollar. This had dramatic ramifications for small- and medium-sized Japanese businesses. Clearly, a more efficient currency exchange system is required. What form this exchange system will eventually take is a matter entirely for speculation. However, something needs to be done. An industrialist can work feverishly for an extended period to realize a 2-percent reduction in costs only to find that the value of the countrys money can fluctuate by as much as 10- to


15-percent in a single day. That removes any incentive to innovate, and makes it exceptionally difficult to plan ahead. I believe the future of our world trading system depends upon increasing, not stemming, trade. Right now, Japan is digging her own grave in this regard. If the trade imbalance does not change, then the reaction from abroad will be to demand greater and greater restrictions on Japanese exports. We have to get to the root causes of these problems and not just react to what appears to be the problem on the surface. American industrial competitiveness must return. We are soon approaching the point, because of the loss of American manufacturing, where the US may need Japan and her exports as much or more than Japan needs the US markets. -- Akio Morita 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. -- Akio Morita 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 as merely 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. The electronics industry has a unique advantage: because of technological advancement, we can create completely new things -- the auto makers cant do it, the furniture makers cant do it, the airplane makers cant do it. We can make things that didnt exist before and show people how these things can enrich their lives. -- Akio Morita In these days of change and international communication, we must learn to talk sensibly and frankly to each other. Because a war over trade is unthinkable today, every nation must face changes that will require difficult decisions. Japan is now going through a difficult period of adjustment as we work toward redirecting our economy away from its traditional heavy reliance on exports. The world economic system has slipped out of our control; increasingly, our economies are at the mercy of financial opportunists. Entire companies have become objects of exchange for the money traders and great, old businesses are eating up their own assets in pursuit of quick profits. Some nations are crushed under debt burdens they cannot hope to liquidate. And as some industrialists invest in the money trading game instead of the future, the ability of some countries to produce their industrial necessities is diminishing rapidly. None of this activity is helping to create the better, more stable world we say we want. -- Akio Morita

I believe there is a bright future ahead for mankind, and that future holds exciting technological advances that will enrich the lives of everybody on the planet. Only by expanding world trade and stimulating more production can we take advantage of the possibilities that lie before us. We in the free world can do great things. We proved it in Japan by changing the image in the words "Made in Japan" from something shoddy to something fine. But for a single nation or a few nations to achieve this is not enough. My vision of the future is of an exciting world of superior goods and services, where every nations stamp of origin is a symbol of quality, and where all are competing for the consumers hard-earned money at fair prices that reflect appropriate rates of exchange. I believe such a world is within our grasp. The challenge is great; success depends only on the strength of our will. -- Akio Morita

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