The Importance of Leadership

Bay Networks Makes a New Beginning

Koichiro (Joe) Kurita began his career in the mid-1960s with Matsushita Electric Industrial. After establishing the firm's North America sales offices, he served from 1980 to 1986 as Vice President (North America) of Matsushita's Nonconsumer Products Group. He left Matsushita to become President of Olivetti Corporation of Japan. Kurita joined Bay Networks KK as Chairman and CEO in September 1996.

interviewed by Wm. Auckerman

Kurita: The potential growth of the whole internetworking business - that was the attractive point.

And what do you enjoy most about the job?

Kurita: That's difficult. I'm not sure if I'm enjoying it totally or not. [laughs]

Bay Networks is still a product-oriented company; it's not totally transformed to a marketing company yet. In such a new venture-type of business, you have to learn to do everything yourself - especially in Japan, since we have such limited resources. So I have to do many things myself - lots of detailed work, which is different from what I was used to. Overall, however, such US companies make quick decisions; that, in a way, is a blessing. Japanese companies sometimes don't make decisions quickly enough.

Is Japan a major market for Bay Networks?

Kurita: Yes, we consider Japan a key strategic market. Right now, our percentage is very low, but we are shooting first for 10% [of Bay Networks' worldwide revenues], then hoping to increase that to 15%.

What is the relationship between the Japan office and your US headquarters?

Kurita: That's the six-million-dollar question every foreign subsidiary is facing up against. Since I joined the company, our relationship with the head office has been very, very good. At least we can communicate; before, they were complaining that they couldn't communicate with Japan because of the language problem, the cultural differences, and so forth.

They have authorized us to go with localization, which means that we will do the billing and invoicing here in the local office rather than going through the US office. Most internetworking companies and software companies are still doing it that way, but we're going to change that. We'll change the contracts - they'll be written in Japanese - and the invoicing will be done locally. The head office has approved that, so in this way they are giving more autonomy to the Japanese office.

Who are your major competitors, and how does Bay Networks position itself to compete?

Kurita: If I knew the answer, I wouldn't have to work so hard. [laughs]

Our two main competitors are Cisco and 3Com, there's no question about that. Cisco is lacking in the hub and ATM switch product segment, so we compete with them by offering a more complete solution to the users. 3Com is very strong on the lower end pricing base, so we try to price our products to be competitive.

What are your strategies to achieve market growth for Bay Networks in Japan?

Kurita: We have to request strong product development from our US factories; that's definitely number one. Number two, we have to develop more sales channels in Japan, in every segment of the business. And number three, we have to enhance our total support resources here in Japan.

In late '95, Bay Networks Japan had about 30 employees. How about now?

Kurita: It's about 40 now, and by summer it will be 60.

What are some of your major products?

Kurita: We have the Centillion switch, which is one of our best sellers. And switching hubs are a very strong product line. Also, we are going to have an easy-to-use router at a very good price. And we have a network management product called Optivity that is a hot item; our market share is very high in management software.

Have there been any major changes in the product needs of the Japanese market over the past couple of years?

Kurita: Two years ago, routers and some 28K switching hubs were the key sellers. Now, we are selling more ATM switches. Other than that, there hasn't been much drastic change.

What changes do you foresee in the next three to five years?

Kurita: The intelligent hub market will increase, and the ATM switching market definitely will increase. Also, the SOHO [small office/home office] market will increase.

How strong is the Japanese SOHO market?

Kurita: The SOHO market is still very small in Japan. The total business derived from the SOHO market, I'd say, is somewhere around 5% right now. But it will grow. My forecast is that Japan's SOHO market will grow very rapidly.

Bay Networks, Inc., replaced several top executives late in 1996. How have things changed?

Kurita: There has been a major change since Dave House came on the scene as CEO. One is that, right or wrong, they are making decisions now. There was not a quick decision-maker in the past. When we surveyed over 800 customers worldwide in December to ask how they feel about Bay Networks, nearly everybody mentioned that leadership was a problem in the past, and that lack of decision-making was a problem. Product enhancement has been a problem, too. But we're changing that; we're making a lot of corrections.

How would you characterize Bay Networks' past success in Japan?

Kurita: I don't think we have been successful in the past. Market share, and total volume of business, have been below our potential. We don't yet have enough sales channels to sell our products. And our internal resources were not good enough. We still have to enrich both marketing and our internal organizational structure.

We didn't have strong leadership, we lacked certain products, and we didn't have proper corporate strategies to address the Japanese market. But it was not only a Japanese office problem; it was a corporation-wide problem.

What are some of the special problems that a foreign company faces doing business in Japan?

Kurita: The first thing I would like to say is that 99% of US head offices don't understand the Japanese market, yet they try to control [the Japanese office]. That's a big mistake. Number two, if they are really serious about doing business in Japan, they should hire a good leader from the beginning. Don't settle for a halfway solution.

And number three, while the product and marketing are two wheels that drive the business, the key support of these two wheels are the service functions: software support and service support. These functions are very much underestimated by many companies. They think that if they have a big enough sales force, good marketing, and a strong product, they can be successful. That's wrong! You have to have good service support. No matter how technology advances, business is still about people. But they tend to forget about that, especially high-tech companies.

Finally, where is Bay Networks KK heading? What are your immediate goals?

Kurita: We're heading toward meeting our customers' needs. That means that we have to localize the operation, and offer Japanese contracts and invoicing. Secondly, we have to increase our business volume, and do more advertising to get our identity established in Japan. It's a scale business; the more business you do, the stronger your brand identification. It's not a chicken and egg thing; you have to get the volume first, then you get the identity.

The key message I hope to get across is that Bay Networks is changing. Bay Networks today is no longer the Bay Networks of yesterday.

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