The Vision Thing

What's the problem with Japan's IT giants? Those renowned kaisha that helped power Japan to economic and technological success in the 70s and 80s? It appears global events are dwarfing them, as opportunity after opportunity slips by, whether it's something as universal as the Internet, or as specific as the PDA (personal digital assistant).

Worse, some of the domestic champions' most fundamental strengths are now being challenged in the new global arena, and are being found wanting. Take DRAM memory chips, for instance. Japanese semiconductor process know-how has been respected since the 1970s, when chip manufacturers here emerged to shock US memory makers with the superior quality of their products.

Yet today, the silicon divisions of NEC, Hitachi, Mitsubishi Electric, Fujitsu, and Toshiba are bleeding buckets of red ink. Though their production skills remain top notch, their productivity has fallen behind that of overseas competitors, making their products the most costly in the industry.

Micron in the US and Korea's Sam Sung and LG Electronics -- even Europe's Siemens -- are managing to out-produce the Japanese, and so make a business out of DRAMs, despite cutthroat pricing.

LCDs (liquid crystal displays) are also under threat, even though this is an industry Japanese manufacturers have dominated almost from the beginning. But in a market where undersupply and rising prices are the norm, overseas manufacturers have stepped in to do battle.

Sam Sung, LG Electronics, and Hyundai have all begun shipping LCDs, while Taiwan competitors are expected to enter the market by the end of 1999. And after just three years in the business, Sam Sung is already ranked as the world's largest LCD supplier, according to market researcher IDC Japan. Sharp, which had reigned as number one since forever, has fallen to second place, and by the end of the year, IDC expects Hyundai to grab the No. 2 spot.

The picture is even bleaker when we turn to the Internet, for all we can see are US companies setting the agenda, ratcheting up the pace, and laying down the technology standards. It's a similar story in the burgeoning e-commerce market, where Japan is lagging far behind the US in terms of business being conducted over the Internet.

In the global PC market, Japanese manufacturers like Fujitsu and Hitachi have made little impact, while NEC has been feeding a financial black hole since taking over Packard Bell in the US. The notable exception among these mediocre international performers is Toshiba, which had done well by singularly focusing on the portable PC segment. But now Toshiba is finding the going tougher, as competitors like Compaq and Dell turn up the pressure.

Then we have the example of the PDA, a quintessentially suitable device order-made for the miniaturization skills of Japanese electronics manufacturers. Indeed, Sharp and Casio were pioneering the PDA format long before Apple's John Sculley even misconceived of the Newton. Yet while Sharp saw limited international success with its Wizard, and its Zaurus has sold well at home, it is 3Com's PC-friendly Palm Pilot that easily dominates the global market today.

So why are the Japanese giants stumbling in the '90s? Three developments have come together to trip them up.

First, there is a bunch of negative economic factors at work, like the depressed economy and stock market, and a banking industry unable to lend because of bad debts. One result is a serious lack of liquidity for capital investment.

Second, because of cultural and social restraints, Japanese IT corporations -- facing large losses -- have avoided taking severe cost-cutting measures, such as downsizing. But their more flexible overseas rivals have already walked through the fire, and are tougher competitors for it.

Third, Japan's IT giants still have one leg firmly stuck in analog mode, while the world is going digital at the double.

Things worked well when all they manufactured were "passive" analog products like TV and stereo sets that added a new feature every three years, as opposed to dealing with dynamic digital devices and services like the PC and the Internet, which change every three months.

Time and a muddling government will eventually see Japan overcome the first two issues. But dealing with the third will require a special kind of leadership that has a sense of where the IT industry is headed. In other words, they require the vision thing.

Significantly, the one company that has developed a global vision, Sony, is also Japan's most outwardly looking and internationally-minded corporation. Sony's struggling domestic competitors ought to take a closer look at how it has achieved this.

If you have the vision thing, particularly if your name isn't Bush, John would very much like to hear from you at boyd@gol.com.

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