January 31, 1992 | Backgrounder on Asia
876 C 3 K INTRODUCTION George Bush's trip to Japh is ovcr.whtthg is .attempt s togah pa& ac cess to the Japanese market f& American industiies will yield results has yet to be seen. What is unfortunate is that much of the American gov&me.nt's crigcism of Japan distracts ahntion from itforms in Am&a-thathave been m&ng America moie competitive.. Some Americ&,f&s,rfoi 6xampie;;p be
'ning to adopt business strategies long used by migy JapGese comptpiies; One in par mase the mhipetitiveness of both dationships, h'erka rcmaiis genera)ly iiihospi~ble thcm A aim panies seeking such strateg ic'dliance$'&n are threatened wid lawsuits fqr vioiating federal antitrust laws. Yet these,alliin&s can iixqee AmHcGcom petitiveness. They also ha- bcgn very Suc~ssf~l as iobls to bieak iqto'the Japanese market-without help'f?bm the:u;litea States'.gove&e t and without any grudging favm froni Ja~an. Bush and'congress thus should.%nsi'iler amend- ing or. scrapping tho&'hti l$wi 'ht'dSmAge s allianks. se* alliances su d *u i attcr;lp't-&in While Japanese law.'allows.'and de. Japanese goverkent even encourage s such example, invented the video cassette recorder, but found no American suppliers willing to invest in the new manufacturing techniques needed to mass produce tape heads and other essential electronic components. The result: Japanese firms gained produ ction advantages because of their interlocking network of suppliers and producers and Japan now controls the VCR market.
This and similar competition from overseas has been forcing many American fms to seek strategic alliances even if it has meant risking legal action under the antitrust laws. U.S. antitrust laws can be used by competitors or by the federal government to pr event companies from engaging in these alliances. Yet strategic alliances are a valuable way for American firms seeking to improve their competi tiveness.
Recent examples of such strategic alliances Development of the next generation of television, called high-definition television (HDTV has been an all-out race between American and Japanese rivals. In the U.S there have been constant calls from electronics manufacturers for direct U.S. government subsidies. But with very few handouts coming from the feder a l government, some firms linked resources to develop and produce HDTV. This November, AT&T, based in Murray Hill, New Jersey, and Zenith Electronics Corporation, headquartered in Glenview, Illinois, announced the development of the worlds first all digita l HDTV. Japanese fvms have developed their HDTVs using the older analog transmission signals instead of the new digital transmissions. In effect, the American hs leapfrogged Japanese designs, without help from Washington For ten years, IBM, headquartered i n Amonk, New York, had a working relationship with the Santa Clara, California-based Intel Carparation, a manufac turer of the semiconductors used in various electronic equipment including com puters. The relationship was ill-defined and lacked most of the qualities of more recent strategic alliances. Last month, however, IBM andIntel announced a new ten-year arrangement to allow them to work together to design and produce the central processing units (CPU) which are the brains of modem computers. Thus as I B M develops the next generation computer, it will work with its CPU supplier at each stage of the process to make certain that CPUs are high quality, low cost and most appmpriate for the end product. The alliance will allow both companies to mate new produ c ts and bring them to market more quickly than if they worked on their own INTERNATIONAL BUSINESS ALLIANCES Strategic alliances between American and Japanese firms have helped American fms not only become more competitive but to penetrate the Japanese mark e t as well. Recent examples 2 Americas inability to gain access to Japans electronic component parts market has been the subject of much debate between the two countrys negotiators and policy makers Yet some American businesses wisely are not waiting for g o vern ment action This October, Alcoa of America, headquanered in Pittsburgh, Pen nsylvania, and Kobe Steel of Japan established an alliance that will produce tubing for photocopiers and other products A $5.3 million plant, to be built in Charlotte North C a rolina, will be paid for equally by the two partners. The al liance will give Alma access to Japanese production techniques for manufactur ing specialized component parts for precision instruments and products. The com panies expect to have total annual s a les of $22.8 million by 1993 This December, Japans Canon Ltd announced an alliance with IBM to produce jointly notebook computers to be sold under IBMs brand. Canon will make the liquid crystal displays for the product and IBM will make most of the other c omponents. This will allow IBM to work with Canon to produce state-of the-art notebook computers. Similar arrangements with Hewlett Packard Company of Pa10 Alto, California, and Texas Instruments Inccnporated of Dallas Texas being considered by Canon Most consumer electronics equipment such as toasters, xefrigeratm, and video cassette recorders require what is called applications specific integrated circuit or ASICs. These circuits follow a specific set of instructions each time they are ac tivated. C&nce Design Systems, Inc. of San Jose, California, announced in Oc tober, that it would enter an alliance with Fujitsu of Japan to manufacture ASICs.
Fujitsu will make the intricate designs and Cadence will manufacture the product.
Both companies will work on new types of ASICs for next generation consumer electronic products.
American computer chip companies have lost market share to Japanese com panies in the dynamic random access memory (DRAM) chip, used to store the in formation that the computer uses to r un various programs. Since 1986, ostensibly to help beleaguered American firms, the U.S. government has managed the im ports and exparts of semiconductors through a bilateral agreement with Japan. Yet there has been no significant increase in American exp oits of DRAMS to Japan.
But this November, without U.S. government help,Texas Instruments and Hitachi of Japan announced a joint venture to design and manufacture 64-meg DRAM chips, one of the most advanced computer chips of its kind. The alliance will giv e Texas Instruments access to Hitachis innovative designs, manufacturing techni ques, and the Japanese market 3 A growing number of companies are positioning themselves as suppliers for high def~tion television (HDTV LSI Logic Corporation, an American fm h eadquarkred in,Milpitas, California, last year announced an alliance with Japans Matsushita Electronics to manufacture semiconductor components for HDTVs. The alliance allows LSI Logic access to superior Japanese production techniques, thus improving LSI L ogics ability to participate in this growing in dustry In a related partnership, Micron Technology, Inc an American electronics manufacturer headquamed in Boise, Idaho, announced last July that it would enter a joint production venture with Sanyo Electric , a Japanese subsidiary of Sanyo carparation. Their alliance will manufacture memory chips for computer graphics hardware and notebook computers. The product will be sold in Japan through Sanyos distribution channels, thus increasing Micron Technologys ac cess to the Japanese market.
As mobile and cordless telephones become increasingly popular, new products are being designed that will require components that are not yet manufactured. In an attempt to cut research and development time and enhance productio n capacity, Mitsubishi Electric of Japan and AT&T last October announced an al liance that will manufactme new kinds of gallium arsenide computer chips that could be used in mobile and cordless telephones. If successful, the two companies working together will be able to produce the new chips mm quickly than if each worked on its own. AT&T, meanwhile, will gain important experience in com puter chip production from Mitsubishi, one of Japans biggest electronics producers While American auto parts manufacms c omplain about their inability to break into the Japanese market, one American firm has found a way to do so. An alliance announced last October, between Mitsui of Japan and Americas Alumex is a 50-50 partnership to develop a new automotive parts productio n process. The process will involve innovative techniques to produce low-cost, high quality parts. The alliance will then license the process to manufacturers in both Japan and the U.S Many American companies are attempting to enter new product lines. Yet r e search and development costs for new technologies are extremely high. Some American companies deal with this situation by establishing strategic alliances with companies already manufacturing these products. AT&T, for example, an nounced earliex this mo n th an alliance with NEC of Japan to manufacture DRAM 4 chips for computers and other products. NEC will share its DRAM chip designs with AT&T. The two companies then jointly will produce these chips allowing AT&T to break into this new product ma much mor e cheaply than if the com pany had to start from scratch.
Some.firms successfully design new products yet find it difficult to manufac ture the product because of inefficient production techniques. In recent years American finns often have been the better designers but have turned to fareign partners for help in production. Some Japanese companies also seek fareign help in producing Japanesedesigned products. An alliance announced last September between NKK of Japan and IDT of Santa Clara, California will produce micropmessars for computers. NKK will supply the designs and IDT will manufacture the microprocessors. This will allow IDT access to new designs.
AT&T stopped producing cellular phones several years ago, unable to compete with other American and so me foreign firms. Yet an alliance, formed last year with Oki Telecom, a division of Japans Oki Electric, could bring AT&T back into the profitable cellular telephone market. Under the alliance, Oki will provide AT&T with cellular phones to be sold in the U.S. under AT&Ts brand name. The deal will allow AT&T access to new technologies in the cellular phone industry.
American computer and electronics manufacturers have had Wiculty bringing new types of notebook or laptop computers to market, These lighter, p ortable versions of desktop computers require smaller, mare rugged components than their larger versions. To date, Japanese companies have been the principal sup pliers of such components. Some American firms are entering the notebook com ponent market th r ough strategic alliances. Matsushita of Japan, has announced a 1.4 million alliance with an American company, Tandy, a division of Radio Shack, to produce advanced notebook computers for sale under the Radio Shack name brand. The production facility will be located in Forth Worth, Texas.
Japanese automobile manufacturers use a computerized production manage ment system to keep quality high. Computers for these systems quire the kind of sophisticated software programs best made by American fms. IBM, for ex ample, announced last October that it would enter negotiations with Toyota of Japan to supply IBM software forToyotas production computers. If completed the alliance will allow an American company to participate in this area of the Japanese automobile ind u stry 5 The U.S last year, imposed a 65 percent tariff on Japanese flat panel display screens used in notebook computers. The International Trade Commission, an agency of the federal government recommended the tariff, arguing that the Japanese were dumping the screens into the U.S thus harming American producers. Yet in some cases there are no U.S. producers of certain kinds of flat panel displays. The Commission decision forced Japanese companies like Toshiba to move their U.S.-based notebook production fa c ilities, which require the flat panel screens, to other counties, with no such tariff. Many American workers lost their jobs in the pmcess. Toshiba already has an alliance with JBM to produce such displays, but the new tariff has hindered IBMs ability to b ring the screens into the U.S. for its notebook computers. Despite U.S. government trade retalia tion, Toshiba is seeking to include American companies in the production of flat panel display screens. Thus, last September, Toshiba and Applied Materials, h e ad quartered in Santa Clara, California, announced an alliance to manufacture equip ment used to produce flat panel color display screens. This will allow Applied Materials access toToshibas technology, thus improving Applied Materials ability to compete i n this product area As computers become faster and more intelligent, the microprocessor, or brain of the computer must be redesigned significantly. An alliance announced last October establishes a joint effort between Toshiba of Japan, Siemens A.G. of Gen n any, and Integrated DeviceTechnology, headquartered in Santa Clara California, to produce new generations of microprocessors. With the different strengths of each company focused on specific parts of the design and production process, they may bring the p r oduct to market sooner than if each company was working on its own The U.S. steel industry has complained for years that it needs trade protection to give them time to improve their competitive position. Yet two decades of U.S trade beers have only slowed modernization and addicted the U.S. industry to federal govemment favors and protection. A number of American steel com panies, however, are finding ways to boost their competitiveness through strategic alliances with Japanese companies. These alliances g i ve American hs access to superior Japanese production techniques. As a result, the U.S. companies become mm cost efficient and productive. There are currently twelve major alliances be tween U.S. and Japanese steel companies. Examples: Nippon Steel Carpor a tion of Japan and Inland Steel Industries of Chicago, Illinois, have a 50-50 alliance called I/N Kote to produce galvanized coating line, a special steel tubing product Kobe Steel Limited of Japan and USX Corporation of Pittsburgh, Pennsylvania, a 50-50 a l liance to manufacture steel tubing. Kawasaki Steel Corporation of Japan and Armco Steel of Parsippany, New Jersey, an alliance to produce special hot and cold rolled steel sheets 6 CONCLUSION The cooperation between suppliers and producers demonstrates th e importance of strategic alliances. The trouble is that American fms engaged in such alliances face potential indictment under U.S. antitrust laws. Larger American firms have been farced by international competition to risk legal action by engaging in str ategic alliances in order to remain competitive. But smaller firms, unable to af fd the risk of huge fines, usually avoid such alliances.
Reforming Antitrust Laws. Congress and the Bush Administration have criticized Japanese businesses for strategic allia nces, even as American fms are seeking such arrangements to improve their competitiveness and access to foreign markets. American policy makers, rather than Criticizing Japan, should work to reform U.S. antitrust laws so that all American companies will h ave the option of improving their competitiveness and access to Japanese technologies and markets through strategic alliances, without the threat of legal retaliation.
Bryan T. Johnson Policy Analyst 7