And yet they tend to intensify competition within Japan. Thus Japan will have five or six well-backed competitors in most major industries, especially in those areas the government deems strategic. If a company, domestic or foreign, introduces a successful product in a new field, it is likely that soon thereafter, four or five other well-backed companies will also enter the field. This practice is known as kato kyoso, or excessive competition, and tends to lead to overinvestment in capital equipment by private companies and often invites government intervention to manage investment, production, and prices through cartels.
Supply keiretsu, which usually branch off from the circle of principal group companies, serve a large manufacturer and are composed of several layers of subcontractors. They also usually have interlocking directorates. This may well involve transfers of sophisticated new equipment or the training required to help the supplier produce next-generation products. While members of bank-centered groups are generally considered equals, there is a clear hierarchical power relationship in the supply keiretsu.
Manufacturers that head these groups often gain advantages by squeezing their suppliers, pressuring them to cut costs and deliver components for just-in-time production. Supply keiretsu tend to be most developed in the auto, electronics, and machinery industries, where the product is composed of various parts. The groups consider foreign intrusion divisive, which explains the resistance to T. In fact, a long-used supplier will be terminated if the quality or prices of its goods become uncompetitive.
Moreover, a group bank will not rescue a company deemed economically unviable over the long term, but it will help the company scale back its operations and diversify into more promising areas. The groups do support struggling companies in strategic industries such as computers, satellites, aerospace, and biotechnology. They have not had cause to regret such decisions. In contrast, U.
It has failed to develop the structures, strategies, and operational techniques necessary for commercial success in the markets created by its own innovations. Many European companies have clearer strategic vision, but they are starting from far behind and need U. With a few exceptions, both the U. As a result, Japan could dominate world hardware markets even though U. Several companies show signs of a new strategic vision in the form of embryonic alliances, many created by IBM or the Europeans. Yet these efforts remain haphazard and inadequate.
To compete in the new digital information industry, U. They must build large-scale corporate families that are strategically cohesive, yet entrepreneurial and flexible. They must form uniquely American or Euro-American versions of the Japanese keiretsu, integrating the manufacturing resources of companies from Korea, Taiwan, and Singapore. They must act with imagination and daring.
There is more. Look inside a mainframe processor and you will find hundreds of expensive, high-speed components embedded in elaborate packaging and power, cooling, and communications systems, as well as a main memory with several thousand memory chips. But when you look inside the new Compaq LTE laptop computer, you will find one microprocessor, one floppy disk drive, one hard disk drive, a few powerful logic and memory chips, a power supply, and a flat-panel display. All of these components, except for the Intel microprocessor, use nonproprietary, industry-standard architectures.
Compaq makes none of them. Conner Peripherals, a U. Most of the other components are made in Japan, and those most critical to a laptop—the liquid-crystal display, power-management systems, and compact packaging—are made by Citizen Watch, a Japanese consumer electronics company. This situation is not unique to Compaq or to laptops.
These systems exemplify several related technological and economic trends. Digital technology has improved at remarkable speed. And as digital technology progresses, powerful and inexpensive personal systems, like PCs, are displacing expensive centralized systems, like mainframes. Although centralized systems will remain important, they will gradually become confined to specialized functions—coordinating networks, managing central resources such as large data archives, and performing tasks that require enormous processing power.
VLSI made personal computing possible by permitting the development of powerful, one-chip microelectronic systems such as microprocessors, controllers, and large memories. VLSI is one example of the fundamental trend in information technology. Future information systems will be constructed from increasingly powerful, mass-produced, inexpensive, small components: semiconductors, electronic packaging, circuit boards, disk drives, lasers, scanners, displays.
More and more, competitive advantages go to companies with superior process technology and manufacturing.
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You can see this competitive transformation most clearly in the semiconductor industry. Only ten years ago, semiconductor production was dominated by successive generations of small-scale, artisanlike companies in Silicon Valley. Today most semiconductors are mass produced, and the world market is an oligopoly of huge companies, dominated by the Japanese industry. Technology progresses so rapidly that each generation lasts only about four years, and the useful life of capital equipment rarely exceeds five.
Any semiconductor maker aspiring to hold or gain market share must therefore spend enormous sums of money. Within five years, for example, the cathode-ray tube displays in computers and televisions will be replaced by flat-panel, liquid-crystal displays LCDs , with semiconductor control logic printed directly on the glass plates of the display; their resolution will surpass film-quality video. Laptop PCs, portable televisions, and pagers already use an early form of this technology.
As in semiconductor production, the costs and performance of LCDs are determined by process technology parameters, capital equipment, and manufacturing yields. The first generation of commercial-scale, flat-panel display factories are now being built. There are other critical trends: the digitization of all information industries and their convergence into a single information hardware sector based on a common set of digital components technologies. Consider the replacement of established technologies optical, chemical, mechanical by digital technology.
They cannot perform image processing, accept electronic files, or communicate otherwise with computers. Using the same basic technology, Canon produces digital color photocopiers that already accept standard desktop publishing commands. And though Xerox leads its Japanese competitors in software and systems architecture, its mass-production and components technologies lag behind those of Japanese companies. Similarly, Panasonic Matsushita recently introduced a fully digital VCR based on an erasable optical disk.
Furthermore, the data transfer rate of these CD systems, 1. In its relentless progress, digital technology is becoming the technology of choice for an ever-wider range of information products. Desktop publishing replaces mechanical printing, CDs replace vinyl records, digital fiber optics replaces analog telecommunications. Soon digital hardware will begin to replace traditional fax machines, cameras, and microfilm. The underlying technologies of printers, photocopiers, fax machines, telephone switches, computers, cameras, voice-mail systems, CD players, data archives, and televisions will soon be astonishingly similar.
In some cases they already are. Conventional or analog consumer and office products either cannot communicate at all or do so only very laboriously. When they are digitized, however, they can interact, using the universal language of digital information. They can be controlled through software and networked to computers and other digital systems. The benefits of interactive, instantaneous cooperation between systems are enormous. With a combination of software and telecommunications, a snapshot taken with an electronic camera can be viewed on a PC display, processed electronically, archived on a mainframe, electronically mailed to coworkers, and then sent to a laser system for printing.
Photocopying becomes one of many services available on a network. Copies can be customized via software commands and can be made directly from computer-generated files or electronically captured images as well as from conventional paper.
The process of digitization has economic consequences far beyond the replacement of one set of components and suppliers by another. All information industries and products will become subject to the cost structures and general technological trajectory common to all digital products —already evident in the computer industry. Competitive advantages resulting from control over earlier technologies—film, xerography, and so forth—will disappear. And because digital systems can interact, fundamentally new market demands will arise. The most important, probably, will be those related to networking, that is, to the standardization of hardware interfaces necessary for interaction between many products.
Market demand will therefore generate intense pressure on vendors to design and produce digital systems capable of cooperating with each other—which entails greater standardization. Users will want to connect systems that have different functions and are purchased from different vendors; they will also want to connect their own systems to those of other companies, individuals, and public networks.
Unless products have standardized, industry-wide interfaces, integration will be prohibitively complex and expensive.
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Oligopolistic Components Industries. Scale and scope economies for semiconductors, displays, lasers, and other components are growing even faster than the industries themselves. As a result, these industries are increasingly concentrated in the hands of large, diversified companies with access to patient capital. Moreover, with each new technology generation, innovative U. As mass markets emerge, small startups are displaced by large companies with superior process technology, manufacturing capabilities, financial leverage, and global distribution channels.
Commoditization of Hardware. This is already visible in PC, workstation, and peripherals markets. The basis of competition is shifting away from unique functionality and toward price and performance, which are increasingly determined by the design, process technology, and manufacturing costs of components. Semiconductors and displays alone will account for more than half of the total cost of PCs and workstations now being designed for use in the mids.
Standardized, mass-produced personal systems and peripherals already account for more than one-third of total computer industry shipments. Digital systems will not become quite like traditional commodities such as soybeans or vinyl chloride.
Rapid technological progress will continue. Innovative system architectures and products will continue to arise; architecture and design will remain important, even in mature markets. But the extreme market pressure on vendors to provide industry-standard interfaces will make it increasingly difficult for systems companies to maintain exclusive control over a proprietary design or customer base. And although superior system design and architecture will still contribute significantly to price and performance, an increasing fraction of design decisions will be embedded in components.
In fact, components producers will have more leverage than hollowed-out systems companies. Components-Dominated Hardware Value Chain. Control of hardware markets is rapidly shifting upstream from traditional systems industries to makers of digital components such as semiconductors, displays, and electronic packaging. The new technological and economic circumstances are reversing the logic of vertical integration. End-products companies are finding it difficult and expensive to integrate backward into components sectors.
Major producers of digital components and consumer products, however, can diversify and integrate forward into digital systems markets—as Canon, Sony, Citizen Watch, Matsushita, and others are now doing. Canon also makes semiconductor capital equipment and personal laser printers including all of those sold by Hewlett-Packard and Apple. Similarly, Sony makes disk drives, televisions, and computer displays—including those used by Sun Microsystems and other U. Sony manufactures two million lasers per month for digital optical-storage products. This technology future plays directly to Japanese strengths.
Diversified Japanese companies with strong digital technology bases and flexible production systems—Canon, Hitachi, Matsushita, NEC, Sharp, Sony, and Toshiba, for example—are able to make a variety of digital consumer, industrial, and office products. They dominate world markets for many standardized, high-volume products, including personal copiers, electronic and cellular telephones, fax machines, graphics displays, laser printers, and optical disk drives.
These Japanese companies are also leading components producers.
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Since , the U. Only in design-based markets, such as advanced microprocessors, do U. Similar trends are taking shape in many new components and peripherals sectors, most strikingly in flat-panel displays. The same pattern increasingly holds for lasers, optical disks, electronic packaging, precision mechanical components, and printed circuit boards. It should come as no surprise, then, that Japanese companies are entering more advanced markets for PCs, intelligent graphics terminals, engineering workstations, digital copiers, and high-performance storage systems.
Their mastery of elaborate process technologies, components manufacturing, and flexibly automated product assembly has positioned them to dominate the whole value chain of information technology hardware. However, they also benefit from two industrial structures particularly fit for the new facts of competition: the diversified, integrated corporate complex and the keiretsu. Corporate Complexes. The Japanese electronics industry is controlled by a small number of enormous, diversified, vertically integrated corporate complexes. Both internal divisions and affiliates sell some of their output on a captive basis to the parent company, some to other major domestic companies including direct competitors , and the rest to world markets.
Linkages with these affiliates, some of which are themselves huge companies, are permanent, and they include personnel transfers, equity holdings, and technology relationships. Consider some of the electronics holdings of the Sumitomo keiretsu banks. Vertical Linkages. These run several layers deep. Consider the Japanese semiconductor capital-equipment industry, on which nonintegrated U.
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Sputtering equipment, another important but obscure sector, also is dominated by two companies—Materials Research Corporation MRC , a U. Such patterns are endlessly repeated—in imaging systems and in the lasers and sensors in those systems, in computers and in the semiconductors and displays in those computers, in capital equipment and in the components and materials in that equipment, and so on.
The kereitsu system thus combines horizontal scale, diversified production of related systems, vertical technical coordination, and market discipline. Each sector—particularly critical components and capital equipment—is concentrated but not monopolistic, thus guaranteeing stability and scale while preserving internal rivalry.
Because products are dependent on the market, they are also disciplined by it—unlike wholly captive operations in vertically integrated U. At the same time, Japanese producers have access to stable capital flows through both their parent companies and their banks. Horizontal Coordination.
Both parent and subsidiary companies maintain close, cooperative relationships with their major domestic competitors. Few Americans, even those in the electronics industry, realize how deep these relationships are. This advantage is considerable. Japanese companies partition activities and then exchange results. They engage first in predatory pricing to eliminate rivals and then in cartelistic behavior to gain higher profits.
They avoid excess rivalry in interaction with foreign competitors. When U. Japanese companies also compete with each other—sometimes quite fiercely, particularly in final-product markets. But for many reasons—their interlocking investments, their technological dependence on each other, and the strength of government industrial policy—their rivalry is restrained and subordinated to the larger goal of displacing foreign competitors. Thus the structure of Japanese industry gives rise to technological excellence and to predatory behavior; its extensive interlocking relationships facilitate both technological integration and strategic coordination against foreign rivals.
It is a very powerful combination. Japanese companies design and manufacture superb hardware and obtain much of their technology through legitimate effort. They have developed excellent engineering and mass-production capabilities. At the same time, they collude to force foreign competitors to license critical technologies, to block foreign applications for Japanese patents, and to deny foreign competitors access to technologies and markets over which Japanese industries gain control.
These attributes of Japanese industry are elements of a characteristically Japanese strategy for penetrating industrial markets. This strategy can be summarized as a progression from imitative, commodity, domestic components production to technology-based competition in world markets for final products. Japanese companies have proven that they will use this leverage to obtain design technology from U. In the late s, Japanese government officials recognized the strategic importance of computers: their overall impact on industrial productivity and their potential spillover into related industries like telecommunications.
Over time, both government and business leaders recognized the computer industry as the driver of other strategic areas such as artificial intelligence and aerospace—that is, as an important industry in its own right. It imposed tariffs and arbitrary regulations to control foreign investment and imports.
MITI also controlled the type and volume of computers IBM produced and required the company to export a large proportion of its production. Yet the company was at the mercy of MITI bureaucrats. The companies would have to be fully competitive with IBM, which meant offering rentals. JECC stimulated both the supply and demand for Japanese computers. JECC paid computer companies up front—essentially an interest-free loan—enabling them to invest heavily in future models. JECC also set computer prices and prohibited discounts.
This forced the companies to compete not on price but on technology, quality, and manufacturing. Japanese companies still faced enormous competitive disadvantages in production scale and technology during these years. In the early s, the government gave money to Fujitsu and Hitachi to develop large computers, NEC and Toshiba to work on midsize machines, and Oki and Mitsubishi to work on small machines for specialized uses. To avoid redundant research, MITI had three groups try a total of seven different technological approaches.
The timing of aid has also been critical. Generally, it has come on the heels of an IBM announcement of a new computer. JECC helped the companies rent their computers, but it only bought computers that users requested; it forced computer companies to be responsive to the market. The Institute aims to extend automotive AI far beyond self-driving to reach across the whole spectrum of mobility, from assisted driving to enhanced user experiences.
If you start falling asleep at the wheel, for example, the car will engage the self-driving functions to take over. Or, if you use the pedals improperly, Guardian technology is able to intervene to prevent a collision. Perhaps, though, questions of mobility only really become critical in the absence of convenience. Businesses and governments are looking towards autonomous vehicle technology partially in the hope that it can plug regional gaps in investment and services provision.
After all, if local bus routes stayed open and services remained operational, smart vehicles would not be as critical to the survival of small communities. The conversation around the problems facing rural Japan, however, have taken autonomous driving concepts far beyond transit. Parallel discussions are ongoing regarding the automation of the last mile of supply chain and logistics, which will ensure remote deliveries are still feasible—and scalable—as ecommerce continues to boom.
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What Ever Happened to Japanese Electronics?: A World Economy Perspective どうした日本の電子工学 世界経済の観点から問う
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