Those companies that are most successful in Japan are those that have managed to create a shared sense of fate among all employees. In the long run, 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.
The military authorities hoped that Japanese technology would turn the tide of the war, but although we work diligently, we knew that it was late and that our projects were not destined to succeed. We were lacking in resources and in time. And now, after Hiroshima, it was obvious to me that time had run out.
Parts of all of Japan’s major industrial cities, with the exception of Kyoto, were charred wastelands in 1945, depressing heaps of blackened remains: the homes of millions of Japanese. That an atomic bomb could be worse was almost unimaginable.
I knew something about the potential of atomic power, but I thought it would take at least 20 years for an atomic bomb to be developed, and it was shocking to realize that the Americans had done it. It was obvious that if the Americans had come this far, our technology had to be primitive in comparison. The news of Hiroshima was something truly incredible to me. The technology gap it represented was tremendous.
Of course, managing such a full household, and mediating the disputes and disagreements that came up among the children and the young servants and the students who lived with us, was a full-time job for my mother, a clever woman of great patience.
“Don’t think that because you are at the top you can boss others around. Be very clear on what you have decided to do and what you ask others to do and take full responsibility for it.” I was taught that scolding subordinates and looking for people to blame for problems — seeking scapegoats — is useless.
My father followed the example of his father. He used to say that all the money in the world cannot give a person education unless that person is willing to sit down by himself and study hard. But money can provide one kind of education, the education you can get by travel.
He didn’t understand or appreciate music from an artistic or technical standpoint, but he wanted his family to have the best possible chance to hear the music as it was played. He felt that the only way a person could learn to appreciate good music and good sound was by listening to the best sound that was available.
For one year I buckled down and studied harder than I had ever studied. I had private tutors to help me with English, advanced mathematics, and the Japanese and Chinese classics. I didn’t do anything else that whole year but study. And I made it.
In Japan there is a tradition of sympathy for those who strike out against overwhelming odds, even if their idealism or zeal is misplaced. Many of Japan’s folk heroes are men who died trying to accomplish the impossible.
I was shocked. Everyone in our house was stunned by this news, and I remember thinking that this was a dangerous thing. I had grown up believing the West was somewhat superior in technology. For example, at that time metal vacuum tubes could be bought only in America — we didn’t have any such thing in Japan. And knowing about America’s technology through movies and products such as cars and phonographs and from my uncle, I was concerned that a mistake had been made.
In 1945 the Russians stormed into Manchuria — our buffer against them for so many years — when our forces were relatively small and weakened, unable to defend against massive Russian armor. There was chaos as Japanese civilians and soldiers tried to escape from the Russians, but in the end about 500K Japanese soldiers were taken prisoner and sent to labor camps in Siberia. Some of them remained prisoners and virtual slave laborers for as long as 12 years.
Many throughout Japan were burning their records in those days because no one knew how the Americans would treat us as a conquered people, whether they would look for incriminating evidence, or what. Newspapers burned their photographic archives; some companies did away with their records — all needlessly. It was an example of just how confused things were throughout the country, not just at navy headquarters.
When the emperor spoke to the people and made a tour of the nation after the war as the nation’s symbol, a kind of revered father figure instead of a god, a calming sense of normality began to return. To many people, now that the war was over, it was as though the country had suffered a gigantic natural disaster.
The new phrase, “high fidelity,” or hi-fi, was soon to be in vogue. People would be listening for purity of sound, for realistic reproduction, or at least for sonically exciting reproduction. Some early hi-fi fans were already buying records of locomotive noises, airplanes taking off, horses galloping, police sirens, old weapons being fired, and all kinds of other sound effects to show off their new systems. Speakers were getting bigger, sound was getting bigger, and the words “woofer,” “tweeter,” “distortion,” and “feedback” were entering the language.
I was a bit depressed when I left Germany. Conditions were improving very rapidly there despite the devastation Germany had also suffered in the war, and it made Japan’s postwar progress seem slow. One day I ordered some ice cream in a restaurant, and the waiter served it with a miniature paper parasol stuck into it as a decoration. “This is from your country,” he said, smiling and, I suppose, meaning it as a compliment. That was the extent of his knowledge of Japan and its capabilities, I thought, and maybe he was typical. What a long way we had to go.
I wandered around the town thinking about Dr. Philips, and when I visited the factory I was all the more taken with the thought that a man born in such a small, out-of-the-way place in an agricultural country could build such a huge, highly technical company with a fine worldwide reputation. Maybe, I thought, we could do the same thing in Japan.
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 country.
We had been trying to sell shares, and we hoped that Mandai just might mention the fact at the bank. To our surprise, as we made calls Mandai told everyone in authoritative tones, “My company has decided to increases shares, and I just might be able to arrange for you to buy some.” It was almost a command, coming from such a great figure. Several bank executives later told me how hard they struggled to get enough money to buy the shares; they felt they had to buy because Mandai had virtually ordered it.
The image of anything marked “Made in Japan” that had been shipped abroad before the war was very low. Most people in the US and Europe, I learned, associated Japan with paper umbrellas, kimonos, toys, and cheap trinkets. In choosing our name we did not purposely try to hide our national identity — after all, international rules require you to state the country of origin on your product — but we certainly did not want to emphasize it and run the risk of being rejected before we could demonstrate the quality of our products. But I must confess that in the early days we printed the line “Made in Japan” as small as possible, once too small for US Customs, which made us make it bigger on one product.
Third or fourth parties simply could not have the same interest in or enthusiasm for our products and our ideas as we had. We had to educate our customers to the uses of our products. To do so we had to set up our own outlets and establish our own way of getting goods into the market.
In fact some people call us the “guinea pig” of the electronic industry. We would produce a new product; the giants of the industry would wait to see if our product was successful; and then, if it was, they would rush a similar one onto the market to take advantage of our effort.
Nobody openly laughed at me, but I didn’t seem to be convincing my own project team, although they reluctantly went along.
Sony America and Sony UK feared they couldn’t sell a product with an ungrammatical name like Walkman but we were stuck with it. Now I’m told it is a great name.
My point in digressing to tell this story is simple: I do not believe that any amount of market research could have told us that the Sony Walkman would be successful, not to say a sensational hit that would spawn many imitators.
I never regretted the decision not to take what is called an original equipment maker (OEM) order because the decision gave me added confidence and pride, although when I told Ibuka and the other executives back in Tokyo what I had done some of them thought I was foolish. But I said then and I have said it often since: it was the best decision I ever made.
I think it is ironic that American businessmen now complain about our complex Japanese distribution system, because when I was first planning to export to the US I was astonished and frustrated by the complexity of marketing in America. It always comes as a surprise to American businessmen when I told this to them. But the accepted way of getting Japanese goods into the US in those days was to hand over your goods to an experienced Japanese trading company with offices in the States.
He showed me that it was better to stay in the cheapest room in the best hotel than to stay in the best room in the cheapest hotel. He insisted that I eat in good restaurant and learn to appreciate the differences between food and service.
I would then take the subway back to the apartment hotel when I was staying, and every night when I came home about 2:30 or so, worn-out and weary, I would find the front door locked and would have to ring the bell for the doorman.
While I was searching for a suitable ground-floor spot to rent, I noticed that flags of many nations were on display, but not the Japanese flag. I decided that when we opened our showroom we would be the first to fly the Japanese flag on Fifth Avenue.
Our classroom were very cold in winter; we didn’t even have a heater; and were not allowed to wear extra clothes. In the navy, I had hard training, even though I only had to undergo 4 months of it in bootcamp, but every morning we had to run a long way before breakfast. In those days I did not think of myself as a physically strong person, and yet under such strict training I found I was not so weak after all, and the knowledge of my own ability gave me confidence in myself that I did not have before. It is the same with mental discipline; unless you are forced to use your mind, you become mentally lazy and you will never fulfill your potential.
A death in the family makes you examine your life and the future of the family. Where my children were concerned, I felt very strongly that the new postwar educational system in Japan lacked discipline. The teachers, with some important exceptions, did not have the dignity they once had and were not given the status they should have in society. The leftist teachers’ union and pressure from PTA groups had watered down the quality of education, and study for examinations was nothing but rote application.
It is very difficult to fight in the Japanese language because of the character and structure of the language, and the fact that it is very indirect and nonconfrontational forces politeness on you unless you want to get very rough.
As things developed, we had to acquire this technology later, even though we once had the basis for it right in-house. So from a business viewpoint we were right in the short term, but in the long term we made a mistake.
Tokyo’s expressway system and the high-speed bullet train were needed long before the Olympic games were scheduled, but when Japan bid for the games and was awarded the honor, it was obvious that the road system could not handle the coming traffic, and the sight of Japan’s legendary traffic jams, which stretched for miles through city streets, and sometimes remained deadlocked for hours, would have been too humiliating for Japan to tolerate on international television, and so the expressway system was built in record time.
Every day I am given homework by my secretaries. I have to fiberboard boxes with me always — one is black, the other reddish. The black one contains all the domestic material I must deal with and the reddish one is all international. The papers and letters keep coming whether I can keep up with them or not, so before I can go home I have to work my way through both those boxes each day.
I must confess my legs were very shaky when I finally climbed out of the little stunt plane, and my thank you may have sounded a bit hollow.
To put it a bit more dramatically, the fate of your business is actually in the hands of the youngest recruit on the staff.
In school if you do well on an exam and score 100%, that is fine, but if you don’t write anything at all on your exam paper, you get a zero. In the world of business, you face an exam each day, and you can gain not 100 points but 1000s of points, or only 50 points. But in business, if you make a mistake you do not get a simple zero. It is always minus something, and there is no limit to how far down you can go, so this could be a danger to the company.
The idea of an employee spending all of his working life with a single company is not a Japanese invention. It was, ironically, forced upon us. To give a simplified view of history the Japanese system of so-called lifetime employment was actually imposed on us by the labor laws instituted by the Occupation, when a lot of liberal, left-wing economic technicians were sent from the US to Japan with the goal of demilitarizing the country and making it a democracy. One of the first targets was the basic structure of what was left of the industrial complex.
During that time — despite what many people saw some years ago in a popular American TV series called “Shogun” — Japan may have been the only country in the world where complete peace reigned for such a long time. I was amazed to read the other day that the 40-year-period since the end of WW2 is the longest time in the recorded history of Europe that there has been no war there.
Scholars in Japanese and Chinese classical literature were very much in demand, and if you were a scholar, no matter where you were born, or what you class, you could move up. So if you were a farmer or merchant, your interest in education would be keen, because that was the only way to be admired by others, and the only route to moving up in your class.
I couldn’t believe my ears. But it was no joke. A competitor had offered to double or triple his salary, and he thought he couldn’t refuse it. This is the American way, I realized. I was very embarrassed and embittered by this episode, and, frankly, I didn’t really know how to handle it. Months later, I went to an electronic show and there at the booth of one of our competitors was this traitor. I thought we should avoid each other, but instead of hiding from me, he rushed over to me full of greetings and conversation, as though there was nothing to be ashamed about.
We experienced a one-year inflation rate of over 25% in 1973-74, and some companies simply couldn’t keep their shops running, so they had to send people home. But it was impossible for those people to sit around at home when their company was in trouble, so there were cases where employees started drifting back to the company, cleaning up, mowing lawns, offer to do any odd jobs.
He was shamed by his wife, who said, “How can you sit here at home all day doing nothing while your company is in such trouble?”
Lifetime employment was a one-way street in those days. That is, workers were required to stay loyal with a spirit of “server but one master.” But the employer could fire anybody at any time. People could be fired on the spot.
It is no exaggeration to say that a circus tightrope walker or an aerialist is the same. They all have excellence of technique, which they perfected only after long and hard training. And most important, they know that any little mistake they make will be obvious to the audience immediately. It could destroy their whole career, and for the circus performer it could be fatal.
But the remarkable thing about management is that a manager can go on for years making mistakes that nobody is aware of, which means that management can be a kind of con-job. This is because management, despite the work of the Harvard Business School and others, and the increasing number of holders of advanced degrees in business administration, is an elusive thing that cannot always be judged by next quarter’s bottom line. Managers can look good on the bottom line but at the same time may be destroying the company by failing to invest in the future.
My argument again and again with Harvey Schein and others was that by saving money instead of investing it in the business you might gain profit on a short-term basis, but in actual fact you would be cashing in the assets that had been built up in the past. To gain profit is important, but you must invest to build up assets that you can cash in in the future.
I learned that an enemy of this innovation could be your own sales organization, if it has too much power, because very often these organizations discourage innovation. When you make innovative new products, you must re-educate the sales force. This is expensive; it means investing sufficient money in R&D and new facilities and advertising and promotion. And it also means making some popular and profitable items obsolete, often the items you can make the most profit on because your development costs are paid for and these products have become easy for your salesmen to sell.
Why should I sacrifice my own profits today for the guy who is going to follow me in this job a few years from now?
Advertising and promotion for a brand-new, innovative product is just as important. In the case of the early U-Matic, little had been done to prepare the American public fo this new device, and it was no surprise to me that the distributor and the retailers could not sell them. Then, in reaction to the disappointment of the failure, the distributor did the worst possible thing from our point of view: he discounted them heavily to get rid of them, cheapening our image.
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 40 years has been anything but creative.
Dr. Kikuchi, our research center director, says that regardless of whatever arguments one might make about what he calls the “adaptive creativity” that Japanese scientists and technicians used during the catch-up phase in Japan’s development and the so-called “independent creativity” practiced today, there is no doubt that Japan is now a full-fledged member of the world’s technological community. Japan, the US and Western Europe now treated each other on equal terms.
I must emphasize that a unique feature of Japanese technological development is its independence from defense technology. It is well known that much of American and European technology is spun off of defense worked funded by government. This has been beneficial, of course; but in Japan, where have no defense industry to speak of, we have made perpetual changes in the consumer marketplace, bringing technological innovation into the home with commercial use technology. And interestingly, in the reverse of the flow in the US and Europe, now Japanese nondefense know-how is being sought by the defense establishment of both the US and Europe.
The highly educated work force of Japan continues to prove its value in the field of creative endeavor. In the recovery from the war, the low cost of this educated labor was an advantage for Japan’s growing low-tech industry. Now that the industrial demand is for high technology, Japan is fortunate to have a highly educated work force suited to the new challenge. And even though labor costs are high, the intelligence of the labor force is one factor that will continue to be an advantage for Japan’s industry.
My solution to the problem of unleashing creativity is always to set up a target. The best example of this was the Apollo project in the US. When the Soviet Union launched the world’s first artificial satellite, Sputnik, and then sent the first human being into outer space, it was a shock to the US. Many nations that had always looked to the US as the great innovator and creator of so many good things could hardly believe that any other country could have the ability to be first in space. America began a program to catch up, but when President Kenedy set a very clear target — going to the moon within 10 years — everything changed. The target was a clear challenge. It meant an enormous leap forward would be needed.
When an engineer or a scientist is given a clear target, he will struggle to reach it. But without having a target — if your company or organization just gives him a lot of money and says, “Invent something” — you cannot expect success.
That is the trouble with Japanese government research institutes. Government believes that if you have a big laboratory with all the latest equipment and good funding it will automatically lead to creativity. It doesn’t work that way.
American businessmen seem to think it is natural always to be overlooking over their shoulders to see who is coming up behind them with a lawsuit. They must always be protecting themselves from attacks from behind instead of moving ahead and looking far into the future. The intrusion of lawyers and the legal mentality into so many facets of American business is in contrast to Japanese management style and philosophy.
In some cases lawyers step in when there is a traffic accident and sometimes take 65% of the insurance money or the court award, leaving the victim only 35%.
There are over 500K lawyers in the US, and every year more than 39K people pass the bar examinations.
While the US has been busy creating lawyers, we have been busier creating engineers. We have twice as many engineering graduates, which mean, 4 times the ratio of engineers.
Management doesn’t trust its employees, and employees don’t trust management. The government doesn’t trust business or organizations or industry, and industry doesn’t trust government. Sometimes at home the husband doesn’t trust his wife, and the wife doesn’t trust her husband. About the only person you can trust in America, it seems, is your lawyer. The conversation and correspondence between the lawyer and client are protected, legally. All other things can be disclosed in court, so how can you trust anybody else?
These companies spent millions of dollars in the legal battles, but they failed to make themselves more competitive against the Japanese makers. The result was a great deal of bitterness and a lost battle. The only ones who profited from it were the lawyers, not the consumers, the American companies, or the Japanese firms.
To put it bluntly, whether we like it or not, the government is a partner in our business without owning a single share of Sony stock or running any risk. And the American government is a partner of American business, too, in the same way. The Japanese government takes away more than 50% of our profits, and that in a sense makes it a majority partner. So from our government’s viewpoint, it wants its partner to work hard and make a profit.
The legal requirement for disclosure puts the manager’s performance on show every quarter and the main evaluation of an executive too often is done in this shortsighted way.
A combination of the system of treble damages and private lawsuits, which are allowed under the 1916 Revenue Act in suspected unfair competition cases, plus contingent fees, seems to give incentive to clients and their lawyers to bring private antitrust actions in order to share the recovery of damage awards between them. The idea must have come from lawyers, and that is why I say it is the lawyers who create problems.
Americans pride themselves on being rational in their business judgments: the total logic of the American business schools seem to be cold, deemphasizing the human element. We in Japan see the bases for success in business and industry differently. We believe that if you want high efficiency and productivity, a close cordial relationship with your employees, which leads to high morale, is necessary. Sometimes it is more important to generate a sense of affinity than anything else, and sometimes you must make decisions that are, technically, irrational. You can be totally rational with a machine. But if you work with people, sometimes logic often has to take a backseat to understanding.
In the past, it was important to produce a large stock of a product at the lowest possible cost, but now the life of our products is getting shorter and the cost higher, and if we build up huge inventories, we may find ourselves with a stock of outdated goods. The premium is now on how quickly and efficiently we can get a new product onto the assembly line.
It is an expression that suggest that everything int he world is a gift from the Creator, and that we should be grateful for it and never waste anything. We Japanese feel that all things are provided as a sacred trust and actually are only loaned to us to make the best use of. To waste something is considered a kind of sin. Struggling for survival under the constant threat of harsh times and natural calamity, attempting to produce goods with a minimum of raw materials, became a way of life for the Japanese.
With the aid of computers, simulations are possible that were never available before and, as a result, Japanese building technology is probably the best in the world. It has to be, because it is so much a matter of survival.
In fact, the first oil embargo dropped our real GDP growth from 8.8% in 1973 — the highest of the industrialized countries — to 1% in 1974.
We are still 99.7% dependent on imports for oil, 100% dependent for aluminum, iron ore, and nickel, over 95% dependent for copper, and over 92% dependent for natural gas. We cannot get away from our worry about being cut off, and we attempt to keep at least 100-day supply of oil in storage tanks and parked supertankers, just in case something should happen.
When you are told from childhood on that the metal object you hold in your hands comes from iron ore mined in countries far away, which is transported to Japan at great expense and is produced in furnaces that use gas and coal from other far-away places, such objects seem very valuable.
When I began driving a car, the act itself was almost a specialized technology, and to pass the examination I had to know all about the mechanics of the engine and the drive train. Today it was not necessary. We rely on specialists to fix our cars if and when they give us trouble.
I am sometimes amazed that as technologically progressive as we think we are in top management, young people coming up through the lower ranks today often scold us for being slow to pick up on the new technologies. I guess we did the same thing in our day.
I believe the reason Japan’s industry has advanced as far as it has is that the companies thought the 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.
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 don’t seem to give it a second thought.
6 months later, at the next meeting, a Sony engineer showed up with a working model of the British design. Our foreign colleagues were astounded. “We could wait 10 years to do something like that. This would never happed in Britain.” Kikuchi pointed out that even at Bell Labs when they get an idea they try it out first on a computer. Here it is the normal reaction of a researcher to say, if the idea sounds good, “Let’s make one and see how it works!”
Americans and Europeans seem to think that their idea of how the world trading and monetary systems work and should continue to work should be universal, especially in the business world, and that since they believe they invented the game the rules should never be amended. The system up to now, they believe, has served them well, and there is no need to change. Moreover, some American and European businessmen still look at the Japanese as newcomers, as novices who should still be paying tuition to the school. What they don’t want to face is the fact that we are not only in the same school; we have joined the faculty.
This study shows that the US will continue to lead the world and will produce 19.6% of the world’s GDP. The Soviet union will contribute 12.5%, and Japan with 11.9%. West Germany will contribute 5.9%, China will have 5.3%. France will contribute 4.3%, and Britain 2.9%.
The world economic map looks very different from 1960, when the US produced 33.4%, the Soviet Union 15%, and Japan only 1.8%.
Ironically, some of the technology that made this new recording breakthrough possible was pioneered in the US, but American companies nowadays seem more interested in service industries than in turning new technologies into attractive products that will be enjoyed by a vast number of consumers. A theme that I feel must be struck over and over again is the danger to America of exporting its production. Rather than devoting their attention to making products competitive over the long haul, many American managers are still prone to looking for good merchandize at the lowest prices to produce quick profits.
Actually, I was amused by the Poitiers stunt. French audacity is a great strength, and I think Japan should have a little more of the same kind of boldness in its diplomatic and economic relations. A French minister of trade, though, very unwisely said during that time, “We can live without Japanese products.” Well, of course. I mean, I suppose Japan can live without French cognac and champagne and the $1.2B worth of goods we imported from France that year.
Any democratic political system automatically becomes domestically oriented because any politician has to be loyal to his constituents or lose his job. It is disastrous to fall from the political tree, so to speak.
We are fortunate in having such a good professional bureaucracy, representing the cream of our universities. But the problem with it, in my view, is that while these professionals are superb technocrats, they generally know nothing else as well as they know the affairs within their own ministries, and since the system promotes from within, there is never any new blood at the upper levels to bring in fresh thinking.
The European system still generally emphasizes decreasing competition to increase profits. They like to have a monopoly with a small number in control. It does not work to the advantage of the consumer or the employee.
In the US they cheer people who take risks — venture capital is available in America as nowhere else on earth.
My hosts were surprised to get the news that the top man wanted to see me.
I spent an hour with Deng Xiaoping, sitting in big over-stuffed armchairs in a huge room with high ceilings and Chinese murals in the Great Hall of the People. He was full of questions about how my company had grown so fast in a such a short time, and he wanted to hear some of my opinions and suggestions on China’s modernization, which was just getting under way then. The Chinese were beginning to look to Japan for technological help. I told him frankly that there was a lot of inefficiency in the then-new modernization projects.
The Soviet Union, too, has flirted, off and on, with the idea of introducing some capitalist incentives into their system, but the Chinese under Deng Xiaoping are very serious about it.
I pointed out that if they wanted to make consumer goods for the Chinese public, such as TVs and radios and home appliances, those goods must be simple, utilitarian, and economical. They would have to be adjusted to suit local conditions, like power supply, and would have to be very sturdy to withstand the heat and humidity of some regions of their enormous country and the dryness and cold of others.
I saw everything there was to see, but I was not impressed. The Soviets were then 8 to 10 years behind Japan and the West in their consumer electronics technology. They worked with crude tools and awkward and inefficient production technology. It was obvious to me that the lack of quality and reliability was directly attributable to the indifferent, plodding attitude of the workers and a management that had not figured out how to motivate the engineers and the production workers.
I am going to tell you the truth. In Japan we used our top talent and our best brains and spent years seeking ways to increase the efficiency and the productivity of even such a simple things as a screwdriver. We have racked our brains and made detailed studies and experiments to decide just what is the exact and precise temperature for a soldering iron in each particular application. You do not make any such effort here; there appears to be no need to do it, because nobody seems to care.
“The freshmen arrive here after a lifetime of cramming and they are completely exhausted.” It is a sad joke in Japan that for many students, almost no learning takes place at university. Once the students have entered the university they have worked so hard to attain, they assume they have achieved their goal in life. They are so tired out that they have no will left or feel no need to study further. Almost no one ever fails once he has made the grade into a university. In Japan university is very difficult to get into and easy to pass out of as a graduate; in the US and Britain it is the opposite: easier to get into but more difficult to graduate from.
If I sell a product worth a thousand yen to someone in the US or Britain, I expect to be paid the dollar or the sterling equivalent of a thousand yen. The rate a 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 nation’s money.
I thought the floating system would, by international agreement, be monitored, and that rates would not be allowed to fluctuate too far or to be influenced artificially. What we didn’t 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. No mechanism had been set up to monitor the system and, figuratively speaking, to set the handicaps. Money speculators used one criterion only for buying one currency and selling another — profit. This resulted in a constant changing of rates that had nothing to do with industrial competitiveness. For those of us engaged in world-wide trade, it was as though some bully had come swaggering onto the golf course and was changing our handicaps after every hole.
When prices are set by factors other than the competitiveness of the products made, there is inevitably a withering of our confidence to invest. I am a firm believer that the foundation of the economy lies with a nation’s industry. If we can’t forecast the return, it takes a very good sixth sense, or perhaps a dash of foolhardiness, to invest. If we reach the point where there is no investment, industry will collapse. If industry collapses, money will lose all its meaning and then even the financial markets will collapse.
It worries me that today some industrialists have begun to take part in the money trading game. Since they cannot forecast the return on potential investments, many industrialists have stopped investing in their own companies and are investing a lot of energy, time, and money in acquisition and mergers. Companies have become a commodity to be traded, bought, and sold.
We met many Europeans who were boasting, “There are no new ideas made in Japan. We make the ideas, right here in Europe.” I said to one such, “Look, there is no sense in boasting that you have ideas. I mean, everyone has some kind of ideas that people agree are good. The important thing is how you are going to interpret that idea in your industry. Japan has been working hard in that area. You haven’t, so don’t boast too much.”
European nations appreciate scientists. Many of the greatest “American” scientists have their roots and even received their education in Europe. But whereas the US and Japan equal appreciation was given to engineers, many European countries traditionally tended to shun this hands-on discipline, engineering, through a sense of snobbishness. European engineers for a long time were considered “merely” craftsmen.
We in industry put tremendous effort into reducing the original cost of a product by as little as 1 or 2%, but under the current system the value of our money can fluctuate as much as 10 or 15% in a s single day, wiping out all our attempts at economy. This saps the will to work, to innovate, and a fundamental incentive in a free economic system is being lost.
I spoke about this need in America, too, before this happened. The money experts there said, “How can we go back now to a fixed rate? If we cannot change back to the fixed rate, the floating system that we have now is the best we can do. There is no other choice.” I got angry. I said if we engineers were to think that the systems we have today are the best we can devise and that we have no other alternative, we would stop all innovation. We scientists and engineers work constantly to come up with new ideas. The day we make an invention is the day we begin to work to improve it, which is how technology has developed to this point.
Selling our products in Germany was a big challenge for me in the sixties. Of course, German companies were electronics pioneers, and they naturally considered that their consumer electronics were unbeatable.
It would be good to talk about this with our competitors, but antitrust laws in the US make it impossible for heads of competing businesses to get together and discuss future trends and mutual problems. By contrast we hav been doing this very thing in a friendly manner in Britain for a number of years.
What will the consumer need in the next 10 or 20 years? This is what I felt top management should be concerned with — the future of technological trends, which technologies will be useful, or necessary, and what kind of standards we should be thinking of.
The electronics industry has a unique advantage: because of technological advancement, we can create completely new things — the auto makers can’t do it, the furniture makers can’t do it, the airplane makers can’t do it. We can make things that didn’t exist before and show people how these things can enrich their lives.