Texas Instruments Inc. is one of the nation's giant corporations, with a sales volume of more than $3 billion in electrical and electronics products, and a worldwide payroll at the end of 1979 of 85,779 persons.
But it took this sophisticated company seven years from the time it first started to do business in Japan in 1961 "to learn about the back door to MITI," confesses Board Chairman Mark Shepherd Jr.
MITI is the acronym for the powerful Ministry of Trade and Industry which is at the center of what is sometimes called "Japan Inc." -- a combination of industry, the banking system and government, all pulling together to make the Japanse economy work better.
"There's nothing sub rosa about the back door," Shepherd added quickly in a joint interview here with TI President Fred Bucy. "It just means that your subordinates and MITI's subordinates go in and out of the back door until they reach an agreement before you confront your Japanese conterparts."
Texas Instruments, one of the largest producers of semiconductors (the key component of the $100 billion electronics industry -- especially computers) has exceedingly good relations now with Japan.
Like other large semiconductor manufacturers, the management at TI believes that the smaller, independent semiconductor producers in Silicon Valley on the West Coast are unfairly critical of Japanese competition in the U.S. market.
The Silicon Valley producers point out that with the aid of a friendly government, and favorable loans from the banks, Japanese producers have attained 35 percent of the American market for today's hot item -- the so-called 16K RAM, a chip used for computers that has 16,000 bits of information, and a random access memory.
That fast growth in the Japanese share of the 16K RAM business in the United States "must be put in perspective," Bucy says. Overall, the Japanese have 4 percent of the U.S. semiconductor market, while U.S. companies in Japan have 16 percent of the Japanese market. "We gave them the opportunity to come in and take a large share of the 16K RAMs because we cut back our capital investment here by 50 percent in 1974-75," Bucy says.
Masajisa Naitoh, a high MITI official, told The Washington Post that "the 16K RAM is not a real problem, because the demand for them is so huge.
"When you get to (figure production) of 64K RAM and 256K RAM chips, then this kind of high technology is more suited to the R&D-oriented big companies like TI. That may be what the small companies in California can't afford."
As to Silicon Valley charges of dumping," TI-supplied data indicate that the Japanese 16K RAMs sold in the United States (dumping would be the reverse situation).
For example, Fugjitsu, one of the major Japanese semiconductor firms, sold 16K RAMs to Nihon System in Japan for $2.98 each last month compared to $4.75 for the same item sold to an American company. In effect, according to TI, "the Japanese semiconductor manufacturers appear to follow the market price where (the item is) sold."
That may not always have been the case, responds the Semiconductor Association (SIA) in California. The SIA suggests that the Japanese are being responsive to U.S. industry complaints, and even may be holding back voluntarily on some 16K RAM shipments here, creating a surplus, and a "soft" market in Japan.
TI has a major foot in both the U.S. and Japanese markets. It has three wholly owned plants and another building in Japan, making it the only American manufacturer of semiconductors in that country. (IBM is also in Japan, but does not make semiconductors there.)
Out on the West Coast, TI's rivals credit the Texas company's success in Japan to the initiative of a former TI employe named L. J. Sevin (later the head of his own company, Mostek, which recently was acquired by United Technologies Inc.)
According to the Silicon Valley version, TI owned a patent on integrated circuits essential to handheld calculators and watches. When TI caught the Japanese violating the patent, TI agreed to let Japanese continue using it under license in exchange for TI's entry into Japan for manufacture of semiconductors.
The story irritates Bucy, who said "those fellows on the West Coast sort of have schizophrenia . . . They had the same leverage as we did in dealing with the Japanese. But they were very shortsighted in the way they handled their patent situation.
"To say we shot our way into Japan is hokum," Bucy said."We learned what it took to negotiate over a period of time. We were persistent, until we gained, and the Japanese gained."
None of this is to say that a crucial problem of competition does not exist today between the U.S. and Japanese semiconductors industries. But the bigger companies such as TI think that the smaller West Coast producers have lodged a narrow, protectionist complaint, and have missed the much broader question.
The right response, as executives such as Shepherd and Bucy see it, is a whole litany of tax reforms to tilt the U.S. economy away from consumption -- perhaps through a value-added tax -- and towards investment. This is not dissimilar from a program of tax incentives proposed by the SIA.
"But they're pleading a special case," said Bucy. "And our case is a general one for the whole economy."
Beyond that, critics of the SIA argue that the Japanese success cannot be attributed solely to the Japanese government subsidies and other forms of help. American competitiors must recognize that the quality of the Japanese products is very high, and that the marketing techniques of the Japanese companies show an excellent understanding of the needs and preferences of the U.S. consumer market, according to many students of the industry.
IBM also faces Japanese competition with more equanimity than do the West Coast producers, even though that giant company recognizes that its own pre-eminence in computers is the likely ultimate target of the Japanese.
Erich Bloch, vice president of the IBM Data Systems Division, testified before the Senate in 1978 that the Japanese government has identified a strong computer industry as a national goal, and to accomplish that goal "leadership in semiconductor capability is a prerequisite."
The Japanese drive on the U.S. computer industry began to take shape in 1976 with the introduction of the Very Large Scale Integrated circuit program (VLSI). This consists of five Japanese corporations linked with the MITI in plan to develop the technology for the next generation of computers.
The clear central target of the VLSI project is the data processing industry itself, not merely semiconductors. "I think the 16K RAM, rather than being a sales target, was a target of opportunity," Shepherd said.
Adds Bucy: If the response of the U.S. semiconductor industry is "to call for the lawyers," it will be a mistake. Don't panic, don't overreact, but increase research and development here, he advises.
The MITI announced last week that according to the original plan, the four-year VLSI program will be over at the end of March after having produced at least 10 patents that will be available for worldwide license. But the end of the program doesn't mean that the Japanese are discontinuing their emphasis on the new generation of computers. On the contrary, Japan now will focus on an entity called the Computer Basis Technology Association, which industry sources say will develop computer sofeware.
If there is one fact of the U.S.-Japan trade problem that unites the smaller producers and the bigger semiconductor manufacturers, it is Japan's nontariff barriers (such as "administrative guidance" by the MITI) that are set up to discourage imports.
The MITI applies administrative guidance by telling Japanese buyers what the import limit should be as a percentage of total purchases. TI, which is in a good position to see the inner workings of the Japan System, says, for example, that the computer import limit set by the MITI is 50 percent of total computer purchases.
In highly publicized negotiations conducted last year in connection with the multilateral trade pact, U.S. officials headed by Robert R. Strauss, then President Carter's chief negotiator, attempted to crack through such import barriers by persuading the Japanese government to direct NT&T to open some of its procurement to foreign (translate, American) competition.
Despite some brave rhetoric by Strauss on the government procurement question, no real headway has been made. But one large American semiconductor company -- Motorola, Inc. -- is engaged in a unique venture of its own to get its foot in the door.
If Mototola -- a member of the SIA -- succeeds, it will underscore TI's argument that it takes patience and an understanding of the differences in the Japenese system and its culture to break into the market there.
Motorola's director of international operations, Lionel Olmer, was confronted last year with Ambassador Nobuhiko Ushiba's contention that U.S. producers couldn't sell to NT&T because the Japense consider their telecommunications system as sacrosanct as does the U.S. its military defense operations.
Olmer had an idea, and took the initiative. He told Ushiba that Motorola could produce for NT&T a Motorola specialty, a radio pager, or "pocket bell," as it is called in Japen. This is a personal device, and doesn't hook into the telephone system.
Ushiba, intrigued, cleared the project with the Foreign Ministry and, as a result, Motorola now is producing proteotypes for the Japanese to test.
Motorola is convinced it can produce a radio pager, and sell it in Japan -- at a profit -- for less than NT&T is paying for similar, Japanese -- producted pocket bells. If Motorola does get a major order from NT&T, it will be a first in many ways.
Motorola's initative underscores a point made on U.S.-Japanese competition by Morgan Guaranty Trust Co. Vice President William V. Rapp. He observed that those companies that have been successful in Japan -- such as TI, IBM, Boeing, Caterpillar and Coca-Cola -- all have had global strategies, often using "a proprietary position and/or technology to force entry to Japanese markets."
But steel, shipbuilding, power and consumer electronics companies, "often resorting to fortress-America" tactics, have not been able to penetrate the Japanese market, Rapp said.
The lesson to be drawn is that "markets for traded commodities are global, and decreased competitiveness is reflected in all markets, domestic and export," Rapp concluded. Japan accepts, where the U.S rejects, the loss of labor-intensive industry, and concentrates its attention on the technologically sophisticated areas of semiconductors, computers and telecommunications.
"Data processing is a natural for them because they have the people, the brain power and excellent universities," Shepherd added.
Rapp's answer is the same as Shepherd's: a reallocation in the United States of national resources and a concern with global market share. They would stress the lessons of "supply side economics" to stimulate new American investment, across the board.
To be sure, the Silicon Valley producers would welcome such help as well. Perhaps not unnaturally, they focus more on their own problems than on the problems of American industry at large. Another difference is their more apocalyptic appraisal of the problem.
Where John Nesheim of National Semiconductors Corp. of Santa Clara, Calif., will say "it is just a matter of time before we fall and are crushed," Bucy will insist: "The Japanese are setting out to become a major factor, but not predominant."
So far, Carter administration officers have approached with an open mind the threat of the loss of the U.S. comparative advantage in semiconductors, as raised by the SIA. In testimony recently before the Senate Banking Committee, Ambassador Robert Hormats, deputy U.S. trade representative acknowledges that semiconductor-only firms "large enough to take advantage of global market economies will remain competitive in the next decade."
Hormats acknowledged in an interview that "we have a unique situation here, in which semiconductors are a growth industry and yet the question is whether imports will generate so much competition that the U.S. producers will not be able to accumulate enough capital for the next generation. Yet we have no evidence of conventional unfair trade practices."
What is clear, Hormats said, is that the Japanese firms, aided by their government, have the advantage of size because of their access to capital at preferential rates. In Japan, the semiconductor companies can operate at low rates of return -- the kind of rates U.S. firms, anxious to impress stockholders -- couldn't tolerate.
But Hormats makes no promises, publicly or privately, cautioning that the U.S. industry's problems may lie more in the realm of tax policy or trade policy.
The view here in Texas is that, a good deal of the industry's problem being one of its own making, it should look more to itself and less to Washington for the answers.