As high-technology competition between Japan and the United States gets fiercer, the effects are spilling over into their broader political relations. Americans, stunned by the speed with which Japanese companies have captured important markets here, charge unfair tactics by the Japanese government.
Dealings between the two governments have become more abrasive than at any time since World War II, according to experienced diplomats. One urgent question for both countries is whether the alliance between them can survive without damage as this commercial threat sharpens in a field where Americans expected to remain the leaders for decades to come.
Semiconductors, computers and communications equipment are central to the dispute. Many Americans deplored the extent to which some of the middle-tech heavy industries--notoriously steel and autos--lost domestic sales to Japanese producers. But people in this country are inclined to regard that failure as the consequence of strategic errors and excessively rapid wage increases in the American industries. The explanations for the loss of markets in the high technologies are less obvious, and Japanese successes there have generated a sense of panic among Americans who understand the meaning of these products to the country's economic future.
Take the case of silicon chips, the integrated circuits that remember and process data. A common American accusation holds that the Japanese companies imported them while learning how to use and make them, and then the country--operating as Japan, Inc.--closed itself to further imports, to give the Japanese producers a protected market in which to develop their own manufacturing capacity and launch a surge of exports to the United States.
Against that accusation, you might want to weigh the very substantial American presence in Japan's chip industry. Texas Instruments, a leading American producer, has four plants in Japan manufacturing chips mainly for the Japanese domestic market. Motorola has a wholly owned subsidiary in Japan producing chips almost entirely for the Japanese market. Analog Devices assembles semiconductors in Japan, and buys chips to produce finished products for the Japanese market.
As for computers, according to the Japan Economic Journal's yearbook, IBM Japan ranked second in sales in the Japanese market in 1981, the last year reported. Nippon Univac was eighth, and NCR Japan was tenth. Whatever the Japanese market may be, it doesn't seem to be closed to American investment and these American products.
There's an alternative explanation to the present friction that may be more enlightening. First, keep in mind that the financial pressures on the chip makers are rising very fast with the advance of their technology. Producing a 16K RAM--a 16,000-bit random access memory chip-- is not simple, but it is far less expensive to make than a 64K RAM. That, in turn, is a modest matter compared to the resources required for the 256K RAM.
Next, look carefully at the specific companies competing in this field. Motorola, which has been a leader in the political counterattack against the Japanese, is not a small company. But its business is concentrated in chips and products related to them. Its resources are not huge, compared with the demands of the next generation of products.
In contrast the leading Japanese chip maker, NEC--Nippon Electric Co.--is part of the Sumitomo group, a diverse alliance of interlocked companies including two banks and two insurance companies. NEC is an established producer of a wide range of computers, telecommunications equipment and industrial robots. It can use the earnings of mature products to pay for the development of new ones and, in need, it can turn to its Sumitomo partners for additional support.
NEC's access to capital is no better than that of American giants like IBM or Western Electric. But you may have noticed that, although IBM and Western Electric produce chips, they do not seem to be contributing much to the outcry against the Japanese. It is coming from smaller companies whose resources are being desperately stretched by the effort to stay in the field.
In the United States, new technology is often brought to the market first by small, adventurous companies built around a single product. The chip industry in the United States is full of examples. But in Japan the carriers of new technology are typically the affiliates of large, highly integrated industrial groups. Like Sumitomo, these groups are usually organized around banks, and their members rarely suffer a lack of development funds. That, rather than government subsidies, is the key to the startling financial strength of the Japanese chip makers in comparison with all but the largest of their American counterparts.
Americans complain that the Japanese engage in "forward pricing." As a company gains experience in making a chip, and sales volume rises, the unit cost drops. A big company with financial strength can sell a new product at a forward price, profitable over its life span but less than the initial high cost of production. A smaller company that has to worry about its cash flow cannot afford that strategy. That's one major reason why the smaller American ship companies are being squeezed in the race with the bigger and richer ones, both American and Japanese.
This pattern of competition--pitting small, specialized companies with limited cash against big, integrated corporations-- runs all through the international chip and computer industry. The biggest of these competitors are American. But nearly all of the small and highly specialized companies are also American, while all of the leading Japanese chip makers are very large combines producing a great range of electronic and electrical equipment, machinery and industrial goods.
This same pattern also runs through that other field of current high-tech combat, the machine tool industry. Most of the American machine tool makers are small companies in a highly cyclical business, not easily able to finance the leap into computer-driven tools. Again, their Japanese competitors have no such constraints. The largest of them, Toshiba, is also a major computer manufacturer.
Important differences in Japanese and American business practices further help explain some of the recent developments in the chip market. Japanese companies tend to introduce new products at high volumes, rather than scaling up gradually as demand develops. The highly responsive Japanese market doesn't give you the time to do otherwise. If you don't go to high volume immediately, your competitors will beat you to it. The tactics that the Japanese companies use in the United States are those that they learned in Tokyo.
That's how the Japanese chip makers got their original foothold in the American market. With the rapid growth of American sales in the late 1970s, the undercapitalized American producers couldn't keep up with their orders. But the Japanese could, and did.
The Japanese tendency to go fast to high volume also reflects the relatively minor importance of profits, especially short-term profits, in the Japanese business world.
Over the past five years, American chip makers have been taken by surprise. They did not expect the Japanese companies to exploit a very new branch of basic science, most of it American, so rapidly.
Possibly more important, American businessmen are not accustomed to competing with foreign firms bigger than theirs and with immensely greater financial strength. Further, they were not prepared for the Japanese practice of throwing new products immediately into full-scale production. American businessmen think of themselves as the ultimate risk-takers, and did not expect to run into marketing tactics even more daring than their own.
As you look carefully at the competition in chips. it looks a little less like a simple collision between a Japanese industry and American industry. And it looks much more like competition between the smaller specialized firms and much bigger diversified ones--of which some, but by no means all, are Japanese.