Land of rising confusion

Electronic News, Nov 2, 1992 by Jack Robertson

TOKYO--Just when foreign experts thought they were starting to decipher Japan, Inc., the script changed.

So update your Halberstam and Van Wolferen best-sellers. Although probably some of the best foreign studies so far of the Japanese business culture have already been done, they have been OBE'd (Overtaken by Events) as we say in Washington.

It isn't clear yet what impact the turn of events in Japan could have in global markets. The latest economic and political snags here are only a hiccup in this millenniums-aged culture. Whatever reaction comes is likely to have more effect in the outside world than here.

The bank crisis here--of possibly major dimensions--and the corresponding end to low-capital, free-wheeling investment in Japan could make for a more level global playing field than foreign competitors ever hoped for. If nothing else, the financial malady has created visible divisions in the usually monolithic-appearing Japan, Inc.--as various types of banks and investors, their different creditors, assorted government ministries, politicians and a potentially restless electorate, and a mix of industrial groups are all struggling to shift the bailout burden to others.

Gaijins should be careful, however, in jumping to hasty conclusions. Just as foreigners have so quickly miscalculated how this centuries-old largely homogeneous society works, similar mistaken perceptions can evolve from the current Japanese financial strains.

For one thing, it isn't true that Japan, Inc. stopped capital investment in its tracks when hit by the double whammy of financial trouble and a sharp electronics market slowdown. The U.S. Competitiveness Council global analysis showed Japan increased investment in plant and equipment 6.2 percent last year, although this was at a slower pace. By contrast, U.S. plant and equipment investment declined 7.1 percent last year.

The genius that allowed Japanese firms to float bonds at minuscule interest rates can well come up with answers for the current financial dilemmas. Those bonds, with warrants to convert to high-flying stock prices, bombed out when the Nikkei index crashed. But dedicated interests can come up with new creative financing to keep the Japanese industrial engine revved up.

The rest of the world should look to their own capital investment strategies, which could build more evenly-competitive global markets than anything the Japanese do. Last year only one major industrial power from North America and Europe--Germany--increased capital spending on plant and equipment (up 8.6 percent, even more than the Japanese increase). That isn't the way to meet Japanese and other Far Eastern competition, no matter what the current financing situation is in this part of the world.

Japanese politics also has been hit by tremors, as Liberal Democratic Party kingmaker Shin Kanemaru was forced to step aside in yet the latest payoff scandal to rack the ruling party. Foreign observers, however, are in no better position to judge this political fallout than they can size up the political disarray in their own countries.

It is probably safe to guess, however, that Japanese business and industry, which has weathered far more upsetting events than the continuing political aftershocks in the Diet, will continue its steady, strategic pursuit of global markets unabated.

The biggest impacts on industrial Japan aren't home-grown -- in a few areas outside market forces are starting to press against long-established domestic strategies:

* Japan's dominance of DRAMs, a lynch-pin of the semiconductor industry here, is being challenged sharply by aggressive Korean rivals, with even small nibbling away by U.S. producers, who were supposed to be out of the game.

The DRAM quandary is compounded by the downturn in the home computer market, intensifying the worldwide down-sizing from mainframes to smaller processors and slowing DRAM sales to the soft domestic PC market. There are even signs that U.S. PCs and microcomputers are beginning to make significant inroads into the local market, long considered safe territory by domestic producers.

Japan was also late to jump on the Microsoft Windows juggernaut for its PCs, allowing primarily U.S. rivals initially to take the high ground in an increasingly popular Japanese market for Windows. This surprises some foreign marketers since Windows has a prodigious appetite for DRAM memory. So far, foreign PCs, which may not be using Japanese DRAMs, are taking advantage of this Windows memory boost. This could change, as Japanese firms are belatedly moving quickly into Windows.

* The awesome Japanese consumer electronics empire has been slowed by economic recessions at home and around the world. There is also the nagging concern that many consumer product markets are now mature, and some may even be nearing saturation.

HDTV, which was supposed to be the next consumer market driver, is still relegated to a yet-to-be-determined future. More immediate consumer prospects--in a variety of Personal Communications Service (PCS) devices--have almost all global vendors coming out of the gate at the same time.